China: External Environment





Executive Summary
This report presents an analysis of the external environment of the Chinese market. It presents information on the political environment, legal environment, economic environment, sociocultural environment, and technological environment. It uses the findings to formulate recommendations to Australian Laboratory Services Pty Ltd (ALS) on whether it should continue with its expansion plans into the Chinese market. Analysis of the external environment shows that the company should continue with its expansion efforts. However, the company must change its leadership style to conform to the expectation of Chinese employees.


Table of Contents




The growth of a company may necessitate it to expand its activities to overseas locations. This helps in sustaining the growth of the company. However, venturing into new markets presents the company with various challenges. The company must undertake a critical analysis of the market to determine its viability. This is the major issue facing Australian Laboratory Services Pty Ltd (ALS). This report would present of the viability of the company’s efforts to set up a steel manufacturing plant in China.
This report would analyse the external environment. It would focus on the political environment, legal environment, economic environment, sociocultural environment, and technological environment. The findings of the report would enable the company determine the viability of setting up its steel manufacturing plant in China.
The report would analyse China’s external environment in relation to ALS. The report would determine the opportunities and threats of the Chinese market. The SWOT analysis would help in determining the feasibility of the company’s efforts to set up a steel manufacturing plant in China.
The report would present information on the political environment, legal environment, economic environment, sociocultural environment, and technological environment. An analysis of the above factors would help in the formulation of recommendations to the company.

China is relatively stable compared to other emerging markets. This is despite the fact that the country has a one party system. However, there is very little transparency in the country. Widespread civil unrest in the short term is unlikely, as there are no signs of division in the ruling Communist Party. Companies that do business in the country rarely experience problems unless they get into a dispute with a Chinese partner on a politically sensitive issue.[1]

2.2       Government relations

Government has deep-seated resentment with Western powers. Sovereignty of Taiwan is one of the major issues that strains the relationship with Western powers. This may present challenges to foreign companies that intend to invest in the country. Foreign companies should form collaborative relationships with the government to ensure that they stay informed on the government regulations that may affect their operations.[2]

2.3 Analysis

China has a stable government. It would provide an opportunity for the company, as lack of social unrest would ensure that the operations Australian Laboratory Services Pty Ltd (ALS) continue without any distractions. However, it is vital for the company to ensure that its operations do not violate the policies of the government, as it may face dire consequences.

3.1 Business laws

State Administration of Industry and Commerce is the agency that regulates the commercial activities of companies operating in China. All entities must register with SAIC in order to have commercial operations in the country. In addition, they must submit annual or tri-annual registration documents to SAIC offices near the entity’s location.[3] Some of the functions of SAIC are similar to those of The Australian National Contact Point (NCP). The State Administration of Taxation (SAT) collects taxes and implements tax laws.

3.2 Labour laws

China does not have a minimum wage for the entire country. Employers should ensure that their employers work for a maximum for 49 hours per week. In addition, companies should not hire employees who are less than 18 years old. China’s labour laws require employers to ensure that employees work in a safe and hygienic environment. They should provide maternity leave and treatment for injuries incurred during work.[4]

3.3 Analysis

The labour laws present ALS with an opportunity. SAIC helps in implementing various laws that facilitate foreign direct investments. This ensures that the activities of foreign companies continue seamlessly. Local tax bureaus ensure make it easy for foreign companies to access government services. In addition, they ensure that companies comply with existing tax regulations.

4.1 Currency exchange rate

The Chinese government manages the exchange rate to favours its exports. China uses a ‘managed float’ system that pegs the value of the Yuan against a basket of major currencies in the world, which include the dollar. This has made the Yuan exhibit a high level of stability during both crisis and non-crisis economic periods. Therefore, investing in the country would protect a foreign country from volatilities in exchange rate.[5]

4.2 Economic trends/forecasts

At the end of 2013, China had foreign reserves of US$3,821 billion. The foreign reserves was equal to 19.2 months of the country’s external payments. In 2012 and 2013, the GDP growth of the country was 7.7%. This was lower than 8.9%, which is the five-year average of GDP growth. This indicated a smooth adjustment of GDP growth after a period of high GDP growth.[6]

4.3 Analysis

A stable currency and positive economic outlook would present the company with an opportunity. A stable currency would prevent losses due to fluctuations in the value of the currency. On the other, a positive economic outlook would help in increasing the market for the company’s products.

5.1 Hofstede’s Cultural Dimensions

Hofstede’s Cultural Dimensions
Home Country
Host Country
Managerial implications
Collectivism Vs Individualism
90
91
The company should use groups to conduct various activities.
Power Distance
36
80
The management should ensure that it rarely uses democratic style of management
Uncertainty avoidance
51
40
The management should formulate strategies on employees may tackle some issues instead of making employees be at liberty to formulate methods of how to tackle certain issues
Time orientation
31
118
The management should focus on long term instead of short term goals of employees
Femininity vs Masculinity
61
66
The management should offer rewards to motivate employees

5.2 Analysis

There are several cultural differences between China and Australia. This would present a threat to the company. The power distance is one of the dimensions that may have a significant impact on the management of Chinese workers. The company should ensure that it rarely uses democratic style of management, as employees may associate it with weakness of the company’s leadership.

