Organizations cannot remain “static”. They has to keep on moving breaking ‘boundaries’ both geographically as well as economically, to actualize the opportunities and emerge successful. That is, with every firms wanting to expand their geographical reach and make an imprint in various markets, there will be enough opportunities for it, to initiate an entry into a foreign market. To initiate and actualize the entry, firms have to set targets and formulate various strategies according to the situation prevailing in those foreign markets.
While formulating the strategies, the organizations’ leader and the management team will firstly look at the factors that may aid them to make a successful entry. After analyzing the positive factors, the firms will or should have to analyze the challenges that may impede its entry. As every foreign market or country will have different political, social, economic conditions as well as different customers, competitors, prospective employees, etc, etc, there will be many challenges, which will block the firms’ success.
Also, there will be country specific challenges as well as industry specific challenges in those foreign markets. For example, the Asian country of China has some distinct aspects, which will surely act as a challenge for the new firms, who are planning to enter it In the earlier decades, the cheap Chinese products only entered various countries’ markets. But, now seeing the potential of the Chinese economy and the market many foreign firms or foreign invested firms have entered or entering the Chinese markets.
The other thing, which is enticing the foreign firms, is the huge population, which translates into the biggest market of the world. Apart from these two important aspects (high economic growth and huge market), the main thing that allows the foreign firms to enter China is the relaxation of many restrictions imposed by the Chinese Government. China being a Communist country functioned behind an “Iron Curtain”, restricting the foreign firms to protect the home-grown firms. But, due to globalization and the resultant economic growth, the government saw the full potential of the Chinese market.
“Rising prosperity and a rapidly commercialising economy have transformed China into the world’s most important emerging market “(consume. bbk. ac. uk, n. d. ). So, Chinese government started to allow the entry of foreign firms. But, the main decision of the Chinese government which worked as the catalyst for more foreign entry is the relaxation of the restrictions, which was brought about by China’s entry into World Trade Organization. But, even with all these favourable situations, the foreign firms entering China were challenged, restricted and regulated by the Chinese government and also by certain other factors.
That is, even while allowing the foreign firms, the Chinese government’s policies and the existing local conditions challenges the retail firms and restricts it from becoming a success. The main challenge comes in the form of a new tax regime, which has taken away the privileges enjoyed by the foreign firms. The main aspect of this new tax regime is foreign invested firms and other Chinese-foreign joint ventures have to pay the land-use tax, equal or more than the Chinese companies.
Before the introduction of this regime, the foreign firms are exempted from paying land-use tax, and were allowed to function and raise infrastructures on non-taxed lands. But, under the new regime, land-use or property-tax rate will be equal for both the local and the foreign developers, with the foreign firms’ tax requirements tripling from the old rate set in 1988. This increase in land-use tax will surely be a challenge for the retail firms, as they have pay higher taxes according to the location of their infrastructure.
Regional fragmentation of the tax structure is another tax related problem which is hampering the foreign firms. Regional fragmentation of finance regulation and importantly tax laws creates a kind of regional protectionism so that a foreign company with joint ventures in several locations may have to make a separate payment from each venture to the supplier (Huffman, 2003). Even though China is accelerating at a fast rate, the internal factor of corruption is impeding its flow and has turned out to be a major challenge for the foreign firms.
“With its economy soaring at around 10 percent a year for nearly three decades, China’s ascendance seems unstoppable…Behind China’s dynamism, however, lurk many dangers that could derail the Middle Kingdom’s re-emergence as a great power: environmental degradation, population aging… and, above all, endemic corruption” (Pei, 2007). Many Chinese departments particularly ones dealing with the foreign investment have become corrupted, with the government officials manning these departments openly demanding bribes. So, with corruption expanding its tentacles throughout China, the foreign firms think twice about entering the market.
The existing firms also find the ritual of bribing the government officials an irritating at the same time costly exercise. These corrupt practices could be one of the difficult challenges for the foreign firms. On a final note, while researching about the Chinese market, I came across certain government policies on employee welfare, labor relations, etc, which were actually an antithesis of what our CEO firmly believes. I will include that information also in the report because the purpose of the report is to provide a realistic picture of the Chinese market, without ethical biases.
The primary focus of any organization is to give a clean management based on preset ethics. If the management and the employees are ethically perfect, they will exhibit good discipline, hard work and thus high productivity. So, I will provide a realistic and ethically perfect report incorporating all the needed information. Although those aspects are different from my CEO’s point of view, those aspects could play a crucial role when our organization decides to enter the Chinese market. I am sure my CEO will see the larger picture and consider those aspects as well during the decision making process.
Reference: consume. bbk. ac. uk. (n. d). Multinational retailers in the Asia Pacific. Retrieved January 31, 2009 http://www. consume. bbk. ac. uk/research/gamble. html Huffman, T. P. (2003). Wal-Mart in China: Challenges Facing a Foreign Retailer’s Supply Chain. Retrieved January 31, 2009 http://www. chinabusinessreview. com/public/0309/wal-mart. html Pei, M. (2007). Corruption Threatens China’s Future. Retrieved January 31, 2009 http://www. carnegieendowment. org/files/pb55_pei_china_corruption_final. pdf