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Regulation and Management in the Global Community

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Introduction

This paper is composed in order to demonstrate and analyse the management techniques and internationalisation strategies in the context of the global community. This report is prepared for the board of directors in the UK, in order to provide an insight about the potential internationalisation of the fish and chips restaurants in China. The main risks will be evaluated in the context of economic and political forces.

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This report will provide an insight into the main recommendations and strategies that should be pursued.

External Analysis

In order to demonstrate the risks that might occur in the external environment it is important to apply PESTEL analysis to Chinese market. PESTEL is the acronym for investigation of political, economic, social, technological, environmental and legal forces (Kotler and Armstrong, 2010).

Political

China is regarded to be part of the BRIC countries that have a high potential for the investment. BRIC countries is the acronym for Brazil, Russia, India and China. These are the developing countries where the Western countries invest heavily due to the high economic potential that these members possess (Yu, 2011).

The major political force in China is a Communist Party. This Party governs the country badly, since there have been a number of negative social unrests, which include demonstrations, riots and other political protests (Economist, 2012).

As a result of this governance, the export levels have decreased and the employment levels have increased (Trading Economics, 2012). In general, the political situation in China is unstable, where the companies close their businesses.

Economic

As it has been stated in the previous paragraph, the unemployment rate has increased from 4% in 2008 to 4.1% in 2012 (Trading Economics, 2012). This is regarded to be pessimistic in the context of economic development. The country’s Gross Domestic Product (GDP) is also not optimistic and has decreased from 2.5% in 2011 to 1.5%, further growing to 2.2% (Trading Economics, 2012). This might be interconnected with the decrease in exports as demonstrated in the paragraph above. Trading Economics, (2012) suggests that level of export is relatively sporadic, thus changing frequently. This implies that there is a general pattern of growth in the export levels; however, the pace of it is regarded to be slow. This has been driven by the recession, which has decreased the speed of export growth, in 2009. The latest figures, as of July, 2012, demonstrated that the level of export is 1800 million USD per month (Trading Economics, 2012).

China’s inflation rate is reported to be – 1.7% as of December, 2012. The average inflation rate is 4%, which the government prefers to retain (CNN Money, 2012). At this rate, the country experiences a healthy growth and economic development. However, the increase in the inflation rate implied that the prices for food increased dramatically. This suggests that the prices for food has increased to almost 2%, which affects the operations of businesses and general consumer confidence negatively (CNN Money, 2012). In a long term, there is a high risk of further inflation rate escalation, which may further worsen the economic growth and consumer confidence.

Social

It has been estimated that due to the political system in China, there are certain restrictions placed within the social area. It is especially attributed to the freedom of the word (Telegraph, 2012). This implies that the content on the Internet is being tracked, which suggest that there are certain restrictions placed on the content, that may be shared with others on the Internet.

Another social aspect is attributed to the healthy lifestyle of the Chinese people. This is the actual lifestyle where the Chinese tend to consume only the fresh food and to be engaged in sports (Deseret News, 2012). With regard to nutrition, the main part of their meals are vegetables. This has been a traditional evolution of the Chinese nutritional culture (Deseret News, 2012). Despite that, the analysts predict a great demand for fast food outlets. In 2002, only 2% of the Chinese were willing to visit the fast food outlets (Economist, 2002). The majority of fast food outlets are comprised of Western fast food outlets, namely 80%. The trend demonstrates that the Chinese are willing to consume luxury, trendy, innovative, modern and exotic products (Miller, 2004). This trend, in turn, drives the demand for fast food products. The teens are more prone to the adoption of this trend. This implies that they perceive the fast food outlets as fashionable and trendy (Eckhardt and Houston, 2001). It is also associated with the design of the fast food outlets, especially of Western origin. For instance, the seating arrangement is for 2 people, which is characterized as more for dating purposes, contrary to the collective seating design for 8 people, which is more popular among the Chinese restaurants (Eckhardt and Houston, 2001).

Technological

China is regarded to be advancing in the Internet penetration. This implies that the rate of penetration in China is above average, namely 34.3% (China Internet Watch, 2012).

China’s total broadband penetration rate has increased for 30% , thus totaling in 98.3% (China Internet Watch, 2012). However, despite this increased broadband penetration rate, the Internet speed is only 100.9 KB/s, which is quite low in comparison to the world’s average Internet speed (China Internet Watch, 2012).

