China and Its Business Entry Strategy - Essay Example

China and its Business Entry Strategy Contents Introduction: 4 Market Entry Strategy: 4 GDP of China: 8 Forecasting of Chinas future: 11 Relationshipwith World Bank: 11 Porte’s Diamond Model: 12 Country’s Attractiveness: 13 Resources VRIN: 13 Valuable- 13 Rare- 14 Costly and /or scarcity- 14 Non Organized- 14 Joint Ventures: 14 Economic indicator: 15 Conclusion: 16 Introduction: China is considered as the fastest growing economy of the world. The economic growth rate of the country is 10% for the last 30 years. Though China has a communist government and in general a conservative rules and regulations are imposed in the overall country. But at the same time this Communist Party of China (CPC) has gone through many changes and development in different policies of running the country since 1970s. If we consider worldwide economic development it can be seen that the European as well as the U. S economy is facing a difficult economic climate over a couple of years. But in this situation also the economy of China has maintained a growth in double digit. In case of Foreign Direct Investment there were many restrictions in China before. But after the abolition of those restriction from the FDIs China’s growth has been noticed remarkable. The foreign investors found the country very suitable for investing money as the labor rate is very low in China. It is expected that within 2020 China will become the world largest economy in rank. But at the same time there are some difficulties faced by the U. S and European companies to invest in China. The research in this report will analyze how fruitful is China market for the Western companies to get entered into it (Morrison, 2011,pp. 1-5) Market Entry Strategy: The rapid growth of China, its rising income, the changing democratic situation along with the development in the business environment all these are attracting a verity of industry businessman of the entire world to invest in China. In Europe and U.S. market a problem has raised that people there are not buying the home market product. So to overcome this problem the U.S. and Europe investors are investing in different project in China for long term basic. The main hurdle that the Western countries faced while entering and establishing their own business in China are discussed below. Due to the lack of uniformity in the economy of China the foreign country investors faced very difficulties. There is a lack of homogenous market situation in all over China The social and economical picture shows lack of parity in them. In different part of China an uneven rate in growth of economy has been observed. This is the reason why a huge difference in economic and social standard can be observed in different parts of China. There difference is finding in income levels, spending habits, literacy rate, population and many more. In case of Chinese market it can be said that rather than concentrating in one particular market type the whole market is divided in different demographic, cultural, and economical way. As China has a vast area of land and has difference in climate also in different areas of the country so it is very essential of the investor to select the correct area for establishing their business. The name of maximum populated areas of China is Shanghai, Guangdong, Zhejiang, and Jiangsu. Maximum number of people lives there due to high level of income. These areas are shown more clearly in the map of China. Though the investors choose coast sides to precede business easily but there are some businesses which need different kind of geographical area to perform the business. Below a chart is given according to the efficiency of different area of China (Hauge, 2014). GDP of China: The meaning of Gross Domestic Product is the total value of finished goods and services produced in a country in a particular financial year. From the year 1985 the State Council of China (SSC) decided to settled a systematic accounting for the nation and will use the GDP for the measurement of the economy. Chinas GDP in recent time has improved highly. Starting from 1979 till 2010 an average growth of 9.91% has been noticed in the economy of China. This raise is a historical record which has been made by any country till now. If from the average current price it is being measured the result is in 32 years the GDP growth of the country is 15.8%. Regarding the financial planning of China the country’s Government give emphasis in the following points- China is maintaining a target of 7.5% in 2014 which is a same percentage they have targeted for 2013. The consumer inflation will be targeted at 3.5 %. There will be a reform in the rate of Yuan (name of Chinese currency). A budget of $2.5 trillion is planned for 2014. Below a table is being provided to show the GDP growth of China from 1981 till 2013 (Morrison, 2006, pp. 3-10). Forecasting of Chinas future: The way the Chinese economy is growing rapidly it will bring development in following ways. The urban areas plans has been made by allotting new housings, schools, transportation, roads and many other developmental steps. The different sector like agriculture, medical, transportation, communication