A study of the role of guanxi in sino japanese distribution channel relationships in china

i

Acknowledgement

With a deep sense of gratitude, I would like to express my
sincere thanks
to my thesis advisor: Prof. Hendik Carl Meyer-Ohle. His stimulating comments
and encouragement carried me through the research and the writing of the present
thesis. Prof. Meyer-Ohle’s guidance was essential in overcoming the most difficult
period, and his suggestions were always constructive and enlightening.
Furthermore, research scholarship and tuition wavier were offered after his strong
support. This saved me from financial difficulties, reduced my work load and
enabled me to concentrate fully on my research. His company and support will be
remembered enduringly.
Furthermore, I wish to thank Prof. Tsu Yun Hui Timothy and Prof. Thang
Leng Leng, respectively the former and the current head of Department of
Japanese Studies (JS), National University of Singapore (NUS). These scholars
have widened my views and inspired the exploration for this research during
classes and meetings. Additionally, I am indebted to Prof. Andrew Delios (Head of
Department of Business Policy), Dr. Lim Beng Choo (JS), and Dr. Asato Saito
(JS). Their remarkable classes and acute comments were most valuable
contributions for the writing of this thesis.
This thesis was partly supported and funded by the Japan Foundation. With
its sponsorship, I was given the opportunity to stay at the Japanese-Language
Institute of Kansai for four months. During my stay, both my language proficiency
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and research were carried to a higher level.
I am greatly indebted to all those who
responded to the questionnaire
survey and interviews. Their generous participation and kind comments have

enriched my perception of my research topic, the role of guanxi in Sino-Japanese
distribution channels, which has constituted the soul of my thesis.
I would like to give special thanks to Tan Ban Chong Joseph (National
University of Singapore), Kwan Wing Ki Koren (University of Hong Kong), and
Sebastien Boret (Oxford Brookes University), who have patiently proofread my
thesis and provided me insightful comments during the past few months.
The acknowledgement would not be complete without mentioning my
fellow graduate students at the Department of Japanese Studies. Their company
and beatitude helped me enjoy the student life at NUS.
Finally, I dedicate this thesis to my family (parents and brother). Without
their support and encouragement, my study would have been impossible.

August 2006
Xie Qiaoguang Simon










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Table of Contents

Acknowledgement………………………………………………………………….i
Table of Contents…………………………………………………………………iii

Summary…………………………………………………………………………vii
List of Tables…………………………………………………………………… ix
List of Figures…………………………………………………………………… x
Chapter One: Introduction…………………………………………………………1
1.1 International Channel Relationships………………………………….… 1
1.2 Reasons for Choosing Chinese Distribution…………………………… 2
1.3 Business Relationship in China………………………………………… 3
1.4 Chinese Business Practice Guanxi……………………………………… 4
1.5 Objectives of the Study………………………………………………… 7
1.6 Methodology and Organization of the Study…………………………… 9
Chapter Two: Japanese Business in China …………………………………… 12
2.1 Japan’s Entry into China…………………………………………………12
2.2 What Makes China Distinct? ……………………………………………13
2.3 Complicated Chinese Distribution Channels ………………………….15
2.4 China and Japan………………………………………………………….17
2.4.1 Japan in China’s Media………………………………………… 17
2.4.2 Influence on Japanese Firms…………………………………… 19
2.5 Why does Guanxi Matter? ………………………………………………20
Chapter Three: Literature Review……………………………………………… 22
iv

3.1 Japanese Distribution Channels………………………………………….22
3.2 International Business: Trade in China………………………………….24
3.2.1 Chinese Market: Western View on the Biggest Market……….….24
3.2.2 Japanese International Marketing in China……………… ….…26
3.3 Channel Member Relationships…………………………………………27
3.4 Chinese Business Practice – Guanxi………………………………….…31
Chapter Four: Research Methodology and Findings…………………………… 39
4.1 A Model of Guanxi-Based Channel Relationship……………………….39
4.2 Hypotheses Development………………………………………….…….42

