Impact of External Environment to Business in China
Impact of External Environment to Business in China
Nowadays, China is experiencing a rapid economic growth. By following the end of the eleventh National People’s Congress of People’s Republic of China recently, China is emphasizing to develop seven new strategic industries with the release of the Twelfth Five-Year Program. As China is achieving a low carbon economy, thus one of the new strategic industry, new energy is essential to the success of achieving the goal. Biomass energy is one of the new energy which generates electricity and biodiesel by burning agricultural straw, fruit, wood and animals waste (1). The following will be the analysis of Macro-environments for the China Light and Power Company Limited to enter the China market, and suggestions will be given at the end of the analysis.
Champway Technology Limited is the only company who possesses an ‘Environmental Permit’ to recycle waste cooking oil in Hong Kong. Its primary objective is to recycle all local waste cooking oil and organic oil and grease into biodiesel. It contribute to save the environment by aiming at recycling all waste cooking oil in Hong Kong and stem the trend of re-using waste oil on the dinner table. It also committed to produce high quality biodiesel which is a clean and efficient fuel by using the collected waste oil (2).
As China is a highly distinctive market, once foreign-invested enterprises want to enter the China market, there must be difficulties to be faced. However, there are still some favorable factors while they are entering such market, and they will be analyzed as follows.
There are four macro-environments for Champway to enter the China market. Firstly, the Champway may benefit from the political and legal environment of China. During the release of the seven new strategic industries in the Twelfth Five-Year Program, the central government has put so much emphasis on the development of new energy, especially the development of biomass energy (3). Also, the State Forestry Administration has decided to reserve two hundred million acreage of forest land, for cultivating the plants that specifically for the extraction of biodiesel (4). As a result, the operation of Champway in China can benefit from the strong support and back up by the central government when entering the China marketing with biomass energy.
Secondly, the Champway may benefit from the economic environment of China. As mentioned, China is experiencing a rapid economic growth with a GPD growth of 10.3 percent in January of 2011 (5). At the same time, Renminbi keeps appreciating against US dollar and Hong Kong dollar (6). As a result, the Champway may benefit from appreciating Renminbi, since Champway is operating business and selling energy for Renminbi in China. So the actual value of the profit gained is also appreciating. Moreover, refer to a speech of the Labor Department, the number of people seeking unemployment benefits rose by 26,000 to a seasonally adjusted 397,000 recently (7). This implies that the unemployment rate in China is rising. Thus Champway can also benefit from this circumstance as it can hire sufficient work people for their operation in China.
Thirdly, the Champway may benefit from the social environment of China. As people in mainland China become more educated and more environmental conscious (8). They are more likely to support products with environmental friendly features like biodiesel. As a result, the Champway may catch this opportunity to market biodiesel and benefit from the increasing demand for biodiesel.
Fourthly, the Champway may benefit from the ecological environment. China is rich in raw materials. However, most of them are not explicated yet (9). With a great depletion of raw material, it is insufficient to support the energy consumption of about 1.3 billion population. As a result, biodiesel is acting as a perfect substitute of raw materials like petroleum. So Champway may take the chance to market biodiesel and benefit from the great demand it.
As mentioned, there must be some difficulties when entering such distinctive market. So here is the discussion of those difficulties.
There are four difficulties to be faced when the Champway is entering the China market. Firstly, the Champway has to face an unfavorable political and legal factor. As the central government is deciding to even the income distribution in China, a new labor protection policy of minimum wage will be established (10). This policy will increase the wage level of workers. As a result, it is unfavorable to Champway, since Champway has to hire a great number of workers for building and operating the facilities of energy generation in China, and the increased wage level of workers may leads to an increase in the operation cost. So it is more difficult for Champway to survive in this sector.
Secondly, the Champway has to face an unfavorable economic factor. As the increasing popularity of biomass energy in China, agricultural product will become more valuable, since agricultural product is one of the inputs of biomass energy generation. Also, the market price of agricultural product has increased due to the inflation. As a result, the operation cost for Champway to run the business in China increases and it may be difficult for Champway to survive with this industry in China.
Thirdly, the Champway has to face an unfavorable social factor. Although the central government has emphasized to develop biomass energy, there is still no clear and definite guideline for supply of input and quality standard (11). Also, there is an unethical business culture exists in the China society due to the lack of well education. As a result, there is a disorder in the biodiesel market. People are pretending the original biodiesel with a fake one (11). This phenomenon may create an unhealthy image for the industry and the industry will be negatively affected.
Fourthly, the Champway has to face an unfavorable ecological factor. China is one of the most suffered countries in terms of natural disaster. According to the statistical figure from the United Nations, in the year 2008, China has the world greatest loss of 110 billion due to natural disasters, which is 60 % of the loss of the whole world (12). So there is a frequent lost of agriculture exists. As a result, there will be an unstable supply of input for the biomass energy generation, and the company may unable to survive in China market with this industry.
After the discussion of the unfavorable factors for Champway to enter the China market, some suggestions will be given to overcome the difficulties as follows.
Here are three suggestions that Champway can apply to overcome those difficulties. Firstly, in order to overcome the unfavorable minimum wage and increasing market price of agricultural product, Champway is recommended to enter the China market through equity joint venture with a greatly financed or a state-owned biomass energy company like the Everbright International (13). So that it can spread and share the costs and risks with its partner. As a result, the difficulty of high operation cost can be overcome.
Secondly, in order to overcome the unfavorable counterfeit, Champway is recommended to deal with the problem with a well designed distribution and place of the biodiesel. The company can develop and sell its original biodiesel through biodiesel filling station or biodiesel specialty store. So that people can easily recognize the genuine one and avoid buying the fake. This action can improve the company image by building confidence for customer to consume our product.
Thirdly, in order to overcome the unfavorable unstable supply of biomass. Champway is recommended to deal with the problem with the use of multiple suppliers from different region in China. Since China is a huge land, natural disasters often occur only in a particular area. So by using multiple suppliers from different region, the company can immediately seek for supplies from other suppliers in other region, when some of them are unable to supply the company due to natural disaster.
To concluded that, Champway can benefit from four macro-environments when entering the China market. They are political-legal environment, which is the support and back up by the central government; economic environment, which is the appreciation of Renminbi and the large supply of labor; social environment, which is the increasing environmental consciousness; and ecological environment, which is the great depletion of raw material and the great demand for substitutes.
However, Champway has to face four difficulties too. They are the minimum wage, the increasing market price of agricultural product, the counterfeit biodiesel and the unstable supply of biomass due to natural disasters. In order to overcome the four difficulties, three suggestions are given as the solution. They are the use of joint venture, the development of biodiesel filling station and biodiesel specialty store, and the use of multiple suppliers from different region.
University/College: University of California
Type of paper: Thesis/Dissertation Chapter
Date: 25 November 2016
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