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Challenges and Opportunities of Doing Business in China
With the growing speed of globalization, more and more U.S. businesses are expanding abroad. The Chinese market presents many unprecedented opportunities. However, the potential challenges and risks of doing business in China also threaten to chase U.S. businesses away.
This blog provides insight on the challenges and opportunities of doing business in China. It also reveals the fastest-growing business sectors in the world’s most populous country.
The key challenges
Chinese business management is a challenge, for these reasons:
- Innovative industry leaders and business managers are severely lacking in numbers.
- Most businesses cannot grow to a large scale.
- R&D funding channels and mechanisms are not well developed.
- Shortage of experienced labor exists in certain industries, such as manufacturing, while a large amount of college graduates are unemployed. Last year, out of 6.3 million college graduates, 1.5 million, or 25 percent, were unemployed
The business environment in China is also a challenge, for these reasons:
- The central Chinese government rules local-business operations, which poses high political risk, thus causing difficulty for U.S. companies seeking to enter the Chinese market.
- Intellectual-property law is not well developed. This leads to fierce competition from local, low-quality and low-cost manufacturers in certain sectors, such as information technology.
- The innovation environment is not well established. “Copycatting” is commonplace.
China’s capital environment is yet another challenge, for these reasons:
- It’s fairly difficult to conduct mergers and acquisitions.
- The Chinese stock market is underdeveloped, posing financial risks and numerous requirements for establishing IPOs.
The key opportunities
For U.S. businesses, the good news is that huge demand within the Chinese market presents vast opportunities.
China’s economy is growing at an exponential rate, despite the global macro-economic downturn. China’s GDP has climbed to the No. 2 position, and the country also ranks No. 2 in luxury spending.
With the growth and shifting composition of China’s large population, technology is driving the improvement of living standards for Chinese people.
As a result, capital investment in China is exploding. Since the first venture-capital firm was established in China in 1985, more than 2,500 VC and private-equity firms have sprouted. In total, during 2009, the latest year for which figures are available, these firms raised $27.6 billion and invested $10.4 billion through 363 transactions.
Despite the many risks and challenges facing U.S. businesses looking to compete in China, the Chinese market presents more opportunities than ever before. Some of the fastest-growing sectors are in high-tech and IT, new energy, entertainment, culture, and biotechnology.
On the whole, for U.S. companies looking to do business in China, the proverbial glass seems to much more than half-full.
Photo: Chinese and U.S. businesspeople, posing during a recent international fashion fair in China.