Indirect Investment Options
The indirect investment option avails itself of two avenues: licensing agreements or branch or representative offices. "Foreign companies with patents, trademarks, or other intellectual property are free to enter into licensing agreements with local companies. Licensing has the advantage of limiting a foreign company's exposure, since the company need not set up an office or a joint venture" (Price Waterhouse Coopers. N.D.P.18). The branch or representative office "remains part of the parent company and is therefore not entitled to the rights and protections accorded to Chinese legal entities; however, it also must appoint a Chinese legal representative" (Price Waterhouse Coopers. N.D.P.18).
Pros and Cons of Direct v. Indirect
Of the direct and indirect investment options there are positives and negatives. The direct investment option allows the foreign entity to immerse themselves into the political, regulatory, and business framework of China's economic powerhouse. One of the most important distinguishing factors evident in the models is that of the profit role. The direct option allows for the foreign investor to build and develop their business with control over the final profit decisions. The direct option is far more capital intensive which can deter smaller organizations however, the rewards of autonomy and control are counterbalancing positives. The indirect investment option licenser "has less control over how its product is priced, marketed, and distributed" (Price Waterhouse Coopers. N.D.P.18). The branch or representative office "allows a foreign investor to enter the Chinese market with little initial investment, but the investor is prohibited from direct profit" (Price Waterhouse Coopers. N.D.P.18). The distinct advantage however, is that business can expend far less capital then they would allocate for a full direct investment.
For City College Norwich the choice becomes one of capital, time, and their long-term goals for Chinese operations. As an institution of higher education the City College mission is to provide students with a broad curriculum which engenders a global perspective on cooperative engagement and students and faculty making a difference. Because the profit motive is not intrinsic for City College, the...
Yet, in analyzing the influencing aspects of China's political, economic, and cultural norms on City College's strategy, the direct investment option provides a more effective analysis tool.
Identify the Key Relevant Aspects of the Government / Political, Legal, and Economic Environment that Influences Strategy.
When discussing these relevant aspects the primary consideration is how they impact strategy from an obturative and opportunities basis, i.e. what are the challenges and possibilities which they represent to Norwich College? Government/Political forces are perhaps the strongest obstacles to entering the Chinese market. "Local government officials can be critical to the success of a foreign-invested enterprise (FIE)" (Price Waterhouse Coopers. N.D.P.13). In China government is a ubiquitous presence which is at the foundation of all business relationships. While government can be intrusive in the amounts and types of regulatory oversight," the best way to maintain good relations with Chinese government officials is to work with them. Although some Chinese laws can be burdensome and compliance expensive, a company that diligently follows all the rules will be in better standing with the government" (Price Waterhouse Coopers. N.D.P.13).
"Probably the most widely publicized obstacle to setting up operations in China is the difference in attitudes toward intellectual property. The Chinese government has signed treaties, passed legislation, and created special courts to safeguard IP rights. Nevertheless, reverse engineering, counterfeiting, theft, and other forms of IP misappropriation remain widespread" (Price Waterhouse Coopers. N.D.P.10).
Specifically what is referred to here is the legal challenge which an organization can face in China. Because property rights are not as well protected as in the fully developed economies, there can be considerable pressure placed on firms which find themselves caught in intellectual property battles. Over time the growth of china's economy will require greater legal protection for individuals and firms yet, "it is not just foreign investors who need protection from capricious legal interpretations; Chinese companies, too, will benefit from the relative certainty of a consistent, rule-based order throughout the country" (Price Waterhouse Coopers. N.D.P.10).
The economics of China
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