Emerging Market

Strategy
China
Presented By
Kritika Kushwaha
16PT2-08
Service/Product- Vertical
Garden/Forest Installer and Designer
Institutional Voids
Political and Social System
• Communist party maintains a monopoly on political power.
• Local govts make economic policy decisions
• Officials may abuse power for personal gain
• Media is muzzled by the govt and there are few independent NGOs
• Companies don’t have to worry about criticism, but they cant count
on civil society to check abuses of power
Institutional Voids
Openness
• The govt permits greenfield investments as well as acquisitions
• Acquired companies are likely to have been state owned and may
have hidden liabilities
• Alliances let companies align interests with all levels of govt
Institutional Voids
Labor Markets
• Workers can join the govt controlled All China Federation of Trade Unions
Capital Markets
• Local banking system and equity markets are underdeveloped
• Venture Capital availability is limited
• Little corporate transparency
• Accounting standards are not strict
• Companies can use bankruptcy process in some cases. Write offs are
common
Institutional Voids
Product Market
• Imitation and piracy
• Several suppliers have strong manufacturing capabilities but few
vendors have advanced technical abilities
• Roads and Ports are well developed
• Consumers prefer to buy products from American, European and
Japanese companies
• Multinational ad agencies may dominate the business
Institutional Voids
Labor Market
• Small and static market for managers
• Many senior and middle managers are not fluent in English
PESTLE
• China is one of the most powerful countries in the world.
• It is a permanent member of the Security Council of the United Nations
• It is also the 4th largest country in the world by land area
• Communist Party of China is the founding and ruling political party of the People’s Republic of China. Although China enjoys a stable political
environment, the lack of political freedom is an area of concern.
• Many analysts question the lack of openness of China’s political system.
• Stable political environment, cheap labour and improved infrastructure, China positions itself as a great destination for foreign direct investment
(FDI)
• Authorities are intolerant of dissent and there is inadequacy of legal safeguards for basic freedom
• Currency devaluation and rampant inflation are possible scenarios in many countries, wreaking havoc on the adequacy of insurance limits, as
one of many potential problems.
• A unique form of political risk occurs in China, and this is the constant battle between the country’s central government and the provincial and
local governments over applicable law, and observance or non-observance of it. This makes it difficult for companies operating in China to know
exactly what the rules are (China Political Risk Management, 2009).
• Both formal and informal rules, which firms must abide by, impact the country. Many people claim that the political force is the most unsettled
force. Over the past few years, the government focused on the development of e-commerce.
• The legal framework for e-commerce is still in its early stage. China has little experience for drafting e-commerce legislation for topics like
intellectual property rights protection and tax. There aren’t any regulations supporting the privacy, recognition of digital signatures, consumer
rights and validation of electronic contracts yet.
PESTLE
• Over the past five years, China’s economy experienced significant GDP growth rate. Reports suggest that if China continues to excel at this rate, it ill surpass US GDP soon. The country has
made a shift from a centrally-planned to a market based economy and the GDP growth has averaged nearly 10 percent a year (The World Bank, 2018). Some factors which might help are:
• Sigh rate of savings
Abundant and skilled labor
More export business
Potential urban growth

• Any economic development could have a major impact on the SMEs and their actions. China’s GDP rate suggests that each citizen is adding more and more values to the society. This is in
turn increasing consumers’ purchasing power. The labor cost in China is extremely low. This is why leading companies like Apple are inclined to hire workers from the country.
• The growth rate is impressive, but it can slow down. Some of the worrying trends in China are:
• High inflation rate
• High property prices
• The People’s Bank of China has increased interest rates. The reserve requirement for commercial banks is also nine times higher now. Moreover, the central bank is urging banks to lend less and impose
limits on home purchases.

• High inequality, rapid urbanisation, and environmental damages are some of the challenges that the country needs to deal with in order to maintain its economic sustainability.
• Cheap labour is a great source of competitive advantage for China; however, some analysts argue that the rapid economic growth has also led to a rapid increase in wages in the country.
• China’s average wage level tripled between 2005 and 2016 and now it is higher than in Argentina, Brazil, and Mexico.
• The standard corporate income tax rate is 25%; however, the Chinese government reduces the rate to 15% for qualified businesses which operate in industries encouraged by the
government. The individual income tax rates range from 3% to 45%
• Since the 1980s China has undertaken a major highway construction program and is working in building a world class infrastructure. The human development index (HDI) in China is 0.777
(ranks 81st out of 177), and shows the disparity between urban China and the rural hinterlands.
• China receives criticism from human rights campaigners for executing hundreds of people every year for failing to stop torture.
PESTLE
• China is the most populous country in the world with a total population of approximately 1.4 billion (BBC, 2018). This is a
massive market for consumer products. As mentioned above, average wage level has gone up over the years resulting in an
increase in consumer spending
• The literacy rate in China is 96.4%. Like the impressive progress in literacy rate, the country has also made stunning
progress in poverty reduction.
