Erica Casarini

Challenge China
The internationalization impact over the business models of Italian firms in China
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Agenda
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

Methodology
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 models of firms? How the business model designed in Italy from this countrys enterprises receives an effective response in its implementation in China? Which are the structural component of the business model of Italian enterprises that change when setting up a subsidiary in China? Which are the relations inside the value chain of the firm and among the various value 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.
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Italian Patterns
Not enough help from embassy, chamber of commerce, ICE (institute for the foreign trade) and consulates Dimension: majority of SME, that struggle a lot to make significant investments

Develop a business model through time that can keep the firm unique
Need to educate Chinese customers to understand what Italian products are and help them recognize their quality
No big retailers, that might have encouraged more cohesion among SMEs
Geographical, linguistic and cultural barriers often underestimated
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External Factors of influence: Environment

Language (both oral and written) representing cultural unity - pictographic characters born around the 1700 b.C. as an oracular language Religions Opposite principles and dualism (Yin and Yang)

Unskilled Translators Not educated

Confucianism Taoism 5 Relationships Holistic and circular Mianzi approach Guanxi

External Factors Marketplace Customers

Market less developed than the Westerners slower in innovation 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 the machine is complicated to use;

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.
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External Factors Marketplace Suppliers

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 some less consuming and worse performing technical machinery; no loyalty, shifting from customer to customer, according to volumes;

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 firms customers, agents or partners; Best compromise between quality and speed, because of fast components flow, sometimes not possible to make thorough checks;
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External Factors Marketplace Competition

LOCAL PLAYERS

MULTINATIONALS

Huge volumes, undifferentiated offer; Occidentals, from EU, North America, Japan, South Korea and Taiwan; Very unsophisticated and rough in the development of their business Subsidiaries are built on corestrategies; personnel sent from the headquarters that gained on-field experience; Copying or launching in the market trivial products, chosen by the Sellers of top quality products, in the customers only on a price discrimination same niches of Italian companies. basis; Traditional methods of work, and little use of technology. PROBLEMS?

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

forma mentis

a Chinese is educated not to think, but in this way he can not conceive ideas and consequently, innovate.
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Internal changes in Functions

R&D
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.

Distribution Channels
Marginal perception of the importance of quality; Internal sales force; Chinese dealers, facilitating the introduction of prospects; Extremely rare the B2G for foreigners, but fair division of jobs in competitive bids.

Internal changes in Functions (cont )

Human Resources
Expatriates
Lack of attention towards talented people; Adverse selection; Firms invest time and resources in talents abroad and then let them escape: counterproductive and inefficient HR management; Expats prefer short-term transfers;

Chinese
No contribution in teams; Mechanical performance different approach to hierarchy; High turnover rate; Labor force strictly managed; No plans to retain the best or more promising employees; Need to have everything pigeon-holed; All the rules (also those suggested by common sense) must be written; Inability to learn a mechanism automatically.

Solid foundation of shared corporate values Healthy, sustainable and focused corporate culture
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Headquarters Subsidiaries ties

Finance/Production
Tighter
GM Italy GM China Marketing Production Sales China China China Etc

Sales

Innovation

HR
Looser

Communication flows: Horizontal and Vertical

R&D

Production Marketing

Sales

Etc.
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Conclusions
Solid corporate structure People Team Need to create a "hard core" of Italians on which to build the centre of the subsidiary's organization.

Extreme weakness No beneficial agreements No wavering

Develop guanxi good relationships with local authorities Influence Firms can become aware of ongoing discussions in advance compared to the rest of the market and prepare themselves in advance. A skilled manager has the ability to know how to change attitudes and behaviours according to the other party a manager is facing and in particular if this is a member of the staff The more the managers had an international exposure the better they will perform this task.
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THE END
Thank you for your attention