Characterized by a socialist model market economy, China has been recognized as the world’s second largest economy evaluated using the nominal GAP and Purchasing Power indices closely trailing the United States. China has also been identified as the fastest growing major economy in the world having exhibited constant growth rates of about 10% in the last 3 decades (Barnett, 1981). The country also boasts of being the largest industrial manufacturing economy existing, a fact largely believed to be attributable to the cheap labor available in the country.
Over time, as China’s economic relevance grows, so does the global attention to the structural shifts and health of the economy by the key global economies. Since 1 980, numerous Special Economic Zones have been established. These economic zones are intended to speak about China’s successful economic experiences to other areas (Lee, 1999). The Chinese economy uses a five year plan strategy for economic planning and development. Currently, under implementation is knelt five year plan that covers the years 2011-2015.
Entering the Chinese Market: A Feasibility Study Yahoo, a global online search engine is currently not in operation in China having pulled out late last year citing irreconcilable issues that affected their operations and business sustainability. In the event that they wish to enter he market and establish a market for their services, they would need to conduct a feasibility study into the trends and other factors affecting the economic operations of the market (Jungian & Huh, 2004).
Key to consider in the feasibility study include but not limited to; The Business Idea This covers the whole concept of how well the idea of the service they would will to offer to the Chinese market is. They should objectively analyze the market gap existing in the Chinese market in relation to the services they want to offer and how well it blends in filling the identified gap. They also will need to know the market size. It is common knowledge that China has a large population. However, it is not obvious that the whole population would utilize their services.
As such, they should conduct a research into finding out what size of the population would actually need their services. Operational Feasibility. Market analysis A market analysis into the pillars of demand and supply would be required. It is of essence knowing the demand trends and factors that affect such Also of importance would be to to determine the type of demand that exists for your product or service whether consumer or distributor, and also establish he size of the market and its growth capacity. The supply trends will focus at the life cycle of the industry.
The structure, timing and composition of the industry all move along in explaining the supply trends. The Relationship analysis would also be looked into here, that is, how the various groups within the industry interact. It further seeks to determine the bargaining power of buyers and suppliers, and the possibility of a substitute products or new entrants that would curtail continued business growth. Competitive advantage analysis Yahoo will also need to analyze the competitive advantage if any that they ay have over and above their competitors offering the same online search services in China, say Being.
They will need to determine what makes Yahoo services more favorable to the consumers that those provided by their competitors. This would help them come up with strategies to win over their competition and easily infiltrate the market and claim their share of the market Financial feasibility analysis Finally, a financial feasibility study the business idea is called for. This process involves doing an estimation of all the costs likely to be spent in comparison to the projected revenue. This include, among others, estimating reparability, preparing a sales forecast, start-up and working capital requirements among others.
China Risk Assessment The risk assessment of a country seeks to analyze the perceived risk status of a region or country. The analysis is carried out by measuring various indices as may be appropriate. Corruption China, just like many other countries, suffers from intense corruption. In 2013 for instance, the Transparency Internationally Corruption Perception index ranked China 80th out of 1 78 among the most developed countries. The forms of corruption cited included patronage, graft, embezzlement, nepotism, robbery, backdoor deals, and statistical falsification.
The greater economic freedom has not done much to slow down corruption; instead, corruption has become more integrated within the systems and more severe both in character and scope. Almost all business deals often involve participation in corruption. This should be a worrying trend to any entity planning to pitch base in China as it implies that its operations would be somehow curtailed with these acts of corruption. Procurement processes are not evaluated on the basis of who offers the best quality at best prices but on the basis of who knows who.
That is a poor business habit (Chugging Hawaii & Wee, 1999). Political Stability The Political risk in China can be viewed as relatively low thus providing a stable and relatively business environment compared to other emerging markets, though the legal and regulatory transparency is a key risk for foreign companies in the region. China also enjoys a relatively low risk for security and crime making it conducive for businesses. The political stability is attributed to the one party system of governance. Exchange Rate Flexibility In Chugging et al. S (1999), the currency exchange rate in China is said to have en relatively stable for quite a long time since the China’s governments commitment to implement the stable exchange rate policy in march, 2012. The move was intended to keep the exchange rate of the Yuan at a basic basically stable, appropriate and balanced level. This came after China’s central bank had earlier announced its intentions on June 19, 201 0, to further the reform of the compilation mechanism of the Yuan exchange rate to improve its flexibility.
The fixed exchange rate system has since stabilized the value of the Yuan against the currencies it is pegged to. This has made trade ND investments easier and more predictable. It has also to a large extent checked on inflation in the country (Ghana, 2001) Regulatory Oversight China has been known to have tough and strict regulatory and framework systems. It was not much of a surprise when the country’s banking regulator closed in on the country’s 68 trust companies to be prepared to fund or sell their stakes as the defaulted risks rose in the high-yield investment industry valued at about $1. 9 trillion.
Media Freedom In the People’s Republic of China, until the sass, almost all media outlets in Mainland China were under strict control and supervision of the state. Independently owned and operated media outlets only began to emerge at the beginning of the economic reforms, although the state-run media outlets such as CATV’ and People’s Daily continue to hold significant market share. The media being an avenue to share news and information, the governments hindrance to its freedom of reporting meant that they only reported that which the government approved and felt was “safe” for the citizens and businesses within its jurisdiction.
