Managing Multinational Operations IP 4 - Essay Example

Foreign investors need to consider many factors when planning their investments in China. There are many restrictions which apply only to them. In addition, the complex approval process, layers of government bureaucracy and consequent time delays are often difficult for investors unfamiliar with doing business in China to grasp. It is therefore recommended that specific and tailored professional advice is sought prior to commencing business in China. Comprehensive professional advice is available from legal officers in Greater China region.

Due to the above discussed issues it is important for any foreign investor to consider the following factors when doing business in China. This is based on the fact that long term investment project require a thorough understanding of all business attributes of doing business in that country. From the onset, any potential foreign investor needs to understand that China is very restrictive on most direct investments into the country unless their need is thoroughly justified. Foreign investments in China are strictly regulated on differential basis depending on the sector or industry.

The catalogue for guiding foreign investments (Investment catalogue) is issued by the Ministry of Commerce and National Development and Reform commission and sets out the specific industries which are classified as “encouraged”, “restricted” or “prohibited” for foreign investment industries (Smithson, 2010). The ones that are not specified in the catalogue are classified as permitted for foreign investment. A consideration of the investment is one of the first tasks which should be undertaken by a foreign investor contemplating any investment in China.

Business scope is also an issue to be considered. All business in China is required to operate within the terms of their business scope which must be approved by the relevant government authority. Approved business scope is evidenced by a business license issued by the State Administration of Industry and Commerce or its local office. Business activities are generally restricted to defined activities. As an entity may not act beyond its scope it is important that in determining the business scope it is not defined so narrowly that it restricts the permitted operations of the company.

A foreign investor in China needs to consider too the accounting requirements that the regulatory framework imposes on all businesses in the country. Accounting laws and regulations have been formulated for enterprises with foreign investments and are generally close to internationally recognized accounting standards although slight differences exist. Statutory audits are required for enterprises with foreign investments. This is the surest way to win the trust of the Chinese that you are worth conducting a business in their country.

It also shows the level of commitment and financial worthiness. Another decisive factor that also comes into focus in the pre-investment analysis and should never is ignored is the type of incentives to be offered is also a factor to consider. It is very necessary in a competitive business enterprise as it determines customer’s choice. At the same time it increases the expenses lowering the profit to be made so it must be selected wisely. In