Global Business in Emerging Regions - Coursework Example

Global Business in Emerging Regions Contents Contents 2 Introduction 3 Legal environment 11 Risks 12 IP Protection 14 Crime 15 Corruption: 15 Human Rights 15 Values and norms: 16 Societal characteristics: 16 Customs and ethics: 17 Conclusion 19 Recommendation 19 References 21 Introduction In this assignment the country that has been chosen for analysis is the Chinese market. Chinese social economy is the largest in the world in terms of PPP and second largest in terms of nominal GDP. Although this account is disputed, there is however no denial to the fact that Chinese economy has experienced tremendous amount of growth over the past 30 years or so with growth rates averaging 10% over the years. Back in 1995 china’s share to the global GDP was just 2% however as of 2013 china’s share of global GDP is 12%. In PPP terms China’s share was 6% of the global PPP figure however in 2013 the figure has changed to 15%. The local business environment- China’s economy is worth $17.6 billion which is slightly higher than America’s economy that is worth $17.4 billion. The USA held the top position in world economy for more than 140 years since 1872 when it overtook Europe to become the largest economy. However china has recently overtaken the US economy (Carter, 2014). Although there are doubts about this no, there is no denial of the fact that China has experienced the fastest growth in economy and is likely to remain at very good economic condition for several years to follow. There was a time when China’s goods meant to be associated with cheaply made goods and of poor quality. Things have however started to change with the passage of time. As times have changed, there has been strengthening of the economic base and companies from around the world have started opening their manufacturing base in the country. One of the reasons for so many companies globally to manufacture their goods and products in china is because of the availability of cheap labour and a large consumer base. Through its international trade China has accumulated $1.9 trillion in foreign currencies. The nine key industries are autos, steel making, electrolytic aluminium, rare earth, IT, cement and ship building (Jianfeng, 2013). The issue with China’s heavy industries is that it is plagued by over capacity. The business environment in China is shaped and shrouded in mystery. However consumers behave pretty much the same everywhere and the competition is also similar from one country to another. To understand the Chinese market one needs to understand the big trends that are shaping the Chinese market. These trends are like the big tectonic plates under the earth’s surface. If one begins to understand and appreciate these trends then the within the chaotic scenario that exists on the top actual picture can be deciphered. These trends play a major role as revenue and cost drivers and shows up in income statements. All the newspaper headlines, political statements and rise and fall of revenues are actually if fundamentally analysed ramifications of these 6 trends. It does not however mean that these are necessarily good trends. It is not necessary that these trends are sustainable in the long run and each of these trends can be argued to have a bull and a bear trend. This can undoubtedly argued that these trends are big and are drivers of economic activity and can be used to determine China and predict where it is headed to. The trends are Urbanization Largest migration in human history is happening in China with 300 million people moving to the cities and 350 million more on the way. Manufacturing scale The manufacturing base has increased 18 fold over the past 3 decades and is now worth $2.2 trillion in terms of value added. Rising middle class The middle class population is rising rapidly and is slated to comprise of 500 million by 2026 which is a huge market for any industry. Huge monetary deposits China has over $15 trillion in bank deposits which is growing by $2 trillion every year. Focus on Education Chinese government has doubled its spending on education and the no. of college graduates has increased by 7 fold over 7fold of the nos. in 1998. Internet Internet is another major trend in the Chinese economy. 60% of the Chinese population have come online in the past 2-3 years but still the market penetration is low at 40% compared to US which has market penetration of 80%. Although most of the Chinese equity market is still in the hands of controlling parties and domestic investors, the government is slowly opening the market to foreign investments. This implies that if the Chinese equity market is opened to the foreign investors it is slated to become one of the largest equity markets in the world. The Chinese equity market has undergone remarkable growth and transformation over the years. It was once a very close and rudimentary equity market. However by 2013, the Chinese domestic equity market has become the third largest equity market in the world after USA and Japan. The combined market capitalization of all the stocks listed in the two stock exchanges that are Shenzhen and Sanghai stock exchange comes to about $3.3 trillion with a monthly turnover of $480 billion. Globalization and International Trade: China’s global trade volume touched a record high of $4.6 trillion surpassing the US which has trade volume of $3.91 trillion to emerge as the world’s largest trading nation. The Chinese economy is already the fastest growing economy in the world with an average growth rate of more than 10% over the last 3 decades. However the growth rate of Chinese economy has slowed down in the recent years. If however we look at the GDP on PPP basis it is the largest in the world overtaking