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Risk factors for doing business in China

Scenario

The firm manufactures a global positioning system (GPS) that sells for $1,000 with cost of goods sold (hardware and software) of 48% of sales.
Compared to the United States, China offers a 6% cost reduction in electronics manufacturing hardware and a 50% reduction in software programming.

Assignment

You have been asked to lead a team to study and create a report for the executive team the country of China for business opportunities.

Though a group project, your part of the assignment is to study and gather the information outlined below on China.

Assignment

1. Risk is a significant factor. Identify each of the risk factors for China

a) political stability,

b) exposures of transaction,

c) interest rate,

d) operating,and translation;

e) currency exchange rates;

f) currency controls;

g) skilled labor;

h) facilities;

i) infrastructure;

j) China's track record in using foreign direct investment (FDI);

k) and political corruption and roadblocks to establishing a going concern business

2. Please cite all references

Solution Preview

The Risk Factors for Doing Business in China

Political stability
Political stability brings the stable economic development for any country. If the government of the country is stable it help the economy to grow by using its policy for longer time but if there is political instability government can not implement its policy properly and every new government will use different policies at different times causing the economy of the country to suffer. Political stability has a great impact on the investor. The flow of investment in the country suffers when there is a political instability within the country because the investor will fear of investing because it creates a risk for the investor.
As far as Chinese political situation is concerned, the country has a stable government and this is the reason it is able to attract more investor and at the same time manage its economy to grow at a fastest pace.
Exposures of transaction
Exposure of transaction is a risk faced by the companies involved in international trade. These multinational when trade in the country they expose them selves against the currency exchange risk between dollar and the currency of the country they trade with. Volatility in he exchange rate affects there exposure.
As far ach Chinese currency Renminbi is concerned, this currency is pegged to basket of foreign currencies by the People's Bank of China and is allowed to trade within a narrow 0.3 percent band against this basket of currencies. According to china the basket is mainly dominated by a group of international currencies including the U.S. dollar, Japanese yen, euro, and South Korean won, with a smaller proportion made up of the British pound, Russian ruble and Thai baht. Due to this the risk of transaction exposure is just reduced to the 0.3% for the investors investing in China.
Interest Rate
China has cut interest rates for the 5th time in 3 months. At present the interest rate of the country stands at 5.31% with a cut of 27 basis points. The country is forced to cut its interest rate due to unfavorable economic condition. As the economy of china has a great correlation with the economic situation in the United States, Japan, and the Euro Zone, the uncertainty over interest rate of china is expected to ...

Solution Summary

The risk factors for doing business in China are determined. The firm is manufacturing a global positioning system.

$2.19