Country Analysis for the International Business across Border
This report is aimed at performing the country analysis and analysis of new market trends where the rapid GDP growth has created the attractive foreign investment opportunities to the global business firms. This report will describe the country analysis of China country for the international businesses across the borders (Hill, 2011).
Rationale for the selection of China for the FDI
The main reason behind selecting China for the foreign investment opportunities is that China is one of the fastest growing economies in the world because of the large population base, high economies of scale, and high developed markets that attract the foreign investors for the foreign direct investment. It is also expected that China is becoming the foremost economic superpower in the world by 2020. The factors, like capital availability, resource availability (physical and labor), competitiveness of the industries, regulatory environment, political and economic stability, openness to the international and regional trades, supportive business climate and foreign trade policies support the FDI in China(Keilor and Kannan, 2011).
The Chinese markets are high-growth potential markets that provide the wide range of business opportunities to the overseas firms to expand the market share through the globalization of the businesses by entering into the Chinese market in order to enhance the sales volumes, clientele and profitability. Along with this, there are lesser risks, low possibility of political instability, favorable economic conditions, resource advantage, availability of land, labor and technologies, low socio-cultural differences, low taxation, government support, and adequate infrastructural development that support the foreign direct investment by the overseas firms. (Harrison, 2013).
Macro Environmental Analysis of China for the FDI
(Source: Macro Environmental Analysis for FDI in China)
The macro environmental analysis with the help of Pestle analysis tool will assist in analyzing the impact of the political, legal, technological, socio-cultural, economic, environmental factors on the foreign direct investment operations in China country. The government spending mechanism and legislations will affect the foreign investment operations, processes, and activities of the MNCs into the Chinese market. The Chinese government also supports the foreign investments by the overseas inventors through providing them an adequate infrastructure for the new business development into the Chinese marketplace.
The political stability, government intervention and trade policies, taxation, foreign investment laws (e.g. foreign trade agreement), employment law, contract laws, environmental laws, enforcing contracts, terrorism attacks, and corruption/transparencyare such political and legal aspects that may affect the foreign direct investment by the overseas investors(Christiansen, Bryan, Kasarc, and Fatmanur, 2016).
The Chinese Government supports the FDI ventures by the outsider investors by providing an adequate infrastructure and framework for promoting the research and development, speed of technology transfer, new inventions and innovations, information technology, e-commerce, and system development in the FDI business operations. In China, there are more than 420 million mobile users in China in 2016, as the mobile internet, e-commerce, electronic data interchange (EDI), Information and communication technologies (ICT), internet enabled applications, advanced technological facilities and production methods are such technological drivers in China that attract the overseas inventors to make significant investment into the FDI operations (Keilorand Kannon, 2011). The telecommunications and internet infrastructures in China have promoted the foreign direct investment in China.
The economic factors consist of the fiscal policies (Government spending, GDP and tax rates) and monetary policies (foreign exchange reserves, currency or exchange rates, currency denomination value, inflation rates, interest rates, and unemployment rates). China has been become the primary recipient of the world’s FDI in the recent years. The FDI accounts for 27% of overall value production, 58% of the foreign trade, and 4.1% national tax revenues in China. More than 190 countries around the world invest into China that includes 450 fortune companies out of 500 world’s top fortune companies.The fiscal policies, such as government intervention and spending mechanism and taxation policies may influence the foreign investment operations. But the government support mechanism, promotional activities and low taxation on the FDIs encourage the more foreign investment into China (Ho, 2017). The government provides adequate measures for preventing the financial risks, reducingproperty inventory and stabilizing the housing markets, and tax cut rates for the establishment of the foreign investment operations. The tax benefits or incentives are effective in attracting the FDI in China for supporting the wholly foreign owned enterprises, equity joint ventures, and contractual joint ventures.
The monetary policies, such as fluctuations in the currency exchange rates or currency value, foreign exchange reserves, interest rates, inflation rates, and unemployment rates may affect the foreign investment operations. But, China has recorded the economic stability or favorable economic conditions in the past few years, such as good currency value in compared to the US dollars, low inflation and interest rates that may encourage the FDIs into China. The worlds’ second largest economy, high GDP per capita, economic reforms, and foreign exchange reserves are such factors drive the foreign investments into China. The majority of the companies from countries in the United States, Europe, Asia, and African continents are likely to invest into the high-potential Chinese markets (Hu, 2017).
In 2006, The Chinese National Development and Reform Commission (NDRC) established an economic plan to better manage the FDI into the Chinese economy that was aimed at establishing good connection between the foreign investment and the National security investment. This plan provided the economic infrastructural development and economic reforms to the high-end, manufacturing and service industries. China became the member of the WTO in 2006 to grow the exports, imports, and FDI inflows into China. In 2009, the foreign exchange reserves in China reached US$ 1.9 trillion that encouraged the high growth of the FDIs in China (Fogel, 2015). The exchange rates or currency value also affect the FDIs in China greatly as the current exchange rates in China in comparison to the USD are 6.56 (1USD=0.152 CNY)in 2017 that show good position of the Chinese currency for encouraging the significant foreign investment into China.
