Corporate Visits

China Trip 2003

Corporate Visits

U.S. Embassy (Commercial Affairs Division) (March 10, 2003)International Monetary Fund (March 10, 2003)American Chamber of Commerce (March 11, 2003)Johnson and Johnson (March 13, 2003)Liz Claiborne (March 13, 2003)KPMG (March 14, 2003)

U.S. Embassy (Commercial Affairs)

Role of Commercial AffairsA division of the U.S. Department of CommerceHelps U.S. firms’ exports to China to help increase U.S. employment

Brief Overview of ChinaDynamic place to do businessSubstantial and sustained growthPlanned economy with an average growth rate of 7 to 10% annual growthIssues of WTOOlympics 2008

Key Concerns

Intellectual Property RightsPolitical Issues—TaiwanIssues of Accounting and ReportingLack of sound legal system

International Monetary Fund

Role of IMFEconomic SurveillanceMacroeconomic policy adviceNo lending operationsTechnical assistance, such as budget reform, banking reformTraining of local bankers on international practices and bank management

Outlook for China for 20037-8% growth with low inflationExport growth could slow due to slow global economyProblems with the quality of statistics• Need to follow international standards on

data collection

Mixed signals for growthNational Bureau is doing surveys

WTO Implications• Reducing tariffs• Eliminate export subsidies• Remove quota restrictions and entry

restrictions

Improved environment for FDIBenefits whole of Asia due to supply chain links

Key VulnerabilitiesBanking weaknessesPoor SOE performanceRisks to Govt. BudgetFixed Exchange Rate

AMCHAM

RoleTo facilitate communication between members of AMCHAM and Chinese Govt.Does not provide consulting servicesSupports American businesses doing business in China through

– Supply of information– networking

InformationSeveral publications that include white papers alsoChapter by chapter look at different industriesAdvice and suggestions to Chinese govt. on how to improve business environs for U.S. firmsReports are carefully drafted to keep good relationsInternational Business standardsLocal manufacturers also benefit and try to bring their product to WTO standardsReport Card on China—WTO implementation ProcessU.S. govt. causing more problems for U.S. businesses in China than Chinese Govt.

NetworkingEvents with speakers from different industriesEvents with speakers from U.S. governmentEvents with speakers from Chinese governmentSet up meetings with Chinese government so that govt. can provide explanationsSmaller manufacturers can walk in and network with high officials

ProblemsProblems in education, especially in Western China—no real infrastructureSOEs—almost impossible for them to become WTO compliantIPR

Advice—Different Business Model

Johnson and Johnson

Introduction to China as a marketWelcome change for a better futureBackground of J&JExamples of FDI—penetration of Chinese markets—different strategies for different divisions of J&J

Jeffrey Lu (finance manager)Chinese economyFinancial career in chinaFinancial management at J&J

Opportunities in China• WTO• More Demand due to expanding markets• Globalization• Highly education and experienced

expertise

Challenges in China• Different style of doing business• Cultural differences• Lack or ambiguity of laws and regulations• People management

Issues in human resource management• China Labor Market• Integrated Human Resource Management System• Talent Management• Career Path

Challenges in Human Resource Management in China

– Attracting and Retaining Talent– Linking rewards to performance and moving away from

entitlement– Leadership

– Identifying and developing emerging leaders

Liz ClaiborneOverview of Chinese Market

• Northern• Western• Eastern—most advanced economically and well educated• Southern

Shanghai office of Liz Claiborne in 1985Full service operations

• Product Development• Fabric Development• Product Management• QA center and mini QA centers• Shipping• MIS

Liz Claiborne does not own a factory, but works with manufacturers to monitor quality standards

Why China for Liz Claiborne?

Excellent price value relationshipProduct development possibilities in fabricsShort production lead timesFlexible mindset—management styleEmbellished, bended, high labor-intensive product

Weak issuesInefficient manufacturingLack of sophisticated managementProduct development skills

– Must understand market– Must travel– Invest money in new products

Work safety and labor conditions

KPMG

Shanghai—massive infrastructure provides the impression of a modern city, but

• Poor banking facilities• Poor tax environment• Does not really facilitate multinational business—

at least not there yet

Emerging market—big competition among the big four accounting firmsAudit is a big product

China is big geographically, but the market is segmented

• Multinationals in the market demand top tier quality service

• Middle (about 1200 Firms listed) don’t really have the need for top quality consulting

• Makes it very difficult to operate in this kind of market

Markets are also segmented within service providers

• Big four• Local accounting firms

– 90% not quality operations, mainly in tax filing• Tax evasion a big problem• Labor shortage• High growth market• Mobility is a problem in China• Highly volatile• Poor business ethics—example of

Pharmaceuticals