Business Growth of China and India - Research Paper Example

Table of Contents Introduction 2 India’s Business Relation with the UK 3 UK Company in India 3 Tesco 3 Johnson Matthey 5 Shell India 5 BP 7 China’s Business Relation with the UK 8 UK Company in China 8 Tesco 8 Johnson Matthey Hong Kong Limited 10 Shell 11 BP Amoco 13 Conclusion 14 References 15 Appendices 20 Introduction China and India are the two leading economies with respect to attracting various British companies to do two-way business in their country. These two countries vary in a number of characteristics. China has been considered as the most attractive country for British exporters and importers for several years. It has cheap labour, growing consumer market and favourable business conditions. India too has cheap labour but tries to strongly focus on strong and qualified labour and using new technology. China’s GDP growth was 9.9% in the year 2005 and according to World Bank, China’s projected growth rates from 2005–2009 was 8%. China was one of the top recipients among developing countries which had inflow of around 72 billion USD in 2005. While China had experienced already high growth rate, India’s growth rate was around 4% per annum. According to World Bank, India’s growth rate was around 8.3% - 9.2% after 2003. Therefore, both the countries are relatively attractive for British companies (Homlong & Springler, 2009). India’s Business Relation with the UK India’s relation with the UK has strengthened with regard to business. Both countries have maintained a healthy relationship, for several years, in term of export and import and business relationship. In whole European region, the UK is largest business partner of India and compared to the whole world, the UK is 5th largest business partner of India. The import and export between UK and India had increased by 20% in the year 2005, i.e. £7.9 billion. The UK’s export to India had increased by 21.3% in the year 2005. The major items which India imports from the UK are non metallic material, telecom tools, transport tools, industrial machinery, power equipment, gold, crude chemicals, vegetables and fruits (India Pakistan Trade Unit, 2008). UK Company in India Tesco Tesco is UK’s one of the leading retailers and world’s third biggest traders. This company has 4 business units which are the UK business, International Business, Retailing Services and Non –food. Approximately 4 million t-shirts and vests were sold in Tesco’s Indian stores, which accounted 40% of Tesco’s import in the year 2004. Tesco provide low cost and quality products in India. Tesco supplies textiles worth 72 million USD annually. In the year 2004, the company’s revenue from India was around 67.5 million USD (Tesco, 2005). Attractiveness in India India’s low cost advantage for sourcing cheap but quality products is the major reason for attracting business. Tesco sources around 72 million USD of textiles from India annually. Tesco has realised that India’s major strength is their availability of skilled and educated labour with low cost. This is the reason for Tesco’s successful business in India (Tesco, 2005). Johnson Matthey Johnson Matthey is a UK company which deals with pharmaceutical materials, precious metals and catalysts. It is one of the leading companies in superior material technology. It has two divisions in India which are Catalyst and Ceramic. The company is making automobile emission catalysts in India since 1998. For Johnson Matthey, India is a key base for export. Approximately 75% of catalysts and technologies product are exported from Johnson Matthey (Johnson Matthey, 2005). Attractiveness in India India’s major attractiveness is skilled and educated manpower, which is available at competitive cost than any other countries. It helps companies to set up manufacturing unit in India and operate at less fixed costs. The other important aspect is India’s potential market. The vehicle market of India is growing rapidly which in turn is a great opportunity for Johnson Matthey. The company perceived that India has capacity to sell 1 million automobiles annually (Johnson Matthey, 2005). Shell India The Royal Dutch Shell Group is one of the leading power companies in the world. It has five core businesses namely Oil products, Gas, Power, Exploration and Production and Chemical products. The company operates in over 140 countries internationally. Shell group started its business in India as the ‘pioneering oil distribution company’. It is the only international company in India which has been granted approval by government for performing oil retail business in India (Shell