Executive Summary
This research paper explores and identifies business opportunities in China for the Servcorp Company located in Australia. Being a service delivery company, the Servcorp corporation has a unique advantage to tap into the upcoming economy. The paper looks into the different settings of the Chinese economy to identify different ways in which the Servcorp corporation can seize the opportunities presented by the growth of the Chinese economy. The paper has undertaken keen research on the market structure of the Chinese economy, legal parameters, and the other factors that can have an impact on the setting up of a business in the country. The Chinese foreign policies have been critically analysed, and the cultural aspects of the citizens to identify their shopping behaviours and also to be able to map out the market needs to have a target.
Introduction
Doing business in China entails several factors. Some of these factors are cultural, some are social, and some are legal, among other dynamics that govern international trade. China has recently come up as a trade giant, and all major trading countries, especially the western countries, are eyeing on the opportunities to get the benefit out of the cooperation with it. The annual sales in the Chinese economy support the fact that the country is rapidly turning into one of the major international trade partners. The government of China has deliberately played an active role in supporting economic development.
Domestically, a lot of European and American firms are facing unprecedented completion from the upcoming Chinese companies, and this includes companies of western origin based in China. The Chinese market has made its name and created demand for their products through the production of low priced products while maintaining the high quality at the same time. These features have given China an upper hand in many industries that are present in its economy. The electronics industry is the major driver of the Chinese economy, although other industries, such as the motor vehicle industry and the banking, closely follow it about the ranks within the Chinese economy.
Expanding a business in the Chinese market
Planning on expanding business on an international scale is not an easy task since the business has to put a lot of considerations. However, it is easy to gauge the prospective success of a company, looking at its performance on the local level. Servcorp, a multinational organisation, based in Australia, sells serviced office space, virtual office product and provides IT services for the other companies and individual clients (Zhan & Zhan 2012). Servcorp must look into the basic temperaments of the market in China to understand the dynamics of expanding in one of the world’s greatest economies. The transition from a local organisation to an international one is not as easy as it may seem to be.
Expecting a perfect transition is a misplaced expectation. A business plan must state clearly the intentions of the business and, traditionally, they would include the key to success strategies (Zhan & Zhan 2012). Expanding a business in a foreign country requires Servcorp to understand the new customers and their shopping habits to be able to maximise their chances of making any meaningful impact on the Chinese economy (Ambler 2000). To attract potential investors, a summary of the company’s plan could effectively be used to show stakeholders the seriousness of the actions. It is also imperative for the Servcorp Company to make public the description of the company, the products and services they offer, the reason for introducing the products in the market and the target market (Zhan & Zhan 2012).
Governances and policies on the Chinese economy
The growth of the Chinese economy has largely been influenced by the support the country gets from its government. The country upholds the rules of multiculturalism, and it actively participates in the world’s trade associations. This gives the company an added advantage while seeking to invest and expand its market in China. The image is slightly not the same in the region where China has aggressively contributed to the Chiang Mai Initiative Multilateralisation (CMIM) and exchanged the FTA with ASEAN. However, the surplus of local organisations reveals the fundamental competitions between China, Japan, and India (Zhan & Zhan 2012).
China’s proclamation of past entitlements to territory and natural wealth has been counterproductive. How will China deal with approaching international financial governance and will it be ready, if sought after, to change its guidelines in the communal concern? The relationship is two-way: China has been a chief beneficiary of international organisations and their rules and principles as it has opened and reorganised its economy (Zhan & Zhan 2012).
There are few cyphers that, for its size and impending power on the world’s trade and funding, China is redesigning the organisations and their rules and standards to outfit itself (Zhan & Zhan 2012). China is a strong and a verbal enthusiast of more self-governing, the use of accords in these organisations, and more reverence for differences between nations, praiseworthy morals to be sure. Still, they avoid the authenticity that operative bilateral governance occasionally necessitates harsh judgments in the welfares of the international steadiness.
There is a little indication that China is willing to adapt its economic strategies in acknowledgement of international interdependence with two concessions which are preceding trifling exchange rate depreciation in the Asian crisis and bestowing the great incentive compendium in 2008 as ‘good for China and good for the world’ (Zhan & Zhan 2012). Most confirmation submits China is still principally engrossed on the preservation of its autonomy and progressing its expansion intentions.
Political influence on the Chinese economy
China’s economy is characterised by a commercial score of 51.9. It is also ranked as the 136th developed economy in the world according to the 2013 Index. Moreover, China takes a significant place in the economic environment of the Asia-Pacific region (Zhan & Zhan 2012). The legal and governing structure of the country is susceptible to political sway and the Communist Party’s orders (Zhan & Zhan 2012).
