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Article: IS IT TOO LATE TO ENTER TO CHINA?

1. Why do most of the companies try to have a foothold in the market of
China in spite of PRC (People's Republic of China) being a command
economy?

The PRC(People’s Republic of China) has a strong hand over business in
china and it still prevents foreign companies to enter into the core
sectors. But still most of the companies try to have a foothold in the
market of china because of following reason. The fact that China is
large market and will soon be the world’s growth engine in terms of
output and consumption, motivates companies to have a foothold
there. Like in Automotive sector, carmakers are restricted to joint
ventures in which their maximum stake is 50%, but the possibility of
selling products in the world’s largest automobile market and gaining
unmatchable economies of scale motivates them to enter this market.

2. As you understand from the article, what were the positive features of the
China markets in 2010(when the article was written) and the key risk then
for the MNEs planning to enter the China market. Explain the rationale.

Some Positive features of china’s market in 2010 were:

 Net Profit for top 500 companies was higher for China as compared to
U.S. which shows as a positive sign for China’s market. According to
September 2009 review from the China Enterprise Confederation and
the China Enterprise Directors Association, the top 500 Chinese
companies’ net profits were $170.6 billion in the first half of 2009,
exceeding for the first time the net profits reported by the top 500
American companies, which were $98.9 billion for that period.
 From data given in the article we can analyse that China Recovered
from Recession of 2008 is very fast and the pace of growth showed up
11.3% in the end of 2010.
 China’s Cheap labor and availability of raw material have also been a
positive aspect for economic growth of market.
 The large supply of engineers and scientists in the country helped in
research and innovation which further lead to company and economies
growth in the bigger picture.

energy. By 2020 city dwellers will account for 60% of China’s population. . the scale and intensity of change in the Chinese economy is rendering even successful strategies inadequate. The government is still preventing certain companies to enter particular sectors like telecommunication and media. the party will continue to determine the pace at which it frees the economy from controls.  Consumer China – A substantial middle class has been generated by China’s growth. it has always wielded a strong hand over business. Explain the terms:  China context – It is really difficult to enter a complex country like China without any hurdles. A large rural population has been shifting to cities. finance. Although the Chinese government began freeing the economy from controls in 1978. It is very difficult to develop a freestanding business business in the country. Although many companies thought that they have understood the strategies how to do business in China. So. it has a lot of brands and products due to which there has been a lack of loyalty and a large shift in market share. The 3 factors which have been changing the context in China are:  Official China .China has been highly successful in capturing world export markets. balancing the need for economic growth —and the entrepreneurship that demands—with its overriding desire to maintain political and social stability.  Competitive China . compared with 40% in 2009. Companies wishing to setup their business in China had to cater to their needs and modify their strategies but the ownership of certain sectors like communications. Although growth generates legitimacy for China’s government and guarantees social stability.The Communist Party of China had an isolate attitude towards the foreign companies. The migration of 200 million people will transform markets afresh. and media sectors was retained by China itself. It is growing global like many of the big companies and attracts the most foreign companies too which results in intense competition and creates a host of business opportunities in China. China opened its markets to foreign companies when its economic reforms began and has opened them wider ever since.3. resources.

Companies wishing to setup their business in China had to cater to their needs and modify their strategies but the ownership of certain sectors like communications. Competitive China . and media sectors was retained by China itself. radically improve quality. Companies in China will have to reduce their consumption of raw materials. energy. There has been a lot of waste and environmental damage because of cheap labor and large investments. resources.China has been highly successful in capturing world export markets. compared with 40% in 2009. mitigate the environmental impact of their operations. So. and hone their management skills which will make them even more competitive than they are today. The foreign companies have more than doubled their investment in China. Over the next 10 years China’s mass market will morph into differentiated and multitiered segments. The company is still trying to establish a position in the Chinese context. . By 2020 city dwellers will account for 60% of China’s population. But some companies like Google decided that China is not the place for them to invest as they realized later that rivals like Yahoo and Microsoft were getting ahead because they had established a presence in China. A large rural population has been shifting to cities. it has a lot of brands and products due to which there has been a lack of loyalty and a large shift in market share. knowing that if it can find a way to manage the reputational risks.The Communist Party of China had an isolate attitude towards the foreign companies. Although growth generates legitimacy for China’s government and guarantees social stability. It is growing global like many of the big companies and attracts the most foreign companies too which results in intense competition and creates a host of business opportunities in China. The government did not lift censorship on Google.  Consumer China . China opened its markets to foreign companies when its economic reforms began and has opened them wider ever since.A substantial middle class has been generated by China’s growth.  Official China . the party will continue to determine the pace at which it frees the economy from controls. maintaining its China operation will not be a bad thing. The migration of 200 million people will transform markets afresh. finance.

