THE RISING POWER OF CHINA - ITS IMPACT ON GLOBAL BUSINESS

In this assignment paper I am going to write about the rising power of China, which though an ongoing discussion but has been specially highlighted, in recent times, due to slow currency appreciation and global imbalances. Description of the activity, event, etc., a brief explanation of its controversial nature The rising power of China is a controversial issue as it has both been appreciated by some and simultaneously raised eyebrows of many. China, a civilisation of 5,000 years, was very much isolated through its strong Chinese Walls and grew quietly from within. It has been under communism regime since late 1940 and was not much on international focus until it started to rise as an economic power. Presently, with a consistent GDP growth at an average 8 % per year, they have established themselves as second largest economy. Infact in 2010 Chinese economy overtook the Japanese economy. With economic advancement they have gained themselves much attention of the global economic forum and have started to realise its power. We used to hide our powerdeny our power, a Chinese scholar told David Lampton of the School of Advanced International Studies in Washingtoni. The success story of China was initiated through its alliance with America but with its recent growth, coupled with the economic crisis in United States and Europe, it has started to rethink its strategy. China has realised it is a power that the world cannot deny and the rest part of its growth can go without support of America. A combination of economic and political reasons has made this entire growth story controversial. Growth of China and other emerging economies are welcome from business perspective, but the line between economic power and political power gets thinner as the country grows year after year. Adding to the controversy is Chinas perception that the western world is hostile to Chinas development and they should be strong from all aspects including military power, to be prepared for any challenge. Identification of major stakeholders (and their interests) The biggest stake holder is the United States as it is benefited from the gain in business through the American companies operating in China. It has a two part aspect, one by American companies setting up manufacturing facilities in China and gaining access to the cheap labour pool; these companies can compete better in the world market. Majority of electronic and

SiddharthoMukherjee,NationalEMBA2012student

consumer goods of the American brands (like HP, Dell, Whirlpool and many others) are manufactured in China and shipped worldwide from there. The other advantage to American business is in the form of expanding the market base into China and selling its brands to the advancing1 Chinese population. Ford and GM combinedly has 17.5% market share of the automobile market in Chinaii, while sales of various American brands like GE, KFC, McDonald, Gap has an increasing trend. Other Asian and emerging countries are sponsoring the growth too. Chinese growth has helped India and other emerging countries to develop trade relationship with China and reduce dependency on the western world. Several African countries have fuelled China`s growth as they find it easier to trade with China than with European or American businesses. Analysis of the situation and a clear indication of your position on the issue Broadly speaking the growth of China has initiated various speculations from the developed world; the most being a possibility of power struggle with the current power centre - United States. In this paper, the discussion is limited to business perspective and its impact on the global economics. The rising power of China has created several controversies starting from the currency devaluation, to trade imbalance and other subjects, as discussed in section below. o Foreign reserves & currency war - At the time of writing this paper, China holds US$ 2.8 trillion foreign exchange reserve (65% of it is in USDiii) which calls for appreciation of their currency. The accusation by other leading economies, like United States, is China has kept its currency undervalued for other bigger gains. China would not like to appreciate its currency in fear of losing the competitive edge in global exports. The graph below shows the gap between real and nominal value of the Yuan against the Dollar.

AdvancingChinesepopulation:thegrowingmiddleclasspopulationthosehavethebuyingpowerandaretech savy.

SiddharthoMukherjee,NationalEMBA2012student

Trade surplus: Ch e hina has con ntinuously fo ocused on de eveloping its exports and this s d is a motivator for them to kee the curren underva m ep ncy alued. As a result, China has a huge trade surpluses and is bringing in manufactu s n uring jobs f from all ove the er try ng anufacturing jobs from m g many world to its count (in other words eatin away ma develo oped nation ns). Recently China ba anned the e export of ra earths a an are as attempt to make sure that manufacturin bases ar not reloc m ng re cated from t there. uses is build ding up Chin na`s FOREX reserves and giving it more X Huge trade surplu r ze h power to strategiz its growth

Growi military power: China is building its military power and b ing p a g becoming a force to res US in the western pa sist e acific. It wan to make sure that th sea route are nts he es left fre for import and expor ee ts rts. Their firs and fore st emost inter rest is to have a sta able region an n, environme ent in which they can grow theiir economy Told by John n y Huntsman US Ambas n, ssador to Ch iv hina China probably do not have any iintention to wage a war as it will sto its r op d s but nly economic growth, and is merely showing its strength, b it certain is s rference from the wester world. m rn suspicious about inter

