Perspectives on International Trade and Finance - Assignment Example

? Perspectives on International Trade and Finance Introduction China was amongst the few countries to possess one of the most primary telecommunication services in the world. The telecommunication market in China is known to have a large number of subscribers availing the services and this particular industry or market is also measured to be the ultimate revenue developer for the country. In the early nineties, China’s telecommunication market had four segments in between the fixed lines and the wireless service providers. China joined the World Trade Organization (WTO) which provided basic policies and agreements and the acceptance of such agreements aided the individual countries to compete in the foreign market. Joining WTO posed a vital influence on the political as well as economic reforms of China which were learnt to be influencing the telecom sector as well. Xiaolingtong is a mobile network which was developed in the year 1999, before China joined WTO and was controlled by the Ministry of Information Industry (MII) which was considered to be the backbone of the fixed line service providers. Later on, significant developments were made with regard to Xiaolingtong which assisted in capturing a significant share in the foreign market. The government provided full support towards the development of Xiaolingtong but those developments were not regarded as vital in comparison to the mobile or cellular service providers. There were also few issues which existed in relation to the adoption or implementation of the 3G service in China’s telecommunication services which required the involvement of different services and technologies. Discussion Key Issues or Options or Alternatives There are few issues which are known to prevail or subsist in the telecommunication system of China and these issues are believed to be preventing the overall development of the system. The telecom market in China was characterized with arbitrary pricing as well as promotion policies. The main focus was to gain a significant market share instead of increasing its market size by providing new and valued services. The telecom market or the sector was observed to provide increased focus on deploying various services without being much concerned regarding the underlying quality with respect to the value added services for creating differentiation or competitive advantage for their products in the international market. There was an existence of high regulatory framework which created uncertainty as well as risk for the 3G mobile services. China’s telecom policies lacked a proper implementation of the relevant laws as well as regulations. It was found in this respect that MII played a major role in regulating the policies for the telecom system in China as the policies were not considered to be transparent which led to uncertainties. It was identified that to develop an efficient as well as effective competition in the telecom market, the existence of an ‘Independent Telecom Regulatory Authority’ was highly required. When China joined WTO, it should have then established an ‘Independent Telecom Regulatory Authority’ for the purpose of developing its telecom industry, but failed to do as MII used to formulate plans and policies as along with managing the telecom service providers (International Trade Administration, 2010). The telecom industry of China needed to conduct its business in partnership with some other international telecom services to compete in the international market. The firms formed out of Chinese partnerships with the foreign associates usually remained stated owned and lacked adequate experience in terms of competing in the international market. The telecom equipment requires qualifying through various certifications as well as testing prior to their implementation and installation. A certain degree of limitation is imposed in China with regard to the aspect of foreign investment which restricts foreign companies to exercise control over the management of the Chinese telecom industry. A WTO obligation also prevails which restricts the resale of the telecommunication services in China. Xiaolingtong, the local service provider in China was based on the ‘fixed line network’ and provided the facility of mobile service which had limited network coverage. MII failed to take notice of the development of Xiaolingtong which was supposed to be hindering the development of the mobile or cellular services in China. WTO provided various agreements and policies for the development of the telecom industry in China and also for enhancing its competitiveness in the international market. The telecom sector of China should be allowed to have the facility of foreign investments for the improvement of the industry. Therefore, necessary steps should be taken for the development of the telecom industry and also to help it in competing with the foreign companies (International Trade Administration, 2010). Review of Literature According to Roseman (2005), China is committed towards entering the telecommunication services market but delays in implementing and regulating policies as well as plans for the development of the telecom industry. There is believed to be a huge scope for development of the telecommunication system of China exclusive of the influence or control of other foreign companies. This particular potential was regarded as the outcome of the agreement made by China with the WTO which facilitated it to compete with other foreign telecom companies. It was believed that this specific alliance would help the Chinese telecom industry to develop into a better economic sector to provide better returns to the society. WTO helped in settling the disputes which arose while implementing various policies and plans for the telecom sector and it also provided various statutory as well as regulatory frameworks pertaining to the infrastructure of the telecom industry (Roseman, 2005). MII used to regulate as well as control the telecom industry during the late nineties. MII considered Personal Handyphone System (PHS) or Xiaolingtong as important