PEST ANALYSIS OF CHINA I.

Introduction Nowadays, China has become one of the worlds most attractive locations and Chinas 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 Chinas 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 Chinas market for more international trade and investment, and opens up the world economy for Chinas 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.

II.

Background of China

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

List of GDP BY THE World Bank (2009)

Recently, China become the worlds second largest economy and has been "open for business" for over 30 years. Trade continues to play a major role in Chinas booming economy. There are the reasons for those companies thinking of entering or expanding operations in this important market such as:
a. China is land of opportunity - Labor and physical plant is relatively inexpensive.

b. China is a unique market in term of political view, language, business philosophy and beliefs.
c. China is the member of World Trade Organization (WTO).

d. However, according to Orfield, K. (2008), there are some barriers or challenges of doing business in China: a. Even with China joining WTO, protections for intellectual property rights are not consistently enforced. b. Markets are subject to sudden changes in the governments economic growth policy. c. China has no nationwide credit database, so it is difficult to assess consumers credit worthiness. d. China is undergoing rapid social and economic change; a widening disparity between haves and have-nots could cause significant upheaval. e. Multinationals often must compete against local players with lower cost operations and lower prices. f. The diversity of the Chinese market is significant, requiring a variety of products to meet segmented needs. g. Infrastructure is less developed than in U.S., making transportation a challenge. h. Conducting market research and identifying market sectors is extremely difficult.

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

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

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