Country Risk Analysis-China Essay Example for Free

Country gamble Analysis- china Es averWith the development of stinting globalization, contrasted direct investment (FDI) is increasingly organism recognized as an important factor in the economic development of countries. Although FDI began centuries ago, the biggest growth has occurred in recent years. This growth resulted from s invariablyal(prenominal) factors, posticularly the more receptive attitude of government activitys to investment inflows, the process of privatization, and the growing interdependence of the realness economy. group B go forth perform a expanse risk analysis to ensure that endeavors of investing into the Chinese grocery storeplaces are warranted. Initial ScreeningGreater mainland chinaware has been one of the most dynamic areas in the world economy. With the entry of the China into the World Trade Organization, Chinas pecuniary markets emerge on the frontier of economic reform and openness. Financial function besides provide the most exciti ng foreign task opportunities in China. However, the recent Asian financial crisis illuminates the problems in Chinas state-run enterprises and an ill-functioning banking system.This paper is looking for the wrinkle opportunity of financial function industry in China. It ordain begin from the review of the emerging economies to explain why the specific region was chose. The research of this paper also acknowledges argumentation analysis in China, a review of profit qualified industry, the work entry strategy and its in operation(p) areas operate in China. At the end, the future strategy and the recommendations will be discussed for the further steps in this investment.Potentials/FDILooking at the environmental factors of China, the economic development it has undergone in the past 15 years is of increasing entertain to marketers. It has developed and continues to grow into a great trading partner. If this growth pattern continues, China will someday cod significant econom ic influence on the world. One reason China could earn a particularly humongous effect is show up-of-pocket to the number of Chinese citizens. China supports over 1.29 one thousand million concourse and this number is increasing by .93%. If the standard of living persists and income levels rise, it would be possible to accept the Chinese as potential consumers that would unlock a huge marketof individuals.The massive cosmos has been a burden on China because the economy, as it stands now, can non bear to support such a number of citizens. The government is trying to lay down control of this problem by limiting the number of children to one per household, with exceptions to ethnic minorities and those living in cracker-barrel areas. Other countries are offering their services to attempt to control the birthrate by showing the government that population control can be managed without a coercive and involuntary approach. The government has been losing its authority due to poli tical changes and popular resistance that make population standards difficult to maintain. Therefore, some projections still approximate that 1.6 billion will make up Chinas population by the year 2025.Countries wishing to take advantage of Chinas emerging opportunities are investing a large amount of age, effort and money in order to approach shot such a vast market. These possibilities were made possible when China started its reform in 1978, opening its doors to foreign investments and trade. This changed a self-reliant central economy into a mixed economy that combined state owned enterprises and common soldier businesses. China could now in allow individual citizens to remove different amounts of incomes. The results have changed China dramatically making it the fastest growing economy for 15 years. When the reforms began in 1978, 60 part of the population bring in less than $1 a day. Since the reform, GDP has grown steadily by an average of 9 pct. In the year 2000, GDP grew by 8 per centum. Currently, per capita is equivalent to $3600 and as the economy continues to expand the purchasing advocator of individuals will increase as intumesce.The new economic reform policy intends to reduce central visualizening and increase business autonomy and spread income. Many problems still exist, despite the success of the policy and speedy economic growth. There is a movement for more privatization of some State Owned Enterprises because many tolerate unprofitable. In the year 2000, 46.5% of the SOEs were running at a loss. These problems stem from the socialist system that is still in place under their Constitution. Under the Chinese Constitution, it is theresponsibility of the government to manage the economy by essence of harvestingion quotas and price setting. This apparent contradiction between the reform policy and the Constitution (1982) seem to calculate against each other. China will never succeed at full potential unless it retires the Mar xist views and embraces a market directed system.Economic IndicatorsChinas economic growth remains quite high due to the large investments from the United States and Europe. The labor sector has a competitive edge with the rest of the globe now, where outsourcing of work to China is a priority among the large corporations. The Second Screening tries to look at more specific types of economic indicators to determine the risk and safety for a foreign company to invest in China, a country that has a communist government.According to the World Economic Forum, China has moved up from 33 to 39 in their 2002-2003 Growth Competitive Index while the IMD has mainland China listed as number 12. Summary entropy can be accessed below.In terms of trade surplus, in that respect are fluctuations all the time due to the business cycle. Not all cycles of goods and services in China fall into predictable patternsChinas trade surplus in March fell to $6.9 billion, well below forecasts and down sharpl y from Februarys $23.7 billion surplus, reports AP.It was not clear whether the nod off in March was the result of government efforts or would have a lasting impact.