China’s International Entrepreneurship & Business

Table of Contents

The nature of international entrepreneurship

China represents a unique country geographically isolated from the rest of the world. Historically, it follows its own economic and political traditions and way of life. In response to the shifts in global production systems, China has amplified its search for policies that will secure its positions in the global supply and manufacturing architectures of MNCs (multinational corporations). Their policies do not amount to a fully formed strategic response to new competitive challenges; with the perennial exception of Singapore, Yet the sum effects may complement MNCs’ own interests in maintaining and developing Southeast Asian production bases, to a degree that the region’s industrialization trajectory survives, in modified form, the sudden ascendancy of China and other newly favored sites for global production.

The importance of international business to firm

In China, the nature o the entrepreneur business is influenced by a positive legal environment and foreign direct investments. China has long been integrated into the polity and economy of the wider world. Though the fashionable term ‘globalization’ ought to ring hollow in Chinese ears, it echoes with a new resonance today because it is espoused by the category of Chinese society which has more to gain from solidarity with its own class internationally than with its fellow countrymen (Pye, 2007). The Chinese economy had been gradually liberalizing since the 1980s and structural adjustment promised a package of market-orientated policies which were enthusiastically welcomed by substantial sections of the middle classes. China is a country with low political risk. It is a federal republic with stable and favorable political situations for foreign companies. The most often repeated argument for liberalization is that of freeing enterprise from the death grip of the bureaucracy and the associated ‘rent seeking’ (Lardy, 2006).

International versus domestic entrepreneurship

Domestic entrepreneurship is influenced by the liberalization of trade and low-cost production opportunities in China. The majority of entrepreneurs in China are small local companies specialized in a particular product or service. A major justification of liberalization is the anticipation of an inward rush of foreign capital in the form of direct investment. It is assumed that this would bring rapid growth, reduction in unemployment, and rising personal incomes. This is then intended, through the percolation effect, to stimulate local demand for local products. Similar international asset stripping can be seen in agriculture, where the lifting of export controls has led highly capitalized farmers to look to overseas markets for higher profits. Chinese legal system is based on English common the main but the risk in legal and regulatory fields are high. Legal laws are out-of-date based on old traditions and principles (Pye, 2007). They do not reflect democratic principles of laws and the criminal justice system. Since the late 1990s, China has seen a downturn in the rate of growth: a mere 3.6 percent for 1998-99 and a 5 percent decline in exports. Some of this can be attributed to the economic sanctions which several countries imposed on China after the nuclear tests in May 1998 and also to the collapse of East Asian demand for Chinese products, but a large part can be seen as the failure of the New Economic Policy to provide any deep-rooted benefits for the mass of the people of China. The consumer boom could not be sustained because it was limited to such a small section of society and even that fraction is now becoming uncertain of its future (Hsu 1999).

Culture social structure, religion, education, customs

The official language in China is Chinese, but it has variations and dialects. Mandarin is the official spoken standard of language, but the variety of dialects (Shanghaiese and Cantonese) creates a difficulty to communicate with firms in different parts of the country. The main religions in China are Confucianism, Buddhism, Taoism. Liberalizing the economy also meant that money could be brought quietly back into the realm of legality as the rupee became negotiable. The intended consequence is that larger amounts of capital should become available for investment in the authorized sector. It is widely acknowledged that a major block to China’s economic growth is an overstretched infrastructure; this can only be remedied by the state, given that there can be no immediate return on investment. The docks are clogged – ships take on average five days to turn around in a Chinese port because of antiquated technology, forcing up the real cost of exports and imports. The main principles of repatriation are: ”a person shall repatriate the same to China, namely, bring into, or receive in, China and (a) sell it to an authorized person in China in exchange for rupees; or (b) retain or hold it in account with an authorized dealer in China to the extent specified by the Reserve Bank (Perry, 2007).

Economic system and development

In China, competition is fierce especially between foreign companies (SMEs and TNCs). Local competitors cannot resist foreign invasion and deliver the same quality of products and services. Many farmers are switching from growing grains for local consumption to the major cash crops of cotton and tobacco, others are turning to the specialist cultivation of flowers and strawberries for newly-affluent urbanites and to be air-freighted abroad (Tubilewicz, 2006). Meanwhile, the state continues to subsidize irrigation, power, diesel, and fertilizers and underwrite the prices paid for essential foodstuffs. The inland freight service is groaning – there are too few wagons for trains which are too slow and infrequent. The main threat for foreign companies is taxation and double taxation. In China, the state is the ‘third actor’ between private capital and organized labor, serving to prevent the emergence of class-based politics. The main risks for international marketers are product development and price. Poverty and low education level will harden penetration into this country. Despite good economic results, places and promotions are not influenced by poverty and low economic growth rates, thus they depend upon cultural differences and geographical isolation of many regions.

Road transport is slow and lorries remain small because the roads are too narrow, pot-holed, and congested to take the juggernauts. The current Government has promised a grandiose modern multi-lane highway system connecting the four major cities but no one really believes that the money will be found (Pye, 2007).

Available distribution systems

MNCs are currently pouring money into China to create the production base required to serve booming markets and to achieve cost reductions in mass production for global export markets, China presents a thorny bouquet from the standpoint of IPN governance. The key long-term strategic consideration in IPN evolution is the ability of MNCs to appropriate and deploy intangible core assets – knowledge, skills, and business alliances – globally while regulating their far-flung networks for maximum competitive advantage. China’s policy-making with regard to foreign-invested operations may yet see significant shifts, and the administrative complexities of dealing with national, provincial, and local officials will continue to be an important stumbling block to MNCs’ efforts to optimize their production networks there. Informal barriers to efficient management and supply logistics will remain significant for years to come, despite WTO accession. China’s low-wage advantages are deceptively large; social insurance fund contributions and local payroll levies often impinge on MNCs’ cost structures.

Implications for global entrepreneur

The security of intellectual property will be a perpetual concern, not merely in terms of software and media products but also in terms of high-technology product designs and process technologies. In sum, China has low political risks thus it hides many potential threats for foreign companies including double taxation, an underdeveloped legal system, poverty, and low purchasing power of potential buyers.

References

Hsu, I. C. Y. (2005). The Rise of Modern China. Oxford University Press, USA; 6 edition.

Lardy, N. P. (2006). China’s Unfinished Economic Revolution. Brookings Institution Press.

Perry, Elizabeth J. (2007). “Studying Chinese Politics: Farewell to Revolution?” The China Journal 57, pp. 1-22.

Pye, Lucian, (2007), The Spirit of Chinese Politics, Cambridge, Mass., and London, England: The M. I. T. Press.

Tubilewicz, Czeslaw, ed. (2006), Critical Issues in Contemporary China. Abingdon: Routledge.

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