CHINA MARKET ANALYSIS

CHINA MARKET ANALYSIS Executive Summary The aim of this report is to analyse the market of China in order to define any market opportunities for new organizations and to highlight the implications for those organizations to enter the Chinese market. In terms of the market analysis, a deep analysis of the cultural, political/legal, and economical factors will be discussed. Those four factors are part of the PESTL analysis that marketers conduct to gather a good understanding of the market environment. The main cultural factors discussed are the huge diversity of China, labour force, connections as part of the Chinese culture, and the population growth rate. The main political/legal factors discussed are the political stability in China, joining the World Trade Organization (WTO), the easiness of entering the Chinese market, and tax free or reductions on new business. The main economical factors discussed are joining the WTO, China's GDP, FDIs, and the availability of labour force at low cost. Finally, the report is ended with an analysis of the Chinese market and some recommendations wether new organizations should enter the Chinese market. Brief overview of country and main issues Located in Asia, China's capital city is Beijing and is considered the largest country in the world in terms of the population where it has a population of 1,343,239,923 (est. 2012) (CIA Factbook 2011). In terms of land area, China is considered the fourth largest country (CIA Factbook 2011). China neighbors thirteen different countries including Russia, India, and Pakistan. The official religion of China is atheism, but also includes other religions including Muslim and Christian, and Buddhism. Seven different languages are spoken in China where the official one is Mandarin since it is spoken by the majority of the society (around 70%) (CIA Factbook 2011). China is considered an agricultural and an industrial country where around 36.7% of labors force works in agriculture and 34.6% works in the industrial sector (CIA Factbook 2011). With respect to agriculture, China is considered the world's leader in gross value of agricultural output including: rice, wheat, potatoes, corn, peanuts, tea, apples, cotton, oilseed, pork, and fish. With respect to the industrial sector, China is also considered the world's leader in gross value of industrial output including: mining and ore processing, iron, steel, chemicals, fertilizers, and mainly consumer products which includes a range of products including footwear, toys, electronics, food processing, etc… The People's Republic of China (PRC) is governed and ruled by only party, which is the communist party. The rest of this report will discuss several issues regarding the political, legal, cultural, and economical factors of China. Cultural Context The cultural factor stands for issues regarding the society, community, and the people living in them (Elliott, Rundle-Thiele, & Waller 2010). This includes factors such as cultural values, norms, beliefs, traditions, growth rate, and households (Elliott, Rundle-Thiele, & Waller 2010). There are several cultural factors in China that offer opportunities. First is the huge diversity. China contains more than fifty minority groups in which each has its own cultural values, traditions, beliefs, attitudes, needs, wants, and preferences (Yang & Lee 2002). As a result, the Chinese market could be divided into several smaller markets where each has its own characteristics. This provides an opportunity for organizations to enter the market by targeting the sub-markets that meet their offerings. In other words, this is an opportunity because there are many segments with unmet needs, wants, or demands that foreign organizations can fulfil and therefore lead to their success in the market. For example, it is a opportunity for an Arabian organization operating in the food sector to enter the Chinese market by opening an Arabian food restaurant to serve and fulfil the needs, wants, and preferences of the Arab people segment there. Second, China has the largest labour force in the world (Yang & Lee 2002). Adding to that, the labour cost in China is considered cheap with respect to other countries. Because of this, organizations consider this as an opportunity to enter the Chinese market, where they can cut down their costs and expenses due to the cheap labour and the availability of labour needed. Third, connections, guanxi, are considered an important thing in the Chinese culture and values (Yang & Lee 2002). Guanxi simply means 'relationships'. In order to succeed in the Chinese market, it is important to build good connections with the locals. This includes connections with the government, local businessmen, local organizations, suppliers, and the people as a whole (Yang & Lee 2002). In the Chinese culture, businessmen like to do business with people they can trust and rely on. In other words, they follow the concept, 'you got my back, and I got your back'. The concept of Guanxi offers an opportunity for companies who have good connections and relations with the Chinese; because they will offer support and aid in the organization's success. However, the organization should be ready to give something in return whenever the locals ask for help or support. Fourth, the Chinese population growth rate. Due to the enormous size of the population, the Chinese government is not sure if they can provide the people with the acceptable level of living for everyone (Fogel 2010). As a result, the government had imposed the rule of one child per family, to control population growth (Fogel 2010). This will affect the labour force size available and therefore will affect new organizations entering the market; as a result organizations will search for other countries offering opportunities with respect to labour such as India. These are some of the cultural factors that may offer opportunities for organizations who are willing to enter the Chinese market. Political/Legal context As mentioned above, the party that governs China is the communist part. "According to the Chinese Constitution, "The People's Republic of China is a socialist state under the people's democratic dictatorship led by the working class and based on the alliance of workers and peasants"" (Fogel 2010, p. 18). Moreover, this system is ruled by the Communist Party of China (CPC), which is considered the only party in power in the PRC (Fogel 2010). There are several political factors that offer opportunities for new organizations to enter the market. The first factor is the political stability in China (Fogel 2010). Since the communist party is the only party that governs China, this means that the country is politically stable. Therefore, it is an opportunity for new organizations to enter the market since they do not have to worry about any governmental/political revolutions, political strikes, etc... The second factor is China joining the World Trade Organization (WTO). China has encountered a huge growth in its market and industry since it joined the WTO (Turle 2010). The reason behind this is that foreign organizations felt much safer to enter the Chinese market. Foreign organizations felt safer because the WTO forced the Chinese government