UBAIS UNIVERSITY

CASE STUDY
Business in China
Subject name: International Business
Environments and Operations

Teacher: Dr. Farid Uddin

Submitted By:
Submission Date: Name: Ishrat Jahan

28/12/2010 Roll no: 3416

Name: Md. Abdullah Al
Maruf

Roll no: 3417

Business in China
Introduction:
From 1949 to 1979, Over 30 years of history of china, they have communist
rule, and they are not depends on importing, rather they also prohibited FDI
and foreign trade. The politicians are very much belief that if they opened
the door of trading and FDI, then it will hamper their culture and politics.
Days are passing after a tri-decade; politics people pass a rule that foreign
people can invest money to Joint Venture Company where one party is
Chinese people. Since then they are proven themselves as a strong
resourceful country where investment can really a lot for the investors.
Japan, Taiwan even USA are more interest to invest in china. On the other
hand china also see the benefit with filtered proposal, they accept free trade,
but also have a deep eyes on activity of foreign investment whether it help
the country or not, like helped capital formation, create job field, technology
enhancement etc. After a deep filtering in those matters and construct some
issues,

1. Market potential: huge selling in market because of their population.

2. Market performance: purchasing power becoming higher and higher

day by day due to their positive economic growth. Their trends to buy
luxuries product.

3. Infrastructure: infrastructure projects, dams, power plants, subway

systems, highways, railroads are main factors to change lifestyles in
china; living factors are very handy at that part.

4. Resources: China has a huge talent labor and petroleum and minerals.

5. Strategic positioning: investment in china is known as invest in a global

market, because it is one of the big growth market.

China also gives importance in petroleum and minerals and convert products
from those. China exports those and earns a lot of foreign currencies. And
also they required most foreign firm to have an equity share along with
Chinese people that means a fifty fifty ownership in FDI investment or in
technological part. Some cases are exceptional where ownership from
foreign and remain one, that is highly maintained by the government of
china. After some experimental combination of investment china finally
opened the barrier and begin export and import, which increase continuously
their GDP, they have also joined in WTO in 2001, where govt. agreed in trade
and investment liberalization. From then they maintained global trading,
and export products doubled from past, they are also doubled FDI
investment in their country, Chinas import tariff on automobiles increase
gradually very fast. The latest steps in china’s long march towards the open
market economy. The contest between market economics and ideological
legacies in china will play out over many years. The foreign investors are
played key role to develop china’s business structure and which is related to
developing a nation’s back born.

QUESTIONS & ANSWERS

1. Profile the evolution of the Chinese business environment. Does this
evolution strike you as predictable or unpredictable? Why would its degree of
predictability matter to foreign investors?

Ans: China has a degree of openness that is unprecedented among large

and populous nations with competition from foreign goods in almost every
sector of the economy. Foreign investment helped to greatly increase
quality, knowledge and standards, especially in heavy industry. China's
experience supports the assertion that globalization greatly increases wealth
for poor countries. When China joined the WTO, it agreed to considerably
harsher conditions than other developing countries. Trade has increased
from under 10% of GDP to 64% of GDP over the same period. China is
considered the most open large country. China's trade surplus is considered
by some in the United States as threatening American jobs. Foreign
investment was also liberalized. Special Economic Zones (SEZs) were
created in the early 1980s to attract foreign capital by exempting them from
taxes and regulations. This experiment was successful and SEZs were
expanded to cover the whole Chinese coast. Although FDI fell briefly after
the 1989 student protests, it increased again to 160 billion by 2004. If you
see these short time profile then we can easily said that they have create a
positive business environment to increase economic growth. So I think it’s a
predictable evolution, because the success of China's economic reforms in its
move from a planned economy to capitalism despite unfavorable factors
such as the troublesome legacies of socialism, considerable erosion of the
work ethic, decades of anti-market propaganda. State authority experiment
with various ways to energize the economy, within the Chinese government,
in which officials presiding over areas of high economic growth were more
likely to be promoted.
Predictability matter to foreign investors: China is doing relatively well
today is in the provision of economic freedoms. China has aggressively
attracted FDI by offering low rates of corporate taxation and secures
property rights for foreign investors inside special economic zones. China
does relatively better than other developing economies. Another measure of
interest to investors is the corporate tax rate. The Economic Freedom index
ranks countries as economically free if they have lower rates of corporate
taxes, since high taxation can be viewed as a barrier to the entry of foreign
capital. Over the sample period, China has maintained an average statutory
corporate tax rate of 30 percent, lower than the average for all other
developing economies, including democratic economies. This is even lower
than the rate set by the U.S. Of even more significance, foreign firms receive
preferential treatment in China, often enjoying an effective tax rate of only
15 percent and being exempt from taxation the first two years of operation.
So it is very much win win situation for the foreign investors and they are
very much interested to invest in China.

