Opportunities And Threats For International Firms Essay On Doing Business In China.

Strategic management is the highest level of managerial activity, in general performed by the chief executive officer (CEO) and executive team of accompany, used to specify objectives of the organization by developing policies and plans to achieve these objectives and reach the company’s goals. Also it’s a process of distributing resources of the company so as to pursue the plans. Strategic management supply overall direction to the entire enterprise. An organization’s strategy should be suitable for its resources, situations, and objectives. The process takes in consideration to join the companies’ strategic advantages to the business environment the organization faces. The important objective of an overall strategy is to make the organization into apposition to do its mission effectively and efficiently. A best corporate strategy must include an organization’s goals, policies, and tactics into a cohesive whole.

1.Discuss the opportunities and threats China presents to an international firm interested in doing business with China.
2.There are three major approaches for minimizing and resolving conflict in an organization. Define these three approaches and give an example of each.
3.As an international manager of a United Kingdom business that has just invented a revolutionary new personal computer that can perform the same functions as PCs, but costs only half as much to manufacture. Your CEO has asked you to decide how to expand into the United States market.
i.to export from the United Kingdom
ii.to license a European firm to manufacture and market the computer in Europe
iii.to set up a wholly owned subsidiary in Europe
iv.Evaluate the pros and cons of each alternative and suggest a course of action to your CEO.

Opportunities in China

Opportunities in China

According to, East Asia and the Pacific countries had an impressive record of registering more than a quarter of new business in 2014. Among the countries is China that was ranked number two from position five as the best countries for business to set up. The country has a population of more than 1 billon people, which increases the consumer market for international companies. The large number of people in the country provides the business with an opportunity to categorize the market in different segments that they can target with their products.

Additionally, most of the people in China live in the urban centres and have sufficient disposable income that they are willing to spend. Despite the market volatility being witnessed around the globe retail companies in the country recorded a sales increase by 11% in 2016. The people of the nation do not only focus on purchasing local products, but also international products. An example is in 2012 the country was the largest spender in Italy carrying out purchases that amount to 63.9 million Euros. 

The interest in foreign products provides a pristine opportunity for the international organizations to set base in the country. The organizations can focus on providing the customers with the products that they have to import from different countries at affordable prices.

The introduction of one child policy in China to regulate the population growth will result in the increase in the elderly population. The country’s life expectancy is at 76 years an indication that the nation is prone to have older age people than the youth. The one third policies, according to Prof Kohlbacher 2015, have resulted in more wealth in the hands of the elderly. The age group is currently focussing more on themselves and are willing to try different products. According to a Chinese government report, 8% of China’s consumption in September 2015 for the older people was worth half of the gross domestic product (GDP). Their contribution to the purchase of products and services is expected to result in the growth of the GDP with respect to the aspect to a third by 2050.

The second opportunity is that the country has one of the largest growing economies in the world.  The nation has an economic growth that does supersede 15% of the entire globes GDP. In 2016, the GDP per capita for the nation summed to $15,450 while the GDP purchasing power parity totalled $21.27 trillion

Growing Middle Class

The country’s growth is expected to become stable and high in the future based on their 13^th Five- year plan. The plan has clearly stipulated patterns that will ensure the nation has steady growth in being among the largest economies in the world. The international organizations are guaranteed stability in their investments if they set up base in the nation. Moreover, the five year plan that does focus on innovation will result in the business coming up with new business ventures.

In 2016, the  organization for Economic Cooperation and Development (OECD) has ranked the ease of doing business in the nation to be 78 out of 190.The ease of doing business refers to having a conducive regulatory environment for local and international organizations to set base in the nation. The Chinese government has taken drastic steps with the growth of their economy to open up the nation in the world. The introduction of free trade makes it easier for international organizations to set up base in the country.

Furthermore, the country has reduced the duration that was taken when it comes to acquiring a license for business operation. The procedure is quite lengthy, but there is an improvement when compared to 10 years ago. On the aspect of taxes, the government has introduced new tax regulation laws that not only protect the local companies but also international corporations. Chinese government goes on further to provide grants, subsidies, low-cost government loans and tax breaks with the aim of encouraging investors. In 2017, the country has shown an increase in the ease of doing business by moving to position 3 from 4 in 2016.

