AsiaInfo: Returning Chinese Startups in the 1990s (A)

Abstract

In 1993 in Texas, a newly formed company, Business Development International (BDI), had no assets, no professional managers, no business plan, and no product. Yet the founders were firm in their resolve to bring information and communication to largely uneducated and isolated China. By 2003, their new venture AsiaInfo was the dominant brand in Chinese Internet Infrastructure and a major force in telecommunications software, and it had grown along with the explosive growth of Internet use in China. As great as the challenge of growing the company to match the rapidly growing industry in China was, other challenges proved even greater.

This case was prepared for inclusion in Sage Business Cases primarily as a basis for classroom discussion or self-study, and is not meant to illustrate either effective or ineffective management styles. Nothing herein shall be deemed to be an endorsement of any kind. This case is for scholarly, educational, or personal use only within your university, and cannot be forwarded outside the university or used for other commercial purposes.

2024 Sage Publications, Inc. All Rights Reserved

Resources

Exhibit 1: GDP Growth Rate in China (1983-1993)

Figure

Source: Yingyi Qian, and Ministry of Information Technology, China Statistics Yearbook, Economics of Transition & Development: China.

Exhibit 2: Percent of China Private Enterprises in Total National Emplacement

Figure

Source: Yingyi Qian, and Ministry of Information Technology, China Statistics Yearbook, Economics of Transition & Development: China.

Exhibit 3: China Enterprise Profiles in 1990

Figure

Source: Yingyi Qian, and Ministry of Information Technology, China Statistics Yearbook, Economics of Transition & Development: China.

Exhibit 4: National Investment Rate GDCF/GDP

Figure

Source: Yingyi Qian, and Ministry of Information Technology, China Statistics Yearbook, Economics of Transition & Development: China.

Exhibit 5: Inflation in China 1983–1993

Figure

Source: Yingyi Qian, and Ministry of Information Technology, China Statistics Yearbook, Economics of Transition & Development: China.

Exhibit 6: China Real Per Capital Wages 1957–1996

Figure

Source: Yingyi Qian, and Ministry of Information Technology, China Statistics Yearbook, Economics of Transition & Development: China.

Exhibit 7: Growth of Fixed & Mobile Phones Subscribers 1987–1993

In 10,000 units

Figure

Source: Yingyi Qian, and Ministry of Information Technology, China Statistics Yearbook, Economics of Transition & Development: China.

Exhibit 8: China RMB vs Dollar Exchange Rate (1983–1993)

Figure

Appendix 2: The Law of the People’s Republic of China on Chinese-Foreign Joint Ventures

(Adopted by the Second Session of the Fifth National People’s Congress on July 1, 1979 and Promulgated on and Effective as of July 8, 1979)

Article 1. With a view to expanding international economic co-operation and technical exchange, the People’s Republic of China permits foreign companies, enterprises, other economic organizations or individuals (hereafter referred to as “foreign joint ventures”) to join with Chinese companies, enterprises or other economic organizations (hereafter referred to as “Chinese joint ventures”) in establishing joint ventures in the People’s Republic of China in accordance with the principle of equality and mutual benefit and subject to approval by the Chinese Government.

Article 2. The Chinese Government protects, in accordance with the law, the investment of foreign joint ventures, the profits due them and their other lawful rights and interests in a joint venture, pursuant to the agreement, contract and articles of association approved by the Chinese Government. All the activities of a joint venture shall comply with the provisions of the laws, decrees and pertinent regulations of the People’s Republic of China.

Article 3. The joint venture agreement, contract and articles of association signed by the parties to the venture shall be submitted to the Foreign Investment Commission of the People’s Republic of China, and the Commission shall, within three months, decide whether to approve or disapprove them. After approval, the joint venture shall register with the General Administration for Industry and Commerce of the People’s Republic of China, obtain a license to do business and start operations.

Article 4. A joint venture shall take the form of a limited liability company.

The proportion of the investment contributed by the foreign joint venture(s) shall generally not be less than 25 per cent of the registered capital of a joint venture.

The parties to the venture shall share the profits, risks and losses in proportion to their respective contributions to the registered capital.

No assignment of the registered capital of a joint venture shall be made without the consent of the other parties to the venture.

Article 5. Each party to a joint venture may make its investment in cash, in kind or in industrial property rights, etc.

The technology and the equipment that serve, as a foreign joint venture’s investment must be advanced technology and equipment that actually suit our country’s needs. If the foreign joint venture causes losses by deception through the intentional use of backward technology and equipment, it shall pay compensation for the losses.

The investment of a Chinese joint venture may include the right to the use of a site provided for the joint venture during the period of its operation. If the right to the use of the site does not constitute a part of a Chinese joint venture’s investment, the joint venture shall pay the Chinese Government a fee for its use.

