JR Corporation has posted tremendous growth for the past 4 quarters. As per your request, I am presenting you with this report on expanding our business into an emerging market. My reccomendation is that we expand our business into China. This report provides you with some background on China, the advantages of investing in China, some challenges we may face, and a plan on what we will be doing in China. JR Corporation is proud of its electronic product line, I feel that with expansion into China, we can benefit from the opportunities that this emerging market presents.
China is a country in Asia. It is strategically located, several key areas are in close proximity. The Middle East, as well as India are located near China. China is the most populated country in the world. According to CIA factbook, China’s population is 1.35 billion (CIA,2013). The majority of Chinese speak Mandarian, and Cantonese. Most Chinese follow Taoism, however, Buddhism is also practised. Other religions, such as Christianity, and Islam are also practised. About 45% of Chinese are between the ages of 25-54 (CIA,2013). The literacy rate in China is 95%.
China is a communist state. It’s capital is Beijing. China is a member of several important business-oriented organization, such as the World Trade Organization,G-20, and Asia-Pacific Economic Cooperation. China is the world’s largest exporter. Since the 1970’s China has gone through economic reforms. As a result, it’s market of opened for foreign businesses. Its Gross Domestic Product is $12.61 trillion (CIA,2013). Chinese economy is divided into three sectors. Agriculture makes about 10%, Industry about 45%, and Services about 45%.
Companies that invest in places like China have a first mover advantage. Our company will be able to build strong parternships, and thus resist any new competition. China has a huge population. This means that we have a large talent pool of employees. This also means that we have to a large consumer market for our products.
We can save money by building electronic products in China, and then selling them in the country. We will save transporation costs. Chinese consumers also have disposable income. According to Starmass, the average disposable income in China is 21,810 RMB.(Starmass Corp,2011).We can take advantage of economies of scale.Another reason that makes China an attractive place to invest in is China’s international status. China holds a significant amount of U.S. Debt.According to RT, China holds $1.3 trillion in U.S. Debt (RT,2013). This gives China significant power in international affairs.
For any companies to be successful, access to resources is important. China has a strong infrastructure. China is also very rich in natural resources. Telecommunications services are also important for our company. Empirical studies suggest that with these kinds of facilities are available a place will always be the perfect destination for foreign companies to go for FDI (Cheng & Kwan, 2000; Grub et al., 1990).According to Forbes, China invested $28.6 billion on infrastrcure development in 2007 (Forbes,2011). Infrastructure will allow us to easily communicate between our plants.
China is also open to international trade.It’s government has signed many free-trade agreements. Negotiations between China, and Canada are ongoing regarding free trade agreement. In order for any company to feel safe about its investments, law and order is very important. For JR corporation, intellectual property law is necessary. Chinese laws regarding intellectual property are evolving, and changes are going to be taking place. China economy is among the strongest in the world. China is the world’s biggest manufacturer. It has generated $2.9 trillion in output annually (Sims,2013). During the same period. The United States generated $2.4 trillion in output.
The GDP growth in 2012 was 7.8% (Grammaticas, 2013). Canada’s GDP growth was 2.0%. The financial crisis of 2008 had limited impact on China. In November 2008, Chinese government issued a stimulus package. The central bank also cut interest rates. As a result of these policies, Chinese economy quickly rebounded. Therefore, Chinese economy is attractive for foreign investors. These reasons make China a good choice for company to expand.
Despite key advantages of investing in China, there are also several challenges that we will face. These issues need to be carefully examined for a decision to be taken. Cross-cultural manageemnt is always a challenge. What works in one place will not work in another. Therefore, our company is going to have to adapt to Chinese culture. Training management is going to be key. This will increase our costs. Hofstead’s research shows that Chinese are more team-oriented. Respect of authority is also important. Family-Work balance is also important to Chinese workers.
Therefore, creating special program is necessary. Political risks are always worrisome in communist countries, such as China. Busineeses need a stable political environment to be succesful. In China, there is always a threat of instability caused by politics. There is also the threat of government interference since China is still a autocratic country. Accoring to Bruce Mitchell, utility costs in China can be very high (Mitchell,2012). There is also the issue of land purchases. You are not allowed to buy land in China. You have to purchase the “right” to use the land for a 50-year period.
Therefore, we will have to rent in China. National security risks are also present in China. Spying is very common in China. Huawei Corporation is the recent example of problems that this causes. Despite having intellectual property legislation in place, China is still not at par with western countries. High employee attrition is a major problem in China (China Times,2013). At least 35% of employees had changed jobs in the past 4 years. JR corporation is going to have to create retention strategies. This will increase our costs. Finally, currency parity is also going to be a challenge for us.
I feel that the advantages outweigh the disadvantages of investing in China. Therefore,I recommend that we invest in China by building a plant in China. This plant will produce electronic products. The plant will be located in Shenzhen. Shenzhen is the manufacturing capital of China (US Commercial Service,2010). This location is ideal because of lower costs. There is also a large labour market avaialble. Infrascture is also very strong in this city.
There is an international airport, a metro, access to sea, as well as highways near this city. There is even a stock exchange. Many succesful organizations such as Huawei, and BYD are also located in this city. Our business will be located in Shenzhen industrial park. This city also forms part of the “special economic zone”. This is going to be an advantage for us. This is because the zone has special tax incentives. There is also greater independence on international trade. Therefore, I fell that JR Corporation is going to benefit greatly, if we decide to invest in China.
CIA (August 2013). China. Retrieved September 20,2013, from https://www.cia.gov/library/publications/the-world-factbook/geos/ch.html
Starmass . (2011). China Annual Disposable Income. Retrieved September 20,2013, from http://www.starmass.com/china-review/living-index/chinese-disposable-income.html
Russia Today. (July 17 2013.). China’s US treasury holdings hit record. Retrieved September 20,2013, from http://rt.com/business/china-federal-debt-record-207/
Kwaan, C. (2000). Foreign Investment. USA: University of Chicago Press.
Forbes. (July 2011). China Continues to Pour Money into Interior Infrastructure. Retrieved September 20,2013, from http://www.forbes.com/sites/kylerhodes/2013/04/23/china-continues-to-pour-money-into-interior-infrastructure/
Sims, D. (March 14th 2013). China Widens Lead as World’s Largest Manufacturer. Retrieved September 20,2013, from http://news.thomasnet.com/IMT/2013/03/14/china-widens-lead-as-worlds-largest-manufacturer/
Grammaticas, D. (18 January 2013). China’s economy grows. Retrieved September
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