Country and Market Analysis for Emerging Market - Essay Example

Country and Market Analysis for Emerging Market Table of Contents Introduction 4 Part A: The Local Business Environment 4 Key industry segment of China 4 Opportunities for China 5 Market Trends of China 5 Equity markets of China 5 Part B: Globalisation and International Trade 6 Key trading partners 6 Trade agreements 6 National policies 7 Protected industries 7 Part C: Legal Environment 8 Legal risks 8 IP protection 9 Human rights 9 Stability 10 Freedom of corruption 10 Part D: The Cultural and Social Environment 10 Ethnic and language groups 10 Cultural values 10 Religion 11 Changes in the trends and lifestyles 11 Education levels 11 Labour freedom ranks 11 Cultural dimension 11 Part E: Environment and Ecological Issue 12 Climate 12 Air pollution and carbon dioxide emission 12 Deforestation 13 Stewardship of natural resources 13 Conclusions and Recommendations 13 Reference List 14 Appendices 17 Appendix 1 17 Appendix 2 17 Appendix 3 18 Introduction Country analysis includes the interpretation and examination of political, social, environmental, and economic environment of a country or nation (Currie 2012). It presents a complete overview of a nation. The country analysis is regarded as useful for those companies which are intending to start a subsidiary and also for the investors in financial market. It is also useful for the firms desiring to enter into the novel market and for the people desiring to be a resident of the country (Solberg 2002). Market analysis involves the dynamics and attractiveness of a market within the industry. An analysis of the entire market is considered as the part of industry analysis as well as global or international environmental analysis (Stevens, Sherwood and Dunn 1993). With the assistance of this analysis, ample business strategies of particular company or firm can be identified. Market analysis includes the identification of market size, market opportunities, growth rate, and market trend of a particular country (Burgemeister 2003). The main objective of this paper is to focus on the local business environment of an emerging market as well as its international and globalisation trade. The legal, cultural and social environmental factors which include legal risks, intellectual property (IP) protection, human rights, corruption, norms and values, etc of an emerging market will also be taken into consideration. Finally, emphasis will be given on the ecological and environmental issues which will have an impact on the emerging market. Part A: The Local Business Environment The selected emerging market is China which offers sufficient market opportunities for the overseas or foreign investment. China has a great potential for the economic growth and it presents access to substantial savings in the labour costs and also to large market. Key industry segment of China The most leading segment of the China’s economy is its manufacturing sector and the industries. In spite of 3.3% drop in the composition of country’s GDP, the industries of China still accounted for approx 45% of the China’s GDP during 2012 (Economywatch 2013). It cemented the position of China in terms of world leader of the industrial output. Major industries of China include iron; steel and aluminium; ore processing and mining; apparel and textiles; machine building; chemicals; consumer products such as electronics, toys and footwear; petroleum; fertilisers; cement; transportation equipment; food processing; and telecommunications equipments industries. In the year 2012, it encompassed the 28th highest growth rate of industrial production in the world and was recorded at 7.9% (Economywatch 2013). The metallurgical and machine-building industries have gained the highest precedence. These two segments alone accounts for 20-30% of entire gross value of the industrial output. In 2010, the services output of China ranks 3rd worldwide and the telecom and high power density had stayed on high-growth path. The heave in services indicates the partial rebalancing of the Chinese demand or requirement away from the exports and in the direction of consumption (Economywatch 2013). Opportunities for China China has opportunities in terms of ongoing infrastructure drive and urbanisation as these will provide chief opportunities for the foreign/overseas investment in landlocked regions as well as transfer of expertise and skills. The Chinese government is providing more encouragement and protection to private sector. It has been analysed that the private sector accounts for major portion of country’s occupation growth. China also has opportunities in terms of easily targeting the bottleneck industries of transportation, communication, and energy (Shilei and Yong 2009: 2088-2101). Market Trends of China The new consumer market of China presents five market trends which should be taken into consideration. These are value over cost; a varying family situation; increasing significance of wellness and health; increasing connectivity and digitisation; and exponential development of the