International Business Finance: Green Building Material Market - Research Paper Example

International Business Finance Report and International Business Finance Report IntroductionGreen building is a compilation of materials, strategies and practices to lower and eventually get rid of the impact of buildings on the ecosystem and human beings (EU SME Centre, 2013). As opposed to other forms of environmental movements, sustainable green building materials design a real and feasible. It is long-term exercise that has a potential of making an enormous contribution to energy conservation and environmental health internationally (EU SME Centre, 2013). Nature of Green Building Material Market China While green building is advanced in Australia and Europe, it is at the first stage of development in China. Most of the green building material firms in China and high-end architecture designs are widely influenced by foreign players, who account for approximately 30% of the whole market share within the republic (EU SME Centre, 2013). Among the 200 leading international companies dealing with green building materials, over 140 have already invested in the Chinese market. For instance, in the 2008 Olympic competition, nearly 121 organizations participated in designing of all the athletic stadiums, 74 of which were either overseas or foreign-owned (EU SME Centre, 2013). Moreover, key global engineering consultancies have their branches in China, participating in numerous large-scale projects nationally. Besides foreign organizations, Chinese firms, particularly the ones with government support, are powerful players in the market, towards realizing large-scale government projects. Relating to building materials, the organization is likely to face stiff competition from foreign firms. Nevertheless, there are more local Chinese producers utilizing the price benefits in the market, even though the standard is relatively low. OzGreen should brace itself for a stiff competition in the Chinese market. As a consolation, the market is still big enough to get a share of the cake (EU SME Centre, 2013). Some of the most establish green building material firms in China include Hunter Douglas, an international firm which boasts of building and furnishing the red skin for the Chinese Pavilion at the Shanghai 2010 international Expo. Philips is also one of the key players in the market, having developed a sustainable lighting design and supply for Guangzhou Tower. Another likely competitor is OMA, which came up with the CCTV building in the heart of Beijing. Finally, we have Soeters and Grontmij, which recently won the contest of Wuhan New Energy Centre. The centre will be the most energy efficient tower in the planet (EU SME Centre, 2013). The building of Tianjin eco-city is opening a wide market opportunity for green building material firms. The world’s most famous eco-city is under construction by the Chinese government in conjunction with a Singapore sovereign wealth fund. The project is aimed at changing the previously uninhabitable swamp into a residential area for over a million people. It is going to be a satellite city of Tianjin. In as much as the project has been broadly marketed and promoted, new residents have been reluctant to explore and inhabit the area. For that reason, the project is facing delays and overruns (EU SME Centre, 2013). Tianjin eco-city construction is not the only eco-project supported by the Chinese government. There are over 100 similar eco-projects spread all over China, mainly geared towards building new cities that will house 250,000 to 500,000 citizens (EU SME Centre, 2013). While the construction of some has been fruitful, others have proven futile, resulting in demoralizing reports by western media companies. The establishment of such cities opens up market opportunities and showcases for the Australian firm interested in investing in the country. Companies like OzGreen that are interested in showcasing their exceptional technologies have the chance (EU SME Centre, 2013). China houses one of the globe’s fastest growing construction industries. The World Bank estimates that come 2015, half of the planet’s construction activities will occur in China. China presently needs to transform its repute of ‘the factory of the world’ to brand of a nation with sustainable building and long-run investment for the coming years. The impediment of a transformation towards sustainability may create an opportunity for the country. China could prove that has not only been wielding power, but also targets greatness as it progresses towards sustainability. Apart from the increased benefit of sustainable building, there is an observable pattern in improved construction standards (EU SME Centre, 2013). Malaysia The Malaysian green building industry is broadly categorized into two distinct areas. The first segment is general construction, consisting of residential, non-residential and civil engineering construction. The second category is special trade works, which is made up of activities of electrical and metal works, plumbing, carpentry, painting glass, tiring and flooring works (Jacquemin, 2012). The sector forms part of a significant Malaysian economy owing to the amount of industry connected to it like