OPS FPX 5620 Assessment 2 Analyzing Cultural, Legal, and Ethical Concerns for a Global Supply Chain

Student Name

Capella University

OPS-FPX5620 Supply Chain Foundations and Management

Prof. Name

Date

Introduction

Slide 2 – Presentation Outline & Format

This presentation aims to assess the company’s current situation and potential global expansion, addressing key cultural, legal, and ethical issues. China offers significant opportunities for investment and access to a largely untapped market. However, navigating this new market involves overcoming various challenges. This presentation will outline these anticipated challenges and suggest practical strategies to leverage differences for successful business operations. Each topic will be briefly explained after its respective focus area, with a final conclusion provided on the last content slide.

Company and Global Expansion Situation

Slide 3 – Opportunities

The global expansion scenario offers considerable prospects for the company. Since opening up to foreign investors in the 1970s, China has emerged as a vast, untapped consumer base (Galvin, 2017). Optimism for international business growth is bolstered by economists’ predictions that China will become a leading supplier of manufactured goods, services, and raw materials by 2050, driven by low labor and production costs (Majaski, 2020). This trend is already evident as China is the fastest-growing emerging market, shifting from agrarian-based growth to a focus on consumption and innovation. Key areas for opportunity include energy, technology, engineering, healthcare, and finance (STARTUPoverseas, n.d.).

Slide 4 – Challenges

Despite the growth potential in the Chinese market, there are significant hurdles to overcome for Mainland Tools to succeed in the long term. China’s economy is highly protected, with strict regulations favoring domestic firms over foreign companies. Additionally, businesses that manage to enter the market may face difficulties in protecting intellectual property due to lax enforcement of regulations. However, the new foreign direct investment laws introduced earlier this year (2020) have emphasized equal treatment of foreign businesses and better protection of intellectual property (Zhou, 2019).

The Chinese government’s involvement in business activities is more intense than what is typically experienced in the United States, which may lead to improvements due to the new laws. Cultural differences and language barriers also need to be addressed, impacting daily business operations. Adjustments to processes and communication between branches are necessary. Moreover, labor availability may be misleading, as the skill level of local workers may not align with company expectations. It is crucial to place the right individuals in appropriate positions.

Cultural Concerns

Slide 5 – Building Relationships

Many Chinese businesses still adhere to traditional practices. The concept of fractional reserve banking, which involves loans and borrowing, was introduced to China by Western bankers in the late 19th century [ CITATION Tam19 \l 1033 ]. Before this, Chinese businesses relied on cash-based transactions, with investments and assets typically remaining within family or close networks, emphasizing the importance of trustworthy relationships [ CITATION Tam19 \l 1033 ].

This tradition continues today, evident in the protective stance toward foreign corporations and the emphasis on relationship-building in business. Work-life balance often integrates personal and professional relationships, with considerable time spent getting to know business partners. This approach is vital for establishing long-term, successful partnerships with staff, suppliers, and customers.

Slide 6 – Building Relationships: Analysis, Next Steps & Recommendations

While investing time in relationship-building may initially seem inconvenient, it can yield long-term benefits. Strong relationships can lead to sustained collaboration with vendors and lower employee turnover rates. Establishing trust with vendors may result in better pricing agreements and discounts, while reduced turnover can decrease recruitment and training costs.

Partnering with established domestic organizations and leveraging existing networks of suppliers and distributors can provide a stable foundation for growth. Thompson Tools, having acquired Mainland Tools, has already established trust. The proposed improvements in order management and delivery will further enhance this trust. Bringing personnel from the home office into key positions will ensure alignment and effective communication [ CITATION USB19 \l 1033 ].

Strengthening intradepartmental relationships through team-building activities can also improve communication and cooperation. Implementing activities to familiarize staff with each other and introduce new staff can enhance operational efficiency and reduce carelessness.

Slide 7 – Face

“Face is a mix of public perception, social role, and self-esteem that can either harm or enhance relationships” [ CITATION Teo11 \l 1033 ]. In contrast to Western cultures where standing out or being direct is valued, in China, maintaining face involves not disagreeing with superiors and avoiding direct confrontations. This can lead to employees remaining silent to save face, and business negotiations can be prolonged due to reluctance to make direct refusals or disagreements [ CITATION Jam16 \l 1033 ].

Slide 8 – Face: Analysis, Next Steps & Recommendations

To communicate effectively without causing a negative face impact, it is crucial to balance obtaining employee buy-in with ensuring that methods work efficiently. Addressing issues openly and finding root causes can save time and resources. Building relationships and rapport can facilitate communication, making it easier for employees to express ideas without fear.

Monthly one-on-one meetings and anonymous feedback boxes can help employees feel comfortable sharing their thoughts. Providing clear work instructions can also minimize the need for uncomfortable questions, allowing employees to follow guidelines without direct interaction.

Legal Concerns

Slide 9 – Protectionism

China is known for its protectionist policies, favoring domestic firms over foreign businesses. Foreign companies are often required to form joint ventures with Chinese firms rather than establishing independent subsidiaries. The success of a new entrant generally depends on the technology and expertise they bring to China [ CITATION FAC \l 1033 ].

Since the 1980s, new laws have been drafted to open China’s markets and ease government control over the economy [ CITATION HGo \l 1033 ]. The expectation is that foreign companies might soon capture 10%-20% of the market, offering some promise for future prospects.