China is politically stable an aspect that makes it attractive for international organization to come into the nation. The country’s political stability has resulted in the institution of progressive reforms and investments in the nation. Additionally, the stability has resulted in the development of infrastructure in the nation that has opened the different parts of the country to investors³

According to ³the strict regulatory environment does hinder most international organizations from setting up base in the nation. The country has a compulsory joint venture partnership that requires the international organizations to partner with a local company or a government agency for them to be allowed to operate. The partnership reduces the free will of the operation of the organization. The company is bound to not only share profits, but also opinions when they want to make decisions⁸

Strong Economic Growth

Corruption levels in the country do pose a threat to the international organizations that want to set base in the nation. The country based on the Transparency International Corruption Perception Index (CPI ) 2017,  was ranked lower than Saudi Arabia and Italy at the 79^th position out of 176 countries The dismal performance of the nation is an indication in the prevalence of corruption from the judicial system, where the judges are perceived to favour local business in their judgements. The public service were business are required to give bribes to get any service done promptly

The country has experienced an influx migration to the urban areas which has a possibility of creating an imbalance in the social economic development. The movement does incapacitate other industries in the country like agricultural which was mainly practised. Additionally, it places a lot of stress on the service provision in the urban areas.  The high number of people in the urban areas seeking white collar employment leads to the presence of a high number of unemployed individuals. The people turn to crime as a way of feeding their families an aspect that makes the environment unfavourable for international companies to move to China.

Lastly, the population of China in the future is going to be composed of more old people than the younger people. The aspect means that the international organization will be unable to get the sufficient work force in the country to handle their needs. According to Krugman and Wells 2013, when the demand is higher than the supply, the cost of the service or products tends to rise. The rise of the service will make the cost of labour to be so high, hence reducing the profit margins of the international organizations.

Conclusion

In conclusion, the opportunities outweigh the threats that an international organization will face in their venture to invest in China. Currently, nearly all the Fortune 500 companies are setting base in China from Microsoft, Apple and MacDonald among others.  The government is working towards reducing the strict regulatory laws to create room for more investors to move into the county. In the end this will benefit both the international firms and the nation.

Introduction

Conflict management and resolution is pertinent in every single organization that wants to reduce employee turnover and maintain its pristine reputation. Conflict often arises in the workplace due to the different personalities working together to achieve the organizational objectives. They are quite normal and the human resource department should work hard to resolve the conflict before it does escalate. They are three major ways of resolving conflicts are mediation, arbitration and litigation

Supportive Government Policies

Mediation

Mediation is a voluntary resolution method that has a neutral party facilitating the negotiations among two or more parties that are in conflict. The neutral party is called the mediator and is often an outside party selected by the two groups. The mediator provides an opening that allows the two parties to present their issues. The mediator does not provide a solution, but helps the party negotiate an amicable resolution to their conflict.

The mediator at the start of the negotiations provides the rules that will govern the mediation process. The parties then present their view on the conflict to the mediator together. If the mediator feels the information provided is not sufficient, they can decide to meet with each group separately. After they have gathered enough information the members can be presented with a direction that they will follow to come up with a resolution.¹⁴

The agreements that are often arrived at are inclined to benefit both parties involved in the conflict. The mediation is selected when the warring parties are not interested in settling the matter in court and they have failed to negotiate on their own. Mediation is a voluntary process where one has the option of hiring a lawyer or participating without one

According to ¹⁵ the advantages of mediation are that it creates an amicable environment that does facilitate communication. It reduces enmity and enables the parties to forego on as friends or business partners. Thirdly, it eliminates the cost, stress and uncertainty that is often characterised by litigations. Finally, it often does result in a win-win situation that does benefit all the involved parties. The disadvantage is that the process can only work when the members are willing to take part in it. It is a voluntary process that works on the basis of honesty and integrity failure of one side brings the process to a premature end.

