Trade Manual:  The People’s Republic of China

General Information

The manual contains detailed information about China that can help Goodies Inc. board of directors to make an informed investment decision. The document presents China as the best option for Goodie’s new market expansion plan. After reading this manual, it is undoubted that the company will open a new plant in China as the winning bid.

The Peoples’ Republic of China is one of the world’s largest markets with a population of approximately 1.4 billion as per 2017 statistics provided by the World Bank (Chen, n.d). Due to the high population, China registers a desirable gross domestic product growth rate of 6.9% as per 2017. The GDP rate is far much ahead of the United States and India of 2.3% and 6.6%, respectively. The country is large in the geographical coverage of around 9,600,000 square kilometers (Ding, Yi, Alexande & Cem, 152). It enjoys political stability maintained by the Communist Party of China as the governing body. China is located along the coastline of the Pacific Ocean and in Southeast Asia. Its geographical coordinates are 103.0000⁰E longitude in Asia and 35.0000⁰ N latitude (Ding, Yi, Alexande & Cem, 152). Its neighboring countries are India, Russia, North Korea Vietnam, among others. Major cities in China include Beijing as the capital city, Tianjin, Chongqing, and Shanghai. By 2019, Beijing had a population of 20,035,000 people, which represents a 2.13% rise from the previous year. Tianjin had approximately 13 396,000 residents, while Shanghai had 24.28 million, and Chongqing had approximately 15,354,000 people representing 3.35% rise of the prior year (Guo et al. p3686). China is composed of fifty-five ethnic groups, with the majority being Zhuang, Uyghur, Hui, Manchu, Miao, Yi, Tujia, and Tibetan, among others. Mandarin is the official dialect, with more than 70% of the population speaking it. Other minor dialects include Kejia, Xiang, and others.

Figure 1 China Map and Satellite Image (Gan et al. .p8)

Guo et al. (p3686) noted that currently, the republic of China enjoys a peaceful political climate with stability in the political environment. It has a positive and productive political relationship and partnership with other G7 countries such as the United States, the United Kingdom, among others. For example, on 15^th January 2020, China and the United States signed a trade treaty that would ensure the purchase of $200 billion worth products from the American market. The agreement expected China to remove most of the trade tariffs and barriers to American products. In return, the United States was to increase its total imports from China. Generally, China’s political climate is peaceful and encourages foreign investment. Major social issues in the country include regional imbalances, crime, unemployment, and social unrest due to the world’s current pandemic coronavirus. With the implementation of strict laws against human rights, the rate of elitism and discrimination in private sectors has reduced significantly. The government, through provincial administration, has made notable progress in reducing regional imbalances through even resource allocation and empowering of youths. The unemployment rate has increased from 3.61% in September 2019 to 3.62% in December of the same year (Guo et al., p3686). The average rate of unemployment is at 4.07% as economists forecast a drastic decline due to progressive growth in the industrial sector. China is among the countries that have made significant steps in bridging the inequality gap between the rich and the poor and male and female. By delegating development programs to provincial administrations, resources are being equally distributed to the marginalized communities. Taxation programs are designed to levy more from the rich as deduct less from the low-income earners.

China suffers from both indoors and outdoors environmental pollution, such as air, water, and soil pollution. Air pollution has posed a serious health risk to Chinese residents due to the increase in greenhouse gases emission. Nevertheless, the government has implemented policies to help reduce the amount of carbon dioxide emissions. Since China joined other countries to attain global sustainable development goals, the rate of environmental pollution has decreased significantly. According to Rhodium Group, the carbon footprint in China was approximated at 13.92 billion tonnes, which was below average (Gan et al. .p9). Environmental organizations in China, such as China Carbon Forum and China Low Carbon Forum, have made significant efforts to conserve energy and protect the environment from effluents and careless pollution. In this connection, it is essential to note that China is exposed to natural calamities such as droughts, heat waves, typhoons, earthquakes, and volcanoes. Occurrence is such natural disasters have led to the loss of lives and damage of property. The government, through the Disaster and Emergency Management System in China, has put in place policies and strategies to help curb before, during, and after disasters. In the corporate field, China has several insurance programs that cover losses to businesses from natural hazards. This will ensure that foreign investments in the country are covered from natural calamities risks, and Goodies Inc is not an exception.

China has good infrastructures and other complementary services that support business operations. The transport sector is majorly composed of the railway system that is 120,970 kilometers long (Chen, Baizhu & Yi, 12). There are both electric trains and traditional trains. Air transport connects three significant cities through Beijing, Shanghai, and Guangzhou.  Companies such as Air China and China Southern Airlines provides essential aviation services. Road transport is also available for short-distance services that can be used for local goods delivery. Being one of the leading countries in technological inventions, China has an efficient and effective communication system composed of modern networks made of fiber-optic cable and domestic satellite systems. There are new inventions about cellular telephone network services that will support roaming services across the globe. The existence of complementary services such as bank systems, security services, transport, and communication in China makes it the best choice for the Goodies Inc. board to consider.

