Wednesday, May 2, 2012

Brief analysis on entering an emerging market, China

The developed countries provided multinational companies with the environment that the “soft” infrastructure plays in the execution of their business models in their home market. In contrast, the emerging markets like Brazil, Russia, India and China, the lack of specialized intermediaries, regulatory systems – “institutional voids” – led to an underdeveloped or absent infrastructure in the emerging markets. For the multinational companies with a desire to enter an emerging market, they always face an incomplete understanding of the local market, which caused the operational uncertainty.

From a macroscopical perspective, it is very necessary to pilot the institutional contexts including political and social systems and openness. I think except for the collaborations with the Iran or Afghanistan government, not any multinational companies would like to target a certain group of customers in these two countries. The political tense and social unrest had a great impact on the purchasing power of the market and labor supply. Also, the political environment affects its judicial system and legal system. Also, whether the economics of this country are open matters a lot.

In China, Chinese Communist Party is the most powerful Party and the only governing Party. Unlike the democracy in the U.S., the monopoly on political power is an effective method to keep social stability in China now. It is true that China’s judicial and legal systems are not as effective as those in the west, but they can guarantee a relatively fair environment to the multinational companies. In terms of openness, since 1978, when Deng Xiaoping introduced reforms to replace Stalinist-style central planning with a market economy and to open the country to foreign trade and investment, China has grown into one of the top three largest economies in the world. In 2010, China’s GDP has surpassed Japan, France, Great Britain and Italy and is behind only the United States.

From a microscopic perspective, the lack of unskilled market research firms that can inform them reliably about customer preferences and the local labor market and few end-to-end logistics providers have caused them difficulties in succeeding in the new markets. A recommendation is to collaborate with the local companies that are more familiar with the supply chain, local labor market and the local consumer market. More and more consulting companies provide analysis on the market with the composite indices, but strategic cooperation would offer more accurate and prompt information, especially the market segments and the customers’ preferences. As for the labor market, the human resource outsourcing firms can be a good choice. As far as I know, many international companies or even domestic firms pay the outsourcing firms for the human resources services, including recruitment, performance assessment and even pension. Recently, with more international companies invest in China, more corresponding services and strategies emerge. It is not difficult to enter China’s market when these global companies take good advantages of the local resources and know “the local rules”. What are “the local rules” in China? This question is for you.

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