IBO’S 702 China Emerged: Rethinking Your Global Strategy China has a growing role. It is relevant locally, regionally and nationally, for it is one of the biggest growing economies in world, and the 3rd largest export market for US goods. The growth in US exports to China is 542% versus 80% of export to the whole world. Exports from Kansas to China are really significant too, and China’s consumer class is expected to triple by 2020. So, China is no longer emerging; it has emerged; we ignore it at our own peril. Session 1: In 20 years, China has experienced the fastest growth out of other emerging countries.
This rapid growth has consequently made the HID (Human Development Index) grow rapidly. 500 million people were lifted out of poverty and it has become the second largest economy since 2010, and largest exporter behind Germany, and expected to become largest importer. But is this growth sustainable? The low consumption and high investment is due to the rudimentary welfare system; the rate of private consumption to GAP is going down. It is also due to high infrastructure expenses, and that one lead to high investment. Another reason was the undervalued domestic currency, leading to trade surplus.
China’s international trade has been going up exponentially since about 2000, so did China’s foreign exchange assets. But China is now refinancing: retail is growing faster than GAP. However, the persisting strains on current economic, political and social systems are also becoming severe; for instance, poverty is still significant. Brazil is doing much better for they give subsidies to the poor. There has been severe environmental damage, because the system is based on promotion of officials based on ability to deliver GAP growth.
Blue sky is actually rare in Beijing, but measures are taken to interact this: government gives subsidies for investing in clean energy technologies, etc. Last but not least, a persistent strain is the rampant corruption; we can still observe the practice of land seizures and crony capitalism. In 2012, there were 120,000 mass protests. The key reason for corruption is the lack of effective constraints on the power of party officials. Remedies under consideration are to implement a constitutional rule, centralize appointment of Judges, have transparency in governance, and limit media censorship.
The question is, can the incoming generation of leaders accomplish these tasks? Signs point to gradually intensify this process in the coming years. China GAP growth rate projections are estimated to be 7. 5%. Concerning China’s leadership transition, domestic priorities may or may not link to foreign concerns. China’s 12th Five Year Plans is a policy document outlining its goals for the next five years. They provide glimpses of government directions, policy goals, and potential opportunities. Use it as a blueprint. But China is not an easy market to do business in and still present significant challenges.
First, China is THE place to do business, according to the CUBIC 2012 survey of companies. They re Increasingly In canal In order to access or serve ten essence market. Companies surveyed report that their operations in China are profitable. Most companies are optimistic about China’s future. Top 10 challenges are: human resources, administrative licensing, competition with Chinese enterprises, cost increases, ‘PR: enforcement, uneven enforcement and implementation, investment restrictions, competition with foreign companies in China and with companies not subject to APPC, and standards and conformity assessment.
Competition with Chinese companies is increasing. There is greater level of concern than the playing lied is tilted. Chinese companies might have access to better policies. The Strategic Emerging Industries is another trend to watch. What these trends mean for companies is: -Tracking of policies and plans to position operations and anticipate short term and long term challenges. Reassessment of global and China operations to adapt to changing markets and operational challenges -Need for active engagement and relation-building with governments and external stakeholders – Increased use of Chinese enforcement channels to protect company interests. Session 2: Grant Thornton has been growing in China. They decided to shift their success on gaining domestic market share. Their Beijing office has now become their biggest office. China’s growth is slowing, costs are rising, skilled labor is in shortage, there are income disparities and tensions, and inland development.
Export opportunities to China are not going to provide the same advantages as now, over the next 20 years. There is not a strong domestic consumption. China is underperforming relative to the size of its economy. Income is rising, so what are the reasons? Mostly because people save because they’re worried about paying for medical expenses, education has to be founded privately. They don’t have a culture of spending like Americans. The economy is in transition. The implications for these changes are moving up the value chain, advancing manufacturing, consumer market potential, and outbound investment.
A major outbound investment opportunity for China is Africa. China wants to secure for itself the raw materials and resources in Africa. They’re getting long term access by building infrastructures over there. Companies we see most successful in China look at it as part as a global integrated strategy. They view it has a market, no longer as a low cost manufacturing environment. They’re also increasingly looking West. Most of the activity has been taking place on China’s east coast. Lower cost can be pursued in western locations. They consider China as a very decentralized country. A lot of the power is at the municipal level.
Begging’s biggest problem is to get local governments to comply. Implications to US companies’ China strategy: know the market, don’t look at it as a country, it’s a collection of very autonomous cultures reinforced by the language. Don’t underestimate the local competitors; they will always have a lower cost point and will understand better the complex distribution channels, need to adapt to local tastes ND cultures your product and services, distribution challenges, need to be aware of the Foreign Corrupt Practices Act (APPC), be conscious that growth is not homogeneous over all sectors, market segmentation: don’t forget luxury brands.
For example, Home depot had to close because Chinese people don’t have garages. Want I learned: Yes, canal Is I.E. place to ay Dustless In, ten sale AT ten market Is considerable and still has some time until it reaches maturity, even though costs are rising they are still low comparatively, and if we keep ignoring it we do at our own peril. But, we still need to be cautious as rampant corruption and other issues persist; export opportunities to China are not going to provide the same advantages as now, over the next 20 years.
Plus, there the Chinese mentality is not a consumerism one like the U. S. , people still save too much. These issues need to be considered at the time of deciding whether start operations in China or not, on top of the issue of adapting to local tastes and culture. The Deanne and Wahoo case confirms that China is not as easy place to do business in and still present significant challenges. We should not fall into the temptation to circumvent Chinese law, however unsteady it appears to be.
This will catch up with us sooner or later like it did with Deanne. Trust and transparency should be maintained at all costs, we can’t afford to have the same expectations out of the way business is done in China as it is in the West, especially in Joint-venture situations. We should participate actively in daily operations in order to avoid bad surprises. Class notes highlights that “shared ownership can lead to conflicts and battles if goals and objectives differ over time. ” As this is likely to happen on both ends, vigilance will be necessary.
It is in vain to try to stop or fight against China; instead, collaboration, mutual understanding, willingness to compromise, and focus on the end goal in order to generically create a greater value added for both Chinese and Western companies that will surpass what could have been done on one’s own will be the key to success for businesses operating in China. The potential of what can be learned along the Journey will be invaluable. Overall, this conference was enlightening. Thank you so much Professor for having given us the opportunity to attend it.