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Essay on Global Capital Market, Equity Market, and Foreign Exchange

Date:  2021-05-25 03:42:07
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Global Capital Market and Equity Markets refer to the transactions and exchange of financial products and securities at international level. To say differently, these are transactions among different countries. On the other hand, foreign exchange refers to money coming in from a country to the subject country (Alvarez, 2007; Obstfeld & National Bureau of Economic Research, 1998).

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As for China, there are potential benefits of these considerations. For example, the government can attract investors due to cheap labor cost. The difference of currency makes the Chinese market attractive in terms of manufacturing and any other part of the business that involves labor. However, as the global market or foreign exchange grows, the Chinese government may lose its control of finance. It associates certain risks such as currency valuation that would make the Chinese labor market unattractive for off-shore business. Growing value of the currency will also be threatening at the internal level, as Chinese exports will lose their competitive strength and communism will lose its meanings in the wake of the capitalistic wave.

Strategy and Structure of International Business

In this section, the writer is shedding light on the experience of two renowned corporations (one from the U.S. and one headquartered in the U.K) including Apple and Tesco in the Chinese Market. Both utilized different modes of entry and remained successful. For example, Apple expanded to China through direct foreign investment mode of entry, as it established its manufacturing plant in the underlying region. Here, it is important to note that it brought changes in its marketing strategy to capture the communist market by coming up with affordable versions of its premium iPhones in China (Schaffmeister, 2015). Tesco, on the other hand, came into a joint venture with local distributors and adopted defensive approach to entry (contrary to Apple). It also came with lower prices to maintain its competitive strength for consumers characterized by communism (Qixun Siebers, 2011).

Organizational Structure

There are several types of organizational structures that the companies adopt that expand to other countries. However, it is important to keep the organizational structure flexible at international level, so it can be in harmony with the culture and tradition of a country to which a business expands. China, as discussed, is dominated by communism wherein people look for affordable products and services due to their fixed income. Therefore, any business with low cost formula will be successful in China. Due to their governance style, Chinese do not enjoy the freedom of opinion and criticism and have respect for hierarchy (Films on Demand, 2011; Gong & Wang, 2009). Therefore, it is ideal for organizations to enter China with the hierarchical structure as it is in close proximity with the requirements specific to the selected country.

Entry Strategy and Strategic Alliances

There are different modes of entry into the international market with each having its own advantages and disadvantages. A company has to select an entry mode specific to its objectives and culture, traditions, and regulatory obligations of its target country. In broad terms, there are four types of entry modes including exporting, licensing, strategic alliance, and direct investment. Exporting is a defensive strategy that refers to the direct or indirect export of a product to the chosen country through distributors. It associates low investment and low risks, but also offers low profit margin and lack of control. Licensing is the name of leasing the rights of intellectual property to an entity in the foreign market. It requires low investment on production and marketing on the part of the licensor, but profit margin and growth opportunities are low with the risk of staining the licensors reputation on account of the licensees fault. A strategic alliance in any form such as acquisition, merger or joint venture is the deal between foreign and home companies aiming at the common objectives under the umbrella of certain terms and conditions. It also lessens the risk but causes low profit margin due to shared benefits (as well as responsibility). Finally, there is direct investment mode that refers to establishing a manufacturing plant in the target region. It is risky (especially in the case of distant cultures and geographic locations), but offers huge profit margins in the event of success (Elsner, 2014; Rogmans & Business Expert Press, 2012).

The joint venture is an ideal mode of entry for the companies entering into China due to sophisticated culture and structure among its organizations under the strong influence of communism. The joint venture will allow the entrant to stay away from complications and let the responsibility be passed onto a domestic company that is well aware of managing all these requirements. However, if a western company has a solid grip on the knowledge of Chinese market, it can implement direct investment that would allow it to capitalize on the low cost labor of China to maximize its profit margins, same as Apple did.

Exporting, Importing, and Countertrade

There are certain restrictions ( the majority of which are general in nature) imposed on Chinese imports and exports. For example, China cannot import animals, fresh vegetables, weapons, any media unfavorable for the government, and drugs from other countries. By the same token, China is legally bound not to export any film or book, any item that is worth more than $5000, communication devices, and expensive metals (such as gold and silver) (Zhang, 2006). As for exports to America, there are no specific restrictions, but the Chinese government has strict prohibitions in terms of import from that country. For example, it applies a high tariff on the import of fertilizer from the U.S to restrict its import and applies VAT selectively to certain products being imported from the U.S to limit their inflow. Similarly, it does not allow for the import of agricultural products from the U.S. America is also restricted to export financial services to China (Ideal Tax Association, 2010). China is also in countertrade relationship with several western countries including America, Russia, Germany, and Australia where the United States accounts for more than 32% to assert the highest countertrade transactions. Through countertrade, it imports finished products and capital goods, and (in exchange) exports semi-finished or finished consumer products and goods (Palia & Shenkar, 1991; Folsom, 2011).

