Star Traders - Perspectives of Entering into the Chinese Market - Essay Example

? Executive Summary Star Traders will be a privately owned company engaged in the sale and distribution of small electronic items in developed markets. This company will be procuring electronic items including memory chips, storage media as well as mobile processing chips from the international market i.e. China. Star Traders will enter into Chinese market through a joint venture with local players in Chinese market. One of the key reasons for entering into Chinese market is the fact that it has a large and cheap base of labor offering cost advantage. Apart from this, Chinese domestic market is large and expanding therefore leveraging both the international as well as local opportunities can offer firm a well-established and growing market in Asia to serve. Entering into China will not only open the gates of opportunity in China but in other Asian countries also. Star Traders aims to procure low cost products and sell them at the relatively reasonable margins in the international markets. This strategy will be leveraged through extensive marketing to the existing client base in the developed countries of the world. It is however, important to note that China has the risk of political instability as country is predominately a Communist society with government controlling most of the assets in the country. International firms are not allowed to operate on their own and need to develop working partnerships with the local players to enter into the market. To successfully enter into the market, a financing of approximately $10 million will be required. Research The name of the business is Star Traders and it is going to operate in China in partnership with the local players already working in the chosen field of business of the firm. China has a population of over 1.3 Billion with Han Chinese forming the 92% of the overall population of the country. The overall population growth rate is around 0.48% which China has been able to control over the period of time (“CIA World Fact Book. China”). China has the highest population in the world therefore in order to control the population, China has implemented one child policy (“CIA World Fact Book. China”). As mentioned above, the major ethnic groups in the country include Han Chinese which form over 90% of the population of the country. Apart from Han Chinese, Zuhang, Manchu, Hui and other smaller ethnic groups exist too. However, the overall concentration of these smaller groups is relatively low and Han is the major ethnic group in the country. Mandarin is the major language being spoken in the country. Apart from this, Cantonese, Wu and other languages are also been spoken in various parts of the country. Mandarin however, is the major language spoken by most of the ethnic groups in the country. It is also critical to note that the there are various dialects of the Mandarin also. Over 30% of the population of the country lives under the age of 30 years indicating that the country has ample supply of young labors to continue to supports its economic progress achieved and sustained over the period of more than 10 years. China is the fastest growing economy in the world and has recently overtaken Japan as the second largest economy in the world. With over $12 trillion GDP with a real growth rate of over 7.8% indicate that the Chinese economy has the potential to offer one of the most lucrative business investment to be made. It is also important to note that the China is a predominately manufacturing oriented economy with manufacturing taking more than 46% of the overall GDP of the country. Services sector has a share of 43% whereas rest of the share is taken over by the agriculture sector of the economy. Major export items include electrical and mechanical equipment. Iron, textile and data processing equipment. The major trading partners of the country are US, Japan, Hong Kong as well as Germany and South Korea. As compared to exports, Imports are relatively low and are only over $1.7 trillion with electric and other machinery, oil and fuels, plastics as well as mineral ores forming the major commodities being imported by China. The overall per capita income in China is just over $9000 and China is still considered as a developing country. However, this may also be attributed to the large population of the country and thus having an impact on the low per capita income. China has the largest labor force base in the country with nearly 800 million skilled labors available however; its unemployment rate is relatively higher too and is currently over 6% per year (“CIA World Fact Book. China”). Analysis Considering the fact that China is becoming the second largest economy in the world, it is relatively easier to operate in China in terms of assessing the overall business potential. The globalization and the way it has opened the markets to the rest of the world suggests that organizations with right policy can take advantage of this phenomenon. Over the period of time, China has opened its door for the rest of the world thus it not only benefited from other markets but international firms have also entered into the Chinese market to take advantage of the cheap labor and raw materials. It is however critical to note that China is the favorite destination of international firms and it is expected that the firm will face serious competition from the local as well as international players. However, firm is going to utilize its comparative advantage of low cost and is going to further differentiate it by offering low cost high quality products with the collaboration of local players in the market. It is assessed that the firm will be able to utilize its low cost production methodology to use as its competitive advantage over other competitors in the market. It is critical to note that China is the socialist country with communist economic ideology. Though it has made a transition towards market based economy however, the government is still fundamentally socialist in nature. The political risk therefore remains relatively at the moderate level because of the overall governance model of the country. Apart from this, China has relatively different culture and business practices wherein authority, personal relationships as well as the working environment play an important role in shaping the overall attitude of employees towards work. It would be a challenge to actually deal with the challenges posed by the Culture. It is also critical to note that Chinese population is ageing very fast and soon China may lose its critical advantage of providing cheap labor. China has a one child policy therefore the overall population is ageing with laborers demanding more wages as economic progress speeds up in the country. In order to enter into Chinese market, it is important to formulate a joint venture with the local players in the market. It has remained a policy of the Chinese government that international firms are required to operate with the local firms if they desire to enter into Chinese market. As such the desired mode of entry into Chinese market will be formulation of a joint venture with any suitable local player. In order to manage the overall human resource base of the company, a mix of international as well as local managers will be hired. Since this will be a joint venture therefore most of the local hiring will be made with the help of local partners. Further, the international staff will be trained and developed to work effectively in Chinese business environment with their Chinese counterparts. Cultural understanding will be also provided to the international managers. Works Cited “CIA World Fact Book. China.” Central Intelligence Agency. Central Intelligence Agency, 2012. Web. 02 April 2013 . Read More