4.3 Process of Data Collection……………………… …………………….45
4.4 Findings and Results……………………………………………….……49
4.4.1 Profile of Companies………………………………………… ….49
4.4.2 Profile of Respondents……………………………………………51
4.4.3 Profile of Channel Member Relationship………………… …… 52
4.4.4 Perception and Operation of Guanxi………………… ………….54
4.4.5 Conflict…………………………………………………… …….56
4.4.6 Communication……………………………………………… …59
4.4.7 Relationship Performance………………………………… ……61
4.4.8 Hypotheses Test…………………………………………… ……62
Chapter Five: Discussion and Case Studies………………………………… ….65
5.1 Encountering Guanxi…………………………………………………….65
5.2 Why does Guanxi Become the Favorable Choice……………………….69
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5.3 Means of Communication……………………………………………….70
5.4 Does Guanxi Promote Communication? ……………………………… 71
5.5 Situation of Conflict………………………………………………….….74
5.5.1 Intervention is not Necessary…………………………….….……74
5.5.2 Contract or Non-Contract ……………… ……………… ……74
5.5.3 Is Conflict Resolved? ……………………………………….……75
5.6 Relationship Performance……………………………………………… … 80

5.7 What Communication and Conflict have Brought to Relationship
Performance? …………………………………………………………… 81

5.8 Implication for Japanese Manufacturers………………………………… …84
5.8.1 Guanxi Establishment………………………………………… …84
5.8.2 Guanxi with the Government…………………………………… 84
5.8.3 Is Guanxi All? ………………………………………………… 85

5.8.4 Historical Issues……………………………………………… …87
5.8.5 Language Issue………………………………………………… 89
5.8.6 Agreement…………………………………………………… …91
Chapter Six: Conclusion…………………………………………………….……94
6.1 Summary of the Research………………………………………….….…94
6.2 Limitations of the Study…………………………………………………99
6.3 Further Research Directions……………………………………………100
Bibliography……………………………………………………………….……102
Appendix 1: List of Profiles for Case Studies………………………… … …109
vi

Appendix 2: Survey Questionnaire……………………………………… ……111

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Summary
Among the many strategies of marketing in China, the traditional business
practice guanxi, namely relationship or network, is perceived as a major
instrument for success of foreign corporations. Since more MNCs (Multi-National
Companies) come to use Chinese distributors to sell their products after China’s
entry in WTO, this raises the question how and whether guanxi functions in the
distribution channels. This thesis looks at this question within the context of
marketing channel relationships of Sino-Japanese businesses.

The thesis built on an approach by LaBahm & Harich (1997), who have proposed
the concept of sensitivity to foreign culture in the study of channel relationships
by looking at the effects of sensitivity to national business culture on
communication, conflict, and performance in U.S Mexican channel relationships.
This thesis adapted this model for the study of Sino-Japanese business
relationships to examine the role of guanxi in distribution channels. Hypotheses
were tested through a quantitative survey of forty-eight Japanese manufacturers in
China. The results of the quantitative study were complemented with data
collected during five in-depth interviews with Japanese corporations in China and
Japan. Besides the main objectives of the study, this thesis also provides
implications for Japanese management in China in regard to guanxi, historical
issues, language, and agreements.

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In conclusion, this study has lead to a better understanding of issues of

communication, conflict, and relationship performance in Sino-Japanese channel
relationships, and especially of the role that guanxi is playing in the distribution
channels. Specifically, guanxi is shown to increase communication and decrease
conflict, both of which in turn influence relationship performance.

















