Recommend a criterion one could use to trade off the opportunities of operating in China versus the risks of doing so.
Answers
Answer:
During its thirty years of communist rule, China prohibited foreign investment and restricted foreign trade. Then, China enacted the Law on Joint Ventures using Chinese and Foreign Investment in 1978. China’s subsequent transformation has been fueled by a landslide of foreign investments made in response to the country’s market potential, market performance, improved infrastructure, enormous resources, and strategic position. Frustrating this process, however, have been the politics of China’s elaborate bureaucracy, as well as its ill-defined legal system and pervasive corruption. Historically China has relied upon “the rule of man” and the belief that legal rights are derived from the power of the individual. Upon joining the WTO, China agreed to continue to reform its business environment and to move toward transparent, rules-based, enforcement-oriented standards. But the business reality is far from the WTO obligations specifically in the continued controversy over the protection of intellectual property. Coming full circle, today’s fully-owned Chinese enterprises are themselves becoming global investors, both by acquiring foreign firms and investing in foreign lands.
Questions
3.1 Identify three compelling economic reasons to invest in China. Then identify three compelling reasons not to do so. Recommend a criterion one could use to trade off the opportunities of operating in China versus the risk of doing so.
Economic reasons for investing in China include the following: (1) While China’s GDP growth is slowing, it remains among the top performers in the world. In response to this growth, exports to China have increased, (2) China’s rapid economic growth has led to a booming consumer market for goods and services, (3) China’s well educated population creates a pool of productive labor, at rates that are often less than those in many other countries.
Compelling reasons not to invest in China can include: (1) China’s current legal and regulatory system can be inconsistent and arbitrary, (2) Lack of effective protection of intellectual property rights can be a particularly damaging issue to American companies, (3) China relies heavily on export growth, and for this reason the government still seeks to protect local firms, and especially state-owned enterprises from imports, while encouraging exports.
Growing global trade in counterfeit goods is a threat to America’s economy, the competitiveness of companies, and livelihood of their workers. To combat that problem, the STRATEGY FOR TARGETING ORGANIZED PIRACY (STOP) was developed to stop the trade in these goods around the world, and help businesses secure and enforce their rights overseas. (LO: 1, Learning Outcome: Discuss the philosophies and practices of the legal system, AACSB: Dynamics of the