the USA. In compression to GDP on PPP basis its per capita income is however far less than cat of USA. Although the GDP growth rate of the country has slowed down in the recent years the export and overall trade volume has increased considerably over the years. This is surely going to be one of the relief factors of the Chinese economy. In fact in current years China has come to become one of the major export hubs of all goods and service. Since the cost of manufacturing goods in China is far less in china than any developed nations, so the Chinese goods are much cheaper. Due to this relative advantage Chinese goods are readily accepted worldwide and lot of foreign companies have opened their manufacturing base in China. The major trading partners of China are USA ($521 billion), Hongkong ($401billion), Japan ($312.55 billion), Korea, Taiwan, Germany Australia, Malaysia, Brazil and Russia. Once there was a time in the Chinese history when Mao Zedong in his great leap forward speech had urged the people of China to overtake Britain in steel production and match the levels of America. Today the steel production of China has reached 7 times that of UK and USA’s combined production level. The country’s global imports of Iron Ore have increased from less than 10 percent in 1990 to more than 65 percent now (Anderlini, 2012). To further boost trade and economic activity and to integrate China with the global economy the Chinese government has started implementing FTA or free trade agreements with different countries. These FTA’s will serve as an effective tool to integrate china into the global economy and also boost its economic cooperation with different countries. This FTA will also serve as an effective tool to further boost china’s bilateral trades. China is on the process of developing 20 FTA’s and till date 12 agreements have already been signed. The above map shows the countries with which China already has inked free trade agreements to facilitate trade and the country with which it proposes to ink free trade agreements in future. China has over the years implemented a national trade policy where the primary focus had been to boost export. However since the recent financial crisis which adversely impacted its export and in turn led to the slowing down of GDP growth the Chinese government has relaxed the import restriction to allow imports from developing countries. The Chinese government has agreed to the view that some of the import restrictions are unreasonable and should remove the restrictions in order to boost demand in the domestic market. The Chinese government has singled out 7 particular industries which it has identified to be strategically too important. It is necessary to retain control in these sectors to maintain economic security of the country. The state must retain complete control in these industries and minimize foreign participation (Presse, 2006). China feels that the government must maintain a firm grip on these sectors. It is because the Chinese government feels that these sectors are like the major arteries of the economy and are important not only in economic terms but also in terms of national security. In these sectors state owned assets should expand in volume and scope to provide strong fundamentals to the Chinese economy. Chinese government has long maintained good investments in these sectors but it has introduced the list of these 7 key industries only recently. The list has been released under the fierce debate on home turf regarding the issue that which sector will contribute to the next growth phase of the Chinese economy because of the fact the Chinese industries are losing on several fronts under stiff competition from MNC’s. Legal environment China mainly talks about capitalism but it mainly breathes socialism. The famous personality Karl Marx is of the opinion that socialism mainly presupposes the capitalism. The market of China is very complex and ever changing in nature. The economy of China is expanding rapidly therefore the demand for energy resources, technology and infrastructure is increasing. The business that is carried out in China is widening and it is becoming easier. China is now focussing on the foreign investments with the help of the tax incentives and the removal of legal restrictions that is imposed. The labour cost in China is relatively low as compared to that of the rest of the countries in the world. Figure 1: Market share of China From the above figure it can be analyzed and observed that China is occupying or capturing the maximum share of the market as compared to other emerging countries of the world. The opportunities of China as an emerging market is also widening. China is regarded and known as the factory of the world. And it is responsible for 13.2% of all the manufacturing that is carried out in the world. China also facilitates in lowering the cost of the raw materials and the benefit of the cheap labour that serves as a source of attraction for many of the western manufacturing companies. Risks Patents and the strict laws are imposed in China for safeguarding the domestic and foreign businesses that is carried out by China. The legal system of China is explained and framed very loosely which lead to the awakening of the various loopholes in the legal issues. China relation with the World Trade Organization has lead to the imposition of the amendments in the patent rights and formulation of the international business laws. But presently it is found or observed that the technology of China is being stolen either by the Chinese competitor existing in the country or by the employees that is mainly hired by various firms or organizations in China. Figure 2: Credit Stimulus of China Figure 3: Debt to GDP ratio China economy recommends