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List of Tables

Table 2-1: Analysis of Focused Topics on Japan…………………………………19

Table 2-2: Analysis of Trend of Report Content…………………………………19

Table 4-1: Profile of Companies……………………… ……………… ….….50

Table 4-2: Profile of Respondents……………………………………………… 51

Table 4-3: Channel Member Relationship……………………………………… 53

Table 4-4: Evaluation of Guanxi…………………………………………………55

Table 4-5: Evaluation of Conflict……………………………………………… 57

Table 4-6: Ways of Contacts…………………………………………………… 60

Table 4-7: Evaluation of Communication……………………………………… 61

Table 4-8: Evaluation of Relationship Performance…………………………… 62

Table 4-9: Hypothesized Relationships………………………………………… 62

Table 4-10: Standard Deviations, Means and Correlations………………………63

x

List of Figures

Figure 1-1: Are Negotiations Slower than in Other Developing Countries? 4

Figure 2-1: Three Distribution Solutions Adopted by Japanese Firms in China…16

Figure 4-1: A Model of Cross-National Channel Relationship………………… 40

Figure 4-2: Proposed Model of Guanxi-Based Channel Relationship………… 41

1

Chapter One: Introduction

1.1 International Channel Relationships

The international market is so widespread that few businesses can remain
unaffected, unless they only deal with products restricted to local markets. Hence
there has been an increased interest in establishing overseas business, trading with

foreign companies, serving foreign consumers, and selling products to overseas
markets.
Distribution systems function as essential channels that facilitate flows of
products from manufacturers to customers. Considering the difficulties that many
marketers may experience, the manufacturer-distributor relationship is regarded as
one of the most important issues in international marketing. It is observed that there is
a distinct correlation between the long-term profitability of a company and its
relationships with manufacturers, distributors, customers, and even its competitors
(Buttle, 1996). Since the quality of inter-firm relationships is directly linked to the
revenue stream, relationships could be more influential than market share (Hougaard
& Bjerre, 2002). Hence, the way of managing the relationship is a crucial determinant
in establishing a successful business overseas.
For international marketing, problems can be handled more effectively when
marketers possess a good understanding of the tradition and characteristics of the
distribution channels in the target country (Kale & Barnes, 1991). The way to
establish a long-term, stable relationship is an important element for both the

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manufacturer and the distributor once the cooperation starts. Manufacturers have to
take responsibility for effective marketing. They cannot expect distributors to respond
favorably to their expectations, and have to motivate and monitor distributors closely.
In addition, distributors should be aware of the team relationship that they are
engaged in, and should take responsibility in promoting profits more effectively. Once
a domestic business develops into an international one, it becomes particularly crucial
for manufacturers to consider both technical (e.g., commission rates and price setting
strategy) and non-technical problems (e.g., differences in business culture) which they
may not have taken into consideration in a domestic commercial situation.

1.2 Reasons for Choosing Chinese Distributors

It is well known that Chinese distributors are difficult to deal with in terms of
negotiations, retailing prices, and poor sales, just to name a few. In addition, there
have been cases of defaulting on contracts, fake sales reports, and payment delays. In
spite of this, the number of Japanese firms adopting Chinese distributors is increasing.
The reason for this is that Japanese firms potentially benefit a lot by cooperating with
local distributors. First, they do not need to negotiate with government officials, who
are famous for their inefficiency. For instance, the procedure for a licence could last
for months if you are not in the acquaintance of key personnel. Second, it is no longer
necessary to handle complicated human relations. Thirdly, since the distributor
provides its own stores and salesmen, the cost of a sales force is greatly reduced. The
last and most significant advantage is that the distributor who is familiar with the

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local market will itself conduct the market investigation on behalf of the Japanese
firm, and all the manufacturer needs to concern with is the contract.

