Summary
The London Company’s China investment can significant increase the global demand for the company’s cloth products. The PEST analysis proves China is a profitable global investment choice. Transferring the cloth company’s production facility to China’s Export Processing Zone will increase the company’s global market share.
The low salaries and other production material costs will increase revenues. The low production costs precipitate to the company’s lower cloth selling prices. With the lower selling prices, cloth revenues will increase. Indeed, the low salaries and low production expenses are factors significantly contributing to the overall attractiveness of China as an investment site.
Introduction
The London Company’s China investment can significant increase the global demand for the London company’s cloth products. The research focuses on the use of PEST analysis. The research focuses on determining the attractiveness of China as an investment site.
The research includes a recommendation. The low salaries and low production costs are factors contributing to the overall attractiveness of China as an investment site.
BODY. In terms of the political aspect, Peter Gries (2010) theorized the National People’s Congress leads the current communist political government. Under the communist system, there are pocket struggles for political reforms. The General Secretary heads China’s political system.
The political system includes the Politburo members. The current communist party allows the residents the right to elect the local as well as national political leaders. Further, Roderick MacFarquhar (2011) mentioned the Chinese citizens’ election of the local and national leaders makes the political leaders prioritise serving the needs of their electing constituents.
In terms of the economic aspect, Zhenglai Deng (2009) emphasised China is the second largest economy in the global market segment. The United States is the biggest economy in the world. In addition, China has the fastest growing economy in the world. Specifically, China’s economy has been growing by an average of ten percent for the past twenty years.
China’s current economic miracle is simple to comprehend. China is the world’s largest exporter of goods. The Chinese products are low priced. China implements the economic principle stating that the demand for a product, specifically China’s exports, increases as the prices of goods and services declines.
In the same manner, China is the world’s second largest importer of goods. China needs to import some of the raw materials needed to produce the products exported to the United States, United Kingdom and other global destinations.
In addition, Kwok Chan (2007) insists the current China economy is defined as state-owned capitalism. In the 1980s, Deng Xiaoping’s state capitalism program included the opening of China to the global economy. The opening was instituted with the establishment of China’s export processing zone program to persuade other countries to set up their production facilities in China.
To become successful, the government offered low salaries and low production expenses for setting up the multinational corporations’ facilities in China’s export processing zones. Likewise, the Chinese government receives all the profits from the revenues generated from export of locally made products.
The China government’s infrastructure investments significantly contribute to the success of China’s current global economic dominance.
For clarity, Eswar Prasad (2004) stated the American and other European countries can benefit from transferring their production facilities to China. The China-based multinational companies pay the local Chinese workers low salaries and other fringe benefits.
The same companies pay higher salaries and fringe benefits to employees working in production facilities located in the United States, London, and other countries. The low employee salary is in line with China’s granting its citizens some financial freedom. With the liberalization of the Chinese economy from the prior slow economic policies, the Chinese residents’ income increased.
Likewise, China’s unemployment decreased. Consequently, the Chinese residents’ overall consumption activities increased. As a requirement for China’s acceptance into the World Trade Organization in 2001, China implemented its own version of the laissez faire (free market) economy. Laissez faire economy includes the liberalization of China’s economy.
Liberalisation includes opening China’s economic door to the global market place. China started accepting imports in exchange for its export privileges. China’s economic liberalization has its advantages for China’s importers and exporters. For example, London-based companies can economically benefit from the low production expenses of setting up its manufacturing plants inside China’s borders.
In turn, China’s liberalized economy continues to encourage the local Chinese residents to venture into entrepreneurship activities and apply for high paying jobs in China’s export processing zones.
In terms of the sociological aspect, Ching Kwn Lee (2010) indicated China’s society has improved in many ways. China’s current society is characterized as affluent and vibrant. The China government has been successful in the reduction of its unemployment rate.
The reduction translates to an increase in the Chinese society’s consumption power. Consequently, there are more Chinese people having more money to spend for their needs, wants, and caprices. The setting up of factories by the multinational corporations influentially contributes to the increasing financial abundance of Chinese society.
Today, the Chinese people can easily find jobs by travelling hundreds of miles to apply for jobs within China’s export processing zones. The people can find jobs in the export processing zone companies paying higher salaries compared to the salaries paid by the other local Chinese companies. In addition, the Chinese residents are trained produce high quality production outputs in the foreign companies’ production facilities.
