Comparative PEST Analysis of China and India
Globalization has made most medium sized companies aspire to expand their business operations to international markets. Foreign market entry strategies such as joint ventures, exporting, and franchising used by corporations get affected by the PEST factors existing in the targeted country. Medium sized firms face stiff competition from the large companies who have experience on how to expand their operations and find new market opportunities in the global markets (Dunning, 2012, p. 88). Medium sized companies managers tasked as the entrepreneurs of the firm need to undertake intensive market research to understand the market environment in the identified market opportunities in the global markets.
Employing global market expansion strategy requires the manager to be skeptical on the decision before implementing it. Skepticism in market expansion strategy requires an understanding of the government policies, economical rates, and the technological advancements employed by the foreign country in running the business operations. This report is based on two countries; China and India (Ennew, Waite, and Waite, 2013, p. 22). The manager of a medium sized Australian snack company will in particular produce the corn chips and distribute them to either China or India, depending on the most favorable business environment between the two countries. A deep analysis of the PEST business environmental factors will be used to assist in evaluating the most favorable country in which to expand its operations.
China is one of the world’s most attractive country for most companies who look to internationally expand their business operations. The rise of China has been boosted by international trade. The medium sized Australian firm considers China as one of the market opportunity alongside India, and whose PEST analysis is presented below to assist the company’s manager in making the foreign market expansion decision.
Political factors refer to the government policies, legal requirements, and other regulatory measures that affect decision-making process by a company. China’s implementation of the economic reform that comprises of motivating the development of foreign trade liberalization, industrial production, private business, and foreign direct investment has created a conducive political environment for foreign investors (Hamilton and Webster, 2015, p. 40).
When it comes to labor laws, the Chinese government has structured less strict policies that encourage foreign direct investment. However, the central government requires the foreign companies to offer more job opportunities for the Chinese people more than the home country’s unemployed citizens, in this case, Australia (Johanson and Mattsson, 2015, p. 130). This is not favorable for the medium sized company.
Political Factors
Over the past years, the government of China focuses on developing e-commerce in the business sector. However, China is less experienced in drafting legislative policies that govern e-commerce business operations in the country (Liesch, et al., 2012, p. 3). As a result, the country has not been able to design regulations that can govern consumer rights and electronic contracts.
Economic factors in China has a direct impact to the foreign companies businesses operating in the country since they affect capital availability, demand, and supply of corn chips. The high demand for corn chips in China acts as an edge for the Australian firm to expand its business to the country and maximize profitability (Shaw, 2015, p. 395). However, during economic recessions in China, there are less opportunities for foreign medium size firms to access the market and compete with the other companies.
Recently, there have been rapid economic growth rates in China as reflected from the industrial sectors. China has been a market-oriented country (Kastelle & Liesch, 2013, p. 10). The foreign trade liberalization and investment continue to rise since the year China became a WTO member. However, the strict labor laws affect international trade in the country.
However, during inflation periods investment in the country goes down making exports suffer as their prices rise while those of imports fall. This will affect the Australian company’s decision to go global since exports are discouraged at China through price increases.
With lifestyle, consumer behavior, education, and consumer attitudes changes, the social business environment at China are not certain. More people choose to consume different types of snacks and corn chips, and this makes it difficult for the medium sized Australian firm to decide the kind of meals demanded by the Chinese people (Liesch, et al., 2012, p. 21). The increased changes in lifestyle in China makes it difficult for foreign companies to assign the best employees to work in China to sell optimally.
The income distribution at China is unequal within different industrial sectors. The varying average income distribution between the various China locations is difficult for a foreign company to study and understand. Economic recessions in the country lead to laying off of people who lose jobs (Kastelle & Liesch, 2013, p. 28). There is a less social guarantee for corn chips consumers at China due to the high gap of income between the rural and those living in the urban areas.
The government of China and the different industries focus on technological advancements and thus spending a huge amount of capital; on research and development. China’s plan to conserve energy and reduce environmental pollution is highly linked to high technological innovation (Wu and Guo, 2005, p. 50). For a foreign company to operate in China, the manager has to invest huge resources in technological innovation.
Economic Factors
The modern technology has made the business world more creative and innovative. The Australian medium sized company needs to innovate new technologies for producing corn chips in an environmentally conservative manner (Kastelle & Liesch, 2013, p. 15). However, the technological advancements favor only the motor industry and other engineering sectors but not hospitality industry. This is a challenge for the snack companies operating in the country.