to reduce their restrictions, laws, regulations, and policies against foreign organizations and because the WTO protected them. For new businesses, this is a great opportunity since joining the WTO eased their entrance to the Chinese market. The third factor is the ease of entering the Chinese market. The Chinese market had loosened its laws/regulations and restrictions to enter the market (Salvá 2011). A major reason for the removal of most of the barriers is China entering the WTO (Fogel 2010). This is because China had to follow the WTO rules and standards in order to be part of it. Therefore, since most of the WTO members have compound rules and regulations on new organizations, China had to simplify its complex rules/regulations and restrictions. According to this governmental support, it is now easier for foreign organizations to enter the Chinese market. In other words, this encouragement by the government is considered an opportunity. The fourth factor is tax free or reduction. China reduced taxes on new businesses who want to enter the market (Turle 2010). By doing so, new organizations were encouraged to enter the Chinese market (Qian 2011). Those are some of the political/legal factors that may offer opportunities for organizations who are willing to enter the Chinese market. Economic context Economic factors, "Refer to all of those factors that affect how much money people and organizations can spend and how they choose to spend it" (Elliott, Rundle-Thiele, & Waller 2010, p. 49). They include factors such as income, level of savings, levels of debt, prices, availability of credit, GDP, etc... (Elliott, Rundle-Thiele, & Waller 2010, p. 49) There are several economic factors that offer opportunities for new organizations to enter the Chinese market. The first factor is China joining the WTO (Turle 2010) (Fogel 2010). China's exports and imports had increased and their industrial sector, especially the agriculture and industrial sector, encountered a severe growth since they joined the WTO (Fogel 2010). This growth encourages foreign direct investments (FDI) into China. The second factor is the country's GDP, which is interlinked with China joining the WTO. China's GDP is 9.2% (est. 2011), ranking it as the seventh worldwide. This indicates that the Chinese economy is strong and is growing. China's strong GDP serves as an opportunity for new businesses as it encourages them to enter and invest in the Chinese market. China had the second strongest economy worldwide after the U.S. in 2010 (Qian 2011). The third factor is FDI. Since the government had removed some of its restrictions on entering the market and developed new economical and tax systems, a high flow of FDI started to enter making China the main area for FDI. As FDI increased in China, the country's economy also encountered a massive growth. "FDI accounts for 27% of the value added production, 4.1% of national tax revenue, and 58% of foreign trade. "Over 190 countries from around the world invest in China, which includes 450 of the Worlds Fortune 500 companies" (Fogel 2010, p.13). A fourth factor is the availability of labour at low cost. As mentioned earlier, due to the availability of labour force at a low cost, new organizations and FDI are more interested in entering the Chinese market because this is considered an opportunity for cutting down their costs and expenses. Those are some of the economical factors that may offer opportunities for organizations who are willing to enter the Chinese market. Conclusion Gathering a thorough understanding of the macro environment is considered an essential step that all organizations should implement before entering a new market. By analysing the macro environment, organizations can define their opportunities and threats within the selected market, and as a result combine their strengths with the opportunities to overcome their weaknesses and threats (Elliott, Rundle-Thiele, & Waller 2010). It is important to note that the cultural, political, legal, and economical factors, factors of the macro environment, are interlinked and influence each other (Elliott, Rundle-Thiele, & Waller 2010). New market entries should take all those factors under consideration and ensure that they covered the areas that affect their industry. Based on the analysis conducted earlier, several factors offer opportunities for new organizations to enter the Chinese market. Regarding the cultural context, China is considered a multi diversified country that consists of many minority groups that have different wants, needs, and preferences. Also, China has the biggest labour force world. Regarding the political/legal context, China is considered politically stable and its entrance to the WTO made it ease its rules and regulations against FDIs. Regarding the economical context, China offers a huge labour force at low costs, encourages FDIs, and has a strong GDP. A combination of those factors offer great opportunities for new organizations to enter the Chinese market. First, companies can now cut down their costs and expenses due to the cheap labour force available. Second, new organizations have a better chance to succeed in the Chinese market due to the large variety of wants and needs that people from different minority groups demand. Third, joining the WTO led to tax free or tax reductions decisions by the government which encourages new businesses (FDI) to enter the market. Those are some of the opportunities that had been discovered based on the analysis discussed in this report. It is recommended for new businesses to enter the Chinese market due to the opportunities that the market offers, and due to the ease of entering the market. It is also recommended that new organizations conduct more detailed analysis regarding the macro environment to detect more opportunities of their interest. Reference List Central Intelligence Agency – CIA FactBook 2011, China, viewed 13 April 2012, <https://www.cia.gov/library/publications/the-world-factbook/geos/ch.html >. Deresky, H 2011, International Management: Managing Across Borders and Cultures, 7th edn, Pearson education, Boston Elliott, G, Rundle-Thiele, S, & Waller, D 2010, Marketing, John Wiley & Sons Ltd. Fogel, GK 2010, Business Environment In China: Economic, Political, And Cultural Factors, Lawrence Technological University, United States, Viewed 12 April 2012, < http://www.usi.edu/business/mbea/2010/Fogel-2010.pdf >. Qian, W 2011, Market Analysis And Business Opportunity Evaluation Of Entering Chinese Medical Waste Treatment Industry, Lahti University Of Applied Sciences, viewed 12 April 2012, <http://publications.theseus.fi/bitstream/handle/10024/37413/Wang_Qian.pdf?sequence=2 >. Salvá, MS 2011, What is the Medium-term Impact of the Bric Countries? An investigation into the macro-economic future prospects and evaluation and trends for the bric economies from 2011-2050, Druck & Bindung, Books on Demand GmbH, Norderstedt Germany. Turle, J 2010, Connecting with China: Business Success Through Mutual Benefit and Respect, John Wiley & Sons Ltd., Chichester, United Kingdom. Yang, J, Lee, H 2002, 'Identifying key factors for successful joint venture in China', Industrial Management + Data Systems, vol. 102, no. 1/2, pp, 98-109. Page 7