for the telecom system of the country which was a fixed line mobile network. In China, the companies were owned by the state which restricted the Chinese telecom companies from conducting business with the foreign companies as partners. MII lacked exerting focus on the entire telecom industry which gave rise to complaints and referred it to be ineffective in regulating as well as formulating policies for the telecom sector in China. Therefore, from this discussion it can be evidently inferred that WTO was helpful in regulating as well as developing the telecommunication system in China whereas MII played a little role as the regulating body of the telecom sector in China (Roseman, 2005). Liberalization of Foreign Investment Limits in China’s Telecom’s Sector Post-WTO Accession Source: (Roseman, 2005) The above chart provides an apparent comprehension regarding relaxing the limits with regard to the amount of foreign investment in the telecom sector of China. The growth of the Chinese telecom sector owing to such liberalization after the intervention of WTO can be evidently identified from the chart. Recommendations The different strategies which can be implemented for the development of the telecom sector in China are. Market expansion - The telecom industry should undertake steps to expand its telecommunication services to compete with the foreign competitors. It is necessary to expand its business for ensuring and retaining high returns along with making developments in the telecom sector (Wang & Kishore, 2009). Market share growth - The Chinese telecom industry should adopt various pricing and advertising techniques or policies for increasing its market share. It should offer numerous value added services at competing prices followed by making attempts to enter into international markets which are believed to be under the dominance of other telecom industries (Wang & Kishore, 2009). Status quo strategy - The telecom sector should adopt this strategy from preventing the other telecom industries from creating a substitute of their products. Thus, it is necessary for the telecom industry to maintain a certain status as well as standard for their product’s brand (Wang & Kishore, 2009). The telecom industry of China should adopt Porter’s five forces model in order to enjoy competitive advantage in comparison to its competitors. Bargaining power of buyer- The consumer or buyer should be independent while making their product preferences. The telecom sector should provide such products or services which will help in retaining the customers or buyers. The industry should create such brands of the product which will provide less bargaining power to the consumers (Lima, 2006). Bargaining power of the supplier - It signifies the degree of control that is commanded by the telecom service providers over the concerned market. The suppliers who provide unique products or services from their competitors tend to possess a greater level of competitive advantage. It also helps in enhancing the prices of their products as well as services (Lima, 2006). Competitive rivalry - It is the level or intensity of competition between the telecom sectors in the market. Competition between the telecom service providers prevails on the basis of prices for their products or services available in the market (Lima, 2006). Threat of substitute - A threat can be witnessed by the telecom industry of China in case a substitute product or kind of service is made available in the market at a favorable price in comparison to the offered products. Therefore, the telecom sector should implement necessary steps to restrict the launch of such substitute products or services in the market (Lima, 2006). Threat of new entrants - The telecom sector should even undertake steps and formulate plans to prevent new competitors from coming into the market as it would augment the degree of competition in the market. Thus, the presence of some sort of obstacle, needs to be ensured in order to restrict the other firms from entering the market. This may run down the extent of control of the telecom sector in China (Lima, 2006). The telecom sector of China should also adopt Porter’s generic strategies to identify as well as determine the position of the concerned industry in the market where the related functions as well as operations are performed. Porter’s generic strategies comprise three components which are cost leadership as well as differentiation along with focus or niche strategy (BCIT School of Business, n.d). Cost leadership - The telecom sector should provide products as well as services at a price which would enable the firms to compete with the other existing competitors. A firm having cost leadership will always be a regular performer in the industry and attain competitive advantage over its competitors. In order to make this strategy successful, a higher growth of the market share for the development of the telecom service providers needs to be ensured (BCIT School of Business, n.d). Differentiation - The telecom industry should produce goods or services which must be different or unique from its competitors. This strategy would help in creating or capturing a proportionate share of the market. The distinctiveness or attractiveness of products as well as services of the firms help to earn more profits for the industry. Buyers’ loyalty serves as an entry barrier for fresh firms as they require producing a unique product to compete effectively in the market. Research suggests that this strategy helps a firm to increase profits in comparison to ‘cost leadership strategy’ as ‘differentiation strategy’ creates obstruction for new competitors from entering the market (BCIT School of Business, n.d). Focus or niche strategy - The telecom industry should focus on a particular segment of the market where the telecom service provider will enjoy a competitive advantage in comparison to its competitors. This strategy helps in making sure of a defending position in the market in opposition to the threat of its competitors (BCIT School of Business, n.d). There are few other strategies or actions which the telecom industry