As such, I can conclude that the business environment in China despite having a couple of flaws is still largely viable for genuineness that would like to base in the country. This is so because the downfalls existent are outweighed by the benefits that can be derived. China Versus the U. S. On the Hypotheses six (6) key cultural dimensions The republic of China is an economic giant in its own very right. Compared to the CSS on the Hefted index, its performance is quite stunning as seen below; Power distance- This dimension covers the power inequalities in the society and how best the society acknowledges these differences and handles them.
At 80, China ranks higher that Use’s 40, that is, a society that believes that inequalities amongst people are acceptable and as such there is no defense against power abuse by superiors. Individualism- This dimension addresses the degree of interdependence a society maintains among its members. At a score of 20, the China society is highly a collectivist culture where everyone acts in the best interests of the group and not necessarily of themselves.
Masculinity- This dimension addresses the motivation behind what people do, either wanting to be the best (masculine) or liking what you do (feminine) A masculine society is one driven by competition, achievement and success, here success is defined by the best bet in the related field while a low score (feminine society) is one where the quality of life is the sign of success. At 66 China is a greatly masculine society, a society that is success oriented. This can be illustrated by the fact that leisure is not of much importance to many Chinese citizens. They would easily forego this and family to work and earn more.
Uncertainty avoidance- This measures a society preparedness to handle the unknown future events. At 30 China has a relatively low score on uncertainty avoidance as compared to the US. Chinese would make decisions thou any fear of the unknown future. Pragmatism- This dimension tackles a society’s ability to balance the challenges of the present and future without getting carried to attend to only one Side of the scale. China scores 87 labeling it a very pragmatic culture. Indulgence- This dimension seeks to find the extent to which people control their desires and impulses, based on the way they are brought up in a society.
China scores a mere 24 in this dimension making it a restrained (weakly indulgent) society. Likely Problems Posed by Cultural Difference Context bevels of context (depth) in communication differ among various cultural liqueurs. Low-context cultures such as Canada and the US exhibit little or no need for explanation of orders and requests. High-context cultures on the other hand, expect more explanations about orders and directions. A transactional experience between the two groups would need a lot of caution lest a serious misunderstanding ensues leading to even loss of resources.
Cues These are the little gestures we make in the process of communication. Different cues mean different things in different cultures. So a business communication between parties from different cultures, say, China in Asia ND Yahoo’s California in the US would be hindered if a clue used by one of the parties means a totally different from what was intended. Corporate Space While many Europeans and South Americans ordinarily kiss business partners on both cheeks in greeting instead of shaking hands, Americans do an arms-length from business associates.
Such practices could affect the nature of business if not considered Business Viability in China Having chosen Yahoo’s service of offering an online search engine in China’s market, after the feasibility study carried, I can comfortably reiterate that China would be a good market to invest in. Characterized with an exceptionally large population, there would be a readily available market. Accompanied with the right strategy and management team, market infiltration and conquering would be less hectic and promising. The large population would also provide the much needed labor but at low costs.
This reduces the companies spending even as the profits rise (Ralston, Holt, Trappers & Aka-Change, 1997). The comfortable operational environment brought by political stability also goes a long way into the business establishment. The relatively flexible legal framework also ensures the genuineness intending to set up camps in the country find it easy The Dollar versus Yuan Exchange Rates Over the last 24 months, that is, from August 2012 to present, the exchange rate between the US Dollar and China’s Yuan has been on a rather rising mode.
The month of August, 201 2 closed with 0. 1 57200 USED exchanging for 1 Chinese Yuan. The rates kept increasing in small almost constant intervals to the end of 201 2 and all through 2013 where the year closed with O. 164640 USED exchanging against 1 Yuan. The year 2014 has however this far displayed a twist of events with the rates falling rather than rising between the months f Feb. to date. The month of July for instance closed at 0. 161 289 USED exchanging against 1 Chinese Yuan.
The Economic variables that most likely initiated the changes in the rates are among others; Economic performance through Political Stability A country as China, having had none major conflicts in recent times and enjoys a stable economy attracts foreign investors. The investors feel safer investing their resources in such countries than in countries perceived to have more political and economic risk. This explains the steady rise in the exchange rates over time. Differentials in Inflation
Following the Chinese government’s commitment to maintain the value of their currency at a relatively stable level, inflation was greatly curbed. This exhibited a rising currency value of the Yuan, as its purchasing power increased relative to the Us Dollar (Chem., 1975). Public Debt The fall in the exchange rates in the first half of 2014 might be as a result Countries will engage in large-scale deficit financing to pay for public sector projects inflation, and if inflation is high, the debt will be serviced and ultimately paid off with cheaper real dollars in the future. ND funding by the government. While such activity models the domestic economy, countries with relatively large public debts are less attractive to foreign investors because large debts encourage inflation. Hedging Foreign Exchange Risks Multinational companies having their operational regions across borders always are faced with the risk at the point of currency exchange. This results from the fluctuations in currency values as compared to others. These fluctuations more often than not cause unfavorable effects to businesses.
Hedging out is then a risk mitigation financial instrument that shields businesses against such effects. It derives its value from an underlying asset. The two common hedges available to business entities are forward contracts and options. The major difference based on who derives the benefit of a favorable movement in the exchange rate, A forward contract will close into an exchange rate today at which the currency transaction will occur at the future date while an option sets a fixed exchange rate at which the company may wish to exchange currencies.