Essay on "Market Entry Strategy Into China for City College Norwich UK"

Essay 5 pages (1450 words) Sources: 5

[EXCERPT] . . . .

Market Entry Strategy

2010 saw a remarkable occurrence in global economics; China a rising yet still developing economy catapulted past long time economic powerhouse Japan to reach number two status behind the United States. While still only a third of the size of the U.S. economy, the Chinese gross domestic product stands at $5.879 trillion (Monahan, a. February 14, 2011. P.1) however; the China growth story is one which will not fade away. "In an analysis this past January, John Hawksworth, an economist at PricewaterhouseCoopers projected that China will surpass the U.S. By 2020" (Scherer, R. August 16, 2010. P.1). Given China's remarkable growth trends, "from 1989 until 2010, average quarterly GDP Growth was 9.31% reaching an historical high of 14.20% in December of 1992 (Trading Economics. N.D.P.1), and the potential for similar growth in the coming decade, businesses around the globe are clamoring to enter the Chinese market to not only sell but produce.

Of particular interest in the context of global expansion is the case of City College Norwich, UK, which desires to develop a market entry strategy to set up learning centers in several key Chinese cities, Beijing, Guangzhou, and Shenzhen. Understanding the intricacies of Chinese business acumen as well as specific sociocultural attitudes is critical for City College to garner a foothold in the competitive Chinese business climate.

City College will examine the efficacy of both direct and indirect investment options into China which will determine the structure, connectivity, and interaction with Chinese government and business contacts. Direct investment has the advantage of more direct control over decision making processes, but is more capital intensive; while indirect options require less overhead and capital infusion, but cede greater authority to China political and business officials.

In implementing any market entry strategy there are factors which determine the effectiveness of the approach. As with any foreign country there are significant government/political, legal, and economic challenges to overcome. China's state controlled economy concatenates these three forces into a unique framework of quasi-market orientation, legal ambiguity in property rights, and an overarching government regulatory structure. To these forces there are also the considerable socio-cultural attitudes and proclivities which are undercurrents in the business and political community. Analyzing the work of Dutch sociologist Geert Hofstede, the comparisons between China and the United Kingdom in the context of cultural interaction can be elucidated to effect corporate strategy. Of particular interest in this regard are Chinese cultural concepts: Shehui Dengji (social status), Zhengti Guannian (holistic thinking), Mianzi (face), Guanxi (personal connections), and Zhongjian Ren (the intermediary. These uniquely Chinese ideas are prime determinants in the success of business entry strategies, as well as the development of a continuity and interactive relationship with Chinese business and political leaders. For City College the opportunities are prevalent but come with a requisite thorough understanding of Chinese intricacies and culture, and a considerable time commitment to developing long lasting and trusting relationships.

Outline Advantages and Disadvantages of Methods for Establishing a Physical Presence

When discussing China investment there are fundamentally two bifurcated strategies to market entrance: direct and indirect which directly influence the structure of the organization, the involvement with political and business connections, and the control of profit distribution. For City College the issue is one of understanding how an educational business model can be introduced into these two dichotomies.

Direct Investment

The direct method of investment concerns itself with a company registering as an official "legal person, giving it, among other things, the right to sue other entities or persons in a Chinese court." (Price Waterhouse Coopers. N.D.P.16). In proceeding in this manner the foreign entity is pursuing a strategy in which the company is "entitled to the rights and protections accorded to Chinese legal entities" (Price Waterhouse Coopers. N.D.P.16). Typically the direct investment involves one of three methods: wholly foreign-owned enterprise (WFOE), equity joint venture, and cooperative joint venture. Of the three the wholly-owned enterprise is the most common direct approach, in which the "WFOE is funded entirely with foreign investment and has sole responsibility for profits and losses" (Price Waterhouse Coopers. N.D.P.16). The equity joint venture involves the shared ownership collaboration between foreign and domestic entities. "Both the foreign and the Chinese investors contribute capital, obtaining equity and subsequently receiving redistributed profits accordingly. The minimum share that a foreign investor can hold is 25%" (Price Waterhouse Coopers. N.D.P.16).… READ MORE

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