2. Do you think the benefits of operating in China outweigh the risks?

Ans: The benefits of operating business in China: Business environment

are more aware of how to manage and prevent risks, the overall risk profile
of the company goes down - this includes financial and operational risk
categories. Companies that have steady, predictable business are valued
more highly by investors, customers and suppliers. So doing business in
here is more predictable by imposing disciplines and giving you the tools to
make the business steadier. Investing means that the market will remain
more trustworthy because you are willing to make your operations more
transparent. Employees care that the companies they work for are ethical,
well-run and stable. Therefore, investing in China means that your workforce
will be more motivated to help achieve goals. The average cost of replacing
an employee is 150 percent of the employee’s annual salary. Therefore,
there is a big incentive to reduce turnover and lower your costs. Better
processes and more engaged employees, which will reduce the voluntary
departure rate. Suppliers are a critical part of your supply chain, and they
will appreciate your investments in processes and systems that give them a
clearer view and more access into your business. This means more just-in-
time delivery, lower inventory costs, and more bargaining power with your
vendors. Information will be easier to find and use, and that the company will
be able to make decisions more quickly. Better corporate governance lowers
risks for all stakeholders, improves the image of the company, and allows for
better decision-making and more efficiency in the company. This will be
reflected not just in the board of directors, but in all employees.

3. What would you advise a company to do to maximize its rewards? To

limits its risks?

Ans: In most cases we find that business owners treat rewards as what is left
over after expenses are deducted from sales. There are no budgets or
rewards forecasting. Start by studying the rewards history of your business
and then calculate what the rewards of the business should be if it were to
operate at optimum levels. Pre-Planning- rewards as a line item of expense
and then engineer the business around the "maximum rewards" that can be
gotten from the business. Departmentally will also be a great step in the
right direction. One the other hand, one of the best ways to make your
business more profitable and successful is to make it more efficient. Of
course this doesn’t mean you need to completely overhaul how you do
business; rather, it simply means you need to begin leveraging the right
systems, tools, and technology to eliminate the bottle necks and inefficient
practices that are currently preventing your business from operating at its
true potential. The following are five simple and cost-effective tips for
leveraging technology to achieve this goal.

Limit its Risk: Preparing a risk management plan each year will allow you
to review the risks associated with your farm. The benefit of such a task is
making better business decisions and a greater peace of mind. Preparing the
plan will uncover your level of aversion to risk, and knowing this information
will allow you to identify strategies that are tailored to your business. There
are several areas of the business that deserve a risk management review.
Government programs are a risk management tool. Oftentimes, it requires a
large commitment of time to analyze the programs that fit the goals of the
business. These programs are complicated but deserve analysis since they
impact the net income of the farm.

4. Is it reasonable to expect China to adopt and fully enforce WTO

regulations, particularly regarding intellectual property rights, in the next few
years? If it chooses not to do so, what options would companies have to
protect their interests?

Ans: Since joining the World Trade Organization (WTO), China has
strengthened its legal framework and amended its IPR and related laws and
regulations to comply with the WTO Agreement on Traded-Related Aspect of
Intellectual Property Rights (TRIPs). Despite stronger statutory protection,
China continues to be a haven for counterfeiters and pirates. According to
one copyright industry association, the piracy rate remains one of the
highest in the world (over 90 percent) and U.S. companies lose over one
billion dollar in legitimate business each year to piracy. On average, 20
percent of all consumer products in the Chinese market are counterfeit. If a
product sells, it is likely to be illegally duplicated. U.S. companies are not
alone, as pirates and counterfeiters target both foreign and domestic
companies. Though they have observed commitment on the part of many
central government officials to tackle the problem, enforcement measures
taken to date have not been sufficient to deter massive IPR infringements
effectively. There are several factors that undermine enforcement measures,
including China’s reliance on administrative instead of criminal measures to
combat IPR infringements, corruption and local protectionism at the
provincial levels, limited resources and training available to enforcement
officials, and lack of public education regarding the economic and social
impact of counterfeiting and piracy.

Protection in intellectual property right: Though China is a party to

international agreements to protect intellectual property (including WIPO,
Bern Convention, Paris Convention, among others), a company must register
its patents and trademarks with the appropriate Chinese agencies and
authorities for those rights to be enforceable in China. Copyrights do not
need to be registered but registration may be helpful in enforcement actions.
A brief summary of China's patent, trademark, and copyright laws are
described below.

Patent: China’s first patent law was enacted in 1984 and has been amended
twice (1992 and 2000) to extend the scope of protection. To comply with
TRIPs, the latest amendment extended the duration of patent protection to
20 years from the date of filing a patent application. Chemical and
pharmaceutical products, as well as food, beverages, and flavorings are all
now patentable. China follows a first to file system for patents, which means
patents are granted to those that file first even if the filers are not the
original inventors. This system is unlike the United States, which recognizes
the “first to invent” rule, but is consistent with the practice in other parts of
the world, including the European Union. As a signatory to the Patent
Cooperation Treaty in 1994, China will perform international patent searches
and preliminary examinations of patent applications. Under China’s patent
law, a foreign patent application files by a person or firm without a business
office in China must apply through an authorized patent agent, while initial
preparation may be done by anyone. Patents are filed with China’s State
Intellectual Property Office (SIPO) in Beijing, while SIPO offices at the
provincial and municipal level are responsible for administrative
enforcement.

