P1
Explain the international business environment of countries HG operates in. Focus on China, Germany and the United Kingdom and how this affects HG. Describe the following aspects:
• Economic value;
• Imports and exports;
• Balance of trade;
• Availability of skilled labour.
CHINA Opportunity and challenge.
Overview
China's sustained economic growth will make it the world's largest economy by 2030. Its large and competent labour force, entrepreneurial culture, and massive infrastructure investments are making this growth possible. But there are also challenges which include maintaining social stability and dealing with environmental issues.
For companies seeking to do business in China, it is important to understand China's history, context, and culture (including the importance of relationships). Because of the importance of China in the world economy.
Key Takeaways
Doing business in or teaching about China requires understanding the country's history and context.
China is an ancient civilization and a new country. The civilization has existed for 5,000 years. As recently as 125 years ago, China was the largest economy in the world. After the Dowager Empress died in 1908, there were 40 years of instability. In 1949, Mao took over and built the country by force, with a strong military state. Six years later businesses were nationalized. From 1967 to 1976, the Red Guard and Cultural Revolution occurred; all universities were closed, except for Tsinghua University. From 1948 through 1978 China was closed and the Chinese government basically took care of the population.
This history reflects several important aspects of China:
– The role of the state. China has a long tradition of strong central government, with military power being critical. China was built by/held by the gun. It is impossible to underestimate the role of the state in all activities. The role of the state has led to tremendous bureaucracy.
– A sense of superiority. China doesn't see itself as a newcomer to the global stage. It sees itself as the centre of the world and superior to other countries. The Chinese see the West as an inferior civilization with a momentary technological edge.
– Relationships. China is a relationship society, far more than a law society. In particular, due to the prominent role of government, long-term relationships with government are critical.
China is in the midst of a powerful and sustained economic expansion, with no end in sight.
Since opening up in 1978, China has enjoyed a 30-year period of sustained economic growth. During this time the country's economy has grown roughly 10% per year. And despite the economic crisis in the United States, China is projected to grow 9% in 2008 and 2009. Already the world's #3 economy (after the United States and Japan), it is expected that by 2030 China will be the largest economy in the world.
The reason that China is expected to continue to grow despite the financial crisis in the West is that the country's growth is now being driven by its domestic economy. While previously growth came from exports, now domestic growth is the main driver, with exports playing a less significant role. Also changing is the nature of the Chinese economy. China has been a low-cost manufacturing centre. But China can't sustain this position as there are other lower-cost countries. This requires the country to move up the value chain into service and IT businesses.
Among the factors contributing to China's growth:
– A large and capable workforce. China is home to 20% of the world's population. Not only is the population large, but the Chinese are literate (the literacy rate is 93% compared to 61% in India) and hard working.
– An entrepreneurial culture. Despite the history of state-owned enterprises, the Chinese people have a long history of entrepreneurship.
– A strong university system. China has excellent universities which are producing a large pool of competent graduates.
While China's growth is tremendous, the country faces many significant challenges.
With China's success come challenges and gaps.
– Lack of infrastructure. By all measures, China's infrastructure is far behind that of the United States. The lack of infrastructure could actually hinder growth. China recognizes this and is making massive investments in roads, ports, railroads, airports, electricity, and telecom.
– Lack of raw materials. China has an extraordinary need for raw materials and energy resources. To address this need, China has developed and continues to develop international relationships. For example, Australia has become "China's quarry" and China has made investments in Africa to procure raw materials.
– Environmental issues. This includes air and water pollution. These problems are not unique to China. Other developing economies faced similar situations, including the United States.
– Corruption. On the one hand, China is very much a relationship society, where long-term, carefully nurtured relationships are tremendously important. However, the importance of relationships can result in corruption.
– Income inequality. Huge compensation and wealth gaps are visible. The distance between the top and bottom of the economic scale in China is greater than in the United States.
– Social stability. Related to income inequality, the "iron rice bowl" (which China provided for all citizens) has been broken. New wealth is developing quickly but deep inequalities have emerged. There are major imbalances between the eastern and western regions of the country, as well as between the rural and urban areas. Although national peace has existed since 1948 under the philosophy of "harmonious development," incidents of civil unrest have grown 400%. An open question for China is whether building social pressures can be handled without an explosion.
– Legal issues. The laws are developing in China in areas such as protection of intellectual property. However, having laws on the books is far less important than whether the laws are enforced; enforcement is what makes laws real. To date, the laws in China have not been widely and consistently enforced.
Despite the challenges, many factors contribute to a positive business environment in China.
The many gaps that exist in China provide opportunities for businesses to fill these gaps. For example, there is a gap in that restaurants still purchase their food in grocery stores; there are no wholesale distributors for restaurants like Sysco in the United States. This is a gap in the marketplace, which presents an opportunity.
To fill some gaps, local markets and brands are emerging. Gome Electronics, for instance, is a distribution chain that handles "no name" products. Because consumers trust the Gome brand, they are comfortable purchasing what Gome sells. Another example is Yili (a state-owned dairy), which has started using packaging that allows dairy products to be stored at room temperature for long periods of time, since the infrastructure does not support a cold supply chain for food.
Another example is Dorm99.com, which was envisioned as a Chinese version of Facebook, enabling students to see their grades relative to the rest of their university and province. Within the first few hours of operation, almost 200,000 people signed up. But this venture offers a reminder of the power of government in China, and the unexpected way its power can be used. At 2:00 pm on launch day, the Ministry of Education ordered the company to stop operations because the business was not in the interest of a harmonious society. Despite this setback, the owners of Dorm99.com leveraged their relationships in the government to launch another business (showing again the importance in China of relationships).
