- Macro & Microeconomics
- Prepare a report which explains the business environment (of one country) in which an Australian based company operates.
Prepare a report which explains the business environment (of one country) in which an Australian based company operates. Essay Example
There are a number of Australian companies that have engaged in foreign direct investment in other countries. For them to engage in foreign direct investment in these countries there is an array of factors that are put under consideration. This report discus Mine Site Technologies as a multinational company based in Australia which also operates in China among other countries.
Mine Site Technologies
This report analyzes Mine Site Technologies as a multinational company in Australia which operates in China (Mine Site Technologies, 2012). The company has set up its global headquarters in Sydney, NSW, Australia. It is also strategically located in the main mining areas all over the world. It was founded in 1989 at Australia. In Company also operates in China where it has its offices located in Hangzhou, Zhejiang. MST is a leader in global communications with more than 23 years experience in manufacture, design, and deployment of high quality, solutions in mine communications among others (Mine Site Technologies, 2012).
Economic environment in China
There are various factors that play a big role in determining the foreign country in the world where a company is going to invest. For Mine Site Technologies, the decision to invest in China was facilitated by the availability of conducive environments for their investment (Mine Site Technologies, 2012). These environments were economic, social and political. To begin with the economic environment of China, the country has seen the opening up of the economic space from a command based economy to a market based economy and the upgrading of the indigenous production sectors. This led to a rapid growth in the economy of the country (Jiang & Stening, 2006). This encourages companies from other countries to invest in the country since the opened up economy ensures that even the companies from other countries are free to enter into the Chinese markets. The upgrading of the indigenous production sectors also means that the factors of production required by the multinational companies that are interested in investing in the country have been streamlined. This indicates to the foreign companies interested in investing in China that they would not have to incur extra costs in doing business since the other vital industries essential in enhancing their production are available and also functioning (Webber et al, 2002).
The stability of the Chinese currency, the Yuan, is also a factor that has influenced foreign companies to invest in the country. The Chinese currency has been relatively stable as compared to those of other Asian nations (Jiang & Stening, 2006). This stability of the currency shows that that the costs of imports and exports would not fluctuate at higher rates, which is favourable for the investment of foreign companies. The availability of cheap labour is also another factor that has makes it favourable for foreign direct investment to be made in the country. As compared to the costs that would be incurred by Mine Site Technologies in bringing in staff from Australia to work in China, there is the availability of the required skills in the country. Therefore, companies investing in China cut the costs associated with labour due to its availability at lower costs (Webber et al, 2002). However, the rapid growth of the economy came with some challenges for foreign firms that operated in the country. These came with the challenges associated with the high levels of fraud that were experienced with the transition of the Chinese economy. There were also challenges in the implementation of human resource management strategies. These challenges were necessitated by the inherent high levels of corruption in the country (Jiang & Stening, 2006).
There are also political factors that make it possible for foreign companies like the Mine Site Technologies to invest in China. To begin with is the willingness of the Chinese government to come up with policies that promoted the attraction of foreign companies to various parts of the country necessary for investments. This is through the policies that saw the government opening up coastal areas of the country which were favourable to companies in the export and import their inputs and products. There was also the opening up of other areas where activities such as mining could take place. This is to the benefit of Mine Site Technologies since it aids them in acquiring more business in the opened up mining areas. The policies also facilitated the construction and development of facilities that facilitated production in such sectors as the energy sector, transport and communication among others. The willingness of the political class of the country to engage in activities that promoted foreign direct investment in the country also made it possible for foreign companies to invest in the country (OECD, 2002).
China has also been able to maintain a system of government that has been effective in the attraction of foreign direct investment. The stability of the government has played a substantial role in indicating the levels of stability in the country and the security of the investments that the companies intending to invest the country would enjoy. It has made investors feel that the government has the capability of intervening swiftly in cases where the markets would seem to be failing (Jiang & Stening, 2006). The stability of the political system in the country has also enhanced relative peace in the country. For a number of years, there has not been serious political instability in most parts of the country that has been viewed as a threat to the investments made by foreign companies in China. These levels of political instability have been minimised. However, this does not mean that the country has not faced some cases of political instabilities and threats completely (Wei, 2000).
There are also other social factors that make it favourable for investors to invest in the country. To begin with is in the population of the country. The country is considered as one of the most populous in the world. The advantage that comes with the large population is in the availability of both the skilled and unskilled labour. As discussed earlier, the availability of cheap labour in the country is necessitated by the large population. There have however been signs of threats of social collapse that have been seen in china. Social collapse means the death of the society and the loss of its functionality. This is due to the fact that the rates of corruption in the government have been high and have spread to most of the Chinese societies. This has led to the loss of the moral values that were once held by the societies in the country. There has been rise in cases of tax fraud, which has become the most common form of fraud that takes place in the country. Foreign companies have also been forced by the conditions to engage in corruption. They realised that in order for business to happen in the country, it is mandatory for them to bribe the Chinese officials. This is foreseen to not only lead to a social unrest, but lead to a social collapse (Zhou, 2010).
The arrays of political, economic and social factors that make it necessary for the company to invest in the country are varied and wide. The economy of the country has been seen to have grown at a fast pace. The availability of cheap and affordable labour is also one of the strong points China. There has also been stability of the country’s currency, the Yuan as compared to the currencies of the neighbouring Asian countries (Jiang & Stening, 2006). Other than this, there has been relative political stability coupled with favourable policies that have been brought about by the political class to promote investment by foreign companies in the country. However, certain risk factors like the inherent levels of corruption are major threats to the investment made in the country. Companies normally have their own internal policies that directs where they would invest in and such risk factors would be impediments to their investment.
Jiang, F. & Stening, B. W. (2006) The Chinese Business Environment: An Annotated Bibliography. Cheltenham: Edward Elgar Publishing Limited.
Mine Site Technologies. (2012). Who we are. Retrieved 27th April 2012, http://www.minesite.com.au/overview/
OECD. (2002). Foreign Direct Investment in China: Challenges and Prospects for Regional Development. Paris: OECD Publications.
Webber, J. M et al. (2002). China’s Transition to a Global Economy. New York: Palgrave MacMillan Publishers.
Wei, Y. (2000). Investing in China: The Law and Practice of Joint Ventures. Sydney: The Federation Press.
Zhou, J. (2010). China’s Peaceful Rise in a Global Context: A Domestic Aspect of Road Map to Democratisation. Plymouth: Lexington Books.
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