Risk of Doing Business in China

On the other hand, knowledge of the political and legal environment of China will be fundamental. Information on their laws and regulations, such as foreign trade policies, product standards, tax laws and requirements, trade barriers, labor laws, etc. are extremely important when assessing China as a potential market for our company. Finally, a thorough research on China’s market conditions, such as potential competitors, market trends, market opportunities and threats, potential risks, unique market characteristics, etc. will be necessary to obtained a complete evaluation of the country before entering the market.

Entering an untapped international market can strengthen a business tremendously—but what if the costs outweigh the benefits for the market itself? China has long been an important player on the global stage, but recent advances in manufacturing, natural resources, and energy production have catapulted the expansive country to the forefront of international trade. Currently the world’s fastest growing major economy, China is set to eclipse the United States as the world’s largest economy by 2016. Among various domestic and international plays, one of China’s most fascinating uses of its

Language is a barrier that will greatly influence the ability of Company X to conduct business in China. Included in this category

China is the largest market in the world, and probably the hardest business environment. This narrative reflex China’s immense diversity, complexity, and its enormous competitive intensity is unrivalled versus the world.

The message is clear: Multinationals must factor in the existence of robust local competition, while considering the new opportunities that have opened up as a result of China’s WTO membership. To understand the way competition between multinationals and local champions is evolving and to pinpoint the keys to success, we traced the evolution of competition in China in 10 industries over the last 10 years.2 We conducted more than 100 interviews with dozens of leading companies operating in China, both multinationals and locals, and reviewed thousands of pages of secondary data. The picture of competition that emerged from our research can best be described not in terms of traditional market positioning, but as a battle of competencies between multinationals and local players.

laws are changing more rapidly now that China is seeing foreign companies show up. China is

Due to the large increase in globalization, many organizations relay on international business for competitive advantages. However, offshoring a business has never been easy especially if there are a lot of cultural, environmental and economical differences. China’s opening up to the world has not only made China’s economy stronger but it has also given many advantages to the outside world as well. Some of those advantages include cheap labor cost, risk sharing, economies of scale and less operational cost but to achieve these advantages it may takes plenty of time to observe new location, cultural training, and understanding of international business. As written in the article, “Red China, Red Tape: How to Start a Business There,” China

Top challenges doing business in China include inconsistent regulatory interpretation, unclear laws, required licenses industrial overcapacity, increasing Chinese protectionism, corruption, taxes and a shortage of qualified employees, as well as management.

Since the openness policy in1978, China has attracted a magnitude of foreign direct investment from all over the world. Rapid economic growth, large market opportunity, and endless cheap high-quality labor forces have turned China into a utopia of investment. With its evolving economy and enormous array of market opportunities for foreign investment, China’s institutional environment has played a dynamic role in its economic state (Marinov & Marinova, 2012). According to Geringer, Minor, and Mcnett (2014), institutions involves the country’s rules, regulations, and informal codes of behavior that helps administrate the country’s economic position. Institutions influence behavior in several ways whether it’s through laws or regulations, or through norms, values, customs, and ideologies (Geringer et al., 2014). Institutions also define conditions and set limits for maintaining a stable system as they control social relations to maintain conformity.

Another challenge is that despite the ability to manufacture products cheaper in China, there is a flip side to this situation and that is that sometimes, that “made in America” sign on the back of a product could mean more than the few dollars more it costs to buy that product. Some Americans, in their spirit of patriotism, care more about supporting the American economy than saving a little bit here and there buying products that were manufactured outside of the United States. Balancing the stigma sometimes associated with making a product in a foreign country with the lower costs that usually comes along with that is important in doing business in China as well.

China’s accession to the WTO in 2001 has helped shape its economy to becoming a more predictable environment for trade and foreign investment. Corporate governance and frameworks for business operations and interactions have improved, providing a much more transparent environment. (Deckers, 2004)

Fock, H K. Y. and Woo. K.S. (1998). The China Market: Strategic Implications of Guanxi. Business Strategy Review, 9(3):

There is also the risk or confiscation and risk to company employees just as personal harm or kidnapping. There is also a unique political situation, one should be aware of, there is a constant battle between the central government and the provincial and local government over laws which would make it hard to know which law one needs to follow. There a saying, "The mountains are high, and the Emperor is far away." (China risk management) which sum it up. However, the government economic reform leads to vast flows of foreign investment, even know that China operate in an unclear, politically shaped investment climate. In Nokia case, it is reducing that risk by partnering with a local company name China Unicom and together, by using and expanding their technology to seven provinces which includes major industrial and tourist

For awareness of national rules/policies, leading Chinese manufacturers have a significantly advanced level than both small and medium-sized Japanese manufacturers and traditional Chinese manufacturers. Such a condition may outcome from the fact that Chinese rules and policies mostly target leading manufacturers in the current primary stage (Lau and Wang, 2009). Hypothesis 1 is commonly supported.

Political & Legal environment: The political system of a country is an important part of a companies marco-environment. ‘Who governs the country?’ ‘What does the government follow?’ and ‘What legal regulations follow from these policies?’. The most important factors a company is subject to are policy uncertainty, macro instability, and tax rates. Considering China is a country in transition all of the above factors are subject to change, to a degree substantially larger than it is in stable developed countries. We have recently seen changes happening in China on all of the above factors. One example is the new regulations regarding copying, which turned out in favor of Starbucks. However, what will happen in the (near) future is hard to tell. Whatever happens though, Starbucks will be subject to the consequences, whether positive or negative.