The socio-cultural risks in China may create barriers to the foreign direct investment in the form of joint ventures, exports or franchising. The socio-cultural differences, such as language and cultural obstacles, demographic differences, diverse life styles and perceptions of the customers, ethnic and social values, seasonal demand, economic parity and purchasing power of the customers, different buying behaviors, flexible in needs, wants, and expectations of the customers in the largest population country, China might not be favorable and conclusive to the foreign investment inflows in China by the investors. But, the joint ventures (mergers, acquisition, take-over) and cross-cultural training can assist the foreign investors to understand the local Chinese conditions, cultures, customs, and customers’ preferences. Along with this, the Chinese government providesan adequate infrastructure to the MNCs to match with the local environmental conditions, cultural and social values, and traditions in China(Menipaz and Manipaz, 2011). The Chinese administration system, hierarchical structure of social life and importance of family, cultivation of self-restraint, morality and ethnic values, collectivist and socialist culture, and hard-working people may assist to reduce the socio-cultural barriers to the FDI in China.
Analysis of Potentials and growth opportunities for the FDI in China
The infrastructural development (roads, highways, canals, bridges, water, telecommunication, and electricity), resource availability, development and modernization of the projects, raw materials and renewable energy resources, government initiatives and environmental sustainable projects, and foreign trade policies support the foreign investments to contribute to the government revenues through the taxation, job creation, and new income opportunities for the country development and high GDP in China. The resource availabilityin the forms of the financial resources (government capital grants, subsidies, loans, and capital/fund availability), physical resources (production technologies and methods, information technology, e-commerce, internet-enabled devices and applications, equipment and material, and research and development facilities), and Human resources (low-cost and productive workforce with skills, capabilities, and multiple talents) provide the competitive advantage to the foreign investors to make significant investment in China for enhancing the market share, sales figures, customer base, and gross profits (Long, 2015).
China recorded the high foreign direct investment inflows of US $139 billion in 2016 and become the world’s third largest FDI destination. China recorded an increase of 2.3% FDI inflows while the global FDI flows decreased by 13% year-on-year to US$ 1.52 trillion. China surpassed US$ 100 billion for the first time and after the end of 2010, the FDI in China increased 17.4% to US$105.74 billion. The first four month of 2017 highlight the high economic performance with developing issues for moving forward toward FDI by the foreign investors into the high-tech and service industries, telecommunications, retailing, and other industrial sectors (Hu, 2017). The statistics of four months from January 2017 to April 2017 by China’s Ministry of Commerce show that the foreign investment enterprises (FIEs) have been increased at an average of 2431 companies per month. In the month of February and April of 2017, the growth rates for the FDIs increased 33.3% and 42.7% representatively.
The economic reforms, political stability, capital availability, highest population base, open-door policy, openness and transparency to the international trade agreements, transportation and infrastructural development, resource availability (technological, physical, financial, and labors), low possibility of the terrorist attacks and corruption, regulatory and supportive environment, research and development facilities, and low currency influences are such positive impacts that encourage the high growth of the foreign direct investment or exporting activities by the foreign investment firms into the local Chinese markets.
In the early 2000s, China became the largest recipient of the foreign reserve capital by overtaking the United States. The trade conditions in the Chinese capital markets and economic environment play an important role in determining the large capital inflows into the Chinese markets. The China’s attractiveness in the form of the capital industry, infrastructural development (roads, highways, bridges, and other innovations), resource availability (physical, financial, labors, and informational), production technologies, low cost and skilled labors, and development of the business value chain are such business attractions that encourage the huge investments by the foreign investors(Santander Trade portal, 2017).
The national regulatory environment with the legal exposure and excessive regulations, high start-up costs, and other cumbersome compliance items could be detrimental to the initiatives to attract the FDIs.The unfair, illegal, and unethical business practices and country risks contribute to China make the less favorable FDI destination, but the government support mechanism and regulation mechanism, government’s promotion of the foreign investment activities, attractive financial incentives by the government to the investors, such as grants, tax breaks, and low-cost government loans and subsidies, and government-sponsored financial inducements promote the large investments by the foreign investors by providing the possibility of making the business more profitable.
The large population size and wide consumption pattern, high economic and purchasing power of the people in China, supportive business climate and high growth of the local Chinese markets make China as an attractive destination for the FDI to investors. The Chinese economy is continuing to grow, prosper, evolve, and mature that can provide a blueprint to the foreign investors for investing into the high-tech and service industries, healthcare, engineering, technology, and robotic and luxury goods in the local Chinese markets (Verbeke, 2013). Additionally, the transparency and openness to the international free trade arrangements, export-friendly policies, and international business exposure can provide a supportive mechanism for the FDI by the MNCs or outsider investors to spur the national economic development and growth.
Conclusion and Recommendations
From the above discussions, it is summarized that the favorable business conditions, regulatory business environment, openness to the global trade, economic and political stability, political support, large population base, high GDP and second largest economy, resource advantage, physical resources and labor availability, technological advancement and innovation, information and technology transfer are such aspects that promote the investments into the Chinese markets by the foreign investors.
It could be effective for the multinational corporations to expand the businesses into the international markets through the significant investment into the Chinese marketsin the form of FDIby adopting methods, such as Joint ventures, licensing or franchise agreement with the local Chinese firms. The Foreign Investors or MNCs should enhance their market share, high brand presence and product positioning, and global corporate identity by investing into the high-growth potential markets of China due to the attractiveness of the business industry, supportive climate, political stability, favorable economic conditions,and high demand pattern in China. The MNCs or overseas investors can develop the strong customer base and good customer relationships by investing into the high-growth profitable business markets of China (Cook, 2016). The foreign investors can also create new contract with the business vendors, sales channels, and suppliers to establish the strong markets in China.
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