How can the challenges for business start-ups in China be overcome - Essay Example

? How can the Challenges for Business Start-ups in China be overcome? TERMS OF REFERENCE Purpose of the Report This report aims at explaining the major challenges that business start- ups in China face. It will critically evaluate and analyze the challenges and make recommendations on how these challenges can be overcome. The report will cover the following; the introduction, the main challenges facing start- ups in China, conclusion, and recommendations. BACKGROUND There are many challenges that start up businesses would face in China which include complexities within the political, economic, social cultural and technological factors of the business environment in this country. The complexity theory in the practice of business management demonstrates that chaos within the business environment that challenges entrepreneurs especially for starting businesses. To ensure that a start up business grows and thrives in the China, entrepreneurs must put in consideration all the challenging factors in decision making. This paper represents a report on the challenges that start up businesses face with China being the case study in the analysis of the challenges and ways of overcoming them in special reference to the complexity theory of managing start up business. Recommendation on how the challenges would be overcome to promote the growth and success of a starting business within china are also given in this report. According to Alexandru and Gabriela (2008, p. 63), entrepreneurs who plan to venture into doing business in China should be aware of the challenges which are likely to be faced in the Chinese society and their implication on the success of the business venture. Lowe & Marriott (2006) add that the social factor and the culture of the Chinese people is a very strong force in determining the performance of a business especially ventures by foreign investors. The political factors in addition to economic environment are apparent determinants of the success of a business within this country. China is one of the leading technological innovators in the world and modern technology and computer applications and systems are being applied in business functions within the country and therefore the technology factor is most likely to influence the success of a business venture in the country as explained by (Bickers & Goad, 1999, p. 43). The challenges that starting business in China are many and therefore entrepreneurs should be prepared head on if their businesses are to grow. The complexity theory describes a business startup as one which is faced with chaos and many external factors which are determinants of the survival of a business investment. CRITICAL EVALUATION AND ANALYSIS OF THE SITUATION Cultural and Language Barriers Bergsten (2008) asserts that there are cultural and language barriers which would be very challenging to entrepreneurs wishing to start business in this country. Foreigners who plan to start business in China will certainly have difficulties during business negotiations due to language barrier (Chen & Miller, 2011). It would be appropriate therefore for entrepreneurs who start businesses in China to learn basic Chinese which would be adequate for business communications. Additionally, starting up a business in China will mean that the entrepreneurs leans basic social communication skills so that the relationship with local employees or business partners would be enhanced. Chandra & Chao (2011, p. 55) say that the Chinese culture is very old and complex and may challenge entrepreneurs who plan to start business in this society. The culture of the Chinese will influence the ability of an entrepreneur of building business relationships. Therefore, entrepreneurs should learn about the Chinese culture to ensure that they do not violate it which would impact negatively on the business as demonstrated by Isenberg (2008, p. 107). The complexities of language and culture affect issues such as greetings, gender roles, leadership and business management which are congruent to the chaotic approach in describing startup businesses by the complexity theory as illustrated by Tsai and Lan (2010). Human Resource Challenges Human resource challenges often impact on the success of startup businesses. Krueger (2009) explains that in China there is increased competition for human capital or expertise. Business ventures such as in the technology sector require talented employees who are able to employ innovative approaches and business applications in promoting the growth of a business. Therefore starting business should invest in human talent because it is the human resource that determines success of any business venture as demonstrated by Phillips & Moore (2009). In china, there is a large supply of unqualified labor which a start up business should be aware of because low qualification of employees will pull down a starting business and limit its growth. Startup business therefore should find the most appropriate ways of motivating its new staff and this will be determined by the complexities within the Chinese society. Lowe & Marriott (2006) emphasize that a start up business which has limited resources as compared to a fully grown business should be able to identify suitable motivation mechanisms for its employees beyond the monetary compensation. Motivated employees especially for a starting business will facilitate it growth through efficient and high productivity as explained by Lowe and Marriott (2006). Rui and Jing (2011, p. 43) point out that competition in the Chinese business environment is very stiff and new businesses are likely to feel threatened by the competition of the local businesses. Tsai and Lan (2010) explain that according to the complexity theory, the competitive environment is determined by multiple factors most of which are unpredictable. Start up businesses and the challenges they face within the competitive environment in China should thus use appropriate business strategies such as adoption and implementation of business technology which would enable them to be competitive in the business environment. According to Sun (2010), Chinese businesses are very competitive and they adequately compete for the supply of raw materials and business opportunities. Start up businesses within the Chinese environment should therefore be able to compete favorably