those of metal products and electrical systems. As such, the construction sector can be acknowledged as an important economic catalyst for Malaysia (Jacquemin, 2012). Unlike China, the Malaysian green building material market is highly competitive with the local firms in the forefront. Nevertheless, the recent arrival of green technology in the nation has attracted many foreign players, who take part in the construction sector. In particular, they participate in the design and production of green building materials, especially in technologies associated with green building, smart building, prefabrication exercise, and energy efficient building (Jacquemin, 2012). As an encouragement to new entrants in the green building material industry like OzGreen in Malaysia, the government in the past few years convened a panel of initiatives to fuel the growth of the green building industry. Several governmental bodies were formed with the purpose of promoting all types of green building initiatives. The Construction Industry Development Board (CIDB) is a regulated institution charged with the mandate of coordinating the requirements and wants of the country’s construction sector. On top of that, the Energy Efficiency and Conservation Agency Malaysia (EECAM) put its efforts on the actualization of energy efficiency programs (Jacquemin, 2012). The green building material industry is moving ahead positively, but it is still new. This newness and growing demand for green building materials is an investment opportunity for OzGreen. The positive growth is widely attributed to the Green Building Index (GBI). This NGO was formed by ACEM6 and PAM5. It is the nation’s green building quality assurance and certification body. The eco-label initiative is therefore advancing in Malaysia, courtesy of the government in conjunction with CIDB. In the construction industry of Malaysia, green materials are not often taken into consideration even though green labels are there (Jacquemin, 2012). Some firms take advantage of lack of awareness on the part of clients encouraged by the new “green wave” to make a lot of profit on green products. According to this fresh green movement sweeping Malaysia from the European continent, it is irrefutable to argue that there is an overwhelming increase in demand for green buildings in Malaysia. Operations such as the third edition of IGEM 2012 or Eco-build are an attestation to this new trend. This growing demand needs to be tapped by new entrants of the Malaysian green building industry like OzGreen by investing in the country (Jacquemin, 2012). Few construction companies in Malaysia, if any, have adapted to the fast-moving green wave. There are international organizations operating in the country that are also struggling to adapt to this green technological revolution. These include Victor Buyck Sdn, PU Profile and Lhoist. PU Profile is an organization that is a key player in the manufacture of Polyurethane (PU) architectural molding business. It also provides customized design and décor for the exterior of customers’ living space. Today, the company is trying to venture in the green building material industry by making decorative Polyurethane wooden moldings in a bid to lower the nation’s expensive wood consumption (Jacquemin, 2012). Business Environments of the Two Countries China China is the most populated nation in the world, located in East Asia. China has many trade regulations for those who are interested to invest in the region. The country lacks predictability in its investment environment. China’s present regulatory and legal mechanism is opaque, incoherent and sometimes unplanned. Additionally, legal implementation is not consistent. Those who are interested in investing in China must know that the Chinese legal environment and regulations does not protect intellectual property rights, especially for the foreign players. There are many cases of theft of IP of foreign companies by the local Chinese firms (Managing Risks, 2013). China has a government that, in most segments of the economy, is mercantilist, owing to the substantial quantity of exports in the growth model. It has undergone a remarkable growth towards a market-oriented economy, but a section of the bureaucracy and policy makers are still firm to protect local business organizations, especially government-owned firms, from imports, while encouraging exports. China preserves much of the models of a planned economy, with five-year economic blueprints and strategies. The state of the communist party directly oversees the only legal labor activist union (Managing Risks, 2013). China Customs evaluates and collects t duties. Import tariff rates are comprised of six kinds: most-favored-nation rates, general rates, preferential rates, agreement rates provisional rates and tariff rate quota rates. Being a member of the World Trade Organization (WTO), imports from Australia are assessed at the most-favored-nation rate. There are five Special Economic Zones, foreign trade zones, and open cities which exact preferential duty exemptions or reductions. Firms engaged in business in these regions should seek consultation from the relevant regulating authorities (Managing Risks, 2013). Figure 1: Number of Foreign R&D Centers in China. Copyright 