Political and Economic Information

A critical look into China’s political and economic composition affirms that it is the best place for investment. China is a unitary one-party socialist state under the 1982 constitution. It is a unicameral with the National People’s Congress as the legislative branch. The ruling party is The Communist Party of China led by Xi Jinping. Despite political pressure from various groups and parties such as democratic parties, president Xi Jinping has managed to maintain political peace and stability through inclusivity and togetherness. CPC has fostered political accountability and transparency for those holding leadership positions reducing the corruption perception index by ten from forty-four. In two decades, China has not experienced any major international political and territorial disputes.

Nevertheless, it has experienced domestic tensions and polarization due to disparity service distribution. The country enjoys both internal and external harmony, peace, and integration that brings people together. This forms a desirable market for Goodies products.

Economically, China has a socialist market economy that fosters faster growth. This has made the country the second-largest world economy in relation to GDP (Cai, Fang, Dewen & Yang, 212). In terms of purchasing power parity, China is the world’s largest economy. According to the National Bureau of Statistics, in 2019, China had a real GDP growth rate of 6.1%, which is lower than that of 2018 (Yu Xiaochu et al. p7). The same statistics also reveal that China’s GDP per capita was $14.3 trillion by 2019. The significant imports include integrated circuits, crude oil, and cars, while exports include computers and broadcasting gargets. China is also rich in natural resources such as coal, natural gas, and precious metals such as talc, gold, and iron, among others.  The currency in China is Renminbi that exchanges at 0.20 CAD. The inflation rate increased from 2.1% to 2.28% in 2019, with a minimum wage of $322.38 (Zhang, Yan & Liutang, 75). In 2001, China joined the World Trade Organization, which has fostered major economic growth in the country. Being a member of WTO, China agreed to remove trade barriers and tariffs for members such as the United States, which has significantly improved the trade relationship between the two giant economies. Such relationships, agreements, and networks are advantageous for Goodies Inc. as an investor in the Chinese market.

Cultural Information

As a potential investor in China, the board needs to have insight into Chinese culture to help forecast future success. Goodies present North American corporate culture is not very different from the Chinese culture. However, as a new entry, there essential aspects of Chinese culture that may have a significant impact on customer relationships. The common form of greeting is a simple handshake and a kind salutation. Handshake is the formal form of greeting expected in offices. However, depending on the relationship between the interacting individuals, hugs and kisses are accepted. For families and those in relationships, hugs and kisses are accepted. Goodbye is shown through waving the right hand or both hands for both formal and informal cases. Individual social groups define cultural norms. However, hand gestures are used where appropriate. While addressing the elderly, it is inappropriate to use hand gestures that are complicated and only known among the youths. Head nodding is considered an informal way of agreeing or acknowledgment.

Physical contact is of the essence, and the male and females are expected to keep reasonable distance in public places such as offices. Maintaining personal space is one way of showing self-respect and dignity. It is essential to note that physical contact and creating personal space do not mean less social interaction. For employees in China, self-esteem comes first before anything else. Most companies in China encourages democratic leadership styles that promote inclusivity and corporation among the stakeholders. Even though the autocratic type of leadership is still practices in some companies, most of them prefer democracy to enhance diversity and intercultural tolerance. Grooming and proper dressing are of value in Chinese culture. There are male and female official attires accepted at the workplace. The use of gifts and business cards is normal, and punctuality at work is essential. There is no gender stereotyping in roles, and men, women, and children can perform any duty.

Marketing Information

For Goodies to effectively enter the Chinese market, it has to have insight into the potential challenges and advantages that can result in failure or success.  Given the large nature of the Chinese market, the information compiled would help the Goodies Inc. make vital marketing decisions. Before making any step, the firm needs to answer the following primary market research questions;

Primary questions

• What is the education level of the target market?
• What is the composition of the market based on gender, age, and ethnicity?
• What is the average household income?
• What is household size?

Secondary questions

• How vast is the potential market?
• Will the market shrink to grow in the future?
• What are other alternative and complementary products in the market?
• Who are the main rivals and their market share?

After answering the above questions, it is essential to consider the 4Ps and 2Cs.

4Ps

Product- Product provided in the market need to be branded with new logos and slogans to differentiate them from the existing ones. Milk caramel and chocolates should have features that make them unique for new consumers. While branding the products, packaging, and labeling should be in local dialect to help the consumers understand. Most consumers in China prefer quality products despite the price. In this case, it is advised that Goodies produce high-quality products above the existing ones in the market.

Pricing- Given the competitive nature of the Chinese market, the pricing strategy is the best entry plan. Goodies should apply a penetration pricing strategy to entice new customers. Prices offered should be slightly below the market price, considering the cost of production. In the short-run, the company should focus on increasing demand for the products by lowering its prices below that offered by competitors.

Place- The new firm should be located in Beijing due to its strategic location and high population. In the long-run other startup, branches should be located in different cities to increase accessibility. Being that customers prefer online business operations, it is recommended that Goodies exploit e-distribution and marketing.  The company should develop android apps and windows software that customers can use to search and place orders online. This will reduce expenses incurred due to the long chain of distribution and increase marketing efficiency.

