Corporate Governance and China Term Paper

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Right Food Company

This report is based on the study carried out on The Right Food Company, based in Australia. The paper studies and analyses the company's entry strategy into Guangzhou, China. I have prepared this report as part of the company's expansion plan into the Chinese market.

Company Profile

The Right Food Company

Industry

Packed Food

Private

Founded

New South Wales

Headquarters

Murwillumbah (NSW)

Founder

Anni Brownjohn

Areas served

countries

Manufacturing

Tweed Valley (NSW)

Products

Maxinne Lynch (Accounts)

Organic, low allergy food developer and manufacturer

Key people

Eleni Nott (Brand Development)

The Country Chosen for Business Expansion - Guangzhou, China

China has a population in excess of 1.3 billion people. Its land mass is larger than that of the United States. The scale and the size of the country is what actually make the market unique and distinct. It cannot be compared to other Asian markets such as South Korea and Japan. It is true that China has a huge market for internationally produced goods. Additionally, It is an important case study for anyone looking forward to understanding where opportunities lie and how accessing them can at times become challenging. In the past few years, foreign enterprises have focused on China's Tier 1 cities (i.e. Guangzhou, Beijing and Shanghai). The cities are highly populated and have large areas that are dominated with middle class families whose income levels are above national average levels. Tier 1 cities happen to be the leading markets with regards to consumers and are the most ideal cities one can use to test the support for international firms that have limited or no experience about the Chinese market. Despite being based in the Tier 1 cities might propose the lowest risk position when it comes to entry into the Chinese market. Also, it means that the firm must be ready to incur higher costs of operations and wade off stiff competition (Hedley, 2016).

China -- Advantages

As a country, China has enjoyed massive economic growth and success in the past 30 years. Its soviet styled planned economy has really transformed the country into a vibrant market oriented economy with over 600 million people who have been moved out of poverty. Over 70% of the world's population that has been moved out of poverty are the Chinese. The government is now working hard to improve on social welfare and the general infrastructure. It is also targeting resources that can be used to develop the rural and interior regions so as to unleash and increase consumption among the rural population. The industrial structures are now shifting inland and there are dozens of new cities, which are emerging on the coastal strips and developing into urban clusters (Export, 2016).

i. Political Environment

The massive economic growth and reforms that have taken place in China since 1978 have, indeed, improved the lives of millions of the Chinese. It has increased social mobility and expanded scope of personal freedom. There is greater freedom of travel, education, house choice, job opportunities, and access to information. There are new criminal and civil laws which have been passed to safeguard the Chinese citizens. The country has managed to carry out village elections in over 90% of China's one million villages.

The Chinese constitution is categorical that China is a socialist state and enjoys people's democratic dictatorship led by the working class, which is based on the alliance of peasants' workers. The Chinese government comprises of systems of political parties, the people's congress, political consultation led by the leaders of Communist Party of China and Multi-party (Fogel, 2010).

ii. Economic Environment

As the country's growth rate continues to decelerate, there are enough companies that are trying to confront the overcapacity challenges that threaten to move the country backward. Businesses have been forced to revise their strategies to safeguard the gains made and ensure profitable growth. Foreign companies must invest in talent and innovation so that they can offer new services and products that can serve the new segments. In 2016, the focus shifted to reviewing and managing costs. The new strategies will enable China to continue attracting more investors since it is one of the few countries that offer profitable growth opportunities to foreign-based ventures (Amcham China & Bain & Co., 2016).

Ethical Climate

CSR and business Ethics are among some of the fields that are still maturing. There is a heavy influence from both the traditional Confucian value and the State. Expectations are high and businesses must ensure that their CSR and ethics programmes complement China's long-term strategy for social improvement as explained in the Chinese Government's Five-Year Plan. A number of things that are considered unacceptable in the Western countries because they are thought to violate the core principles may be accepted in China since they are not violating China's core principles for instance, giving monetary gifts.

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When the colleagues or superiors use hotlines, they cannot be questioned by their juniors since the Chinese are taught about unquestioning respect for authority and loyalty to the group one is aligned to. During staff training, there is emphasis on a small size of employees who should also be of the same rank. Managers are not expected to be in the non-management groups otherwise their presence could inhibit openness and frankness in their discussions. As a country, China has its own way of developing a robust corporate governance framework. It respects the rule of law, no wonder that the pace at which the country is growing is accelerating. The country is ambitious in areas such as corporate governance, dealing with environmental degradation, resource efficiency, clean energy, and corporate governance (Irwin, 2012).

iii. The Judiciary

CCP's is committed to the rule of law and judicial independence. This has made it possible for the country to effectively carry out judicial reforms. Unfortunately, constitutional support is insufficient so that if a sudden policy brings changes within CCP, the judicial independence and judicial reform may be seriously affected.

In regard to the reform measures that relates to the four components of judicial independence, it is evident that they contribute to collective independence, internal independence, substantive independence as well as personal independence. When the reforms are fully implemented, Chinese courts will move closer to judicial independence. The existing constitution ought to be amended so as to give and protect the six elements of de jure judicial independence. It is important to replace the lifelong liability with a better responsibility system so as to give quota judges an opportunity to decide a case in accordance to the existing law and conscience without worrying about the possibility of bearing the liability. (Feng, 2016)

i. Social Environment

The socio-cultural aspect of China is a central factor in the changing demographics scenario. Age distribution fluctuates even as the population increases. These factors alter cultural values and social trends. The size of a family and the social set up in the society influence the direction decisions take. Factors such as consumer lifestyles, religion, education and emigration also play a role in these dynamics. Geert Hofstede's value dimensions quite accurately represent the collectivist culture of the Chinese people. Over 90% of the Chinese are literate. China also posts the highest demographics in internet usage. The country boasts of over 420 million people using the internet. The Chinese frequently shop online. Taobao, the largest ecommerce website in China, receives thousands of buyers on a daily basis and a lot of Chinese people buy their stuff from there. There is already a projection by Boston Consulting group predicting that the sales volumes are bound to increase in the future. Ecommerce has revolutionized the way locals view shopping. There is still a chunk of the population that is still wary about the risks in online shopping. Thus, they prefer to physically visit shopping malls and purchase what they want (PEST Analysis of China, 2015).

HOFSTEDE Model

GEERT HOFSTEDE Study between China and Australia, Source: (HOFSTEDE, 2016)

If the Chinese culture is viewed from the 6-D Model, it is possible to figure out what propels China's cultural wheels as compared to other cultures around the world (HOFSTEDE, 2016).

i. Power Distance

The school of thought believes that there is no equality among members of the society. The dimension captures the attitude of the culture with regard to the inequalities that exist among members of the society. Power distance is the extent to which the less influential members of institutions and organizational set ups accept and expect that power is unequally distributed.

China rates highly on the PDI scale. It has a score of 80. This means that it is a society that believes that it is acceptable to have inequalities in society. There is a polarized relationship between the superior and the subordinate. Thus, there is no protection against abuse of power by superiors. Persons are influenced by sanctions and are positive about the capacity that people have to lead. They hold it that people should restrain their aspirations and keep them within range of their ranks.

ii. Individualism

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