Country Risk Analysis-China Essay

With the learning of economic globalization, un wish closely direct devoteing (FDI) is increasingly being recognized as an important factor in the economic bring forthment of countries. Although FDI began centuries ago, the biggest harvest-tide has occur florid in recent geezerhood. This growth resulted from some(prenominal) factors, particularly the more than receptive attitude of regimes to investment inflows, the process of privatization, and the ontogeny interdependence of the being scrimping. Team B give per systema skeletale a region risk analysis to ensure that endeavors of investing into the Chinese grocery stores atomic telephone get along 18 warranted.Initial ScreeningGreater chinaware has been one of the most dynamic areas in the human race rescue. With the entry of the china into the World Trade Organization, chinas pecuniary markets emerge on the frontier of economic illuminate and openness. Financial go also brook the most exciting foreign subscriber course opportunities in mainland mainland china. However, the recent Asian financial crisis illuminates the problems in chinas state-run enterprises and an ill-functioning banking system.This story is estimateing for the melodic phrase opportunity of financial services industry in China. It leave behind begin from the review of the emerging economies to explain why the particularized region was chose. The research of this paper also includes occupancy analysis in China, a review of profitable industry, the business entry st tellgy and its serviceable areas lease in China. At the end, the future system and the recommendations will be discussed for the further tonicitys in this investment.Potentials/FDILooking at the environmental factors of China, the economic development it has undergone in the past 15 years is of increasing interest to marketers. It has essential and continues to grow into a great trading partner. If this growth pattern continues, China will someday befool signifi dropt economic influence on the knowledge base. One reason China could turn expose a particularly hulky effect is due to the number of Chinese citizens. China supports over 1.29 jillion people and this number is increasing by .93%. If the standard of living persists and income levels rise, it would be possible to accept the Chinese as potential consumers that would unlock a huge marketof individuals.The massive creation has been a burden on China because the economy, as it stands now, cannot bear to support such a number of citizens. The government is trying to gain control of this problem by restrict the number of children to one per household, with exceptions to ethnic minorities and those living in unsophisticated areas. opposite countries are offering their services to attempt to control the birthrate by showing the government that population control can be managed without a coercive and involuntary approach. The government has been losing its authority due to political changes and common resistance that make population standards difficult to maintain. Therefore, some projections still rough that 1.6 billion will make up Chinas population by the year 2025.Countries want to produce advantage of Chinas emerging opportunities are investing a s considerablyed meter of time, parkway and money in place to access such a abundant market. These possibilities were made possible when China started its reform in 1978, opening its doors to foreign investments and trade. This changed a self-reliant central economy into a mixed economy that combined state owned enterprises and private businesses. China could now free individual citizens to have different measures of incomes. The results have changed China dramatic tout ensembley qualification it the fastest growing economy for 15 years. When the reforms began in 1978, 60 per centum of the population earned less than $1 a day. Since the reform, porcine domestic convergenc e has expectant steadily by an average of 9 percent. In the year 2000, GDP grew by 8 percent. Currently, per capita is equivalent to $3600 and as the economy continues to expand the purchasing power of individuals will increase as well.The unseasoned economic reform policy intends to reduce central planning and increase business shore leave and spread income. M whatever problems still exist, despite the success of the policy and speedy economic growth. There is a movement for more privatization of some allege Owned Enterprises because umpteen remain unprofitable. In the year 2000, 46.5% of the SOEs were running at a loss. These problems stem from the socialist system that is still in roam under their Constitution. Under the Chinese Constitution, it is theresponsibility of the government to manage the economy by means of production quotas and price setting. This apparent contradiction betwixt the reform policy and the Constitution (1982) seem to last against apiece other. C hina will never succeed at full potential unless it retires the red views and embraces a market directed system.Economic IndicatorsChinas economic growth remains quite high due to the large investments from the United States and Europe. The struggle sphere of influence has a competitive edge with the rest of the globe now, where outsourcing of work to China is a priority among the large corporations. The Second Screening tries to look at more specific types of economic indicators to determine the risk and preventative for a foreign familiarity to invest in China, a agricultural that has a communist government.According to the World Economic Forum, China has go up from 33 to 39 in their 2002-2003 Growth Competitive list while the IMD has mainland China listed as number 12. Summary data can be accessed below.In terms of trade surfeit, there are fluctuations all the time due to the business cycle. Not all cycles of beneficials and services in China fall into predictable patt ernsChinas trade surplus in swear out fell to $6.9 billion, well below forecasts and down sharp from Februarys $23.7 billion surplus, reports AP.It was not clear whether the drop in March was the result of government efforts or would have a lasting impact.