6.1 Technological infrastructure

China has highly sophisticated infrastructure and technology by investing heavily in R&D. In 1998, investments in R&D accounted for 0.7% of the GDP. However, by 2005, investment in R&D accounted for 1.4% of the GDP. The country intends the investments GDP to account for 2.5% of the GDP by 2025.[7] Reverse engineering of foreign technology has also helped in improving the level of technology in the country.[8]
China has the largest information and communication industry in the world. There are more than 1.3 billion phone subscribers. In addition, the country has more than 500 million ‘netizens’. China Mobile, China Telecom and China Unicom are some of the largest telecommunications companies in the China. The companies provide a highly reliable communication system.[9]
The sophistication of technological infrastructure and high degree of sophistication of the communication would present the company with an opportunity. They would facilitate the operations of the company and ensure they run seamlessly. This would help in improving the competitiveness of the company.
Strengths
ALS has operations in various parts of the world. Therefore, it has experience on how to manage international operations.

Weaknesses
ALS does not have a steel manufacturing plant in any part of the world. Therefore, it may not know how to manage the operations of a steel industry successfully.

Opportunities
Economic environment
·         Stable exchange rate would reduce losses due to exchange rate fluctuations

Technological environment
·         China has highly advanced communication networks
·         Highly sophisticated infrastructure would increase the efficiency of the company’s operations
Legal environment
·         China has favourable that help in attracting foreign investments

Threats
Political environment
·         The government is intolerant to companies that violate its policies

Sociocultural environment
·         There is a large cultural difference between China and Australia, ALS’s domestic country


ALS should go ahead with its expansion efforts. The company stands to gain from the expansion. The strengths of the company’s expansion efforts outweigh the weaknesses. The company should set up the Chinese plant as soon as possible. However, it must first ensure that it obtains the necessary clearance from various departments in China.
·                     The company should first obtain information on government policies that would affect its operation before venturing into the Chinese market.
·                     The company should ensure that it does not violate government policies.
·                     The company should use democratic style of leadership rarely
·                     The management should focus on the long term goals of employees instead of short term goals


  Anon. “RPT-Fitch Affirms China at 'A+'; Outlook Stable” Reuters, April 4, 2014, accessed on April 5, 2014 from: http://www.reuters.com/article/2014/04/04/fitch-affirms-china-at-a-outlook-stable-idUSFit69605220140404
Cheung, ‎ Yin-Wong & de Haan, Jakob. The Evolving Role of China in the Global Economy. Boston, MA: MIT Press, 2013.
Collins, Stuart. “Political stability in China comes with little transparency”, Business Insurance, April 5, 2010, Accessed on 5 April 2014 from: http://www.businessinsurance.com/article/99999999/NEWS040103/120309887?tags=%7C59%7C332%7C338%7C76%7C73%7C313%7C80%7C342    
Dwivedi, Yogesh. Adoption, Usage, and Global Impact of Broadband Technologies: Diffusion, Practice, and Policy. New York: Idea Group Inc., 2011
Hong, Yu. Labor, Class Formation, and China's Informationized Policy of Economic Development, Lanham, MD: Lexington Books, 2011.
PWC.  Doing Business and Investing in China. Beijing: PWC, 2013
Sengupta, Jati. Understanding Economic Growth: Modern Theory and Experience. London: Springer, 2011.






[1] Stuart Collins, “political stability in China comes with little transparency”, Business Insurance, April 5, 2014, para 2-4. Accessed on April 2014 from http://www.businessinsurance.com/article/99999999/NEWS040103/120309887?tags=%7C59%7C332%7C338%7C76%7C73%7C313%7C80%7C342
[2] PWC, Doing business and investing in china (Beijing, PWC, 2013), p. 124.
[3] PWC. Doing business in China, p. 129.
[4] Yu Hong, Labor, Class Formation, and China's Informationized Policy of Economic Development (Lanham, MD: Lexington Books, 2011), p. 231.
[5] Yin-Wong Cheung & ‎Jakob de Haan, The Evolving Role of China in the Global Economy (Boston, MA: MIT Press, 2013) p. 68.
[6] Anon., “RPT-Fitch Affirms China at 'A+'; Outlook Stable”, Reuters, April 4, 2014, para 1-3, accessed on April 5, 2014 from: http://www.reuters.com/article/2014/04/04/fitch-affirms-china-at-a-outlook-stable-idUSFit69605220140404
[7] Jati Sengupta, Understanding Economic Growth: Modern Theory and Experience, (London: Springer, 2011), p. 60.
[8] Carl Dahlman. Industrial development in the 21st century. (New York: United Nations, 2007), p. 45.
[9] Yogesh Dwivedi, Adoption, Usage, and Global Impact of Broadband Technologies: Diffusion, Practice, and Policy (New York: Idea Group Inc., 2011), p. 52. 

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