Global Enterprise and Innovation in China - Essay Example

?Global Enterprise and Innovation Table of Contents 0.Introduction 3 2.0.Implication of Globalisation on the International Business Environment of China 5 3.0.Impact of the Legal and Political Environment of China on the Business Activities 6 4.0.Motivations for Multinational Firms to Invest in the Country 7 4.1 Resource Seeking Motives 8 4.2 Other Motivational Aspects of Globalisation 8 5.0.Probable Risks and Obstacles for Multinational Companies while Entering China 9 6.0.Features of National Innovation System 10 7.0.Promotion of Innovation and Strategies to Leverage Peculiarities of National Innovation Systems 11 8.0.Suggested Strategies 12 9.0.Conclusion 14 References 16 Bibliography 19 1.0. Introduction The legal and political systems have a great impact on the business activities of the economy. It is due to the fact that business firms should adhere to the legal formalities and the political interventions of an economy. On the similar context, globalisation also has an immense influence on the legal and political environment of the economy. This is also applicable in the context of China. The impact of globalisation on the Chinese economy which in turn influences its business activities can be well identified with reference to the multinational companies. However, globalisation also provides certain significant opportunities to the business firms in economy. For instance, the Chinese scientists and engineers are becoming important participants in the global science and contributing to the world’s scientific and technical literature. It increased the scope of expansion of the market, influenced the political issues and other developments that support the International Business. The ongoing social, political and economic processes broaden the relationship among the nations, people, organizations and the governmental bodies. Inclusively, China is one of the powerful markets providing exciting business opportunities for multinational companies. China’s top leaders have placed faith in the development of science and technology. China has attracted global business organisations for making investment due to the existing scenario of China related political and legal aspects. Foreign direct investment (FDI) has been a major contributor for the economic growth of China. With this concern, the report will analyse the legal and political environment of China and the impact of globalisation on the economy. The report will also intend to identify the various opportunities or motivational factors which influence the multinational companies to enter China and examine the risk and obstacles faced by the companies during their entrance. Furthermore, the report shall intend to suggest few strategies to overcome the risks and obstacles identified. 2.0. Implication of Globalisation on the International Business Environment of China Globalisation has made a lasting impact on the global business organisations. It has provided various advantages as well as created certain complexities which have made an influence on the operations of the multinational companies. For instance, globalisation creates new job opportunities and offers attractive choices to innumerable consumers. It has also led to numerous innovations. Notably, the issue has flashed a considerable debate over the past decade. Economists have argued that globalisation is beneficial to the economic development of the world. However, it is a complicated process which contains a string of aspects such as capital movement, spread of technology and knowledge and political and cultural influences (Simon, n.d.). Most countries, along with China, are moving towards greater deregulations and enhancing the role of free market in the economy. An internet connection, which is even available in the remote areas of the world, can also be identified as a part of developing new business, technology and social innovations. The rapid growth of an economy is exerting pressure on energy, commodities and natural resources. It can enhance the development through expansion of the market. For instance, the markets in China are growing faster in comparison to other countries. China as an emerging economy has become important in the international market. The developed economies are exporting large number of capital-intensive goods to China in comparison to other Asian economies and also importing large number of labours from the economy (EMORY, 2007). 3.0. Impact of the Legal and Political Environment of China on the Business Activities Each and every country has their own setup of rules and regulations. There are also few guidelines for the international businesses to perform their operations in the international platform. Business must follow international laws which govern international trade. However, countries usually enact product safety laws to protect the citizens and setup the standards to manufacture product. In this context, China faces challenges, legislative gaps, interpretation and philosophical disagreements. The effect on legal institution comprises of changes in the legal behaviour of the Chinese people. The Chinese legal system related to ‘law enforcement’ has been improved (Goetzmann, & Et. Al., 2001). In China, their legal system has encouraged FDI. Certain legal reformation of foreign policies has resulted in greater enthusiasm among investors towards the Chinese market. Directory of guidelines related foreign capital investment has been a major factor in attracting companies towards making investment. The investment made has been spread over various sectors such agriculture sector, technology sector and construction based sector. A stable legal system and regulations have encouraged global organisations to invest in China (Feng, 2010). In China, their existing political environment which at times opted to protect their own organisations has impacted FDIs in China. The laws created by government has influenced and at times made it difficult for companies to invest in China, though China is seen as a growing and one of the most profitable places to invest. 