1.3 Business Relationship in China

Japanese firms that have established subsidiaries in China have shown a
strong desire in expanding their business. They do not only wish to take advantage of
low labor costs, but are also increasingly concerned about selling their products
within the Chinese market. JETRO (The Japan External Trade Organization)
conducted a survey investigating marketing performances of Japanese firms’
subsidiaries in China in 2002. According to this survey, it is observed that 81.4 per
cent of the firms used their own networks as the distribution channel to sell products
in China, and 24.3 per cent used other Japanese firms’ channels. In addition, it is
reported that 27.1 per cent of the firms whose target is to maintain their market share
worked with independent Chinese distributors. It is an interesting fact that most

companies using Japanese related distribution channels made less profit, with some
even suffering losses in the fiscal year 2001. This has been attributed mainly to the
incapacity and the inefficiency of Japanese related distributors in China. It therefore
becomes necessary to seek other possible ways for survival, with Chinese distribution
channels appearing to be a good choice.







4

Figure 1-1: Are Negotiations Slower than in Other Developing Countries?

7%
14%
79%
Disagree
Neutral
Agree
Negotiating with the Chinese tends to be slow
Negotiating with the Chinese tends to be slowNegotiating with the Chinese tends to be slow
Negotiating with the Chinese tends to be slow
compared to other developing countries
compared to other developing countriescompared to other developing countries
compared to other developing countries

(Campbell & Peter, 1988, p. 100)

1



When Japanese manufacturing firms show an increased desire to cooperate
with Chinese distributors, communication is crucial and worth paying attention to.
Problems lie in the way to communicate, negotiate, and transact with Chinese
distributors in an unstable business environment. According to Figure 1-1, most of
foreign firms agreed that business negotiations in China are slower than in other
developing countries. In a study of American businessmen’s perception of market and
negotiation in China, Lee & Lo (1988) suggested that businesses in China require
more interaction than those in the US, with very “tough” negotiation often required.
Thus, as explained above, Japanese firms would be better off with a first hand
understanding of Chinese business practices in order to smoothen their transactions
and increase their profits.

1.4 Chinese Businesses Practice Guanxi


1
This book is based on a survey carried out by the China Research Unit at Manchester Business School during the
early months of 1988. The purpose of this survey, including topics of performance, strategy, costs, attitudes to
equity investments, is to investigate how foreign companies organize their China operations, and how they view
the business environment generally.

5

To understand Chinese business practice, guanxi is one of the most frequently
quoted terms. Guanxi literally refers to any kind of relationships. In the Chinese
business world, guanxi is understood as the network of business relationships among

various parties cooperating or supporting one another. “Tou Zhi Yi Tiao, Bao Zhi Yi
Li” (if you give me a peach, I will give you a plum in return) describes a common
Chinese mentality. In essence, it can be regarded as acts of exchanging favors, which
are supposed to be carried out voluntarily.
Foreign marketers may have heard about the term guanxi, but they may not
know its literal or practical meaning. The first part of the term, guan, means “door” or
“to close up”. For example, one may think of a household. When you are inside, you
are “one of us”. When you are outside, however, you are barely recognized. Hence
the word could refer to a pathway getting through the obstacle which lies between
you and the inside group. The second part of the term, xi, means “tie”, and has an
extensive meaning for “relationship” and “kinship”. Therefore the combination of the
two parts of guanxi refers to distinct relationships between individuals, firms, and
even countries in the Chinese context.
Relationship orientation is not unique to china. It is also a universal business
culture of Japan, Korea, and other managed economies. Since 1949 in China,
however, the use of guanxi was often the only way to get things worked out, in this
highly centralized bureaucratic state. With the elimination of legal and judicial system
after 1949 in China, and the subsequent difficulty to enforce contracts, guanxi
becomes an economically better mode of governance of transactions than contracts
(Arias, 1998). Although China has opened its door to welcome foreign investments, it

