Question

What are the advantages of globalization and trading a German product in China? Explain your strategy, using PEST and SWOT analysis.

Answer 1

Advantages of Globalization are as follows (With regards to trading German product in China) :-

• Helps boost the average growth rate of the country’s economy through improving in allocative efficiency of the resources
• It increases labor productivity and reduces capital-output ratio
• It makes way for eliminating in-efficiency in the production system.
• In its absence, makes the production system careless about cost-effectiveness
• Attracts foreign capital as well as foreign updated technology, improving the quality of production.

PEST Analysis of China

China is among the most attractive locations in the world. It has also grown to become one of the strongest powers. This rise boosted international business. The legal system too has been improved. Foreign investors seek business in China mainly because of 3 things. They are:

• Size of the market
• The very low cost of labor
• China’s growth potential together

Political Factors

Political factors which impact China are:

• Government regulations

Both formal and informal rules, which firms must abide by, impact the country. Many people claim that the political force is the most unsettled force. Over the past few years, the government focused on the development of e-commerce.

• Legal issues

The legal framework for e-commerce is still in its early stage. China has little experience for drafting e-commerce legislation for topics like intellectual property rights protection and tax. There aren’t any regulations supporting the privacy, recognition of digital signatures, consumer rights and validation of electronic contracts yet.

Economic Factors

Over the past five years, China’s economy experienced significant GDP growth rate. Reports suggest that if China continues to excel at this rate, it ill surpass US GDP soon. Some factors which might help are:

• Sigh rate of savings
• Abundant and skilled labor
• More export business
• Potential urban growth

Any economic development could have a major impact on the SMEs and their actions. China’s GDP rate suggests that each citizen is adding more and more values to the society. This is in turn increasing consumers’ purchasing power. The labor cost in China is extremely low. This is why leading companies like Apple are inclined to hire workers from the country.

The growth rate is impressive, but it can slow down. Some of the worrying trends in China are:

• High inflation rate
• High property prices

The People’s Bank of China has increased interest rates. The reserve requirement for commercial banks is also nine times higher now. Moreover, the central bank is urging banks to lend less and impose limits on home purchases.

Social Factors

The social and cultural aspect of China plays an important role as the demographics constantly change. For example, population growth and age distribution fluctuate. These can alter social trends and cultural values. Family size and social behavior's often impact how decisions are taken. Other social factors are consumer lifestyles, education, religion and emigration.

The literacy rate in China is over 90%. China emphasizes on education and majority of the nation are literate.

Technological Factors

Some common technological factors studied in PEST are:

• New products being developed
• New purchasing mechanisms such as the intranet and extranet
• New production technology
• New distribution mechanisms like Internet
• New methods of working like mobile telecommunications

A major technological problem in China is that the development of the B2C industry does not have a safe and stable online payment system. As Chinese buyers are on high Uncertainty Avoidance level and Long-Term Orientation, the problem is strengthened.

SWOT Analysis of China Market :-

Strengths in the SWOT analysis of China Country - Government Structure, GDP Growth, Telecommunication boom,Cash reserves,Cheap Labor

Weaknesses in the SWOT analysis of China Country :- High unemployment rate,Undercapitalized banks,Restrictions in property sale.

Opportunities in the SWOT analysis of China Country :- Focus on urban migration,Focus on service sector.

Threats in the SWOT analysis of China Country :- East China Sea Dispute,Negative perceptions on China.