Running Head: MARKETS DEVELOPMENT IN CHINA 1

Markets Development in China

Name

Institution
MARKETS DEVELOPMENT IN CHINA 2

Markets Development In China

Essay 1

Introduction

Foreign direct investment has been among the most discoursed topics in fostering economic

globalization. MNCs deem FDI a focal method to reorganize their activities of production

overseas, in line with their organizational strategies and host countries’ competitive advantages.

Host nations consider inward FDI as a substantial significant opportunity for incorporating their

frugalities into the international market and indorsing their economic development. Host nation

governments employ a number of measures and policies to maximize the benefits of FDI in the

development of the economy. Thus, this question will discuss possible measures China should

adopt to further attract inward FDI and optimize its structure to meet China’s goals of economic

development.

Performance Requirements

China should adopt performance requirements as they serve as a crucial measure in enhancing

the benefits brought by, and tackle those concerns related to inflow of FDI. One of the objective

of enacting performance requirements measures is to strengthen a country’s industrial base as

well as increasing its value added. Other objectives include export production and performance,

technology transfer, trade balancing, and promotion of regional development. The role of

performance requirements is to tackle some type of policy or market failure linked, for instance,

to the occurrence of negative or positive externalities, information irregularities, and

sluggishness on transnational corporations’ part in responding to prevailing market opportunities

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(Crotti, Cavoli & Wilson, 2010; Glass & Saggi, 2014). Local export, joint venture, content, and

other performance requirements have been enforced to preempt or offset restrictive business

practices in such forms as market allocation, exclusive dealing, collusive tendering, and price

fixing. At times, performance requirements have been utilized to remedy distortions created by

government interventions elsewhere in the country’s economy (Boateng, Hua, Nisar and Wu,

2015).

Requirements of local content have been efficiently utilized to overcome information

irregularities along with other market failures to persuade transnational corporations to source

from the host country and license local manufacturing of goods, which they might not do

otherwise, pinpoint promising local capabilities and offer them with technology and knowhow.

The effectiveness of performance requirements is mostly context—specific. Thus, when utilized

carefully, with offsetting measures to guarantee that suppliers handle competitive pressures and

access skills and technology they require to enhance their capabilities, they can foster efficient

capabilities (Glass & Saggi, 2014).

Clustering

A constant FDI inflow into China can strengthen its capability to a base for export production. A

domino effect ensues when FIEs within the same industry compete with each other, especially if

they are concentrated within the same area (Crotti, Cavoli & Wilson, 2010; Glass & Saggi,

2014). The competition boosts supporting industries’ development, enhances the general

economic environment in these supporting industries, as well as eventually establishes a crucial

industrial cluster. The formation of industrial clusters can help China attract an increasing
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volume of FDI that in turn invites more foreign investments. This will render it an ideal location

as a base for production for international markets and expanding domestic market (Crotti, Cavoli

& Wilson, 2010).

Financial Incentives

The Chines government can offer fiscal and financial incentives by providing discretionary

grants to transnational corporations and special rates of taxing on business profits, as well as

dividends (Khoon Goh & Nyen Wong, 2014; Li, Li & Shapiro, n.d.). Taxation considerably

influences FDI, transfer pricing, royalty and dividend payments, corporate borrowing, location

choices, bribe payments, exports, R&D activity. Research indicates that inducements are best

effective export-oriented investment where the business climate is already favorable. Thus, tax

inducements play an imperative role when the fundamentals are adequate (Khoon Goh & Nyen

Wong, 2014).

Friendly Administrative Procedures

The Chinese government needs adopt friendly administrative rules and procedures on ownership.

In particular, administrative procedures and regulations can form a considerable barrier to inward

FDI. The government needs to ensure that the implementation process of is not tedious because

the overly intricate procedures for business registrations along with a lack of organizational

capacity in a host country can result into extra costs to foreign investors. Governments are at

times incognizant of these cumbersome regulations and this can be past outcome where
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governments often depended on screening of novel investment projects instead of facilitating

(Boateng, Hua, Nisar and Wu, 2015).

Macroeconomic Policies

China should also adopt macroeconomic policies, which influence underlying cost-

competitiveness fundamentals are focal in attracting inward FDI. FDI decisions on location will

increasingly hinge on economic factors instead of policy interventions, which temporarily distort

such decisions (Crotti, Cavoli & Wilson, 2010; Glass & Saggi, 2014). Thus, policies can aid

influence national competitiveness. The adoption of macroeconomic policies by the Chinese

government can help deliver a skilled workforce, sufficient infrastructure, as well as signal

commitments to privatization (Li, Li & Shapiro, n.d.).

Conclusion

Conclusively, governments can adopt effective measures to attract inward FDI that will

contribute to the economic development of their countries. China is boasts as one of those

countries with potential for economic growth and development. Thus, this essay 1 has

established a number of measures and policies exist that the Chinese government can adopt to

attract inward FDI for economic development including performance requirements,

macroeconomic policies, and financial incentives.

