Economics and Business of the Asia Pacific Region - Essay Example

Economics and Business of the Asia Pacific Region Post Mao Economic Reforms The post-Mao growth strategy or plan was introduced in the year 1978 in the Chinese economy which majorly entailed two important elements, the strategy of open door and economic restructuring. The economic restructuring or reform was initiated mainly in the countryside of China. Through this economic reform, China intended to enhance its economic conditions with due consideration to the identification of the issues responsible for the unfortunate economic performance in the past. The country focused on enhancing its economic situation by introducing positive alterations in its income, output along with employment. The reform also aimed at altering the economic structure of China fostering foreign trade to a large extent from. It can be stated that the post-Mao reforms in China was more focused on the reorganizing the economic structure which tend to restrict sustainable development. Thus, the purposes and objectives relevant to the restructuring can be observed as strongly associated with the economic expansion and progress during the late 1970s (Liou, 1998). On the other hand, the strategy of open door was intended to lure the foreign investors, highly developed technology along with management expertise to the cities of China as well as the coastal regions. This restructuring policy implemented in the post-Mao reform, had a significant influence and contribution towards the overall economic growth of China, its economic composition and the distribution of the economic actions in the national stage as well as in the local stage. It is worth mentioning that the contribution of this policy was more apparent in a few specific local regions that that in the overall national environment (Weng, 1998). These development policies contributed greatly towards the enhancement of the macroeconomic functions and the living standards of the residents in China. For instance during 1978 to 1995, the Chinese economy was observed to attain rapid growth which was recorded in majority of the facets of the different economic indicators such as, gross national product by 9.8 percent, boost in per capita GNP by 8.3 percent, boost in the total production value in terms of agriculture by 6.6 percent and boost in the industries total production value by 15.0 percent. This entailed an annual boost of the overall economic performance and thus played a key role in enhancing the living standards as well as macroeconomic functions within the country (Mauri, 2008; Liou, 2000). In addition, the post-Mao economic restructures not only had a positive effect on the Chinese economy but also had a direct as well as an indirect consequence on the other facets that formed the part of the Chinese society including the state-society relations. The subject of the state-society relations gained importance as it highlighted the situation related to the economic restructuring along with it considered the consequences of the restructuring posed on the country’s social situation. The steady condition of the society in terms of social as well as political condition was also considered to be an important factor in the course of economic growth. It was observed by various researchers including Haggard & Webb (1993), Rondinelli & Montgomery (1990), and Summers & Thomas (1993) that political as well as social steadiness in the then situation of the country was quite vital in the course of economic growth. It was found and stated by them that a steady situation acted as a chief contributing feature that was again related to the accomplishment of efficient restructuring and economic growth. A stable environment was necessary to facilitate devising and application of the determined plans and arrangements so as to attain the growth objectives (Liou, 2000; Mauri, 2008). The post-Mao economic restructuring brought forward significant alterations in the plans in regard to the agricultural prices and also in the techniques of production. The alterations in the plan or the policy included the increasing prices in terms of procurement by the state of agricultural products and trimming down the shares of grain procurement enjoyed by the state. The alterations in production entailed agreeing to more domestic production functions and giving way to cooperative independence regarding the overall output, management and distribution related decisions. On the whole, the government progressively initiated the Household Responsibility System that included the letting out of land for the purpose of household farming and also planning specifications for the agricultural production. The application of the Household Responsibility System was observed to bring in noteworthy alterations in the society of China. This fresh system not only triggered agricultural productivity but even altered the social arrangement in the city regions (Liou, 2000; Mauri, 2008). The chief aspects with regard to the plan undertaken in the post-Mao economic restructuring entailed the growth of an economy that would be focused on exports and simultaneously be labour-concentrated. The other aspect was to emphasise on sourcing as well as marketing of domestically produced goods for the reason of developing into a global marketplace and bringing in more unprocessed materials and producing more goods to be exported. The plan also entailed support to overseas projects or ventures in applying their professional control in relation to the cross-border business functions influencing profits as well as losses generated by the entities. Furthermore, the expansion and growth of township ventures in order to encourage the urban as well as rural growth was also included in the plan (Liou, 1998). The restructuring also brought in alterations in the social management and steadiness in the economic environment. For instance, the achievement in terms