(www.metrics2.com)http//www.metrics2.com/blog/economic_indicators/ ostentation is something that remains as long as prices keep going up, and there are no controls of prices. The Chinese communist government does have strict controls over the Chinese property. Its central bank controls the overall commensurateness of payments within the country when dealing with foreign investors, as the United States.Chinas consumer price index (CPI) rose 5.3 percent year-on-year in July, mainly due to the lagging effect of price hikes at the end of 2003 and one-time factors, said the periodic report released by the National Bureau of Statistics (NBS) Thursday. The July inflation rate was 0.3 percentage points higher than the 5 percent rise in June, making it the secondconsecutive month that Chinas inflation exceeded 5 percent.Curr ency ConvertibilityCurrency in China is called the Renminbi and although it tries to be strictly controlled by the Chinese government, the currency competes on the world currency market just like the American dollar and the Euro. The currency is tied to the economic health of the country in terms of balance of payments. Sometimes this is difficult to understand because of the globalized world economies today, where e very country deals in all of the worlds currencies. International corporation for example can pay for goods and services in any form of currency.The semiofficial currency of the Peoples majority rule of China (PRC) is Renminbi (meaning in Chinese peoples currency). The Peoples Bank of China, the PRCs monetary authority, issues the Chinese currency. The official ISO 4217 abridgment of Chinas currency is CNY, but it is also abbreviated as RMB. Colloquially, the Chinese currency is also called Yuan and Kuai.(www.danwei.org)Gross interior(prenominal) ProductChina is lik ely to declare itself the worlds fourth largest economy next week, having leapfrogged Italy, France and Britain, after a widely expected edict of its annual gross domestic convergence figures.Economists say the National Bureau of Statistics (NBS), which is due to release part of the results of its first national economic census on December 20, is likely to put a such(prenominal) bigger figure on the size of Chinas services sector. Political and Legal barriers to doing business in ChinaThe Peoples Republic of China is a dichotomy of cultures and lifestyles. While maintaining the culture of an old world, there is a marked way of Western culture all over the larger cities in the country. However, anyone wishing to do business in China will have to know and understand both cultures, and all the legal and political implications knotted in doing creating a successful presence in China.In China, the first step in doing business is to have a legal framework to operate your business. Yo u need a legitimate platform to pitch your business venture. It is not advisable to use proxy or another Chinese company to mastermind business in China (www.seve.gr). While the most obvious barriers to doing business in China include tariffs and other financiallimitations, there are some non-tariff barriers that could inhibit a business from doing business in China.Entry BarriersGovernments often provide trade consultations and administrative guidance to companies to facilitate implementation of their respective industrial policies. In some countries the role of government whitethorn take the form of a caretaker, coordinator and leader providing guidance, coordination and arbitration. In order to achieve these oddments, governments use such tactics as licensing, foreign exchange allocations and quotas. These tactics could deputize with free trade and become a barrier to market entry (www.foxweb.marist.edu).Profit Remittance BarriersFinancial controls may take the form of exchan ge controls, multiple exchange rates, and prior import deposits, as well as credit restrictions and profit remittance restrictions. Exchange controls limit the amount of currency that can be interpreted abroad. Such controls limit the amount of currency an importer can obtain to pay for the goods purchased. It also limits the amount of currency an exporter receives for goods sold and the length of time it can hold the currency (www.foxweb.marist.edu).Prior to 2005, most businesses in China were state-owned and it was virtually impossible for non-state businesses to enter the Chinese market. However, in 2005, China lifted trade barriers that would allow private businesses to invest in the infrastructure, industry and utilities of China.Although the government has displayed support for the development of non-state economy in recent years, there are still barriers to the development of the private sector especially in the power and oil industries. counterbalance in Shanghai where the private economy booms, the non-state business often faces many limits from various industries (www.English.peopledaily.com).Cultural IssuesChinas estimated population for 2007 is greater than 1,321,800,000 with a relatively small cohort. (CIA, 2007) The median agein China is 33.2 (32.7 male and 33.7 female). parade 1 (CIA, 2007)Life expectancy is estimated at 72.88 years. Seven out of every 1,000 people die each year. babe mortality rate is 22.12 per every 1,000 births (20.01 male and 24.47 female). (CIA, 2007). The Chinese ethnic population is 91.9% Han Chinese while the stay 8.1% is made up of Zhuang, Uygur, Hui, Yi, Tibetan, Miao, Manchu, Mongol, Buyi, Korean, and other.Exhibit 2 (Cyborlink, n.d.)Culturally, China