India, 2005). Attractiveness in India Shell has started its business in India because it has large potential market with strong vision of growth. India has good long-term relationship with various MNC oil companies. Indian society accepts new product innovation, practices and ideas. Shell is a biggest Foreign Direct Investor (FDI) of India. Shell’s investment in India has driven by the potentiality of Indian market. Shell has invested on market development for obtaining the benefit of Indian growing market (Shell India, 2005). BP BP is one of the largest oil companies and is considered as the second largest company in terms of revenues. In India, BP has started its business in the year 1989. In India, BP’s main business includes lubricant products. BP operates as one of the leading solar companies in India through its joint venture with TATA group. BP invests around 900 million USD in India. One of the major BP Companies in India is Castrol India Limited. Castrol is India’s most widely renowned lubricant brands. It had registered sales about 280.9 million USD in the year 2003. TATA BP Solar is formed by a joint venture between Tata Power and BP and is operating in India. BP’s ‘38 MW Solar Module’ manufacturing unit is one of the largest units in the world. It exports around 65% of its production which meets 25% of BP’s global requirement (BP, 2005). Attractiveness in India India’s large potential market is the major attractiveness of BP. India offers great investment opportunities for BP. The company thinks that India has significant potential for growth in production, exploration, refining and marketing. In addition, BP also believes that India will emerge successfully as one of the leading markets for energy and energy related products. BP has studied Indian customers and thus builds strong brand equity through consistent, focused and good customer relationship. BP’s famous brand Castrol has been successfully established in Indian market and conquered the rival brands through extensive fuel retail market strategy. BP thus plays a key role in providing energy and lubricant products to Indian market (BP, 2005). China’s Business Relation with the UK China is the second biggest economy in the world. There is good mutual business relation between China and the UK. The business relation has developed from the year 2009. Total import export business between the UK and China was 10.65 billion USD in the year 2009 (UK in China, 2009). UK’s goods exports had increased by 44% in the year 2010, which was £4.5 billion. By these increase in export, it had provided big opportunity for UK companies to do business in China. China has largest source of demand in the world regarding several products and UK’s companies can use this opportunity by offering quality products to China. Thousands of UK companies are doing business in China and there are several who operate with the help from UK Trade & Investment (UKTI) which has a network spread in every nook and corner of the country (UK Trade and Investment, 2010). UK Company in China Tesco Tesco is one of the top companies in the world. It buys good quality products and delivers at lowest costs to the customers. Tesco is operating in China since 1970. China is one of the major business locations of Tesco because the country has good source of demand. Top products of Tesco in China are Cherokee, Fred Clothing, Toys, Luggage, MP3 player and other electronics products. From China, Tesco Company has sold around 1.1 billion USD worth products in the whole world (Tesco, 2008). Attractiveness in China The Chinese market provides vast opportunity for international retail company such as Tesco. China has different market with regard to taste and preferences of customers. Tesco has entered in China’s market with venture with a partnership with a local company. Tesco wanted to learn about the market situation in China because earlier various competitors of Tesco such as Wal-Mart and Carrefour had already been established in China’s market. China’s retail market was valued approximately 756 million USD in the year 2005 as stated by the RNCOS market research report. In the world, China secured the 7th position in the retail market. By 2010 it had been expected that China would secure 5th position globally (IBS Center for Management Research, 2011). Johnson Matthey Hong Kong Limited Johnson Matthey (JM) Hong Kong Limited is a division of ‘precious metal product’ sector. Its main function is fabricating, refining and marketing of PGM products. It refines the scraps of PGM and then supplies to customers. Johnson Matthey also deals with jewellery and platinum