One of the most important advancements is attributed to the increase in popularity of Internet access through mobile phones. This suggests that 66% of Chinese consumers tend to access the Internet through mobile phones (China Internet Watch, 2012).

One of the most critical aspects, related to the social media is the control over the content, which is posted online (Telegraph, 2012). This implies that the government is watching over what is posted online in alignment with the allowed content. As the sources suggest, it is not on the way of being changed in the future the pattern (Telegraph, 2012). This suggests that the control over the content has become even stricter as a result. The breach of the rules may result in being taken to Court, since this is considered to be an offence (Telegraph, 2012) as official governmental sources depict, this is maintained in order to prevent the promotion of a pornography, unneeded panic and other types of accusations. The majority of social media websites have been already blocked as a result of the sensitivity of discussed political topics (Telegraph, 2012).

Environmental

From the environmental perspective, China is among the countries that produce the largest amount of CO2 emissions (BBC News, 2012). It has been estimated that China is among the countries with high risk in the area of environmentalism. This suggests that China should adopt the strategies in order to become more environmentally concerned (BBC News, 2012). Given the large level of industrialization, the adoption of environmentally-friendly strategies should be integrated as the population of China becomes more environmentally concerned. This is illustrated in the recent demonstrations, that were produced in order to address the environmental problems in China (BBC News, 2012). One of the examples of civil protest was demonstrated in August 2011, where 12,000 people participated in the protest against the development of the chemical plant in Dalian, China (BBC News, 2012).

Legal

From the legal perspective, China’s government imposes a lot of restrictions on foreign companies. This has been mainly due to the fact that the Chinese economy has been closed for the investments for a long time. Even though, currently it has become opened for FDIs (Foreign Direct Investments), there are still restrictions imposed on the activities of foreign companies in China. It is important to have a knowledge about these differences in order to benefit from the management of foreign company’s operations.

Cultural Differences

According to Hofstede’s model, there are differences between the cultures that tend to affect the operations in the foreign countries. Given the entry to the Chinese market, the model should be applied to analyse the differences between the UK and China.

The model is comprised of the evaluation of the following variables, namely power distance, long term orientation, uncertainty avoidance, masculinity/femininity, individualism/collectivism. As a result, it has been estimated that there are great differences in some of variables, namely power distance index, individualism/collectivism and long-term orientation (Hofstede’s Official Website, 2012). Power Distance index demonstrates that the British society is for the minimization of the inequalities among the different layers of society. However, the estimates are different among the working class and high society. This is specifically attributed to the fact that the British society has quickly been revolutionized, where the high society has lost its significance.

Contrary to that, the Chinese strict hierarchical system is perceived to be a normal attribute of a corporate and community’s life. This suggests that the Chinese are used to the power abuse, as a result of a strong respect towards the superiors (Hofstede’s Official Website, 2012).

Low rank in the individualism score demonstrates that China is a collectivistic culture. This implies that the people within Chinese culture tend to pursue the interests of the groups rather than their own interests. This also contributes to the increased respect towards old members of the family and superiors (Hofstede’s Official Website, 2012). This also affects the operations within the organization. This suggests that there is a low commitment to the company, whereas the relationships are not developed outside the circle of colleagues and/or friends. UK culture is regarded to be more individualistic. This implies that the members of this culture tend to be concerned solely about their own interests. The main concern in the British culture is the achievement of their own personal fulfilment as opposed to the collective thinking, which is practiced in China (Hofstede’s Official Website, 2012).

With regard to long – term orientation, the UK is quite different from China. This suggests that the UK is a culture with short term orientation, thus suggesting a large focus on the quick results, in the context of business vision. This implies that there is no long term vision for companies, where the management tends to focus on “NOW” and “HERE”.

China is quite different from the UK, since this culture is characterized by being long-oriented (Hofstede’s Official Website, 2012). This implies that the main postulates that are practiced in the culture are perseverance and determination. There is always a long term vision, which result in the investments being made in the long term projects. The main characteristic of this culture is that the decisions are based on the level of confidence, which is either full or none. Contrary to the UK culture, there are no probabilities in making the decisions.

Masculinity index is regarded to be the same in both Chinese and British cultures, namely 66 points (Hofstede’s Official Website, 2012). This suggests that the score is quite high and the cultures are perceived to be masculine. This implies that the members of these cultures are success driven. The characteristics of ambition and large amount of work is anchored to both these cultures.