6

has not yet been ready to get itself involved in the market-oriented commercial
environment after decades of self-imposed economic isolation. It has been argued that
the generally accepted business ethics should be in place. However, firms who have
had experience of conducting business with Chinese would rate business ethics in
China at a low level (Szeto et al., 2006). China is not a country controlled by law as
Japan. In many cases, businesses in China are practiced flexibly. Leung (1995, p. 74)
suggested that “Chinese value reputation and trust over and above strict legal terms

and conditions of a contract”. Especially in socialist China, government officials have
great power to allocate critical resource and influence legislative decision.
Establishing guanxi with government officials is necessary for coping with legal
uncertainties in Chinese business (Lo & Everett, 2001, p. 22). As foreign investments
face legal uncertainties in China and necessitate minimizing these uncertainties,
guanxi becomes a dispensable tool. We are not suggesting that rules and terms are not
important. Rather than that, foreign investors might need to implement the formal
conditions in conjunction with guanxi when building Sino-foreign partnership.
A previous study (Yang et al., 1999) suggested that success in China often
depends on a certain degree of adaptation to Chinese conditions and practices. It is
widely accepted that guanxi is important in China. Through relationships and
connections, problems can be resolved and goals can be achieved. Paull (2004)
argued that from the perspective of channel member relationships, this particular
concept should be greatly emphasized as it relates to performance.
In light of the importance of guanxi, international firms could adopt this
particular Chinese tradition to tackle problems in Chinese business. Accordingly,

7

Japanese firms could also make use of guanxi to workings the secrets of channel
member relationship in China and insure their market share. As Xin (1998) asserted,
foreign firms’ success in China invariably owe much to guanxi and networks of
trusted associates. Nevertheless, Japanese firms’ practice of guanxi might not be as
automatic as they would be to a Chinese. Therefore it is crucial for Japanese firms to
obtain a thorough knowledge about guanxi to achieve success in the Chinese business
market.
Though foreign firms approach guanxi so as to gain positive outcomes in
China, guanxi also has positive and negative impacts on social networks. Illegal
payments and bribes are commonly observed during transactions. Snell (1999) argued
that guanxi could produce a short-term transactional relationship between two parties.

As Chinese person become more mobile, and it is difficult to cultivate long-term
relationship with the rapid changing economy, they might use guanxi connection to
achieve direct short-term goals. Unethical guanxi therefore is considered as a
transactional “gimmick” sometimes. Yet, as suggested by overwhelming literature,
guanxi’s positive function has been widely perceived by most of foreign investors,
including Japanese firms. Also, they do not hesitate to use guanxi, in an appropriate
manner, when dealing with Chinese businessmen. Upon good understanding of
positive and negative sides of guanxi, foreign firms might be more likely to approach
guanxi ethically.

1.5 Objectives of the Study


8

With the recent entry into the World Trade Organization and the impending
hosting of the Beijing 2008 Olympics, China has emerged as a major market in the
business world with continual economic development. In the midst of doing business
in China, there is a parallel interest in comprehending the mindset of Chinese
corporate strategists to better understand Chinese companies and achieve success in
China’s business world.
Among the many
strategies of international marketing, the concept of
relationship marketing is perceived as the major instrument for successful foreign
corporations in China. This research will explore how the concept of relationship
marketing is linked to the traditional Chinese concept of guanxi within the context of
Sino-Japanese business’ marketing channel relationships.
Although many studies have examined the importance of guanxi in doing
business in China, only a few have discussed the role of guanxi in channel member
relations. The major objective of this research is to address the relations in

distribution channels that span diverse cultures, especially the Sino-Japanese channel
relationships. The present investigation introduces the constructs of guanxi culture
into established network of relationships and explores its consequence. The way in
which guanxi is perceived and operates during communications, conflicts, and
relationship performances will be examined and discussed in detail.
This thesis will be based on an approach introduced by LaBahm & Harich
(1997), who proposed the concept of sensitivity to foreign cultures in the study of
channel relationships. They developed this approach after investigating the effects of
sensitivity to national business culture on communication, conflict and performance

9

in U.S Mexican channel relationships. Such a model will be adopted in the present
study of Sino-Japanese channel relationships, and will enable us to examine the role
of guanxi in channel members in particular. It is hoped that the results will enhance
our understanding of the issues surrounding communications and conflicts in Sino-
Japanese channel relationships, as well as the role that guanxi might assume in this
regard.

