China And The Emerging Market Of Africa Economics Essay
This research tries to demo the extent to which Chinese investing has been floating more towards the emerging markets of Africa. Hence, to accomplish this has been split into seven parts.
First, is a treatment of the recent occurrence in China, that makes it stand-out and besides the shaping of relevant footings to this work like globalisation, emerging market economic systems, foreign direct investing, developed and under-developed states.
To understand Chinese companies this Research has identified factors that affect Chinese directors and direction manner, the leading competencies, human resource direction and their scheme.
Following this, involves a survey of Western Europe and African market environmentally and other external factors, utilizing PEST model.
In the 5th portion, two instance surveies: Haier and Lenovo where used to demo changing successful survival methods adopted. Following, was why China has chosen Africa over Western Europe and eventually, a decision.
This study is aimed at accepting to the position that Chinese companies seem to happen Africa ‘s emerging market more attractive than the Western Europe market.
First and foremost is the daze of China, which has over a few decennaries, risen to go an economic giant. This has been as a consequence of their Open Door Policy by their authorities in 1979, which has opened their economic system to the universe taking to rapid addition of foreign direct investing of transnational endeavors. Following this has been the addition of Chinese outward investing ; which lead to what was called “ Over to Chinese MNCs ‘ 2005 ” . This was a important period that experienced a monolithic enlargement of Chinese companies abroad. These transmutations for Chinese companies have exposed them to both chances and challenges.
( Shen and Edward 2006 )
China passed through a period of self-imposed isolation from the planetary economic system. This period lasted for four decennaries, which involved the authorities raising big companies ; particularly in the excavation buildings and energy sector. The drawback of this is that the companies lacked both internal and external competition. In order to accomplish their planetary aspiration, authorities took involvement in approximately 180 companies called the “ Corporate Champions ” . These companies enjoy generous support from the province and preparing to partake in the rank of Fortune 500.
( Alden and Davies 2006 )
2.1. Definition OF KEY TERMS
At this point, a few key footings which are alone to this research and will be used often will be defined. Some of this footings include globalisation, emerging market economic systems, foreign direct investing, developed states and developing/ under-developed states.
Lassere ( 2007 ) , defined the term Globalization as a procedure whereby the passage of industries holding competitory construction alterations steadily from being multinationals to being planetary. Hence, Rao ( 2001 ) says that globalisation offers a cardinal feature of a phenomenal addition in international trade.
Besides, Griffin and Pustay ( 2010 ) specify Emerging Market Economies as states in which their current or prospective growing exceeds that of traditional markets. Hoskisson et Al. ( 2000 ) see emerging market as states holding low income, rapid growing and who use economic liberalisation as a cardinal engine for growing.
Belli ( 2000 ) in Frost ( 2004 ) says Foreign Direct Investment involves a foreign house puting in an endeavor, which is frequently a long-run investing output long-run involvement. Besides, Hill ( 2009 ) says it is when a house invest resources in the concern activities of a steadfast outside its place state. Sometimes foreign direct investing is used interchangeably with outward foreign investing, pending on the scenario.
Finally, Developed Countries are referred to as those that have a high degree of industrialisation and criterion of life. On the other manus, Under-developed/ Developing States are those with a comparatively low economic degree of industrial production and criterion of life.
( Dictionary 2008 )
3.0. CHARACTERISTICS OF CHINESE MULTINATIONALS
Fortune Magazine defines a transnational as a company holding its international gross revenues exceed 20 % of its entire gross revenues. On the other manus, Emerging Market multinationals are those from emerging markets doing themselves influential corporate participants. Hence, Chinese transnational corporations being extremely competitory and strongly supported by their authorities are known to be driven to get cardinal resources and market portion across the development universe. ( See Table I for top 15 Chinese Multinationals ) .
( Alden and Davies 2006 )
To analyze the features of Chinese multinationals, this Research will look at the features of the factors that affect Chinese Directors and direction manners.
3.1. CULTURAL FOUNDATION OF CHINESE LEADERSHIP
The civilization in China has been greatly influenced by the Cultural Revolution in the sixtiess. BBC ( 2005 ) published that this was a period of great political and societal convulsion. Hence, the foundation of Chinese leading is on Confucianism, Daoism and Buddhism.
Confucianism is based on three rules, which are frequently taught utilizing Proverbss such as ren ( involves demoing love to your fellow adult male ) , li ( morality and erectness ) and chi ( go forthing a virtuous life ) . Daoism involves weighing an issue decently earlier doing a determination and eventually Buddhism, which is one of the faiths that survived the Cultural Revolution. This teaches contemplation and self-awareness.