The uncertainty avoidance is low in both British and Chinese cultures. This suggests that the members of these cultures are comfortable with living in the uncertain settings. This suggests that the members of these cultures are highly adaptable to the new settings since they are used to the uncertain situations.

Recommendations

As a result of the above demonstrated findings, there are some recommendations to address. First of all, given the large differences in both British and Chinese cultures, the market entry should employ the features of adaptation. This implies that the British fast food company should present the menus that would be adaptable to the tastes of the Chinese consumers. However, the elements of standardization should be visible, since the Chinese consumers are attracted to the innovative design, products and services (Chung, 2003).

In order to appeal to the tastes of the Chinese consumers, it is also important to integrate the environmental program in order to demonstrate the integration of Corporate Social Responsibility strategies and tactics (BBC News, 2012). Given the popularity of environmental concern, this may result in the development of positive brand associations.

Given the recent technology boom, the Internet might become the main medium for promotion and communication. However, the Internet related strategies must be analysed on the subject of content prior to integration, in order to avoid any legal issues.

In general, the main market entry is proposed to be a joint venture, where the risks and benefits are divided 50/50. This strategy is perceived to be the most popular for entrance in the similar to Chinese markets (Kotler and Armstrong, 2010). The only major issue is attributed to the choice of the beneficial partner. This implies that there might be a dissonance in objectives of both companies. Therefore, the selection process must be carefully planned and enhanced research must be applied.

Conclusion

This report was developed in order to present the analysis of the external environment in China and possible recommendations and strategies, which are addressed on the basis of cultural differences. It has been estimated that there are a lot of differences between China and the UK. With regard to risks, Chinese political and economic system suggests that there are some risks however these are of a moderate character. As a result, the entry might be quite successful if maintained appropriately. The main areas of risks are attributed to the technological areas and possible legal issues, that might arise, as a result of the recent reforms. Finally, there are some concerns in the cultural areas. These suggest that there are differences in the hierarchical systems, long term orientation and individualistic characteristics. As a result, these should be considered when planning the market entry strategies.

References

BBC News. (2012). Viewpoint: The power of China’s strolling eco-warriors. Available: http://www.bbc.co.uk/news/world-asia-china-19987295 (Accessed on 02/01/13)

China Internet Watch. (2012). China Internet Statistics Whitepaper. Available: http://www.chinainternetwatch.com/whitepaper/china-internet-statistics/ (Accessed on 02/01/13)

Chung H. (2003). International Standardization Strategies: The Experiences of Australian and New Zealand Firms Operating in the Greater China Markets. Journal of International Marketing. Vol.11, Iss.3, pp. 48-82.

CNN News. (2012). Inflation rises in China. Available: http://money.cnn.com/2012/12/09/news/economy/china-cpi-inflation/index.html (Accessed on 01/01/13)

Deseret News. (2012). Life in Balance: Observing healthy lifestyle choices in China. Available: http://www.deseretnews.com/article/700216353/Observing-healthy-lifestyle-choices-in-China.html?pg=all (Accessed on 01/01/13)

Economist. (2012). Cleaning up the Party. Available: http://www.economist.com/blogs/theworldin2013/2012/12/corruption-china?zid=306&ah=1b164dbd43b0cb27ba0d4c3b12a5e227 (Accessed on 2//01/13).

Economist (2002). Junk Food365 (8302), 63.

Eckhardt, G.M. and Houston, M.J. (2002). Cultural paradoxes reflected in brand meaning: McDonald’s in Shanghai, China. Journal of International Marketing, 10 (2), 68-82.

Hofstede’s Official Website. (2012). Available: http://geert-hofstede.com/united-kingdom.html (Accessed on 02/01/13)

Kotler P., Armstrong G. (2010). Principles of Marketing. 13th ed., Pearson: USA

Miller, P.M. (2004). Quick service hits China. China Business Review, 31 (4), 18-28.

Telegraph. (2012). China tightens internet controls. Available: http://www.telegraph.co.uk/technology/internet/9769122/China-tightens-internet-controls.html (Accessed on 01/01/13)

Trading Economics. (2012). Available: http://www.tradingeconomics.com/china/indicators (Accessed on 01/01/13)

Yu Y. (2011). Foreign Portfolio Investment in Bric Countries. LAP Lambert: USA.

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