Continued Growth in China - Coursework Example

The Shanghai stock market reached record levels during 2007 and Chinese multinational enterprises (MNEs) are becoming ever more noticeable on the world stage particularly in 2008, the year that China hosts the Olympic games. With reference to relevant theories and concepts evaluate the implications for other international business organizations of the continuing growth of the Chinese economy and Chinese MNEs. The development of commercial activities around the world is depended on a series of factors. Most commonly, the political and financial conditions in the targeted markets are of critical importance for a firm’s managers – when the latter have to design and apply the firm’s strategic plans regarding its expansion within the international market. China has been proved to be an extremely powerful economy, although it is still considered to be a developing country. The rate of development of its economy (as it can be assumed also through the performance of the Chinese MNEs) as well as the performance of its major Stock Exchange Market, the Shanghai stock market, is the best indicator for the increase of the country’s financial performance through the years. In 2008 China hosts the Olympic Games, an event that is expected to support the country’s further financial development for the years that will follow. The conditions related with the political and financial development of China (as described above) are expected to influence the activities of many international organizations around the world; turbulences could occur in the long term due to the differentiation of the position of China within the international community – an increase of the country’s financial power would resulted to the increase of its political power to intervene on many decisive projects and commercial activities in the greater Asian region; such a prospect could be a threat for other countries of the same region that also try to increase their presence in the international commercial market (like India, Korea and so on). On the other hand, international organizations would also consider the increase of China’s financial power as a threat; the entrance in the country’s market would become more costly while additional terms could be imposed on foreign enterprises that operate in the specific country. In other words, the improvement of Chinese economy would be a threat for many players/ organizations within the international commercial market under the terms that their hegemony in the global market could be eliminated. The Shanghai Stock Market is one of the most significant aspects of China’s economy. The influence of the above market by other stock markets has been limited as possible in order to keep it safe from the unexpected turbulences related with these markets especially the last decade. In accordance with a report published in October 2007 ‘because current Chinese government policy severely restricts both investment by domestic Chinese in markets outside of mainland China and investment by non-Chinese investors in the domestic Chinese market, the Shanghai stock market is effectively isolated from the Hong Kong and U.S. markets’ (Seeking Alpha, October 2007, online article). Under these terms the Chinese government has proceeded to all the necessary measures in order to protect the specific stock market by the international monetary and financial crisis that has influenced most of the stock markets internationally. The specific policy has been proved to be effective if considered the performance of this market during 2007. On the other hand, in Shanghai Stock market the methods of pricing employed are different from those used in other international stock markets, like the one of Hong Kong. This strategy has helped the specific stock market to survive until today; in the long term the specific strategic choice helped towards the recovery of the above stock market after a long-term downfall that ended approximately in the beginning of 2007. The methods employed by the specific stock exchange regarding the pricing of the options have been examined in the empirical research. In this context, it is noticed that ‘historically, the Shanghai market has traded at a premium to Hong Kong and the U.S., indicating a higher level of overall demand by domestic Chinese investors for the same stocks’ (Seeking Alpha, October 2007, online article). Until today, the role of Shanghai Stock Exchange Market in the development of Chinese economy has remained decisive. It is perhaps under the influence of this stock market’s performance (among other factors) that the Chinese economy has been improved achieving significant levels of growth during 2007 (compared to the previous years). In a relevant report in which the country’s performance is analytically presented it is noticed that ‘in 2007, the national economy kept steady and fast growth with the features of rapid economic growth, optimized structure, increased efficiency and improved livelihood of the people; the gross domestic product (GDP) for the year was 24,661.9 billion yuan, up by 11.4 percent, or 0.3 percentage point higher than that in the previous year, representing a fifth successive year of over 10 percent growth’ (China Gate, January 24, 2008, online article). It is clear that the