of economic restructuring developed the society of China as quite uneven and complicated on its structural basis. The complication submits to the attitudinal as well as the structural alterations in both the city and the country regions. On the other hand, fluidity refers to the augmented shifts among the rural as well as urban regions and also among the coastal and the internal areas (Liou, 2000; Mauri, 2008). Business Opportunities in the Chinese Market The business openings being offered by the markets in China are becoming increasingly challenging for the Western countries to overlook. In-spite of the international economic turmoil, the economy of China still was capable of attaining a growth rate of about 8.3 percent in the year 2009 in terms of GDP. Few of the industries like the automotive as well the pharmaceutical segments kept on witnessing a double-digit increase in its growth all through the phase of economic crisis. Owing to such impressive performance, majority of the Western companies are observed to lean more towards China in comparison to the other Asian markets (B2B International, 2011). Another important factor which led to the development was China’s association with the World Trade Organization (WTO). The various fresh policies adopted by the Chinese government also encouraged the growth of the industry sector in the Chinese market. Along with the significant international manufacturers, a noteworthy amount of domestic manufacturers can also be observed to grow in the market scenario of China (Holweg & Et. Al., 2005). The rapid alterations in the socio-economic condition, augmenting incomes, escalating spending by the people and an augmenting open setting of business has made the Chinese market ever more lucrative to the Western companies across a wide range of industries. At the same time, the dipping sales figure of the Western companies in their respective home markets is compelling quite some US as well as European enterprises to shift to China determinedly. This would help them achieve their international development plans by basing it in China (B2B International, 2011). A rapid boost in the growth of Contract Research Organisations (CRO) has been observed in China which can be viewed to promote activities of outsourcing in the country. The conformity with the legalised global standards by popular companies is bringing in more prospects of such contracts associated with the research actions to the Chinese CMOs. The boost in the expansion of Research & Development (R&D) activities by the foreign companies has been due to the fresh tax regulations imposed by the central government of China. These regulations have been observed to be in favour of such activities which are promoting the transfer of international R&D functions to China. The transparent and well-defined legislation in respect to corruption as well as anti-bribery is also attracting the foreign multinationals in the current market scenario (PWC, 2011). Key Challenges in the Chinese Market The fast paced economic development of China has offered many prospects for businesses along with few challenges as well. The notion of globalisation was observed to give rise to unparalleled prospects in regard to international business investments as well as trade. Many multinational organisations are still trying to spread out their respective businesses globally with the assistance of various entry plans like subsidiary and joint endeavours. It is in this context that there are a few challenges too, which exists at the same time with the opportunities. The major challenge faced by the foreign organisations in the market of China is in terms of skilled human resource. A major problem in this regards is the job of luring and holding on to the qualified managerial personnel for the purpose of carrying out operations for the foreign companies in the Chinese market. In order to keep away from the differences in the local culture as well as organisational culture (Wu, 2008). The major problem has been stated to be the dearth of talent in the Chinese market. There prevails a scarcity of youthful people with the qualities of progressiveness, efficiency, and professionalism. The Chinese education system has been held responsible for this limitation of scarce human resources. The degree holders have often been observed to lack in professional and management knowledge. The way of working also poses to be another challenge. The concept of Human Resource Management has emerged in the country with the entry of foreign companies and thus, is still a fresh concept to which the people are not yet used to. The traditional way of working was different than that at present which is becoming a major problem for the people to cope-up with the professional culture of the modern organisations. Another challenge comes in the form of disparities in the culture (Wu, 2008). The Chinese business culture is quite different from the western culture and so, the foreign companies need to gain an understanding of the inter-cultural relationship. It is worth mentioning that the culture of the Chinese people is to believe in each other, maintain harmony and stay away from disagreements. The Chinese culture tends to be highly influenced by ritual and theological beliefs such as those depicted in Feng Shui, one of the guiding books used by Chinese peoples. Therefore, the foreign companies also need to comprehend the culture and then incorporate it in their operations and activities as the mentioned aspects are considered to be important in the course of business performance as well as in decision-making. The strong reliance of culture on the people of China makes them trust people rather than contracts in the course of business functions (Wu, 2008). Thus, it is important for foreign companies to adopt an approach that is concentrated on the people and set up a soaring degree of trust association with their respective Chinese partners in