( Gallo 2008 )
3.2. CHINESE LEADERSHIP COMPETENCES
Gallo ( 2008 ) references competencies that are attributable to Chinese leader. They include:
Shanghai dialect: This is traceable to Buddhism, affecting the ability of Chinese leaders following an issue to its root ; by seting their five senses at work.
Chauvinistic: This is such that the foremans feel answerable to their local houses and the citizens to their state.
Zhong Yong: This is traceable to Confucianism. Their leaders avoid utmost determination devising, but instead seek blessing from top directors before reasoning on an issue.
Holistic Thinking: This is traceable to Wu, affecting and in-depth thought and usage of all senses. The side consequence of this could be concentrating on a bigger image and losing out on inside informations.
Integrating Best Western Practices with Chinese Wisdom: This is of import because though they pride in acquiring things done in the Chinese manner, they besides admire the Western civilization.
Long-run Position: They believe that a successful leader is 1s that sees things on a long-run, including relationship edifice.
Indirect Actions: Chinese leaders see being indirect to their subsidiary as a safer and easier manner of taking determination, than a direct one which would affect account.
Customer Sacrifice: Their leaders could travel to any possible extent for their clients.
3.3. CHINESE HUMAN RESOURCE
Gallo ( 2008 ) indentifies a few human resource features in most Chinese multinationals.
Employment Doctrine: There has been a impetus from the predictable calling promotion, to employees being responsible for accomplishment development and calling patterned advance ; though preparation and development plans are still held. This is due to the move from a planned economic system to market economic system.
Leadership Development: The Chinese authorities in order to follow the Western manner of developing leaders have sent and are still directing their young person for instruction and skill acquisition.
See inside informations in Table II.
3.4. COMPETITIVE STRATEGY OF CHINESE MULTINATIONALS
Cooke ( 2008 ) identifies strategies that top executing Chinese houses employ to derive fight. Such as:
Diversification as a Growth Strategy: Some have strategically diversified into related concerns to work their nucleus competency and organisational resources. Others into less/ unrelated concern likely as a consequence of sensed concern chances.
Internationalization as a Competitive Scheme: This is based on their authorities slogan – “ Travel Global ” . Hence they spread their merchandise market overseas, get foreign trade name name, distribution web, engineering and managerial competency.
Product Innovation and Quality Enhancement: Chinese houses have been severely known for low quality merchandise and invention capacity and engineering ; which has lead to their low production efficiency. Hence, to wipe out such bad name, Chinese multinationals are puting to a great extent into invention and quality of merchandise and services. This takes two signifiers: invention in merchandise and services ; and invention in production engineering and techniques.
4.0. BUSINESS IN WESTERN EUROPE
This part is divided into two: member states of the European Union ( some are Finland, France, Germany, Italy, Spain, Sweden, United Kingdom, etc. ) and other non-member states ( some are Iceland, Malta, Norway, Switzerland, etc. ) . The states in this part are amongst the universes richest and pull concern because it has affluent consumers. It is besides proven that Western Europe no longer has emerging market because all the states are developed even the little 1s within the part. It is besides a extremely industrialised market. ( See Figure I for Map )
( Griffin 2010 )
4.1. ENVIRONMENT/ CLIMATIC CHANGE
The Western Europe is known for a really unstable clime, sometimes the part experiences utmost temperatures, temblor, hurricane, etc. which affects concerns by and large. Most late was the Volcano eruption in March this twelvemonth 2010. This caused a cloudy consequence in the sky. Hence, for the first clip United Kingdom aircraft was closed for the safety of people. This on the other manus, hindered assorted concern activities for the period this job persisted because people were kept on a clasp at the airdrome or where of all time this met them.
4.2. Plague Analysis
To analyze the external environment of Western Europe briefly, the PEST model has been adopted. ( See Table III for inside informations )
Free-Market-Oriented: This peculiarly for the European Union members. This type of economic system opens the states to high competition, fast growing and wealth.
Richest Markets: This part is one of the richest markets in the universe. For illustration, Germany, which is the universe ‘s 3rd largest economic system, after Japan and United States. Hence, it is EU ‘s most of import member.
Majority utilizing One Common Currency: This has been made possible as a consequence of the function the European Union has played.
Parliamentary Democracies: This involves a democratic system of authorities with an elected represented Head.
Striking a balance on Work-Family Life: There has been a challenge in workers striking a balance between their work life and household life. Often times they feel stressed and rushed, which is traceable to their societal category.
( Bittman 2004 in McGinnity and Calvert 2009 ) .
