Providing an overview of the business environment of China suitable for the orientation of British expatriate managers…….
Table of Contents
3 1.0 Introduction
3 1.1 China’s Business Environment Analysis
3 1.2 Business/Market Analysis
4 1.3 Legal Environment
5 1.4 Political Environment
5 1.5 Social Cultural Environment
8 1.6 Conclusion
China’s Business Environment
With the onset of globalization, it has become imperative for businesses to seek new markets for commercial transactions and alternative investments. Companies that have existed within a country or within a certain jurisdiction have had to deal with market saturation due to entry of new businesses into the already complex UK business environment. While some companies have been busy merging with their competitors, other companies have chosen a different route; that of seeking foreign markets through company expansions (Douglas & Craig, 2011). It is on the second premise that Pasta & Pasta rely upon. Having conquered the British market, it’s paramount to try conquering other markets to expand the international outlook as well as capitalize on the profits.
However, entry into a new market may not seem easy, there are a lot factors to be considered to guarantee successful entry into a foreign market. This paper is going to look into the business environment in China so that Pasta & Pasta can make informed choices before entering the market. In particular, the paper is going to look into the business environment, legal environment, political environment, the values and norms of the country as well as considering the Hofstede’s model of cultural dimension. At the end of the paper the British expatriate managers would be able to anticipate the type of environment they are to encounter in China.
1.1China’s Business Environment Analysis
1.2 Business/Market Analysis
China has posited positive growth rate in the last few years and this has attracted investors to the country. With a growth rate of 10% every year, the market in China has proved extremely viable for foreign investment. Pasta & Pasta Company could benefit from this growth rate and hence expand the company’s portfolio. The Chinese population is a factor to consider because they provide ready market for the countries goods and services. The Chinese market was ranked fourth prior to 2008 and it is expected to grow and topple Germany from the third spot if the current economy growth persists. It can confidently be construed that its (China’s) economy is the most promising market because of its posited economic growth. However, when investing in China one has to understand the demographics of the country because there is uneven distribution of resources with the rich living in urban areas while the poor live in rural areas. This has created social inequality and hence encouraging political instability. Therefore the company has to look for ways to create better relations with all the customers despite their class (Barbara, 2008).
1.3 Legal Environment
In a bid to attract more foreign investors, the Chinese government has put in place legislations, regulation, reduction of taxes and principles to encourage healthy business competition. It has put in place comprehensive labor laws, safety laws, health laws as well as enactment of copyright legislation to help companies preserve their innovation while in the Chinese market. The copyright laws are of importance to Pasta & Pasta as they will help in patenting new flavors it innovates for their products. This will promote fair business competition. The Chinese government overhauled its old business legislations as they only served to scare investors and hence failing to promote foreign investment.
1.4 Political Environment
The political environment in China is conducive for foreign as well as local businesses. The country has recently enjoyed political stability which is a great motivator for direct foreign investment. However, there is still civil unrest especially from the lower class citizens who have not benefited from the current financial affluence of the country.
1.5 Social Cultural Environment
The Chinese government is communist oriented; this implies that the Chinese do encourage a free market. The main impediment in the cultural environment is the unequal distribution of resources. This has created different classes or social strata, with the margins of poverty between the poor and the rich being very high. Such a disparity has narrowed the business scope of some businesses as they have ended up structuring their products to suit the rich/wealthy in the society. Therefore to have a national outlook Pasta & Pasta should structure their products to fit the whole society in order to gain acceptance wholly (Gutierrez et al, 2011); this will also help the company remain viable in the market for longer a period (Marian, 1997).
When penetrating a new market, several cultural dimensions have t o be considered as they make a company appreciate and understand the values of work places around the globe. According to Hofstede, there exist five principle cultural dimensions that have to be considered (Hofstede’s Cultural Dimension: Understanding Workplace Values around the World, n.d):
a). Power/Distance (PD). It is the degree of inequality prevalent in a society; this inequality is condoned though by the ruling class as well as the subjects alike. If the PD score is high it means that the prevalent conditions are tolerated and people conform to their societal status. The reverse is always true. In the UK, Britain has got a low ranking in the power distance perspective. The society in the UK and especially the higher class has got a low PDI as compared to the working class in the same society. The situation however is different in China with the country experiencing a higher PDI ranking. The society in China believes that the inequalities between people are tolerable and hence acceptable. The society tends to think that people should therefore not have ambitions that surpass their rank. Therefore Pasta and Pasta should consider this when they are expanding to China.
b). Individualism (IDV). It is the potency possessed by individuals in their societal relationship. The higher the IDV the more loose the connection between individuals and diminutive sharing responsibility, the opposite is true too. In the UK the IDV is relatively high at almost 90%. It fosters what has been referred to as a ‘ME’ culture as children are encouraged from an early age to think on their own and find on their own what their unique attributes are. This is different when compared to the Chinese environment where people favour a ‘WE’ culture where people are more committed to a group. China has got a pretty low IDV index at almost 20%. Therefore Pasta and Pasta should consider this too.
c). Masculinity (MAS). It refers to the way a society adheres to the traditional aspect of gender roles. Societies with high MAS expect the men to be tough and act as the provider for the family. Societies with low MAS have blurred responsibilities. Roles of both genders are not properly differentiated. Women are allowed to work at the same rate with the male gender in society. China has got a high MAS and it is a basically a male dominated society. Chinese work hard and they sacrifice their leisure and family time and priorities work. the society has got individuals who have left their families and have migrated to the city to work hard and support their families. This has been replicated in the education with most Chinese students putting much emphasis on their studies as they realize this is the only way they can succeed in life. The UK is also a masculine society and has got the same score margin as China [i.e. 66%].
d). Uncertainty/Avoidance Index (UAI). It refers to the anxiety degree of a given society in different and unknown situations. Societies with UAI try their level best to avoid situations that are ambiguous in nature. In such a society, the people are governed by rules and orders. In low UAI societies there are fewer rules and the people are encouraged to discover ‘truth’ on their own. China has got a very low score in the UAI. The same can be said of the UK society which has got the same low score [around 30%].
e). Long term Orientation (LTO). It refers to how society opposes short term values in favor of long term values. This was Hofstede’s inclusion after he realized that Asian states that were linked to the philosophy of Confucian behaved differently as compared to Western cultures. They tend to avoid losses as it may cause public embarrassment. The UK society scores lowly in the LTO [25%] compared to a high score of about 118% in China.
Pasta & Pasta managers should consider all the requirements posited above for a successful penetration into the Chinese market. Overlooking the recommendations could prove disastrous in acquiring the new Chinese market and hence a failure in its endeavors.
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Gutierrez S, G.J. et al. (2011) customer satisfaction; hospitality industry perception. Source: Advances in Competitiveness Research; 2011, Vol. 19 Issue 3/4, p17-31, 15p. Guadalajara (Mexico)
Hofstede’s Cultural Dimension: Understanding Workplace Values around the World. (Online) Accessed 29th April 2012 Retrieved from http://www.mindtools.com/pages/article/newLDR_66.htm
Marian, B. W. (1997) Clear IMC goals build strong relationships. Marketing News
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