Executive Summary
The purpose of this business report is to analyze and evaluate China’s current position in the global market from its past situation to the strategic changes that the country has taken to deal with the ever changing world business market. This will be done using several technical business models.
The analysis and evaluation explains whether an Australian automobile will be attractive in the Chinese market. This is done through conducting a professional investigation that reveals the external forces, such as, political, economic, socio-cultural, and technological that plays a major role in China’s global growth.
Through understanding this breakdown, the current strategic position and management can be explained and understood thoroughly. This helps a foreign investor to decide whether or not to invest in China. This analysis is done specifically to determine the economic attractiveness of automobile from Australia in the Chinese market. This is because automobile in Australia is only marketed domestically but with the increase in globalization, there is need to venture into other countries.
Austria concentrates in the production and marketing of agricultural products and mining which do not earn huge amounts of foreign income. To increase its GDP, Australia has to concentrate on the manufacturing sector especially the manufacturing of automobile since it has a lot of raw materials. China is one of the economically stable countries and should be the target country for the export of automobile from Australia.
Introduction
China is a Middle East country that has undergone rapid economic growth rate in the recent past. The economic growth is a major determinant for any investor in making a decision on whether to make an investment in the country or not. In the past decade the economy has been experiencing a positive economic growth rate estimated at 12%.
In conjunction with the economic growth rate, the government has decided to engage itself in numerous developmental activities, for instance, infrastructure building, development of the financial sector, and technological advancement. The rate of taxation in the county is as low as 25% corporation rate making it easy for many investors to invest in the country.
The rate of growth has so far been stable and it is expected to remain the same in the foreseeable future. With this rate of growth and economic situation, a foreign business is likely to experience positive effects both in the short and long term. This paper will analyze the external environment in China (PESTEL analysis) to investigate whether automobiles from Australian will be successful if marketed in China. It also gives some of the benefits and risks that come along with trading in China.
External Environment Analysis
P.E.S.T.E.L Analysis
P.E.S.T.E.L analysis is a management tool that assists organizations in making informed decision on how they are going to respond to the external environment. There is very little that a company can do to avoid the effect of the outside world. P.E.S.T.E.L is an acronym that stands for political, economical, social, legal, and environment.
Political
- Government regulation
- Taxation policies
- Regulation on excess capacity
China in its position as a world trade area has embarked on becoming a political neutral country and so far there is no country in the world that cannot trade with it on political grounds. During elections, democracy is highly adhered to and has a smooth power transition. The government policies are geared towards developing a good working environment in the entire country. The political situation of the country is thus favourable for business (Witzell & Lee, 1990).
Economic
- Economic growth rate
- Taxation
- Infrastructure
In the past decade the economy of china has been on a positive economic growth rate. According to Fan and Chan-Kang (2005), the average rate of growth has been 12%. Alongside the economic growth rate the government is engaging in numerous developmental processes, which include infrastructure building and technological advancement. The rate of taxation in the country is one of the lowest standing at 25% corporation rate (Wu, 2006).
The rate has so far been stable and it is expected to remain the same in the foreseeable future. With this rate of growth and economic situation the business is likely to enjoy in the short and long term. The economic crisis that hit the entire world in end of 2007 proved a lot about China, it has been described as the only country that was able to record a sensible economic growth rate this illustrate the stability of Chinese economy, a good feature in any business venture.
Social-Cultural
- Lifestyle trends and consumer preferences
- Demographic changes
- Leisure activities
- Increased spending
The attitude that the Chinese people have adopted is the attitude that embraces change and they have no ill heart for foreigners. They are willing to trade with anyone. There is an artificial social setting that is set by the numerous traders in the country. This has created an environment that all players are at the same level. There are no threats as far as the social environment is concerned (Randall, 2007).
Technological
- Innovation capacity
- Changes in technology
- Improved infrastructure
China is one of the technologically developed countries in the world. The technology is not stagnant and the country is willing to develop and adopt new and better technologies. With advancement in the level of technology, the cost of production has reduced and thus better profit margins.
The competitiveness of the new venture is enhanced due to the use of efficient technologies (Kilgrer, 2009). China is among the countries in the world that have the most advanced technology. This is through innovations that the Chinese people have embraced as well as importation of technology from other countries.
In today’s world, many products, ranging from electronics to domestics are imported from China. High technology assist in efficiency and reduction in the cost of production; this means that a business in China is more likely to produce quality and quantity at a very low price compared to other places in the world (Denis-Fred, 2003). China has also embarked on improving the technologies of other countries to suit its system. This will be an advantage for Australian automobile.
Environmental
The country values its environment and the world environment in general. It has policies that are targeted to compel companies to respect nature. On the positive note, since the country policy makers realize that no production can be made without emission of waste, it has embarked on waste recycling technologies as well as adopting environmental friendly technologies.
With this, a foreign company will not be let down by the regulation but will adopt the available remedies. It will also consider environmental conservation as its social corporate responsibility in order to fit in Chinese market.