An example of the mediation process is the Yemen conflict.  The UN was the mediator in the conflict between the government and the people that wanted the president to be hosted from power. The mediation ended peacefully where the transition of power took place from the then president Ali Abdullah Saleh to his deputy. The United Nations have been impartial in resolving the conflict since the only interest they had in the negotiations is to restore a semblance of peace. The peace will enable the new government to build upon in restoring political stability and economic development in the country.

Regulatory Challenges

Arbitration

The second process is arbitration, which refers to a neutral party called the arbitrator leading the conflict resolution process. The arbitration process can have one arbitrator or a panel of three members. The process or arbitration requires the parties to be represented by their lawyers and in this form of conflict resolution only one side does win

The parties have to agree to be bound by the decision made in the arbitration process. Since it is a voluntary process the members have the freedom to decide how to organize their proceedings. In most cases the arbitrator conducts a hearing where the members present their documents, testimony and exhibits that will strengthen their case. The right to go for an appeal are limited in the instance that the members agreed to uphold the decision reached by the arbitrator. In the instance the decision is nonbinding; the members are free to seek trial.¹⁷

Arbitration is often used in labour and in contract management disputes. It is a private affair; hence it does protect the confidentiality and privacy of the parties involved. Secondly, it is more flexible compared to litigation where the members decide the structure to use and their own rules. Lastly, the arbitrators’ decision is enforceable in the court of law, if the members agreed to be bound, hence ensuring that the members act upon the decision. Failure in upholding the decision agreed in the arbitration can result in the party ending up in prison.¹³

An example of an arbitration case is where Telkom Malaysia unlawfully terminated Ramil Akim. The arbitration decision was in favour of the employee who was reinstated back to work and provided with a 1 month salary for each year of service to the company and the payment of the total earnings that he would have earned till retirement.

Litigation

The last conflict resolution method is litigation. Litigation refers to the parities going to court and letting the judicial system to resolve the conflict. Litigation is often viewed as the last option in the conflict resolution process. It often starts by the parties filing a lawsuit. They are then given a date to appear in court where they present their case based on the procedures set by the law.¹³

The judge or the jury is involved in settling the dispute in the case the two parties fail to reach an amicable solution. The judgement is then delivered based on the facts presented before the judges and the jury. The decision is binding on all the parties, but in the case one is not satisfied they have the right to appeal to a higher court.

Demographic Shifts

Litigation is an involuntary process that requires one unwilling party, the defendant, to take part in the court proceedings. The process is time consuming and costly on the parties involved. Thirdly, all the parties have the right to present their case and decision is made based on the law. Finally, the court proceedings are public, hence denying the involved parties any right to privacy.¹⁷

Real Life Example- Litigation

An example of litigation is one between Apple CEO Tim Cook and Samsung CEO Sung Choi over a patent case. In 2011 Apple filed a lawsuit against Samsung accusing them of copying their make of the iPhones when they created their Galaxy phones. Samsung on the other hand it countersued Apple for not paying royalties when it came to their use of wireless transmission technology.  The end result was that Apple Company won the case with a compensation of nearly $ 409 million

Exporting is the most common step taken by companies that want to internationalize. The route has three basic levels, which are direct exporting, indirect exporting, and the use of an export management company. The direct exporting refers to selling the laptops that the company has directly to a foreign company in the USA. The approach is beneficial because it is simple to set up and the business does face minimal risk while still penetrating the USA market. It also allows the company in the UK to stabilise the seasonal fluctuations in the market. Furthermore, it enables the company to prevent competitors from gaining a competitive advantage in the market due to the ability of the firm to exercise their maximum economies of scale

The approach has many trade barriers that may hinder the firm from penetrating the market. Secondly, the UK company will lose their control when it comes to regulating the marketing and pricing of their laptops in the USA. Lastly, the approach is more costly due to the tariffs, transport and marketing expenses.²⁰