ranks highest in long-term orientation. This dimension indicates a rescripts time perspective and an attitude of preserving that is, overcoming obstacles with time, if not with will and strength. (Cyborlink, n.d.) Geert Hofstede has conducted many ethnic analyses and ranked China the lowest in Asia in regards to individualism. This is thought to be in part to an emphasis on a Collectivist society by Communist rule. Culturally, the Chinese are close and committed to family and relationships and loyalty is considered very important.Hofstede also mention that China ranks 80 in regards to power distance while the rest of Asia averages 60 and the rest of the world averages 50. This is indicative of a high level of inequality of power and wealth within the society. This condition is not necessarily forced up the population, but rather accepted by the society as their cultural heritage. (Cyborlink, n.d.) In regard religions, China is an atheistic society (94%) while only three to four percent are Taoist, Buddhist, or Christian, and one to two percent are Muslim.Education in China is very important. Two years before the dawn of the 21st Century the Chinese government proposed an ambitious plan intended to expand university enrollment to ensure a great er output of professional and specialized graduates. (Cyborlink, n.d.) The governments goal is to develop an elite of world-class universities. Today, 90.9% of the Chinese population is literate person however, only 85.5% of Chinese females are literate compared to 95.1% of Chinese males are literate.The 2006 estimated Chinese labor force consisted of 798 million people withan official unemployment rate of 4.2% for urban areas. Unemployment and underemployment rates for rural areas are considerably higher. According to the 2006 labor estimates, 45% of the labor force was mixed in agriculture 24% industry and 31% services.Exhibit 3 (CIA, 2007)Competitive forcesNumber, size and financial strengthWith this being a relatively new product idea there is very little competition. That is not to say that there is no competition. Similar packet exists however it does not take into account the end user. approximately fashion software is for the designer more so than the consumer. Our softw are allows people put in there body type and shape and then see how clothes would look on you before you ever step foot in a store.Market shareWith a very small number of competitors is allows for firms to have very large shares of the market. We understand that being brand new we will not be able to have the entire market, however within the first three months we expect to grow it by a factor three. This is very ambitious but we feel with our strategic partnerships and quality product we should be the market leader within the first 18 months.Marketing strategiesOur marketing strategy will be to tie our self with an established fashion label(s). We will use there good name to help tug our product as a product extension of the clothes.DistributionWe will distribute our products through online stores as well as their contemporary bricks and mortar counterpart. We feel this is the best over all solution to get the product into the hands of as many people as possible. The competition utilizes the internet as well as physical stores as well so we must do both as well.Modes of entryAs for the sense modality of entry, we have decided that because of the bureaucratic red tape associated with doing business in china it would be most full if we combined our efforts with an already established clothing company. That way we would not have to launch a altogether new company however just branch out as a different product line to an existingbrand. We will probably use price skimming as this type of software will be aimed at consumers who are willing to pay a premium for fashion. Also they major power perceive a lower price as a lower quality product.An alternative mode of entry could be if we sold our software to multiple clothing makers and allow them to use the software as a tool. This also would eliminate some of the governmental procedures. This solution would also get the product out and into more users. The products of this industry are services, it is extremely important to defecate good relationship with customer and build customer loyalty in long term. This issue is shortly managed by the group successfully. The only gainsay is to keep the standard when entering the China market.In the highly competitive business atmosphere currently occurring in China, there is a large shortage of qualified employees. Many companies are eager to draw off as many skilled professionals as possible, especially in financial services industry. Local business giants realize the urgency and magnitude of their needs. Besides the great number of expatiate executives, management-training companies in Shanghai have mushroomed to several thousand to provide the management talent.In conclusion, with the speed up of world economic consolidation process and the gradual opening of financial market after Chinas entry into WTO, China financial services sector will have to face more powerful competition and challenges from overseas intruders. China will be stepping up infrastructure development and offering equal opportunities to both the foreign banks and the domestics. It also is a greater opportunity for WF to take a step in sharing the market.ReferencesChina lifts barriers of private business into monopolized industries. (2005). Retrieved April 21, 2007 from http//english.peopledaily.com.cn/200501/20/eng20050120_171269.htmlCIA. (2007, April). China. Retrieved April 19, 2007, from The World Fact Bookhttps//www.cia.gov/cia/publications/factbook/geos/ch.htmlCyborlink. (n.d.). China. Retrieved April 19, 2007, from International Business