Corporate Governance and China

Right Food Company This report is based on the study carried out on The Right Food Company, based in Australia. The paper studies and analyses the company's entry strategy into Guangzhou, China. I have prepared this report as part of the company's expansion plan into the Chinese market.

Company Profile The Right Food Company Industry Packed Food Private Founded New South Wales Headquarters Murwillumbah (NSW) Founder Anni Brownjohn Areas served countries Manufacturing Tweed Valley (NSW) Products Maxinne Lynch (Accounts) Organic, low allergy food developer and manufacturer Key people Eleni Nott (Brand Development) The Country Chosen for Business Expansion - Guangzhou, China China has a population in excess of 1.3 billion people. Its land mass is larger than that of the United States. The scale and the size of the country is what actually make the market unique and distinct.

It cannot be compared to other Asian markets such as South Korea and Japan. It is true that China has a huge market for internationally produced goods. Additionally, It is an important case study for anyone looking forward to understanding where opportunities lie and how accessing them can at times become challenging. In the past few years, foreign enterprises have focused on China's Tier 1 cities (i.e. Guangzhou, Beijing and Shanghai).

The cities are highly populated and have large areas that are dominated with middle class families whose income levels are above national average levels. Tier 1 cities happen to be the leading markets with regards to consumers and are the most ideal cities one can use to test the support for international firms that have limited or no experience about the Chinese market. Despite being based in the Tier 1 cities might propose the lowest risk position when it comes to entry into the Chinese market.

Also, it means that the firm must be ready to incur higher costs of operations and wade off stiff competition (Hedley, 2016). China -- Advantages As a country, China has enjoyed massive economic growth and success in the past 30 years. Its soviet styled planned economy has really transformed the country into a vibrant market oriented economy with over 600 million people who have been moved out of poverty. Over 70% of the world's population that has been moved out of poverty are the Chinese.

The government is now working hard to improve on social welfare and the general infrastructure. It is also targeting resources that can be used to develop the rural and interior regions so as to unleash and increase consumption among the rural population. The industrial structures are now shifting inland and there are dozens of new cities, which are emerging on the coastal strips and developing into urban clusters (Export, 2016). i.

Political Environment The massive economic growth and reforms that have taken place in China since 1978 have, indeed, improved the lives of millions of the Chinese. It has increased social mobility and expanded scope of personal freedom. There is greater freedom of travel, education, house choice, job opportunities, and access to information. There are new criminal and civil laws which have been passed to safeguard the Chinese citizens. The country has managed to carry out village elections in over 90% of China's one million villages.

The Chinese constitution is categorical that China is a socialist state and enjoys people's democratic dictatorship led by the working class, which is based on the alliance of peasants' workers. The Chinese government comprises of systems of political parties, the people's congress, political consultation led by the leaders of Communist Party of China and Multi-party (Fogel, 2010). ii. Economic Environment As the country's growth rate continues to decelerate, there are enough companies that are trying to confront the overcapacity challenges that threaten to move the country backward.

Businesses have been forced to revise their strategies to safeguard the gains made and ensure profitable growth. Foreign companies must invest in talent and innovation so that they can offer new services and products that can serve the new segments. In 2016, the focus shifted to reviewing and managing costs. The new strategies will enable China to continue attracting more investors since it is one of the few countries that offer profitable growth opportunities to foreign-based ventures (Amcham China & Bain & Co., 2016).

Ethical Climate CSR and business Ethics are among some of the fields that are still maturing. There is a heavy influence from both the traditional Confucian value and the State. Expectations are high and businesses must ensure that their CSR and ethics programmes complement China's long-term strategy for social improvement as explained in the Chinese Government's Five-Year Plan.

A number of things that are considered unacceptable in the Western countries because they are thought to violate the core principles may be accepted in China since they are not violating China's core principles for instance, giving monetary gifts. When the colleagues or superiors use hotlines, they cannot be questioned by their juniors since the Chinese are taught about unquestioning respect for authority and loyalty to the group one is aligned to.

During staff training, there is emphasis on a small size of employees who should also be of the same rank. Managers are not expected to be in the non-management groups otherwise their presence could inhibit openness and frankness in their discussions. As a country, China has its own way of developing a robust corporate governance framework. It respects the rule of law, no wonder that the pace at which the country is growing is accelerating.

The country is ambitious in areas such as corporate governance, dealing with environmental degradation, resource efficiency, clean energy, and corporate governance (Irwin, 2012). iii. The Judiciary CCP's is committed to the rule of law and judicial independence. This has made it possible for the country to effectively carry out judicial reforms. Unfortunately, constitutional support is insufficient so that if a sudden policy brings changes within CCP, the judicial independence and judicial reform may be seriously affected.