Party’s decisive power throughout the economic structure challenges the rule of the law and worship for agreements. Corruption in the country is prevalent, entrenched, and persistent. Although leaders sporadically embrace market ethics that could improve competence and maintain lasting competitiveness, honestly liberalising economic reorganisation has principally delayed. The lack of political will to commence essential reorganisation of the economy has made the country use public investments (Zhan & Zhan 2012). Production development is destabilised by the state regulations and proprietorship of many enterprises, and the monetary sector is predominantly an instrument of state regulations through grants and credit guidance.
In the aspect of the economic stoppage, the administration has tried expanding financial involvements to maximise results. China’s Communist Party supports the extended controller of political appearance, speech, religion, and gathering; consequently, there is hope for monetary reorganisation from the received administration of Communist Party General Administrator Xi Jinping. Still, political reorganisation is improbable (Zhan & Zhan 2012). China began to transform and improve its approaches to the economy in the 1970s-1980s. As a result, the GDP progress was observed in relation to international trade (Adler 2008).
The turning point in the development of the country’s trade relations was the fact of joining the World Trade Organisation in 2001. This situation provides opportunities to develop the trade and industrial sector of the country and to compete effectively with the United States. Since China’s legal structure is weak, it leads to numerous cases of corruption. The state owns all land, and this factor is of great concern to firms hoping to establish or expand in the Chinese market. With such an understanding, Servcorp is obligated to identify and familiarise itself with the laws and regulations concerning land ownership and lease agreements to avoid any legal misdemeanour.
Servcorp, being a service delivery company, runs the risk of such practices since most of its products are intellectual. China’s economy suffers from much corruption in the investment and finance fields (Zhan & Zhan 2012). The general tax load of the country is equivalent to 18.2 per cent of the total national revenue (Zhan & Zhan 2012). In this situation, the government’s expenditure extents to 23.6 per cent about the Gross Domestic Product (Deer & Song 2012). Even though the public debt was reduced, much debt remains to be off-budget (Deer & Song 2012).
Slower development may weaken monetary regulation. The general monitoring structure remains multifaceted, illogical, and irregular. The labour administration remains oppressive. The nation enacts price controls on an extensive assortment of energy, raw resources, and other rudimentary possessions. Along with numerous interest rate incisions, deceleration in the customer price rise in 2012 provided the stateroom for supplementary incentive actions (Czinkota, Ronkainen, Moffett, Ang, Shanker, Ahmad & Lok 2009). As a result, the country’s trade-weighted rate is discussed as 4 per cent (Czinkota et al. 2009).
From this point, the investment rule within the country is non-transparent. It is important to control the financial system of the country to contribute to the economy’s development. In this situation, the government regulates monetary organisations which are significant for the country and provides instructions for the other huge state enterprises (Czinkota et al. 2009).
Cultural influence on the Chinese economy
Cultures have been passed from one generation to the other, and this has greatly influenced people’s behaviour, which includes the buyers’ behaviours.
Confucianism
Confucius fashioned a philosophy that later became a key influence in royal China, and it was accepted and improved by the other nations such as Korea, Japan, and Vietnam (Czinkota et al. 2009).
Confucius highlighted ideologies for self-guidance. The key to producing a harmonious life is in how we treat others who are our ancestors, leaders, parents, spouses, neighbours, and friends (Czinkota et al. 2009). According to Confucius, a person turns out to be noble not by biological acquisitions, but by increasing the five qualities of humankind or kindness Ren, morality Yi, appropriate conduct Li, wisdom Zhi, and honesty Xin (Deer & Song 2012).
Taoism
This principle of non-action intended that one should differentiate the natural sequence of things and liaise with that drive of life. Consequently, if an individual was good at making garments, he or she should not turn into a cook or a farmer for that matter. This is a belief in destiny, and this greatly affects or influences consumer behaviour in China. This means that any company seeking to expand its business into the Chinese market must consider the cultural aspect of the Chinese people. For a business to function effectively and to make worthwhile the profit margins, the consumer behaviour must be put into consideration.
The importing and exporting in the Chinese economy
Any company that seeks to establish a business relationship with the Chinese market must be fully aware of the open door policy. China provides an open door policy to foreigners. This factor has increased exposure to the Chinese market globally. Servcorp can take this advantage while considering expanding into China. Foreign Direct Invest policies are friendly to investors, and they provide favourable working conditions for a business to thrive. The FDI has great support employment and investment in China, hence, the rapid economic growth in the recent past.