Gershuny ( 2005 ) in McGinnity and Calvert ( 2009 ) says that it is argued that hum is a “ badge of honor ” . This sort of life manner can impact peoples ‘ wellness and deteriorated life quality.
Social Inequalities: This is traceable to Western Europe. It can be measured in footings of category, poorness, societal exclusion, inequality in instruction and unemployment.
( McGinnity and Calvert 2009 )
Value of Equality, Independence and Freedom: They believe in the sense that everyone is addressed by their first name, even up to their CEO ‘s. Besides, from an early age they are thought to be independent. Such that parents tie their success in their functions when their kids turn up to go autonomous. Finally, the value of Freedom is seen more as a state value.
( Gallo 2008 )
Hazard Takers: Besides taught from a stamp age to be risk takers. Often times utilizing the Proverbs ; “ Nothing ventured nil gained ” and “ You ‘ll ne’er cognize unless you try ” . This really good value for concern.
( Gallo 2008 )
Government part to Innovation, Research and Development: Government continues through assorted ways to promote endeavors in this part to perpetrate more resource to research and development ; in ways like: through revenue enhancement subsidies and research grants.
( Mani 2004 )
5.0. BUSINESS IN AFRICA
Africa is one of the largest continents in the universe, in which it cover about 22 % of the universe full land country. It is known to be blessed with abundant natural resources. It besides has a big population. States like Algeria, Angola, Gabon, Libya and Nigeria are major exporters of oil, while Botswana is rich in diamonds, Senegal rich in energy and South Africa in metals effectual technology, excavation and touristry. Besides by and large, Africa is known to be rich in agricultural green goods. Though, many of the population employ subsistence agriculture.
( Griffin 2010 )
Africa, unlike the Western Europe is a developing economic system and so still has rather a figure of emerging markets for development. Such as Egypt, Kenya, Morocco, Senegal, South Africa, Botswana, Nigeria, Ghana and Tunisia. Irrespective of the wealths in natural resources, it is still seen as the poorest continent and most technologically rearward. ( See Figure II for Map )
( Pham 2010 )
5.1. ENVIRONMENTAL/ CLIMATIC CHANGE
The undermentioned environmental hazards/risks are more outstanding in most African states, which have consequence on human wellness. They include: hapless imbibing H2O supply, indoor and out-of-door pollution, unhygienic nutrient, unequal waste disposal, hapless sanitation, deficiency of vector and chemical exposure. These can be traceable to inadequate policies and enforcement, weak institutional capablenesss and ignorance on the consequence of hapless environment to wellness.
( WHO, RG and UNEP 2008 )
Hence, African authorities are advised to reexamine their states policies ; such that it leads to a greater part to environmental direction towards public wellness.
5.2. Plague Analysis
To analyze the external environment of Africa briefly, the PEST model has been adopted. ( See Table IV for inside informations )
Poor Administration: This is a major political job in Africa. Study tells that this could be as a consequence of corruptness, limited regulation of jurisprudence and deficiency of enforcement contracts. ( Taylor 2005 )
High Degree of Corruptness: This has been increasing by the twenty-four hours, and leads to high offense rate in these societies. Therefore, these states in bend produce corrupt leaders.
Abundant Supply of Natural Resources: This is presently a major drawing card of private equity investors into the continent irrespective of its defects. It accounts for the major subscriber of the universe ‘s mineral militias which is about 30 % to the universe economic system.
( Canadian Council of Africa 2010 )
High Population: Africa is said to lend approximately 14 % of the universe population.
( Canadian Council of Africa 2010 )
One of the highest amongst emerging markets for growing in GDP, FDI and ROI: When compared to other emerging market, most African states record one of the highest growing rates in GDP, foreign direct investing and return on investing.
( Canadian Council of Africa 2010 )
Frequently High Inflation: This is a negative index, which does non demo suitablility for investing. Hence maintaining rising prices depression is required for a vivacious economic system contributing to private investing.
Changing Culture: Africa, unlike Western Europe does non hold Africa civilization like we have Western Culture. Most states have their alone cultural differences.
Addition in Spread of HIV/ AIDS: The inauspicious consequence of these disease can be such that a 10 % rate can do a 1/3 decrease in economic growing and productiveness and 20 % , more than half severally.
Increase Emphasis on Strong Corporate Administration: Corporate Administration refers to sing the relationship bing among assorted participants in a house, when finding the way and public presentation of that house.
( Peng 2009 )
This been done by a dynamic private sector has increases growing in capital market and infrastructural investing to $ 93 billion per annum.