Global Production and Supply Chain Management

In an international business production facilities and hidden costs for offshore companies (entering into a foreign country) hold great significance as they influence make or buy decision. As for China, there is a low restriction imposed on foreign direct investment and labor cost is low. Therefore, it is ideal for a company to set up a manufacturing plant in the selected region and use domestic labor for production and supply chain management than any other option. For example, Apple produces its iPhone in China that are sold across the world (World Bank & International Finance Corporation, 2013; McGregor, 2005).

Global Market and R&D

There are certain communication and pricing strategies specifically effective in China. A simple hierarchical setup, which is in line with the cultural requirements in China, is ideal for smooth upstream, downstream, and cross communication for any offshore or domestic company operating in the region. As for pricing, it should be kept low and affordable, because in the communist culture of China people have limited fixed salaries. Two examples, such as low cost iPhone and low pricing strategy of Tesco in China have already been provided. Luxury and premium products will not enjoy good growth in the region (World Bank & International Finance Corporation, 2013).

Global Human Resource Management

Companies operating at international level have to practice strategic human resource management for the best harmony with cultures and traditions of countries and regions where they operate (Eldridge & McCourt, n.d.). Target Corporation headquartered in the United States is a renowned in the retail sector of America with its branches in different states. However, it is faced with the issue of high turnover due to low employee benefits leading to declining share over past few years (World Bank & International Finance Corporation, 2013). The company has to address this HR issue before it enters China (if it intends) to maximize the chances of its success. In China, it has to compete with established public sector and offer competitive employee benefits scheme for talent management and ensure high productivity.

Accounting in International Business

Accounting and auditing practices in China are regulated and managed by Chinese Auditing Standard Board that is a government regulatory body. Historically, China has been following a unique set of 38 rules under the umbrella of Chinese Accounting Standards to regulate accounting and auditing practices in China. However, following the growing influence of global capital and increasing number of international transaction, said accounting standard board settled to adopt International Financial Reporting Standards (IFRS) for smooth and harmonized transactions at international level (Riccardi, 2016).

References

Alvarez, M. (2007). Market data explained: A practical guide to global capital markets information. Amsterdam: Butterworth-Heinemann.

Eldridge, D., & McCourt, W. (n.d.). Strategic Human Resource Management. Global Human Resource Management. doi:10.4337/9781781950104.00009

Elsner, S. (2014). Study 1 Effects of Institutionalized Entry Modes on Entry Mode Choices. Retail Internationalization, 41-74. doi:10.1007/978-3-658-01096-6_2

Films on Demand. (2011). Organizational structure: 1. Hamilton, NJ: Films Media Group [distributor.

Folsom, R. H. (2011). International business transactions: With IBT resources and sample agreements. Eagan, MN: West.

Gong, X., & Wang, X. (2009). Analysis of Industrial Organizational Structure of West China. IJBM, 3(1). doi:10.5539/ijbm.v3n1p88

Ideal Tax Association. (2010). China's multiple barriers to American products. Retrieved November 22, 2016, from http://www.idealtaxes.com/post3097.shtml

McGregor, J. (2005). One billion customers: Lessons from the front lines of doing business in China. New York: Free Press.

Obstfeld, M., & National Bureau of Economic Research. (1998). The global capital market: Benefactor or Menace? Cambridge, MA: National Bureau of Economic Research.

Palia, A. P., & Shenkar, O. (1991). Countertrade practices in China. Industrial Marketing Management, 20(1), 57-65. doi:10.1016/0019-8501(91)90042-e

Qixun Siebers, L. (2011). Foreign retailers in China: the first ten years. Journal of Business Strategy, 33(1), 27-38. doi:10.1108/02756661211193794

Riccardi, L. (2016). China Accounting Standards. doi:10.1007/978-981-10-0006-5

Rogmans, T. J., & Business Expert Press. (2012). The emerging markets of the Middle East: Strategies for entry and growth. New York, N.Y.] (222 East 46th Street: Business Expert Press.

Schaffmeister, N. (2015). Brand building and marketing in key emerging markets: A practitioner's guide to successful brand growth in China, India, Russia, and Brazil.

World Bank, & International Finance Corporation. (2013). Doing business 2014: Understanding regulations for small and medium-size enterprises.

Zhang, X. (2006). International trade regulation in China: Law and policy. Oxford [England: Hart Pub.

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