Reasons Why I Favor Conducting Business in China as Compared to India - Case Study Example

Introduction The political and legal systems of a country greatly influence the way in which business runs, and its likelihood to succeed depending on the type of business. Despite the fact that there has been globalization of business, firms are still governed by the rules of the country in which they operate. Established democracies such as those found in the United States, Japan, Europe and Australia offer high levels of political stability. However, most Asian countries such as India and China have more authoritarian governments. China for instance has a strong government system, but with limited individual rights [Ber07]. China’s government is the dominant force that controls the country’s economy. However, more private companies have risen up over the past decade. There are several issues these companies face such as the protection of their privacy, individual and intellectual rights in their attempt to do business with China [Ber07]. The authoritarian government in China favors those who understand how to work with the nuances of this new system. The Chinese government controls internet sites. This has promoted Baidu, a search engine based in China that filters content viewed and downloaded from the internet. Most emerging markets such as China and India face industrial disputes caused by issues related to the tension that exists between permanent and contract employees, low pay, and non-transparency. These factors lead to the halt of many manufacturing businesses, especially in India. The risk attached to starting up manufacturing businesses in India is evident. When compared, I consider conducting business in China less risky and more beneficial in terms of returns and protection of patent rights. India is reluctant to offer these patent rights and the issuance of a business license takes a lot of time and money which shouldn’t have been the case initially. Reasons why I favor conducting Business in China as compared to India China ranks second among the world’s largest economies. China and India account for 19.2% of the world’s GDP, with China at 11.5% and India at 7.7 %. They are also close in their high population. However, India has lagged behind in the reform of their financial sector and banking sectors as well. China opened up to foreign direct investment in the 1980’s whereas India did so ten years later or so. More Foreign Direct Investment goes to China as compared to India because more Multinational Corporations have been exposed to the administration system of China and rules governing business [Var10]. The Political Regime in China and its Effect on Business The political risk in China could present problems to foreign business people in the country. These risks are possible government interferences that can affect the business people adversely. The possible political risks in China are such as the possibility of nationalization of industries and contract repudiation on contracts made with the government. However, with the many changes in China’s political structure, these dangers have gradually faded away. When compared to India, China has more promise of conducting business safely and successfully [Wil04]. Over the past three decades, China has evolved towards becoming a capitalist political economy. It therefore focuses on the accumulation of capital, market competition and market economic growth. China has also sought to enhance international economic integration. The political economy of China has increasingly become capitalist in nature. However, this development is still under way and China is yet to be comparable to countries such as the U.S, Japan and Australia. One of the constraints an entrepreneur would be the effect of the Chinese culture on China’s political economy [Tim99]. China’s emergent political economy favors foreign investors because has resulted in Network Capitalism, also known as guanxi capitalism. China’s capital has been increasing as has its political economy. The interests of private businesses have gained political leverage over time [Hon04]. The Political Regime in India and its Effect on Business India is the biggest democracy in the world. It is second to China in population and has a high rate of development. It is among the largest economies in the world and ranks seconds among the rapidly growing economies [Tim99]. However, it is known for its high levels of corruption and their negative effect on the economy. Corruption comes in form of excessive regulations, ambiguous taxes and licensing systems as well as lack of transparent laws. Despite the large market for industries and the availability of cheap labor, investing in India unsafe. The chance of the success of a business in India is equally to its chances of failure. The impeding factors of starting up a business in India are such as excess corruption in the government which extends to the economy. This presents U.S companies with legal and ethical challenges. This is as a result of the bribes one has to give before they actually manage to establish a business in India. The cost of doing business also turns out to be a lengthy and costly procedure [Kle04]. Other Reasons that make China a better place to invest than India China has made a lot of effort in matching infrastructure to commercial related needs. This country is far ahead of India in infrastructure. The difference in terms of years is around 15 to 20 years. Therefore, India can never be a match for China in terms of infrastructure. It is also easier to obtain visas and permits in China as compared to India. As much as China