Risks Involved in Trading with or Operating in China


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Risks Involved in Trading with or Operating in China

Definition of Risk
Negative Attention from Pressure Groups and Political Figures
Exchange Rate Fluctuations
Political Instability
Language and Cultural differences
Intellectual Property Theft
Bribery or Corruption

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Risks Involved in Trading with or Operating in China

  1. 1. Risks Involved in Trading with or Operating in China The P Team
  2. 2. Definition of Risk The possibility of an event or condition occurring that will have a negative or harmful impact on something perceived to be of value. Businesses are primarily concerned about financial risk.
  3. 3. 1. Suppliers  New suppliers may be relatively unknown, this may result in businesses choosing one who is not able to provide the product to the standard required  It can also mean that they are unable to meet deadlines and unreliable in general
  4. 4. 2. Exchange Rate Fluctuations  This could result in materials imported from china becoming more expensive  This can reduce profit margins if the increase in costs cannot be passed onto the customers
  5. 5. 3. Negative Attention from Pressure Groups and Political Figures  Attracted because of China’s human rights policies  Businesses who choose to trade or operate within China may receive unwanted negative media attention  This can cause consumers to switch to direct competitors
  6. 6. 4. Political Instability  Governments in China may apply policies aimed just at foreign businesses in order to gain popularity with its citizens  However in 2012 China announced that it would reduce its taxes on overseas businesses by up to 50% to encourage foreign direct investment
  7. 7. 5. Language and Cultural differences  This could lead to the business marketing its products in the wrong way or aiming their product at the wrong target market  This makes it difficult to appeal to the right audience  An example is Tesco who have put their difficulties down to the inability to adapt their business model to suit their target audiences culture
  8. 8. 6. Intellectual Property Theft  Intellectual property violations are common  Without effective protection, a business may lose its USP and competitive advantage  Businesses may struggle to recoup R&D costs and legal costs incurred from fighting intellectual property infringements
  9. 9. 6. Intellectual Property Theft (Dyson)  Dyson’s plan to enter the Chinese market in 2012 was undermined by the availability of cheaper, similar products, which were an infringement of their patent rights  Chinese firms would not have spent millions on R&D nor gone through the process of registering a patent  Firms like Dyson were damaged due to lower sales, lower market share and cheaper copies which harmed the brands reputation and image
  10. 10. 7. Bribery or Corruption  Common throughout China despite the fact it is illegal  Especially in areas such as dealing with local officials in charge of permits  The giving of gifts reflects a key feature of business culture, but exposes businesses to the accusations of bribery
  11. 11. 7. Bribery (GlaxoSmithKline)  UK’s largest drug-maker  Allegedly used travel companies to channel ¥3 billion (£300m) to bribe doctors and officials  Sales in China during July-September quarter, 2013, sank 61% after the scandal
  12. 12.  Tescos - http://www.foodmanufacture.co.uk/World-News/Tesco- failed-to-understand-the-Chinese-consumer  Dyson - http://www.telegraph.co.uk/finance/yourbusiness/8936685/Sir- James-Dyson-attacks-China-over-designs-theft.html  GlaxoSmithKline - http://www.bbc.co.uk/news/business-24637195  https://www.youtube.com/watch?v=Iw7Q1LiNXig Links
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