PEST Analysis of China Essay

Custom Student Mr. Teacher ENG 1001-04 12 May 2016

PEST Analysis of China

I.Introduction Nowadays, China has become one of the world’s most attractive locations and China’s risecarries enormous significant for the international business communities. China has a very gooddevelopment in term of legal system, the size of the market, the low cost of labor and China’sgrowth potential together offer unprecedented business opportunities for foreign investor to do business in China.International business have developed very rapidly in China and today, China becomeincreasingly integrated with other parts of the world and opened up to a whole range of cross- border economic activities. Managing an international business in China is not an easy task andthere are some challenges will be occurred.

The prime challenge for those interested in doing business in China is achieving their strategic objectives of cost reduction, local differentiationand the strengthening of core competencies in their specific functional areas and businessactivities.China is the formal member of World Trade Organization (WTO) since 2001 and from thedate, China enjoyed all the rights the WTO gives to other members and full participates in WTOactivities. China’s entry will benefit its national economy, as well as encourage global economicgrowth and the improvement of the multilateral trade system.

WTO membership opens upChina’s market for more international trade and investment, and opens up the world economy for China’s exports.This report will cover the reason for doing business in China, defines and identify the macroenvironment of China in term of political, economic, social and technology factors in order to do business in China and the impact of China on joining WTO olitical Environment of China

The Chinese political system characterized as one-party communist dictatorship makes a great contribution to national stability, enabling the economy keep dynamic and sustainable. Nevertheless, when the economic system was deregulated from the command economy to market economy since 1978, the power of economic management was increasingly decentralized, raising the issue of uncoordinated development of regional economy. Currently, though the central government has made effort to alleviate the gap among different areas in terms of developing standards, provinces tend to give a priority to local profits rather than considering the integrated advancement of the whole country.

Local protectionism exerts detrimental influences upon market expansion of Golden Bridge Company in nationwide and deters the establishment of a comprehensive distribution channel. Since the introduction of economic reforms in 1978, China has become one of the world’s fastest-growing major economies. As of 2013, it is the world’s second-largest economy by both nominal total GDP and purchasing power parity (PPP), and is also the world’s largest exporter and importer of goods.

China is a regional power within Asia and has been characterized as a potential superpower by a number of commentators. China allows foreign businesses to enter. However, the government has issued policies that ban console games and certain online games. The restrictions set by the government could be troublesome since Square Enix’s main product line are video games. This would require Square Enix to readjust their main products, which is unrealistic.

Economical Environment

China is valued as one of the most vibrant countries in terms of economic development among the world. The reform & opening up in 1978 accelerated China’s GDP growth from 362.4 billion RMB to 30 trillion RMB within a 30-year period. Moreover, in 2010, China has been the second largest economy instead of Japan whilst the value of export accounted for 10% of world. Based on these statistics, judgment can be made that manufactures in China including flooring industry may keep an optimistic attitude to their future prospects in some extent. Nonetheless, Chinese economy may suffer unpredictable circumstance in the future. China has the third largest economy in the world and has a continuously growing economy. This allows China to sustain itself and Square Enix will be able to expand into China.

The earthquake in Japan has little influence over China. There will be limited trade between China and Japan, however, Japan is China’s top fifth destination for China to export their goods. This may lead to some products, such as clothing and electronic equipment, to not be traded as much. This will also may lead to harming China’s economy. Labor resource is one double-edge sword. Once being an advantage of China, abundant labor resource and economical labor price make a great contribution to progress of those labor-intensive manufacturing industries. This is also the primary reason that China flooring industry is quite profitable though China is a net importer of timber.

Social Environment

It is claimed by Su and Littlefied (2001) that China is an extremely high-context country where people prefer to receive implied messages. For establishing a business in China, strong private-relationships with different stakeholders is the key to success. However, this is extremely time-consuming while the maintenance is also expensive. Potential conflicts in interest may easily erode it. Besides the relationship, corruption is another issue in China. According to the Corruption Perceptions Index, China was positioned 72nd among all 179 countries in 2008. However, damages caused by corruption may be far more hazardous than anticipated, particularly to the economic development. Corruption has been treated as a vital barrier for operating in Chinese market due to enormous back-stage expenditures as well as resulted injustice.

For Golden Bridge to gain more import quotas and pay less tariff, costs may be made up of not only normal ingredients such as transporting, but also implied expense for ‘smoothing the network. China has a lot of gamers in the country. This allows Square Enix to create products to target these customers since their main focus is on games. Also, since there is a huge population, there is surely to be enough potential customers willing to buy Square Enix’s products. However, because of the ban on console games, Square Enix will have to be able to adapt and understand the culture of online gamers in China.

Technological Environment

Science and technology in China has in recent decades developed rapidly. The Chinese government has placed emphasis through funding, reform, and societal status on science and technology as a fundamental part of the socio-economic development of the country as well as for national prestige. China wood flooring industry is experiencing a relatively laggard technological standard in its initial stage of development. According to Cheng and Song, the level of timber utilization was 61% in 2004 with a considerable disparity with developed countries, that is nearly 90%. Additionally, imbalanced technological support aggravates the long-term conflicts between wood supply and demand in Chinese domestic market. China has made rapid advances in areas such as education, infrastructure, high-tech manufacturing, academic publishing, patents, and commercial applications and is now in some areas and by some measures a world leader.

