China Country Profile - Term Paper Example

Running Head: country profile-china Country Profile-China Introduction China has undoubtedly grown to be the world’s fastest growing economies and has beaten the United States in the race of growth, development and economic progress. Such accomplishments are attributed to the political, social, technological and economic environment of China. Its cultural configuration also matters a lot in the academic relevance of China as a topic of unprecedented growth. This report aims at conducting a PEST analysis of China alongwith its cultural analysis through Hofstede’s measures and a comparison of the same with the culture of Canada. PEST Analysis of China China’s political system is very much in the hands of bureaucrats and government officials. One has to rely on them to get business done- this is due to the tradition of ‘guanxi’ (Tian n.d) which is about maintaining good relations with the Chinese. In China, it is not the law that matters but the people in power and their interpretation of the law. Due to this very practice, free trade agreements and ease of starting business in China still rests in the hands of bureaucrats and how well one maintains terms with them. Due to government interferences, tariff rates are high but recently, due to globalization, tariff rates have been lowered down in China. Strengthening the ‘reform’ policy (Tian n.d), rates of applicable taxes have also been reduced which has created a favorable environment for new business in China. Economically, China is growing at a rocketing speed and is soon coveted to be the world’s biggest economy beating the US. The average income of Chinese is increasing which signals growth in the demand of consumables and house-hold products. Due to housing subsidies introduced, real estate sector is also booming in China. Socially, China is a very business-favorable nation. Its population reduces doubts of shortage of customers and target markets. Literacy rate is also high in China which means upscale products can easily be produced and marketed. Chinese people prefer products and items carrying the first-mover advantage with them. Urban population in China emphasizes on brand while the rural population is more inclined towards price and quality of products. Due to fast paced urbanization, trend of stylish and high-priced products has picked up in China. It is also a proven fact that due to corruption in China, people tend to report lower income levels than what they actually possess (Tian n.d). Hence, the actual income levels are higher than expected in China thereby highlighting greater disposable income and spending power. China has undertaken rapid development of technology and technology related products. Information technology in China is now one of the most lucrative sectors to invest and operate in. Chinese have become highly internet savvy with more than 500 million internet users. Not only in technology but also in the use of nuclear reactors, China has attained a pioneering status in the deployment of safe and cost-effective non-conventional sources of energy (Tian n.d). Hofstede’s Analysis for China Geert Hofstede identified 5 dimensions through which the cultural drivers of a country can be deciphered and based on those dimensions; cultural differentiation can be facilitated between countries (Geert Hofstede n.d). The five dimensions are: Power distance: it is a measure of distribution of power in the society and its acceptance by people. Individualism/collectivism: individualism is a measure of “loosely-knit social framework” (Geert Hofstede n.d) where a person thinks of himself and his immediate family only. Contrary to it is the concept of collectivism in which togetherness, mutual sharing, “closely-knit social framework” and feeling of ‘we’ prevails. Masculinity/femininity: masculinity is the dimension of achievement, materialism, success, ambition and assertiveness. Femininity measures the softer side and features care, love, quality, affection and modesty. Uncertainty avoidance: uncertainty avoidance measures how scared or jeopardized members of a society feel in conditions of uncertainty, risk or ambiguity. High score highlights rigid behavior and beliefs while low score means relaxed attitude. Long-term/short-term orientation: societies with short-term orientation believe in the present; they want quick outcomes, worry little of the future and believe more on deeds. Societies with long term orientation are focused on future, perseverant, adaptive and like to reap the benefits in future. Based on these five dimensions, a comparison of China and Canada goes as follows: Source: (Geert Hofstede n.d) The above figure demonstrates that Power distance in China is high which means inequalities in power are acceptable and authority and command rule over consensus and coordination. Canada ranks low in this regard which means power distribution is equal and superior-subordinate relations are guided by initiative. China is a “highly collectivist culture” (Geert Hofstede n.d) due to its low score in IDV whereas Canada scores 80 which means interdependence of people in Canadian society is very low and people mostly think about themselves. At 66, MAS denotes China to be a masculinity-oriented nation which is driven more by success, materialism and aspirations. Canada is a feminist society which believes in the soft side of life and depicts affection, care and cooperation by its low score. Chinese do not get worried in uncertainties or ambiguities while Canadians do. Chinese follow rules but are not rigid and try to match regulations with situations; Canadians are rigid in their attitude towards rules and abiding laws. Long-term orientation in China is very high which means they believe more in the future, save and invest in resources and are very much patient. Status determines the order in Chinese families. On the contrary, Canada is a short-term oriented country which believes in the present moment and is desperate in getting quick results. Operating in China China offers immense opportunities of doing business. There is plenty of labor available at low cost, manufacturing facilities with economies of scale, developed legal system and overall growth potential of the country which allures foreign investors foray into the business environment of China. Business opportunities in China are large and spread across sectors like real-estate, energy, environment, conservation, and tourism and information technology. However, upon analysis of its PEST factors, business structures and incentives, setting up an energy business in China is recommended. High population, increasing demands for necessary supplies and continuous deforestation has affected the Chinese natural environment adversely. Pollution has increased manifold, air-borne diseases are spreading due to poisonous gases and flora-and fauna is deteriorating. Under such circumstances, demand for non-conventional and safer sources of energy is high. China is also witnessing an increase in the amount of FDI in various segments and hence it has taken various steps to encourage multinationals to invest further in China. For instance, multinationals willing to invest in its energy sector would be entitled to several tax incentives, sector rebates and resource-based exemptions. If the multinational focuses on a rural location, they will further qualify for reductions in income taxes and federal tax incentives (Deloitte 2012). Most of the automobile, pharma, electronics, computers, banks and oil and gas companies have set up their operations in China and with time, the need to energy management will be felt immensely in China, giving lucrative future prospects to this business. Setting up an energy company in China is a daunting task and the options available are either a Joint Venture or a Wholly Owned Subsidiary. In a Joint Venture, capital is contributed from both the partners and costs and risks are also shared. Foreign partner also uses the contacts and business relationships of the local partner but it also increases dependency on the local partner. Secondly, piracy risks increase and decision making process gets longer. Significant cultural differences can also mar smooth functioning (Ecovis 2012, p. 28). Unlike a JV, a WOS takes fast decisions, possess protection on technologies and know-how and is independent in its activities and processes. However, it also suffers from limitations like single-handed capital investment, limited knowledge of Chinese market and customs and the long time period needed to build good contacts (Ecovis 2012, p. 28). Since ‘guanxi’ controls all functions in China and one-to-one contacts are quintessential in getting things done, initially a JV is suggested to be the preferred mode of setting up energy business in China. Later, one can buy the shares of the local partner too and become a wholly owned subsidiary. Conclusion Every multinational has been eying China to set up a business, owing to favorable conditions and changing environment where international trade laws and rules are being liberalized for the betterment of the whole country. If proper regulations are followed and ‘guanxi’ adhered to, a business is sure to pick up in China and flourish to expand internationally in future. References Deloitte. (2012). The China Factor: Doing Business in China. Retrieved < http://www.deloitte.com > [Accessed March 17, 2013] Ecovis. (2012). How to start up a business in China 2012. Retrieved < http://www.ecovis.com/fileadmin/countries/china/how_to_start_up_a_business_in_China.pdf> [Accessed March 17, 2013] Geert Hofstede (n.d). What about China? Retrieved [Accessed March 17, 2013] Tian, X. (n.d). Managing International Business in China. Cambridge University Press. Read More