order to be successful in that country. The subject of compensation along with benefits is also considered to be a challenge. It is because the qualified Chinese staffs have often been observed to enjoy more pay along with compensation and benefits in the domestic companies in comparison to the foreign companies. Owing to this the wage rate is constantly increasing which is becoming a grave concern for the foreign companies (Wu, 2008). Strategies to Overcome the Challenges Apart from the problem of human resource, cultural disparities were also stated to be another challenge along with compensation and benefits packages. There was also a dearth of qualified as well as skilled man power witnessed in the then social structure of the country which made the task of drawing and holding on to qualified managerial personnel quite challenging. The deficiency of knowledge and expertise has been learned to be the consequence of the weak education system. Moreover, the production and entrepreneurial progress in the society was also hampered due to lack of professional understanding of the labour force in the economy. With reference to the context, it can be stated that nothing much could be done by the international firms to alter the Chinese education system. However, few facets of the troubles associated with the human resource can be handled by the firms themselves. This can be attained by planning a good quality employment structure which would have strategic as well as economic advantages to it. A suitable selection method or structure would assist to strategically sustain the business operations by way of building or forming a cluster of qualified managerial personnel (Mawson & Et. Al., 2009). The international companies have been able to spot the problems related to the human resource management in the country even in the current scenario and therefore should adopt necessary strategies so as to overcome this particular problem. With this concern, the international firms should design and bring in a range of retention plans for the staffs. In relation to this, the firms should also develop internal training programs or schools focused on developing the skills of the labour force in China. The firms would even require developing a proper system of compensation as well as benefits taking into concern the augmenting labour cost in that country. In relation to the cultural disparities, it can be suggested that the international firms need to gain understanding related to the business culture followed in China and also keep up a cordial relationship with the government of that country (Wu, 2008). The growing amount of international companies focussed towards shifting their operations to China is said to be defining the functions for the Chinese managers and the change in their roles. Previously, the middle and the senior management positions were held by the non Chinese people. But incorporating the modifications initiated by the local enterprises is observed to play a noteworthy role in transforming the structure of corporate governance both in the Chinese and multinational companies. Therefore, with the help of the mentioned approaches it is likely that the problem of human resource and cultural disparities would be minimised effectively in the Chinese market (Mawson & Et. Al., 2009; BCG, 2008). The Chinese market also witnesses challenges in the form of branding, financing, executing international business functions and regulatory obstructions. The majority of the Chinese organisations identify the fact of owning brands to be a vital element for their global accomplishment but are reluctant to engage the amount of funds needed for structuring or developing a brand and for its management. It is majorly due to the risks associated with the investment that the Chinese organisations depict reluctance in engaging the required amount. The Chinese market also needs to focus more on innovations. The country needs to adopt certain management structures and international standard governance in order to ascertain the way the international organisations would be managed. It is in this context that lack of innovation in relation to products as well as processes and absence of brands has become a grave challenge for the Chinese market. The Chinese market should also stress on mergers as well as acquisitions for the reason of attaining the virtues presented by globalising (IBM, 2006). Potential Problems and Reforms in the Chinese Economy The economy of China has been expanding and developing significantly since the previous few years. It has also been predicted by numerous economists that the economy would still continue to develop at a fair pace in the coming days. On the other hand, it has been warned by the economists that these forecasts would only happen under the condition that China would keep up introducing noteworthy restructuring in its economy. Unsuccessful execution of such restructuring would pose possibilities to imperil the future development. The international economic turmoil has made it evident to the government of China that the hazards of strong reliance on the international trade as well as investment for the intention of economic development. This particular reliance made the economy of China specifically susceptible to the consequences of the international economic slump (Lardy, 2007). The restriction on the Chinese currency to float requires the country to indulge in huge-scale buying of the dollars so as to maintain the rate of exchange in the specified aimed levels (Morrison & Labonte, 2008). According to the economists, the currency plan of China was observed to make the Chinese economy excessively reliant on fixed investments as well as on exports as a result of which easy credit plans were triggered by the banks. These plans i n turn weakened the steady economy in the long run by way of creating overproduction in different industries; thereby augmenting the degree