SWOT analysis for Australian products
Benefits of Investing in China
African countries have diverted their trading to China and killing the predominant markets of the west. This has been through the creation of a partnership kind of trading where we find contractors in Africa from china. These contracts are made through the creation of a long lasting relationship. Also, the western countries have a share in the Chinese market. Among the strategies that China has employed to attain this world economic command is the incentives they give to the sector players in the country.
According to Gsene (2002),”The outside world has an impact for change in China.” (p34). This statement emphasizes the move that china has taken to improve the economic situation of the country. It has realized that, to be successful it involves doing something extra and China has done it. Getting a visa and business permit to china is one of the simplest ways; no restrictions and thus trade is highly advantaged.
Infrastructure
China has highly modern developed infrastructures. The systems are advanced so well that asses to the country from any corner of the world is highly enhanced, the airports, the sea port, and internal transport are well managed and assessable. The communication network within and without is of high-technology (Fan & Chan-kang, 2005). This is an asset to the business since it reduces the cost of doing business. On the other hand, the international market is enhanced at all lengths.
The sectors have seen the private and public participation, this boosts the efficiency of the systems and thus one can trade with approximate assumptions. There is what the government refers to as private public partnership that is aimed at maintaining the infrastructures. This means that the continuity of the countries good systems have been taken care of. Hutrerd (2004) notes that, “China has an integrated infrastructure for moving goods in the digital age.” (p31).
Financial Sectors
China has a well developed financial sector with the privatized and government participation. The banks are stable enough to sustain the growing economy. Micro finance institutions have emerged in the country giving support to the small scale traders who are distributed all over the country (Zheng, 2009). Insurance companies are also the backbone of investment sector of an economy and China is not left behind. The insurance companies are stable enough and can handle big losses without going under.
At the same time, there are reinvestment insurance companies in the country, which help in maintaining stability even further. The banking sector has enabled firms to get loans at favourable rates. The insurance and the banking sectors thus have both direct and indirect effects. An example of a direct effect is the improvement on efficiency of these institutions and from an indirect effect empowerment of other sectors that trickle down to any business venture.
Risks
It is a growing perception, of late, that the quality of Chinese goods is questionable. This may be true because some companies are not maintaining the quality so required. This may be because the industries are so many that the government is not able to keep the quality at all times. This is likely to have a negative effect not only to the economy of China but also to the countries that are trading with it or those that that are considering trading with China (Reuvid & Li, 2005).
To ensure that this does not have a negative impact on the Australian automobile, a quality policy should be thought of before starting up the business. It is easy to keep in business always if the brand name is attractive and it is protected. Due to the high population there are social evils in the country that can influence the decision negatively. However, the government has continued to assure that security is checked. It has invested in modern security systems to boost the security systems.
Recommendation & Conclusion
The external forces described above can help in the determination of the Chinese market growth (or decline) and the implication of its strategic business unit.
If an economic recession occurs, the economic forces may have a considerable bearing on the future market strategies through ripple effects on the political and socio-cultural factors. Political factors put a restriction on the development of the industry by putting tough taxes and regulation requirements. However, through the above analysis, it is clear that China is a viable country for any investor to consider venturing into it.
It has a strong economic position and also the political situation is stable. China is slowly portraying itself as the world economic driver; this means that each and every country, individuals and companies are considering China as the trade partner, a thing that has boosted the economy of the country. The fact that each country is willing to trade with it has set the country in a good pace, now heading to be a political neutral country.
As nations get more confident in the country, the more they will be willing to trade with China and thus the market stands to gain. This has a positive effect on the business since Australian automobile will not be depending on local market alone but the entire world. China has come up as a bargaining market where traders interact in an open market. As the world come to fetch for varieties, Australian automobile industry will be one of these variety providers.
Reference List
Denis-Fred, S. (2003). Technological Innovation in China: The Case of Shanghai’s Electronics Industry. New York: Detlef Rehn.
Fan, S., and Chan-kang, C. (2005). Road Development, Economic Growth, and Poverty Reduction in China Intel Food Policy. New York: Rest institute.
Gsene, M. (2002). China in the World Market. Cambridge: Cambridge university press.
Hutrerd, R. (2004). Moving People, Goods and Information: The Cutting-Edge Infrastructures of Networked Cities. New York: Taylor & Francis Inc.
Kilgrer, J. (2009). Walking Dragon. New York: Times Press.
Randall, P. (2007). China Modernizes: Threat To The West, Or Model For The Rest? New York: Oxford University Press
Reuvid, J. and Li, Y. (2005). Doing Business with China. London: GMB Publishing Ltd.
Witzell, W., and Lee. S. (1990). Closing the Gap: Computer Development in the People’s Republic of China Technology and Culture. London: The Johns Hopkins University Press
Wu, Y. (2006). Economic Growth, Transition, and Globalization in China, Volume 2005. New York: Edward Elgar publishing.
Zheng, Y. (2009). China Opening Society. London: Routledge.