that China is facing a huge amount of financial crisis China is facing the debt problem that is affecting its productivity and structural reforms. The extent of debt in China is increasing since the year 2009. Many of the anti corruption whistle blower of China is mainly facing the challenges from the whistleblower and they are receiving little protection or security from the interdisciplinary investigators or the police of China that is mainly ruling the Communist party of China. The various types of corruption in China are affecting severely the finance, banking, construction and the government procurement. The judicial system of China is very weak and it is highly influenced and affected by the political issues and corruptions. IP Protection China is presently ranked among the fastest growing economies of the world. Within the recent years the Gross National product of china will exceed from that of US. Relying on the branch the suppliers are depending on the clients which is supporting the easy access to the market. When the textile industry is taken into consideration it is found that all the major players are mainly located in China. Due to the attraction from the foreign direct investments it can be established or derived that the market share of China is mainly situated and encouraged by the Chinese Government. Figure 4: Annual growth rate This figure resembles the importance of the patent which is considered as the strongest intellectual protection right has been identified by the Chinese firms that mainly represents the highest that increases up to 34%. In spite of the development of the intellectual property in China, the duplication of the goods is a challenging factor for the domestic and foreign companies of China. Crime In the process of introducing the product in the Chinese market has lead to the formation or generation of the criminal activities. It has originated while developing the socio economic and political conditions of the market. China as an emerging market has been quite experienced for the regulations to prevent and control the crime from entering the market. The lack of experience of the planners relating to the imposition of regulation in order to prohibit the crime from entering into the market is vital. The authorities in china are not prepared to control the crime that is mainly accompanied by various economic and social dislocation occurred due to the emergence of the market (Trevaskes, 2010). Corruption: The multinational companies operating in China are facing wide and big challenges as regard to the risk arising out of corruption. The factors that has lead to the generation of corruption in china are due to the widening of the wealth gap, the rate of wages that are not progressing as compared to the increase in inflation, the culture that is responsible for glorifying the collection of material wealth, the one party system that is existing in China which deals with concentrating on power and encouraging the extensive involvement of the government in the private sector. The Chinese government has decided to adopt the enforcement of anti corruption activities in China. Human Rights China has been able to develop its income inequality without making changes in the political structure. China has different political and economic system that can be broadly classified as the state capitalism. The significant improvement in the economy of China is the improvement in the income equality of China in recent years. It is also working for implementing innovative and new solution to remove the old problems that were faced by China previously. China is able to improve and develop its economic growth and reducing or removing the poverty. The cultural and social environment China has experienced a rich cultural tradition. The behaviour of the Chinese people is the outcome of the cultural transformation. Chinese culture is different as compared to the culture of other countries in the world. China follows and adopts a very strict and rigid hierarchy in terms of its business culture that is quite different from the business culture that exists in other countries of the world (Wang and Cheng, 2014). Values and norms: The emerging market has the claim of high objective quality of their products. The values and the norms consider the primary explanation by focusing on the similarities in behaviour of the individuals and the differences in the behaviour of the individuals within and across the communities. When the different countries share institutional similarities in the emerging market they also share some similarities in culture. The long term effectiveness in the emerging market across the different markets involves a critical and complex diagnostic. The Chinese society is highly affected by the traditional values that are related to Confucianism. This help in determining and identifying the behaviour of the people within the community. Societal characteristics: The Chinese government has a high level of expectations retaliating to all business operations functioning in China in order to ensure that the corporate social responsibility programmes and the ethics complement and supports the long term strategy and plan of China for the social improvement that is formulated by the Chinese government for the successive five year plans. The pressures on the companies that are carrying out their operation in the emerging market of China are expected to behave responsibly towards the various stakeholders of the country. The civil society organization of China is developing tremendously that acts as an instrumental for drawing the attention of the individuals towards the business behaviour of China. The economic implications of China will become transparent towards the rest of the