consumer growth. Now the customers of China are giving more importance to the quality of products and are ready to pay more for it. China is scuffling an ageing demographic which will affect the country. Food scandals and air pollution are the problems from which the country is fighting. Due to this, health industry has peaked recently. The use of E-commerce and social media is increasingly included in Chinese consumers’ lives. Currently, China is experiencing enormous expansion in E-commerce. It is forecasted that the worth of E-commerce by 2015 will be $540 and by 2020, it will be more than the E-commerce in the UK and US (China Briefing 2014a). Equity markets of China The equities market of China gave a perceptible wheeze, possibly triggered by the latest attempt of the regulator to cool the margin lending facility by tightening the systems for the Chinese investors, the way they borrow to purchase shares. The market of Shanghai shed 1.6%. Over the last one year, the equity market of Shanghai has doubled, thus fetching it to the highest level, even the economy of China has sputtered (Financial Times 2015). The announcement by the “China Securities Regulatory Commission” (CSRC) raised uncertainties of selloff, where the major market index has just doubled and the index which is riskiest is up by 70% in 2015. In China, a selloff could have an effect on markets across the globe. If China is losing 5% then it’s going to reflect on the global sentiment (See Appendix 1). The regulators are in view of easing the rules which have clogged-up small investors from putting their cash in the stock market of Hong Kong. The ease in the rules could embrace expanding as well as crumbling the investment quota (Wall Street of Journal 2015). However, China believes that rising equity markets will boost the entire economy. The CSRC announced new systems to narrow the utilisation of the leveraged money especially for trading as well as push mutual funds to provide more shares to the short sellers who are betting on the fall of stock (Fortune 2015). In April of 2015, the stock market of China rose to index point of 4217.08 from 3747.89 in March (See Appendix 2) (Trading Economies 2015). Part B: Globalisation and International Trade Key trading partners China is the world largest exporter and it shipped products worth of $3.343 trillion across the world in the year 2014. It represents approx 12.9% of total global exports approximated at the value of $18.2 trillion. The leading ten trading partners who have imported most of the Chinese shipments during 2014 are as follows: The United States, European Union (EU), Hong Kong, ASEAN, Japan, South Korea, India, Russia, Taiwan, and Brazil. US had imported 16.9% of Chinese export shipments. EU had imported 15.83% and Hong Kong imported 15.5% of Chinese export shipments (Statista 2015). Least volume is imported by Taiwan i.e. 1.98% (See Appendix 3). Trade agreements The government of China considers ‘Free Trade Agreements’ as a fresh platform to speed up the domestic reforms and also to become open towards the outside party. It is considered as a valuable approach towards integrating into the global economy as well as strengthening economic collaboration with other countries. At present, China has total 20 Free Trade Agreements under erection, amongst which 12 have been already signed and executed (Ministry of Commerce 2015). China’s Free Trade Agreements (FTAs) include Macau and Hong Kong and the agreement is called as “China-Hong Kong Closer Economic Partnership Agreement” which provides various advantages to the foreign investors especially those who commenced local corporations in Hong Kong. The agreement helps to reduce dividend taxes and withholding on monies which are sent back to territory from mainland. Further, it has entered into trade agreement with the New Zealand, which will assist in mutual trade and investment in services (China Briefing 2014b). National policies National defence policy is pursued by China which is entirely protective in nature. National defence of China provides the assurance for maintaining unity and security of the country, and recognising the objective of constructing a prosperous society. To construct or build a fortified or powerful national defence is considered as a deliberated task of the country’s modernisation drive. A three-stage growth strategy is pursued by China in modernising the armed forces and national defence, in agreement with the overall plan of the state to appreciate modernisation. The initial stage is to put down an unyielding foundation by the end of 2010. Second stage is to create major progress by 2020. The last stage is to fundamentally reach the objective of building armed forces (Government White Papers China 2015). The national policy of China for the novel stages are described as follows: Upholding unity and national security, and guarantee interests of the national progress or development. This comprise of resisting and guarding against aggression, and defending against infringement of territorial air and sea space and boarders of China (Government