• The problem of providing an acceptable quality of life for a society this large - and growing ever larger - is a major concern
in China.
• The most important values of Chinese culture include the: importance of the family, hierarchical structure of social life,
cultivation of morality and self-restraint, and the emphasis on hard work and achievement. Chinese culture and society can
be defined as ‘collectivist’. In many ways the
• family unit takes precedence over its individual members.
• The Chinese Government recognizes five official religions which are Buddhism, Islam, Taoism, Catholicism, and
Protestantism. China seeks to regulate religious groups and worship. Religious believers who seek to practice their faith
outside of state-controlled religious venues and unregistered religious groups and spiritual movements are subject to
intimidation, harassment, and detention.
• Power Distance Index (PDI) suggests that society's level of inequality is endorsed by the followers as much as by the
leaders.
PESTLE
• China has set a vision to be a global leader in science and technology. To achieve this, the country launched ‘mass entrepreneurship
and innovation’ programme in 2015. This programme aims to spread entrepreneurship throughout China. It also aims to help the
country to move from a labour-intensive economy to an innovation-driven one. It is therefore not difficult to imagine how great the
opportunities are in China for both domestic and international companies, particularly in science and technology sectors.
• Technology Agreement is the model for bilateral cooperation between The U.S and China in science field. In April 2006 the Science
and Technology Agreement was extended by a 5-year agreement was signed. The agreement which includes approximately 60
protocols, memoranda of understanding, agreements, and annexes, is considered as the longest-standing between U.S.-China accords.
The agreement encompasses cooperation between U.S. and China in variety fields like marine conservation, renewable energy, and
health. Besides the U.S China also has close relationship with Japan and the European Union in science and technology cooperation.
• Based on the data supplied by the State Development Planning Commission, during the Ninth Five-year Plan period from1996 to 2000,
China has significant technological development. 50,000 projects have been set up under the "Spark Plan". Started in 1986, these
projects were actually a technological program in order to enhance the IT level in rural areas.
• Since 1996 a total of CNY192.9 billion has been invested in the "Spark Plan" in which CNY3.5 billion was from the Government's
Funds, CNY41.9 billion were from loans of banks and CNY147.5 billion from private and other social sectors. Since 1996 the Chinese
government has invested CNY3.19 billion in the industrial sector to develop technical innovation projects. In addition, since 1999 the
government has been focusing on technological innovation of State-owned enterprises by spending CY19.5 billion worth of treasury
bonds
• A number of districts for high-tech development have been established for researching and developing technological purpose. For
example in 1996 the Silicon Valley was built with an CNY101.5 billion investment in the infrastructure construction. Up to now there
have been approximately 17,000 high-tech enterprises operating in those districts, with the employees more than 2.2 million.
PESTLE
• Laws supports foreign investors
• In order to encourage foreign companies to invest in China, China Government has gradually set up a relative complete law
system. In 1979, The Law of the People's Republic of China on Chinese-Foreign Equity Joint Ventures was published. 20
years later, the Chinese government has promulgated and issued a series of laws and statutes about the establishment,
operation, termination and liquidation of foreign-invested enterprises."
• provide legal bases from which to guarantee the independent operation rights of foreign-funded enterprises and to protect
the legitimate rights and interest of both domestic and overseas investors.
• Tax law is one of the most important issues that SoundTech Technology needs to understand as the tax regulations have a
direct impact on ST's business activities. China is known as one of the most attractive incentives packages in Asia. Tax
incentives and other facilities for the manufacturing sector are provided for in the Promotion of Investment.
• When foreign investors want to set up business in China, they have to wait for approval from the Government for a long
time. The challenges of launching a business are shown below which include the number of steps entrepreneurs can
expect to go through to launch, the time it takes on average, and the cost and minimum capital required as a percentage of
gross national income (GNI) per capita.
PESTLE
• Undoubtedly, along with China's rapid industrial development are the serious negative impacts on environment these include increasing pollution and
decreasing natural resources as well. In 2007, China became the world's largest emitter of carbon dioxide and other gases leading to greenhouse. WTO
conducted a report on the quality of air in 272 cities worldwide, pointed out seven out of the ten cities that are the most polluted in the world were in
China. In addition based on China's own evaluation, two-thirds of the 402 cities which have been air polluted two-thirds of them moderately or
severely so. According to environmental report, there is water polluted in almost all of the nation's rivers to some degree and half of the population is
lack of clean water for daily life. By some estimates, there are approximately 300 million people have to use contaminated water for drinking every day.
• Water scarcity also is considered as an issue; taking severe water scarcity in Northern China as an example that is actually a serious threat to sustained
economic growth. Thus, the government has been working on a project for delivering a large-scale of water from the Yangtze River to northern cities,
including Beijing and Tianjin. Some research estimate pollution costs hold the Chinese economy from 7% to 10% of GDP per year.
