Entry into Chinese Market - Case Study Example

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Entry into China Organizations in any sector to survive and succeed have to expand its geographical and economic limits, without remaining “inert”. Organizations including retail firms cannot always depend on its domestic market to optimize its growth, and instead has to enter new territories or countries to tap good opportunities there…
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Download file to see previous pages When they decide to enter newer countries, firms have to analyze both the opportunities as well as challenges, so that those challenges can be effectively managed. The first aspect they will have to analyze is the entry mode, so they can pick the best entry mode which has minimal risks, and this applicable to retail firms as well. In addition, they have to focus on the economic and legal aspects that could aid as well as impede them. China is one country, which has optimal opportunities for all firms including the retail firms like the fictional firm of Pesco. This paper will discuss the advantages as well as the disadvantages of entering China by the firm Pesco, focusing on the feasible entry modes, and how Pesco can or have to manage the economic and legal aspects. With the onset of globalization and the opening of the Chinese markets in 1990s, foreign firms particularly retail firms are more than eager to enter to tap the large prospective customer base. China being a country which runs on Communist principles, for most part of the 20th century, China raised an “Iron Curtain” and restricted the foreign firms’ entry, thereby protecting the indigenous firms. However, with globalization providing more opportunities to firms, and with its entry into WTO, Chinese government started to allow foreign firms into its territory. “Indeed, if we can identify a single moment when the ­Western-­dominated Globalization 2.0 gave way to Globalization 3.0, it may have been when China acceded to WTO membership on December 11, 2001” (Walker, n. d). Due to these developments, China particularly started lessening its trade restrictions particularly in the retail sector. The foreign firms for their part are enticed by the huge population of China and how they can be tapped as a huge customer base. “Most of the world’s major global retail firms are desperate to grab a slice of the world’s largest and most rapidly growing emerging market” (Gamble, 2006). In addition, the sizable sections of this population have high purchasing power. As the Chinese economy as a whole, is improving optimally, it has resulted in the accentuation of its citizens’ purchasing power, and for the retail firms including Pesco, this can be huge advantage. Because of this favorable business environment in China, Pesco can open its retail outlets. When it comes to the entry mode, Pesco can enter in the form of wholly owned subsidiaries. This entry mode can provide many advantages for Pesco, including in the economic and legal sphere. However, there are risks as well, when this mode is adopted. The first advantage Pesco can garner if it uses the wholly owned subsidiary option and not the joint venture option is the benefits from the new tax regime. The main feature of this new tax regime is that foreign firms as well as foreign firms having joint ventures with Chinese entities have to pay land-use taxes, which is equal and even more than the indigenous Chinese companies and foreign firms’ subsidiaries. That is, in under the earlier favorable tax regimes, the foreign firms including joint ventures were given exemptions from the land-use tax, and were also given permission to construct infrastructures on non-taxed lands and function in them. However, in the new tax structure, foreign firms’ tax payments have been even tripled from the old rate. That is, “in large cities the annual property tax rate will range from 1.5 ...Download file to see next pagesRead More
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