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References

Boateng, A., Hua, X., Nisar, S., & Wu, J. (2015). Examining the determinants of
inward FDI: Evidence from Norway. Economic Modelling, 47, 118-127.
http://dx.doi.org/10.1016/j.econmod.2015.02.018

Crotti, S., Cavoli, T., & Wilson, J. (2010). The Impact Of Trade And Investment Agreements On
Australia's Inward Fdi Flows. Australian Economic Papers,49(4), 259-275.
http://dx.doi.org/10.1111/j.1467-8454.2010.00401.x

Glass, A., & Saggi, K. (2014). Coordination of tax policies toward inward foreign
direct investment.International Journal Of Economic Theory, 10(1), 91-106.
http://dx.doi.org/10.1111/ijet.12029

Khoon Goh, S., & Nyen Wong, K. (2014). Could Inward FDI Offset the Substitution
Effect of Outward FDI on Domestic Investment? Evidence from Malaysia. Prague
Economic Papers, 23(4), 413-425. http://dx.doi.org/10.18267/j.pep.491

Li, J., Li, Y., & Shapiro, D. (n.d). Knowledge Seeking and Outward FDI of Emerging
Market Firms: The Moderating Effect of Inward FDI. SSRN Electronic Journal.
http://dx.doi.org/10.2139/ssrn.2046753
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Essay 2

Introduction

The central tradeoff of management between the market entry alternatives is that between control

and risk. Low intensity entry modes reduce risk. Therefore, contracting with local distributors

does not need investment in the target market in form of distribution facilities, offices, marketing

campaigns, and sales personnel. Moreover, under normal arrangements, where the distributors

take the goods’ title (for example, procures them). This arrangement reduces control because the

international company will have no or little involvement in the majority of marketing plan

elements, encompassing distribution arrangements, service standards, and amount of money to

spend. Alternatively, such controls can be attained via high-intensity methods of entry into a

market through involving investments in distribution, local executives, as well as marketing

programs. The datum is that control can only be achieved through involvement, which emanates

from investment. Thus, this essay 2 will provide an alternative market entry mode for an

Australian nutritional company with a previous experience in exporting to China.

Franchising

The Australian nutritional company can enter the Chinese market through franchising because it

is a rapid expansion method (Wong & Merrilees, 2009). Franchising is appropriate for business

format or model replication. Franchising is a place strategy, fundamentally a contractual

affiliation between franchisor and franchisee on trading obligations and rights. The franchisee

acquires the rights to market the franchisor’s brand or process for a fee as well as ongoing

royalties (Shi, Ho & Siu, 2001; Baena, 2013; Pehrsson, 2015).

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The franchisor, in a business-franchising format, transfers both the business’ brand and

knowhow, and mostly offers extra support (Shi, Ho & Siu, 2001; Wong & Merrilees, 2009).

Thus, as companies go global, they encounter variances in economics, environments, culture,

and politics. Successful global franchising hinges on the capacity to a adapt strategy, which

thrived at home to other global areas (Ang, Benischke & Doh, 2014).

Franchising in China offers crucial benefits to the Australian nutritional company. China’s

consumer base has become an economic growth engine and its environment for business has

improved. Franchises offer entities with an opportunity to establish a business at minimal risk

and proven success rates (Pehrsson, 2015). As the consumer base in China earns more

discretionary income, it wants brand, convenience, quality, and service linked to most

international brands (Shi, Ho & Siu, 2001; Wong & Merrilees, 2009). Thus, consumers purchase

services and goods at stores and service establishments, which are franchises, thus an Australian

nutritional company will assist in fulfilling the needs of a fast-growing consumer-base in China

(Baena, 2013).

Conclusion

Conclusively, this essay 2 has looked into an alternative entry mode into the Chinese market for

an Australian nutritional company. Different modes of entering a market exist and the various

modes can either reduce risk or offer control. The essay has established that the most feasible

entry mode is through franchising. The company can overcome any differences through adapting

to local tastes and use local personnel as a factor of differentiation.

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Recommendations

1. Although franchising is restrictive in its capacity to adapt, a crucial consideration in using

this entry method is when entering a new market. To counter this, the company needs to

adapt its products to suit Chinese local tastes. Thus, the company’s market development

will need to investment heavily locally in market learning and education to establish the

Chinese nutritional concept.

2. Secondly, the company needs to understand that some product markets are similar across

countries and nutritional products, for example, can be a prime candidate for franchising

while operations and sourcing remain as critical success factors, as well as are less or

more universal. Thus, these products might not be culture bound and the marketing

knowledge of the company’s product is at least as focal as local market information.

3. To solve the problem of selling products that are not culture bound, the Australian

nutritional company will need to hire local service workers as a crucial differentiating

factor.
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References

Ang, S., Benischke, M., & Doh, J. (2014). The interactions of institutions on foreign
market entry mode. Strat. Mgmt. J., 36(10), 1536-1553.
http://dx.doi.org/10.1002/smj.2295

Baena, V. (2013). Insights on International Franchising: Entry Mode Decision. Latin

American Business Review, 14(1), 1-27.
http://dx.doi.org/10.1080/10978526.2013.780453

Baena, V. (2013). Insights on International Franchising: Entry Mode Decision. Latin

American Business Review, 14(1), 1-27.
http://dx.doi.org/10.1080/10978526.2013.780453

Pehrsson, T. (2015). Market entry mode and performance: capability alignment and
institutional moderation. IJBG, 15(4), 508.
http://dx.doi.org/10.1504/ijbg.2015.072521

Shi, Y., Ho, P., & Siu, W. (2001). Market Entry Mode Selection: The Experience of
Small Firms in Hong Kong Investing in China. Asia Pacific Business Review, 8(1),
19-41. http://dx.doi.org/10.1080/713999128

Wong, H., & Merrilees, B. (2009). Foreign market entry mode choice of Australian
firms. International Journal Of Trade And Global Markets, 2(3/4), 250.
http://dx.doi.org/10.1504/ijtgm.2009.028992