3. 3
Introduction
China is renowned as one of the world’s fastest growing economies, with a GDP
growth rate standing above 7% for the last five years, with little to no signs of this
slowing down. A population 1.357 billion and an inflation rate of 2.6% sets the
parameters for a huge consumer market to target, without considerable price
barriers in place. The Chinese mobile phone industry has experienced considerable
growth in recent years, particularly through the introduction of new manufacturers,
some of which are currently exclusive to China. This in turn presents an exciting
investment opportunity, however careful consideration of culture and values, in
addition to national legislation must be adhered to. The following report will identify
how investment should be carried out and how this consideration can be
demonstrated.
4. 4
Mode of Entry
Foreign direct investment (FDI) is an important method for the growth of developing
countries both investing and receiving the investment. It is defined as a cross-border
investment by a firm in one country with the aim to obtain a lasting interest in an
enterprise resident in another economy that, if successful, creates direct, stable and
long-term links between economies (OECD, 2013). It can provide a firm with new
markets and marketing channels, cheaper raw materials, new technology and
processes, products, a financial source (capital investments) and management
expertise.
Globally, foreign investment fell by 8% as of last year to $1.26 trillion, however as a
result of the United Nations Conference of Trade and Development’s 2014 statistics,
China overtook the US for foreign direct investment for the first time since 2003.
Foreign firms invested $128 billion in China and $86 in the US in 2014, this heavily
benefitted China’s services sector as their manufacturing sector decelerated (BBC,
2015). By the end of 2014, FDI in China increased to $1195.60 hundred million, their
all-time high going from recorded 1997-2014 statistics. This shows the willingness of
other economies investing in China as a country is gaining popularity due to its
economy growth rate. As of 1997, FDI in China has averaged $389.75 hundred
million and their all-time low came in January 2000 with figures as low as $18.32
hundred million, this shows how China’s economic growth factors in recent years
have been highly beneficial in terms of their development (Trading Economics (n.d.).
China’s development and growth in thirty years from an extreme poverty and an
under-developed country to one of the world’s leading exporter or manufactured
goods has gained high amounts of attention from current growing global economies.
A good example of this interest is Africa. In 2000, Africa had a 2% share in China’s
exports, 7 years later, this increased by 1% to 3% with an annual percentage increase
of 41% and an import share of 0.2% as of 2000, and 0.4% by 2007 with an annual
percentage increase of 40%. Around 70% of Africa’s exports to China are mineral
fuels, lubricants and related materials, benefitting China’s economy as the access to
these exports are considerably harder to be found or produced at a cheaper cost in
their own country (Working Paper, 2011).
Political and Legal Factors
A series of legislation exists that seeks to prevent or prohibit new and foreign
companies from entering Chinese markets. This is highly evident when looking at
telecommunications sectors (M Hedley, 2014). The state council governs all
legislative issues in the telecommunications market. The state council introduced
new regulations and administrative measures in 2000 and 2002, which lay out the
principles and requirements for telecom licensing, interconnection, service
standards and charges, network construction, telecom security and penalties for
5. 5
violating the regulations. Many of these regulations are unclear and subject to
interpretation, some are even ignored by provincial authorities and the carriers
themselves (US Department of Commerce, 2010). Another legislative factor that
determines new entries into this market are the Ministry of Industry Information
(MII), they own responsibility for enforcing the telecom policy. They also develop
equipment standards, issue licenses for the provision of all telecom services, allocate
spectrum, develops tariff rates for telecom services, and manages the numbering
and Internet domain registration. Even though MII operates as the regulator for
telecom, they are also in charge of developing china’s telecom equipment industry
and to oversee Chinese operations that are state-owned so as you can see there are
conflicts or interest.
Even though there is no official statute, only six companies are allowed to provide
basic service. The central part of control is the areas of service, for example, mobile
or international telecom services are highly restrained. It is a dependent legacy of a
state run monopoly systemthat restricts the entry of new companies to maintain
their monopoly (Y Yeo, 2008).
One of the telecommunication legislations implemented in China is “Article 9. An
operator of a basic telecommunications business must be examined and approved
by the supervisory department for the information industry under the State Council
and obtain an "Operating Permit for Basic Telecommunications Business".” This
illustrates the aforementioned point that the state council implement these
legislations therefore if any external business is trying to expand into china there are
very strict entry laws (ChinaITLaw, 2010).
Ethics
When investing into the Chinese mobile phone industry, it is best to apply a
culturally relative approach to business ethics, whilst incorporating small influences
from ethical imperialism.
This is due to the fact that there are huge cultural and ethical differences in the ways
in which we operate in the United Kingdom and the way things are done in China.
Identity, culture and ethics are traits which many people hold dearly; therefore
when entering into a foreign industry it is important to accommodate and
understand the background of the staff in order to get the highest levels of
productivity from them and not insult their beliefs or cultural values. When a
country is as politically separate from the western world as China is, it is unlikely that
foreign investors will be able to influence change in the processes and business
traditions within that particular country.
This being said, an ethically imperialistic approach is much less likely to bring
commercial success in China. This is due to the fact that staff are likely to frown upon
and disagree with foreign impacts upon their local culture as well as the legal
implications; what is seen as ethical in the United Kingdom can be viewed as a crime
in China and vice versa. However, it is important to integrate small ideas from ethical
6. 6
imperialism into the approach so that overseas staff are exploited, or subject to
substandard working conditions; Apple recently learnt this lesson after it was
reported that their Chinese workers were being exploited, thus leading to negative
media reports and public opinion. The Friedman doctrine is not appropriate in this
circumstance. This is due to the fact that as long as the business is acting within the
law, the theory entails no obligation to staff or the communities in which a company
operates and is solely concerned with returning as much profit to shareholders as
possible, as Friedman (1970) made clear; there is one and only one social
responsibility of business–to use its resources and engage in activities designed to
increase it profit. This theory can be dangerous when practiced in foreign countries
(particularly non-capitalist ones) as it leaves staff feeling disgruntled and exploited
due to the fact that they will be paid the lowest wage possible whilst the profits from
their labour are sent to shareholders overseas. Although Corporate Social
Responsibility is seen as a costly inconvenience to many businesses and
shareholders, Porter and Kramer (2006) found that CSR can have a positive effect on
Corporate Financial Performance. Elkington’s (1998) ‘triple bottom line’ states that
businesses CSR should relate to and benefit people, profit and the planet
Conclusion
Investment into China is a sensitive area, as cultural values are prevalent and
looked upon with great prestige. In addition to this, China’s communist nature is
considerably different from that experienced in the largely democratic western
world. Any business trying to fight the uphill battle of entering the Chinese
Telecommunications market will need to meet multiple legal, cultural and
political trends. China’s telecommunications market is a highly monopolistic
market that is dominated by the six main businesses that are all majority owned
7. 7
by the government so any new entries to this scrutinizing market stand little
chance at success.
8. 8
References
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Bilton, R. (2014) ‘Apple 'failing to protect Chinese factory workers’ BBC Business.
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Elkington, J. (1998) ‘Accounting for the triple line’, Measuring Business Excellence,
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