European Multinational Activity in Telecommunications Services in the People's Republic of China: Firm Strategy and Government Policy

By Clegg, Jeremy; Kamall, Syed et al. | Management International Review, Annual 1996 | Go to article overview

European Multinational Activity in Telecommunications Services in the People's Republic of China: Firm Strategy and Government Policy


Clegg, Jeremy, Kamall, Syed, Leung, Mary, Management International Review


Introduction

This paper is a study of the emerging forms of market entry strategy used by foreign firms in the telecommunications sector in the Peoples' Republic of China. It highlights the adoption of novel relationship-building approaches to accessing the Chinese market and the evolution of coalitions between foreign and native interest groups, with a view to promoting economic liberalisation. Foreign multinational firms in China's telecommunications industry must contend with some formidable obstacles in formulating their market entry and investment strategies. One commentator (Carver 1996, p. 11) has characterised the situation as one of 'legal and practical dysfunctionalism' between the business strategies of foreign firms and the interests of the Chinese government. It is neither regulation nor law that forbids the foreign operation of public networks; rather it is the influence of an internal directive from the State Council in 1993 prohibiting this. While these internal instructions do not have the status of law or regulations, the power of directives in China is nevertheless considerable.(1) As far as foreign firms are concerned, they face a legal and regulatory vacuum, which is filled by internal directives. As a result, it is acutely difficult for firms to make long term foreign direct investment plans.

In the early 1990s the telecommunications industry was accorded priority status for development, but the environment in which foreign firms must conduct strategic decisions is one dominated by powerful Chinese interest groups. The official position is that the telecommunications services market remains open to no-one bar the two domestic operators. No other firms can operate a public network. In this crucial respect the experience of the telecommunications industry contrasts markedly with those of other industries now able to receive inward foreign direct investment. This notwithstanding, the overarching consideration for foreign firms is that the Chinese market cannot be ignored, on account of its size and potential for growth.

Since 1979 the Open Door Policy of the Chinese Communist Party has been held responsible for the rapid growth in China's GNP which has, in the recent period from 1991-1993 ranged between 8 and 14 per cent per annum (Table 1). During 1992 China had a double digit growth rate of 13 per cent, making it the world's fastest growing economy. The 1992 GDP of US $418 billion makes China the ninth largest economy in the world. If the current growth rate continues, it will be the fifth largest economy by the turn of the century and the world's largest economy by around 2015 (Wan 1993, p. 18).

The basic indicators on the development of the Chinese economy in Table 1 track the high rates of growth in the period 1979-1993. Apart from the exceptional conditions obtaining in 1989-1991(2), absolute and per capita growth rates have been spectacular. The data show one further aspect, namely the internationalisation [TABULAR DATA FOR TABLE 1 OMITTED] of the economy. In 1979 there was an effective identity between GNP and GDP, indicating the historically largely closed nature of the economy with respect to factor (principally capital) movements(3), which had clearly eased by the 1990s.

Nevertheless, there are many doubts as to whether China can continue to sustain such growth. As well as the standard economists' warnings of overheating, as China enters the 21st century, further economic growth is in danger of being hindered by the lack of adequate infrastructure. A major problem facing China is that its communications networks are inadequate and simply out of date. Without a modern and extensive telecommunications system, economic growth and modernisation will become increasingly difficult to achieve. From the point of view of global economic development, China's obsolete telecommunications system may act as a deterrent to inward investment and economic co-operation with other nations. …

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