and all other sector where technology is involved there new and improved drives has been organized by the local and national government of the country. The Chinese government is going to announce new affordable healthcare strategies. In case of anti-corruption different steps has been taken to take care of it. The Chinese aircraft and ship industry a big expansion is needed (Haltmaier, 2013, pp.2-6). Relationship with World Bank: China after reforming its economic and social policies, built a relationship with different multilateral agencies. Among those the World Bank and the International Monetary Fund (IMF) are the most famous one. Both these institutes have provided many opportunities to the country’s economy. After being associated with these institutes China has come to know much financial, economic, and political experience of other countries of the world which has helped the government in making developmental changes in the policies of the country. The biggest drawback of China was the economy of the country is based on the export mainly. As well the country’s economy is basically low income and the amount of per capita income is also very less. The government of China has become very much conscious about increasing the income of the country people .At the same time the government has taken several steps to bring some betterment in their standard of living. These all has taken place due to the relation the World Bank and other global organization (Bai, 2011) Porte’s Diamond Model: In the present world China has become one of the leading manufacturing countries. Starting from toys to electronic and networking gadgets China is giving a tough competition to U.S. industry. The record of 2004 says that U.S. faced a trade deficit of $162bn from China. This success is because U.S‘s is has basically knowledge based industry but the success of China is its main focus in lower skill sector where they can engage labors in lower rate. But China is also engaging sophisticated employees in different high tech industries with high amount of salary to develop the country’s technology sector. Now to understand the competitive structure of the country’s market “Porter’s Five Forces Model “is very effective. This model helps in analyzing the The threat of new entrants. The threat of substitutive products or services. The bargaining power of the supplier. The bargaining power of the seller The rivalry among the existing competitors. In case of any industry these five forces work as an indicator to identify the profitability of any industry for long term. In case of China the strength of each component is giving the shape in cost and is making the variety industry more strong and lucrative industry where foreign countries have the opportunity to invest. In general every though have its own growth rate and structure of performance but as a whole Chinese industry is performing in a stable way. The reason why China is performing significantly in the international market is discussed below- 1. It has created variety of sources in different industries. 2. The industrial structure in China attracts the foreign investors. 3. The versatility in the structure of industry makes opportunities for entering new market (Bian, 2005, pp. 30-35). Country’s Attractiveness: A country along with its industries can attract other countries customer as well as investors in mainly two ways. The first is by proving that the industry has the capacity to produce an improved designed and effective product which is comparatively efficient than the other products in the market. The second point is the ability of the market to give product in remarkable unique prices along with better features, quality and after sales services. Combining these advantages China is doing the international business in exactly the above discussed form and is gaining the competitive advantage in the various market of the world. Innovative ways in application of different technology, engaging new process in different systems and new ways of conducting various activities is helping China in its growth and increasing the sutanabality in the global market. Resources VRIN: This is a type of analysis the resources amount of internal resource of a country. Here the resources which will be considered must fulfill some rotaries. Those are discussed below. Valuable- This point sees whether the country has enough resources to explore the opportunities properly. While manufacturing batteries, light bulbs and other electronic device Antimony and Tungsten is needed. These two metals are manufactured in China and are easily available as these metals occurred naturally in the country. Rare- This point refers advantage for any country of being the only source in the world for any natural resource. China has the largest source of hydropower compared to any other countries of the world. Costly and /or scarcity- The resources which are costly and / or those are not available inside the country. In case of producing various products a number of raw materials are needed. In them some are rare in the world and are not available inside the country. In those cases a nation has to buy it from other nation sometimes in high prices. Non