Factors to be Considered in Doing Business in China
The fast-changing technology and the developing economy in China brought success to its market trade and output as a whole. In Asia, China is now considered the biggest rival of the United States in terms of productivity and investors. It has been reported that China has awakened and it is now one of the fastest growing markets in the world and is becoming the world’s factory floor (2005). In addition, China is well established as the workshop of the world, with manufacturing plants continuing to spring up across the country (2003). The combination of a huge population of 1.3 billion, hungry for consumer goods and the fast-growing manufacturers is attracting more foreign money every year, having a total of direct foreign investments amounting to billion in 2001 ( 2003). With this, many countries around the world are now interested in doing business and in investing in China, for larger and long-term market profitability. Given the fact that many countries would like to do business with China, it is important to recognize and to identify the factors to be considered in doing business with the country. These factors will serve as guide on the things that must be or must not be done, if a country is interested in doing business in China.
Import and Export Restrictions – It has been reported that China has removed import quota licensing control over refined oil products, natural rubber, vehicle tyres, motor vehicles, under certain tariff codes and key parts thereof from January 1, 2004 (2004). These imports are the necessities of the country and at the same time limit and monitor imports, such as agricultural products, namely wheat, grain, and cotton (2004). Similarly, China restricts exports of certain commodities including domestic resources that might be depleted and are in short supply or need conservation in China, and goods destined for countries or regions with limited market capacity and whose exports need to be restricted (2004, ). This factor is important because this dictates the entry and exit of products in China. The profit and the benefit of the country that will do business in China depend on the restrictions or laws implemented regarding import and export.
Labor Relations – It has been reported that under China’s Labor Law, enterprises can decide for themselves the timing and means of recruiting staff as well as the relevant requirements and number (2004). Employees can be recruited through employment agencies, which are operated by labor and social security departments, through mass media, such as from newspapers, magazines, and radio/TV stations, and through human resources fairs, which are events organized for staff recruitment (2004). Furthermore, according to the Labor Law in China, a contract must be signed between the employee and the enterprise, which forms the basis of labor relation between the two parties (2004). Labor relations are important for many foreign countries will be dependent on the manpower of the citizens in China for productivity. Given that the labor in China is cheaper and less expensive than other countries, it would be beneficial if a contract will exist between the employees and the company containing the rights each employee must have in the company. This will be helpful for a harmonious relationship.
Supplier Financing – The trade flows has created a competition between suppliers in China and has encouraged or forced them to shoulder more risk (2005). With this, (2005) emphasizes that the suppliers, in turn, have had to seek alternatives to make open-account transactions feasible. Depending on their size and sophistication, they can decrease their risk with customer analysis and currency hedging, and can also go for credit insurance (2005). China must also take note of their suppliers, either local or international, to maintain their transactions or negotiations and make a good relationship. New investors in China must also make good relationships and partnerships with the suppliers for a more productive business.
Tax Rules – It has been reported that exemptions and reductions of income tax in China include the profits of foreign investors derived from foreign investment enterprises, the interest revenue of international financial institutions from loans to the Chinese government or state banks and vice versa ( 2004). Exemption also includes the payment of royalties to foreign enterprises for their support of projects to China, such as for scientific research, transportation, production of agriculture, forestry and animal husbandry, and development of technologies, and local tax exemptions of local governments of various provinces, autonomous regions and municipalities ( 2004).
Sources of Short-Term and Long-Term Debt – China’s sources of short-term debt includes the local and government banks and other big companies, which provide funds for businesses around the country, such as mobile companies, fast-food chains, and other smaller businesses. On the other hand, China’s sources of long-term debts include the International Monetary Fund or IMF, the World Bank, and other international banks usually based in the United States. These sources help China in their finances, especially in terms of the economy and the stock market. Moreover, short-term debts are more easily payable than long-term debts, because short-terms debts are cheaper than long-term loans (2005). The countries that will be doing business in China must also consider this factor as debts also affect the economy of China as a whole. Too much debt can depreciate the value of China’s currency.
From the answers gathered, it would also be beneficial if the antithesis of what the CEO believes will be included. In this way, the pros and cons of the issue will be properly assessed in doing business in China. The advantages and disadvantages must be researched and evaluated to make sure that the plan will be successful and profit will be surely achieved by the company. From these data, the foreign company can assess their chances in market success and their profit from the consumers of China. Proper assessment will be also helpful in choosing the best venue to start their business and what product will be made.
Credit:ivythesis.typepad.com
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