1.6 Methodology and Organization of the Study

For the present study, “sensitivity to national culture” in LaBahm & Harich’s
model (1997) will refer specifically to the “perception and operation of guanxi”, as a
means to examine the relationship between Japanese manufacturers and Chinese
distributors in China. The research material for this thesis has been collected as
follows:
a) literature review
b) questionnaire survey on the understanding and operation of guanxi, conflict,
communication, and relationship performance in Sino-Japanese channel member
relationships

c) three in-depth interviews with Japanese informants who are in charge of the
marketing departments of Japanese manufacturers, and two informal interviews
with two Japanese informants working in China


The selected companies currently carry on the sale of products through
Chinese retailers or wholesalers in China. In addition, the three informants who have
been subject to in-depth interviews have been working in China for over 5 years.
They are believed to possess a high level of understanding of guanxi. Hypotheses will
be tested through the results of the questionnaire survey and with data collected

10

during the interviews.
This thesis is divided into five chapters. Chapter one identifies the research
problems and introduces the objectives and the methodology of the present study. The
second chapter examines Japanese firms’ steps into the Chinese market, and the
investment environment in China. The reasons accounting for the difficulty in doing
business in China will follow, with special attention paid to the Chinese distribution
system. The discussion ends with a review of the historical issues that are believed to
be responsible for the disharmony between Chinese and Japanese. This chapter, the
background of Sino-Japanese business, helps to enhance Japanese firms’
understanding of the importance of guanxi when conducting business in China.
Chapter three is a literature review on issues related to channel member
relationship, and guanxi. The traditional Japanese keiretsu, which appears to be
different from the Chinese guanxi, is examined. In addition, I review western
marketers’ views on the Chinese market and Japanese firm’s marketing strategies. To
introduce the main objective of this study, studies on distribution channel
relationships, the role of guanxi in channel member relationship, and the way of
comprehending it in international context are also discussed. Chapter four details the

research design and methodology used in addressing the research questions. I first
explain LaBahm & Harich (1997)’s model and suggests ways in which this model
could be modified to evaluate the role of guanxi in channel member relationships;
five hypotheses will be presented. Secondly, this chapter includes a quantitative
survey examining guanxi’s role in Sino-Chinese channel member relationships. This
survey presents a picture of the manufacturers’ perception and operation of guanxi

11
and its relationship components on conflict, communication and relationship
performance. Following the section covering the process of data collection, survey
results and descriptive analysis is offered. Chapter five is the detailed discussion on
the survey results. Data collected from on-site interviews supplement the results of
the hypotheses testing, including the implications for Japanese manufacturers
presented. The concluding chapter is a review of this study. Finally, limitations of the
present research and suggestions for further research will be provided.

12

Chapter Two: Japanese Business in China

To understand the key role of guanxi in the Sino-Japanese distribution channel
member relationship, it is necessary to comprehend the background of Japanese
businesses in China, the actual situation in the Chinese market, the problems that
Japanese firms face in distribution channels, and the potential risk caused by
historical problems that exist between China and Japan. On the ground of hardship in
dealing with Chinese businesses, the importance of guanxi’s emergence will be
discussed.

2.1 Japan’s Entry into China

China is the most populated country in the world. In other words, China also
has the highest potential consumer market. With the advent of the ‘open door’ policy
after the 1980s, the economy developed rapidly with the level and capacity of
consumption increasing constantly. Thanks to stable economic development progress,
China entered the WTO after years of effort, and was chosen to host the Olympic
Games in 2008. China sought to provide different business opportunities, and began
attracting multinational companies (MNCs) from all over the world.
The roots of Japanese doing business in China can be traced back to 1952,
when Japan started ‘non-governmental businesses’ with China and served as the most
important business partner for China until 1962 (Wanaka, 2001). In 1972, China and
Japan set up diplomatic relations with one another, which resulted in Sino-Japanese