bullion business. Jewellery is manufactured in Johnson Matthey’s facilities or imported from international suppliers. Johnson Matthey operates SNG (Substitute natural gas) plant and emission control technology for vehicles in China (Johnson Matthey, 2002). The company’s main strategy is to invest in China’s growing market. In the year 2008–2009, Johnson Matthey’s environmental technology sales were worth £85 million (Carson, 2010). Attractiveness in China China’s vehicle market is increasing quickly. In the year 2009, total 13.5 million vehicles were sold in China, which is 44% more than 2008. This is a great opportunity for Johnson Matthey’s emission control technology because it is mostly used in vehicles. China has big source of coal which can be used as power. Since China is short of natural gas, demand for SNG (substitute Natural Gas) is quite high. As a result, the SNG plant of JM is profitable to operate in China (Carson, 2010). Shell Shell is operating its business in china for several years. Shell is one of the major global providers of LNG, bitumen and coal gasification technology. In the year 2008, Shell had signed an agreement to supply 5 million tones of LNG in China. Shell’s lubricants business has also increased with regard to quantity and profit (Shell Companies in China, 2008). Shell provides energy solution in three main energy sectors, which are ‘environmental protection’, ‘security & energy supply’ and ‘energy efficiency’. It has formed partnership with various Chinese oil companies such as CNOOC, Yanchang, PetroChina and Sinopec (Shell, 2011). Attractiveness in China Shell has identified several opportunities and attractiveness relating to petrochemical investment in China. The country is one of the largest consumers of petrochemical products and its demand has increased largely. China is one of the world’s biggest importers of petrochemical products for many years and the potential for significant market growth has encouraged several international petrochemical companies. It has also opened up their economy to imports and investments that have encouraged petrochemical products development. China has reduced the import duties on many petrochemical products such as import duty for ‘benzene’ and ‘paraxylene’ are just 2%. It has also allowed various foreign companies to set up wholly–owned businesses with low capital investment. China’s government has reduced numerous restrictions on foreign companies investment on oil products, refinery and in retailing as well. These opportunities drove Shell to operate their business in China (Yu, 2007). BP Amoco BP is UK’s largest and one of the five biggest lubricate companies in the world. It produced over 1.2 million barrels of oil and 1.5 million natural gas everyday in mid 1990s (Funding Universe, n.d.). BP Amoco has arrived in China over 30 years ago. In the beginning their business was mainly focused upon chemical products. In the year 1980, BP Amoco had shifted their business to onshore and offshore exploration. BP Amoco in the year 1990 involved themselves in manufacturing industry and large scale investment. In China, BP’s business include joint ventures and sales of chemical technology, offshore gas production, aviation fuel supply, oil product and lubricant retailing, LPG import and marketing solar power installation and manufacturing. It is the first foreign company in China which has explored oil and gas offshore. BP Amoco operates retail station in many Chinese provinces and it is one of the leading liquefied petroleum gas importers and operators (BP p.l.c, 2011). Attractiveness in China China is an important market for BP Amoco. The major reason of interest in China for BP Amoco is the rapid development of Chinese economy. Besides US, China has the world’s largest energy market and it currently uses 20 billion cubic meters of gas per year. BP Amoco can fulfil the huge energy demand of China because it is the largest energy and petrochemicals group (BP, 2000). BP had invested approximately 2.5 billion USD for oil and gas production in China in the year 2000. The company’s joint venture with PetroChina provided them access to China’s gas market (Dirks, 2000). Conclusion In future the UK companies will continue to see China and India to be the most attractive places for business in manufacturing, research and development and service industry. The economic growth rate of both countries will decide further entry of the UK companies in those countries. If China and India can show good economic growth and sustainable economy condition, then several British companies will be motivated to do business and