China Case

International Business
Hamneesh (08) PGDM-Exec 4/22/2013

China Case

International Business

Hamneesh Roll No.8 PGDM Exec

China Case

International Business

Hamneesh Roll No.8 PGDM Exec

Year 1970-1980

Political China in political terms is a communist regime in which monopolistic communist party dominated the state. There was a general acceptance that the state as a 'father figure' should guide the decisions of private as well as public bodies. In 1972, China indicated to UN that Hong Kong will be regarded as part of China. In the Chinese case, major political changes came after the end of Mao Zedongs rule in 1976. His vaunted rural peoples communes collapsed, and vast rural areas reverted to more traditional ways. Moreover, the ood of policies to reorganize the Sovietstyle ministries and stateowned enterprises (SOEs) began a process of institutional change with profound implications for central control and bureaucratic planning. The near explosion in telecommunications and access to foreign people, knowledge and cultural values dramatically altered political and social discourse. The beginning of new policy of reform and opening to the outside world started in year 1979. All the reforms

Economical Late 1970s saw a thriving market economy in China despite the survival there of monopolistic communist rule.During that era china was predominantly an agricultural economy.

Legal
Till 1978 China had no legal system. Since 1979, when the drive to establish a functioning legal system began, more than 300 laws and regulations, most of them in the economic area, have been promulgated. In 1979,

Government issued law which governed the joint venture operations.

China Case

International Business

Hamneesh Roll No.8 PGDM Exec

1980-1990

were led by Deng Xiaoping . Major changes also include decollectivization of agriculture. Three foreign invested enterprises are established in China. In early 1980s urban areas undergo comprehensive enterprise-centered reform measures. As China'sindustrial sector advanced, there was increasing movement of the population to urban areas. China's population itself had surpassed 1 billion people by 1982 and was experiencing an annual rate of increase of 1.4 percent.During late 1988 China made assurance to US that it will cease silkworm missile sales to Iran and US continue to make desired technologies available to China. In February 1988 Beijing China achieved its longsought goal of establishing diplomatic relations with Uruguay, one of the few nations that still had state-tostate ties with Taipei. With this accomplishment China increased its diplomatic exchanges to 134 countries, while Taiwan's official representations were reduced to 22. In the year 1988, riots erupted in China and it caalled for an

When the economic reforms began to take hold in cities in the mid-1980s, the incomes of urban residents surged ahead of those in the interior villages. In order to attract foreign and private investors, provincial governments reduced the business levies that earlier had provided subsidies for the farmers. While the results varied from place to place, many peasants abandoned their farms for the illusory promise of employment in the towns, and those who remained took their grievances out on local ofcials. In some instances, these ofcials even encouraged the villagers to protest against their higher authorities. In parts of southern China, especially Hunan, Jiangxi, Sichuan, Anhui and Guangdong provinces, thousands of peasants repeatedly stormed government buildings, pleading for lower taxes and fees and accusing the ofcials of corruption. The situation worsened as

In 1982, the National People's Congress adopted a new state constitution that emphasized the rule of law under which even party leaders are theoretically held accountable. This reconstruction was done in piece-meal fashion. Typically, temporary or local regulations would be established and after a few years of experimentation, conflicting regulations and laws would be standardized.

China Case

International Business

Hamneesh Roll No.8 PGDM Exec

1990-2000

independence of Tibet. Many People were killed and some got badly injured during the riots. During this decade state council was restructured and streamlined. Fourteen ministries were dissolved and ten new ones--the State Planning Commission and ministries of personnel,labor materials, transportation, energy, construction, aeronauticsand astronautics industry, water resources, and machine building and electronics industry-were established. Many of the ministries that were dissolved were converted into business enterprises responsible for their own profits and losses. The Communist Party survived the critical period after 1989 and has been revitalised since then instead of tumbling into decay. Unlike so many other post-Communist regimes,its elites were not force out of power but on the contrary consolidated their rule over the last decade. Throughout the 1990s, China had sought to initiate negotiations with Taiwan and to solve a number of border disputes. The guiding principle was to maintain a low posture, solve external

urban unemployment forced tens of millions of rural immigrants back to their home villages and police repression failed tostem the rising tide of discontent. Laid-off workers are offeredone-off compensation without pensions or welfare protection. In addition tens of millions of workers had their wages cut or postponed. Primary cause of urban unrest were widening gap between rich and poor.

