Doing Business in China in IT Industry - Essay Example

Doing business in China in IT industry

General overview of the Chinese IT industry

There are many trends in the China’s development, there are many industries, which are growing under such conditions. Thus, China will have an increasing of its economic strength within 5-10 years. One of the main industries that will be the flagship of the China’s economy is IT. This industry is marker of the new informational age that is shifting the way how companies work through changing the concentration on industries to the joint concept of the industry and information(Ambler and Witzel, 2000). There are high amounts of information, it should be processed and used in the modern processes, thus, all modern companies invest in IT and there are many large companies, which are focused on developments in this industry. Since the beginning of new age, there are more issues, which can be solved with application of the IT such as, political, economical, social etc. IT influences the development in these spheres as well, as it can optimize the processes and make them easier to handle(Ambler and Witzel, 2000). China’s IT is the way how country gets the power, international competitiveness and modernization of country itself. There are many strategies for development of this industry, all of them are making the approach of the complete introduction of IT to all business processes and company’s issues(Björkstén and Hägglund, 2010).

Thinking of the China’s IT, it experiences the growth in the activities, due to the changes in economy and becomes the key industry that is widely supported by the government. Considering the development of this industry one should emphasize the fact that China is working hard to make the IT to be one of the 7 main industries of the country, furthermore, it concentrates on the inbound investments in this industry to make it stronger and competitive in the international market. It will help country to become the world-class, high tech society that has innovation as the first priority(Bowman, 2008). For most developing countries, the main issue was in the lack of the innovations, however, China is working to innovate its whole way of business structure and its processes with IT and related technologies(Bowman, 2008). Currently country offers cheap-labor manufacturing services, as there are many countries, which need to outsource their manufacturing, especially, considering the salaries in China. However, now China is in the way for better economy and development that will be aimed on the technological advancements(Bowman, 2008).

Political factors in China

Political factors, which are important in all industries are positive, as government spends a lot of resources to support the IT industry in the country(Bowman, 2008). Furthermore, speaking of the spending and the market of IT in the China, it holds he fourth place after IT giants like US, Japan, Germany, making China’s IT market to be one of the largest and developed. Government is interested in the advancements of IT, thus, it invests 100 billion for this industry to make it stronger. Furthermore, many foreign companies prefer to outsource their IT services in China to make their activities better(Bowman, 2008). Currently China holds the second place after India(De Lange, 2010). Thus, development of IT industry is constantly growing by 15% annually. To emphasize the overall IT industry in China, one should underline the main areas of IT in China: hardware, IT services, telecom and software(De Lange, 2010). These four areas are supported by government, especially telecom area, being restricted for foreign companies, government controls this area to prevent companies from spreading undesirable information. China is controlling the use of internet and other telecoms by society to eliminate some external influence and adoption of western trends. Thus, there are many applications, which are banning the use of “bad” sites in the internet. However, there are special ways to enter the market, it is possible through the making joint ventures with existent companies, which are proven to be reliable, as they understand the main features of the governmental control and will never violate the laws(Hofer and Ebel, 2007).

Business potential for companies in Chinese IT industry

There are many opportunities for new companies, which want to enter the industry with certain experience and the knowledge, as there are many spheres, which need the investments and insights. Chinese companies need insights towards their next-gen communication technologies, modern internet equipment, Internet of Things, smart devices, etc(Hofer and Ebel, 2007). All these spheres are developed in the Western world, and there are many devices, which applied such technologies, thus, Chinese government and local businesses welcomes foreign investors, which can provide new insights to their development and creation of something new.

There are many features, which investors should understand before entering the Chinese market. The main trend in the Chinese IT that should be emphasized is the focus on small niches, in which new companies can leverage their expertise, Chinese IT industry needs new expertise that can help to make the overall industry stronger, therefore, focusing on such niches can help to develop the company and get support from greater companies, which will be glad to have such expertise as well.

China is large country and the main trend of business in IT lies in the geographical expansion of companies using their affiliates or sometimes franchising business model to reach more customers and to provide the reliable services throughout all country. Otherwise, new company can face issues with proper influencing of all customers and partnership with suppliers.

