Diversification and Internationalisation

An Analysis of Market Entry into

the People′s Republic of China

under consideration of

Cultural Value Dimensions

Berufsbegleitender Studiengang zur

Diplom Kauffrau

8th Academic Semester

Author : Denise Borgos

Düsseldorf, 26 May 2007

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I

Table of Content

Table of Content I

List of Figures IV

List of Tables IV

List of Abbreviations V

1. Introduction 1

1.1 Executive Summary 1

1.2 Scope of Work 2

2. Problem 3

2.1 Problem Definition 3

2.2 Methodology and Research 5

3. Objectives and Motivation 6

3.1 Objectives 6

3.2 Motivation 6

4. Theory Part 7

4.1 Market Entry Strategies 7

4.1.1 Market Entry Strategies by Thompson, Gamble, Strickland and Zahn 7

4.1.2 Market Entry Strategies by Porter 8

4.1.2.1 Porter′s Entry Modes 8

4.1.2.2 Porter′s Five Forces 9

4.2 Joint Venture 11

4.2.1 Initial Reasons for a Joint Venture 12

4.2.2 Being competitive in a market by a Joint Venture 13

4.2.3 Strategic aims of a Joint Venture 15

4.2.4 Benefits of a Joint Venture 16

4.2.5 Risks of a Joint Venture 16

4.3 Introduction into the Cultural Theory Models 17

4.3.1 Definition of Culture 17

4.3.2 The Five Dimensions Model of Hofstede 18

4.3.3 The Value Guide Lines of Trompenaars 21

4.3.4 The Cultural Dimension Model of Hall 24

4.3.5 The Value Orientation of Kluckhohn - Strodtbeck 26

4.4 Introduction to Chinese behaviour approaches 29

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II

4.4.1 The Religions and Morals in PR China 30

4.4.1.1 Facts about Confucianism 30

4.4.1.2 Facts about Taoism 31

4.4.1.3 Facts about Buddhism 31

4.4.2 Communication and its Theoretical Context 32

4.4.2.1 Mianxi Relevance 33

4.4.2.2 Guanxi Relevance 34

4.5 Selected Theory Elements 36

4.5.1 Hofstede Theory Elements 36

4.5.2 Guanxi Theory Elements 36

4.5.3 Mianxi Theory Elements 37

5. The Case 38

5.1 Facts about PR China and its cultural development 38

5.2 PR China′s joining the WTO 39

5.3 PR China and the OECD 41

5.4 Definition of the Case 43

5.4.1 Introduction ThyssenKrupp 43

5.4.1.1 ThyssenKrupp worldwide 44

5.4.1.2 ThyssenKrupp in PR China 44

5.4.2 Introduction of Siemens 46

5.4.2.1 Siemens worldwide 47

5.4.2.2 Siemens in PR China 48

5.4.3 The Case of the Transrapid 49

5.4.3.1 Facts and the History of the Transrapid 49

5.4.3.2 Facts and the history of the Transrapid in PR China 51

5.5 Application of Hofstede′s Cultural Dimensions 53

5.5.1 German Dimensions Model 53

5.5.2 Chinese Dimensions Model 56

5.6 Application of the Selected Theory Elements 58

5.6.1 Introduction of the Interviewee 59

5.6.2 Application of Guanxi and Mianxi through research methods findings 60

5.6.3 Application of the Interviews onto Transrapid Case 64

5.6.4 Application of the Relationship Term through research methods findings .. 66

5.7 Case Solution 67

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III

6. Conclusion, Critical Comments and Outlook 69

6.1 Conclusion 69

6.2 Critical Comments 69

6.3 Outlook 70

Bibliography

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IV

List of Figures

Figure 1: PR China′s GDP between 1952 and 2003 2

Figure 2: The Five Forces of Porter. 10

Figure 3: A sample graph of Hofstede′s dimensions 19

Figure 4: Kluckhohn and Strodtbeck′s Culture Value Orientations. 29

Figure 5: The Chinese Guanxi network. 35

Figure 6: The German Dimensions Model of Hofstede 54

Figure 7: The Chinese Dimensions Model of Hofstede 57

List of Tables

Table 1: High and Low Context Countries. 26

Table 2: Characteristics and Meaning of Mianxi 34

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V

List of Abbreviations

4P′s

product, price, place and promotion

& and

ACRE

Anshan Coking and Refractory Engineering Consulting Corporation

AG

Aktiengesellschaft (Stock Corporation)

Cf.

