What elements of the national business environment might affect your move?
There are several factors of the Chinese business environment which might affect a new American enterprise. Even though China provides tremendous opportunities that can be used while opening a new business, certain circumstances might hinder this initiative. Most of them apply to any business of American or international origins (for instance, political system, legal obstacles, corruption, lack of human resources); a few others are related to the peculiarities of sunglasses-production business (e.g. lack of oil).
China is currently experiencing tremendous economic growth, which provides huge chances for doing business. It is estimated that China’s economy is growing by 10% annually (McFarlan, 2008, p. 2). It became the third-largest economy in the world in 2008 and occupied the place of the second largest world’s economy in 2010 (Das, 2011, p. 82). Goods of Chinese production are cheap and exported worldwide. So, the country is probably one of the best places to open a factory.
One of the obstacles to foreign investors is that the state is currently implementing a strong protectionism policy that favors home enterprises, increases competition, and significantly complicates the process of running an international business (Lopez, 2011, para. 7, 13).
The country also has a large workforce and high-level universities that supply highly professional specialists in the labor market (McFarlan, 2008, p. 2). On the other hand, Lopez (2011) argues that, despite tremendous numbers of both blue- and white-collar workers, it is extremely hard to find employees for your company, and that rivalry between employers in the human resources market is high (para. 14, 16), which makes the production of any goods (including cheap sunglasses) more expensive. It is a crucial problem, for potentially threatens the very status of China as a cost-effective county.
Another important issue is the political one. The government in China has a tremendous influence on the life of the country (McFarlan, 2008, p. 2). The political environment is, in fact, entirely controlled by the Chinese Communist Party. There are some other parties, but all of them are merely puppets controlled by CCP. It also means that the protest against the Chinese political system is not tolerated (Tao, 2013, p. 27).
Therefore, if one wishes to do business in China, they will have to comply with CCP’s standards and demands. On the other hand, the existence of only one political party means that there will be no significant changes of the core players in the government, and the entrepreneur will not have to comply with the new government and build new relationships with them each time they are elected.
One more political problem is connected to a chasm between the rich and the poor, which is significantly greater than in the United States. Such inequality carries the potential for social instability and civil unrest (McFarlan, 2008, p. 3)
Due to the pace of economic growth, China is experiencing a significant dearth of oil and imports tremendous amounts of this natural resource (Hayward, 2009, para. 6-7). It has both positive and negative consequences. A positive result is that China needs to build strong international relationships, which makes it interested in cooperating with foreign companies. On the other hand, the above mentioned huge influence of the state on the country’s economy and the implementation of a strong protectionism policy make it difficult for foreign businesses to get raw materials. This is a major complication for the sunglasses-production business, as such production requires materials made from oil.
On the other hand, the dearth of oil in China is still a factor that might contribute to doing business in China for Americans. China, being highly dependent on imported oil, is interested in instability in the Middle East. Given that US military presence in that region is aimed at providing that stability, China should be interested in cooperating with a western company (Rostoum, 2014, para. 4).
An issue that causes major problems is the legal one. First, any international business in China is overwhelmed with red tape; legalization sometimes takes months instead of weeks (Lopez, 2011, para. 15). There is also a large amount of paperwork that has to be done while the company is functioning; its quantity significantly exceeds the amount of bureaucracy that would be needed in the USA (Goh & Sullivan, n.d., para. 3-5).
Second, in China there exists omnipresent corruption which hinders business’ development; furthermore, laws are being adopted to fight corruption. But these laws are vague, and the loopholes are sometimes used to prosecute people who did not participate in corruption; therefore, certain safety measures should be taken while doing business in China (Hubbard, 2013, para. 2-3, 6-12). Third, as a rapidly growing industrial economy, China is currently facing major environmental problems. Implications of the awkward legal initiatives aimed to protect the environment might also slow down the development of any business (Broderick, 2014, para. 6). And fourth, even though the legislation is improving, the laws are very often not enforced and thus neglected (Mc Farlan, 2008, p. 3).
Therefore, China, as one of the fastest-growing economies in the world, offers invaluable chances for a new enterprise. On the other hand, various circumstances might slow down the development of a new business in China significantly; however, sometimes even these hindrances can be taken advantage of.
Are there obstacles to overcome in the international business environment?
Some other obstacles that require attention while running a business in China are related to the peculiarities of the international business environment that Western entrepreneurs are not used to. One of such obstacles is an intercultural misunderstanding. Despite quite high proficiency in English among the local population, it is often hard to find specialists who can comprehend all the nuances of both English and Chinese languages and communicate the crux of a problem.
This often leads to serious difficulties, as there exist some “business practices that are unique to China”, and the development of an enterprise is impossible without understanding these practices (Goh & Sullivan, n.d., para. 6-8).
Another complication is the peculiarity of Chinese culture itself, which is very difficult from the Western one. For instance, relationships between people are always of crucial importance in China, even while running a company. It is virtually impossible to negotiate all the necessary business deals only during formal meetings; it is important to devote attention to building interpersonal relationships with one’s partners, one’s rivals, and government agents.
This is both uncommon for Westerners and time-consuming (Goh & Sullivan, n.d., para. 11-14). Besides, the custom of building relationships that are not (directly) related to work between people of business and representatives of the government also leads to corruption, which might hinder the development of an enterprise (Hubbard, 2013, para. 2-3; Mc Farlan, 2008, p. 3).
These are the issues that are peculiar to China and its culture and, therefore, pose a problem to foreign business only. Apart from these specific obstacles, the general complications motioned above (legal, political problems, difficulties connected to resources) also affect the international business environment.
References
Broderick, D. (2014). How will China’s new environmental reforms affect growth? Web.
Das, D. K. (2011). China in the domain of international business. Human Systems Management, 30(1/2), 71-83. Web.
Goh, A., & Sullivan, M. (n.d.). Five biggest challenges businesses face when they expand to China. Web.
Hayward, D. L. O. (2009). China’s oil supply dependence. Web.
Hubbard, D. (2013). The harsh new reality of doing business in China. Web.
Lopez, L. (2011). The 10 biggest problems with doing business in China. Web.
McFarlan, W. (2008). China: Opportunity and challenge. Web.
Rostoum, E. (2014). China reaches the equivalent of peak U.S. energy imports dependence. Web.
Tao, P. (2013). Ideology versus practice: China’s growing problem. New Zealand International Review, 38(3), 27-28.