4.0. Motivations for Multinational Firms to Invest in the Country Multinational firms play a significant role in stimulating globalisation in an economy. Due to the fact that multinational companies can enhance the benefits of globalisation and provide opportunities to the economy, the policy makers generally want multinational firms to make investment in their country. Multinational firms are large enterprises who have competitive as well as bargaining power in the market place, particularly the small enterprises. They bring meagre technologies skills as well as financial resources. Firms from developing country are setting R&D units abroad. Multinational Firms are different from national firms and they have to abide by international standards as well as market competition and present superior employment opportunity and product quality as compared to the national firms. The large scale firms appear with brands and the need for broad retail distribution was a perfect response to retailer’s need for recognizable brand. The works aim at providing concepts and tools for dealing with international R&D. Local foreign markets customers demand higher level of technology and customized products. Resources are being directed towards short-term products for development and technical service. The increase in foreign investment is dominated by Multinational firms in geographical regions. With improved logistics system, the cost of information and transportation decreased radically. In China, the set up of four special economic zones has contributed significantly towards motivating foreign firms towards investing. Foreign investors were encouraged to invest in China by providing them unique enticements. This has resulted in growth of foreign direct investment and it was seen at $45.463m in the year 1998 (OECD, 2007). 4.1 Resource Seeking Motives Firm’s motive is considered to be the important factor by all industry leaders. Few observers felt that large business firms such as the corporate house created broad infrastructures as well as distribution channels through which cost could be achieved by moving high volumes. Accordingly the tangible and intangible motives enhanced the prospect of investments in the Chinese economy. This motivation supported the production flexibility opinion which the firm determined foreign and domestic capacity. Political motives and trade barriers assist to protect jobs. Similarly, the economic motives protect newly emerged industries. Cultural aspects of a country can at times encourage investors towards making an investment. Multinational Firms undertake FDI. FDI represents the investment made by the multinational firms in foreign countries with the purpose of controlling production. For example, IBM, INTEL and NIKE, General Motors are a few of the multinational corporations. FDI has established greater geographic concentration than the exports of goods and services. The natural resources, social, political and cultural variables are the determinants FDI geographical location. The inflow of FDI grew much faster than trade and income (Pompelli & Pick, 1999). 4.2 Other Motivational Aspects of Globalisation Advances in technologies have made the communication process easier. Information, market knowledge and money can be transmitted freely at no cost. Technology is increasing the value-weight ratios and making availability of goods easier. It has increased the size of the market for new technologies. Scientists from a number of countries are increasingly making a contribution towards the advancement of new technology and the related products. Improvements in international information technology and telecommunication have made it possible for the scientists to work together in every part of the world. In order to bring technologies from merging industries, R&D teamwork is carried out in large scale (RPOWW, n.d.). 5.0. Probable Risks and Obstacles for Multinational Companies while Entering China Multinational firms have to face various risks such as financial risk, political risk and economical risk. Financial risks are based upon analysis of quantitative and qualitative information. These risks are associated with an ability to pay. Financial risk can be reduced through proper analysis of quantitative and quantitative data and proper estimation of data and by going through the previous years financial position records. Economical risks are associated with an ability to pay. Assessment is based upon objective analysis of quantitative data. This kind of risk can be reduced by analyzing the statistical data of the previous years. Political risk assessment is based upon subjective analysis of available information. These risks are associated with willingness to pay. Political risk can be reduced by going through the past records and by following political criteria to bear risk. When political risk is high, a country will have difficult time in attracting the foreign direct investment. The other reasons may be as: Discontinuing or discouraging global trade or investment can result in low profitability. Small enterprises face more obstacles than large firms. Due to certain obstacles there was lack of accessibility to knowledge and information. Insufficient finance becomes an obstacle for micro-enterprises; the problem declines as the firms increase its size. The organisations looking to invest in Chinese economy face Exchange Rate obstacles along with insufficient managerial experience by the small enterprises. Communication difficulties are also an obstacle faced by the small enterprises (Henisz & Zelner, n.d.). 6.0. Features of National Innovation System China has made great achievements in building an innovative capacity for the past 20 years. China’s capacity related to innovation has made impressive step since the beginning of its nationwide economic related reform. Overall, innovation in China seems to be influenced by the pre-reform institutional inheritance, technological cost and market competition. China has topped the world in science and technology development, initiating important inventions such as paper, gunpowder and others. The innovation capacity of China in terms of productivity, scientific and research and development have been improved during the past years. The government also shapes the system through their policy, strategy and investments. Certain features of the National Innovation System may be as follows: On any measurable absolute numbers and per capita figures reveal two different impacts about China. These are lack of internationally comparable indicators and statistics as well as rapid and ongoing transformation. Economic framework conditions that are conducive to innovations such as sound corporate governance, financial institutions, may have a major impact on the business activities. Implementing and developing policies in order to promote technology, science and innovation in the market can assist the economic growth. While the rapid and ongoing transformation state that accurate monitoring is demanding to the Chinese Government (Karplus, 2007). This statement is agreeable because innovation systems have different aspects in relation to competition and have been used to support emerging industries from harmful competition. This investment has contributed rapid socio-economic growth to China in the previous decade and has not thus far translated into its equal share of growth in innovation performance (Karplus, 2007). 