Transcript Emerging Markets - Sackville School

BUSS4 Pre-release case study
1.The extent to which China creates opportunities and
threats for businesses
2. The risks and rewards involved in trading with or
operating in China
3. The factors affecting the success or failure of
businesses trading with or operating in China
4. The relative advantages and disadvantages of the
ways in which businesses might operate in the
Chinese market (eg exporting, joint ventures, mergers
or setting up production or sales outlets)
5. The ethical and environmental issues involved in
trading with or operating in China
6. How business strategy might be affected by
developments in China.
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1.35 billion people
Former command economy
Rapidly growing population
1 child policy
1986 open door policy to international
business, which meant private business
ownership and foreign investment
WTO 2001
Olympics 2008
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http://www.bbc.co.uk/news/blogs-newsfrom-elsewhere-24301960
http://www.bbc.co.uk/news/business24121739
http://www.bbc.co.uk/news/business24012224
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A growing market, much faster than the UK
7.8% compared to the UK less 2%
Inequalities – People who live in the towns far
more affluent than those in rural areas
100m people that are millionaires compared
to 0 25 years ago (butler school)
Growing luxury goods market (Rolls Royce)
UK exports £1 billion
300 million ‘middle class citizens more than
US
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Potential for outsourcing – Much cheaper
labour costs in china mean companies like
(http://www.caldeira.com/) can save a lot of
money by outsourcing production.
Increasingly however the emerging markets
are also being used for technology jobs like
call centres and IT support, (118 118)
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Potential for outsourcing – Much cheaper
labour costs in china mean companies like
(http://www.caldeira.com/) can save a lot of
money by outsourcing production.
Increasingly however the emerging markets
are also being used for technology jobs like
call centres and IT support, (118 118)
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Sources of funds – Many Chinese companies
are keen to invest in UK businesses e.g.
Sunseeker (Dailan Wanda). They spent £300
million on the British firm despite the
business being loss making.
Now coming out of recession this investment
looks sound for both parties and saved
Sunseeker UK
This could also be a threat as some UK
businesses may see their share price fall in
difficult times and be liable to a takeover!
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http://www.independent.co.uk/news/busines
s/sme/is-china-a-threat-to-britains-smallbusinesses-475709.html
http://www.bbc.co.uk/news/business24238200
http://www.bbc.co.uk/news/business24280262
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An uncertain partner –
The world bank rates
China as the 91st easiest
country to do business
with. USA (4th) This is
because of corruption and
bureaucracy. Less
rigorous laws in relation
to copyright, patents and
trademarks. As per car
copies
Larger Chinese businesses
have links to the
government and they will
always protect their own
businesses first
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Huge potential for
growth – Annual
growth in the
economy by 10%+
until economic
slowdown, now 7.5%
-8%. Compared to
UK’s of 0-1.5%.
This can be a risk for
UK businesses as the
Chinese businesses
can always undercut
them
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Chinese market
running out of
steam? – Despite
the published
figures of growth
they do not tell the
whole story and
they may be
exaggerated to fool
their trade partners.
(how china fooled
the world)
China's economic growth (source: World Bank)
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Chinese people
save 35% of their
earnings and their
real disposable
income is not very
high as food and
property inflation is
much higher than
wage inflation.
Basically the
Chinese people
don’t want to spend
their money
An empty section in the New South China Mall
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Political instability –
China is not a
democracy. People
cannot vote for the
government and
therefore are subject
to rules that can
change at any time.
Freedom of speech
e.g. Facebook &
Google have
restrictions on what
they broadcast
Understanding the market and
culture
Relationship based v transaction based
Face to face business dealings
Negotiate and haggle
Entertain e.g. Take client out to dinner
Perception of deal
Polite meetings and multiple meetings
Gifting
Hofstede dimensions of national
culture (see resource sheet 4)
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Hofstede dimensions of
national culture (see
resource sheet 4)
Power distance
Individualisation v
collectivism
Masculinity v femininity
(yin and yang)
Uncertainty avoidance
(Chinese are more risk
adverse see savings)
Long term v short term
STRENGTHS
WEAKNESSES
OPPORTUNITIES
THREATS
Cheap labour
Growing economy
Increased transportation costs
Risk of local copies
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Exporting – As discussed (in
culture) this in not a guarantee
of success. Red means danger
in UK and wealth in China! But
there is a growing demand for
Western luxury products e.g.
Rolls Royce and Sunseeker
This incurs a cost in regard to
duties, exchange rates, tarfiffs
Any fluctuations could mean a
change in the demand!
Transport charges
Government laws
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Joint ventures – Tesco joining
with Chinese Resources
Enterprise (CRE)
Must choose the right partner
Safeguarding IPR
Must respond to change
Preparing for break up – As
above but if regulations
change, this may mean the
joint venture no longer can
work
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Mergers and takeovers
Setting up production
(outsourcing)
Sales outlets
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Exporting – As discussed (in culture) this in not a guarantee of
success. Red means danger in UK and wealth in China! But there is
a growing demand for Western luxury products e.g. Rolls Royce and
Sunseeker
Joint ventures
Mergers and takeovers
Setting up production (outsourcing)
Sales outlets
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Chinese government favouring Chinese
businesses in regard to taxes and even
manipulating exchange rates to make goods
seem cheaper to importers
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Tesco in China http://news.bbc.co.uk/1/hi/business/3893469.stm
Links to 1, 2, 4, 5
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http://zigzageducation.co.uk/downloads/Bus
iness/buss4/5258websites.html