White Papers China 2015). Executing the military defence strategy of the active defence and following a self-protective nuclear strategy. The nuclear energy of the country is a matter to the military strategy and nuclear policy of the state. Its fundamental objective is to dissuade other nations from threatening to utilise nuclear weapons in opposition to China (Government White Papers China 2015). Protected industries China has made substantial progress in shielding its domestic industries by means of safeguard mechanisms, anti-subsidy, and antidumping invoked under the WTO (World Trade Organisation) rules and also in agreement with the regulations of the country (China Internet Information Centre 2003). Progress was achieved through a sound legal system. Following the WTO entry, it has initiated new measures in order to bring in anti-subsidy, antidumping, as well as safeguard mechanisms. Those measures are investigation and negotiation cases; safeguarding of steel industry; and early warning methods (China Internet Information Centre 2003). China has also listed six industries which are significant to the economic security of the nation. In these industries, the country must preserve absolute control as well as limit the participation of foreign entities. Those industries are military equipment, shipping and civil aviation, power generation, coal, telecoms, and oil industry. In 2002, the nation explored 10 antidumping cases. Six cases were gone to settlement and financial penalties were imposed on them. The Trade Commission makes its exploration into the destructive trading practices supported by principles of fair play, openness, arbitration and justice. Eleven types of steel products which are imported are examined in agreement with the rules of WTO and in agreement with safeguard measures of China. The foundation of early warning methods in order to expose destructive trade practices had made good development or progress in case of several industries, especially the auto industry in China (China Internet Information Centre 2003). Part C: Legal Environment In China the legal structure for the E-commerce is still in the beginning or early stage. The country has very understanding for drafting legislation of E-commerce for issues like tax and protection of IP rights. Legal risks China is mainly hazardous or unsafe with respect to its legal risks. There are risks of contract repudiation, confiscation, currency inconvertibility, and expropriation. The possible problems are rampant inflation and currency devaluation which are causing chaos on the sufficiency of the insurance limits. There is a legal risk for the overseas investment in China. Legal hazard in the overseas investment is unfavourable result or the probable liability invited by the disagreements in the legal system of overseas/foreign investment. It may also take place due to conflicts between the actions of the overseas investors and associated legal institutions (Potter 2004: 465-495). The present legal system of China, which is governing the foreign investments, presents a collection of fundamental rules for the investors. The imperfections and underdevelopment in these rules may bring some legal risks for them. The poorer quality of country’s legal system is making it to perform as a lawful risk-maker (Li 2007). In China, the foreign companies functions in a tentative and politically influenced climate. Local competitors are frequently able to steer the business environment of the country. Legal shields are weakly enforced and the copyrights are erratically protected. The foreign corporations also face the reputational risks (Harvard Business Review 2006). IP protection Intellectual property can be protected or confined under memorandums of understanding (MoU), world treaties, and national laws. The laws of intellectual property are frequently regional laws which originate in a particular company and have an impact on the residents of that nation. The issues related to the intellectual property also have an effect on the global trading when innovations and ideas cross countrywide borders (Zhou and Poppo 2010: 861-881). In the past years, it has made some efforts in order to protect the intellectual rights. In the year 1992, China and the US signed the MoU to protect the IP that requisite China to guarantee certain protection of intellectual property. Moreover, it agreed to comply with the ‘Worldwide Copyright Convention’ and ‘Berne Convention’. By signing these two accords, China has vowed to develop protections of intellectual property and also to establish equivalent rights for the foreign investors. The execution of laws has established as lacking, because of the vagueness in the regulations and lead to problems in enforcement. Vagueness in the regulations creates loopholes. One provision permits few replicas of products that can be made or prepared for the non-commercial use. Another provision restricts publication of such products which has been copied from other products (Zhou and Poppo 2010: 861-881). Human rights China reports in the Human Rights