Penetrating the Chinese Market

Topics: Automobile, Automotive industry, China Pages: 11 (4101 words) Published: March 17, 2011
Penetrating the Chinese Market: A Feasibility Study of Market Conditions in China as regards the Decision of McLaren Motors to set-up a manufacturing plant in China Feasibility Study carried out by:

Advent Consulting

TABLE OF CONTENTS
1.Executive Summary ..........................................................................................................4 2 Background of Feasibility Study........................................................................................5 3. The State of Manufacturing in China..................................................................................6 3.1 The Automobile Industry in China..............................................................................7 4. Doing Business in China: Culture & Business Systems.....................................................8 5. Trade between America and China...................................................................................10 6. Exchange Rate Processes between China and America...................................................11 7. Entering into China: Joint Venture Arrangements...........................................................12 8. Operating in China: Political Risks..................................................................................12 Conclusion & Recommendations.........................................................................................13 References............................................................................................................................14

1. EXECUTIVE SUMMARY
The CEO of a Multi-National Corporation (MNC) –MClarensMotors which is based in the United States, has approached a team of researcher(Advent consulting) to prepare a report on the company’s decision to penetrate the Chinese market. In carrying out this feasibility study, issues like the cultural and business systems in China, nature of the automobile industry in China, nature of trade relations between America and China, exchange rate systems between America and China, and the level and nature of political risks within the Chinese business environment. There is no doubt that the America and China differ in several regards, particularly in the nature of their political and economic systems. In spite of this, enormous opportunities exist within the Chinese market, especially for an automobile firm like McLaren Motors. Based on the analysis contacted, there is need for McLaren to develop sustainable relationships with local Chinese business and government contacts; this will help the company to wade through the rigid bureaucratic processes that exists within the Chinese economy. Finally, when it comes to the preferred mode of entry into the Chinese market, Joint venture arrangements should be the preferred mode of entry for McLaren Motors. Joint venture arrangements will enable McLaren Motors to take advantage of the enormous domestic market in China.

2. BACKGROUND OF FEASIBILITY STUDY
This feasibility study was conducted to examine what the business environment in China is like and whether it favours the international expansion plans of Mclaren Motors, an American automobile manufacturer. In accordance with the rapid growth of the Chinese economy, Mclaren Motors seeks to take advantage of both market opportunities and cost efficiencies that are obtainable within the Chinese market. As mentioned earlier, Mclaren Motors is a manufacturer of road cars. The company’s headquarters is located in the United States of America. At present, the company has production facilities in America, the United Kingdom and Mexico. Its consolidated annual revenue for the year 2010 was US$456 million and its net profit in the same year was US$235 million. The company has been in existence for the past ten years and has become known as a global brand. While the company has leveraged on the North American and European market, it is yet to fully take advantage of the enormous...

References: Figure 2: Great Wall SUV (local Chinese brand)
The Economist (2009) noted that the automobile sector in China still possess enormous growth potential
7. ENTERING INTO CHINA: JOINT VENTURE ARRANGEMENTS
Hill (2005) defined a joint venture as a business arrangement in which parties involved agree to develop, for a particular time, a new organization and new assets by contributing equity
8. OPERATING IN CHINA: POLITICAL RISKS
Hill (2005) defined political risk as the risk that a supposed return on a particular investment could suffer set-backs as a result of changes in political systems and structures
REFERENCES
Bloomberg News (2009) Ray of Light: China’s manufacturing sector continues to strengthen
CIA (2009) Country Profile: China. Accessed from: http://www.cia.gov [11 January 2011]
Dunfee, T., W
Electronics Weekly (2008) Manufacturers still hopeful of upturn this year. Accessed from: http://www.electronicsweekly.com [14 January 2011]
Ghimire (2006) Business in China: investing in China
Harwit, E. (2001) The impact of the WTO membership on the automobile industry in China. The China Quarterly [online] vol 2 pp.655-670. Accessed from: http://www.scholar.google.com [13 January 2011]
Hill, J
Hofstede, G. (2001) Culture’s consequences: comparing values, behaviours, institutions, and organizations across nations. Thousand Oaks CA: Sage Publications
IMF (2006) Global Imbalances: a saving and investment perspective
IMF (2007) World Economic Outlook. Washington DC: International Monetary Fund
Lum, T
Reuters (2009) China’s fuel subsidy costs the world. Accessed from: http://www.reuters.com [13 January 2011]
The Economist (2009) More cars are now sold in China than in America
Transparency International (2009) Corruption Perception Index: China. Accessed from: http://www.transparency.org [13 January 2011]
World Bank (2008) Global manufacturing indicators
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