PEST Analysis of General Motors in China - Research Paper Example

General Motors in China: PEST Analysis Executive Summary China ranks among lucrative investment destinations of the world. The country’s large population and stable economy provide a favorable environment for business activities. Indeed, the General Motor (GM) market in China necessitates global attention with most world dealers sourcing opportunities to penetrate the market. A probable rational in this fact is that the GM industry in China is a prime industry in the country’s economy and attracts a considerable share of the total GDP. Importantly, the stocked markets in Europe, Japan and United States make motors manufactures to search for growth opportunities elsewhere, hence, China being an emerging market becomes a preferable center. The study, hence, provides a PEST analysis for the China GM industry to establish the state of the market. General Motors in China: PEST Analysis Introduction PEST is a business tool that can be instrumental in establishing knowledge about expansion or decline of the market. External environment has a considerable influence on business’s performance, hence, PEST seeks to establish the magnitude of these forces. Establishing PEST influences is an effective scheme of summarizing the environment in which an industry operates. This paper, therefore, engages the PEST tools to examine the GM industry in China to provide an informative piece that can help investors in adopting successful ventures. Political Political regulations in China have influenced activities of GM industry considerably. China adopted an open door scheme since 1970s to promote financing for modernization with investment liberation (Singh & Delios, 2005). The Chinese government has availed essential protections and concessions to the foreign investors to attract investors into the country. Consequently, foreign investors can easily access the GM market in the market. Indeed, China has lately subscribed to the World Trade Organization (WTO) an aspect that has enhanced the penetration of the Chinese GM industry (Naughton, 2007). The practice has led to relaxation of most policies monitoring the industry and lowering of tariff rates. The prime idea behind the government’s encouraging policies aims at promoting growth of its domestic motor industry with the support and knowledge of foreign producers. Consequently, motivational policies of the government in the late date enables domestic manufactures to use overseas automobile fabrication platforms and designs in branding their cars to enable them compete effectively with the foreign models (Pigott, et al. 2002). Additionally, the government has promoted joint projects between local and foreign motor producers. However, under such a scheme, the foreign partner should not obtain shares exceeding 50% of the total volume (Lee & Anderson, 2006). Of worth, is the 2009 development outline proposed by the State Council. The plan sought to enhance tactics such as industrial promotion, technological buildup and advancement of new engines (Naughton, 2007). The plan had an objective of changing the production from a low-end construction to high-end productions and designs. The tactic had a target of promoting the Chinese GM industry (Singh & Delios, 2005). However, foreign investors can capitalize on such environment to penetrate the market. Such positive attitude by the government ought to enhance the Chinese GM market. Additionally, the Chinese government has presented willingness in encouraging research and establishment of energy saving and eco-friendly automobiles. Since the government has been keen on the emissions emerging from automobiles, assemblage of renewable energy automobiles motors that account for environmental concerns are strategic ventures in China (Lee & Anderson, 2006). Notably, the Chinese government has accorded such developments as the prime determinants of the Country’s future economy. As such, the authority has considered adjusting tariffs and regulative policies to invite consumers into purchasing these new technologies (Naughton, 2007). Importantly, China has experienced an appealing period of political stability. Indeed, the country’s future political state is promising hence presenting potentials for future growth. A stable political ground ought to provide a favorable environment for GM proliferation (Lee & Anderson, 2006). As such, risks associated with investments in the country are minimal hence presenting an attractive ground for venture. However, increasing concerns for the consequences of the industry’s activities on environment and the quest for safer automobiles has led to the establishment of numerous binding regulations (Lee & Anderson, 2006). Initially, the government has considered installing constraints on car ownership in large cities, a practice that targets minimizing congestion and jams in the state. This states that restrictions may toughen, hence, reducing the market opportunities in future (Singh & Delios, 2005). Importantly, the western world has been lobbying for the execution of new regulations that monitor the sustainability of the automobiles. As such, strict measures may emerge on the gas-mileage of the automobiles hence restricting their utilization, a factor that may challenge market augmentation (Lee & Anderson, 2006). Economic Initially, China holds the third largest economy in the world, with a nominal GDP of over US$ 5 trillion when calculated in terms of exchange rate (Lee & Anderson, 2006). Furthermore, the country presents the fifth fastest-growing economy recording