Business Affairs in Asia - Example

Doing Business in Asia Name Professor Institution Course Date Progress Report Introduction In the recent years, business world has changed greatly due to increased external forces such as globalization and technology (Czinkota et al 2013). Due to such external forces, business interactions have increased tremendously as multinationals scramble for foreign markets. The situation has resulted to stiff competition prompting managers to rethink their strategy both in domestic and international markets. With the economic improvement after the global economic crisis of 2008 as well as social and political factors, Asia has shown a great potential in terms of business, hence attracting several companies to the region (Jayaraman, K 2009, p.57). As continent, there are some business environment challenges which countries share while others are unique to them because of different legislation and culture. Therefore, this progress report will analyze salient geographical facts about China. The progress report will concentrate on the macro-economic and political changes which have happened in the last four decades in China and evaluate the implications of these changes for today’s international business. Political changes in China Even though China has been ruled by mostly by one party, the country has changed tremendously over the last decade. Jayaraman (2009, p.57) contends that in the early years, China possessed autocratic and political corporatist mechanism where the regime controlled all aspects of citizen’s lives including business, religion and other component of life. In this perspective, the Chinese market encapsulated the aspect of planned economy. According to Jacques (2009), today, China still remains as one of the socialist countries openly supporting communism. There is no investment location better exemplifies the significance of controlling political risks than China. Shanghai political and security expert Andrew Gilhol argues that political risk in the Chinese market has been moderately low in comparison with many other emerging economies, but regulatory and legal transparency remains a major key risk to foreign firms in that country (Heilig 2007). He went ahead to claim that transparency is considered a big issue in the country which companies has to conform to. This means it is difficult for a foreign company to bribe authorities to enter the market. The communist government has been exercising total authority over legislations, cultural and economic institutions. This demonstrates how government controls business in this country. Its control has been observed lately on the internet and information in general (Bradsher 2012). BradsherK (2012) posits that companies which have been accessing and using technology freely and to have fair advantages may just find it hard to survive in China. However, in the previous 50 years, the economic reforms steered by the Communist Party have opened the flood gates to immense flow of foreign businesses, created miraculous development lifted millions of citizens from poverty, and driven Chinese and mapped them at an international stage (Jacques 2009). The current political ideology on economics is regarded as a socialist market economy by its leader. It in this model, open-market system and state-owned sectors dominates the economy. Douglas & Craig (2011, p.152) argue that an open market is not good for foreigns because of a high level of entry, hence increasing competition in the market. China is stable and its politics are known to be business friendly, but the government protects its markets from being saturated by foreign companies. For instance, today the government is providing political patronage to its company Hangzhou Nurotron Biotechnology to be able to improve its operation and make several implement machines. The government is trying to curtail companies like Cochlear Australia from having the largest share of the market. Einhorn & Khan (2013) contend that in 2013, Nurotron received a huge boost when state-owned hospital and Chinese Academy of Sciences provided funding of up to 75 percent of initial strata-up for the company to improve its producing and marketing of cochlear implants. Macro-economic changes Global managers experience severe and continuous challenges which need training and knowing the environment for foreign business. This is a culmination that changes have taken place so fast and management style used four decades ago may not all be relevant today. From its establishment in 1949, China operated as a planned economy up to 1980’s when it changed to mixed market oriented economy under the leadership of Deng Xiaoping (Jacques 2009). Since the integrating of major economic reforms in 1980, the country has turned out to one of the rapidly growing economies in the world (Jayaraman 2009, p.56). Czinkota et al. (2013) asserts that in the recent years, the economic growth of China and increase in number of business has led to increase in number of middle class population. In this country, the middle-class population has increased over 300 million people by 2012 (Czinkota et al. 2013). As such, the disposable income has increased tremendously, making different businesses to target that country. In 2013, China is second-biggest economy in terms of purchasing power parity and nominal total GDP, and the importer and exporter of products (Czinkota et al., 2013). This means the country has several companies which not only compete against each other, but also against foreign companies. With competition and government protection, multinationals targeting the Chinese market could find it difficult to get into the market. Czinkota et al., (2013) contend that over the years the middle class population has increased, hence increase disposable income creating a great opportunity for luxury products. However, fast economic growth in China has resulted to relentless consumer inflation contributing to frequent government regulation. Regulation on business is bad for economic health of foreign business. Social factors Some of the factors which influence this industry includes population, occupation, attitude, behavior, and culture and income level among others. China political culture in business has been referred to as Guanxiwang. In this aspect, business creates a mutual relationship with customers and even creates a large network with other businesses (Huang, Davison & Gu 2010, p.557). With this system, the company must be able to create a high level of satisfaction in order to make the customers loyal. The problem with this form of relationship is that foreigners may find it hard to attract customers who are already loyal to Chinese businesses. Not similar to the west, in which creating relationships with other companies is of less significance because of strict legal issues and politics which promotes contractual commitments. In Chinese market, businesses depend on network created by Guanxiwang (Huang, Davison & Gu 2010, p.563). In a nutshell, with no in place Guanxi, a foreign company entering Chinese market is compared to getting into abyss. According to Huang, Davison & Gu (2010, p.568), the situation typifies by the well-known Chinese maxim which claims that such an act is like “getting into a temple’s door with no a pig’s head”. One social factor which favors foreign business operation in China is the increase in population over the years. Today, China is ranked as the most populous nation in the world with more than 1.35 billion people (Czinkota et al., 2013. From the population, foreign businesses can strategize on how to segment their customers. It should be noted that middle class population has increased considerably now at 300 million. Conclusion The report has identified several opportunities which managers who form partnerships with Chinese can exploit. On the other hand, the challenges are also there in equal measure. Chinese are also rooted deeply in their culture that managers targeting the market must possess cultural intelligence and have a strong brand superior to Chinese ones in order to penetrate that market. The foreign companies also face regulation from the government and competition from established companies. As such, managers must up their strategy to unlock this lucrative market; the appropriate mode of entry into the market will greatly help managers. Reference Czinkota, M.R, Ronkainen, I, Sutton-Brady, C, Beal, T & Stegemann, N 2013, International Marketing: Asia Pacific Edition, 3rd Edition, Cengage Learning Douglas, SP & Craig, CS 2011, The role of context in assessing international marketing opportunities, International Marketing Review, Vol. 28, No. 2, pp. 150-162 Einhorn, B & Khan, N 2013, A Chinese Hearing Implant Takes Aim at Cochlear, Bloomberg BusinessWeek, Viewed on September 9, 2014 from http://www.businessweek.com/articles/2013-03-28/a-chinese-hearing-implant-takes-aim-at-cochlear Huang, Q, Davison, R.M & Gu, J 2010, The impact of trust, guanxi orientation and face on the intention of Chinese employees and managers to engage in peer-to-peer tacit and explicit knowledge sharing, Information Systems Journal, Vol. 21 No.6, pp.557-577. Heilig, G.K, 2007, China Bibliography – Online, China-Profile.com Jacques, M 2009, When China Rules the World: The End of the Western World and the Birth of a New Global Order, Penguin Books. Bradsher, K 2012, China Toughens Its Restrictions on Use of the Internet, New York Times. Jayaraman, K 2009, Doing business in China: A risk analysis, Journal of Emerging Knowledge on Emerging Markets, Vol.1, No. 1, pp.55-62 Read More