Organized- Some resources are there which cannot be found in an organized form. But through skill and management it can be organized and can be used in a beneficial way. This resource in case of China relates to its labor which is used by different industries managements in a fruitful way. Joint Ventures: The joint venture is done between two or more companies to perform a business or to make a project successful. International joint ventures are done to make performance good in a particular sector and to serve the customer with better product and /or services. In brief the advantages of the international joint ventures are discussed below. I. This helps in sharing technologies of the countries involved in the venture. II. The advantages of the markets and the expertise of the management can be use effectively. III. Easy entry to that foreign market where foreign countries goods are prohibited in case of entering the geographical boundary of any nation. IV. The risk can be shared among them. Below some leading joint ventures with Chinese companies are being discussed. In case of producing notebook PCS Dell company has make a contract with a Taiwan company name Quanta. The brand name of Dell will be used in this product. Levi-Strauss, Nike and many more U.S. companies has come in a tie up in case of manufacturing their product. One of the leading internets routing Gear Company of the world, Cisco System is doing contract manufacturing by the Chinese companies name Solectron and Flextronics. Recently two leading car companies of the world Volkswagen and General Motors have come to a joint venture agreement with Chinese company Shanghai Automotive Industry Corporation. This company is China’s largest domestic car producing company and they are now going to make cars for these two companies in China. A combined of three companies of the world, DaimlerChrysler, Mitsubishi Motors and Flyundai Motors Company are going to develop the aluminum engines that will be used for Asian market (Harris, 2010). Economic indicator: China’s economy has performed remarkably excellent within few years the government of China being a communist follower has allowed many drastic changes for the sake of the development of the country. The economic indicator can be measured by many angles. In this project the economic indicator is discussed by the side of Chinese consumers using smart phones. Chinas online users’ population number is 618 million by 2013. This counting is more than the population of U.S. and Russia combind. A report published by the China Internet Network Information Center (CNNIC) that a number of smart phone user has increased in total of 500 million last year. This is so because people find easy messaging way through the smart phones. As per CNNIC report 53.58 million new internet users have joined in the year 2013through this smart phone. The social network user’s amount is bigger than the other countries of the world. The smart phone users are using the internets mostly from their phone and are watching videos, listening music’s and downloading mails or other things from that only (Arthur, 2014). Conclusion: The discussion about China gives a clear picture about the rise in the economy of the country as well as the development and changes in the citizens. . Due to over population and lower labor rates in the country maximum people were living their life in a very bad way. There was a time in China when scarcity of the fulfillment of the basic need in their life was there. But now the picture has changed. Government are taking different steps to make the citizens life better and to give them a standard life style many proposals have been sanctioned. Referencing: Arthur.C,2014. Smartphone explosion in 2014 will see ownership in India pass US. [on line]. Available at: http://www.theguardian.com/technology/2014/jan/13/smartphone-explosion-2014-india-us-china-firefoxos-android. Accessed on: March 31, 2014. Harris. D , 2010. China Law for Business. [on line]. Available at: http://www.chinalawblog.com/?s=Enter+Keywords. Accessed on: March 31, 2014. Bian. L, 2005.The China Advantage-A Competitive Analysis of Chinese High-Tech Industries.[pdf]. Available at: http://dspace.mit.edu/bitstream/handle/1721.1/34627/71441670.pdf. Accessed on: March 31, 2014. Bai . C ,2011. Toward a Healthy and Harmonious Life in China. [pdf]. Available at: www.worldbank.org/content/dam/Worldbank/.../NCD_report_en.pdf‎. Accessed on: March 31, 2014. Morrison. M.W , 2014. China’s Economic Rise: History, Trends, Challenges, and Implications for the United States .[pdf]. Available at: https://www.fas.org/sgp/crs/row/RL33534.pdf. Accessed on: March 31, 2014. Hauge. P, 2014. B2B Marketing: What Makes It Special? [on line]. Available at: http://www.b2binternational.com/publications/b2b-marketing/. Accessed on: March 31, 2014. Morrison. W,2006. China’s Economic Conditions. . [pdf]. Available at: http://www.fas.org/sgp/crs/row/IB98014.pdf. Accessed on: March 31, 2014. Haltmaier . J , 2013. Board of Governors of the Federal Reserve System International Finance Discussion Papers . [pdf]. Available at: http://www.federalreserve.gov/pubs/ifdp/2013/1072/ifdp1072.pdf. Accessed on: March 31, 2014. Read More