an average annual GDP expansion rate of about 10% for the past 30 years (Pigott, et al. 2002). Indeed, the county’s per capita has experienced a progressive growth in the last three decades, realizing an average annual growth rate that exceeds 8% (Gao, 2009). This growth has reduced poverty considerably; however, the rapid expansion has augmented levels of income inequalities in the country. Notably, China is the prime trade country in the world, the chief exporter and the second biggest importer of products (OECD, 2008). As such, the Chinese economy is presently experiencing promising growth rate, hence, has the capability of supporting GM activities comfortably. Additionally, Chinese economy is associated with high purchasing powers. According to Lee & Anderson (2006), a country that has an aggregate per capita of about $1000 holds a considerable population of individuals with the capability of purchasing a standard automobile. In fact, the Chinese per capita is far above this level. According to 2006 market analysis, China’s domestic sales attained US$ 2.68 trillion and the country’s per capita exceeded $2000 (Gao, 2009). Notably, approximates accounts that the Country’s per capita may reach $ 4000 by 2015 (OECD, 2008). Apparently, such growth will have considerable impacts on the GM industry since rich economy will tend to buy more cars. Evidently, over the last decades, China has comfortably navigated from a centrally organized economic scheme to a trade-oriented one. From the date of adoption of the open policy strategy, the country has witnessed swift and progressive economic growth (Fig 1). Importantly, the country has emerged as an ideal investment site realizing considerable number of investors yearly (Fig 2). Apparently, global vehicle suppliers will continue eying high profit prospective of the GM industry in China and the country’s excellent economy. Social China presents a unique social background that demands critical attention. Indeed, most of the country’s cultural practices and values vary from those observed in the Western regions. This is of concern since as Pigott et al. (2002) observe, cultural dissimilarities affect business activities of a country considerably. Consequently, foreign investors investigating China for opportunities should seek knowledge of these differences since they ought to define their achievement. The Chinese government upholds a considerable deal of customary culture as a fundamental portion of the Chinese society according it as an essential mark of Chinese civilization (Singh & Delios, 2005). Initially, the government articulates customary Chinese culture as a national tool of identity. Although the Chinese culture has witnessed erosions like other world cultures, its position remains influential in the contemporary society. Particularly, elements of the culture such as the art, fashion, literature, films and architecture; are of momentous importance to the society. Singh and Delios (2005) note that China has a strong culture that is not of significance to the Chinese community only, but one that has attracted considerable global attentions. This provides that the GM industry cannot ignore culture influence in the Chinese society. Notably, the GM industry is somewhat a lifestyle venture, hence, fashion and celibacy affects the industry substantially (Gao, 2009). It is vital to note that business ethics and corporation behavior have substantial influences on commercial activities in China. Indeed, the Chinese community is sternly cautious on organization’s culture and consequences of business procedures (Singh & Delios, 2005). As such, any industry with an intention of venturing the Chinese market should adopt critical steps. The association between the society and businesses in the country is controlled by the relationship described as “guanxi” (Luo, 2007). This relationship advocates for the concepts that are extremely different from those observed in Western background. Notably, in the Chinese setup, industries attain competitive positions only by establishing their systems of quanxi (Luo, 2007). This implies that only companies capable of establishing such strong chains can outshine others in the market. Indeed, Chinese regard quanxi as the prime term defining understanding of the Asian community and its business operations. According to Luo (2007), establishment of such systems in the Chinese community entails multifaceted social and friendly associations within peers, relatives and friends. Importantly, these groups are strengthened by principles that advocates for “affect” and reciprocal factor. Consequently, partners in such networks share common identities and class, present firm connections and associate closely through strict interpersonal relations (Luo, 2007). Evidently, interpersonal associations in the Chinese community are extensively abstract and emerge through a sensitive cultural-rooted scheme (Shen, 2004). Therefore, any investor venturing the Chinese society should remain sensitive to these demands. Indeed, a western social approach cannot penetrate the Chinese community effectively, hence, foreigners should adjust their business designs to blend with the concepts presented in the society (OECD, 2008). Additionally, the Chinese large population presents high market potentials. Prospect observes that Chinese population ought to rise from the present 1.3 billion to 1.7 billion by 2025 (Gao, 2009). However, the Chinese government is alarmed about the country’s population hence has considered adopting regulative measures. Evidently, the government has instituted