UBAIS UNIVERSITY

CASE STUDY

Business in China

Subject name: International Business

Environments and Operations

Teacher: Dr. Farid Uddin

Submitted By:

Submission Date:

28/12/2010

Name: Ishrat Jahan

Roll no: 3416

Name: Md. Abdullah Al Maruf

Roll no: 3417

Business in China

Introduction:From 1949 to 1979, Over 30 years of history of china, they have communist rule, and they are not depends on importing, rather they also prohibited FDI and foreign trade. The politicians are very much belief that if they opened the door of trading and FDI, then it will hamper their culture and politics. Days are passing after a tri-decade; politics people pass a rule that foreign people can invest money to Joint Venture Company where one party is Chinese people. Since then they are proven themselves as a strong resourceful country where investment can really a lot for the investors. Japan, Taiwan even USA are more interest to invest in china. On the other hand china also see the benefit with filtered proposal, they accept free trade, but also have a deep eyes on activity of foreign investment whether it help the country or not, like helped capital formation, create job field, technology enhancement etc. After a deep filtering in those matters and construct some issues,

1. Market potential: huge selling in market because of their population.

2. Market performance: purchasing power becoming higher and higher day by day due to their positive economic growth. Their trends to buy luxuries product.

3. Infrastructure: infrastructure projects, dams, power plants, subway systems, highways, railroads are main factors to change lifestyles in china; living factors are very handy at that part.

4. Resources: China has a huge talent labor and petroleum and minerals.

5. Strategic positioning: investment in china is known as invest in a global market, because it is one of the big growth market.

China also gives importance in petroleum and minerals and convert products from those. China exports those and earns a lot of foreign currencies. And also they required most foreign firm to have an equity share along with Chinese people that means a fifty fifty ownership in FDI investment or in technological part. Some cases are exceptional where ownership from foreign and remain one, that is highly maintained by the government of china. After some experimental combination of investment china finally opened the barrier and begin export and import, which increase continuously their GDP, they have also joined in WTO in 2001, where govt. agreed in trade and investment liberalization. From then they maintained global trading, and export products doubled from past, they are also doubled FDI investment in their country, Chinas import tariff on automobiles increase gradually very fast. The latest steps in china’s long march towards the open market economy. The contest between market economics and ideological legacies in china will play out over many years. The foreign investors are played key role to develop china’s business structure and which is related to developing a nation’s back born.

QUESTIONS & ANSWERS1. Profile the evolution of the Chinese business environment. Does this evolution strike you as predictable or unpredictable? Why would its degree of predictability matter to foreign investors?

Ans: China has a degree of openness that is unprecedented among large and populous nations with competition from foreign goods in almost every sector of the economy. Foreign investment helped to greatly increase quality, knowledge and standards, especially in heavy industry. China's experience supports the assertion that globalization greatly increases wealth for poor countries. When China joined the WTO, it agreed to considerably harsher conditions than other developing countries. Trade has increased from under 10% of GDP to 64% of GDP over the same period. China is considered the most open large country. China's trade surplus is considered by some in the United States as threatening American jobs. Foreign investment was also liberalized. Special Economic Zones (SEZs) were created in the early 1980s to attract foreign capital by exempting them from taxes and regulations. This experiment was successful and SEZs were expanded to cover the whole Chinese coast. Although FDI fell briefly after the 1989 student protests, it increased again to 160 billion by 2004. If you see these short time profile then we can easily said that they have create a positive business environment to increase economic growth. So I think it’s a predictable evolution, because the success of China's economic reforms in its move from a planned economy to capitalism despite unfavorable factors such as the troublesome legacies of socialism, considerable erosion of the work ethic, decades of anti-market propaganda. State authority experiment with various ways to energize the economy, within the Chinese government, in which officials presiding over areas of high economic growth were more likely to be promoted.

Predictability matter to foreign investors: China is doing relatively well today is in the provision of economic freedoms. China has aggressively attracted FDI by offering low rates of corporate taxation and secures property rights for foreign investors inside special economic zones. China does relatively better than other developing economies. Another measure of interest to investors is the corporate tax rate. The Economic Freedom index ranks countries as economically free if they have lower rates of corporate taxes, since high taxation can be viewed as a barrier to the entry of foreign capital. Over the sample period, China has maintained an average statutory corporate tax rate of 30 percent, lower than the average for all other developing economies, including democratic economies. This is even lower than the rate set by the U.S. Of even more significance, foreign firms receive preferential treatment in China, often enjoying an effective tax rate of only 15 percent and being exempt from taxation the first two

years of operation. So it is very much win win situation for the foreign investors and they are very much interested to invest in China.