13

trade breaching new highs. Due to Deng Xiao Ping’s support of China’s economic
development and openness, communication between China and Japan has developed
actively since the 1980s. In particular, Japan’s investment has increased dramatically.
Entering the Chinese market has become a popular issue among Japanese
businessmen. In the last few decades, Japanese firms have scraped up a great deal of
experience and achieved remarkable success. In turn, the Japanese technologies and
capital has positively influenced China’s growth to a large extent. As a result, between
China and Japan, a close economic strategic partnership has emerged.

2.2 What Makes China Distinct?

There is a Chinese saying that “a good understanding of both ourselves and
the enemy will lead to complete success in war”. To obtain success in the Chinese
market, Japanese businessmen should better understand China by acquiring a
thorough knowledge of the Chinese government, economy, law, culture, history,
religion, and business rules.

Everyday sees drastic changes in China. Government intervention in the
economy is reduced; information technology is more commonly applied; the
seniority-based salary system is transformed into a capacity-based system; and
globalization has developed quickly. These changes have provided foreign firms with
excellent business opportunities such as the use of the Chinese market, technologies,
and human resource. With the severity of global competition and increase of MNCs’
demand for cooperation, Chinese firms have become more open in establishing

14

business ties with foreign firms. As such, exploring the market, sourcing strategic
partners, and establishing relationships with Chinese firms are getting easier than
what it used to be. On the other hand, Chinese businessmen and firms have become
more dependent on products, services, and technologies provided by foreign firms.
Thus, globalization has met the increased desire for rapid improvement for both
China and the MNCs.
While the market looks bright and hopeful, many marketers may fail in their
first attempt to sell products within China, despite spending time and effort. Many
foreign businessmen, whose knowledge is “domestic”, often find out that their initial
understanding of the China market is incompatible with the actual and more complex
situation. China therefore is said to be distinctive from other markets. Sun & Entô
(2004) suggested two aspects that can account for the difficulties in handling the
Chinese market:
1. China is controlled by the Communist Party and is still a bureaucracy-led country.
Regardless of the type of business, MNCs who wish to enter the Chinese market have
to deal with the government’s requests, an inflexible political system, intricate
administrative processes, as well as the direct or indirect influence from the
Communist Party. Many firms complain that it always takes much longer to apply for
a licence from the Chinese government than it is in their home countries in spite of
providing all the required documents. If they are unable to find a solution to get

through these unclear obstacles, the government response to the licence application is
usually “discussion is in progress”.
2. Chinese society consists of a wide range of elements that pose difficulties to

15

foreign investors, namely, a huge population, complex geographic distribution, a large
income divide, and provinces with different dialects and cultures. It is not uncommon
to find a different language and different culture when one walks from one town to
another nearby. Therefore, marketers should not take a holistic view of the Chinese
market when designing marketing strategies.

2.3 Complicated Chinese Distribution Channels

To design marketing strategies for China, the most burdensome issue is to deal
with its complicated distribution systems which, to a certain extent, reflect China’s
multicultural background. There is a great number of business customs involved,
which foreign marketers cannot master with ease. Although some of the customs are
common sense for the Chinese people, foreigners may take a long time to understand
their rationale.
Among the problems encountered with Chinese distributors, the collection of
payment is often regarded as the most difficult issue (Kakehi, 2002). It is not rare for
payments to be untimely, and Japanese suppliers may have to press for it many times.
Even if a marketer visits a distributor in person, collection of payment is never
guaranteed. This is a common issue for many Japanese firms in China.
In Japan, if there is no capital in the bank for payment on the due date in the
case of a draft settlement, the payer will be forced to cease operations due to the
dishonored bill. If the company lets the same situation happen twice, bankruptcy is
inevitable (Inagaki, 1998). In sharp contrast, due to what may be a more