in China should implement for its development as well as recognition in the international market and they are: Independent Telecom Regulatory Authority- The telecom industry in China should develop an ‘independent telecom regulatory authority’ for the regulation of different laws as well as policies to create an effective market condition for the industry (International Trade Administration, 2010). Joint venture requirements - The telecom service providers from all over the world must be allowed to enter into partnership with the Chinese telecom sector for its growth as well as recognition in the international telecom market (International Trade Administration, 2010). Advanced wireless services - The telecom sector in China should implement 3G services in a more effective and efficient manner. The 3G network services will help in increasing the profits or earnings of the sector (International Trade Administration, 2010). Foreign investment - There should not be any limitation on the amount of investment of foreign capital as it will help in the development of the economy of China. Foreign investments will help in improving the economic structure as well (International Trade Administration, 2010). Type approval process for telecom equipment - The telecom equipments which are purchased require undergoing various government certifications as well as testing. Thus, it is necessary for the government to make the verification processes less complicated (International Trade Administration, 2010). Uncertainty and Its Impact The above mentioned strategies should be properly implemented as well as formulated for the successful functioning and development of the telecom industry in China. Necessary steps and actions should be taken for the expansion of the operation of the telecom service providers. However, few drawbacks have been identified in the process of implementation of these strategies. Porter’s five forces model do consider or assume the market where the industry is performing to be quite simple as well as static. The model fails to offer focus on a particular firm for improving the competitive advantage and instead concentrates on the industry as a whole which reduces the effectiveness of the model. The model does not recognize the role of the government in the process of regulating the market. Thus, the Porter’s five forces model may not be effective if the telecom market entails complications. Moreover, when the three of the Porter’s generic strategies are not implemented in an effective manner, the firm may get stuck in the mid way which might reduce the profit margins. In such situations, the firm would need to take necessary steps to overcome such a grave condition. In such kind of a circumstance the telecom service provider may lose market shares as well as experiencing a noteworthy drop in profits. Therefore, an appropriate combination of strategies is required for the functioning of the telecom industry. Every strategy involves positivity as well as negativity in its approach so strategies should be implemented and formulated in such a way which would prove beneficial for the telecom industry in developing and acquiring more returns or profits. Conclusion It can be lucidly identified from the provided case scenario that the telecom sector of China lacked proper development when under the control and regulation of the MII. MII employed various steps to improve the telecom service in China and also recognized Xiaolingtong or PHS to be imperative for its development. Xiaolingtong is a mobile network which runs on a fixed line. Although, developments were made in the telecommunication services but it still lacked technological progress which hampered the performance of the telecom sector. Later on when China joined hands with WTO, it devised numerous policies as well as agreements to settle disputes and to develop the telecom sector. WTO played a major role in the progress of the Chinese telecommunication system. There were several issues related to the regulation and policies of the government which were found to be hindering the growth of the telecom industry. WTO provided ways to develop the telecom sector as well as expanding its business. It also helped in making the Chinese telecom service to be recognized in the international telecom market. Therefore, various strategies are required to be formulated as well as implemented by the telecom industry for its development and also for earning higher returns. Thus, it can be deciphered from the above made discussion that China is still in the process of developing its telecom sector. References BCIT School of Business, (n.d). Michael Porter’s “Generic strategies”. Retrieved from http://faculty.bcitbusiness.ca/kevinw/4800/Bobs_porter_notes.pdf International Trade Administration. (2010). Telecom market summary: China. Retrieved from http://web.ita.doc.gov/ITI/itiHome.nsf/9b2cb14bda00318585256cc40068ca69/7a19947d610987658525788c0041ea3d/$FILE/telecom%20market%20snapshot-china.pdf Lima, T. (2006). Michael Porter’s “Five forces” model. Summary and interpretation, pp. 1-3. Roseman, D. (2005). The WTO and telecommunications services in China: Three years on. Emerald Group Publishing Limited 7(2), pp. 25-48. Wang C., & Kishore, A. (2009). Comparative reasearch on the marketing strategies of telecommunication industry in China and India. Retrieved from http://www.myacme.org/ACMEProceedings09/p11.pdf Bibliography Bushehri, M. (2007). China Telecom: WTO obligations to regulate mobile communications standards in China. The Asia case research centre, pp. 1-8. Gao, P. (2003). Strategy of China’s telecommunication transformation. Department of Informatics Copenhagen Business School, pp. 1-14. Laperrouza, M. (2006). China’s telecommunication policy-making in the context of trade and economic reforms. The London School of Economics and Political Science, pp. 1-261. Lu, D. (2000). China’s telecommunications infrastructure buildup. Retrieved from http://www.nber.org/chapters/c8488.pdf Wauschkuhn, M. (2001). Telecommunication and economic development in China. Institute for World Economics and International Management, pp. 2-32. Read More