As discussed in earlier papers, for Dorchester, the final decision as to which particular nation to invest in is dependent on a range of distinct scenarios; these factors naturally impact the selected acquisition target. Before the acquisition target is selected, the nation which houses the potential acquisition target needs to be scrutinized closely. For instance, the trade environment of the nation where the prospective acquisition is located needs to be assessed, since this factor will impact the cost and ability to engage in trade. The political environment of the nation where the prospective target resides is also a crucial factor that needs to be examined closely. No potential targets exist in peaceful vacuums; rather all the prospective nations looked at during this course have some element of political risk attached to them. Furthermore, as discussed during earlier assignments, it's been found that political stability of a nation has strong correlations with the exchange rate and the economic stability of major companies within that nation. As described in earlier paper, Dorchester needs to consider the creation, development and social acceptance of its products in the selected nation, and for the markets of neighboring countries.
Expanding to China would be a wise idea, through investments and target acquisitions. However, with foreign companies in China there can be the danger of being naive. Just because China has gone through such tremendous growth doesn't mean that it's a country that does business the way western nations do. In expanding to china and acquiring certain Chinese companies, Dorchester needs to have completed thorough research and have a clear game plan of not just how to finance such a move but on how to deal with the autocratic government and the corruption which can be quite inherent to the entire nation.
Earlier assignments demonstrated how I thought that China was one of the most ideal and most promising nations for future business. As the past few decades have demonstrated, China has experienced robust and substantial growth, something which has bettered the ability of Chinese people to exercise their abilities as consumers and purchase a range of items, including high-tech technological goods. For example, one of the major items for purchase has been televisions, something that has heightened the general sense of a consumer economy: televisions lead to watching commercials which lead to the desire for more products, which leads to even more purchasing by consumers. Part of the economic stability that the company has enjoyed has been a result of the vast manufacturing capabilities of the nation: China makes a great deal of televisions for the world. China is thus a desirable nation for Dorchester because it allows them to compete with a low-cost platform.
The manner in which China treats its economic stability is revelatory of the nature of the national culture as well as the underlying political climate. For instance, in 2010, when China overtook Japan for the place of having the second largest economy in the world, the nation reacted with extreme modesty. This modesty was in part a reflection of the genuine character of the nation, and also a strategic measure. For instance, as Russell Leigh Moses, a political analyst asserted, "I admire the government's retreat from hubris and its embrace of humility, and I don't get any sense it is manufactured" (Ford, 2010). This is in part, an accurate statement; China is not and has never been a country which has been given to hubris. Yao Jian, the Commerce Ministry spokesman, placed emphasis on the fact that China is still not out of the wood. Yao Jian asserted that China is still a developing country, meaning that a massive economy does not negate the fact that the bulk of the nation's population is poor (Ford, 2010). This fact is something to bear in mind when determining target acquisitions and for the future investment in the nation.
Furthermore, "Chinese officials are quick to argue that the simple volume of the country's gross domestic product (GDP) is less important than the approximate value of goods produced per person, known as per capita GDP. Measured that way, according to the World Bank, China ranks 124th in the world, between Tunisia and Angola. The World Bank puts annual per capita GDP in China at $3,620, less than one-tenth of the Japanese figure and one-thirteenth of the U.S." (Ford, 2010). When put in these terms, China doesn't look like a rich country, but a country which has simply made a tremendous amount of progress in the last few decades and which continues to improve. However, China understands that the problems it has looming on the horizon are truly massive, and thus any investor needs to understand those things as well.
This means that while there has been substantial economic growth, there are still also risks, and these risks are immediate. For instance, the property bubble, which has given China so much momentum, might implode, or inflation might grow wild, or the nation might be stunted by social unrest as a result of the increasing inequality between classes (Ford, 2010). Given the fact that so much of the rest of the world truly believes China to be rich, there's the danger of other countries of piling "…on the pressure for Beijing to shoulder the sort of international responsibilities that come with the territory when you have economic clout: do more about climate change, for example, or stop favoring its exporters with an artificially weak currency" (Ford, 2010). Fundamentally, the longer that China is labeled a rich or fully developed nation, the greater the implication is that China should take on problems or responsibilities that it's simply not capable of handling at this time (Ford, 2010). Dorchester needs to take these influencing factors and risks into consideration and to surmise that the economic status of China is far from static: it's going to continue either in a positive direction either at a slow or an accelerated speed, or it's quite possible that the alternative will occur.
As desirable as China is, it is not without some economic challenges. The boost in incomes have led to inflation in China, causing an increase in labor costs, making the task of setting up shop in China more costly. Furthermore, the Yuan, China's currency is extremely inflexible and is something which thus creates a substantial amount of risk in China from an economic standpoint. This indicates that economically, China has not fostered and developed a currency regime which is sustainable in the long run, causing the government to be anxious/reluctant about making any changes to the system despite how such changes might benefit the country in the long-term.
The political risk is China is still present to a certain extent. Even though the country encourages and even welcomes foreign investors to their company, there's still a formidable amount of corruption that is innate to the nation as well. Foreign investment and businesses are fostered generally in the form of joint ventures, so that information can better be shared -- and also so that the Chinese government can exert the level of control that they most strongly desire.
It would be wise for Dorchester to seek out the help and experience of firms (non-competitive firms in different fields) in their native land who have experience dealing with the Chinese market in a range of situations, so that Dorchester has a higher likelihood of performing better. Such mentoring firms will be able to provide more of a guide for navigating Chinese political and business culture.
Having examined the economies and political climates of China, Japan and South Africa, the ultimate assessment was that Dorchester should invest in China. The overarching and most important reason for that was because of the manufacturing capability of China. All three of the companies manufacture technological goods such as televisions; however, China has a distinct advantage in that it has a higher level of competency with low cost and high end sets. Furthermore, China is the nation at the foundation of many of the parts manufacturing for other countries to begin with -- even those that create for Japanese manufacturers. Even though the average wage in China is increasing, Chinese workers are capable of a level of excellence that is unparalleled elsewhere in the world.
Part of the appeal of investing in China and selecting Chinese acquisition targets is directly connected to the allure of the Chinese work ethic. The Chinese work ethic has long been famed around the world, and the Chinese have long been presented as driven, disciplined, punctual and hard-working people who excel during times of extreme stress and anxiety. One could even go so far as to say that the Chinese work ethic is a fixture in the society and culture. One recent news story which best reflects the strength and dedication of the Chinese work ethic is the story about the street sweeper who had spent decades doing manual labor like farming or truck-driving, received a million…