China possesses unique challenges which can be abated by enlisting the assistance of specialists. or a consultant hired to assist you.  Having the right people working in China can set up for success.  Understanding the competitors abroad can provide insights into how and whether to expand. Why? The key questions which a company planning to enter China in 2015 needs to address and deal with are:  One way to evaluate potential demand for the company is to determine if it fits with China’s current development plans.  Having the right attitude and understanding that business might be done in different ways internationally is important to keep in mind. the company should expect to encounter differences in human resources. Entering the market when there is government supported demand for your product will increase the likelihood of your success. customs and maybe even a few Chinese phrases will make the company’s transition to the Chinese market far smoother. As is any new market. The timing and relevancy of the company is important. and the legal system as well as the language. whether it be a joint venture with a Chinese firm.4. Having support from those experienced in the market will be a huge advantage to the company. This team can be formed in any number of arrangements. Spending time in China and speaking with potential customers can help to avoid costly mistakes. government policies. Being open to learning local values. But many companies don't take time to figure out whether similar products and services are already available in a new market and what they would need to offer to compete successfully. an office with qualified staff. When doing business in China. . Outline briefly the key questions which a company planning to enter China in 2015 needs to address and deal with.

nations or some social groups thrive or fall short. Nations do not compete in the marketplace—business firms do. What is the main theme in this landmark article by Michael Porter? This article gives insights into why and how industries. The book explains and presents the theory on the sources of sustained prosperity in the contemporary worldwide economy. regions. He explains the roles of governments and companies in economic development. Porter chose a different starting point. Porter and his research team studied ten important trading nations. This seminal work has assisted countries to develop national policy based on their international competitiveness. including the three leading industrial powers (the United States. and the performance of individual companies in particular industries in where competitive advantage is either won or lost. The author shows the distinction between competitive advantage as a source of wealth and the concept of comparative advantage which had been until recent years the paradigm on thinking about international competition. . Most discussions of the competitive success of nations look at aggregate. Porter methodically and systematically discusses why some nations achieve continual economic prosperity. beginning with individual industries and competitors and building up to the economy as a whole. with the success or failure of thousands of struggles in many industries determining the state of a nation’s economy and its ability to progress.Article 2: COMPETETIVE ADVANTAGE OF NATIONS 1. economy-wide measures like the balance of trade. Japan. The home nation influences the ability of its firms to succeed in particular industries.

A final section presents the implications for company strategy.g. Japanese firms & medical imaging  New or shifting buyer needs e. . social philosophy. government policy. and region. In every case. early U. Explain the rationale for your answer. with considerable repetition as the theory was applied to each new situation. and Germany). and related and supporting industries.g.g. factor conditions (e. Sources of innovation are :  New technologies e. Four determinants interact to form a “diamond": firm strategy. firms were found to be internationally competitive because of a set of conditions in the home country favorable to the development of their industry. Could you relate to it as a PGDM-IB student? If so.g. transport costs and global production  Changes in government regulation e. The “diamond” is further influenced by chance events and government action. 2. the evidence compelling—certainly any future work on national competitiveness will have to take this thought-provoking book into account. which is ultimately an act of innovation. government policy toward industry. and rivalry..g. American fast food & consumer demands for convenience & consistency  Emergence of new industry segment e. natural resources). Porter’s approach did result in a very long volume. The argument is incisive and original. geography. how do you think this article will be useful to you in your long term career as an International Business professional? Firms create competitive advantage by perceiving or discovering new and better ways to compete in an industry and bringing them to market. financial deregulation & American firms’ experience 3.S. There is no single set of national conditions favorable to all industries.g. a fact borne out by the detailed industry and country studies which constitute the bulk of the book. small Japanese lift trucks for general purposes  Shifting input costs or availability e. plus other European and Asian countries chosen to vary widely in size. structure. demand conditions. and the national agendas of the ten countries. Do you think the main themes of this article are valid today after 25 years as they were when the article was written in 1990.