Shanghai Stock Exchange was established. China renewed economic liberalization from year 1991-1996. it had worked doggedly to join the World Trade Organization (WTO) and to host a Summer Olympics.

In the year 1994 Administrative Procedural Law came into power. This law allowed citizens to sue officials for abuse of authority. In addition, the criminal law and the criminal procedures laws were amended to introduce significant reforms. The criminal law amendments abolished the crime of "counterrevolutionary" activity. In the early 1990s the People's Republic of China's trademark law had been modified and then offered significant

China Case

International Business

Hamneesh Roll No.8 PGDM Exec

2000- 2013

conicts and avoid wars in decade to come. Yet Chinas international objectives enunciated at the onset of the 1990s did not work out as planned. With unsettling regularity, USChina relations ared to near hostilities as Chinas Taiwan policy faltered in the wake of rising independence forces on the island. Within the mainland population, increased nationalism weakened the commitment to stability and growth if that meant vitiating the one-China principle. Maintaining the domestic priority may yet prove to be the weak link in Chinas policy-making. Government decided to privatize most of the enterprises. Government also decided to decentralize on many fronts and it gave more political authority to provinces . All these reform project were taken over by Jiang Zemin. Jiang also curtailed many of the former decentralization policies Jiang was the one who pushed through the official acceptance of private entrepreneurs as regular Party members in 2001, thereby seriously

protections to foreign trademark owners. The APL also provides that only those laws adopted by the National Peoples Congress or its Standing Committee, administrative regulations promulgated by the State Council, and local regulations adopted by the local peoples congresses may impose administrative approval requirements. Individual ministries or agencies (central or local) do not have such powers except in specified circumstances.

Hu Wen administration regulated and controlled the economy. New Economic Policy in 2004 led to abolition of tax on agriculture.

In 2003 Administrative Permission law was enacted. The APL requires all laws and regulations that subject any civil act to approval requirements

China Case

International Business

Hamneesh Roll No.8 PGDM Exec

knocking the CCP's proletarian-peasant tradition and classstruggle ideology. Professionalisation, efficiency, ideological adjustment and the cooptation of the most modern segments of Chinese society into the Party are all considered political reforms in the context of economic developmentalism, and as such they are understood as creating new bonds between the people and the Party-state that strengthen the latter's legitimacy.

to be published.

Country Analysis of China

Opportunities in China
Chinas economic growth has been very good for quite some years. MNEs should utilize the chinese resources for the profitability of the firm. Biggest leverage china has is its inexpensive labour as compared to other parts of the world. As far as consumer markets are concerned, MNEs should understand Chinese demographics when reaching out to the potentially lucrative Chinese markets. China has a population of 1.3 billion people but 60 percent of that 1.3 billion, or 780 million people, are classified as rural farmers who are not likely to be part of marketing ventures. Another 25 percent of the Chinese population is classified as "workers," non-rural people who run the gamut from minimum wage jobs to skilled laborers who earn a decent wage by Chinese standards. The Chinese working class may be a source of revenue depending on the product or service offered. The Chinese middle class amounts to only 8 percent of the population, with another 4 percent classified as businessmen and senior managers and 3 percent work for the government. But this 15 percent has complete control and most of the money in China, and totals nearly 200 million people. Some of the key sectors which show opportunities in China are as follows : 1. Automobiles and Auto Components Sector :
China Case International Business Hamneesh Roll No.8 PGDM Exec