Promotion- Given the high population in China, extensive promotion is necessary to inform, remind, and convince people to buy Goodies products. The first promotion focus should be to inform the consumers of the existence of new products in the market. China, one of the high technology countries; therefore, promotion methods should be online. Social media contests and email marketing should be given priority.

2Cs

Consumer- considerations should be given to consumers in the market.  Market research shows that Chinese consumers have to change tastes and preferences.  Products offered in the market should align with local cultural norms. Consumers in the new market show trends of increase in consumption as a price increase for necessities, which is important to consider while applying pricing strategy.

Competition- The new market is very competitive, comprising of some of the world’s largest firms offering similar products. Existing firms have competitive advantages in production, distribution, and differentiation. Countering such stiff competition requires the implementation of strategies that will increase the firm’s market share. It is recommended that Goodies apply product differentiation strategies, cost-leadership, and focus strategies to outweigh their rivals. Even though the market may seem very competitive, the high population presents a vast market and a good share for Goodies Company. If the firm would use competitive strategies such as joint venture and license, then there is a high chance of stabilizing in a short time.

Country’s Specific Information

The confectionery industry in China is booming since most people like fast foods. It contributes to a significant percentage of domestic products.  By 2020, the volume of the confectionary industry amounted to US$55, 190 million. Economists expected a rapid growth increase of 3.5% by 2023 (Yu et al., p6). The average revenue per capita by 2020 was noted to be US$38.5, as per capita consumption registered was at 5.3 kilograms. There are both domestic and foreign producers in the confectionery industry in China. Locally, there are more than 593 manufacturers (Zhang, Yan & Liutang, 75). Major domestic producers include Wrigley Confectionery (China) Co Ltd, Mars Foods (China) Co Ltd, Hsu Fu Chi International Ltd, Perfetti Van Melle (China) Co Ltd and Henan Yuda Foodstuff Co Ltd among others.

If Goodies Inc. invests in China, it will enjoy easily accessible banking services provided by major banks such as Bank of China and Industrial and Commercial Bank of China. The banks have been at the forefront of supporting both domestic and foreign investors. They provide both long-term and short-term loans at affordable interest rates. The China Construction Bank provides insurance cover for large businesses against risks and uncertainties that may occur.

China is one of the safest countries in the world. Crime rates have reduced significantly over the past ten years by 5.07 million cases. Further, the country does not face terrorism threats due to its peaceful co-existence with its neighboring countries. It is noted that China has few enemies and many friends across the globe. This presents Goodies with a favorable, safe, and stable environment to conduct business activities.

Recommendations and Conclusions

Every business opportunity has risks involved. However, the risks involved in expanding Goodies Inc. operations in China are manageable and can be mitigated through proper planning. The benefits that to be enjoyed by investing in China outweigh the demerits; therefore, it is a risky opportunity worth grabbing. Through market analysis and a comprehensive presentation of both internal and external business environment in China, it is evident that it is the best alternative for the board to consider.

The only major challenge that requires special attention is the change of culture from North American to Chinese. Overcoming cultural walls in a new market requires diversity and intercultural adaption. If Goodies cultivates intercultural adaption and communication in its daily operations, then it will be easy to adapt, accept, and appreciate how unique and different is the new Chinese culture. The company should practice diversity in terms of ethnicity, race, age, gender, and nationhood to increase the rate of cultural adaption. With the solution to cultural problems, Goodies Inc. can successfully invest in the second-largest economy in the world and expect high returns and profit maximization.

Work Cited

Cai, Fang, Dewen Wang, and Yang Du. “Regional disparity and economic growth in China: The impact of labor market distortions.” China Economic Review 13.2-3 (2002): 197-212.

Chen, Baizhu, and Yi Feng. “Determinants of economic growth in China: Private enterprise, education, and openness.” China Economic Review 11.1 (2000): 1-15.

Chen, Wei, et al. A Forensic Examination of China’s National Accounts. No. w25754. National Bureau of Economic Research, 2019.

Ding, Yi, Alexander McQuoid, and Cem Karayalcin. “Fiscal decentralization, fiscal reform, and economic growth in china.” China Economic Review 53 (2019): 152-167.

Gan, Yu, et al. “Carbon footprint of global natural gas supplies to China.” Nature Communications 11.1 (2020): 1-9.

Guo, Aijun, et al. “Predicting the future chinese population using shared socioeconomic pathways, the sixth national population census, and a PDE model.” Sustainability 11.13 (2019): 3686.

Yu, Xiaochu, et al. “Population-based projections of blood supply and demand, China, 2017–2036.” Bulletin of the World Health Organization 98.1 (2020): 10.

Zhang, Yan, and Liutang Gong. “The Fenshuizhi reform, fiscal decentralization, and economic growth in China.” CHINA ECONOMIC QUARTERLY-BEIJING– 5.1 (2005): 7