to ensure success. Examples of areas of improving the competitive advantage of a start up business is application of suitable marketing strategies such as an integrated marketing communication approach. This will promote the new business within the market by creating awareness among potential customers and making them interested in the services and products that the startup business aims at offering as illustrated by Lowe & Marriott (2006). Economic Challenges There are also economic challenges in starting a business in China such as trade barriers and tariffs which entrepreneurs should be aware of. Sepehri (2007, p. 524) says that start up businesses should understand the economic policies within China and the legal framework which regulates businesses so that proper decision making is made which would not lead to legal problems. Tacconelli and Wrigley (2009, p. 51) add that the tax rules in China are very complex and the accounting regulations are controlled by complexities within the economy. The regulations within China would for example limit the expansion of a business into certain investments such as alcohol production and thus entrepreneurs should orient themselves with the economic and legal business environment which can challenge their business venture before they start a business in China. Insufficient Rule of Law and Enforcement Additionally, there are legal challenges because China has insufficient rule of law and enforcement. According to Phillips and Moore (2009, p. 35), China’s rule of law are so simple such that they cannot cover the all the prerequisite social, economic, and political aspects particularly the emerging trends in these aspects. Recent statistics indicate that China is witnessing an impressive economic growth; being one of the highest across the world. Unfortunately, its rule of law falls short of meeting this development hence presenting a major challenge to businesses particularly the start- ups. Lowe and Marriott (2006, p. 18) argue that for businesses to thrive they need sufficient legal frameworks that protect the entrepreneurs as well as provide the necessary limits. The major reason cited for the insufficient rule of law and subsequent inadequate enforcement is that China’s judicial norms and political hierarchy are such that have no adequate mechanism or are just unwilling to enhance the country’s rule of law and its subsequent enforcement. Unlike in most of the countries across the world, the laws relating to business start- ups are not well defined in China (Sun, 2010, p. 22). Enforcement of rule of law especially to start- up business is inadequate because of insufficient laws and sometime reluctance on the part of the authority to enforce entirely the existing business law. Insufficient rule of law and enforcement has been a huge challenge among start- up entrepreneurs in China and their progress (Bickers and Goad, 1999, p. 43). Ibeh and Davies (2009, p. 80-81) observe that such an environment fails to protect start- up entrepreneurs from the excesses of the government and competitors, does not provide platform for business ethics to be adhered to, and often fails to create a fairly competitive business environment hence leading to failures of start- ups before they fully mature. Administration & Red- tape, Corruption Moreover, business start- ups in China face the challenge of administration, red- tape and corruption. The fact that China’s economy is growing at a relatively high rate cannot be disputed. However, administration and red- tape and corruption might slow down this progress in the long- run (Alexandru and Gabriela, 2008, p. 64). There are numerous, often unnecessary administrative procedures and routines that are contrary to the principle of separation of administration and enterprise. Tsai and Lan (2010, p. 9) observe that the complexity theory perspective demands that administration and enterprise in any given country need to be separate to a greater extent except for basic regulatory requirements. Administrative procedures and routines that are against this principle like is the case in China in most cases have proven to have detrimental effects to fair market competition and market openness (Isenberg, 2008, p. 110). Administrative procedures and approvals especially in regard to business in any country can never be wished away; however, they must be under strict balance and checks in addition to improved efficiency and tightened supervision over them. Xiang-yang, Frese and Giardini (2010, p. 699) says that even though more administrative reforms are needed to improve business environment in China, it should not be lost that China has made notable progress towards this end. For instance, the Chinese Government cut 789 items from its list of administrative procedures in 2002 and there are 3000 procedures which are under scrutiny presently with the view of possibly cutting them off (Stenstadvold 2005, p. 247). Related to the administration and red- tape challenge is the challenge of corruption. The country has a wide spread corruption which is adversely impacting on the business environment and business start- ups in particular. The business ethics index in China is low and this might impact on the sustainability and progress of businesses in the long- run (Ip, 2009, p. 214). Corruption activities such as misspending of public funds, kickbacks and bribery will make the cost of starting and doing business in China to be expensive hence scaring off potential entrepreneurs (Sepehri, 2007, p. 524). If not contained, corruption in China will pose serious threat not only to its future economic stability but also political stability. Problems of Utility Supply Furthermore, problems of utility supply are a major challenge to business start- ups in China. Chandra & Chao (2011, p. 58) note that starting and growth of business is highly motivated by utility supply in a given business environment. Lowe and Marriot (2006) agrees with Chandra and Chao argument and further explain that adequate utility supply has a potential of attracting significant number of entrepreneurs and facilitating the growth of existing enterprises. On the other hand, Lowe and Marriot note that if a business environment has a problem with utility supply then there is a relatively high possibility of attracting low numbers of start- ups and contributing to some extent to the failure of the existing enterprises. China is facing a worrying