CHINA
STRATEGY FORMULATION & IMPLEMENTATION
 
 
 
 
 

S.W.O.T. Analysis For Doing Business In China:

STRENGTHS

a.)China is considered the most populous market on earth, one that is virtually untapped by foreigners.  China has over 1.2 billion consumers, with a total land area of 9.6 million square kilometers, next only to Russia and Canada.  Its territory extends over 50 latitudes from north to south and 62 longitudes from east to west.
b.)A highly skilled labor force is available in China.  The labor force is highly educated and accustomed to working 12-hour days.  A relatively large portion of China’s labor force is college educated.  China has also been the recipient of emerging technological developments. 
c.)China has relatively low land and labor cost which makes it an attractive market.  China’s export business has grown considerably in the recent years due to the low cost of production.  China has a very favorable balance of trade because of this.
d.)China boasts the second largest GDP in the world.  From a business perspective, you could operate in an economy with eight to ten percent annual growth rate, an expanding middle class, and the potential to the largest economy in the world in the next 10 years.

WEAKNESSES

a.)Intellectual property laws are poor.  This deters most of the cutting edge technologies from entering.  The government hasn’t been proactive in developing and enforcing piracy.  A company’s trade secrets and patents are virtually unenforceable.
b.)There is several state owned enterprises that are draining the economy.  They are characterized by inefficiency and corruption.  Some of the largest industries, such as telecommunications are state owned, which discourages innovation.
c.)Foreign ownership can only be accomplished by equity or joint partnerships.  China discourages wholly owned foreign enterprises.  The pervasive network, referred to as guanxi, is imperative to a firms existence an can only be accomplished through Chinese citizens.  Without the network, nothing gets done.
d.)The central government role can’t be underestimated as well.  A deal struck at the local level isn’t always safe from changes in policy and regulation at the central government level.  Gifts and donations are expected for favorable treatment.
e.)China has a weak legal system, especially when it comes to foreign companies.  Contracts aren’t as readily enforceable if the company is not locally owned.  In China a contract is regarded as a historical document and can change at any time.
 

 

OPPORTUNITIES

a.)China is joining the World Trade Organization.  This will give it a favorable trade status with the other member countries.  The cheaper labor and land rates will bode well for continued trade. 
b.)China is encouraging more foreign investment in technology.  China relies heavily on technology transferring, which fosters a technological business environment.  As China continues to become cognizant of the benefits of foreign investment, it will continue to create an environment that is conducive for foreign businesses.
c.)With the population that is currently unemployed or working part-time, China’s labor force should remain relatively cheap for years to come.  Businesses can capitalize on China’s lower cost of production.

THREATS

a.)A major threat to China’s future viability is the lack of control over the birth rate.  China has inadequate population control program which threatens the future prosperity of the country.  China’s overall living standards continue to deteriorate due to the uncontrollability of the population.
b.)Another long-term threat to continued rapid economic growth is the deterioration in the environment, notably air pollution, soil erosion, and the steady fall of the water table especially in the north.  China continues to lose arable land because of erosion and economic development.
c.)China is also susceptible to the slowing of the world economy.  With the emergence of China’s extremely favorably balance of trade, it has become increasingly reliant on the export market.  As the economy in the United States continues to falter, which is China’s largest trading partner, the impact will be felt.


 

Sources:  Deresky, Helen, International Management (Prentice Hall 2000) p202-209.
China Business Desk: Investments, Representative Offices, www.chinabusinessdesk.com/pages/Investment/structures.html
China Business Desk, www.chinabusinessdesk.com/pages/investments.htmlBusiness Ethics in China, www.stthom.edu/cbes/oje/articles/xiaohe3.htmlIgnatius, Adi. “Find Road Bumpy but Have Few Regrets.” Wall Street Journal
August 1998:24.