of non-performing bank credits and escalating the inflationary forces. The absence of the law in the country has resulted in extensive government corruption, misappropriation of the investment finance and monetary speculation. In numerous instances it has been learned that associations with the government has ascertained the success of companies in the country other than market forces. It needs to be mentioned in this context that the country keeps up a feeble and comparatively decentralised government arrangement in order to control the economic functions in China (Morrison & Labonte, 2008). The augmenting pollution in the country is also posing to be a major obstruction in the economic development. The escalating pollution is giving rise to grave health hazards in the country. The government has been often observed to ignore the environmental policies with the intention to trigger fast economic development. The accelerating problem of pollution is giving rise to health as well as water problems and even crop failures which would hamper the economic development of China in future (Morrison, 2011). The potential problems facing the Chinese economy as mentioned above require the government to take immediate measures to arrest these problems and make easy the course of economic development in the country. The government should try and decrease its heavy dependence on the international investment and trade for the purpose of economic development. The country should also think about options in order to facilitate its currency float. The government should also structure proper credit plans for the banks so as to restrict the extensive economic deformations in the country. Additionally, the government needs to structure proper and transparent regulations and laws so as to control corruption in the country. This would encourage competition and ensure proficient distribution of goods as well services in its economy. It should also be made certain that the rules are implemented and practiced in the country with due ethical consideration. The pollution also needs to be controlled immediately as it is hampering the environment as well as production functions along with productivity of the country (Morrison, 2011). The Key Elements of the Current 12th Five Year Plan of China The current plan of China is planned with the intention and purpose to overcome the shortcomings which were witnessed during the economic turmoil. The current plan focuses on striking a proper balance in the economy. The plan is aimed at economic as well as social development. This plan demonstrates an inclination towards the internal or domestic market expenditure more than the investment along with the exports as well. The plan would help to promote industrial consolidation as well as encouraging the economy of the country to scale the value chain. The plan would further help to recognise few fresh Strategic Emerging Industries (SEIs) and thus facilitate a constant attempt to reorganise the economy. The plan aims at regional growth particularly in the second as well as third tier areas. The government would design special policies like land credit, financial support for investment and decreased tax structures. The plan also aims at defending the environment by way of introducing advanced technologies which would help to trim down the burden on the environment or the pollution by the industries. The focus would be primarily on energy protection, environmental excellence along with the growth and the exploitation of fresh energy. There would also be some least augmentation in the wages as well so as to fill the wealth crack, encourage land improvements in the countryside and enhancement of the healthcare benefits keeping in view the ageing population (BDO, 2011). Notably, the balance in the economy would restrict the improper distribution of funds as well as resources which was identified to be one of the major problems in China’s economic growth. This endeavour would also assist to reduce the strong dependency on the international companies by encouraging indigenous innovation (APCO Worldwide, 2010). Thus, from the above discussion of the plan, it is clear that the new plan aims at overcoming the limitations that were observed in the previous restructuring and the economic turmoil. The main problem was the heavy reliance on the international companies for the country’s economic growth which would experience a slump in case of any negative alterations in the international activities. Therefore, the present plan takes this factor into concern and aims at developing the plan to be more effective. The other problems like currency, credit plans, rules as well as regulation are also stated to be enhanced to some extent in the present plan. However, the environmental problem or rather the problem of pollution is being significantly aimed to be managed in the present 12th Five Year Plan (APCO Worldwide, 2010). References APCO Worldwide, 2010. China’s 12th Five-Year Plan How it actually Works and What’s In Store For The Next Five Years. Article, pp. 1-12. B2B International, 2011. White Paper: Entering Chinese Business-to-Business Markets: The Challenges & Opportunities. Home. [Online] Available at: http://www.b2binternational.com/publications/white-papers/china-market-entry/ [Accessed November 15, 2011]. BCG, 2008. Overcoming the Challenges in China Operations. China Report: Studies in Operations and Strategy, pp. 1-18. BDO, 2011. 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Joint Editors and Blackwell Publishers Ltd., pp. 425-442. Wu, J., 2008. An Analysis of Business Challenges Faced by Foreign Multinationals Operating the Chinese Market. International Journal of Business and Management, pp. 169-174. Bibliography Goldman, M., 1999. The Paradox of China’s post-Mao Reforms. Harvard University Press. Ma, S. K., 1996. Administrative Reform in Post-Mao China: Efficiency or Ethics. University Press of America. Read More