Jan 12, 2018 in Research

Expansion to China

There are numerous entry modes that John Lewis can use in his international expansion to China; they include licensing, acquisitions strategic alliances, and the establishing of fully owned subsidiaries. Among these, acquisitions and fully owned subsidiaries are considered as investment, the foreign direct investments (FDI) are instruments that bring services and goods to the international marketplaces. The FDI shows investors’ confidence in overall business and geopolitical environment of China as a host country (Hitt, Ireland and Hoskisson, 2009). A number of elements that promote foreign investment in the country determine investor confidence and economy of the Chinese state. The John Lewis needs some knowledge on the correlation between economic performances and tax rates.

China is thriving in the global economy where business environment and capital markets create large swath of capital to invest. A part of this is converted into FDI. The capital availability is a factor John Lewis needs to consider. Large investable capitals overwhelm the sound local investments. This causes individuals, companies, and institutions to invest in these emerging markets.

Economic and political stability can facilitate influx of FDI. Chinese stability represents opportunities and predictability for John Lewis to gain better foresight about the future. Alternatively, constant social rioting, social turmoil, rebellion, and unrest are not conducive to business. Economic instability also contributes to hyperinflation rendering the country’s currency virtually obsolete (FU, 2004). To encourage FDI, workers in the businesses organization should have a reasonable basis for respecting the law and order in the republic of China. Criminal activities, blackmail, violence, kidnappings, and the counterfeit currency and products have been problems in China. The shortcomings tend to undermine the efficacy of conducting investor trade activities. Hedging against currency risks adds a level of safety to John Lewis offshore investments.

John Lewis should consider whether the justice system has effective mechanisms for reducing or eliminating corrupt and rogue elements of law enforcement agencies. The company needs to consider whether Chinese national government has enacted laws and policies that favor state owned firms at the cost of private ones. The regulation may deter or promote impede foreign investments (Zhang, 2000). Excessive regulations hinder commercial and entrepreneurial activities. In this regulatory environment, managers and staff must spend money and time to adhere to the regulations and rules. Exorbitant start-up expenses, legal expenses, and other burdensome compliances items encourage investor to establish the facility in another location where the overall business climate is conducive to the industry.

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