A Re-Examination of the Management and Strategies of Investment Toward China

ABSTRACT

China's accession to the WTO and the attendant opening up or expansion of new sectors for investment, further opening up of existing sectors and other improvements in the business environment will have a significant impact on foreign companies in the country. Before the conclusion of the negotiations for its WTO entry, the Chinese government has already started a reorganization of laws including the three laws regulating foreign capital with the harmonization with the WTO rules in view. Meanwhile, Japanese companies seem to expect of China's WTO entry less than their European and American counterparts, partly because of their excessively low estimate of the profitability of business in China in the 1990s.

In contrast to European and American companies, which showed a steady growth in investment in China during the 1990s, Japanese companies' investment in China slowed down in the latter half of the decade in spite of an investment boom in the first half. The slowdown, which occurred in spite of an appreciation of the potential of investment in China, is attributed to the disappointing performance due to the adverse policy and physical environment such as sudden changes of laws, opaque law enforcement procedures, undeveloped infrastructure and difficulties in collection of selling balances. In addition, recent surveys show that fiercer competition and a decline in unit selling prices have afflicted Japanese companies in China.

The continuing influx and stronger influence of foreign capital and the rise of private enterprises have been globalizing the Chinese market, and competition there has become global and international in scale rather than domestic. Japanese companies, however, still presume that their competitors in the market are only inefficient state-run enterprises. The WTO entry will intensify competitive pressures on Japanese companies intending to enter the Chinese market, and they will have to face tougher competition with European and American companies.

In order to survive in the Chinese market in the face of fierce competition with European and American companies and local companies endeavoring to catch up, Japanese companies should get rid of their presupposition that the Chinese market is a closed one with state-run enterprises as major players, and should reconsider their investment and management strategies for the purpose of improving competitiveness. More specifically, we would like to propose that the following measures should be taken as early as possible for the reinforcement of competitiveness: 1) Introduction of cutting-edge technology, recycling of introduced technology, utilization of local R&D resources and more investment in IT, 2) Site selection on the basis of the difficulty or ease of access to industrial clusters and consumer areas and of information gathering, 3) Utilization of IT in localized corporate governance, and 4) Utilization of existing sales resources through M&A, development of customer credit systems and establishment of incentive mechanisms for sales promotion.

Conclusion