2011 by PWC China (2011). The growth of imports from Australia in many major sectors, like chemicals, energy, transport and construction, indicates that China is still an important viable market for a broad variety of products and services. With the widespread increase in Chinese touring Australia and other parts of the world for education and leisure, the country’s participation in the Australian academic environment and the tourism sector is significant as well. China is a challenging market which needs a broad understanding of an organization’s knowledge of the market arena (Managing Risks, 2013). Before settling on entering the Chinese market, prospective exporters ought to first consider their own resources, previous exporting experiences. They must also have the urge to commit a substantial amount of time seeking opportunities for their products and services in the region. Australia has been stressing on the long-term relationships as key to getting a good trading partner in the Asian nation. To increase their contacts, firms must focus on creating a network of relationships with citizens at many levels across a wide range of organizations (Managing Risks, 2013). Malaysia Malaysia is a federation made up of thirteen states in South East Asia. It came into existence in 1963. The nation is strategically placed along the Malacca Straits as well as the Southern section of the South China Sea. Malaysia is subdivided into two major geographic regions. The first region is West Malaysia, bordering Singapore to the South and Thailand to the North, and the Eastern part of Malaysia, bordering Kalimantan, Brunei and Indonesia. The capital city of Malaysia, Kuala Lumpur, is centrally situated in West Malaysia, covering 329,750 square kilometers of land (PKF Malaysia, 2009). The landscape of West Malaysia is majorly made up of coastal plains rising to mountain ranges and hills located in the centre. The region has a tropical weather but the east coast of the Peninsula is characterized by seasonal monsoons between October and February. The nation is a multi-ethnic community, composed of three major races; the Malays, Chinese and Indians. Towards the end of 2008, the nation’s total population was estimated to be 27 million. The state is endowed with natural resources such as tin, petroleum, timber, iron, copper bauxite and natural gas (PKF Malaysia, 2009). Figure 2: Total foreign investments in Iskandar Malaysia according to countries in 2002. Copyright 2013 by Ali and Ibrahim (2013). The political environment of Malaysia is highly favorable to the international and local business investments. Specifically, countries like Australia and United States which formed bilateral trade agreements with Malaysia are progressing in the nation. Malaysia has a monarchical government with a parliamentary system of administration. In reality however, power and authority is vested on the Prime Minister. The PM has traditionally been heading the United Malays National Organization (‘UMNO”). UMMNO is the main political party in the governing alliance that has headed the government constantly since its birth in 1957 (PKF Malaysia, 2009). The Malaysian government has often welcomed foreign investments, especially in the manufacturing sector. The government also encourages joint ventures with foreign investors, since it seeks to increase local participation in business activities. The quantity of exports has been an apparatus for determining foreign equity in taking part in the manufacturing sector. Nonetheless, from July 1998, the Malaysian government has softened the equity policy regulations for all foreign business applications, and diversification programs in the manufacturing industry (PKF Malaysia, 2009). Under the relaxation scheme, external investors could hold 100% of the equity regardless of the level of exports. To further improve Malaysia’s investment environment, equity holdings in all the manufacturing projects were totally liberalized since 2003. External investors can now hold 100% of the equity in all the new ventures, and investments in diversification ventures by already existing firms, regardless of the amount of exports or product/activity being incorporated (PKF Malaysia, 2009). The new regulations and policies also apply to organizations initially barred from obtaining manufacturing license, but whose shareholder’s funds have now approached RM2.5 million (PKF Malaysia, 2009). The already existing licensed firms initially exempted from abiding by the equity specifications, but are at the moment supposed to comply, owing to their shareholders’ funds having hit RM2.5 Million (PKF Malaysia, 2009). The Intellectual property protection in Malaysia is made up of trademarks, patents, copyright, industrial designs layout designs of integrated circuits and geographical indications. Malaysia is strongly committed in protecting the intellectual properties if both foreign and local investors. The nation is an active member of the World Intellectual Property Organization (WIPO), as well as a signatory to the Paris Convention, which oversees the above mentioned intellectual property rights. Moreover, Malaysia is a signatory to the Agreement on Trade Related Aspects of Intellectual Property Rights, formed under