The Indian government encourages foreign direct investment in all service sectors. The Republic of India is one of the world’s famous democratic nations. For the past decade, India has consistently been experiencing gross domestic product (GDP) growth and foreign liberalization (Downling, et al., 2000, p. 19). India encourages foreign companies investment in the country to promote its growth. The PEST business environmental factors to get considered in India include:
The political business environmental factors in India is influenced by government policies, political ideologies from politicians, industry policies, and political interests. The federal government of India has been introducing business policies that favor the growth of total factor productivity for both the domestic and international firms (Schuler Jackson and Tarique, 2011, p. 6). Such policies include the imposition of fair and equitable income taxes by the union government.
Further, the federal government of India encourages foreign direct investment through the removal of quotas. Although the political situation in China is controlled, it is still explosive when compared to India meaning that India is an excellent investment country than China. The Government of India encourages the free growth of the business through privatization (Ho, 2014, p. 6480). The internal revenue service revenues tax collected by the Indian government such as utility tax and octroi are taken care of by the local companies and not the foreign firms operating in the country.
The rates of inflation, foreign exchange, economic growth, and gross domestic product in India act as the reliable indicators of whether or not to go global by the company. As a manager, studying the economic environment of India is important before making the decision to exploit the market opportunities there (Lardy and Subramanian, 2011, p. 33). India’s economy has been stable since the incorporation of industrial reforms policies in the country back in the year 1991.
The system recommends the liberalization of foreign capital, industrial licensing reduction, and the creation of FIBP which favors foreign investment by foreign companies. The consistent growth in GDP in the country shows that India is an excellent destination for foreign investment by foreign companies (Freeman, Edwards, and Schroder, 2006, p. 40). There are an active signal and attitude by the government of India in their initiatives to control inflation rates, and this creates stability in exchange rates hence encouraging exports.
Social Factors
The social factors in India affect the demand for products; this means that a good understanding of the country’s social business environment by the medium sized Australian snack company is critical. The lifestyles of people, behaviors, life patterns, attitudes, and perceptions affect the sales of a product in the market. The Indian market demand fast foods and takeaways services from any snack firm (Downling, et al., 2000, p. 10). This means that the Australian snack company’s manager must design technologies which offer these services as demanded by the Indians. In return, this makes India a good destination for foreign investment (Dolzer and Schreuer, 2012, p. 30).
The high technology used in Indian firms has led to fresh cost-cutting processes that act for the advantage of a company. India uses both the 4G and 3G technology in business, and this favors technological projects success. Further, the country possesses one of the world’s strongest IT sector, and this promotes software upgradations, increased IT development, and other technological advancements in the business world (De Beule and Duanmu, 2012, P. 270). The federal government of India recently launched their satellites into the global space.
In comparison to China, India encourages foreign companies to invest in the country through the creation of world satellite under which foreign companies can study potential markets in India with ease (Ang, Benischke, and Doh, 2015, P. 1550). The Australian snack company can utilize the sophisticated technology in India in the designing of corn chips and meet the social demands in the country.
From the above analysis, India’s economic prospects are brighter than those of India since India offers a favorable business environment under which foreign companies compete fairly with the domestic firms making it easy to thrive. The recommendations to the manager include:
- Political factors: Currently, India has outperformed China in the creation of a conducive political business environment. China is known to be one of the most corrupt political government in the Planet, and this makes it hostile for foreign companies to withstand. Therefore, the manager should expand the company’s operations to India due to more favorable business policies, unlike China.
- Economic factors: While China has a false hope on economic rebalancing from state direct investment to a demand pull economy due to economic disparities, India already has a vibrant private sector economy that favors foreign direct investment (FDI). Therefore, due to the freedom of fair competition in India makes it a better choice for the company to expand its corn chips business operations.
- Social factors: The fact that India is highly populated when compared to China makes India a more diverse market hence more business opportunities than China. The Indians demand fast foods which the snack company offers regarding corn chips, and therefore the manager should expand the business operations to India other than China.
- Technology factors: Unlike China, India uses both the 4G and 3G technology in business, and this favors technological projects success. The government of China mostly invests in the engineering technologies which do not support the snack company since it deals with corn chips. Therefore, the manager should advise the company to expand its operations to India and not China.
Conclusion
Capital formation is critical to economic growth in China and India. The analysis of PEST business environmental factors between China and India portrays India as a free and dynamic country whose high population and economic growth makes the country more compelling. Other than globalization, the PEST business factors influence managerial decisions for domestic companies that look to expand their operations of activities to the global markets. This requires intensive research on the targeted countries by the firm that aspires to go global. The proper understanding of the legal requirements by foreign governments, economic levels, consumer lifestyle and consumption patterns, and technological sophistication are key factors that determine the quality of foreign investment decision by a company. Therefore, the manager of the medium sized Australian Snack Company should consider expanding the corn chips business to India given its compelling, attractive, and favorable business environment for international trade.
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