International Business - China Market

Executive summary

This report is about analysing the China market, and giving recommendations for the firm (Australian Architects Limited). From the findings, it shows that China is a country having a stable increase in GDP every year, with high demand in infrastructures. China is a country with large landscape, with different climates and geographic features. The targeted market will be about road and transportation infrastructures, which is the largest piece of all the demands. There are two opportunities; one is the developing and shifting of second tier or third tier cities, it is time for them to develop and there will be a lot of infrastructures like highways and tunnels in order to trade or as a spot for transporting goods. The other opportunity is the demand of quality buildings, China has natural disasters like flooding and earth quakes, quality infrastructures can help lower the damage and improve the recovery speed. The two challenges are government regulations and policies towards foreign investors, and the internet is unstable and lack of information, while some of the importance search engines are blocked like the Google. The recommendations are use joint-venture to enter the market, and use public relationship skills to promote and increase the brand awareness of the firm.

Analysis

China is one of the most rapid growing countries within the decade. According to appendix 1, the capital GDP in 2005 is around 13,300 yuan, but in 2014, it is around 47,000 yuan, with a stable increase every year. The transport infrastructure has comprised roughly a quarter of total infrastructure investment. Investment in roads is the largest piece in the area, for about 20 per cent of the infrastructure investment. (Wilkins & Zurawski, 2014) China has committed to invest RMB 7 trillion during the 12th Five—Years Plan; including RMB 7 billion in urban rail transit project, and RMB 3 trillion on railroad construction.( Australian Trade and Investment Commission, n.d.)Transportation infrastructure is the part that the firm should focus on and there will be cooperation with the government or government owned firms.

China has a large landscape, in order to develop the economy effectively; China government uses methods like developing the city near the coast first, they set them as the first-tier cities, Beijing, Shanghai, Guangzhou and Shenzhen are all the first-tier city, these cities are already well-developed, the old infrastructure has already been replaced, but not for the second-tier or even third tier cities like Xiamen and Hangzhou, this is an opportunity for the firm. With the increase of coastal wages, and rising importance of domestic market in inland, companies will consider relocating their business in inland cities. (McMillan, 2011) It helps to improve the economy of the inland cities, which they will need more and more infrastructure for daily usage or entertainment such as shopping malls and business centres. Also, the transportation will need to be improved to do trading or exporting the goods to other cities, for transportation is not consider as good even in urban areas, no wonder there will need a lot of work if the second or third tier cities getting developed. With good transportation infrastructure like railroads and highways, it helps to access to trades and potential markets from the city. Infrastructure is a significant determinant of transportation costs, and that when a region is landlocked, transport costs can by 50% higher. (Fan & Chan 2014)

There is no secret that the quality of infrastructure in China is not the best, it is true that the quality has been improving and improving over these years, but still there are cases and news that is about the bad quality of the infrastructure causes death and injuries. China always suffers from natural disasters such as flooding and earth quakes, for quality infrastructures is one of the main key to help achieve risk reduction before the disaster, help speedy recovery for the place, also with quality infrastructure, it provides a safe place for people to stay and keep alive during the disasters. (Palliyaguru & Amaratunga, 2008) There is a demand of quality infrastructure, not just the raw resources for buildings, but also the design and the things need to concern before the build, such as the bedrocks and the climate around, all of these are the factors that affect the quality and the sustainability of the infrastructure. There is a demand for quality infrastructures, and is an opportunity for the firm.

Although there are opportunities for the firm, there are also few challenges for the firm to face while entering into the China market. For about 85 % of infrastructure investment in China is undertaken by the state – a much higher percentage than is typical in other countries. (Wilkins & Zurawski,2014) Large nationwide infrastructure projects are financed by the central government in China, while the financial responsibility falls to the local governments. When cooperating with the state government and request for funds, it might be an issue because they might not have enough money to support the infrastructure, they will use other sources to gain the money, such as the local government financing vehicles (LGFVs), which is relying increasingly on new debt to finance long-term investments. (Zhang, 2013) According to the 2013 Audit of Chinese central and local government debt, 39% of local government debt was sourced from LGFVs. (Wilkins & Zurawski,2014) The financial sources are not always clear, and may be from non-bank financial channels, the sustainability of this is a concern. Also regulations is one of the concern too, since the end of 2007, foreign investors are restricted in investing in real estate agencies and prohibited from investing in the construction of golf courses. A wholly foreign owned construction company is only entitled in certain business areas either the projects are generated from oversea or when foreign construction technology is needed, but joint ventures can contract any local project according to their qualifications. (Australian Trade and Investment Commission, n.d.)