Pest Analysis of China | International Politics | China

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.

000 (as at 31 December 2010). China's economy has boomed since 1978. 142 millions). Background of China China has the second largest land area on earth with population reaches a total of 1. China has become the world's fastest growing major economy.000. 092. Map of China List of GDP BY THE World Bank (2009) .341. the world's largest exporter and second largest importer of goods.II. and nowadays. as a result of sweeping economic reforms and the GDP has grown impressively (9.

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

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

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

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

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