Michael Porter's research identified the fundamental determinants of national competitive advantage in an industry and how they work together to give international advantage. academic. He points out that the fastest growth comes when favorable factors are concentrated in centers where diverse groups . What is your understanding of Porter's diamond? How it can be used by companies and governments of countries? Explain the rationale for your answer. have provided more quantitative insight. R&D expenditures. where the competitiveness of one company is related to the performance of other companies and other factors tied together in the value-added chain. sometimes government or traditional industries come together and have intense interactions.industrial. a number of small industries. in customer-client relation. The approach looks at clusters.S. the numbers of scientifically educated people. Below is a figure of the Diamond model.from shoes and couture in Italy. to Silicon Valley in the U. or in a local or regional contexts. The core ideas of the book remain very relevant today. In the past 20 years tools like analysis of patents. . 4. Porter’s diamond model provides us with the reason why particular industries become competitive in certain locations. To these tools Porter adds realistic analyses of top industries in various countries . The findings are rich in implications for firms and governments and set the agenda for discussions of global competition.

set goals and are managed is important for success.  their home environment is the most dynamic and challenging. Specific resources can be created to compensate for factor disadvantages. knowledge resources. Porter argues that firms gain competitive advantage when:  their home base allows and supports the most rapid accumulation of specialised assets and skills. 5. clusters of successful industries have been mapped in 10 important trading nations. and employees support intense commitment and sustained investment.  the goals of owners. These industries provide cost-effective inputs. it creates pressure to innovate in order to upgrade competitiveness. But the presence of intense rivalry in the home base is also important. First. structure and rivalry constitute the fourth determinant of competitiveness.The Porter analysis was made in two steps. The basic method in these studies is historical analysis. the history of competition in particular industries is examined to clarify the dynamic process by which competitive advantage was created. stimulating firms to upgrade & widen their advantages overtime. managers. thus stimulating other companies in the chain to innovate. but they also participate in the upgrading process. The second step in Porter's analysis deals with the dynamic process by which competitive advantage is created.  Related and supporting industries can produce inputs that are important for innovation and internationalization.  Firm strategy. In the second. capital resources and infrastructure. which has become a key tool for the analysis of competitiveness:  Factor conditions are human resources. when sophisticated home market buyers pressure firms to innovate faster and to create more advanced products than those of competitors.  Demand conditions in the home market can help companies create a competitive advantage. Outline separately the prescriptions the author makes to government of countries and to CEOs of MNEs for building and sustaining global . Specialized resources are often specific for an industry and important for its competitiveness. The way in which companies are created. The phenomena that are analysed are classified into four broad factors incorporated into the Porter diamond. physical resources.  their home base affords better ongoing information and insight into product and process needs.

aggressive home-base suppliers. that succeeds only when working in tandem with favorable underlying conditions in the diamond. Government cannot create competitive industries. A nation's competitiveness depends on the capacity of its industry to innovate and upgrade. Government policies that succeed are those that create an environment in which companies can gain competitive advantage rather than those that involve government directly in the process. only companies can do that. role. . and demanding local customers. competitiveness of the countries and the MNEs in the rapidly changing International business environment. the role of the nation has grown. As the basis of competition has shifted more and more to the creation and assimilation of knowledge. Government plays a role that is inherently partial. Competitive advantage is created and sustained through a highly localized process. except in nations early in the development process. not less. important. it is to encourage or even push companies to raise their aspirations and move to higher levels of competitive performance. rather than a direct. even though this process may be inherently unpleasant and difficult. Companies gain advantage against the world's best competitors because of pressure and challenge. Government's proper role is as a catalyst and challenger. nations have become more. In a world of increasingly global competition. It is an indirect. They benefit from having strong domestic rivals.