International Research Paper
China has for a long time been a major player in the world footwear industry. It has been a global manufacturer of shoes, supplying the leather shoes worldwide (Abrami, Regina, William, Koll & McFarlan, 2016). A foreign shoe-making firm intending to venture into the Chinese footwear market has to understand the political, economic and social factors that affect such a country. Therefore, the paper analyzes the factors to provide a clear information to help in determining the best strategy to penetrate new markets.
Political and Financial Background of China
Since the country’s proclamation in 1949 as the Chinese Republic, the government’s political regime has been a single communist party system. Abrami et al., (2016) point out that the one party system has promoted political stability, which lowers the political risk. The political risk in china can be regarded as fairly stable relative to the standards of emerging global markets. Despite the lower political risk, the country lacks transparency in the rules and regulations, which is a major risk for foreign companies (Abrami et al., 2016).
China launched its open economic policy about twenty years ago which has promoted the foreign direct investment. It has established policies that have supported FDI in most of its manufacturing and service sectors (Blankson & Kalafatis, 2012). Additionally, the country has made efforts to decentralize the approval and implementation of FDI policies, which promotes fair competitions (Abrami et al., 2016). However, this is not achievable due to lack of transparency, corruption and existence of excessive red tapes. Despite the decline of the Yuan against the US dollars, the currency has been relatively stable in comparison to other currencies such as the euro and the Japanese Yen. Since June 2016, the focus of the Chinese policy makers on the stability of the exchange rate has promoted relative growth of the currency against the US currency. However, Abrami et al., (2016) warns that currency devaluation of the Yuan as experienced in 2015 is a greater risk for investors because it causes the stock to plunge.
China’s General Demographics
China is a multi-ethnic state composed of 56 ethnic groups. Fifty-five of the ethnic groups fall under the category of national minorities because they have a population of about 8% of the whole population (NBS of China, 2010) (Blankson & Kalafatis, 2012). Han is the largest ethnic group with a population of about 91.96% of the total population. According to a research conducted by the World Bank the Chinese population based on age is composed of; 0-14 years 17.2%, 15- 64 years, 73.4% and 65 and above represents 9.4% of the total Chinese population. The National Bureau of Statistics of China sates that, the current population growth rate is at 0.43% (NBS of China, 2010) (National Bureau of statistics China, 2012). The official language in china is mandarin; however, the spoken language is Wu, Yue, Min, Xiang, Gan, Hakka, and Patua. Recent population statistics of china show that 59.1% of the total population is urban. Shanghai boosts the largest number of population in the world with a population of 22,315474 people. Other major cities include, Beijing city- 11, 716, 620 people, Tianjin city – 11, 090, 314 people, Guangzhou city – 11, 071, 424 people, Shenzhen city – 10, 358, 381 people, Wuhan city – 9, 785, 388 people, Dongguan city – 8,000,000 people, Chongqing city – 7, 457, 600 people, Chengdu city – 7, 415, 590 people, and Nanjing city – 7,165, 792 people(NBS of China, 2010).
Education and Employment Figures
According to statistics by the World Bank the gross enrollment ratio for primary education for both genders in china declined from 109 to 104 over the years from 1974 to 2014 (World Bank, 2015). Based on data sourced from the NBS China, the number of economically active population is 767.04 million hence the labour participation rate is 71.1%. The unemployment rate since 2010 has held at 4.1 %, which represent 9.26 million people.
China’s Current State of Economy
The Growth Domestic Product recorded in 2015 was US$ 11007.72 billion dollars. It represented about 17.75% of the global economy. According to the World Bank data, the GDP averaged at US$ 1621.48 billion dollars over the period from 1960 to 2015 (World Bank, 2015). Based on the World Bank’s international comparison program database, the last recorded Gross Domestic Product (GDP) per capita adjusted using the PPP was US $13571.70 in 2015. The GDP per capita when adjusted using the Purchasing Power Parity (PPP) amounts to 76% of the total average globally (Collin, 2012). It averaged at US$ 5835.19 over the period from 1990 to 2015 (World Bank, 2015). In 2016, the cost of goods increased by 1.8% while cost of services augmented by 2.5%. Overall inflation in 2016 the inflation rate was at 2%, which was below the government target of 3%. The current exchange rate against the US dollar is one Chinese Yuan Renminbi is equal to 0.15 US dollars (World Bank, 2015).
The leading domestic footwear manufacturing industries in china are Guangdong footwear industry, Zhejiang footwear industry, western region footwear industry and Fujian footwear industry. The main exported products are the leather shoes (World Bank, 2015). Various channels are used by the industries to distribute and sell their products to the customers. In Wenzhou, local traders associations developed a common footwear platform referred as the footwear material city that attracts both local and international customers. Other distribution channels include the departmental stores, hypermarkets, shopping malls, large shopping centers and through online platforms such as Alibaba and the china shoe website- www.cnxz.cn (Collin, 2012). Trade regulations include various Chinese standards that regulate the footwear market. A foreign company must take note of the Standardization law enacted in 1989, which include four key standards, national, industry, local and corporate standards (Abrami et al., 2016). Additionally, various tariffs rates are levied on some of the imported footwear. Three major competitors in the shoe making industry include Jinhou (Group) Co. Ltd, Kangnai Group and the Zhejiang Aokang shoes Co. Ltd (Collin, 2012). The firm will adopt the following positioning strategies. Product differentiation; the company will provide footwear that have separate features, benefits and attributes from those of the domestic competitors and pricing/ quality strategy; since high prices are associated with high quality, the company will price their branded shoes at a higher price than competitors but at a level the consumers consider reasonable (Blankson & Kalafatis, 2012).
The single communist party that form the government makes the political risk to foreign investor businesses lower than other emerging markets. However, there lacks transparency in the rules and regulations which is a major risk to a foreign company. China has a large number of ethnic groups categorized as the minority and the Han ethnic group. It is important to ensure equality while offering employment and other benefits in china. The shoe-manufacturing firm must consider factors such as the labour force, employment and unemployment, inflation rates and competitors to come up with an effective plan of entry into the foreign markets.
Abrami, Regina M, William C, Koll E and McFarlan (2016). “Political and Economic History of the People Republic of China”. Harvard Business School Background Note 309-073.
Blankson, C. and Kalafatis, S.P, (2012). “Positioning strategies of International and Multi-cultural-oriented product brands”. Journal of product marketing. 21/6. p. 435-445
National Bureau of statistics China (2012); “Statistical Communique on the 2011 National Economic and Social Development”
World Bank (2015) International comparison Program Data Base for GDP and GDP per capita.
Collin, H. (2012). Statistics about the Population Growth in China, 2001- 2012, World Bank, July 2013. Retrieved 18 January 2017.