As for HG, it is very important to have a large amount of people, in China, to handle their communications with government or others, involved with the import of HG products and export of the necessary ingredients for manufacturing the HG products. A large wholesale or distribution section in China, is necessary to provide for the demand of HG products in China.
Since HG, produces al of their products in Almere, the only support in China has to be found in locals, who know the trade culture and the rules for importing goods into China. Because of the large amount of Chinese people, labour can be cheap and the choice of qualified people for the job cannot be that difficult.
Because of the unstable regime, HG, has to deal with political problems, which can appear when other countries or for example the European Union takes measures to limit the trade with China. China’s government, will react by making I difficult for other countries to export products to China.
Germany Europe’s biggest economy
Business Culture in Germany is characterised by: business communication, business etiquette, business meeting etiquette, internship and student placements, cost of living, work-life-balance and social media guide. Germany is located in northern central Europe and covers an area of 356,750 km². Sharing its borders with nine other European countries (Austria, Belgium, Czech Republic, Denmark, France, Luxembourg, the Netherlands, Poland, and Switzerland), it is strategically positioned in the middle of one of the world’s most active trading zones. From its position on the North Sea and the Baltic Sea in the north, Germany has easy access to the Nordic countries and the United Kingdom. Germany’s capital is Berlin which is the country’s largest city in terms of area and one of the most influential centres in European politics and culture. With a population of more than 80 million people, Germany is the largest European economy and one of the largest economies in the world in real terms. Germany is also one of the world’s top three exporters. The official language is German. Including variations it is spoken by millions of people in other countries such as Austria, Switzerland, and parts of some Eastern European countries as well. This makes German one of the top ten most spoken languages in the world.
Today Germany is divided into sixteen States (in German these are called Länder).
1. Baden-Württemberg
2. Bayern
3. Berlin
4. Brandenburg
5. Bremen
6. Hamburg
7. Hessen
8. Mecklenburg-Vorpommern
9. Niedersachsen
10. Nordrhein-Westfalen
11. Rheinland-Pfalz
12. Saarland
13. Sachsen
14. Sachsen-Anhalt
15. Schleswig-Holstein
16. Thüringen
Germany is further subdivided into more than 400 districts (Kreise) and cities (kreisfreie Städte). However, the history of the country and how it was established is a long and bumpy road that has included wars and occupation. Politics in Germany functions within a framework of a federal parliamentary representative democratic republic, whereby the Federal Chancellor is the head of the government, and of a pluralist multi-party system. As mentioned above Germany is a federation consisting of 16 States (Länder), all with their own constitutions, governments and parliaments. The States are primarily responsible for policing and education, and for the implementation of most federal policies. Most issues of economic policy fall under the jurisdiction of the federal-level institutions. Executive power is exercised by the government. Federal legislative power is vested in both the government and the two chambers of parliament. The federal parliament is made up of a directly elected lower house (Bundestag) and an upper house (Bundesrat), which is made up of representatives of the state governments. Since 1949 the party system has been dominated by the conservative Christian Democratic Union and the Social Democratic Party of Germany.
As for HG, it is very important to have people, in Germany , to handle their communications with government or others, involved with the import of HG products and export of the necessary ingredients for manufacturing the HG products. A large wholesale or distribution section in Germany , is necessary to provide for the demand of HG products in Germany. Because of the position of Germany in the European Union and the free trading between countries of the EU, the boundaries for exporting HG products to Germany are not limited by strict political interference.
In case, all trading actions, can take place at a central point. Since HG, produces al of their products in Almere, the only support in Germany has to be found in locals, who know the trade culture and the rules. Because of the large amount of Germans, the choice of qualified people for the job cannot be that difficult.
Last but not least the UK
Business culture in the UK is characterised by business communication, business etiquette, business meeting etiquette, internship and student placements, cost of living, work-life-balance and social media guide.
The acronym UK is the abbreviated form of “United Kingdom” or officially the “United Kingdom of Great Britain and Northern Ireland”. The UK is made up of four countries: England, Scotland, Wales and Northern Ireland and is a member of the European Union (EU). The term UK is often confused with “Britain” or “Great Britain”, which actually refer to England, Scotland and Wales without Northern Ireland. To add to the confusion, citizens of the UK are called British. The UK is located in the north-western part of Europe and covers an area of 243,610 km2 (94,060 mi2). The home nations (England, Wales and Scotland) and the north-eastern part of Ireland (Northern Ireland) are based on the two large islands of Great Britain. The only land border that the UK shares with Europe is in Ireland, where Northern Ireland shares a border with the Republic of Ireland also known as Eire. The UK is surrounded by water, the English Channels to the south, the Irish Sea to the west, the Atlantic Ocean to the northwest and the North Sea to the East. London is the capital of the UK, and is also the country’s largest city, in terms of population, and one of the most influential centres in world politics, finance and culture.
The 2011 UK census estimated the population of the UK to be over 63 million people.
There are two official languages in the UK, English and Welsh. However, over 90% of the population speak English and for the most part Welsh is only spoken in Wales. Other languages and regional dialects exist; for example, Gaelic is spoken in some parts of Scotland, although it is not an official language.
The UK can be described as a multi-faith society, although a majority of 59% classed themselves as Christian in the 2011 census. The second most prevalent religion is Muslim which is practised by approximately 5% of the population.
The UK is in the Western European Time Zone and observes Greenwich Mean Time (GMT) (CET – 1) during the winter months and British Summer Time (BST) from March to October, to accommodate Daylight Saving Time (DST).
As for Germany, the same is said for the UK. They also take part in de European Union and therefore the rules for trading with the UK are as much the same as with Germany.