improvement of Chinese economy during 2008 was significant; many prospects for further growth of this economy in the next years also exist. In a relevant analysis of the performance of the country’s economy compared to the previous years it has been found that in 2007 ‘the growth rate was 0.3% points higher than the 2006 level revised at 11.1%, National Bureau of Statistics (NBS); China will be a key engine of growth in the world economy in 2008’ (FinFacts, April 15, 2008, online article). For the international organizations all aspects of Chinese economy are important criteria towards the evaluation of the future growth of the above economy and the estimation of the consequences of this growth for the performance of these organizations in the future. The radical improvement of the Chinese economy could be possibly considered as a threat for the international organizations under the terms already developed above. In 2008 the country hosts the Olympic Game, an event that is expected to support further the improvement of the local economy and the increase of performance of the country’s MNEs. On the other hand, the improvement of the country’s economy could create more chances for the foreign firms to be expanded within the local market; their level of profitability could be increased as the standard of living across the country is improved. The figures related with the consumer preferences and the consumption rates prove that indeed foreign firms that already operate in China could have more chances to achieve a high profit due to the expansion of the domestic market. As for the foreign firms that are interested to enter the specific market, these also would have more chances to achieve a high profit – the achievement of such a target would be also depended on a series of other factors, like the customer preferences regarding the specific products/ services, the cost related with the production/ delivery of services and the position of the competitors within the same market. In any case, the figures related with the various aspects of commercial activity in China could be characterized as positive for both the domestic and the foreign firms that operate in the specific country. More specifically in a report published in January 2008 it is noticed that ‘in 2007, the total retail sales of consumer goods reached 8,921.0 billion yuan, a growth of 16.8 percent, and 3.1 percentage points higher than that in the previous year (901.5 billion yuan for December, up 20.2 percent); of this total, the retail sales of consumer goods in cities stood at 6,041.1 billion yuan, up17.2 percent’ (China Gate, January 24, 2008, online article). It is clear from the above figures that foreign firms that operate in China have many chances to achieve high levels of profit under the terms that they will follow strictly the relevant regulations of the Chinese economy. In 2007 the participation of foreign capital in the various commercial activities in China has been significant; it was estimated that ‘the foreign direct investment from non-financial institutions actually used in 2007 was US$74.8 billion, an increase of 13.6 percent’ (China Gate, January 24, 2008, online article). Under the above terms, international organizations would be interested in participating in the Chinese market both in the short and the long term; however if they are already established in other regions and have no intention on developing a branch in the specific country then the improvement of Chinese economy could be regarded by them as a threat. The theories related with the international commercial activity also support the above assumption. In order to identify and evaluate the consequences of the improvement of Chinese economy for the various international organizations it is necessary primarily to examine the context in which a specific organization will develop its activities worldwide. Specific principles related with the development of business activity would be then applied. In accordance with Schuler et al. (1998, 159) every firm that seeks to develop its strategic plan should take into account the following issues: ‘a) the business structure, b) the legislative and employment relationship context, c) the patterns of HRM competence and decision-making and d) the national culture’. On the other hand, Baker et al. (2005, 44) supported that the development of business activity should be based on a specific plan which has to include the following parts: ‘1. Layout analysis; 2. Routing analysis; 3. Bottleneck identification; 4. Bottleneck management and 5. Work-in-process (WIP) management’ (Baker et al., 2005, 44). In accordance with the above, the development of business activities is related with the introduction and the application of specific strategic plans; in the long term the effectiveness of these plans is required in order for the firm to establish its presence within its market (and possibly in the international market if the latter is also targeted by its managers). From another point of view, it is noticed by Gomez et al. (2002) that the review of existed business practices is also necessary in order to identify any potential weakness and propose the appropriate solution. In this context, it is suggested that specific organizational sectors would be reviewed by the firm’s managers if the