Challenge China Presentation

8/2/2019 Challenge China Presentation

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Erica Casarini

Challenge China

The internationalization impact

over the business models

of Italian firms in China

1



● Methodology

● Italian Patterns

● External factors of Influence: the Environment

● External factors – Marketplace: Customers

●

External factors – Marketplace: Suppliers● External factors – Marketplace: Competition

● Internal factors:

● R&D and Innovation

●

Distribution Channels● Human Resources

● Headquarters – Subsidiary

● Conclusions

Agenda

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Methodology

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Goal: Try to fulfill the gap present in the relevant literature in the knowledge of Italian

companies internationalizing in China and how do their business models change.Research questions: What is the impact of the internationalization processes over the business modelsof firms?

How the business model designed in Italy from this country’s enterprises receivesan effective response in its implementation in China?

Which are the structural component of the business model of Italian enterprises thatchange when setting up a subsidiary in China?

Which are the relations inside the value chain of the firm and among the variousvalue chains that are part of the business system in which the company operates?

How is the strategy formulated and executed?

Research Method: Fieldwork research in China:

Interviews with Italian managers Visit of plants; Data gathering; Visit of the Chinese and Italian pavillions inside the World Expo 2010.



Dimension: majority of SME,

that struggle a lot to makesignificant investments

Develop a business model through timethat can keep the firm unique

Not enough help from embassy,

chamber of commerce, ICE(institute for the foreign trade) andconsulates

Geographical, linguistic andcultural barriers often

underestimated

Need to educate Chinese customers tounderstand what Italian products are andhelp them recognize their quality

Italian Patterns

No big retailers, that might haveencouraged more cohesionamong SMEs

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External Factors of influence: Environment

Language (both oral andwritten) representing culturalunity - pictographic charactersborn around the 1700 b.C. as

an oracular language

Unskilled

Translators Not educated

ReligionsOpposite principles

and dualism

(Yin and Yang)

Confucianism 5 Relationships

Mianzi

Guanxi

Taoism Holistic and circular

approach

5



Key Resource is a mixed, focused and motivated sales team.It is really difficult to manage an entirely Chinese sales team,evaluate their work, trying to understand their behaviors.

Market less developed than the Westerners → slower ininnovation speed but growing at a stunning pace; Less mature customers, mainly price driven; No concept of maintenance or cleaning; In B2B, they perceive the presence of a technician from a

company as an additional cost and also as a proof that themachine is complicated to use;

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External Factors – Marketplace Customers



Chinese producers → very fast;

→ interact with each other through the “guanxi”;

→ opportunistic behaviour and scarce commitment;• do not recognize discounts;

• do not respect frame agreements or contracts;

• sell items of lower quality because they save by using someless consuming and worse performing technical machinery;

• no loyalty, shifting from customer to customer, according to

volumes;

External Factors – Marketplace Suppliers

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COUNTERMEASURES:

● Exploit a partner to make joint purchases in case of common suppliers;

● Keep at least two suppliers for the same type of item;

● To encourage the supplier to behave correctly, the company can ensure higher

volumes to suppliers giving the best service.

● Testing and controls, especially if the supplier is satisfying an order for the first time;

● Rely on feedbacks of the firm’s customers, agents or partners;

● Best compromise between quality and speed, because of fast components flow,

sometimes not possible to make thorough checks;



External Factors – Marketplace Competition

●

Huge volumes, undifferentiated offer;● Very unsophisticated and rough in the

development of their businessstrategies;

● Copying or launching in the market

trivial products, chosen by thecustomers only on a price discriminationbasis;

● Traditional methods of work, and littleuse of technology.

● Occidentals, from EU, North America,Japan, South Korea and Taiwan;

● Subsidiaries are built on core-personnel sent from the headquartersthat gained on-field experience;

●

Sellers of top quality products, in thesame niches of Italian companies.

After almost 30 years of development, firms and individuals buy just because it's cheap.

LOCAL PLAYERS MULTINATIONALS

…PROBLEMS?

a Chinese is educated not to think, but inthis way he can not conceive ideas andconsequently, innovate.

forma mentis

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Limited innovation capabilities;

Lean product development

structure;

New projects conceived and

developed in Italy; Lack of competences of Chinese

researchers;

Poor regulations about property

rights, patents and trademarks, laws

not easy to enforce;

No recognition for foreign

companies innovating in China.

Marginal perception of the

importance of quality;

Internal sales force;

Chinese dealers, facilitating theintroduction of prospects;

Extremely rare the B2G for

foreigners, but fair division of jobs

in competitive bids.

R&D Distribution

Channels

Internal changes in Functions

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Lack of attention towards talentedpeople; Adverse selection;

Firms invest time and resources intalents abroad and then let themescape: counterproductive andinefficient HR management; Expats prefer short-term transfers;

No contribution in teams; Mechanical performance – different approachto hierarchy; High turnover rate; Labor force strictly managed; No plans to retain the best or more promisingemployees; Need to have everything pigeon-holed; All the rules (also those suggested by common

sense) must be written; Inability to learn a mechanism automatically.

Human Resources

Internal changes in Functions (cont’ )

Solid foundation of shared corporate valuesHealthy, sustainable and focused corporate culture

Expatriates Chinese

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Headquarters – Subsidiaries ties

Tighter Looser

Finance/Production Sales Innovation HR

GM Italy

R&D Production Marketing Sales Etc.

GM China

Production

China

Marketing

China

Sales China Etc…

Communication flows:

Horizontal and Vertical

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Solid corporate structure → People → Team

Need to create a "hard core" of Italians on which to build the centre of thesubsidiary's organization.

Conclusions

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Extreme weakness → No beneficial agreements → No wavering

A skilled manager has the ability to know how to change attitudes andbehaviours according to the other party a manager is facing and inparticular if this is a member of the staff → The more the managers hadan international exposure the better they will perform this task.

Develop “guanxi” → good relationships with local authorities → Influence

Firms can become aware of ongoing discussions in advance compared tothe rest of the market and prepare themselves in advance.



THE END

Thank you for your attention

Challenge China Presentation

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