has more legal restrictions on issuance of visas and permits, it is still more efficient when the qualified candidates are issued with these documents. India has made progress in eliminating visa restrictions. Some of the ways in which it has accomplished this is by introducing a visa on arrival service that, something absent in China. However, the corruption and irregularities in India make the process longer than it should be. It also makes the whole process much more expensive than it should be [Asi13]. Another reason why I prefer doing business in China as opposed to India is the “company director advantage” [Asi13]. This means that the procedures involved in naming a foreigner director of a company is easier in China than it is in India. India demands the following of many formalities such as passport notarization in the Indian embassy based in a person’s home country. This proves to be too much of a hustle for a person already based in India [Asi13]. China also has the advantage of ease in moving goods across provinces and cities. This was made possible by the abolition of tariffs that were previously imposed on the movement of such goods. Another factor is that China has shown to have higher income tax rates as compared to India. This has overshadowed the disadvantage of China having monopolies owned by the state dominate the country. In India, imposition of tariffs on the movement of goods across state borders is still in existence. Abolition of these tariffs may be difficult to implement because these tariffs provide local states with revenue [Lea09]. The best Business to set up in China Over the decades, Chinese women have been liberalized and now have the liberty to beautify expose their beauty. Initially, they were required to cover up under dull clothes. This has changed over the years. This changes in the 20th century and since then the beauty industry has flourished massively. This is because the Chinese women are willing to spend a lot of money on beauty and related therapy. The Chinese are also known not to be very loyal to brands and providing a variety would be necessary [Lab10]. With this brief history, setting up beauty centers almost guarantee success of the business. This should incorporate plastic surgery, a service whose demand has grown with the increasing empowerment of Chinese women [Lab10]. Chinese people also have a preference for natural ingredients and providing these would be an added advantage. The most effective distribution channels are luxury stores and spas. However, spas only cater for the elite because of the high charges on the service provided. Conclusion China and India are without a doubt among the fastest growing economies in the world. However, the differences arising in the administration systems of the governments of these two countries brings forth the difference in willingness of investors to prefer either of these two countries. The guanxi capitalism system political economy adopted by the Chinese government has been of a great advantage to foreign investors and entrepreneurs in the country. It has also served in increasing customer royalty and good business relations between companies, because that is what it specifically aims to achieve. The higher success of China in attracting foreign investors also lies in the fact that the country established business friendly reforms earlier than India did. The difference in time amounts to about a decade [Fan07]. However, the discipline involved in implementing these reforms in much higher in China than it is in India. This will take India longer to get to where China id because of the corruption from the bottom up to the leaders. This discourages foreign business people. It also slows down the country’s growth rate despite the availability of experienced cheap labor [Ber071]. References Alhert, V. (2010). ‘Can China Become the World's Engine for Growth? – A Symposium of Views’. The International Economy. Winte , 8-36. Berrell, M. A. (2007). ‘Between Chinese culture and the rule of law: What foreign managers need to know about intellectual property rights’. Management Research News. 30 (1) , 57-76. Berrell, M. A. (2007). ‘Between Chinese culture and the rule of law: What foreign managers need to know about intellectual property rights’ . Management Research News. 30 (1) , 57-76. Blue., T. B. (1999). “Introduction.” In China and Historical Capitalism: Genealogies of Sinological Knowledge. London: Cambridge University Press. Briefing, A. (2013). Is Doing Business in India More Difficult than in China? Asia Briefing , 1. Fan, Y. (2007). ‘Guanxi, government and corporate reputation in China; Lessons for international companies’. Marketing Intelligence & Planning. 25 (5) , 447-449. Hong, Z. (2004). Mapping the Evolution and Transformation of the New Capital Holders in China. Journal of Chinese Political Science 9 (1) , 23- 42. Klein, L. R. (2004). 'China and India: Two Asian Economic Giants, Two Different Systems’. Applied Econometrics and International Development. 4 (1 , 7-19. Labrand, L. (2010). High-end cosmetics trends in China. Green Book , 3. Lean, H. H. (2009). ‘The domestic savings and economic growth relationship in China.’. Journal of Chinese Economic and Foreign Trade Studies. 2 (1) , 5-17. Williamson, P. A. (2004). ‘Strategies for Competing in a Changed China’. MIT Sloan Management Review. 43 (4) , 1-20. Ber07: , (Berrell, 2007), Var10: , (authors, 2010), Wil04: , (Williamson, 2004), Tim99: , (Blue., 1999), Hon04: , (Hong, 2004), Kle04: , (Klein, 2004), Asi13: , (Briefing, 2013), Lea09: , (Lean, 2009), Lab10: , (Labrand, 2010), Fan07: , (Fan, 2007), Ber071: , (Berrell, 2007), Read More