With the advent of increased export revenues, China has to do more in terms of making life for the Chinese residents more comfortable. China must allocate some of its huge export revenue inflows for the increase of the Chinese residents’ medical bills.
Likewise, the government must increase its current public budget allocated for the enhancement of the average Chinese citizen’s social welfare benefits. In exchange for the residents’ votes, the local congress political leaders are eagerly comply with most of the residents’ demands to improve their societal status.
Comparing to the Chinese society of the early Red revolution days, the current Chinese society’s societal status is economically better than the prior Chinese citizens’ societal status.
Further, James Watson (2010) reiterated Chinas’ prior failure to satisfy its societal demands triggered a shift in the government’s sociological policy. The sociological debacle of China’s pre-liberalization programs precipitated to the liberalization of China’s society. With the failure of the communist party to satisfy the basic needs of the population, The China government implemented many changes in China’s society.
The prior China government’s desire to appease the prior disheartened Chinese population triggered the unavoidable societal liberation. The liberalization move included the China government’s reduction of its strict control over the economy. In addition, the China government encouraged the local residents to own larger land plots for business and home ventures.
The China government permitted the farmers to sell their agricultural products at free market prices. The free market prices indicate the China government allows the sellers and the buyers to democratically agree on the equilibrium price of each product or service sold. With the abundance of farm harvests, the farmers could sell their goods and take home more money needed for the payment of household expenses and other expenditures.
For example, Chen Village was allowed by the China government to sell its agricultural products at laissez faire (free market) prices during the 1980s. Further, the China government allowed the disbandment of the collective nature of farming in Chen Village.
The China government distributed lands to the people of Chen village for cultivation. In addition, the Chinese farmers converted some of their rice plots into commercial fishpond plots.
The farmers welcome the freedom to profitably convert their rice plots to fishponds to increase their take home pay. The current China society will play an important part in increasing the London-based company’s leadership of the global cloth market segment.
In terms of the technological aspect, Zemin Jiang (2009) proposed China’s current technology is reaching the level of the top countries’ technology. To accomplish the rapid transition to the global technology, China partnered with countries belonging to the highly industrialized nation category.
China imported and adapted the foreign country’s technology to the China culture. China’s imported technology replaced the inefficient and expensive technology of China technological past. The China residents gained many benefits from the imported technology through several processes. First, China imported the much-needed technology.
Second, China assimilated the imported technology. Third, China developed the local technology by incorporating the foreign technology. Fourth, China favorably raised the level of the local technology to be at par with the foreign countries’ technology.
Recommendation
Using the above discussion, it is highly recommended that the company invest in a cloth production plant in China’s export processing zone areas. The company will advantageously pay lesser salaries and benefits to the China-based production workers compared to hiring a London resident to produce the cloth products. In the same manner, transferring the cloth production facilities from London to China will generate savings.
In the same manner, the lower priced local China raw materials will favorably contribute to the cloth company’s reduced selling prices. The reduced selling prices will create a bigger demand for the company’s cloth products.
CONCLUSION. Based on the above discussion, China can significant increases the demand for the London Company’s cloth products. The PEST analysis shows that China is a good investment choice.
The setting up of a production facility in China’s export processing zone will increase the cloth company’s global market share. Lower production costs translate to lower selling prices. Lower selling prices precipitate to higher cloth product demands. Indeed, the low salaries and low production expenses are factors influentially contributing to the overall attractiveness of China as an investment site.
References
Chan, K. (2007) Chinese Capitalism. London, Brill Press.
Deng, Z. (2009) China’s Economy: Rural Reform and Agricultural Development. London, World Scientific Press.
Gries, P. (2010) Chinese Politics: State, Society and the Market. London, Taylor & Francis Press.
Jiang, Z. (2009) On the Development of China’s Information Technology Industry. London, Academic Press.
Lee, C. (2010) Reclaiming Chinese Society: The New Social Activism. London, Taylor & Francis Press.
MacFarquhar, R. (2011) The Politics of China: Sixty Years of the People’s Republic of China. London, University Press.
Prasad, E. (2004) China’s Growth and Integration into the World Economy. London, Internatonal Monetary Fund Press.
Watson, J. (2010) Class and Social Stratification in Post -Revolution China. London. University Press.