problem of utility supply because its resources are strained by a huge population that the country has and this may hurt its business prospects in the future (Wang, Muhos, and Kess, 2011, p. 588). The potential entrepreneurs will find the China’s business environment unattractive and unfavorable from doing business because problems in utility supply usually increase the cost of doing business hence hurting the profits, the very essence of business (Naude & Rossouw, 2010, p. 106). Logistics (transportation) Bottlenecks China’s business start- ups are also facing the logistics (transportation) bottlenecks. High Chinese population is causing major logistics bottlenecks to the business in the country. Lowe and Marriott (2006, 71) explains that efficient logistics is critical in enterprises start- ups and growth in any particular country as it facilitate distribution of products and delivery of services. Therefore, any problems in regard to logistics are harmful to entrepreneurial prospects of a country. China is facing logistics bottlenecks particularly in transportation due to high population and inadequate resources to streamline logistics. As a result, the country may not sustain desirable number of business start- ups and their subsequent growth. This is because logistics bottleneck increases the cost of doing business hence discouraging potential entrepreneurs. However, it should be noted that China is mobilizing resources although not sufficient towards its infrastructure which means that in the future the logistics bottleneck will have been addressed hence attracting more entrepreneurs (Bergsten, 2008, p. 33). Recruiting and Retaining of Local Staff Recruiting and retaining of local staff is one of the major challenges in China as companies are competing for the most qualified persons. Staff are crucial in the growth of any business; more so if the staff understands the local culture, language, and business environment (Lowe and Marriott, 2006, p. 26). Qualified and experienced local staffs in China are few compared to the demand for them. This situation has presented a major challenge to business start- ups especially foreign- owned. Most start- ups fail to get local staff to help in running their business which results to them obtaining employees from outside China. As a result, they do not perform well because non- local staff have difficulty in adapting to Chinese culture, communicating in Chinese language and relating with the Chinese people (Naude & Rossouw, 2010, p. 90). CONCLUSION It is evidently clear in the report that China is indeed facing major challenges in regard to business start- ups in the country. The above- mentioned challenges can impact negatively on the economic prospects of China in the long- run; this is despite the fact that China’s economy is growing at a high rate at the moment. It is important that the current impressive economic growth be maintained or enhanced. This cannot be achieved if the current challenges are not adequately addressed. Since some of the challenges such as administrative and legal challenges can be easily addressed if there is a political will, it is important that the Chinese government focus its attention in addressing them. Other challenges can be addressed through various frameworks such as educational framework. The bottom-line line is, the challenges in China’s business environment especially in regard to start- ups are immense but by no means insurmountable. It only requires legal, political, and economic frameworks in addition to political will to focus on these challenges and address them. Addressing these challenges will guarantee China’s sustainable and continuous economic growth going into the future. RECOMMENDATIONS The Chinese government should provide policies which include other international languages such as English in business communication so that foreign investors who seek to start up business are not frustrated by the language challenge in human relations. Towers & Yi (2010, p. 527) adds that, entrepreneurs are mandated to lean basics of business communication in Chinese so that communication with the local business partners and business relations is enhanced especially during negotiating deals. Moreover, the culture of the Chinese people should be respected in business deals because violation of the local way of doing things would jeopardize the business functions and thus the growth of a starting business. The government of China should regulate business competition through various regulations so that unhealthy competition is discouraged. Moreover, the legal and economic policies of China should be more accommodative of foreign investors who plan on starting business in china so that they are not discouraged by complex regulations. As a result, start up businesses in China both by foreign investors will be encouraged in the country which will contribute to the general growth of the Chinese economy. Also, the government should create and enforce a strong rule of law that protects and guides entrepreneurs and their enterprises in addition to formulating and implementing punitive laws against corruption. Moreover, the government should cut off all unnecessary procedures and routines that slow down the business start- up process. Since supply of utility is critical in creating and maintaining favorable business environment, it is important that the Chinese government should allocate more resources towards this end. What’s more, the government should provide appropriate guidelines that govern the use of transport systems in the country to ensure efficiency. This should be coupled with additional investment in the transportation system. Lastly, it is important that China invest more on education in order to supply enough skilled personnel in the market. It will also be necessary that it adopts policy and culture that makes it easy for skilled persons from foreign countries to integrate with locals; this can be done by ensuring that foreign staffs are able to speak Chinese and understand the Chinese culture before starting to work. Reference List Alexandru, B, & Gabriela, S 2008, 'OPPORTUNITIES AND CHALLENGES OF THE EUROPEAN BUSINESSES IN CHINA', Annals Of The University Of Oradea, Economic Science Series, 17, 1, pp. 63-66, Bickers, C. & Goad, G.P. 1999, "Chinas challenge", Far Eastern Economic Review, vol. 162, no. 38, pp. 43-44. 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