Chapter 7: Sourcing in China/ Chapter 8 Business Structures

China is a crazy place where you will see great and wonderful things. But one of the biggest questions in business is whether you should make it or buy it. Make or buy is a fundamental question when deciding whether or not to develop key materials to your product or if you should buy these materials from other businesses. Many companies buy materials from China instead of the states, due to these materials being so cheap. There are also multiple comparative advantages in China which include, labor, location and infrastructure, and materials. I work for an American corporation, although they have multiple offices worldwide, Frog’s business headquarters and a majority of offices are in America. When I talk to a couple of co workers they tell me how their family members aren’t getting paid that much in Shanghai due to the minimum wage being so low. Overall, when deciding to do develop a business you have to decide to make or buy.

            There are multiple ways you can enter into the Chinese market. You can invest into the Chinese market, you can develop your own start up business, or you can do a WOFE. A WOFE is a wholly foreign-owned enterprise and is characterized by 100% foreign ownerships and 100% foreign control. You can also do a joint venture with a company where you make a partnership between a foreign firm and a local partner.

            Like America China has different taxes. Value-added tax is a assessed on virtually all companies providing taxable services. Sadly, nearly all commercialized activities are considered taxable. China also has Corporate Income Tax which is a around 30% and also includes a 3% local tax. The most notable tax is a tariff which brings in a lot of money for China’s government. There are multiple ways to enter the Chinese market, but you will also have to deal with taxes that can be very annoying.

Trying to find a photo for these two chapters was quite tricky. So I decided to go to my local grocery store, take a photo of a product, and figure out what type of company they are. Mars inc. is a family owned corporation and is a Foreign-Invest Commercial Enterprise. A Foreign-Invest Commercial Enterprise is a business structure for firms who do not wish to manufacture in China, but rather import, distribute, wholesale, retail, license, and franchise their product. M&M's headquarters are in New Zealand and they only distribute and sell their product in China. Surprisingly, all the ingredients on the back label are in English and there is a sticker on the back with all the ingredients in a mandarin. 

Chapter 6: Marketing Strategy

            There are a lot of unique aspects that makes China different than other countries. As I have lived in Shanghai for 3 weeks in total, I have noticed different marketing strategy’s that would be confusing for Americans. One aspect that holds tremendous value is Chinese numbers. Chinese citizens take their numbers very seriously, especially when dealing with the number 4. The number 4 is the worst number of all because it sounds like death. I have yet to see a phone number with the number 4 and most hotels skip the 4^th floor. If you want to make an impact in the Chinese market, you can try to buy a telephone number with multiple 8’s. 8 is the best Chinese number and many companies fight over telephone numbers with multiple 8’s. Surprisingly, Chinese citizens actually pay attention to advertisements. While us American ignore the advertisements on T.V. and big billboards. Chinese citizens take time to learn more about the products and how it can benefit their family.

            On the right is a manager’s card at a restaurant I went to. Notice how many 8’s are in the phone number. This number has multiple 8’s and will bring her good luck when she hands out her business card to potential customers.

Chapter 5: Consumer Market

In China there is no such thing as a Chinese Consumer Market. There are different consumer segments with different product preferences and purchasing behaviors. For example, Chinese Consumers under thirty spend their expendable income on clothing, electronics, tourism, and leisure. The women are interested in top fashion brands, while the men spend a lot of money and time on electrical gaming.  Just the other day I found a video game shop in Shanghai that sold Japanese games. Everyone in the store was 30 or younger and they helped me pick out a couple of games.

Brand loyalty is becoming more popular in China over the past years. Purchasing decisions were based on utility and price, but now consumers are being more loyal to brands they like, especially foreign brands. I’ve witnessed this a couple times in grocery stores and actually participated in brand loyalty myself. When faced with getting Chinese brand Ice cream or spending a few extra Yuan on Haagen-Dazs, an ice cream brand I know and enjoy, I decided to choose Haagen-Dazs. Although I spent more for ice cream than I should of I decided to stay loyal to a brand of ice cream that I enjoy.

Also, family utility is a huge aspect in China. Family’s make their purchasing decisions based on what is best for the family. If they can get 10 apples for the same price of 8 apples, they will most likely get the 10 apples to feed the family and give the other two as a gift.

On the top right you see a Haagen-Dazs ice cream product that I choose over a small China ice cream store. When I sat down in a Haagen-Dazs store they hand you a menu with all different types of ice cream. I went with the Mango smoothie and payed way to much for it. Never again will I be sucked into the idea of spending money on luxury ice cream. I'm going to stick with McDonalds ice cream cones. On the bottom left are Herbert's Lemonade a brand that I enjoy once and a while. I decided to pick up a Herbert's product instead of a Chinese drink. Why you might ask, because I saw this and it reminded me of my good friend Hayley and I trust this brand. #BrandLoyalty