7.0. Promotion of Innovation and Strategies to Leverage Peculiarities of National Innovation Systems Investing in China can help to promote innovation due to reasons such as prospects of growth in China in the field of research and development. China’s progression towards making it a major and growing economy has contributed towards growth of prospects in making innovations in China. Development of technology in various aspects in which China has been one of the leading nations has increased the prospects of further innovations in several aspects. Improvement and advancements in science and technology can aid in leveraging the peculiarities of national innovation system. More focus on adapting modern updated technology can aid in leveraging the benefits of innovation. 8.0. Suggested Strategies Legal and political economy influence the global competitive strategies adopted by the multinational firms while entering an economy. This can be observed evidently in china. The analysis of data on the transaction of sales and purchase of services are implemented to maximise the profit growth. The determinants of the movement of FDI towards other countries are the market size, cost of production, labour flexibility trade liberalization and privatization of markets. Multinational firms seek new markets with potential growth and provide data for expenditure and total employment which allow estimation of the relative intensity from the expenditure employee. The survey was conducted through face-to-face interview to get quick response from the customers. The employees are encouraged to work in group and participate in the decision making process. There are interactions among agents from the public and private sphere. These interactions are merely based on price relations, mutual familiarity, loyalty and trust. The firms’ operation in china is influenced by market based machinery. The growing involvement based in foreign R&D is most important development in the multinational firms. The market contenders are growing small and large firms following challenging product concepts. The corporate group of R&D can help in building reliability by developing centres of specialization in laboratories. China focuses in maintaining and creating customer relationship to sustain profitable growth. There are linkage with the suppliers, clients and the related firms and also the institutions based on technology and science to make the work easier and to increase the need for strong innovation system between co-located users and producers (Suarez & Redes, n.d.). The firm formulates strategic alliances to create awareness about the scientific and technological infrastructures. The international markets are advanced with new technologies and infrastructures. The scale of multinational operations is gauged by looking at the share of the economic activity. Certain policies could be followed to bring further improvement in the country. It may include improvements in the policy environment such as patent laws and others by focusing on the underfunded research and development, promoting business activities in technology and science. Thus, this can also be used to support innovation in future. 9.0. Conclusion The most efficient ways to enhance the analytical capacity of the national innovation system is to use it as a framework for empirical work of what is already known. First, it is useful to get a better understanding of what goes on inside and outside the firm in connection to innovation. They indicate different modes of innovation and learning. There is need to understand how the core of innovation system is incorporated in wider set of institutions that shape people and the relationship among them. The core of innovation system may evolve at a rapid rate than a wider setting. In the developing countries the material condition are often so difficult that the primary focus should be on the basic living condition. The changes in the wider setting may be necessary to overcome such weaknesses. Multinational firms expand sales, assets and investment resulting in depreciation, while local changes show little decrease in each measures operating activity. Those local firms with greater financial exposure experience the largest reduction. The critical policies determining the nation’s protection system and coordination among innovations are decided by the central government. China is now committed politically and economically to increase its funding such that these expenditure signifies the proportion of an expanding GNP. The development strategies in both pre-post liberalization phases have been to develop and sustain the competitiveness of domestic industry. Good ideas must be promoted; promoters must be introduced to new ideas in R&D stages. Idea generation in stages can be supported by modern technologies. During developing stage, highly structured manufacturing is required. The strengths and weaknesses of China’s national innovation system help to explain the technological change in china’s energy sector. In addition to influencing the government research priorities, oil prices also impact the economic incentive for innovation. High petroleum prices and government priorities have encouraged major problems in the economy to pursue international partnerships for developing technology. Environmental regulations, technological costs and market competition help in determining patterns of technology adoption. 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