Risks Involved in Trading with or Operating in China
Definition of Risk
Suppliers
Negative Attention from Pressure Groups and Political Figures
Exchange Rate Fluctuations
Political Instability
Language and Cultural differences
Intellectual Property Theft
Bribery or Corruption
2. Definition of Risk
The possibility of an event or condition occurring
that will have a negative or harmful impact on
something perceived to be of value.
Businesses are primarily concerned about financial
risk.
3. 1. Suppliers
New suppliers may be relatively unknown, this
may result in businesses choosing one who is
not able to provide the product to the
standard required
It can also mean that they are unable to meet
deadlines and unreliable in general
4. 2. Exchange Rate Fluctuations
This could result in materials imported from
china becoming more expensive
This can reduce profit margins if the increase
in costs cannot be passed onto the customers
5. 3. Negative Attention from Pressure
Groups and Political Figures
Attracted because of China’s human rights
policies
Businesses who choose to trade or operate
within China may receive unwanted negative
media attention
This can cause consumers to switch to direct
competitors
6. 4. Political Instability
Governments in China may apply policies
aimed just at foreign businesses in order to
gain popularity with its citizens
However in 2012 China announced that it
would reduce its taxes on overseas businesses
by up to 50% to encourage foreign direct
investment
7. 5. Language and Cultural differences
This could lead to the business marketing its
products in the wrong way or aiming their
product at the wrong target market
This makes it difficult to appeal to the right
audience
An example is Tesco who have put their
difficulties down to the inability to adapt their
business model to suit their target audiences
culture
8. 6. Intellectual Property Theft
Intellectual property violations are common
Without effective protection, a business may
lose its USP and competitive advantage
Businesses may struggle to recoup R&D costs
and legal costs incurred from fighting
intellectual property infringements
9. 6. Intellectual Property Theft (Dyson)
Dyson’s plan to enter the Chinese market in
2012 was undermined by the availability of
cheaper, similar products, which were an
infringement of their patent rights
Chinese firms would not have spent millions on
R&D nor gone through the process of
registering a patent
Firms like Dyson were damaged due to lower
sales, lower market share and cheaper copies
which harmed the brands reputation and
image
10. 7. Bribery or Corruption
Common throughout China despite the fact it
is illegal
Especially in areas such as dealing with local
officials in charge of permits
The giving of gifts reflects a key feature of
business culture, but exposes businesses to the
accusations of bribery
11. 7. Bribery (GlaxoSmithKline)
UK’s largest drug-maker
Allegedly used travel companies to channel
¥3 billion (£300m) to bribe doctors and
officials
Sales in China during July-September
quarter, 2013, sank 61% after the scandal