(www.metrics2.com)http//www.metrics2.com/blog/economic_indicators/Inflation is something that remains as prospicient as prices stay on discharge up, and there are no controls of prices. The Chinese communist government does have strict controls over the Chinese capital. Its central bank controls the overall residuum of payments within the country when dealing with foreign investors, as the United States.Chinas consumer price index (CPI) rose 5.3 percent year-on-year in July, primarily due to the lagging effect of price hikes at the end of 2003 and one-time factors, verbalize the monthly report loosed by the National Bureau of Statistics (NBS) Thursday. The July inflation rate was 0.3 percentage points higher than the 5 perce nt rise in June, making it the secondconsecutive month that Chinas inflation exceeded 5 percent.Currency ConvertibilityCurrency in China is called the Renminbi and although it tries to be strictly controlled by the Chinese government, the currency competes on the world currency market comely like the American dollar and the Euro. The currency is tied to the economic health of the country in terms of balance of payments. Sometimes this is difficult to understand because of the globalized world economies today, where every country deals in all of the worlds currencies. supranational corporation for example can pay for goods and services in any form of currency.The official currency of the Peoples Republic of China (PRC) is Renminbi (meaning in Chinese peoples currency). The Peoples Bank of China, the PRCs monetary authority, issues the Chinese currency. The official ISO 4217 abbreviation of Chinas currency is CNY, plainly it is also abbreviated as RMB. Colloquially, the Chinese cur rency is also called Yuan and Kuai.(www.danwei.org)Gross Domestic ProductChina is likely to declare itself the worlds fourth largest economy near week, having leapfrogged Italy, France and Britain, after a widely expected revision of its annual gross domestic product figures.Economists enounce the National Bureau of Statistics (NBS), which is due to release part of the results of its first national economic census on celestial latitude 20, is likely to put a much bigger figure on the size of Chinas services sector. Political and Legal ramparts to doing business in ChinaThe Peoples Republic of China is a wave-particle duality of cultures and lifestyles. While maintaining the culture of an old world, there is a marked image of Western culture all over the larger cities in the country. However, anyone wishing to do business in China will have to drive in and understand both cultures, and all the legal and political implications involved in doing creating a successful presence in C hina.In China, the first step in doing business is to have a legal framework to operate your business. You need a legitimate platform to launch your business venture. It is not advisable to use proxy or another Chinese company to conduct business in China (www.seve.gr). While the most transparent barriers to doing business in China include tariffs and other financiallimitations, there are some non-tariff barriers that could inhibit a business from doing business in China.Entry BarriersGovernments often provide trade consultations and administrative guidance to companies to press forward implementation of their respective industrial policies. In some countries the role of government may distinguish the form of a caretaker, coordinator and leader providing guidance, coordination and arbitration. In order to achieve these goals, governments use such tactics as licensing, foreign permutation allocations and quotas. These tactics could interfere with free trade and become a barrier t o market entry (www.foxweb.marist.edu).Profit Remittance BarriersFinancial controls may take the form of exchange controls, multiple exchange rates, and prior import deposits, as well as credit restrictions and profit remittance restrictions. Exchange controls limit the amount of currency that can be taken abroad. Such controls limit the amount of currency an importer can obtain to pay for the goods purchased. It also limits the amount of currency an exporter receives for goods sold and the length of time it can hold the currency (www.foxweb.marist.edu). earlier to 2005, most businesses in China were state-owned and it was virtually impossible for non-state businesses to enter the Chinese market. However, in 2005, China lifted trade barriers that would allow private businesses to invest in the infrastructure, industry and utilities of China.Although the government has displayed support for the development of non-state economy in recent years, there are still barriers to the developm ent of the private sector especially in the power and oil industries. Even in instill where the private economy booms, the non-state business often faces some limits from various industries (www.English.peopledaily.com). cultural IssuesChinas estimated population for 2007 is greater than 1,321,800,000 with a relatively small cohort. (CIA, 2007) The average agein China is 33.2 (32.7 male and 33.7 female). evince 1 (CIA, 2007)Life foresight is estimated at 72.88 years. Seven out of every 1,000 people die each year. Infant mortality rate is 22.12 per every 1,000 births (20.01 male and 24.47 female). (CIA, 2007). The Chinese ethnic population is 91.9% Han Chinese while the remaining 8.1% is made up of Zhuang, Uygur, Hui, Yi, Tibetan, Miao, Manchu, Mongol, Buyi, Korean, and other. adjoin 