PESTAL ANALYSIS OF CHINA

Nowadays, China has become one of the worlds most attractive locations and Chinas
rise carries enormous significant for the international business communities. China has a
very good development in term of legal system, the size of the market, the low cost of labor
and Chinas growth 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 become
increasingly 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 and there 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 differentiation and the strengthening of core competencies in their specific functional
areas and business activities.
China is the formal member of World Trade Organization (WTO) since 2001 and from the
date, China enjoyed all the rights the WTO gives to other members and full participates in
WTO activities. China's entry will benefit its national economy, as well as encourage global
economic growth and the improvement of the multilateral trade system. WTO membership
opens up Chinas market for more international trade and investment, and opens up the
world economy for Chinas exports.
This report will cover the reason for doing business in China, defines and identify the
macro environment 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.

I.

Background of China

China has the second largest land area on earth with population reaches a total of
1,341,000,000 (as at 31 December 2010). China's economy has boomed since 1978, as a
result of sweeping economic reforms and the GDP has grown impressively (9, 092, 142
millions), and nowadays, China has become the world's fastest growing major economy, the
world's largest exporter and second largest importer of goods.
Map of China

List of GDP
World Bank (2009)

BY THE

Recently, China
become the worlds
second largest economy and has been "open for business" for over 30 years. Trade
continues to play a major role in Chinas booming economy. There are the reasons for those
companies thinking of entering or expanding operations in this important market such as:

a. China is land of opportunity - Labor and physical plant is relatively inexpensive.

b. China is a unique market in term of political view, language, business philosophy and
beliefs.
c. China is the member of World Trade Organization (WTO).
d.
However, according to Orfield, K. (2008), there are some barriers or challenges of doing
business in China:
a. Even with China joining WTO, protections for intellectual property rights are not
consistently enforced.
b. Markets are subject to sudden changes in the governments economic growth policy.
c. China has no nationwide credit database, so it is difficult to assess consumers credit
worthiness.
d. China is undergoing rapid social and economic change; a widening disparity between
haves and have-nots could cause significant upheaval.
e. Multinationals often must compete against local players with lower cost operations
and lower prices.
f.

The diversity of the Chinese market is significant, requiring a variety of products to

meet segmented needs.

g. Infrastructure is less developed than in U.S., making transportation a challenge.

h. Conducting market research and identifying market sectors is extremely difficult.

Conclusion

Lessons from this paper:

Lesson 1 Success takes patience and deep pockets
Even large companies need a long runway before they start making money from their
Chinese investments. Getting to the point where you have boots and machinery on the
ground often can take years of arduous effort and relationship building. After the doors
open, firms need lots of time to get the business model right. For example, P&G took three
years to turn a profit, KFC 10 years. Although labour and physical plant is relatively
inexpensive, developing key local capabilities like marketing, service and distribution is not.
Once operations are set up, North American firms should expect fierce competition,
including a non-level playing field, from local players. Finally, China is experiencing
significant wage and raw material inflation, particularly in major industrial zones, which can
easily extend investment pay-outs and make local operations uncompetitive.
Lesson 2 Think local, act local
China is a unique market. Its comprised of diverse regions with varying levels of
development, consumer needs and regional industrial strengths Compared to the West,
China differs across every measure politically, on corruption, language, business
philosophy and beliefs. Most North American companies can leverage little from their
previous international experiences so they need to fully embrace local operations,
needs and customs.
The ideal market entry strategy is to do your homework on the market, consumers and
competition, invest in deep relationships with key door-opening politicians and regulators
and show an exaggerated deference for Chinese business habits, honour and beliefs.
Lesson 3 Joint ventures work best but carry longer term risks
In most cases where you need to manufacture locally, partnering with a Chinese firm
(particularly one with senior government or army connections) has proven to be the best
and lowest risk market entry model. The Chinese government has tacitly and overtly
encouraged this in order to maintain some control over foreign enterprises, facilitate critical
knowledge and skills transfer, support cronies in state-controlled partner firms and buttress
local companies from more efficient foreigners. However, for foreigners JVs carry significant
medium term business risks that include but are note limited to politically-motivated
expropriation, capricious government behaviour and the germination of emerging Chinese
competitors.
Despite the pain and suffering, many companies have finally turned the corner and are now
reaping strong investment returns in China. The key question, however, is will the runway to
profits in China shrink as its economy grows?

References
1. http://www.financialpost.com/executive/guide+doing+business+China/3417688/story
.html
2. http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)
3. http://en.wikipedia.org/wiki/List_of_countries_by_population
4. http://en.wikipedia.org/wiki/People%27s_Republic_of_China
5. http://www.bus.wisc.edu/update/winter05/business_in_china.asp