Automotive industry in China has seen a spurt of growth in the recent few years. Foreign auto manufacturing companies should look for investment in automobiles sector because of the growing middle class of China. Even tractor manufacturing companies should look for opportunities in tractor market as 60% of the people in China are farmers. As the China has mastered the art of mass production therefore global auto manufacturing companies should look out for auto components based out in China. As these parts can lower down the cost of vehicle and companies should leverage on this cutting edge advantage of China. 2. IT and IT enabled services Sector : In China around 900K IT and electronics engineering students graduate every year. IT companies can leverage on these opportunities and use this talent pool to take care of the Chinese clients as well as Taiwanese clients. 3. Real Estate, Construction and Infrastructure : As China is focussing a lot since 2010 Asian games. The high end office leasing market in northern and southern China experienced rental increases and high occupancy rates, which were mainly driven by growing demand. Two and Three tier cities in China are developing and trying to keep pace with the developed cities and it is a good opportunity for MNE to invest in the infrastructure sector.

Political Risks in operating business in China

1. There is a constant conflict between state and central government which affects the business of foreign companies. 2. Chinas rapid growth has caused raised many environmental concerns. China's rapid growth causes many environmental problems, and citizens are concerned about health problems caused by pollution. Greenhouse emissions are very high in China. In case government changes its policies related to it in future it can be a trouble for business houses. 3. Chinas political and legal systems foster time consuming busywork and tend to stack the odds against foreigners who are bold enough to forge ahead in the face of an elaborate bureaucracy, a fledgling legal system and a context of pervasive corruption. 4. Corruption in China is a challenge for the foreign companies. Many foreign companies routinely battle bribes and attempts to steal property while struggling to establish clear titles to land and physical equipment. 5. Both Chinese and foreign companies suffer as a result of weak IP protection in China. According to US government statistics, about 20 percent of consumer products in China are counterfeit. Despite vocal and policy support from the PRC central government, the concept of IP sovereignty has taken a long time to filter down to the provincial and local levels.

China Case

International Business

Hamneesh Roll No.8 PGDM Exec

Economic Risks for MNEs in China

1. Problem of State Capitalism : a large role for state-owned companies; an even larger role for state-owned banks; resource nationalism; import-substitution industrialisation; and financial protectionism and controls on foreign direct investment 2. With the growing inflation and improving standard of living of middle class, Chinese workers will demand more wages which will not let foreign companies to have any sort of competitive advantage with their operations in China. 3. Slowing of growth can be a problem for foreign companies which are looking forward to do business in China. 4. Chinas membership to WTO requires it to accept the global trading rules on protection of intellectual property rights and trademarks which has been the concern for many MNEs.

Catastrophic Risks for MNEs in China

China had historically been frequently hit by natural hazards. There are lot of catastrophic risks which can stifle the operations of MNE in China and these catastrophic risks include Earthquakes, droughts , floods and hurricanes.

Government of Chinas present perspective on foreign companies

Chinese government is urging foreign companies to play a key role in the development of the nation. In the end of 1970s Chinese leadership began to change its long time thinking that foreign contract would disturb the nations political system and pollute its culture. Since then it is working on the making business environment congenial for the foreign nations. Today China has worked on free market principles. As of now, China has tried to amend its intellectual property rights related issue which was the biggest concern with the MNEs looking forward to operate in China.

For an MNE (based of your choice) which is not currently present in China, Outline the China Strategy for that company (i.e Business Model for China)
For an instance a tractor manufacturing company of India lets say TAFE or FARMER wants to enter into the China market in order to expand its business. It considers China market as a huge business opportunity as in China 60% of the population works with the agriculture sector. Entry Level Strategy can be to go for joint venture with any of the big farming equipment manufacturing firm of China rather than going for direct imports as this will give cost advantage to the company as local company can access local raw materials and produce tractors at competitive prices. This can also be used to export to neighbouring countries which are price sensitive. Sourcing can be done with the help of local partner as it will provide cheaper raw materials. As China follows collectivist approach and Chinese officials prefer to establish both formal and informal relationship within the business community, with the joint venture less intervention of government

China Case

International Business

Hamneesh Roll No.8 PGDM Exec

is expected and it can build trust with the government bodies. Company can understand the Chinese customers better with the help of local partner which in turn will help to frame marketing strategies better.

China Case

International Business

Hamneesh Roll No.8 PGDM Exec