Business risk inherent to the Chinese market: between attractiveness and complexity 18

在文檔中 參與中國之政策制訂 - 政大學術集成 (頁 24-29)

3. Business environment in China

3.2. Business risk inherent to the Chinese market: between attractiveness and complexity 18

3.2. Business risk inherent to the Chinese market: between attractiveness and complexity

Even though China in 1990 accounted for less than 3% of worldwide output by value, the share of the country is now estimated to be 25%.4 But at the same time, the country is ranked 84 out of 189 by the World Bank Group in 2016 about the “Ease of doing business”5. Indeed, local competitors and governments maintain the information asymmetry as a competitive asset that increases business risks when operating in China. Recently, the ban on foreign investment on Tobacco6 to decrease the numbers of smokers in China is an example of the unpredictability of the regulative market mostly intended to protect the economy. In a nutshell, the enormous Chinese market comes in pair with uncertainties related to the market size, copyrights, regulatory risk and corruptions.

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Figure 6 – Economic overview of China Source: The World Bank Group

3.2.1. Importance of the network

The communist party has great influence on both cultural and economic institutions, as well as laws. The cultural on emphasis on relationship to doing business creates an uncertain environment that is not as constrained as the occidental one. The major importance of developing and maintaining a network of influence ( 關 係 網 ) creates uncertainty for international and local business. The legal framework in China is getting more transparent following the country’s adhesion to the World Trade Organization in 2011, but efforts are still necessary. China is receiving incentive to follow international business law but the implementation of these may still be hazardous. Then, to develop strong links with institutions and business partners in mandatory in executing the strategy. Recruiting and retaining local talents with extensive networks is of prime importance in the Chinese market as a driver of success.

On the same idea, Mianzi and Junzi (面子, 君子) is an important in doing business in Asia.

The sociological concept of Mianzi is the importance of the “Face” in the meaning of pride and honor that has to be carefully taken into account in China, whereas it remains of minor importance in the West. Similarly, Junzi represents the expectation of being a gentleman with temper while conducting business, focusing on integrity. Social standards must be taken into account in the strategy implementation.

PWC relates the need to strong relationships network with a culture of corruption. This major problem was fiercely tackled by the government for the last decades by anti-corruption laws

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and the creation of governmental auditing units. Nevertheless, law and culture are colliding in a way that the GuanXi has to be considered as part of the environment culture and not a grey area to avoid. McKinsey Asia actually suggests business units permanently attached to the management of relationships within partners. The importance of relationships in conducting business in China is a threat and an opportunity for international businesses. Relying on networks for partnerships and disputes is a common and necessary step to succeed in this environment.

The Confucian tradition in China that promotes sharing of knowledge to achieve the society harmony is an issue in international business. Many forged products (山寨) developed in China represent a risk for business development in the country. As of today, China is the number one producer in terms of counterfeits goods which causes a major impact on market confidence:

“Chinese counterfeiting now costs foreign firms an estimated $20 billion a year in lost profits.

In the case of one consumer goods manufacturer, as much as 70 percent of the goods on the market are counterfeits," said Scholz.7

Besides, existing laws are often ambiguous and manipulated to exploit loopholes. The common saying “商場如戰場” illustrates that “business is a battlefield”. In such terms, the competition is aggressive, with an emphasis on the rule of man before the rule of law. A long focus on relationship laws puts international laws as a foreign concept that is not necessarily taken into account by foreign firms.

The importance of the hierarchy in China is as well a major difference with occidental countries, where the CEO is not a consensus builder with stakeholders, but a sole decider of strategies of execution. This shows the strict hierarchy in the business world that is independent from the legal framework.


3.2.3. Stability of the country

The economic, fiscal, monetary and trade stability of China are major factors influencing the success of an international business. As the economy relies mostly in manufacturing and tries to boost the national demand and increase customers spending, the yuan is still undervalued by almost 40% according to foreign economists. Trying to maintain a stable rate between the yuan and the USD is part of the country’s attractiveness for exports but is a business risk if it comes to change. Indeed, international pressures push the country to reevaluate its money and officials have to follow the international demands little by little. Then, the increasing wages of workers going in pair with the generalization of higher education pulls up the costs for companies. As a result, the labor costs is inconsistent in China.

The political party in power is a strong authoritarian and united political party that does not represents a major threat in term of political stability. Even though concerns about labor, land and environment are rising, they remain of minor concern for the very legitimacy of the directive organs. As Andrew Gilhom (security risk analyst for Control Risks Group Holding) puts it:

“Widespread civil unrest in China is not likely in the short to medium term, because there are no signs of divisions in the ruling Communist party or the downturn in the economy becoming really destabilizing, two key ingredients for political upheaval”8.


在文檔中 參與中國之政策制訂 - 政大學術集成 (頁 24-29)