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Pest Analysis of China

Pest Analysis of China

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Published by alwida

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Published by: alwida on Sep 12, 2011
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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.

the world's largest exporter and second largest importer of goods.341.000 (as at 31 December 2010).000. and nowadays. China's economy has boomed since 1978. as a result of sweeping economic reforms and the GDP has grown impressively (9. 092. 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. China has become the world's fastest growing major economy. 142 millions).

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

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

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

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

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