make investment in these two countries (Nibbe & Lhermitte, 2010). References BP, 2005. Background. India Brand Equity Foundation. [Online] Available at: http://www.ibef.org/download/BP.pdf [Accessed March 14, 2011]. BP, 2000. BP Amoco Agrees Major China Joint Venture. Press Releases. [Online] Available at: http://www.bp.com/genericarticle.do?categoryId=2012968&contentId=2001789 [Accessed March 14, 2011]. BP p.l.c, 2011. What We Do. Mainland China. [Online] Available at: http://www.bp.com/sectiongenericarticle.do?categoryId=179&contentId=2000604 [Accessed March 14, 2011]. Carson, N., 2010. Presentation to Analysts / Investors Johnson Matthey in China. London Stock Exchange. [Online] Available at: http://www.matthey.com/media/Presentations/tradingupdate_20100128.pdf [Accessed March 14, 2011]. Dirks, G., 2000. Chongqing International Conference on West China Development. Speeches. [Online] Available at: http://www.bp.com/genericarticle.do?categoryId=98&contentId=2000309 [Accessed March 14, 2011]. Funding Universe, No Date. The British Petroleum Company plc. Company Histories. [Online] Available at: http://www.fundinguniverse.com/company-histories/The-British-Petroleum-Company-plc-Company-History.html [Accessed March 14, 2011]. Homlong, N. & Springler, E., 2009. Attractiveness of India and China for Foreign Direct Investment. University of Applied Sciences bfi Vienna. [Online] Available at: http://www.fh-vie.ac.at/content/download/1336/7946/file/WP55_Homlong_2009.pdf [Accessed March 14, 2011]. IBS Center for Management Research, 2011. Tesco's Experience in the Middle Kingdom. Case Studies. [Online] Available at: http://www.icmrindia.org/casestudies/catalogue/Business%20strategy/Tesco-Middle%20Kingdom%20Case%20Studies1.htm [Accessed March 14, 2011]. India Pakistan Trade Unit, 2008. India's Relations with the UK. India Economy. [Online] Available at: http://www.iptu.co.uk/content/india_economy.asp [Accessed March 14, 2011]. Johnson Matthey, 2002. Johnson Matthey PLC. Johnson Matthey Hong Kong Limited. [Online] Available at: http://www.matthey.com.hk/company.htm [Accessed March 14, 2011]. Johnson Matthey, 2005. Background. India Brand Equity Foundation. [Online] Available at: http://www.ibef.org/download/JohnsonMattey.pdf [Accessed March 14, 2011]. Nibbe, J. D. & Lhermitte, M., 2010. European Attractiveness Survey. Waking Up To The New Economy. [Online] Available at: http://www.ey.com/Publication/vwLUAssets/Attractiveness_survey_2010_EU/$FILE/Attractiveness_survey_2010_EU.pdf [Accessed March 14, 2011]. Shell Companies in China, 2008. Shell China and Hong Kong Sustainability Report. Downloads. [Online] Available at: http://www-static.shell.com/static/chn-en/downloads/news_and_library/2008_sdreport_en.pdf [Accessed March 14, 2011]. Shell India, 2005. Background. India Brand Equity Foundation. [Online] Available at: http://www.ibef.org/download/ShellIndia.pdf [Accessed March 14, 2011]. Shell, 2011. Our business overview. Content. [Online] Available at: http://www.shell.com.cn/home/content/chn-en/aboutshell/our_business_tpkg/china/overview/ [Accessed March 14, 2011]. Tesco, 2005. Background. India Brand Equity Foundation. [Online] Available at: http://www.ibef.org/download/Tesco_uk.pdf [Accessed March 14, 2011]. Tesco, 2008. International Sourcing. Tesco in China. [Online] Available at: http://www.cn.tesco.com/en/aboutus/aboutus_inchina_is.htm [Accessed March 14, 2011]. Trading Economics, 2010. China GDP Growth rate. Economics. [Online] Available at: http://www.tradingeconomics.com/Economics/GDP-Growth.aspx?symbol=CNY [Accessed March 14, 2011]. Trading Economics, 2010. India GDP Growth Rate. Economics. [Online] Available at: http://www.tradingeconomics.com/Economics/GDP-Growth.aspx?symbol=INR [Accessed March 14, 2011]. UK in China, 2009. UK-China 2008 Trade and Investment Statistics. British Embassy Beijing. [Online] Available at: http://ukinchina.fco.gov.uk/en/business/help-for-uk-companies/Country-information/010bilateral-trade-relationship/ [Accessed March 14, 2011]. UK Trade and Investment, 2010. Biggest ever UK trade mission to China. UKTI Home. [Online] Available at: http://www.ukti.gov.uk/uktihome/home/item/120401.html [Accessed March 14, 2011]. Yu, D., 2007. Investing in China. Shell Eastern Petroleum Pte Ltd. [Online] Available at: http://wwwstatic.shell.com/static/chemicals/downloads/innovation/dai_yu_aromatics_29_6_07.pdf [Accessed March 14, 2011]. Appendices Fig: 1 Bar Chart showing China’s GDP growth rate from 2008 – 2010. Source: (Trading Economics, 2010). Fig: 2 Bar Chart showing India’s GDP growth rate from 2008 – 2010. Source: (Trading Economics, 2010). Read More