2. Do you think the benefits of operating in China outweigh the risks?

Ans: The benefits of operating business in China: Business environment are more aware of how to manage and prevent risks, the overall risk profile of the company goes down - this includes financial and operational risk categories. Companies that have steady, predictable business are valued more highly by investors, customers and suppliers. So doing business in here is more predictable by imposing disciplines and giving you the tools to make the business steadier. Investing means that the market will remain more trustworthy because you are willing to make your operations more transparent. Employees care that the companies they work for are ethical, well-run and stable. Therefore, investing in China means that your workforce will be more motivated to help achieve goals. The average cost of replacing an employee is 150 percent of the employee’s annual salary. Therefore, there is a big incentive to reduce turnover and lower your costs. Better processes and more engaged employees, which will reduce the voluntary departure rate. Suppliers are a critical part of your supply chain, and they will appreciate your investments in processes and systems that give them a clearer view and more access into your business. This means more just-in-time delivery, lower inventory costs, and more bargaining power with your vendors. Information will be easier to find and use, and that the company will be able to make decisions more quickly. Better corporate governance lowers risks for all stakeholders, improves the image of the company, and allows for better decision-making and more efficiency in the company. This will be reflected not just in the board of directors, but in all employees.

3. What would you advise a company to do to maximize its rewards? To limits its risks?

Ans: In most cases we find that business owners treat rewards as what is left over after expenses are deducted from sales. There are no budgets or rewards forecasting. Start by studying the rewards history of your business and then calculate what the rewards of the business should be if it were to operate at optimum levels. Pre-Planning- rewards as a line item of expense and then engineer the business around the "maximum rewards" that can be gotten from the business. Departmentally will also be a great step in the right direction. One the other hand, one of the best ways to make your business more profitable and successful is to make it more efficient. Of course this doesn’t mean you need to completely overhaul how you do business; rather, it simply means you need to begin leveraging the right systems, tools, and technology to eliminate the bottle necks and inefficient practices that are currently preventing your business from operating at its true potential. The following are five simple and cost-effective tips for leveraging technology to achieve this goal.

Limit its Risk: Preparing a risk management plan each year will allow you to review the risks associated with your farm. The benefit of such a task is making better business decisions and a greater peace of mind. Preparing the plan will uncover your level of aversion to risk, and knowing this information will allow you to identify strategies that are tailored to your business. There are several areas of the business that deserve a risk management review. Government programs are a risk management tool. Oftentimes, it requires a large commitment of time to analyze the programs that fit the goals of the business. These programs are complicated but deserve analysis since they impact the net income of the farm.

4. Is it reasonable to expect China to adopt and fully enforce WTO regulations, particularly regarding intellectual property rights, in the next few years? If it chooses not to do so, what options would companies have to protect their interests?

Ans: Since joining the World Trade Organization (WTO), China has strengthened its legal framework and amended its IPR and related laws and regulations to comply with the WTO Agreement on Traded-Related Aspect of Intellectual Property Rights (TRIPs). Despite stronger statutory protection, China continues to be a haven for counterfeiters and pirates. According to one copyright industry association, the piracy rate remains one of the highest in the world (over 90 percent) and U.S. companies lose over one billion dollar in legitimate business each year to piracy. On average, 20 percent of all consumer products in the Chinese market are counterfeit. If a product sells, it is likely to be illegally duplicated. U.S. companies are not alone, as pirates and counterfeiters target both foreign and domestic companies. Though they have observed commitment on the part of many central government officials to tackle the problem, enforcement measures taken to date have not been sufficient to deter massive IPR infringements effectively. There are several factors that undermine enforcement measures, including China’s reliance on administrative instead of criminal measures to combat IPR infringements, corruption and local protectionism at the provincial levels, limited resources and training available to enforcement officials, and lack of public education regarding the economic and social impact of counterfeiting and piracy.

Protection in intellectual property right: Though China is a party to international agreements to protect intellectual property (including WIPO, Bern Convention, Paris Convention, among others), a company must register its patents and trademarks with the appropriate Chinese agencies and authorities for those rights to be enforceable in China. Copyrights do not need to be registered but registration may be helpful in enforcement actions. A brief summary of China's patent, trademark, and copyright laws are described below.

Patent: China’s first patent law was enacted in 1984 and has been amended twice (1992 and 2000) to extend the scope of protection. To comply with TRIPs, the latest amendment extended the duration of patent protection to 20 years from the date of filing a patent application.