China is now increasingly targeting indigenous innovation and aims to reform remaining weaknesses. In 2004, though the total domestic timber supply is 273.6 million cubic meters and exceeded the total consumption of 241.5 million cubic meters, scarcity of raw material still existed in some parts of timber manufacturing industry. China has increasingly encouraged multinational corporations to create R&D centers in China. Chinese critics have argued that foreign owned R&D mainly benefits foreign companies and removes many talented Chinese researchers from indigenous companies and institutions. Chinese supporters have argued that the foreign R&D serves as a role model and encouragement for indigenous companies and creates skilled communities from which labor and knowledge can easily flow to indigenous companies. In 2010 there were 1,200 such R&D centers and 400 out the Fortune 500 corporations had created such R&D centers.

Political Environment of China

The Chinese political system characterized as one-party communist dictatorship makes a great contribution to national stability, enabling the economy keep dynamic and sustainable. Nevertheless, when the economic system was deregulated from the command economy to market economy since 1978, the power of economic management was increasingly decentralized, raising the issue of uncoordinated development of regional economy. Currently, though the central government has made effort to alleviate the gap among different areas in terms of developing standards, provinces tend to give a priority to local profits rather than considering the integrated advancement of the whole country.

Local protectionism exerts detrimental influences upon market expansion of Golden Bridge Company in nationwide and deters the establishment of a comprehensive distribution channel. Since the introduction of economic reforms in 1978, China has become one of the world’s fastest-growing major economies. As of 2013, it is the world’s second-largest economy by both nominal total GDP and purchasing power parity (PPP), and is also the world’s largest exporter and importer of goods.

China is a regional power within Asia and has been characterized as a potential superpower by a number of commentators. China allows foreign businesses to enter. However, the government has issued policies that ban console games and certain online games. The restrictions set by the government could be troublesome since Square Enix’s main product line are video games. This would require Square Enix to readjust their main products, which is unrealistic.

Economical Environment

China is valued as one of the most vibrant countries in terms of economic development among the world. The reform & opening up in 1978 accelerated China’s GDP growth from 362.4 billion RMB to 30 trillion RMB within a 30-year period. Moreover, in 2010, China has been the second largest economy instead of Japan whilst the value of export accounted for 10% of world. Based on these statistics, judgment can be made that manufactures in China including flooring industry may keep an optimistic attitude to their future prospects in some extent. Nonetheless, Chinese economy may suffer unpredictable circumstance in the future.

China has the third largest economy in the world and has a continuously growing economy. This allows China to sustain itself and Square Enix will be able to expand into China. The earthquake in Japan has little influence over China. There will be limited trade between China and Japan, however, Japan is China’s top fifth destination for China to export their goods. This may lead to some products, such as clothing and electronic equipment, to not be traded as much. This will also may lead to harming China’s economy.

Labor resource is one double-edge sword. Once being an advantage of China, abundant labor resource and economical labor price make a great contribution to progress of those labor-intensive manufacturing industries. This is also the primary reason that China flooring industry is quite profitable though China is a net importer of timber.

Social Environment

It is claimed by Su and Littlefied (2001) that China is an extremely high-context country where people prefer to receive implied messages. For establishing a business in China, strong private-relationships with different stakeholders is the key to success. However, this is extremely time-consuming while the maintenance is also expensive. Potential conflicts in interest may easily erode it. Besides the relationship, corruption is another issue in China. According to the Corruption Perceptions Index, China was positioned 72nd among all 179 countries in 2008. However, damages caused by corruption may be far more hazardous than anticipated, particularly to the economic development. Corruption has been treated as a vital barrier for operating in Chinese market due to enormous back-stage expenditures as well as resulted injustice.

For Golden Bridge to gain more import quotas and pay less tariff, costs may be made up of not only normal ingredients such as transporting, but also implied expense for ‘smoothing the network. China has a lot of gamers in the country. This allows Square Enix to create products to target these customers since their main focus is on games. Also, since there is a huge population, there is surely to be enough potential customers willing to buy Square Enix’s products. However, because of the ban on console games, Square Enix will have to be able to adapt and understand the culture of online gamers in China.

Technological Environment

Science and technology in China has in recent decades developed rapidly. The Chinese government has placed emphasis through funding, reform, and societal status on science and technology as a fundamental part of the socio-economic development of the country as well as for national prestige. China wood flooring industry is experiencing a relatively laggard technological standard in its initial stage of development. According to Cheng and Song, the level of timber utilization was 61% in 2004 with a considerable disparity with developed countries, that is nearly 90%. Additionally, imbalanced technological support aggravates the long-term conflicts between wood supply and demand in Chinese domestic market. China has made rapid advances in areas such as education, infrastructure, high-tech manufacturing, academic publishing, patents, and commercial applications and is now in some areas and by some measures a world leader.

China is now increasingly targeting indigenous innovation and aims to reform remaining weaknesses. In 2004, though the total domestic timber supply is 273.6 million cubic meters and exceeded the total consumption of 241.5 million cubic meters, scarcity of raw material still existed in some parts of timber manufacturing industry. China has increasingly encouraged multinational corporations to create R&D centers in China. Chinese critics have argued that foreign owned R&D mainly benefits foreign companies and removes many talented Chinese researchers from indigenous companies and institutions.

Chinese supporters have argued that the foreign R&D serves as a role model and encouragement for indigenous companies and creates skilled communities from which labor and knowledge can easily flow to indigenous companies. In 2010 there were 1,200 such R&D centers and 400 out the Fortune 500 corporations had created such R&D centers.

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