The second approach is indirect exporting refers to the UK company identifying an intermediary in the USA who .can sell their products in the market. The agent is paid by either commission or retainer for their input into facilitating the sale of the laptops in the USA market. The benefits are that the agents have a better understanding of the customers and the markets, hence facilitating the penetration of the laptops in the market. Secondly, they provide direction when it comes to navigating the government regulations in the USA. Lastly, they play a vital role in identifying new business opportunities for the UK Company

The disadvantages are that the agents often work for many businesses and they therefore are not better placed to put the interest of the firm above their own. Secondly, they often tend to prioritise their clients based on the incentives and pay they get. Lastly, they are not a guarantee that they can assist the UK firm to increase their market share in the USA.²¹

Thirdly the use of an export management company enables the company to easily penetrate the USA market. It also provides the company with sufficient information about the market and the opportunities for success in the USA. Lastly, it reduces the expenses that the firm would have incurred had it gone for direct exporting. The disadvantages of the approach are that the firm in the UK has no say in the quality control used by the EMC. Secondly, the company is prone to facing competition from the other products that are being handled by the EMC. Finally, there are other buyers in the USA especially companies that are reluctant when it comes to dealing with an intermediary in business

The second option that the UK, Company has is to license a European firm to manufacture and market the computer in Europe. Licensing refers to a contractual arrangement whereby the UK Company will transfer the right to distribute the laptops to a foreign company in the USA. The licensing allows confidential information to be shared with the company. The advantage is that it does allow ease of entry into the foreign markets. Secondly, it reduces the capital required to set up the business in the USA. Lastly, there is low risk when it comes to financial and legal issues as the foreign company in the USA will share the risks with the UK Company.

The disadvantage of this approach is that the company is in danger of losing their proprietary and confidential information to the foreign company that has their license. Secondly, the licensing has a time limit attached to it which may leave the company vulnerable when it comes to an end.

Thirdly, in the instance the foreign company carries out low quality management of the products to save costs the brand reputation of the UK Company will suffer in other licence countries that they will decide to venture. Lastly, the licensee may evolve to be a competitor after the expiry of the licensing period. The licensee has sufficient information with respect to the production of the laptops which may make them easily recreate them.

Wholly Owned Subsidiary

The last step that the company is looking at is setting a wholly owned subsidiary in Europe. A wholly owned subsidiary refers to the UK Company opening a company in Europe, whose common stock is controlled by the parent company in the UK. The UK Company will be able to control the members appointed as the board of directors, hence controlling the operations of the subsidiary

The advantage of this approach is that the UK Company has total control in the operations of the subsidiary. In other words, they are guaranteed that the subsidiary will operate according to their mission, vision and objectives in the USA. Secondly, it reduces the loss of intellectual property that the company is exposed to in the licensing approach. The intellectual property can be protected by having the members in the company sign a contractual agreement that binds them from sharing any information that may endanger the company.²⁵

Lastly, it reduces the exposure risk that the UK company may face in their venture to penetrate Europe and the USA market. The company can decide to use the subsidiary to diversify its production of laptops into other technological components in a means to protect them from market fluctuations.²⁴

The disadvantage of this approach is that it is an expensive approach as the company has to start from the ground building up the subsidiary to reach a level that it can support itself. It requires a lot of capital and time for it to be set up in the USA. Secondly, it is difficult to find employees who will effectively manage the subsidiary and the existence of cultural barriers may hinder the ease of running the subsidiary by the parent company. Lastly, the parent company has a total liability which ties the actions of the subsidiary to them.

Based on the discussions and in depth evaluation of the different approaches, the best approach that the company can use is indirect exporting. Direct exporting provides the company with some control in the entire process. Additionally, it enables them to protect their intellectual property, unlike in licensing. Thirdly, it provides them with flexibility when it comes to the need to diversify into different markets. Lastly, it enables the company to sell their excess production, hence increasing their profit margins.

Conclusion

Despite the disadvantages in exporting when compared to the other two approaches it is one approach of internalization that has minimal risks to the UK Company. The costs are quite high but not like in the wholly owned subsidiary where the company not only pays the cost of setting up but has total liability of the subsidiary.

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