( Canadian Council of Africa 2010 )
Backwardness in Technology: When comparison to other continents, Africa is nowhere in footings of engineering. Hence, steps are been put in topographic point to better engineering in Africa.
6.0. CASE STUDY
Two companies bing in both continents will be analysed and how they have adjusted their patterns for successful endurance.
6.1. HAIER GROUP
It is soon one of the top Chinese Multinationals into place contraption fabrication. It has invested in many developed and developing states, within a period of few old ages ; geting big market portions in these states.
( Lui and Li 2002 )
In Western Europe, Haier is present in Germany, Italy, Denmark, Romania and France. On the other manus, In Africa Haier is present in Egypt, Morocco, Kenya, Gabon, Nigeria, South Africa, Ghana, Gambia, Mozambique, Angola, Tanzania, Sudan, Algeria and the Congo.
( Haier 2010 )
Lui and Li ( 2002 ) identified that Haier Group adopted three major schemes for internationalization.
Haier ‘s International Expansion as Sequence Strategy: Figure III, shows that initial focal point was on developing states to construct volume and get international experience. Subsequently on tried to develop its engineering in the USA. It ‘s investing in the US is to back up its investing and operations in other states ; particularly for the by-product of engineering and reputation/ image.
3 by 1/3 International Strategic Objective: Here, production and gross revenues of 1/3 of its green goods in China and export to foreign states.
Haier Export Strategy: This involves them foremost come ining and undertaking tough markets ( developed states ) before easy markets ( developing states ) .
( Liu and Li 2002 )
6.2. LENONO GROUP LIMITED
This is one of Chinese Computer Hardware Multinational Company, which acquired IBM personal computing machines. Early 2009, Lenovo announced a alteration in organisational construction, aimed at concentrating on market kineticss. The new construction involved the creative activity of two concern units to replace the old one ; such that one focuses on consumers of developed markets and the other on consumers of developing markets. This is to better client service
Other purposes for this new construction are: derive benefit from synergisms among similar market, to portion best patterns with squads who serve clients with similar features and to enable Lenovo extend concern theoretical account.
7.0. WHY AFRICA
China ‘s spread outing battle has captured universe attending ; the inquiry is what could be the ground? Tracing back to Chinese leading competency of long-run position as discussed earlier, the relationship between China and Africa dates back to over 50years of a friendly, respectful and supportive relationship. A good illustration is when China was isolated and unnoticed ; Beijing ( capital of China ) assisted the emerging post-colonial African states. Hence, this places Africa as a different and more-understanding spouse compared to the Western Europe.
( Gill and Reilly 2010 )
Besides, Africa as the poorest continents as discussed in our PEST analysis unlike that of Western Europe which is one richest continents, provides a really good chance for China to impart their abroad investing to, particularly the oil sector. Besides, most significantly is the fact that Africa is rich in natural resources.
In add-on, though the EU market can non be ignored, yet making concern in this despairing part is extremely hazardous compared with the African Market. This could be because Africa is a new market for FDI hence, less competitory and attractive.
7.1. Entry MODE
Chinese companies have adopted the undermentioned entry manners in their pursuit to travel planetary. ( See Figure IV and Table V for more inside informations )
Exporting: This entry manner does n’t affect any direct investing, or physical presence abroad. Today, China is the 3rd largest exporter in the universe after Germany and USA.
Joint Venture: Due to their authorities aid, it has become the fastest manner for Chinese company to get technological expertness and addition entree to R & A ; D and fabrication installations. Example TCL with Alcatel and Toshiba.
Amalgamations and Acquisitions: frequently carried out by large-stated owned companies to procure natural stuffs. ( McGregor 2005 )
Greenfield Establishment of Subsidiaries: This involves buying and plus overseas and set uping subordinates in a peculiar state of involvement. Example Haier.
( Dinging, Akoorie and Pavlovich 2009 )
Africa has been pulling Chinese investor and going a popular emerging market because of its abundant natural resources and demand for fiscal support. This new development has become inevitable for Western house and exciting for Africans.
( Alden and Davies 2006 )
China on its moves in Africa, has been Natural Resource Seeking ( oil, energy, etc. ) ; Market Seeking ( in footings of the big population, and placing a job and supplying a solution to derive market ) and Effiecincy Seeking ( taking a location most efficient to derive both economic systems of graduated table and low cost of production ) .
Finally, China has invested in both Africa and Western Europe ; but has adopted strategic technique such that it invests in Western Europe majorly for high engineering acquisition and repute ; and invests in Africa majorly for big market for gross revenues of its low value consumer goods and market seeking for natural stuffs.