The various investments referred to above shall be specified in the joint venture contract and articles of association and the value of each (excluding that of the site) shall be jointly assessed by the parties to the venture.

Article 6. A joint venture shall have a board of directors, which shall have its size and composition stipulated in the contract and the articles of association after consultation between the parties to the venture, and the directors shall be appointed and replaced by the parties to the venture. The board of directors shall have a chairman, whose office shall be assumed by the Chinese joint venture(s), and one or two vice-chairmen, whose office(s) shall be assumed by the foreign joint venture(s). In handing major problems, the board of directors shall reach a decision through consultation by the parties to the venture, in accordance with the principle of equality and mutual benefit.

The board of directors is empowered, pursuant to the provisions of the articles of association of the joint venture, to discuss and decide all major problems of the venture: expansion programs, proposals for production and operating activities, the budget for revenues and expenditures, distribution of profits, plans concerning manpower and pay scales, the termination of business and the appointment or employment of the president, the vice-president(s), the chief engineer, the treasurer and the auditors, as well as their powers and terms of employment, etc.

The respective parties to the venture shall assume the offices of president and vice-president(s) (or factory manager and deputy manager(s)).

The employment and dismissal of the staff and workers of a joint venture shall be provided for in accordance with the law in the agreement and contract of the parties to the venture.

Article 7. After payment out of the gross profit earned by the joint venture of the joint venture income tax, pursuant to the provisions of the tax laws of the People’s Republic of China, and after deduction from the gross profit of a reserve fund, a bonus and welfare fund for staff and workers, and a venture expansion fund, as provided in the articles of association of the joint venture, the net profit shall be distributed to the parties to the joint venture in proportion to their respective contributions to the registered capital.

A joint venture that possesses advanced technology by world standards may apply for a reduction of or exemption from income tax for the first two to three profit-making years.

A foreign joint venture that reinvests in China its share of the net profit may apply for refund of a part of the income taxes already paid.

Article 8. A joint venture shall open an account with the Bank of China or a bank approved by the Bank of China.

The pertinent foreign exchange transactions of a joint venture shall be conducted in accordance with the regulations on foreign exchange control of the People’s Republic of China.

In its operating activities a joint venture may directly raise funds from foreign banks.

Chinese insurance companies shall furnish the various kinds of an insurance coverage of joint venture.

Article 9. The production and operating plans of a joint venture shall be filed with the departments in charge and shall be implemented through economic contracts.

In its purchase of required raw and processed materials, fuels, parts and auxiliary equipment, etc. a joint venture should give first priority to purchases in China. It may also purchase them directly from the international market with foreign exchange raised by itself.

A joint venture is encouraged to market its products outside China. Export products may be distributed to foreign markets through the joint venture directly or through associated agencies, and they may also be distributed through China’s foreign trade agencies. Products of the joint venture may also be distributed in the Chinese market.

Whenever necessary, a joint venture may establish branches outside China.

Article 10. The net profit that a foreign joint venture receives after fulfilling its obligations under the laws and the agreement and the contract, the funds it receives at the time of the joint venture’s

scheduled expiration or early termination, and its other funds may be remitted abroad through the Bank of China in accordance with the foreign exchange regulations and in the currency specified in the joint venture contract.

A foreign joint venture shall be encouraged to deposit in the Bank of China foreign exchange that it is entitled to remit abroad.

Article 11. The wages, salaries and other legitimate income earned by the foreign staff and workers of a joint venture, after payment of the individual income tax under the tax laws of the People’s Republic of China, may be remitted abroad through the Bank of China in accordance with the foreign exchange regulations.

Article 12. The contract period of a joint venture may be decided through consultation by the parties to the venture according to its particular line of business and circumstances. Upon the expiration of the joint venture contract period, if the parties have agreed, the Foreign Investment Commission of the People’s Republic of China may extend the period, subject to approval. An application for extension of the contract shall be made six months before expiration of the contract.

Article 13. Before the expiration of the joint venture contract period, in case of heavy losses, failure of a party to fulfill the obligations prescribed by the contract and the articles of association, force majeure, etc. the contract may be terminated before the date of expiration through consultation and agreement by the parties to the venture, subject to approval by the Foreign Investment Commission of the People’s Republic of China and to registration with the General Administration for Industry and Commerce. In cases of losses caused by a breach of contract, the financial responsibility shall be borne by the party that has violated the contract.

Article 14. Disputes arising between the parties to a joint venture that the board of directors cannot settle through consultation may be settled through mediation or arbitration by a Chinese arbitration agency or through arbitration by another arbitration agency agreed upon by the parties to the venture.