Trademark: China’s trademark law was first adopted in 1982 and

subsequently revised in 1993 and 2001. The new trademark law went into
effect in October 2001, with implementing regulations taking effect on
September 15, 2002. The new trademark law extended registration to
collective marks, certification marks and three-dimensional symbols, as
required by TRIPs. China joined the Madrid Protocol in 1989, which requires
reciprocal trademark registration for member countries, which now include
the United States. China has a ‘first-to register’ system that requires no
evidence of prior use or ownership, leaving registration of popular foreign
marks open to third party. However, the Chinese Trademark Office has
cancelled Chinese trademarks that were unfairly registered by local Chinese
agents or customers of foreign companies. Foreign companies seeking to
distribute their products in China are advised to register their marks and/or
logos with the Trademark Office. Further, any Chinese language translations
and appropriate Internet domains should also be registered. As with patent
registration, foreign parties must use the services of approved Chinese
agents when submitting the trademark application, however foreign
attorneys or the Chinese agents may prepare the application. Recent
amendments to the Implementing Regulations of the Trademark Law allow
local branches or subsidiaries of foreign companies to register trademarks
directly without use of a Chinese agent.

Copyright: China’s copyright law was established in 1990 and amended in

October 2001. The new implementing rules came into force on September
15, 2002. Unlike the patent and trademark protection, copyrighted works do
not require registration for protection. Protection is granted to individuals
from countries belonging to the copyright international conventions or
bilateral agreements of which China is a member. However, copyright
owners may wish to voluntarily register with China’s National Copyright
Administration (NCA) to establish evidence of ownership, should enforcement
actions become necessary.

Unfair Competition: China’s Unfair Competition Law provides some

protection for unregistered trademarks, packaging, trade dress and trade
secrets. The Fair Trade Bureau, under the State Administration for Industry
and Commerce (SAIC) has responsibilities over the interpretation and
implementation of the Unfair Competition Law. Protection of company names
is also provided by SAIC. According to the TRIPs Agreement, China is
required to protect undisclosed information submitted to Chinese agencies in
obtaining regulatory approval for pharmaceutical and chemical entities from
disclosure or unfair commercial use. China’s State Drug Administration and
Ministry of Agriculture oversee the marketing approval of pharmaceuticals
and agricultural chemicals, respectively.

5. How do you think the contest between market economics and ideological
will play out in China over the next ten years?

Ans: China is quickly becoming the World Trade Organizations (WTO) number
one trading country. It is the third largest trading power in the world. As a
result of their fast and steady rise to the top the need to standardize China’s
trade policies and procedures is critical in order to ensure that all members
of the World Trade Organization (WTO) are using the same system. The
future for China is very promising if it continues to conform to the WTO trade
policies and standards. China is predicted to be the world’s biggest economy
by 2050 and be THE largest trading nation in the world. The opportunities for
China’s growth are endless, but in order to get to the top and stay there,
they must comply with world regulations. China’s door is there and the world
is knocking trying to get in and be a part of this giant in the making. Chinese
economic ideology has been one of the greatest constraints in path of
china’s development as a giant economy for a long time. The nation having
the densest population of the earth could have been bigger double fold if
could have started twenty years earlier from the time they appeared in the
world market. However, the population factor is once again responsible for
its fast expansion all over. Virtually, now China stands being one of the
greatest super powers on earth. Chinese manufacturing has gained huge
acceptance all over the planet and people really amaze witnessing this
dramatic evolution of a super economy that was looked down upon by the
capitalist super powers tremendously. Overcoming this negligence has been
the greatest challenge to the Chinese manufacturers and they have factually
proved them to the world. Now Chinese GDP remains top on the world and it
offers the strongest ever economy in the total Asia. The pace with which it is
running currently, anyone can guess easily that it would over cross the USA
and other economic giants within the next ten years.

Conclusion: When doing business in China establishing a contact to act as

an intermediary is important. This brings with it multiple benefits. They can
act as a reference, be your interpreter and navigate you through the
bureaucracy, legal system and local business networks. Improved
international relations, government reforms, an expanding economy and
increased foreign investment make doing business in China a potentially
lucrative affair. Doing business in China means that business people will
come into increasingly frequent contact with Chinese business people and
officials. It is imperative that those doing business in China learn about areas
such business culture, business etiquette, meeting protocol and negotiation
techniques in order to maximize the potential of their business trip.

THANK YOU