China strategy to acquire natural resou a`s t n urces: China has been a a aggressive a about acquir ring natural resource co ompanies in Africa and Latin America. The stra ategy

Siddharth hoMukherjee e,NationalEM MBA2012student

is to gain contro of the re ol esources an shield it nd tself from c commodity price ations. This is indeed with long term plan towards maintaining its s d g ns fluctua compe etitive edge in the ma e anufacturing sector. Re g ecently China has sto opped export of rare earth minerals to Japan w s which might have a pol t litical motive but e, from business perspective it is clearly an indicat y tion to draw manufact w turing anies to hav the production units in China itsellf. ve n compa o Power shift to Eas The comb st: bination of a of above f all factors is a p pointer to the fact e that th here is a po ower shift ta aking place and Asian countries le ead by China are a becom ming power rful. There is much discussion around Ch hinese econ nomy surpassing the American ec A conomy and there are different pr d redictions on the n t hart below is from The Economist s exact time when this will happen. The ch e re the forecast of the analysts ar for 2019. and

A conclu uding statement including implication to global, multi-nation or transn g ns nal national firms and s / or organ nizations The grow of China has been a great stimu wth ulus to busin ness all over the world. It started with low r electronics i cost toys and househ s hold product being floo ts oded in globa markets, e al industry follo owing the way. Eventually China grad duated to ga foothold on the hea industria manufact ain d avy al turing structure and the hi-t e tech IT sector. Chinese computer m manufacturer Lenovo, in 1984, start in r, n ted

Siddharth hoMukherjee e,NationalEM MBA2012student

the middle market but after acquisition of IBM computers in 2005 it has positioned itself as the world`s third largest PC manufacturerv. Chinas growth is not to be frowned upon but to be taken seriously as with more Chinese companies emerging as global players (CITIC, Haier, Lenovo), the competition scenario is changing fast. China has been an active player in the region to develop business with its neighbours and have been growing strong to invest in infrastructure and the resource industries of Africa. From purchasing big corporations to medium or small resource companies China has well rounded strategies to span its growth across the globe. Recently a Chinese photo-voltaic cell company, Suntech, has started manufacturing in Arizona to protect itself from import embargosvi. With these rapid developments, the business scenario has much changed in recent times. Chinese peoples preferences, affordability and style of living are changing and it creates an expanding market for the global companies to focus on this emerging economy. In some fields of business, like technology, it is a survival of the fittest situation where if the major players are not watchful of Chinas growth, they could either be squeezed out of business or would be taken over by them. Another growth strategy Chinese companies have taken is to manufacture products as per the regional standards. They are aware of the quality consciousness and affordability of customers in different part of the world, and deliver their products accordingly. Thus a Chinese brand of toy being sold in North America will be of much superior quality than what China sells to its neighbouring countries. While this indicates their thoroughness in studying customer behaviour pattern, it also speaks about their aggressiveness to penetrate markets globally and not to limit their market to few segments. The impact of this rising power is not limited to takeovers and competition but will spread to other aspects of society as well. With power shifting to the east, western governments will be losing political grip on many parts of the world around and there will increasingly be more penetration of foreigners in their society. However not everything is lost in the game; by emergence of new great powers and rising number of Indians, Chinese and Brazilians who can afford to buy costlier products and services, it will help the companies to grow in newer markets. The growth of China has stimulated the global business environment and has opened doors of opportunities to companies to expand their business in China, and for Chinese companies to

SiddharthoMukherjee,NationalEMBA2012student

expand outside China. The benefit is shared across the globe and now when there is a financial crisis on Europe or America, they can look up to some new countries for helping them out.
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The Economist Less biding and hiding, December 2nd, 2010 http://www.thestreet.com/story/10966500/fords-china-sales-rise.html (accessed on January 11, 2011) The Economist China does not know where to put all its dollars, October 14th, 2010

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Bloomberg Businessweek, Charlie Rose talks to John Huntsman; paperprintedition,January1016, 2011. v The Battle for China`s Good-Enough Market Harvard Business Review (included in MBUS 971 course binder)
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Bloomberg BusinessweekChinesePlantsGrowonUSTurfpaperprintedition,January39,2011

SiddharthoMukherjee,NationalEMBA2012student