: PESTEL Analysis china
1. Political Factors
The Chinese government is still under its communist regime. Nevertheless, current trends in the trade and investment legislations of the state reveal the opportunity for foreign companies. One development in the regime indicated the decentralization of the decision making processes with regards to trade and investment. (2000) This gives a certain level of latitude for the foreign trade companies in China making the economic decision to expand their profit. A feature of this endeavour would be the proliferation of joint ventures in the country. Another reform that made China more accessible to foreign companies is the encouragement of foreign direct investment. (2000) This brought about net capital inflows and a sizable build-up of foreign exchange reserves which in turn assisted in the development of Chinese provinces like Fujian, Guangdong, Taiwan and Hong Kong.
2. Economic Factors
The Chinese government is a signatory of the WTO agreements which mean their economic policies are converted to suit the agreements of free trade as espoused by the WTO. This presents an advantage to foreign companies in entering the market of China. However, having just recently signed the agreement and having a considerable amount of time trading internationally with serious restrictions and trade barriers, there are still drawbacks that may pose a problem for these foreign firms. These include what (2003) indicated as institutional problems inherent in China: regulatory institutions, normative institutions, and cultural and cognitive institutions. In the context of the regulatory institutions, (2003) indicated that the laws are rather lacking in such a way that they have no codified laws across the regions and are subject to arbitrary implementation of these laws. In the normative institutions (government and other regulatory bodies), the said authors claimed that corruption and network of relationships have great influence in these institutions. This entails changes in business operations to adapt to the culture of the country. On the cultural and cognitive institution, . (2003) claimed that business conventions in China are considerably different from its European counterparts. Conflict between business entities is resolved through informal means. Moreover, trust is a huge factor in business relationships.
3. Socio-cultural Factors
The work of (1985,1996) indicated that specific countries have the tendency to cluster together particularly with regards to the similarities of their culture. They indicated eight country clusters: Anglo; Germanic and Nordic; Latin European and Latin American; Near Easter; Far Eastern; Arab; and Independent. China is categorized under far Eastern cluster. This means that the said state possess a culture that has high power standard, low uncertainty avoidance, very collective, and masculine. According to the study of Hofstede (1980, 1994) societies with high power distance index that power and wealth are significant factors in society to the extent that it has inherently allowed these elements to develop within. Low uncertainty avoidance indicates that the Chinese are keener on acquiring risks and is open to the idea of change in situations. A collective society indicates a culture surrounding interpersonal ties is considerably tighter in the context of China. There is an unwritten yet understood responsibility that each and every individual to a certain degree. And lastly, a masculine society shows that the major structures of the society in China are dominated by male. Needless to say that China has a high level of gender differentiation present in its society.
4. Technological Factors
Information technology in China is rapidly gaining on the standards of the world’s top economies. With China’s considerably rapid growth particularly its economy, it is inevitable for the transfer of technology to gain huge improvements as well. (2005) In fact, the top leaders of the Chinese Communist Party (CPP) consider the advancement in IT technologies as a major part of the modernization plan of the country. ( 2002) the report of (2002) even indicated that there were over sixteen million internet users in the country in the year 2000 alone. Thus, there is a huge possibility that China may well occupy the top slot in terms of the ICT market. 5. Environmental Factors
Entering the market of China also means entering an incredibly huge market. With its major provinces and administrative regions, it is no wonder why international companies have been yearning over taking advantage of its market. Each of the capital of the said regions is increasingly becoming a commercial hub of its surrounding areas. Moreover, the current trend on the urban migration in the Chinese setting reveals that the urban areas in the country are getting packed with hordes of possible consumers, especially in the retail industry. (Liang, 2001, 499)
6. Legal Factors
Laws regarding foreign investments are currently considered by the Chinese government for revision. A study of (2000, 4) indicated that the Chinese government has ratified laws that would be appealing for foreign investments. This manifests the inherent desire of the Chinese government to attract foreign companies to invest in their country. Another illustration of this phenomenon is the revision of certain laws such as The Law of the People‘s Republic of China on Chinese-Foreign ContractualJoint Ventures and The Law of the People‘s Republic of China on Wholly Foreign-Owned Enterprises in 2000 and The Law of the People‘s Republic of China on Chinese-Foreign Equity Joint Ventures in 2001.