• Currently, like any Government, China's leaders are increasingly paying attention to environmental problems in the country. Realizing the important of
environmental protection, The State Environmental Protection Administration was officially upgraded to a ministry-level agency, the Ministry of
Environmental Protection in 1998. Recently, China's environmental legislation has been strengthened and some progress in stemming environmental
deterioration has also been made. China took part the Asia Pacific Partnership on Clean Development in 2005, which unites industries and government
to implement common strategies together that reduce pollution and global climate change. Campaign about pollution control was great invested that
a factor contributing to a successful Olympic Beijing 2008, though some of the benefits were just temporary in nature. Thanks to these campaigns the
quality of air in some cities has been improved recently.
• It can be said that China is participating actively in climate change talks as well as other multilateral environmental negotiations, especially discussions
about how developed countries deal with serious environmental issues that help developing countries to a greater extent. China has signed the Basel
Convention about transporting and treating hazardous waste; the Montreal Protocol about the Ozone Layer Protection and other major environmental
agreements.
• As long as China is huge country thus water scarcity is regarded as a big issue that also is the project's disadvantage. Besides that, climate change is
considered as one of the major systematic risks for Soundtech Technology because climate change is affecting how companies operate and the
products they offer.
Vertical Garden/Forest Installer and
Designer
• Reduces urban heat island effect and smog
• Cleans outside air of pollutants and dust and offsets the carbon footprint of
people and fuel emissions
• Cleans interior air space by removing harmful toxins like benzene and
formaldehyde
• Acts as a sound proofing barrier
• Soil and plants are a natural filter that can clean the water that flows through
the wall
• Insulates and cools the building envelope, as well as protecting it from the
elements
• Creates habitats for birds and beneficial insects, increasing biodiversity
• Can be used for growing food in urban settings, creating sustainable and local
control of food sources
• Increases real estate value
• Increases foot traffic in retail spaces
• Speeds recovery time for patients through biophilia
• Helps children with ADHD focus better in school
• Reduces absenteeism in the workplace and boosts employee morale
• Qualifies for LEED certification points from USGBC
Leadership in Energy and Environmental Design
• Sustainable Sites Credit:Landscape Design that Reduces Urban Heat Islands, Non-Roof. Exterior
green walls reduce the solar reflectance of a structure, thus reducing the urban heat island effect.
• Water Efficiency Credits: Water Efficient Landscaping. Buildings can incorporate a stormwater
collection system for irrigation of the green walls and other landscape features. Using only
captured, recycled, or nonpotable water may enable the project to achieve this credit.
• Water Efficiency Credit: Innovative Wastewater Technologies. Green walls can be utilized as
wastewater treatment media for gray water. Other features, such as the incorporation of compost
tea from a composting toilet, is another way for green walls to aid in the reduction of wastewater.
• Energy & Atmosphere Credit: Optimize Energy Performance. Green walls can provide additional
insulation and natural cooling, which reduces a building's reliance on mechanical systems.
• Innovation in Design Credits: Innovation in Design. Green walls may contribute to innovative
wastewater or ventilation systems.
Segmentation Targeting and
Positioning
Segmentation
Since the initial market would be the metro cities in China, The main
segments are:
• Corporates
• Govt
• Residents of these cities
Segmentation Targeting and
Positioning
Targeting
The target would be Corporates to start with, followed by govt.

Positioning
An environment friendly company, working to make cities a better place
for all
Strategy to Enter Market
• Targeting the citizens would need a lot of advertisement
• Entry to barrier is low
• The govt is struggling to fight pollutions and already looking for alternatives
• There is already one Italian Designer that has tied up with a builder to design Vertical gardens for
them
• Entering the market alone would be difficult, partnership with a local player preferable
• This would take care of communication
• The “Gift Culture” in China corporate industry to establish a reputation is a risk and so is
corruption
• Loan would be raised via a International bank and not by a Chinese bank
• For premium services, plants would be imported. This would require some certificates by govts
• Cheap labor would work in favor
References
http://www.beijingrelocation.com/blog/house-plants-that-can-help-purify-the-air-in-beijing/
https://in.pinterest.com/pin/426997608403961384/?lp=true
https://www.thebeijinger.com/blog/2017/05/16/best-indoor-plants-combat-pollution-beijing
https://www.healthandsafetyinshanghai.com/air-purifying-plants.html
https://www.usi.edu/media/3654697/Business-Environment-China.pdf
http://pestleanalysis.com/pest-analysis-of-china/
https://www.emeraldinsight.com/doi/full/10.1108/IJoEM-04-2015-0080
https://hbr.org/resources/images/article_assets/hbr/0506/R0506C_C.gif
https://www.forbes.com/sites/infosys/2011/09/20/filling-institutional-voids-in-emerging-markets/#3986472a65cc
https://www.dhl.ie/content/dam/downloads/gb/express/customs_regulations_china/import_guidelines_to_china.pdf
https://www.marketing91.com/swot-analysis-china-country/
https://thediplomat.com/2018/02/chinas-state-backed-start-up-push/
https://www.mckinsey.com/industries/financial-services/our-insights/the-promise-and-perils-of-chinas-banking-system