University: International Management - China Business Analysis Report

This report provides a comprehensive analysis of China's business environment, evaluating its attractiveness for foreign multinational companies. It utilizes the PESTEL framework (Political, Economic, Social, Technological, Environmental, and Legal) to identify and discuss both positive and negative factors influencing business operations in China. The report examines political stability, government effectiveness, economic growth, corporate tax rates, social factors such as labor force and work ethic, and technological advancements. It also addresses environmental and legal considerations. Furthermore, the report recommends appropriate market entry strategies, such as joint ventures and Greenfield investments, supported by real-world examples of successful multinational corporations operating in China. The analysis aims to provide a clear understanding of the opportunities and challenges for businesses seeking to enter the Chinese market.

Running head: INTERNATIONAL MANAGEMENT
International management
Name of the student
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Executive summary
The aim of this report is to discuss about the business attractiveness of China in the current time.
In doing so, this report used the data from World Economic Forum and The Global Economy to
compared and analyze the current business factors relevant in China. It is identified that China is
mostly having favorable business environments, which are helping them in becoming a global
business hub. On the other hand, a number of negative factors also being identified, which may
prove challenging for the foreign business organizations. This report concluded that joint venture
and Greenfield investment will be the most ideal entry strategies for the business organizations in
doing business in China. Two real world success stories are also discussed that proved the
effectiveness of the stated strategies.

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Table of Contents
Introduction......................................................................................................................................3
Identification of the external factors................................................................................................4
Political factors............................................................................................................................4
Economical factors......................................................................................................................9
Social factors.............................................................................................................................12
Technological factors.................................................................................................................14
Environmental factors................................................................................................................16
Legal factors..............................................................................................................................18
Justification of the entry strategies................................................................................................20
Joint venture...............................................................................................................................20
Greenfield investment................................................................................................................21
Conclusion.....................................................................................................................................21
Reference.......................................................................................................................................23

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Introduction
In the current business scenario, it is becoming more important for the contemporary
business organizations to enter in the foreign markets in order to enhance their business
potentiality. This is also increasing the competition among the countries across the world to
attract more foreign investments. In addition, they are also increasing their competiveness over
the other countries to enhance their attractiveness to the potential business organizations (Lepori,
Seeber and Bonaccorsi 2015). Business organizations are determining the different aspects and
factors of doing business in a foreign market prior to entering. Determination of the business
attractiveness helps in identifying the important factors that will have influence and impact on
the long term business operation. In accordance to these factors, it can be concluded whether the
particular country is attractive for the business organizations or not (Docquier and Machado
2016). It is also important for the business organizations to identify the both the positive and
negative factors of doing business in a particular country. Accordingly, they will design their
organizational strategies and approaches to leverage the positive factors and avoid the negative
ones.
In the recent time, China is considered as one of the most promising economies in the
world and is attracting a major chunk of foreign investments over others. There are number of
reasons, which are helping them to stay ahead in the global business scenario (Hsueh et al.
2013). Some of these factors are huge population and marketing opportunities, positive economic
growth rate, stable governance and lower cost of resources. In addition, China is also rapidly
becoming a global hub for the major multinationals across the world due to their favorable
business environments in place. However, further detailed analysis of the business factors in
China is required to have the deeper picture.

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This report will discuss about the major business factors in having operation in China
using the PESTEL approach. Both the positive and negative factors will be identified and
discussed. In addition, the idea entry strategies in doing business in China will also be discussed
in this report citing some of prominent real world examples of multinationals.
Identification of the external factors
Political factors
Political factors refer to the governance and stability in the country and the extent to
which the business organizations are having stable operating environment and assistances from
the governments. One of the key elements is political stability. According to the global economy,
China scored -0.55 in terms of political stability (TheGlobalEconomy.com 2018). This denotes
that China is having moderate level of political stability in the country. Thus, business
organizations operating in the country will have favorable political environment along with
having the risk for future negative consequences. It is also identified that political stability of
China is improving if being compared in last few years. This is a positive factor for the business
organizations in doing business in China (Lee and Zhang 2013).

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Figure: 1
Political stability of China
Source: (TheGlobalEconomy.com 2018)
It is also identified that China is also having favorable score in terms of government
effectiveness with having the score of 0.41. This denotes that government is effective in the
country in regulating the business environment (TheGlobalEconomy.com 2018). Business
organizations operating in the country will have the provision of having effective governance in
place.

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Figure: 2
Government effectiveness index of China
Source: (TheGlobalEconomy.com 2018)
However, apart from these positive factors, there are number of negative political factors
also being identified. The global economy reported that China is having the score of 37 in terms
of global corruption perception index as of 2015. This denotes that corruption is having larger
influence in the country and the business organizations operating in the country will face it. In
addition, relevance of corruption may also cause lawsuits for the business organizations.

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Figure: 3
Corruption ranking of China
Source: (TheGlobalEconomy.com 2018)
On the other hand, world economic forum reported that inefficiency in government
bureaucracy is one of the most problematic factors in doing business in China. This denotes that
even though the governance in China is effective but the business organizations will face the
issue of high level of bureaucracy. This will slower up the business affairs for the organizations
and will also affect their relevancy of doing business in China.

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Figure: 4
Most problematic factors of doing business in China
Source: (weforum.org 2018)
Considering the different political factors of doing business in China, it is identified that
overall political environment for the business organizations is moderate and improving. In
addition, it should also be noted that corruption ranking of China is favorable if being compared
with the countries from South Asian regions (Khan, Alam and Alam 2015). The key example for
this is the presence of global multinationals such as Apple Inc. They are having only a few
manufacturing facilities across the world with one of them is in China. Thus, they are operating
in China due to having business friendly political factors.

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Economical factors
Economical factors refer to the external business elements that will have impact on the
economic viability and profitability of the firms. China is one of the leading countries in the
world in terms of economic growth. In addition, it is also reported that economic growth of
China is more compared to some of the developed countries. It is reported in the global economy
that as of 2015, the rate of economic growth is 6.9, which is one of the highest in the world
(TheGlobalEconomy.com 2018). Thus, the business organizations entering in the Chinese
market will have huge economic potentiality with the increasing economy and purchasing power
of the customers. However, it is also identified that China was having economic growth of 14.23
in 2007. This shows the decreasing trend of economic growth but still China is having leading
growth rate in the world.
Figure: 5

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Economic growth trend of China
Source: (TheGlobalEconomy.com 2018)
Another positive economical factor of doing business in China is lower rate of corporate
tax. According to the global economy, China scored 25 in terms of corporate tax and it much
lower compared to the tax rate of 33 in 2007. Thus, the business organizations entering in China
will have lower level of tax rates in their operations and this will further help them in having
lower cost of operation and more profitability.
Figure: 6
Corporate tax rate of China
Source: (TheGlobalEconomy.com 2018)

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It is identified that China is having moderate score in terms of overall economic freedom.
This refers to the extent to which the business organizations operating in a particular country will
have free economic elements. In this case, China is having the score of 52.7 as of 2015, which
denotes that they are having moderate sets of economic freedom in place
(TheGlobalEconomy.com 2018). It is also being identified that rate of economic freedom is
improving. Thus, in the following years, business organizations entering in the Chinese market
will have more economic freedom.
Figure: 7
Economic freedom index of China
Source: (TheGlobalEconomy.com 2018)
On the other hand, there are number of negative economical factors also being identified.
One of the major negative economical factors in doing business in China is trade tariffs. This is