In regard to the reform measures that relates to the four components of judicial independence, it is evident that they contribute to collective independence, internal independence, substantive independence as well as personal independence. When the reforms are fully implemented, Chinese courts will move closer to judicial independence. The existing constitution ought to be amended so as to give and protect the six elements of de jure judicial independence.

It is important to replace the lifelong liability with a better responsibility system so as to give quota judges an opportunity to decide a case in accordance to the existing law and conscience without worrying about the possibility of bearing the liability. (Feng, 2016) i. Social Environment The socio-cultural aspect of China is a central factor in the changing demographics scenario. Age distribution fluctuates even as the population increases. These factors alter cultural values and social trends.

The size of a family and the social set up in the society influence the direction decisions take. Factors such as consumer lifestyles, religion, education and emigration also play a role in these dynamics. Geert Hofstede's value dimensions quite accurately represent the collectivist culture of the Chinese people. Over 90% of the Chinese are literate. China also posts the highest demographics in internet usage. The country boasts of over 420 million people using the internet. The Chinese frequently shop online.

Taobao, the largest ecommerce website in China, receives thousands of buyers on a daily basis and a lot of Chinese people buy their stuff from there. There is already a projection by Boston Consulting group predicting that the sales volumes are bound to increase in the future. Ecommerce has revolutionized the way locals view shopping. There is still a chunk of the population that is still wary about the risks in online shopping. Thus, they prefer to physically visit shopping malls and purchase what they want (PEST Analysis of China, 2015).

HOFSTEDE Model GEERT HOFSTEDE Study between China and Australia, Source: (HOFSTEDE, 2016) If the Chinese culture is viewed from the 6-D Model, it is possible to figure out what propels China's cultural wheels as compared to other cultures around the world (HOFSTEDE, 2016). i. Power Distance The school of thought believes that there is no equality among members of the society. The dimension captures the attitude of the culture with regard to the inequalities that exist among members of the society.

Power distance is the extent to which the less influential members of institutions and organizational set ups accept and expect that power is unequally distributed. China rates highly on the PDI scale. It has a score of 80. This means that it is a society that believes that it is acceptable to have inequalities in society. There is a polarized relationship between the superior and the subordinate. Thus, there is no protection against abuse of power by superiors.

Persons are influenced by sanctions and are positive about the capacity that people have to lead. They hold it that people should restrain their aspirations and keep them within range of their ranks. ii. Individualism This dimension focuses on the level of interdependence shown by members of a given society. It is closely linked to whether the self-image is viewed from the ''We'' or the ''I'' perspective. People are meant to take care of themselves in individualized societies.

On the other hand, in collectivist societies, people relate with what is referred to as ''the in group'' which take care of their welfare in exchange for unwavering loyalty. The score of 20 is a clear indicator that China is a highly collectivist society. People only act in the groups' interest and not in the interest of the self. Hiring and promotion is influenced by in-group considerations. Thus, in the Chinese society, family is bound to get priority over others.

Commitment to the organization by employees is low although commitment to the people within the organization may be significantly high. While relationships within '' in groups'' are cooperative, warm and considerate. They show coldness or hostility to those from outside/out groups. Relationships at personal levels dominate corporate ones and even the tasks that may be undertaken. iii. Masculinity Scoring high on this dimension suggests that such a society will be based on competition, success and achievement; where success is defined by the winner.

Such a value system begins at school and extends through the life of one in an organization. A feminine score, on the other hand, means that a society is characterised by caring people and focus on the quality of life. In a feminine society, the quality of life is the measure for success. Setting oneself apart from the rest is not an admired attribute. The central debate revolves around what inspires people in a society; whether they want to be the best (masculine) or just like what they do (feminine).

China is a strongly masculine society. It has a score of 66 on the Masculinity scale. It is focused on success. The fact that a lot of Chinese people will bypass leisure and family priorities in order to seek gainful employment further demonstrates how the society places a high prize on success. People in the service industry are known to work very late. In fact, leisure is such an important aspect of life among the Chinese. Rural people move to distant places to seek jobs in cities.

They leave their families behind for significant periods. In schools and colleges, it is observed that students seek to be the top of the class or obtain high marks in a highly competitive fashion because academic success is what defines their destiny. A high score is the criterion for success. iv. Uncertainty Avoidance This dimension has to do with how a society handles the fact that life is largely uncertain hence the future is also uncertain.

The question is whether we should try to control the future or just let it come and go? It is a scenario that breeds anxiety. Various cultures have evolved varying strategies to deal with it. Uncertainty Avoidance score captures the extent to which the society has evolved ways of dealing with the uncertainties of life. China has a low score in Uncertainty Avoidance. Although the truth may be relative, there is serious attention paid to truth in the immediate in-groups.