a one-child policy to curb the population (Pigott, et al. 2002). Indeed, concerns arise that the government quest of monitoring population argumentation ought to attract tighter family planning plans in the future. Lastly, the Chinese society holds vigilant attention to the quality and sustainability of the products. Gao (2009) asserts this notion when he observes that most Chinese would better spend much but access quality products. Importantly, the society demands comfortable blending of quality attributes with the pricing terms, hence, an attractive model is the one that delivers quality supplies at reasonable prices. Apparently, quality and pricing define the Chinese purchasing patterns, starting that the GM industry should emphasize on these attributes. Technology China presents the global second largest technology fueled by huge developmental capitals and superb researches. Previously, the Chinese government has experienced appealing economic growths. Importantly, the government observes the significance of investing in technology developments (OECD, 2008). In fact, the government has prioritized technology as critical developmental strategy, hence, invests heavily in the sector. For instance, in 2008, the Chinese government channeled over $140 billion in technology-based projects (Gao, 2009). Indeed, market analysis present possibilities of argumentation of the technology budget in future. Presently, the Chinese government institutes strongly emphasize on research by developing aggressive public attentiveness to innovation and in restructuring financial and tariff system to encourage expansion in vital industries (Gao, 2009). Evidently, the central motive guiding the country currently is the perception of changing China from a manufacturing-based nation to an innovation-based one (Shen, 2004). Indeed, in China, regulations monitoring research are relaxed to promote the practice. Evidently, researches like one involving stem cell and gene analysis that are highly restricted in Western, have a relaxed environment in China. This supportive environment associated with minimal legislations establishes favorable grounds for technology proliferation in the country. Additionally, the stand of the Chinese government that has considered shifting manufacturing from a low-end production, which utilizes imported technology, is of noteworthy concern. This presents the country with an independent technology, meaning the GM industry in the country goes behold simple assembling (Shen, 2004). As such, development of new GM designs in the Chinese market is attributable to the advancement of the own-made technology. Efforts towards the establishment of an independent technology are evident in the Chinese government guidance that demands local independent brands to account for over 40% of the vehicle market (Naughton, 2007). Lastly, China is a networked country with excellent transport and communication structures. China’s able economy has provided the country with capabilities of establishing strong structures in most parts of the country. According to Shen (2004), China’s road network and IT tools, present a system, which is admired globally. Importantly, road is the prime means of transport in the country, hence, presenting large opportunities for the GM industry. Besides superb domestic communication, China has effective systems that connect the country with the global world (Naughton, 2007). In fact, the country is in a position of adopting new developments with ease using its large capital reserves. Notably, the country has own-controlled media tools, which broadcast to the international world. As such, the GM industry has utilized this system to market their activities to the community. Conclusion China presents excellent opportunities that can support lucrative GM ventures. The PEST analyses provide us with beneficial knowledge about the market state of the GM industry in the country. As identified, China presents a unique market that is governed by principles that are different from those commonly found in other regions. Therefore, a successful venture should address the concerns presented by the market accordingly. References Gao, L. (2009). Understanding consumer purchasing behaviour regarding luxury fashion- related goods in china. Hong Kong Polytechnic University (Hong Kong)). ProQuest Dissertations and Theses. Retrieved from http://search.proquest.com/docview/305153003?accountid=45049. Lee, H., & Anderson, B. B. (2006). Automobile industry in china and india: Backgrounds, trends and perspectives. The Business Review, Cambridge, 6(1), 308-314. Retrieved from http://search.proquest.com/docview/197307579?accountid=45049 Luo, Y. (2007). Guanxi and business. New Jersey: World Scientific. Naughton, B. (2007). The Chinese economy: Transitions and growth. Cambridge, Mass: MIT Press. Organisation for Economic Co-operation and Development., & Source (OECD) (2008). China: Encouraging responsible business conduct. Paris: OECD. Pigott, C., et al. (2002). China in the world economy: The domestic policy challenges. Paris: OECD. Shen, M. Y. (2004). How to do business in China. Pittsburgh: Dorrance Pub. China Quarterly, 192, 876-897. doi:10.1017/S030574100700207X Singh, K., & Delios, A. (2005). Strategy for success in Asia. Singapore: John Wiley & Sons : Asia. Appendix Fig 1 China’s Annual GDP per Capita Growth Rates in percentages (Year 2000-2009). Source: The World Bank, World Development Indicators Fig 2 Foreign Direct Investment (FDI) in China in billion USD (2000-2009) Source: The World Bank, World Development Indicators Read More