PESTEL analysis of the industry

Analyzing IT industry from the point of view of PESTEL analysis, one should underline that IT industry itself is developed enough to produce substantial revenues and to keep its market position

Political factors

Political factors which impact China’s IT industry are related to the governmental regulations towards the companies in this industry. Thinking of the most important, one should underline the fact that China restricts other companies to join the telecommunication industries that is the part of the IT. One more feature is related to the control of the government over companies in IT. The main trend in development of this industry is lies in the distancing from the government, however, currently it influences businesses in IT.

Economic Factors

Economical factors, which influence the IT are positive enough to provide enough space for development. China has quite high inbound investments to power largest companies like Huawei and Lenovo. Furthermore, economical situation in the country is reliable to develop the companies in IT, which need some support from other investors. Overall economic situation of the China is good, as it has now the GDP growth and increasing of new companies, which support the country.

Social Factors

Social factors are good for businesses to use them, however, newcomers in the It business should know the social peculiarities, which influence the way how to manage the employees and the superiors. It is important to maintain customized way of management. Furthermore, China has the cheap workforce that can help with the major business processes, though there are many professional employees, who can be involved in high-level procedures and production facilities.

Technological Factors

There is one factor that is not so good for the IT, is technological factor. IT cannot develop without the new insights and ideas, as there are not so many real innovators, which bring something new to the industry. Thus, China’s IT is dependable on new companies, as they can provide the foreign expertise on production of hardware and developing software. However, with time, China will maintain its own technological strength, as there are many companies, which currently work on innovations.

Legal issues

One more factor that can produce the difficulties for business in this industry is associated with legal procedures. It is good to underline that China’s legal features are not ready for spreading of the IT industry, as there are very weak regulations towards the intellectual property, it cannot handle successfully the control over the internet for targeted audience, thus access to particular resources can be restricted due to the China’s firewall.

Huawei as the leader in the Chinese IT

One of the companies, which work in the IT is Huawei. This company had long way for development and its reliable position on the market. It is technological factor that helped Huawei to stand the competition and to make its activities better. There were many factors, which could undermine Huawei activities. However, only through the development of the technological base, company managed to maintain the reliable services and to compete with major domestic companies, which practiced the joint ventures as the main way to gain the competitive strength. There are many companies, which used this strategy to make their activities better, however, Huawei started to develop its technological base to shift from the simple switches to the complicated devices, which were better than other companies could offer. Due to the good economic conditions, company managed to get the financing from the government and other partners to spread the activities and to expand the range of products, which were offered. This allowed the company to get the stable position in market. The main milestone of the Huawei is associated with the shift in the legal procedures of the country that can be associated with the above mentioned legal factors, which are still weak, however, it is expected that China will develop them to face the competition with international companies. Through the improvements in legislation, Huawei managed to get the high amount of telecommunication equipment to get even higher position and to be the leader among such companies in IT sector.

SWOT analysis of the Huawei and IT

Analyzing the Huawei company and the overall industry from the point of view of SWOT analysis, one should underline following factors:

The main strength that should be underlined considering the IT industry in China is increasing of the GDP growth of country that can positively affect the businesses, as government can easily support the businesses, which need investments and new equipment.

One more strength that is associated with the right policy on the investments as there are many large companies, which want to invest in Chinese businesses, thus, companies can develop under such conditions and increase their market position through the foreign investments with the new technologies and insights, which can help to maintain better business activities.

Thinking of the weaknesses, one should underline the main factor that is influencing the businesses is high rates of the inflation and the low rates of the increasing of the salary. It undermines the employees’ loyalty and can make them less effective. Furthermore, country should import many products to act successfully, thus businesses are dependent on other companies, which can dictate their own conditions.

Regarding the opportunities, country is moving on the right track of development and is trying to invest more in education and development of technological base to be more independent from other countries from this point of view. Thus businesses can get more stable position with time, when Country will manage to maintain own positive conditions.

Multiple threats are associated with international companies, which have much more business expertise, have developed technological base that can provide serious competition in the country. There are no serious legal factors, which can keep other companies, from entering the Chinese market. Furthermore, China is working on introduction of more companies to get some technologies, however along with this many local businesses can fail to take such competition. However, Huawei, being the one of the largest companies in the China would manage such competition, furthermore, it can even try to maintain the joint venture with some of the foreign companies to double the efforts against competitors.