Introduction
China’s booming economy, its large manufacturing base and its growing consumer spending as well as the availability of natural resource supply makes it ideal for doing business (Troutman Sanders 2010; Banu 2004). One aspect of its growing economy is its gross domestic product which has maintained a growth rate of about 9% for the last decade (Walsh 2010, p. 1; Ariff & Khalid 2004).
Most companies today are seeking to venture in the China to the low overall manufacturing cost as compared to most countries globally (Chen, Liang & Lin 2003; Taiwan Electrical and Electronic Manufacturers’ Association 2006).
However, China’s business environment does not favor foreign investment (Tse 2006). Most of the aspects of its business environment are designed to promote the growth and development of its local companies. According to Drury (2010), China’s business environment stifles competition from other foreign companies operating in the country.
Political Environment
Although China is relatively stable politically, it does not provide a level playing field for businesses in the country. Its policies are discriminative and are not fully in line with the international trade principles of applying non-discriminatory policies in business operations for companies. The Chinese government gives its local companies competitive advantage over foreign companies in the Chinese market.
According to Walsh (2010, p. 22) the Chinese government seeks to nurture and protect its local companies from the intense foreign competition. In 2006 for example, the Chinese government stopped a US$375 million bid by a US private firm to purchase 85% stake in a Chinese machinery manufacturer.
According to Drury (2010) the Chinese government also rejected bids from foreign firms during the mid-2009 bidding process for the 25% wind power projects and the contracts awarded strictly to Chinese companies despite the world’s top four wind turbine companies having placed substantial bids and having made great investments in China (Dean 2007). Usually, no clear explanation is given for the rejection of such contracts (
China’s business environment is excessively regulated and less open to competition (Myat 2003). The government openly promotes the policy of indigenous innovation. The government offers accreditation to companies which venture in indigenous innovation through government procurement incentives (Deng & Harrigan 2008 & Walsh 2010).
The government also limits investment possibilities available for foreign companies. There is also lack of transparency in the making and implementation of laws and regulations governing business operations in China. Foreign companies and domestic companies are treated disproportionately especially when it comes to enforcement of environmental laws (Yin-chung 2004).
Technological Environment
China’s policy of indigenous innovation extends even to its technology industry. The government requires that its government agencies only purchase products which have been developed and owned by Chinese companies.
The government has also legislated policies which require that companies operating in China must have relevant Chinese intellectual property and that foreign companies also disclose their product information to the Chinese government so as to get access to the procurement market in China (Jianrong 2004; Walsh 2010).
These legislations have impeded business innovations as well as foreign investment in China since they lead to leakage of business’ confidential information especially during business approvals, product certification and during other process.
Social Environment
Companies in China benefit more from the enormous pool of labor that exists in the greater China due to its large population of over one billion (Amit & Freund 2008; Dean 2007). However, searching for people with particular levels of expertise in a given industry, high level of management ability, education or experience to work in the global economy remains a great challenge.
According to Walsh (2010, p 15) the tenure of professionals who have had experience in various fields and are between the age of twenty five and thirty five which are the most productive, fell from an average of three to five years to one year in 2006.
Each professional employee who departs from a company costs the company dearly since the employee’s departure may lead to strategic and operational problems such as missed production schedules.
Recruiting the required talent for the company is a great challenge in China since there are many companies recruiting from a limited pool of professional labor; therefore they have to focus their recruitment on poaching employees from already existing multinational companies which is very costly since they have to be enticed to leave their current companies (Wei 2003; Jianrong 2004).
According to Walsh (2010, p 16) China faces a severe shortage of skilled accountants. This has compelled some companies to enter China as joint ventures in order to gain quick access to employees who possess the particular skills required for the industry.
Foreign companies also face social environmental problems that are associated with language and cultural differences especially when they bring in foreign expatriates.
Besides, such individuals are not permitted to benefit from any government-sponsored program which includes education, health care or even the retirement scheme. This implies that besides the high cost of such expatriates, their employers also have to provide them with alternative programs
Foreign companies also face problem of doing sales in China. Some Chinese buyers give unwarranted credit to sellers based on the length of their relationship. This may not be health especially for new companies that are venturing in the Chinese market. Chinese customers also have a culture of backtracking on their earlier agreed terms and conditions without clear explanations only citing factors beyond their control (Naughton 2007).
Environmental Factors
China is a country with great geographical diversity with both subarctic tropical and desert climates. The Geographical features consist of coastlines, mountains and plains which are prone to natural hazards such as floods, typhoons, tsunamis and earthquakes.
Currently the government is encouraging foreign companies to invest in these areas which are not yet opened which includes such places (Taiwan Electrical and Electronic Manufacturers’ Association 2006; Walsh 2010). However no adequate infrastructure has been put in place to counter such catastrophes.
Economic Environment
The economic environment for business operations in China is discriminatory to foreign companies. For example, have a greater capacity to avoid paying of taxes as compared to the domestic companies (Blonigen & Ma 2007; Keng 2003).
The Chinese government regulates the business operations of foreign banks and limits their local banking operations thus limiting their capability to capitalize on China’s robust economy (Cheung, Chinn & Fuji 2007). This gives competitive advantage to the large local banks.
Conclusion
Opening business operations in China is not enough to offer favorable business environment. There is need to review the factors that still hinder fair business operations in China to all companies since China is regarded as one of the largest business markets in the globe.
Such discriminatory policies employed by the Chinese government need to be eliminated and law enforcement done fairly across board so as to provide a non-discriminatory business environment to all business organizations.
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