Article 15. This Law shall come into force on the day of its promulgation. The power to amend this Law is vested in the National People’s Congress.

(The English translations are for reference only)

Appendix 3: Provisions of the People’s Republic of China for Labor Management in Chinese-Foreign Joint Ventures

(Promulgated by the State Council on and Effective as of July 26, 1980)

Article 1. The labor management problems of Chinese-foreign joint ventures (hereafter referred to as “joint ventures”) shall all be handled in accordance with these Provisions, except for those governed by the provisions of Article 6, Paragraph 2 of the Law of the People’s Republic of China on Chinese-Foreign Joint Ventures.

Article 2. The employment, dismissal and resignation of the staff and workers of joint ventures, and their production and work tasks, wages and awards and punishments, work schedules and holidays and paid leaves of absence, labor insurance and welfare benefits, labor protection, labor discipline and other matters shall be prescribed through the signing of labor contracts.

A labor contract shall be signed collectively by the joint venture and the venture’s union organization; a relatively small joint venture may sign contracts with staff and workers on an individual basis.

After a labor contract is signed, it must be submitted to the labor management department of the people’s government of the relevant province, autonomous region or municipality directly under the central authority for approval.

Article 3. The staff and workers of a joint venture, whether recommended by the local department in charge of the venture or the local labor management department, or recruited by the joint venture itself with consent of the labor management department, must all be tested by the joint venture and selected for employment on the basis of their qualifications.

Joint ventures may establish skilled worker’s schools and training courses for the training of managerial personnel and skilled workers.

Article 4. A joint venture may dismiss staff and workers who become superfluous as a result of changes in production and technical conditions if, after training, they cannot meet its requirements and they are not suitable for transfer to other work; but the venture must give them compensation in accordance with provisions of the labor contract.

The dismissed staff and workers shall be assigned other work by the department in charge of the venture or by the labor management department.

Article 5. A joint venture may, in accordance with the seriousness of the case, impose necessary sanctions against staff and workers who violate the rules and regulations of the venture and thereby cause certain bad consequences. The sanction of discharge must be reported to the department in charge of the venture and the labor management department for approval.

Article 6. If the trade union considers the joint venture’s dismissal of or imposition of sanctions against staff and workers to be unreasonable, it has the right to raise an objection and to send representatives to resolve the matter through consultation with the board of directors; if the matter cannot be resolved through consultation, it shall be handled in accordance with the procedures set forth in Articles 14 of these Provisions.

Article 7. When, because of special circumstances, staff and workers of a joint ventures, in accordance with the provisions of the labor contract, submit their resignations to the venture through their trade union, the venture shall give its consent.

Article 8. The wage levels of the staff and workers of joint ventures shall be fixed at 120 to 150 per cent of the real wages of the staff and workers of state enterprises in the locality in the same line of business.

Article 9. The system of wage standards, types of wages, bonuses, subsidies, etc. for staff and workers of a joint venture shall be discussed and decided by the board of directors.

Article 10 The bonus and welfare fund for staff and workers that is established by a joint venture from its profits must be used for bonuses and the collective welfare of the staff and workers, and may not be misappropriated.

Article 11. A joint venture must pay the labor insurance and medical expenses of the Chinese staff and workers, as well as the various government subsidies for staff and workers, in accordance with the standards for state enterprises.

Article 12. Matters such as the employment, dismissal, resignation, pay, welfare and social insurance of foreign staff and workers of a joint venture shall be provided for in the employment contract. Article 13. Joint ventures must implement the rules and regulations of the Chinese Government concerning labor protection and ensure safety in production and civilized production, and the labor management department of the Chinese Government has the right to carry out supervision and inspection.

Article 14. Labor disputes that occur in a joint venture shall first of all be resolved through consultation between the two disputing parties; if consultation cannot resolve the matter, one or both parties to the dispute may request arbitration by the labor management department of the people’s government of the province, autonomous region or municipality directly under the central authority where the joint venture is located; if one party does not accept the arbitration award, it may file a suit in the people’s courts.

Article 15. The right to interpret these Provisions resides in the State General Labor Bureau of the People’s Republic of China.

Article 16. These Provisions shall go into effect on the day of their promulgation.

(The English translations are for reference only)

This case was prepared for inclusion in Sage Business Cases primarily as a basis for classroom discussion or self-study, and is not meant to illustrate either effective or ineffective management styles. Nothing herein shall be deemed to be an endorsement of any kind. This case is for scholarly, educational, or personal use only within your university, and cannot be forwarded outside the university or used for other commercial purposes.

2024 Sage Publications, Inc. All Rights Reserved

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