Peoples Republic of China - Essay Example

People’s Republic of China Introduction The People’s Republic of China, also referred to as China, is the most populous country in the world with over 1.3 billion people. The East Asian country is the world’s second largest by land area measuring about 9.6 square kilometers. With the 1978 economic reforms in the country, it has come second to the US as the largest economy globally. It has been cited as the leader in exportation and importation of goods and a possible superpower in the making (Clair and Norris 1). It therefore becomes a key player in international business, trading with various countries around the world. Indeed, globalization has been instrumental in guiding business operations around the world in the modern business environment. But there are scholars such as Ghemawat (“Cosmopolitan” 3) and Khan, Palepu and Sinha who still believe that most countries would have their operations rooted in their countries. The authors note that just as 90% of people fail to leave the countries where they were born, organizations concentrate most of their operations in the countries of their origin. For example, in 2004, the US companies that operated in foreign countries were less than 1% with 60% and 10% of those with foreign operations being based in Canada and the UK respectively. In this paper, the People’s Republic of China, PRC would be analyzed based on four key aspects: dimensions of distance, institutions, diffusion of technology and its industrial clusters. Dimensions of distance Four dimensions of distance suggested by Ghemawat (“Distance” 138) have been adopted in analyzing the aspect of distance and include cultural, administrative, geographic and economic, CAGE distance. This framework has been noted to be important in helping managers point out and assess the effect of distance to their organizations. Different industries would be affected differently by these four dimensions. These dimensions encompass varied factors ranging from the readily apparent to the quite subtle. The cultural distance of a country largely determines people’s interaction with each other and with institutions and companies. Distance could arise due to difference in race, religious beliefs, language and social norms, which affect trade. According to Ghemawat (“Distance” 140), with all factors held constant, trading between countries that share a language would be three times better than between counties without a common language. The unpopular Mandarin being the official language in China has significantly hindered international trade in the region. Social norms could be considered as subtle, described as deeply rooted unspoken principles which determine the societal everyday choices. These cultural attributes also influence consumer preferences. Most Chinese consumers would prefer China made products as opposed to foreign products. In the PRC, copyright infringement has been tolerated, a practice attributed to its communist ideologies. The principles of Confucianism appreciates the interdependence of humans hence advocates for collective welfare. Against the Western culture, the Chinese authorities would therefore dictate that businesses deemed to be more endowed should be taxed higher than the less endowed. The failure of most foreign businesses in the country has been attributed to lack of cultural agreement between the players. In PRC, the deeply rooted philosophy of Guanxi which makes Chinese business culture to be heavily dependent on connections conflicts with the Western focus on transactions thus causing economic interchange barriers (Ghemawat, “Distance” 144). The philosophy of Guanxi dictates that when someone does the other a favor, this should be paid back in a future date. The government has defended this philosophy noting that it should just be taken as a mere promise for future accomplishment and should not be used to propagate corruption. Also referred to as political distance, administrative distance would be attributed to political and historical associations that affect trade. Ghemawat (“Distance” 141) noted that colony-colonizer links boost trade by 900%, with common currency, preferential trade agreements and political unions increasing it by 300%. But PRC has no colonial attachments to any countries (Clair and Norris 1). The policies set by individual governments have been considered as barriers to effective cross-border competitions. For multinational corporations, these prohibitions could emanate from the mother country. It is however common for the government of the target country to put up barriers through trade quotas, tariffs, preferential treatment of domestic competitors and restrictions set on foreign direct investments. Citing the findings by the American Chamber of Commerce, Ghemawat (“Distance” 144) noted that China had market access restrictions, custom duties and exorbitant taxes as some of the greatest barriers to trade in China. Rampant corruption with the country being ranked 63 out of 93 countries surveyed by Transparency International in 2000 hinders increases administrative distance in the country. Geographic distance encompasses the physical distance from trading partners such that the greater the distance, the more impeded the trading. The attributes considered in this case include the country’s physical size, within-country distance from borders, topography and access to waterways. Included in this could also be man-made distance through communication and transport infrastructure. These geographic attributes impact on the cost of transport. China for instance has many navigable rivers such as Yalu and Li which enhance communication and transport. Its ports, three of which are considered to be world’s busiest have opened up the country’s communication with other countries. According to Ghemawat (“Distance” 145), most organizations would opt to directly investme in a local plant in order to access the target market. Geographic distance dampens investments and trade flows. Perkins and Neumayer (7) note geographical proximity to innovators enhances technological diffusion in a country. In the same way, it would be critical for prohibitive distance from economies that could have negative influence. The Tibetan Plateau to the west of China separated it from Eurasia which helped the country maintain its identity and avoid influence from Europe and the Mid East. Finally, economic distance, which refers to the economic attributes of the consumers determine the partners of a country and the level of trade with others. More economically endowed countries would be involved in cross-border economic activities as opposed to their less endowed counterparts. Most of these activities, as noted by Ghemawat (“Distance” 145) would be with countries of similar economic standards, thus a positive correlation between trade flows and per capita GDP. Companies that seek for economies of standards and experience would focus on countries of similar economic profiles. In the early 2010, US politicians claimed that the Chinese Yuan had been greatly undervalued which gave the country unfair trade advantage. This implied that it was cheaper to export to the US as opposed to importing from China. After allowing the Yuan to rise in value from 2008 at 21%, the country decided to keep it fixed, thus the trade imbalance. PRC has a considerable trade surplus with the US which has been its most crucial export market over time. In the recent years however, PRC has been advocating for free trade areas with its neighbors from Asia Pacific. Institutions Managers of international business have come to appreciate the challenges involved in