2 (Cyborlink, n.d.)Culturally, China ranks highest in long-term orientation. This dimension indicates a confederacys time perspective and an attitude of preserving that is, overcoming obstacles with time, if not with will and strength. (Cyborlink, n.d.) Geert Hofstede has conducted many cultural analyses and ranked China the lowest in Asia in regards to individualism. This is fancy to be in part to an emphasis on a left-winger society by Communist rule. Culturally, the Chinese are close and pull to family and relationships and loyalty is considered very important.Hofstede also noted that China ranks 80 in regards to power distance while the rest of Asia averages 60 and the rest of the world averages 50. This is indicative of a high level of in disturbity of power and wealth within the society. This condition is not necessarily absorbd up the population, but rather accepted by the society as their cultural heritage. (Cyborlink, n.d.) In regard religions, China is an atheistic society (94%) while only trinity to four percent are Taoist, Buddhist, or Christian, and one to two percent are Muslim.Education in China is very important. Two years before the dawn of the 21st Centu ry the Chinese government proposed an intriguing plan intended to expand university enrollment to ensure a greater output of professional and specialized graduates. (Cyborlink, n.d.) The governments goal is to develop an elite of world-class universities. Today, 90.9% of the Chinese population is literate however, only 85.5% of Chinese females are literate compared to 95.1% of Chinese males are literate.The 2006 estimated Chinese labor storm consisted of 798 million people withan official unemployment rate of 4.2% for urban areas. Unemployment and underemployment rates for rural areas are considerably higher. According to the 2006 labor estimates, 45% of the labor force was involved in agriculture 24% industry and 31% services.Exhibit 3 (CIA, 2007)Competitive forcesNumber, size and financial strengthWith this being a relatively new product idea there is very little competition. That is not to say that there is no competition. Similar software exists however it does not take into a ccount the end user. Most fashion software is for the designer more so than the consumer. Our software allows people put in there personate type and shape and then see how clothes would look on you before you ever step foot in a store. commercialize shareWith a very small number of competitors is allows for firms to have very large shares of the market. We understand that being brand new we will not be able to have the entire market, however within the first trio months we expect to grow it by a factor three. This is very challenging but we feel with our strategic partnerships and quality product we should be the market leader within the first 18 months.Marketing strategiesOur marketing strategy will be to associate our self with an established fashion label(s). We will use there good name to help promote our product as a product extension of the clothes.DistributionWe will distribute our products by dint of online stores as well as their contemporary bricks and mortar counterpar t. We feel this is the surpass over all solution to get the product into the hands of as many people as possible. The competition utilizes the internet as well as physical stores as well so we must do both as well.Modes of entryAs for the mode of entry, we have decided that because of the bureaucratic red tape associated with doing business in china it would be most just if we combined our efforts with an already established turn company. That way we would not have to launch a completely new company however just branch out as a different product line to an existingbrand. We will probably use price skimming as this type of software will be aimed at consumers who are uncoerced to pay a premium for fashion. Also they might perceive a lower price as a lower quality product.An pick mode of entry could be if we sold our software to multiple clothing makers and allow them to use the software as a tool. This also would guide some of the governmental procedures. This solution would als o get the product out and into more users. The products of this industry are services, it is extremely important to build good relationship with customer and build customer loyalty in long term. This issue is currently managed by the group successfully. The only challenge is to keep the standard when entering the China market.In the highly competitive business atmosphere currently occurring in China, there is a large paucity of qualified employees. Many companies are eager to attract as many skilled professionals as possible, especially in financial services industry. local business giants realize the urgency and magnitude of their needs. Besides the great number of expatiate executives, management-training companies in Shanghai have mushroomed to several thousand to provide the management talent.In conclusion, with the speed up of world economic integration process and the gradual opening of financial market after Chinas entry into WTO, China financial services sector will have t o face more powerful competition and challenges from overseas intruders. China will be stepping up infrastructure development and offering equal opportunities to both the foreign banks and the domestics. It also is a greater opportunity for WF to take a step in sharing the market.ReferencesChina lifts barriers of private business into monopolized industries. (2005). Retrieved April 21, 2007 from http//english.peopledaily.com.cn/200501/20/eng20050120_171269.htmlCIA. (2007, April). China. Retrieved April 19, 2007, from The World Fact Bookhttps//www.cia.gov/cia/publications/factbook/geos/ch.htmlCyborlink. (n.d.). China. Retrieved April 19, 2007, from International Business