Confer

to

CYN

Chinese

Yuan

Co. Company

DAX

Deutscher Aktienindex (German Share Index)

e.g.

exempli gratia (for example)

engl.

English

EU

European

Union

EUR

euro(s)

et al

et alteri (and others)

FOM

Fachhochschule für Oekonomie & Management

GATT

General Agreements of Tariffs and Trade

GDP

gross domestic product

GmbH

Gesellschaft mit beschränkter Haftung (limited company)

IDV

Individualism

km/h

Kilometer per Hour

km

Kilometer

Ltd.

Limited

LTO

Long-Term

Orientation

MAS

Masculinism

NAFTA

North American Free Trade Agreement

OECD

Organisation for Economic Cooperation and Development

PDI

Power Distance Index

PhD

Doctor of Philosophy

PR China

People′s Republic of China

RMB

Chinese Yuan Renminbi

UAI

Uncertainty

Avoidance

Index

USD

US

Dollar

vs.

Versus

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VI

WTO

World Trade Organization

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1

1. Introduction

1.1 Executive Summary

Before starting writing this thesis, the author asked herself one question: Was Napoleon

right, when he once said: "When China wakes up, the world will tremble"1. On the

following pages, the author finds an answer to this question.

There is hardly another nation in the world which has changed its picture within the past

two or three decades like PR China. The former communist regime of Mao Zedong has

opened itself to the world since the end of the Cultural Revolution in the year 1976.

This change is most apparent from the economic point of view and also from a social

perspective. From 1976 on, foreign investors were allowed to enter the country to

present their know-how and to provide the locals with liquid funds. As a consequence, a

constantly increasing number of goods are being manufactured in PR China for the

global market2.

The economic trend clearly shows the increase of PR China′s influence on the world

market. In the year 2005, PR China achieved a gross domestic Product of CYN 18,232

billion (about EUR 18,060 billion) with a population of about 1.3 billion people. This is

an income per capita of CYN 14,025 (about EUR 1,390). In the year 2000, the income

per capita was only CYN 7,812 (about EUR 774). This shows an increase of about 55

per cent only within five years3.

Today, Germany has a population of about 82 million people4. In the year 2005,

Germany′s GDP amounted to around EUR 2,244 billion, which is a per capita income

of about EUR 27,365. Clearly, the level of the German income per capita is in absolute

figures much higher. But the increase of Germany′s GDP compared to the year before

only stands at 0.9 per cent5.

Germany′s companies started reacting to the fast growth in PR China at an early stage.

In the year 1972, Germany obtained goods to an amount of EUR 175 million. In the

1 Cf.: Seitz, K., (2006), China, p. 309.

2 Cf.: Vermeer, M., (2002), China.de, pp. 38.

3 Cf.: Deutsche Botschaft Peking, (2006), Daten zur chinesischen Wirtschaft, p. 1.

4 Cf.: http://www.destatis.de/presse/deutsch/pm2006/p2920021.htm.

5 Cf.: Statistisches Bundesamt Deutschland, (2006), Bruttoinlandsprodukt 2005 für Deutschland, pp. 5.

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2

year 2004, the value reached EUR 40 billion, which is an increase of 227 times. Since

the year 2002, PR China has attained the position of the second leading non-European

export partner for Germany6.

The graph below shows the growth of PR China′s GDP per capita between 1952 and

2003. The two vertical axes show the growth listed in Yuan and per-centage points; the

horizontal shows the time and the respective events within that time.

Figure 1: PR China′s GDP between 1952 and 20037.

1.2 Scope of Work

This thesis starts with a brief Introduction in Chapter 1. The Executive Summary

already gave an impression of the content of this thesis and the Scope of Work briefly

summarizes the following Chapters. The content of Chapter 2 is the definition of the

problem on which the research is based and an overview of the methodology and

research methods the author uses. Chapter 3 explains why the author chose

6 Cf.: http://www.auswaertiges-amt.de/diplo/de/Laenderinformationen/China/Bilateral.html.

7 Cf.: http://www.anc.org.za/ancdocs/pubs/umrabulo/umrabulo22/china.html.

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