BUSS4 2014: China Research Bullet 6 Overview

This final research bullet overview focuses on the topic of how business strategy might be affected by developments in China.We'll add to these notes over the coming days and weeks as we provide further support for BUSS4 here on the tutor2u Business Blog. Don't forget to follow tutor2u and tutor2u Business on Twitter so you can get first news of the latest resources to support your revision.Also, don't forget to get hold of your BUSS4 and other AQA Business Revision Guides- essential support for the final stages of revision.

Relevant Business Concepts & Models

PESTLE model: changes in the external environment: political, economic, social, technological, legal and ethical/environmental. The competitive environment is often added to the model

Porter’s Five Forces: a model that helps analyse the nature of competition in a market

Contingency planning: a key part of risk management, particularly for firms operating in markets and countries with unpredictable external environments

Key Developments to Consider (structure these around the PESTLE model)

Political: China needs greater openness in order to sustain economic growth; but still committed to protection & support of domestic firms and markets. Still a communist country!

Economic: A rebalanced China is a slower-growing China; greater focus on consumption & less reliance on infrastructure investment. China now also looking to expand its investment outside of domestic markets. A move to floating exchange rates might impact the competitiveness of Chinese businesses

Social: Increasingly urbanised population and growing older – significant demographic changes have already taken place. The long-term costs of these changes are only just becoming a serious issue. China is losing the advantage of its demographic dividend (millions of cheap, young workers).

Technological: China now has capability & resources to compete globally in technological change. Significant increase in investment in R&D (see below) will drive innovation by Chinese firms

Legal & regulatory: More mature economy & society implies greater legal & regulatory control. Will this make China a better / easier place to do business?

Ethical: Anti-corruption drive is the key focus – but are foreign firms being targeted unfairly?

Environmental: Pollution is the key concern – China responding with significant investment. A much closer scrutiny of the environmental impact of business activity is inevitable.

Competitive environment: Domestic firms in China increasingly able to compete against foreign businesses both in China and in international markets

Examples of Increasing Domestic Competition facing Foreign Firms (Home and Abroad)

95 Chinese firms were listed in the Forbes Global 500 World’s Largest Businesses 2013

Sinopec – one of the world’s leading energy businesses

Hauwei – world’s largest telecoms-equipment-maker; diversifying into consumer electronics

Lenovo – world’s largest manufacturer of personal computers; moving into smartphones & tablets

Haier – world’s largest manufacturer of white-goods (e.g. fridges, freezers)

Alibaba – world’s leading (by revenue) e-commerce business

R&D spending in China: estimated at $284 billion in 2013, up 22% from 2012. China likely to surpass Europe in terms of R&D spending by 2018 and exceed the U.S. by 2022.

Increasing amount of investment by Chinese firms in outbound M&A: Chinese acquisitions of overseas companies hit a record high in 2013

Depends on Factors

Perhaps unlike any other country, China has undergone a remarkable transformation in recent decades – affecting every aspect of the PESTLE model. Businesses wanting to trade with or invest in China should expect the pace and scale of that transformation to continue.

China is becoming much more closely integrated into the global economy, particularly through its overseas investments and increasing competitive strengths of domestic firms.

Other Areas for Evaluation

The West has long viewed China as a source of low-cost, good quality supply. Things are changing rapidly. Increasingly, China's own technology companies are challenging market leaders and setting trends in telecoms, mobile devices and online services.

For a variety of reasons, the Chinese Govt. needs to sustain a reasonably high level of economic growth in the coming years. It is unlikely to be able to do this without taking further steps to “open-up” China (e.g. trade liberalisation”) and continue to encourage inward foreign direct investment (“FDI”)