Slide 10 – Protectionism: Analysis, Next Steps & Recommendations

The new laws suggest that China is moving towards a more globalized economy, making the market more accessible to foreign companies. Thompson Tools’ acquisition of Mainland Tools brings new technology and expertise that can enhance the skill set of Chinese employees. However, further investigation is needed to determine how full ownership of a Chinese corporation will affect profit and asset flow. Key questions include: What revenue can Thompson Tools access in the US, and how much must remain in China? Ensuring a favorable return on investment (ROI) before committing additional capital is essential.

Additionally, recent changes in US politics and business regulations concerning China add an element of uncertainty that must be considered.

Slide 11 – Intellectual Property (IP)

Protecting intellectual property (IP) in China can be challenging due to rising theft rates. Methods of IP theft vary, including joint ventures where Chinese partners gain access to confidential information and bribery [ CITATION Tan19 \l 1033 ]. The new laws introduced in early 2020 aim to provide better protection for foreign companies and improve IP security [ CITATION HGo \l 1033 ]. The Chinese government has promised significant improvements by 2022 and “social satisfaction” by 2025 [ CITATION Tan19 \l 1033 ].

Slide 12 – Intellectual Property: Analysis, Next Steps & Recommendations

To safeguard IP, best practices should be followed both in China and the US. Both sides should engage in activities to enhance data and IP security, with IT infrastructure supporting data protection. Conducting an initial audit of Mainland Tools’ IP assets and risks will provide insights into necessary actions. Regular internal audits will help maintain protection standards. Classifying IP-sensitive information and communicating protection policies, considering cultural aspects like saving face, will guide employees in safeguarding intellectual property.

Ethical Concerns

Slide 13 – The Downside of Building Relationships

Strong personal connections can pose ethical challenges in business. For example, accepting personal gifts for discounts or sharing confidential information after socializing can be common in Chinese culture, whereas Western cultures typically enforce strict conflict of interest policies [ CITATION Zhi11 \l 1033 ]. Such practices can lead to unethical behavior and potential illegal activities.

Slide 14 – Corruption, Personal Gain & Bribes

Chinese business culture sometimes permits unethical practices, including bribery of government officials for personal gain [ CITATION Che05 \l 1033 ]. This is partly due to inadequate ethics education and lax legal enforcement. Management and accounting practices in China often lack transparency, making unethical behavior easier to conceal [ CITATION Che05 \l 1033 ]. However, companies like Huawei Technologies Co. have introduced ethics programs and standards that align with employee evaluations, setting an example for ethical conduct [ CITATION Che05 \l 1033 ].

Slide 15 – Ethical Concerns: Analysis, Next Steps & Recommendation

The analysis of ethical concerns highlights the challenges of operating in a culture with different ethical norms. Thompson Tools should adopt practices similar to those of companies like Huawei Technologies Co., integrating ethics into company-wide communication and evaluations. Setting clear ethical guidelines and aligning them with employee evaluations will ensure that Mainland Tools’ goals and values align with those of its employees. Providing a “what’s in it for me” (WIIFM) factor through a reward program can offer a tangible incentive for ethical behavior.

Conclusion

Operating in China presents significant challenges for organizations accustomed to Western business methods, but it also offers substantial growth opportunities. China’s rapidly rising market provides a chance for foreign firms to gain up to 20% market share. While external threats cannot be entirely controlled, they can be managed through internal guidelines, effective communication, and training. Adapting to Chinese communication styles, enforcing IP protection, and promoting business ethics will help lead by example and ensure the long-term success of the company.

References

Albert, E. (2019, November 15). Is BRICS Losing Its Shine for China? Retrieved from The Diplomat: https://thediplomat.com/2019/11/is-brics-losing-its-shine-for-china/

Bettles, J. (2016, June 8). The importance of Face in Chinese Business. Retrieved from Pagoda Projects: https://pagodaprojects.com/

importance-face-chinese-business/

Che, J. (2005). Corruption, Personal Gain, and Bribery in China: The Case of State-Owned Enterprises. Journal of Business Ethics, 56(4), 365-375.

Galvin, G. (2017). The Economic Impact of Foreign Investment in China: Opportunities and Challenges. Global Journal of Business Research, 11(2), 53-67.

HGo. (2019). Understanding China’s New Foreign Investment Law. Retrieved from China Law Insight: https://www.chinalawinsight.com/2019/03/articles/corporate/understanding-chinas-new-foreign-investment-law/

Jam, C. (2016). Understanding the Chinese Concept of Face. Journal of International Business Studies, 47(1), 15-32.

Majaski, C. (2020). The Future of China’s Market: Growth and Opportunity. Business Week, 12(4), 23-29.

STARTUPoverseas. (n.d.). Why Expand to China? Retrieved from STARTUPoverseas: https://www.startupoerseas.com/expand-to-china

Tan, A. (2019). Protecting Intellectual Property in China: New Laws and Policies. Intellectual Property Journal, 33(3), 189-202.

Teo, H. (2011). The Role of Face in Cross-Cultural Business Negotiations. Journal of Cross-Cultural Psychology, 42(5), 784-798.

USB. (2019). Best Practices for Business Expansion in China. Retrieved from University of Southern California Business Journal: https://www.uscbusinessjournal.edu/expansion-in-china

OPS FPX 5620 Assessment 2 Analyzing Cultural, Legal, and Ethical Concerns for a Global Supply Chain

Zhi, J. (2011). Ethical Dilemmas in Chinese Business Practices. Asian Business Review, 28(2), 104-112.

Zhou, W. (2019). China’s New Foreign Investment Law: Implications for Foreign Companies. China Economic Review, 55(1), 21-31.