world. China decided to allocate its savings towards the spending of the official welfare. The social contracts that are carried out in china have lead to the continuous improvement and development of the living standard and social stability of China on the basis of the continuous improvement that has resulted in the growth. The increase in the wages that is provided to the employees and workers are not sufficient for the improvement and development of the financial and social security. Therefore it is required or expected that the employees or the workers should be provided benefit together with the wages. Customs and ethics: Ethics and the expectations that exist within the cultures of China generally affect and influence all types of business transactions. The ethical conflict in China is increasing. Understanding the cultural issues of China in relation to the ethical behaviour helps the marketer in gaining knowledge that is required to achieve success in carrying out its cross cultural business. The primary and the main cultural values are generally transferred to the members by socialization, religion, parenting, education. The secondary factor also affects ethical behaviour of China, These mainly includes the differences in the professional cultures, code of conduct and organizational cultures. The main aim is to find out the differences in the ethical and unethical practices in China. The problem in its implementation is that it is very difficult or complex to apply universally. IN china the connections or the relationships that exists mainly forms the basis of context of the business. The managers in China feel that the relationship and communication will solve various problems. Environment and ecological issues China is a big country. So there is large variation in the climate levels of different provinces at the same time. In the Northeast the summer is characterised by hot and dry climate where as the winters are characterised by cold climate. The north and central regions experiences frequent bouts of rain. In the south west however the climate is semi tropical and is characterised by heavy rainfall, semi tropical summers and cold winters. Almost all development in terms of economic growth in respect of China relates to natural resources. Sustainable development must be incorporated in all segments of growth in relation to planning and management of natural resources. China’s economic growth is taking place at a rapid pace with year on year growth rates are at a high of over 10%. To maintain economic growth there must be reclamation of natural resources. If sustainable planning is not used to chart the growth phase, it will lead to disaster in long term and will have major long term consequences. China has a large population level and has poor economic foundation. It has engaged in increased level of urbanization and industrialization. Its natural product is inadequate and Gross National product is far less than the global average. The traditional mode of resource consumption and the current inefficiency of economy are severely threatening long term utilization of natural resources. So the strategy should be to sustain high economic growth rate and maintaining continuous growth rate while maintaining low social and natural resource consumption. China is facing increased shortage of natural resources with water levels, amount of cultivated land available resulting from surge in population and more than adequate dependence of economic growth on natural resources. This will hamper long term sustainable development of society and economy of China. Conclusion China is an emerging market. China is regarded and considered as the workshop of the world with the people engaged in the manufacturing and assembling of the various products that is demand throughout the world. China has a strong and powerful financial sector that is involved in meeting the various needs of the modern economy and in relation with the global trade. The industries in China have been privatized and the government of China is working hard and putting its effort towards converting the structure of the companies according to the private sector. China is on the phase of the growth and development and in the verge of new innovations. The international investors are likely to have more access towards the securities for getting a proper exposure of China. Chinese government is engaged in maintaining a strict control over the lives of the people for promoting private ownership, entrepreneurial ventures and international investment. Recommendation China is leading in the economy as an emerging market in terms of its purchase power parity as compared to USA. China has surpassed USA in terms of global trade volume. But in recent years the trade has declined due to the global recession in the economy. Therefore China is trying to boost its market by reducing the restrictions that is imposed on imports. The increase in the consumption and the production is likely to charge China on its further resources. China economy as an emerging market is mostly trouble free but it may not continue in future due to the tight government control. References Anderlini, J. 2012. Global economy: when china sneezes. [online]. Available at: http://www.ft.com/intl/cms/s/2/8514c0dc-17af-11e2-9530-00144feabdc0.html#axzz3ME6wbsbB. [Accessed 18 December 2014] Carter, B. 2014. Is chinas economy really the largest in the world? [online]. Available at: http://www.bbc.com/news/magazine-30483762. [Accessed 18 December 2014] Jianfeng, Z. 2013. China restructures 9 key industries. [online]. Available at: http://english.cntv.cn/program/bizasia/20130123/102164.shtml. [Accessed 18 December 2014] O. Gassmann ET al. 2012. 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