Adherence to laws in groups may vary according to the convenience they offer. Being pragmatic is a life truth. Ambiguity is a norm among the Chinese. In fact, Chinese as a language is full of ambiguity. Westerners may find it hard to handle or follow. The Chinese people are entrepreneurial and adaptable. Chinese businesses (70% to 80%) tend to be small to medium sized enterprises. They are, largely, family owned. v.

Long-Term Orientation Long-Term Orientation dimension refers to how societies have to retain a link between the current happenings and the past in dealing with present and future challenges. The existential objectives are prioritized differently depending on society. The normative societies; they score low in this dimension, and like to maintain traditions that have been followed for many years down the train of history. They view changes with plenty of suspicion. The societies that score high in the dimension, on the other hand, prefer a pragmatic approach.

They promote thrifty habits and encourage modern education as a way to confront future uncertainties. The score for China in this dimension is 87. Thus, China is a highly pragmatic society. A pragmatic culture places high value on the influence of the situation, time and context on the truth. They evolve easily to cope with the times. They also carry a remarkably high propensity to save for the rainy day and invest. Being thrifty and persevering is a value that is readily embraced in order to achieve results. vi.

Indulgence Humanity is faced with a dilemma on how to socialize children in the fast-changing world. We don't become human if we are not socialized. The dimension refers to the level to which people take charge of their own desires and impulses as determined by their upbringing and socialization. The relative ability to control is referred to as indulgence. Relative strong ability to control is referred to as restraint. Cultures may be indulgent or restrained. Indeed, it is clear that China is a highly-retrained society. It scores 24 in indulgence.

Such a society tends to be cynic and pessimistic. In contrast to indulgent societies, restrained societies put little premium on leisure. Such people think that they restrained by social norms. They feel that indulging themselves in leisure is wrong for some reason. The Dimensions of Culture Fons Tromponaars and Charles Hampden-Turner are the brains behind the Culture model. They published their findings in a book titled 'Riding the Waves of Culture'. The model highlights the distinctions between people in terms of culture.

It states that the distinctions are based on their preferences as follows 1. Individualism versus communitarianism A communitarian society aims at leaving a legacy to the community. It seeks to empower members with a higher say and stake above an individual. Communitarian societies tend to be more productive. It is easier to rally people for a common cause in such societies. Students of Chinese origin expect their professors to assist them attain harmony; a prerequisite for long-term relationships.

It is a classic example in which the manner of expression is more important than even what has been said. Such is the expectations by students from their professors. Relationships are valued highly (Trompenaars & Hampden-Turner, 1998). 2. Specific vs. Diffuse The Chinese people are generally detached except when outsiders intrude or just badge into their private lives. There is a clear distinction between public and private lives as far as personal distance is concerned.

The Specific versus diffuse dimension refers to the extent to which people feel intimate when transacting with each other. People inclined to specific relationships tend to be outgoing and allow a significant amount of freedom for their colleagues to participate with them on the public front but carefully guard their private life and space (Trompenaars & Hampden-Turner, 1998). 3. Neutral vs. Emotional The Chinese people and students are likely to openly express their emotions. Reactions are instant and are expressed through body language.

There is little avoidance of physical contact in affective cultures. The Chinese are more likely to use intuition compared to those from neutral cultural backgrounds. Overreaction is not uncommon among affective cultures (Trompenaars & Hampden-Turner, 1998). 4. Achievement vs. Ascription There is a cultural and traditional emphasis on passing of exams in China. It is the requisite condition for advancement or promotion. Rote learning is common among Chinese students. There is tremendous respect for those of older age. Equally, hierarchy is held in high esteem and respect.

These trends are concordant with the teachings of Confucius who taught that people in society differ and that each has a specific position. The hierarchy of elders in government and society is highly respected. The image of an ideal educator is one of an autocrat who is also benevolent. Thus, Chinese students are often taught straight from the text book by their professors (Trompenaars & Hampden-Turner, 1998). Demographic Environment -- Guangzhou Since the Guangzhou opened its economy in the 80s, the market has gained highly from FDIs.

Most of these have originated from Hong Kong. The city's technology and manufacturing sectors have grown tremendously over the years. The trend can be seen in the level of productivity of the labour force. Productivity in Guangzhou surpassed the rest of the country by up to 171% in 2014. The elevated productivity in labour only partially translates into per capita income in Guangzhou and the disposable income by the people. Yet it is still higher than the rest of China by up to 74% by 2014.

The reason is explained by the lower numbers of people in labour participation rates. It is at 74% compared to 80% at the national level. The household size in Guangzhou is also significantly lower; at 2.5 people per household versus 3.1 for the rest of the country. Consumer household expenditure is also remarkably high. The figures show that it was $16, 300 in 2014. Apart from transport and housing, Guangzhou consumer expenditure is nearly twice the national average household expenditure (Guangzhou City Review, 2016).

Opportunities for Doing Business in Guangzhou While China already has a lion's share of the world's population, the middle class is also growing at a remarkable pace.