the sponsorship of the World Trade Organization (PKF Malaysia, 2009). Malaysia’s intellectual property rules are in compliance with the international specifications and are usually under continuous revisions by the TRIPS Council. One of the most protected intellectual property rights is the patent right. The Patents Act of 1983 together with the Patents Regulations of 1986 controls the patent protection in the country (PKF Malaysia, 2009). A complainant may file a petition directly if he is dwelling in Malaysia. A foreign petition can only be filed via a registered patent agent in the country representing the applicant. Like other nations, an invention in Malaysia is patentable if it is new, has an inventive footstep, and is industrially utilizable. In consonance with TRIPS, the Patents Act requires protection duration of 20 years from the time of submitting the application (PKF Malaysia, 2009). The Most Favorable FDIs in China and Malaysia China Joint export-oriented ventures are the most recommended FDI ventures in China. This is because the Chinese government in 1986 introduced more supporting regulations and provisions to motivate FDI inflows, particularly export-oriented investments and joint ventures with the use of advanced technologies (Tong, Lizaka & Fung, 2002). In the same year, the State Council enacted the provisions of the State Council of the People’s Republic of China for welcoming of foreign investors. The famous 22 Article Provisions offered foreign joint ventures preferential tax treatment, the right to preserve and swap foreign exchange with each other, the freedom of importing raw materials equipments, and unsophisticated licensing process (Tong, Lizaka & Fung, 2002). More benefits were provided to export-oriented joint investments and those using advanced technology. Further, the government tried to guarantee the independence of joint investments from external administrational and bureaucratic disturbances, so as to optimize their performance in the country. The government has also done away with many discouraging local costs, and offered options for such investments to strike a balance of foreign exchange. In addition, privileged access was given to providers of electricity, water, construction and transportation industries (Tong, Lizaka & Fung, 2002). The importance of such a provision to the joint ventures is that it gives incentives for FDI instead of merely allowing it. This proactive move was encouraged by the introduction of the Law of People’s Republic of China on Enterprises Operated Exclusively with Foreign Capital. This unequivocally linked the establishment of wholly foreign-owned investments to the growth of China’s national economy. It needed such ventures to be either export-oriented or use advanced technology and materials (Tong, Lizaka & Fung, 2002). Malaysia Malaysia is fully committed to protecting the intellectual properties of both local and foreign investors. Moreover, the general regulations for setting up foreign investments are not stringent. For that reason, the decision lies with the investor, to either form a joint venture of a wholly foreign enterprise. The only requirement is to follow the laid down procedure for setting up a business in the country before being given a nod by the authorities (MSC Malaysia, 2008).This seems favorable for setting up wholly-owned foreign investments. Foreign ventures may opt to operate in Malaysia by either, registering a branch office if the proprietor is an external organization, incorporating a separate Malaysian firm as its subsidiary, obtaining all or a majority of the shares of an already existing Malaysian firm, or getting into a joint venture with a Malaysian organization or individual, normally by holding shares. With regard to a branch of an external organization, the registration its registration demands that an application be submitted to the CCM to consent to the suggested name of the intended foreign branch (MSC Malaysia, 2008). Generally, the conditions for setting up wholly owned foreign investments in Malaysia are favorable. References Ali, M., & Ibrahim, P. (2013). Foreign Direct Investment Affluences in Iskandar Malaysia. Proceedings of ICEFMO, 656. Retrieved from: http://www.eprints.uthm.edu EU SME Centre. (2013). Report: The green building sector in China. EU SME CENTRE, 1- 26. Retrieved from http://www.eusmecentre.com Jacqueimin, T. (2012). Report on the green development of Malaysia with a focus on the building sector. Embassy of Belgium, 1-29. Retrieved from http://www.ebscohost.com Managing Risks. (2013). Doing Business and Investing in China. Managing Risks, 52-68. Retrieved from http://www.ebscohost.com MSC Malaysia. (2008). Foreign Direct Investment Competitiveness. MDEC Driving Transformation, 1-19. Retrieved from http://www.mscmalaysia.com PKF Malaysia. (2009). Doing Business in Malaysia. Accountants and PKF Business Advisors, 1- 103. Retrieved from http://www.pkfmalaysia.com PWC China. (2011). Doing Business and Investing in China. PWC China, 120. Retrieved from http://www.pwccn.com/investchina Tong, S., Lizaka, H., & Fung, K. (2002). Foreign Direct Investment In China: Policy, Trend and Impact. China’s Economy in the 21st Century, 1-34. Retrieved from http://www.ebscohost.com Read More