Practices of 2007 noted country’s continuing and well-documented abuses of the human being rights in breach of globally recognised standards, stemming from the failure of lawful safeguards and authorities’ fanaticism of dissent for necessary freedoms. Reported abuses or violence have incorporated lengthy and arbitrary incommunicado detention, torture, ill-treatment of prisoners, forced confessions, and also severe constraint on the liberty of speech, assembly, religion, the press, privacy, worker rights, associations, as well as limitation on coercive birth. In the year 2006, it continued the harassment, arrest, intimidation, and monitoring of defence lawyers, journalists, political dissidents, internet writers, and religious activists. The acts of NGOs i.e. the non-governmental companies, especially those which are relating to the statute of law as well as expansion of the judicial reassessment, persist to be controlled (Fogel 2010). Stability The overseas business activity level in China has plunged dramatically including foreign investment and tourism. The companies which are not already engaged with the Chinese business are cautious of doing investment in China, whereas the countries which are already engaged with their investment activities are waiting for that period/time in which the economic growth will start again and they also deem that, this time China will not drive out the foreign investors. At the similar time, the economic growth of China since 1980 has improved drastically and this has resulted in improved social mobility as well as expanded the scale of individual freedom. It meant considerably larger freedom of employment opportunity, travel, housing and job choices, and cultural and educational pursuits. In the latest years, the country has also approved new civil and criminal laws that offer additional safety to the citizens (Fogel 2010). Freedom of corruption Corruption is widespread in China. It ranks 72 among 179 nations in the ‘Transparency Global Corruption Awareness Index’ for the year 2008. It affects government procurement, finance, construction, and banking most severely. Corruption is in high level due to the lack of courts and self-governing investigative bodies (Zhou and Poppo 2010: 861-881). Part D: The Cultural and Social Environment Ethnic and language groups In China, the minority nationality is a set of persons who occupy a general or common area, speaks a local language, as well as shares a general sense of communal values. The minority community represent a relatively small part of total population. Irrespective of this, they encompass importance in the Chinese society due to their strategic territories which they have occupied (Fogel 2010). Cultural values The culture of Chinese citizens is extremely complex, though scholars agree that in spite of diversity of the Chinese society, many shared features persist. These develop from the invasive influence of the Confucian beliefs of Chinese culture. The main values of their culture comprise of: importance of family, focus on achievement through hard work, cultivation of self-restraint and morality, and hierarchical structure of their social life. Chinese society and culture can be described as ‘collectivist’. The family member takes priority over the individual member (Fogel 2010). Religion The government of China recognises five religions within the community which are Islam, Catholicism, Buddhism, Protestantism, and Taoism. Religious supporters who try to show their belief outside of country-controlled religious venues as well as unregistered sacred groups are subject to detention, harassment, and intimidation. China is designated as a “State of Particular Concern” for particularly rigorous violations of the religious freedom. The religious beliefs of Chinese citizens are assorted and wide-ranging, deriving from various religious traditions (Fogel 2010). Changes in the trends and lifestyles In China, the trends and lifestyles change in several ways for example the consumption level, transformation in the lifestyle, attitude towards the novel product, and also their preference is shifting from the quantity satisfaction towards the quality satisfaction. Moreover, modification in trends can be observed from the fashion level where residents tend to purchase more striking colour clothes compared to clothes of dull colour. Education levels The rate of literacy is 91% which means that this portion of the residents can write and read at a particular age. The standard year of education is around 11.2 years. The education expenditure is 1.9% of GDP. Labour freedom ranks The labour regulations of China hinder entire employment as well as productivity growth. The non-payment cost of recruiting an employee is high. Discharging a worker require earlier consultation with labour union and bureau of local labour. Cultural dimension The cultural factors of Geert Hofstede are considered on five dimensions which are collectivism versus individualism, power distance, orientation of long term, uncertainty avoidance, and feminity versus masculinity. The individualism