Global Context of Modern Business
China is believed to have the oldest continuous civilisation. China has over 4,000 years of provable history. Beijing is the capital of China and is the most important point for the country. The official language is standard Chinese, which is derived from the Mandarin language however most business people speak English. There are many dialects in China however there is only one written language. A communist form of government rules China. The Chinese government promotes atheism although the constitution guarantees freedom of religion.
The Chinese practice a variety of religions however Confucianism; despite not being a formal religion is practiced widely throughout the country. China is the most densely populated county in the world with approximately 1. 3 billion people as of mid- 2008. Almost 100 percent of the population are ethnic or Han Chinese. There are strict rules regarding childbirth and each couple is limited to only one child. Opportunities There are lot of trade and investment opportunities for exporters in the China market.
Some of the major sectors currently experiencing rapid growth are: processed food and beverages, gambling, transport, IT and telecommunications, minerals and energy, environment protection, building construction products and services. Three of the major growth industries though are the exporting of education, processed food and wine products. Education The foreign education sector in China is split in two – students studying abroad and foreign education service providers establishing a presence in Shanghai.
The type of students interested in Australia includes those who desire pure language study and those who wish to study university degrees right through to post-graduate/MBA studies etc. As the cost of overseas study remains high, pursuing qualifications through foreign accredited institutions in China has become more practical and more popular. Course delivery can take two forms. One is the foreign school catering exclusively to expatriates, which can be wholly foreign owned and the investor need not be an education entity.
The other is a co-operative arrangement or twinning with a Chinese institution where local students are the target markets. These schools are encouraged to provide vocational education. Foreign investors must have a Chinese partner who can lodge an application with the local education authorities for approval. Processed Food As Chinese become more prosperous, demand for more sophisticated products, with a greater emphasis on quality, convenience and freshness continues to grow. This means that significant unsatisfied demand for richly processed foods exists.
There has always been a stable market for imported foods in China, especially in respect to hotels, bars and western style restaurants. Increasingly, Chinese consumers themselves are becoming to lay great stress on brand and brand loyalty than before. This means that companies with a strong international brand and aggressive marketing strategies continue to hold large market shares. Foreign companies that have been given permission by the Chinese government to set up supermarket chains include Yaohan, Wellcome, Parkson, Park ‘N Shop, Careful, Pricemart and CHC. These companies are setting up supermarkets in a limited number of locations.
Wine Wine is especially popular in the large cities of China (Beijing, Shanghai and Guangzhou) and has great potential given the increasing disposable income of local people, the health benefits of drinking wine and the government campaign against grain-based alcoholic drinks. However, many Chinese have little knowledge of table wine, and few people can differentiate quality and appreciate the taste. With this in mind, and excellent promotional tool could be wine appreciation and information courses to educate food and beverage managers, restaurant owners and waiters.
This would also attract high-income earners and may ultimately stimulate the consumption of quality wine. The Chinese wine market is price sensitive and consequently locally manufactured wine holds the largest market share. French companies are active in setting up joint venture either growing grapes and manufacturing wine or bottling bulk-imported wine. Better quality wine is limited to hotels and restaurants and consumed mostly by Western diners. To successfully sell wine in China, local bottling of bulk-imported wine is considered the most economical and practical way to supply the local market with a competitively priced product.
The opportunities arise from rapid economic growth in the world’s largest market and the availability of a cheap manufacturing base from which to sell to China and the world. From a manufacturing perspective, China in the long run will be distinguished by its overall business strength and structure, including the huge investments made to ensure China has a modern competitive manufacturing sector. All businesses need to be clear about whether they want to sell or manufacture in China. Long-term, China business strategies should not be based on the availability of cheap labour – this is disappearing as China becomes wealthier.
The number of high net-worth individuals on the Chinese mainland has hit a record high and they are continuing to spend, according to the Hurun 2009 Wealth Report. The study found 825,000 mainland Chinese – or one in 1,700 – with a personal wealth of at least US$1 million. And now the rich are more likely to be found in second- and third-tier mainland cities. A new generation of consumers is emerging in China – they are young, well educated and familiar with non-Chinese cultures. This ‘Y generation’ of 240 million, born between 1980 and 1990, is now the highest earning age group in the country and is looking for a new way of life.
They typically live in the major cities on the Eastern seaboard of China and in particular in Beijing, Shanghai, Shenzhen and Guangzhou where GDP per person is now over US$5,000 but corresponds in Purchasing Power Parity terms to four times that amount. Challenges Starting to do business in China is likely to be more costly and time consuming than in other markets. Challenges arise because of China’s size, its gold rush style growth and the fact China has a very different business culture and environment from what businesses in other countries are used to.
China is different in size, culture, politics, geography, history and economic structure. These issues can present challenges for companies looking to sell or invest in China which can only be overcome by thorough research, spending a lot of time in-market and following a focused business plan. Language and culture barriers The main challenges of doing business in China would be language and culture barriers. Before you visit China, it will be a definitely good idea to prepare yourself by studying aspects of Chinese language, culture, history, and geography. Your hosts will appreciate your initiative.
If you speak Chinese, they will really appreciate your efforts and take your initiative of doing business in China more seriously than if you do not speak any of their language. Moreover, your ability of being able to understand Chinese language will help you to establish a successful business. It is essential for the foreign-funded enterprises to understand the China’s culture, especially regarding the culture of Guangxi (relationship), so as to be able to gain the popularity and trust of China population. With a good relationship, business can become smoother and probability of failure will be greatly reduced.
Stronger bonds can also be built with the customers, suppliers and partners. In China, Guangxi is a complicated field. A special feature of doing business in China will be that Guangxi will have to include relationship with the government body, investors, partners and even relationship with your own staff, so when doing business in China, it is important for foreign investors to learn to coordinate with the China government, especially establishing good relationship with government bodies dealing with foreign trade and economic cooperation.
Government procedures Governmental procedures for foreign investors in establishing investments in China is extremely complicated, thus if one is unfamiliar of the procedures, one will delay his business opportunities. Therefore it is important for one to be familiar with the investment procedures before carrying out his investment in China. A safer and more appropriate way will be to seek help from local organisations familiar in the same field of business or consultant firms who are able to provide professional advice and assistance.
Determination and patience may be essential for an investor to be successful, however it is necessary for one to require help from professional bodies to ensure that success will be achieved. Conclusion China’s labour market very much appeals to many foreign investors. This is because on one hand, labour cost is low, and on the other hand China’s workforce has become matured and their skills have been constantly upgraded, especially in the coastal cities. Educational development is undergoing at a wonderful pace in China, thus it is no longer difficult to hire high quality labour force in China today.
Many successful foreign investors have even credited their success in China to their China’s local staff. One big problem that is causing headache to foreign investors is how to maintain good relationship (Guangxi) with the local staff. First of all, top management should cultivate the company’s vision and values into the employees because what the local people are taught under China’s educational system may crash with the foreign management system. Thus only by letting the employees understand the company better can allow the company to function better.