globalization because of the need to identify internationalization strategies that would determine the markets to operate in. According to Khan, Palepu and Sinha, there is need for regulatory systems, specialized intermediaries and contract enforcing mechanisms particularly in emerging markets that would facilitate these strategies. The lack of these critical institutions, referred to as institutional voids would hamper effective implementation of internationalization strategies. It is because of institutional voids that firms operate better in their home countries as compared to their performance in foreign countries. This explains the observation by Ghemawat (“Cosmopolitan” 4) that most firms in the US would have operations in a median of two countries among which 60% operated in Canada and 10% in the UK as of 2004. China has most of the companies tending to open their coordinating offices around industrial parks because these parks offer the advantage of hosting offices that coordinate contact with important agencies such as tax authorities and environmental inspectors. Clair and Norris (7) noted that for these companies, functions like getting permits could be accomplished in three days unlike for those located in areas far from industrial parks. Industrial clusters In the modern business environment, it is believed that advanced economies would be less driven by lone strong companies but by complex ecosystems hosting a particular industrial sector. According to Porter, “clusters are geographic concentrations of interconnected companies, specialized suppliers, service providers, firms in related industries, and associated institutions (e.g., universities, standards agencies, trade associations) in a particular field that compete but also cooperate” (15). Clusters typify a new paradigm on local, state and national economies which call for new roles for the governments and private corporations in propagating competitiveness. Its prevalence explains the importance of location in seeking for competitive advantage. In China, Clair and Norris (8) noted that the location of many firms in a particular area encouraged innovation, flexibility, diffusion of emergent ideas and specialization. Cluster industries have always been in existence in PRC but the Maoist philosophy which promoted local self sufficiency proved to be a barrier in its expansion, threatening to bring industrial production to the village level. But policymakers in the sub-province of Ningbo, Zhejiang encouraged this idea converting specialized factories for military uniforms to general textile factories and encouraging start-up of other textile factories in the region making it a textile cluster with over 2,000 apparel companies, making up 5% of the Chinese textile output. Dali Township is recognized as an aluminum cluster producing 40% of the country’s aluminum products. There are over 1,000 clusters in PRC devoted to exports. Other clusters include the Zhuhai Yatch Industrial Zone located on the south coast which hosts about 20 boat makers. The government policies of the 1970s have seen the emergence of biotechnology clusters in Shanghai, Shenzen/Guangdong and Beijing. Among the advantages that these Chinese companies gain from these clusters include the ease of employees to move from one company to another and therefore increased expertise. However, operating in these clusters could be expensive as compared to operating elsewhere in the country. Diffusion of technology Technology has been known to spread through a long, drawn-out process as opposed to an instantaneous spread. Diffusion of technology has a critical role to play in propagating economic growth and protecting the environment. Two claims suggested by Perkins and Neumayer indicate that “latecomer advantage allows developing countries to diffuse new technology faster than developed countries” and “new technologies diffuse more rapidly where countries are ‘open’ to international trade and investment” (2). Countries that adopt new technologies late enjoy the benefit of learning investments of the early investors in technology. This argument holds the view that developed countries could catch up with their developed counterparts because of their implementation in an experienced environment. The latecomers benefit from technological advances from those that entered the market earlier which would be achieved through technology purchases and FDI or indirectly through knowledge spillovers. The second proposition that argues on faster new technology diffusion in an environment open to international investment and trade holds the view that trade and investment growth increases supply and demand for modern technology. In the early developmental stages, new technologies suffer from unreliability, inflexibility and high costs. Other determinants of technological diffusion include geographical location, education levels and heterogeneity in social systems. China has adopted reverse engineering techniques and transfer of knowledge due to movement of people in various firms hence among the current global leaders in technology. Reverse engineering has seen the country replicate cheaper versions of common electronics. The key areas where the PRC has been leading globally include advanced technology in coal combustion; highest number of nuclear power plants installation; high voltage transmission, renewable energy with its efforts noted as being a leader in wind power installation; producing alternative energy vehicles that use electricity or solar cells; and innovation of the fastest supercomputer. China imported high speed rail technology from the West but is now a leader in exporting this technology having made tremendous improvements on it. This has made the country top in technological advancement in the world. Conclusion Therefore, the PRC is a key player in globalization, interacting with various economies around the world. Placed second in the world economy, the country has positive dimensions of distance including navigable rivers but also has some dimensions that prove challenging to foreign investors such as its cultural values like the philosophy of Guanxi and Confucianism. Its institutions would mostly be concentrated in industrial parks to gain from faster processes. These parks would have various industries clustered around them to take advantage of specialization among many other benefits. As a late entrant to technology, China rides on already established infrastructure and body of knowledge by its forerunners. These four aspects prove China to be a global economic player and therefore the country has to align its strategies to gain sustainable economic advantage in the international market. Works Cited Clair, N. S., and Norris, J. T. “Business Ethics and Social Responsibility in Contemporary China.” Journal of Academic and Business Ethics 1.1 (2011): 1 – 9. Ghemawat, P. “Distance Still Matters: The Hard Reality of Global Expansion.” Harvard Business Review 79.8 (2001): 137-147.  Ghemawat, P. “The Cosmopolitan Corporation.” Harvard Business Review 89.5 (2011): 1 -9.  Khanna, T., Palepu, K., and Sinha, J. “Strategies That Fit Emerging Markets.” Harvard Business Review 83.6 (2005). Web. 13 October 2012. < http://hbr.org/2005/06/strategies-that-fit -emerging-markets/ar/1> Perkins, R., and Neumayer, E. “The International Diffusion of New Technologies: A Multi technology Analysis of Latecomer Advantage and Global Economic Integration” Annals of the Association of American Geographers 95.4 (2005): 789–808.  Porter, M. “Location, Competition and Economic Development: Local Clusters in a Global Economy.” Economic Development Quarterly 14.1 (2000): 15-34.  Read More