Chemical and pharmaceutical products, as well as food, beverages, and flavorings are all now patentable. China follows a first to file system for patents, which means patents are granted to those that file first even if the filers are not the original inventors. This system is unlike the United States, which recognizes the “first to invent” rule, but is consistent with the practice in other parts of the world, including the European Union. As a signatory to the Patent Cooperation Treaty in 1994, China will perform international patent searches and preliminary examinations of patent applications. Under China’s patent law, a foreign patent application files by a person or firm without a business office in China must apply through an authorized patent agent, while initial preparation may be done by anyone. Patents are filed with China’s State Intellectual Property Office (SIPO) in Beijing, while SIPO offices at the provincial and municipal level are responsible for administrative enforcement.

Trademark: China’s trademark law was first adopted in 1982 and subsequently revised in 1993 and 2001. The new trademark law went into effect in October 2001, with implementing regulations taking effect on September 15, 2002. The new trademark law extended registration to collective marks, certification marks and three-dimensional symbols, as required by TRIPs. China joined the Madrid Protocol in 1989, which requires reciprocal trademark registration for member countries, which now include the United States. China has a ‘first-to register’ system that requires no evidence of prior use or ownership, leaving registration of popular foreign marks open to third party. However, the Chinese Trademark Office has cancelled Chinese trademarks that were unfairly registered by local Chinese agents or customers of foreign companies. Foreign companies seeking to distribute their products in China are advised to register their marks and/or logos with the Trademark Office. Further, any Chinese language translations and appropriate Internet domains should also be registered. As with patent registration, foreign parties must use the services of approved Chinese agents when submitting the trademark application, however foreign attorneys or the Chinese agents may prepare the application. Recent amendments to the Implementing Regulations of the Trademark Law allow local branches or subsidiaries of foreign companies to register trademarks directly without use of a Chinese agent.

Copyright: China’s copyright law was established in 1990 and amended in October 2001. The new implementing rules came into force on September 15, 2002. Unlike the patent and trademark protection, copyrighted works do not require registration for protection. Protection is granted to individuals from countries belonging to the copyright international conventions or bilateral agreements of which China is a member. However, copyright owners may wish to voluntarily register with China’s National Copyright Administration (NCA) to establish evidence of ownership, should enforcement actions become necessary.

Unfair Competition: China’s Unfair Competition Law provides some protection for unregistered trademarks, packaging, trade dress and trade secrets. The Fair Trade Bureau, under the State Administration for Industry and Commerce (SAIC) has responsibilities over the interpretation and implementation of the Unfair Competition Law. Protection of company names is also provided by SAIC. According to the TRIPs Agreement, China is required to protect undisclosed information submitted to Chinese agencies in obtaining regulatory approval for pharmaceutical and chemical entities from disclosure or unfair commercial use. China’s State Drug Administration and Ministry of Agriculture oversee the marketing approval of pharmaceuticals and agricultural chemicals, respectively.

5. How do you think the contest between market economics and ideological will play out in China over the next ten years?

Ans: China is quickly becoming the World Trade Organizations (WTO) number one trading country. It is the third largest trading power in the world. As a result of their fast and steady rise to the top the need to standardize China’s trade policies and procedures is critical in order to ensure that all members of the World Trade Organization (WTO) are using the same system. The future for China is very promising if it continues to conform to the WTO trade policies and standards. China is predicted to be the world’s biggest economy by 2050 and be THE largest trading nation in the world. The opportunities for China’s growth are endless, but in order to get to the top and stay there, they must comply with world regulations. China’s door is there and the world is knocking trying to get in and be a part of this giant in the making. Chinese economic ideology has been one of the greatest constraints in path of china’s development as a giant economy for a long time. The nation having the densest population of the earth could have been bigger double fold if could have started twenty years earlier from the time they appeared in the world market. However, the population factor is once again responsible for its fast expansion all over. Virtually, now China stands being one of the greatest super powers on earth. Chinese manufacturing has gained huge acceptance all over the planet and people really amaze witnessing this dramatic evolution of a super economy that was looked down upon by the capitalist super powers tremendously. Overcoming this negligence has been the greatest challenge to the Chinese manufacturers and they have factually proved them to the world. Now Chinese GDP remains top on the world and it offers the strongest ever economy in the total Asia. The pace with which it is running currently, anyone can guess easily that it would over cross the USA and other economic giants within the next ten years.

Conclusion: When doing business in China establishing a contact to act as an intermediary is important. This brings with it multiple benefits. They can act as a reference, be your interpreter and navigate you through the bureaucracy, legal system and local business networks. Improved international relations, government reforms, an expanding economy and increased foreign

investment make doing business in China a potentially lucrative affair. Doing business in China means that business people will come into increasingly frequent contact with Chinese business people and officials. It is imperative that those doing business in China learn about areas such business culture, business etiquette, meeting protocol and negotiation techniques in order to maximize the potential of their business trip.

THANK YOU