The government deliberately formulated the open door policy to facilitate and enhance trade. This is a foreign policy that has contributed to the Chinese economy to grow into the economic giant we see today. China’s investment environment has transformed intensely, with more than two decades of restructuring (Deer & Song, 2012). Thus, to improve the situation, China reduced the external investments to export and focused on foreign investors (Deer & Song 2012).
This approach also abolished time constraints on the formation of joint schemes, gave some pledges in contradiction of nationalisation, endorsed foreign associates to become chairs of joint venture boards, and sanctioned the instituting of exclusively foreign-owned enterprises, now the favoured system of FDI (Deer & Song 2012). In 1991, China approved more privileged tax management for Wholly Foreign Owned Enterprises and predetermined ventures for foreign corporations, which capitalised in designated financial zones or schemes fortified by the state, such as energy, infrastructures and transportation (Deer & Song 2012).
China also sanctioned some overseas banks to open branches in Shanghai and permitted foreign investors to purchase special “B” shares of stock in selected corporations listed on the Shanghai and Shenzhen Securities Exchanges (Deer & Song 2012). Foreign investment remains a robust component in China’s speedy development in the world trade and has been an imperative aspect in the development of metropolitan jobs (Byrnes 2006). Thus, foreign companies began to produce almost half of the whole of China’s export (Zhu & Wan, 2012). However, it was necessary to regulate and control FDI to predict the market overload in definite industries (Deer & Song 2012). As a part of the WTO agreement, China started to eradicate definite trade-related investment procedures and to open up itemised segments that had formerly been barred to external investment (Deer & Song 2012).
New laws, dealings, and administrative procedures to contrivance these obligations are being distributed. There are some companies that withdrew from the Chinese market due to this factor. A good example is the Warner Bros. film company which requires that foreign investments be 51 per cent owned by the local Chinese investors. This particular policy gives the Chinese the major shareholding giving them control over the foreign investments. This is also an aspect of study for the Servcorp company to analyse whether the company is willing to give up its majority ownership to the Chinese investors.
Inflation
During the winter of 2007–2008, the inflation rate was at around 7% per annum, and this eventually rose to 8.7% as per the statistics given in February 2008 (Zhan & Zhan 2012). The rate of inflation in an economy gives prospective investors a clear indication of the market vulnerability of his or her investment. This is a very good way to show the strong and weak sides of the market of the country that may help the investors to take appropriate and right decisions from the point of view of cooperation with the Chinese market (Bucknall 2000). The decision-making process can be effective if it is based on parameters such as the inflation rate alongside the earlier mentioned customer behaviour as well as culture. The regular changes in the prices to petrol and diesel fuel promoted by the government also influence the economic situation within the country (Travis 2007; Xiaowen 2001). The prices are amplified to be lower than in comparison with world prices (World Bank 2007). The problem of inflation has triggered anxiety at the uppermost levels of the Chinese administration (Stuart 2008). In January of 2008, China recorded the highest inflation rate since 1997, which rose to 7.1 % (Song 2012). Later, the rate of inflation rose, and this situation was greatly influenced by the severe winter storms that caused food shortages in the country (Pang & Lui 2011; Roberts 2005).
Recommendations
To perform within the Chinese market successfully and do business in the country, it is necessary to pay attention to some important points which are stated with the references to the analysis of the Chinese economy and foreign trade relations.
There are practical steps to do business in China effectively:
- much attention should be paid to the culture and ethics of the relationships within the company which should be based on trust and respect;
- the Chinese economy is interested in large investments supported with prolonged cooperation between the companies as partners that is why the accents should be made on significant contracts;
- it is important to remember that the Chinese government intends to control and regulate the activities of the largest companies;
- the trade agreements should be followed strictly to state the companies’ interest in further cooperation;
- the role of the local and national authorities is extremely significant in the Chinese economy;
- the concept of the rule of law is not developed in the country enough according to the Western standards, that is why companies should concentrate on following their interests at the legal level (Song 2012).
Conclusion
China’s economy depends significantly on the aspects of the political and legal systems. It is possible to note that today China makes only the first steps to make the business environment more democratic. That is why the Chinese companies are oriented to the cooperation with the large multinational corporations which ethical standards are correlated with the developed cultural and ethical system of the Chinese firms which are based on the stable traditions. From this point, all the aspects including the economy, culture, legal system, and ethics matter for doing business within the country. Despite the unstable economic situation in China and risks of growing inflation, the accents are made on the profitable cooperative relations which are based on the notions of trust and respect to achieve the definite goal.
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