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Pest Analysis of China

Pest Analysis of China

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Published by: alwida on Sep 12, 2011
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PEST ANALYSIS OF CHINA I.

Introduction Nowadays, China has become one of the world’s most attractive locations and China’s rise carries enormous significant for the international business communities. China has a very good development in term of legal system, the size of the market, the low cost of labor and China’s growth potential together offer unprecedented business opportunities for foreign investor to do business in China. International business have developed very rapidly in China and today, China become increasingly integrated with other parts of the world and opened up to a whole range of crossborder economic activities. Managing an international business in China is not an easy task and there are some challenges will be occurred. The prime challenge for those interested in doing business in China is achieving their strategic objectives of cost reduction, local differentiation and the strengthening of core competencies in their specific functional areas and business activities. China is the formal member of World Trade Organization (WTO) since 2001 and from the date, China enjoyed all the rights the WTO gives to other members and full participates in WTO activities. China's entry will benefit its national economy, as well as encourage global economic growth and the improvement of the multilateral trade system. WTO membership opens up China’s market for more international trade and investment, and opens up the world economy for China’s exports. This report will cover the reason for doing business in China, defines and identify the macro environment of China in term of political, economic, social and technology factors in order to do business in China and the impact of China on joining WTO.

and nowadays. China has become the world's fastest growing major economy. as a result of sweeping economic reforms and the GDP has grown impressively (9. 092.000. Map of China List of GDP BY THE World Bank (2009) . Background of China China has the second largest land area on earth with population reaches a total of 1.II. the world's largest exporter and second largest importer of goods.000 (as at 31 December 2010).341. China's economy has boomed since 1978. 142 millions).

so it is difficult to assess consumers’ credit worthiness. (2008). . language.Labor and physical plant is relatively inexpensive. requiring a variety of products to meet segmented needs. d. making transportation a challenge. There are the reasons for those companies thinking of entering or expanding operations in this important market such as: a. h. f. The diversity of the Chinese market is significant. China is the member of World Trade Organization (WTO). c. China is a unique market in term of political view. d. Conducting market research and identifying market sectors is extremely difficult. Multinationals often must compete against local players with lower cost operations and lower prices..S. e. business philosophy and beliefs. according to Orfield. there are some barriers or challenges of doing business in China: a. b. However. b. Trade continues to play a major role in China’s booming economy. China is land of opportunity . a widening disparity between haves and have-nots could cause significant upheaval. c. China become the world’s second largest economy and has been "open for business" for over 30 years. protections for intellectual property rights are not consistently enforced. K. Even with China joining WTO.Recently. China is undergoing rapid social and economic change. China has no nationwide credit database. g. Markets are subject to sudden changes in the government’s economic growth policy. Infrastructure is less developed than in U.

However. partnering with a Chinese firm (particularly one with senior government or army connections) has proven to be the best and lowest risk market entry model. North American firms should expect fierce competition. needs and customs. particularly in major industrial zones. developing key local capabilities like marketing. P&G took three years to turn a profit. Lesson 3 – Joint ventures work best but carry longer term risks In most cases where you need to manufacture locally. China differs across every measure — politically. Although labour and physical plant is relatively inexpensive. capricious government behaviour and the germination of emerging Chinese competitors. Once operations are set up. Most North American companies can leverage little from their previous international experiences so they need to fully embrace local operations. language. from local players. After the doors open. Finally. The Chinese government has tacitly and overtly encouraged this in order to maintain some control over foreign enterprises. act local China is a unique market. Lesson 2 – Think local. invest in deep relationships with key door-opening politicians and regulators and show an exaggerated deference for Chinese business habits. Its comprised of diverse regions with varying levels of development. China is experiencing significant wage and raw material inflation. which can easily extend investment pay-outs and make local operations uncompetitive. consumer needs and regional industrial strengths Compared to the West. service and distribution is not. for foreigners JVs carry significant medium term business risks that include but are note limited to politically-motivated expropriation. including a non-level playing field. on corruption. support cronies in state-controlled partner firms and buttress local companies from more efficient foreigners. Getting to the point where you have boots and machinery on the ground often can take years of arduous effort and relationship building. . facilitate critical knowledge and skills transfer. honour and beliefs. For example. firms need lots of time to get the business model right. The ideal market entry strategy is to do your homework on the market.Conclusion Lessons from this paper: Lesson 1 – Success takes patience and deep pockets Even large companies need a long runway before they start making money from their Chinese investments. consumers and competition. business philosophy and beliefs. KFC 10 years.

The key question.Despite the pain and suffering. many companies have finally turned the corner and are now reaping strong investment returns in China. however. is will the runway to profits in China shrink as its economy grows? .

wikipedia.org/wiki/List_of_countries_by_population 4.wikipedia. http://www.asp .wisc. http://en.com/executive/guide+doing+business+China/34176 88/story. http://en.References 1.html 2.org/wiki/List_of_countries_by_GDP_(PPP) 3.org/wiki/People%27s_Republic_of_China 5. http://en.wikipedia.edu/update/winter05/business_in_china.financialpost. http://www.bus.

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