improvement of the firm’s performance is the major target for its managers. More specifically, the following sectors of an organization would be reviewed and restructured (if necessary) when the improvement of the organizational performance is the required target: ‘inputs (materials, energy, information, management, technology, facilities and labor), transformation (or conversion process) and disposition (marketing and sales)’ (Gomez et al., 2002, Ch. 15). Referring especially to the international business activities, Norburn et al. (1990, 454) notice that a firm that seek to be expanded in the international market should pay particular attention on the following issues: ‘a) the importance of consumer closeness-a service orientation, b) the need for a distinct and identifiable set of corporate values the organisational culture-represented by a "belief in being the best: and the importance of people, and c) an external, or market-orientated, focus as distinct from an internal, or company-orientated, focus’ (Norburn et al., 1990, 454). In other words, managers of international organizations have to face specific challenges when designing their firm’s plans regarding the marketing policies that will be applied towards the expansion of organizational activities worldwide. In this context, it is made clear by Macrae et al. (1997, 64) that ‘brand managers face many challenges (including questions of brand strength, world-class culture, “global” branding, seeded marketing channels, “service smart” integration, brand architecture and brand organizing)’. In accordance with the above, the operation of organizations within the international market is not closely related with the economy of the host-country. Rather, the effective handling of a series of issues, like the ones mentioned above, should be the priority for the managers of firms that seek to expand their activities worldwide. It is for this reason that the following assumption has been made by Laforet et al. (1999, 51) ‘intense competition, emerging markets, brand extension, acquisitions, and many other activities have left companies with a confusion of products to make and brands to manage’. There is no reference to the level of economy of the host-country; rather the development of the international operations of a specific organization is depended on the completion of specific tasks and the review of particular issues – like the ones described analytically above. The above assumption is also supported by Aufreiter et al. (2000) who highlight the importance of specific operational activities, like the brand management, for the successful expansion of a firm’s activities worldwide. It is clear from the issues presented above that the performance of international organizations cannot be particularly affected by the changes in the performance of the economy of the host country. The specific fact is also supported by Rand (1999, 97) who noticed that ‘‘businesses fail because management does not have effective control of the business as management is too far removed from revenue-producing processes’; at a next level, Robertson et al. (1995, 547) supported that ‘because private sector organizations are driven primarily by market or consumer preferences, organizational effectiveness is more readily measured in terms of efficiency and profitability’. In this context even under the terms that the Chinese economy is highly developed the performance of international organizations is not likely to be influenced (at least at a high level); only in terms of the extremely high development of the Chinese economy and the limitation of the commercial activities of other developing countries such an outcome would be expected; however, such a prospect is rather far. References Aufreiter, N., Lawyer, T., Lun, C. (2000) A New Way to Market The McKinsey Quarterly, 53-58 Baker, G., Maddux, H. (2005). Enhancing Organizational Performance: Facilitating the Critical Transition to a Process View of Management. SAM Advanced Management Journal, 70(4): 43-47 ChinaGate (2008) Economic Performance in 2007, online, available at http://en.chinagate.com.cn/reports/2008-02/22/content_10465949.htm FinFacts (2008) News: International, online article, available at http://finfacts.ie/irishfinancenews/article_1012363.shtml Gomez-Mejia, L., Balkin, D. (2002). Management, 1e. The McGraw-Hill Companies Laforet, S., Saunders, J. (1999) Managing Brand Portfolios: Why Leaders Do What They Do Journal of Advertising Research, 39(1): 51-59 Macrae, C., Uncles, M. (1997) Rethinking brand management: the role of brand chartering Journal of Product and brand management, 6(1): 64-77 Rand, T. (1999). Why Businesses Fail: an Organizational Perspective. Emergence, 1(4): 97 Robertson, P. J., Seneviratne, S. J. (1995). Outcomes of Planned Organizational Change in the Public Sector: A Meta-Analytic Comparison to the Private Sector. Public Administration Review, 55(6): 547-558 Schuller, R., Rogovsky, N. (1998) Understanding compensation practices across firms: the impact of national culture’, Journal of International Business Studies, 29(1): 159-172 Seeking Alpha (October 2007) Is Chinese Stock Market a Bubble? If so, how to invest? online article, available at http://seekingalpha.com/article/49218-is-the-chinese-stock-market-a-bubble-if-so-how-to-invest Read More