level of China is in the low end because of their collective nature. The power distance dimension is at the high end because of their hierarchical structure of their social life. China has very high intolerance level for uncertainty, stemming from country-owned bureaucracy demonstrated by lack of uncertainty or risk. The assertiveness degree is the lower end towards nurturing as well as cooperative living. China is at the high end on the orientation of long term dimension because the country has almost highest savings rate in the world (Fogel 2010). Part E: Environment and Ecological Issue Climate With immeasurable territory, China experience diverse weather condition. There are mainly four seasons i.e. winter, summer, autumn, and spring. It comprise of subtropical climate during the winter and summer season because the temperature reach extremes in both the seasons. Besides the climate change, the fast economic growth in the last thirty years leads to worsening of the air quality. Air pollution is considered as the main cause which is affecting the environment of China. Many cities there have been badly affected by the unclear weather. The universal climate change is drawing more attention and the government of China is promoting applications of renewable energy with immense efforts through sequence/series of inducement policies publication (Reeep 2015). Air pollution and carbon dioxide emission In China, the main environmental issue is the air pollution (such as the particulars of sulphur dioxide and the greenhouse gases) which is caused from the over-dependence on coal and it produces the acid rain, which adversely have an impact on the health of the people. The discharge of carbon dioxide (CO2) in China is maximum as compared to other countries and is increasing annually (Shui and Harriss, 2006). These problems are taking place due to the industrial growth in China. The emission of carbon dioxide is produced by several coal-burning plants. So, the industrial development has impacted negatively on the environment by decreasing the natural resources and increasing the pollution. Apart from the air pollution, water pollution is also the area of concern. According to the environmental report, water is polluted in more or less all the rivers and almost half of the residents are lack of fresh and clean water. Approximately, 280 million people make use of contaminated water especially for drinking purpose (Huang and Rozelle 1995: 853-864). Deforestation Deforestation is regarded as the key contributor to the most noteworthy natural disaster of China. In the year 1998, around 3660 people died as well as 200 million citizens were affected because of flooding (Tanner et al 1989: 660-665). Stewardship of natural resources The country has plentiful of mineral including iron ore, manganese, petroleum, coal, natural gas, mercury, tungsten, magnetite, tin, aluminium, uranium, zinc, lead, etc. China is regarded as largest in terms of hydropower potential around the world (Tanner et al 1989: 660-665). Conclusions and Recommendations China is known for its growing market which is infused with economic growth and rapid industrial growth. It is a significant business partner of Hong Kong, United states, and European Union. National defence policy is pursued by China for constructing a prosperous society. China has opportunities in terms of ongoing infrastructure drive and urbanisation. The new consumer market of China includes the use of E-commerce and social media. China believes that rising equity markets will boost the entire economy. The country is unsafe with respect to its legal risks as the legal shields are weakly enforced and the copyrights are erratically protected. China and the US have signed the MoU to protect the IP rights. China is alleged for not complying with the Human Rights Standards. The main values of their culture comprise of: importance of family, cultivation of self-restraint and morality, etc. Air pollution and carbon dioxide emission are the main issues which are affecting the lives of the people. Doing business in China could be difficult because of many differences and uncertainties in the cultural, political, and economic environment. The Chinese give more importance to carrying on business with the firms they know, therefore doing business there can be critical. As the emission of CO2 in China is highest as compared to other countries and air pollution is also considered as the main issue which is affecting the health of the people, therefore it is recommended that the government should implement environmental policies and law for the products as well as energy/industrial facilities. They should strengthen monitoring, enforcement capabilities, and inspection on the services and products that creates pollution throughout the state. It is also recommended that the citizens should extend the utilization of user charges, pollution charges, emissions trading as well as other instruments which are market-based, by taking the social aspects into consideration. 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