Risks Involved in Trading with or Operating in China

The P Team

Definition of Risk

The possibility of an event or condition occurring that will have a negative or harmful impact on something perceived to be of value.

Businesses are primarily concerned about financial risk.

1. Suppliers

New suppliers may be relatively unknown, this may result in businesses choosing one who is not able to provide the product to the standard required

It can also mean that they are unable to meet deadlines and unreliable in general

2. Exchange Rate Fluctuations

This could result in materials imported from china becoming more expensive

This can reduce profit margins if the increase in costs cannot be passed onto the customers

3. Negative Attention from Pressure Groups and Political Figures

Attracted because of China’s human rights policies

Businesses who choose to trade or operate within China may receive unwanted negative media attention

This can cause consumers to switch to direct competitors

4. Political Instability

Governments in China may apply policies aimed just at foreign businesses in order to gain popularity with its citizens

However in 2012 China announced that it would reduce its taxes on overseas businesses by up to 50% to encourage foreign direct investment

5. Language and Cultural differences

This could lead to the business marketing its products in the wrong way or aiming their product at the wrong target market

This makes it difficult to appeal to the right audience

An example is Tesco who have put their difficulties down to the inability to adapt their business model to suit their target audiences culture

6. Intellectual Property Theft

Intellectual property violations are common

Without effective protection, a business may lose its USP and competitive advantage

Businesses may struggle to recoup R&D costs and legal costs incurred from fighting intellectual property infringements

6. Intellectual Property Theft (Dyson)

Dyson’s plan to enter the Chinese market in 2012 was undermined by the availability of cheaper, similar products, which were an infringement of their patent rights

Chinese firms would not have spent millions on R&D nor gone through the process of registering a patent

Firms like Dyson were damaged due to lower sales, lower market share and cheaper copies which harmed the brands reputation and image

7. Bribery or Corruption

Common throughout China despite the fact it is illegal

Especially in areas such as dealing with local officials in charge of permits

The giving of gifts reflects a key feature of business culture, but exposes businesses to the accusations of bribery

7. Bribery (GlaxoSmithKline)

UK’s largest drug-maker

Allegedly used travel companies to channel ¥3 billion (£300m) to bribe doctors and officials

Sales in China during July-September quarter, 2013, sank 61% after the scandal

Tescos - http://www.foodmanufacture.co.uk/World-News/Tesco-failed-to-understand-the-Chinese-consumer

Dyson - http://www.telegraph.co.uk/finance/yourbusiness/8936685/Sir-James-Dyson-attacks-China-over-designs-theft.html

GlaxoSmithKline - http://www.bbc.co.uk/news/business-24637195

https://www.youtube.com/watch?v=Iw7Q1LiNXig

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