Introduction
Today’s businesses are increasingly recognizing the need to go global. Although the American market is huge, it is not large enough for many entrepreneurs. Therefore, growth-minded business owners consider the rest of the world their oyster. Seeking international growth through global expansion comes with plenty of opportunities. There are several advantages associated with successfully growing global. For instance, a firm can extend the sales life of existing products and services, as new markets can be accessed. By going global, a business can be able to reduce their overdependence on the developed local market. If a given business is affected by destabilizing fluctuations in demand, it can tap markets with countercyclical fluctuations. Another important aspect regarding global expansion is that businesses can exploit corporate technology and knowhow (Chimni, 2017). Furthermore, businesses can learn how to compete against foreign companies by entering the global marketplace. Goldman Sachs Bank seeks to enter the global marketplace. The bank plans to open an office in Shanghai, China. Shanghai is a significant global financial center that can provide a lucrative international trade platform. It is important to realize that China is the second largest economy in the world, with a population size of about 1.3 billion people. Given China’s strategic location in the world’s marketplace, as well as in Asia, Goldman Sachs Bank stands to reap the benefits of establishing its office in Shanghai.
Potential Challenges
There are several challenges that Goldman Sachs Bank can face in the new environment. One of the significant obstacles to investing in China lies in understanding its business culture. It is important to realize that there are cultural, social, ethnic, and educational difference between the United States and China. Although both America and China haves similar ambitions to dominate the global economy, their culture and mindset is very different. Since China opened doors to the rest of the world, many Americans have been attracted to works and live there. However, there is a world of difference between the American and Chinese way of life.
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Americans put significant emphasis on autonomy and individuality. In America, an individual’s personal goals and motives are generally prioritized over collective goals. This is meant to encourage individuals to be more ambitious. The emphasis on individuality is used to encourage individuals to succeed. Additionally, the American society puts strong emphasis on being different and making difference. As such, individuals are encouraged to compete and the winner is always rewarded. On the contrary, the decisions of the Chinese people are generally based on how they will be perceived by those around them. Therefore, before Chinese people make any decision, they first consider how the decision will affect their family, friends, and colleagues. This implies that the Chinese people tend to think of themselves in a collective way, with little to no emphasis on the individual. Thus, decisions ought to be made for the greater good rather than for individual gain in the Chinese society. Chinese education is also influenced by the idea of collectivity, as competition is discouraged in class. Therefore, Goldman Sachs will have to ensure that the business decisions it will make serve the interest of every individual in the organization, including the stakeholders.
The styles of communication in America and China are very different. For instance, Chinese people may consider Americans to be very upfront in the way they handle communication. This has the potential to cause misunderstanding or even hurt the feelings of Chinese people. Essentially, Americans are generally encouraged to defend their opinions, something that may result in confrontation. On the other hand, Chinese people are very sensitive in the way they communicate. For instance, a Chinese may simply nod on one’s opinion even though they may not be in agreement. This is meant to honor or respect the opinions of others and avoid appearing rude. This will affect the way Goldman Sachs will communicate with its employees, particularly the Chinese nationals. The organization will have to avoid blunt communications, and instead encourage subtle and indirect way of delivering thoughts and opinions.
Chinese people are always expected to treat each other well. For instance, they are expected to show humility, particularly when they are discussing successes. At times, they may avoid such discussions in order to avoid humiliating others. This shows that Chinese people are extremely sensitive and self-promotion is greatly despised. However, bragging is acceptable in the American culture, as it is considered a norm. As such, Americans discuss their individual successes comfortably. Surprising, some Americans may interpret humility for weakness rather than virtue. This will influence the way Goldman Sachs will appraise individual performance in China. The organization will have to encourage team performance rather than individual performance.
The Chinese culture values creation and maintenance of social networks. This is often referred to as “guanxi” or simply relationship (Buckley, 2015). This is used in conducting daily business relationships. In China businesses are encouraged to socialize with and get to know their customers prior to signing a deal with them. According to Chinese, relationship comes first, followed by trust, and finally business. As such, the process of conducting business in China is longer compared to America. This implies that Golden Sachs will have to exercise patience while conducting business in China. On the contrary, the Americans place significant emphasis on speed and efficiency. Additionally, business relationships in America are generally casual and easygoing.
Personal and professional lives are totally difference in America. Colleagues in organizations only socialize when they occasionally go out on office-sponsored activities such as teach building. However, many may not want to socialize outside such gatherings. In China, “guanxi” plays a significant role in personal and professional relationships. Chinese people are always encouraged to personally know the people they work with in order to foster genuine trust among them.
Chinese people tend to have a long memory of both favors and humiliations. They take things personally and they do not like losing face. Chinese people have a strong awareness that they should never be seen as fools. On the other hand, Americans express their thoughts more freely and do not mind making mistakes. This affects how the organization will handle employees in the workplace.
In China, hierarchy dictates authority and it informs the way people interact with each other. This also transcends to the family where respect is placed on seniority. The hierarchical social structure in China also applies to workplace relations. This means that Goldman Sachs will have to respect seniority accordingly. This is contrary to the situation in America where there is greater fluidity between parents and children and between managers and employees.
Although America and China have different cultural, social and educational characteristics, the values they hold are not only unique but also beautiful. Despite the differences between the countries, the gaps can still be bridged through cultural awareness and mutual consideration. Emphasis should always be placed on creating intercultural friendships.
China’s Influence on the Private Sector
The private sector has made a significant contribution to China’s economic growth. The sector currently contributes more than 60 percent of the country’s GDP and brings over 50 percent of the fiscal revenue. Additionally, the private sector has made over 60 percent of the country’s fixed asset investment and outbound investment. This implies that the sector has played a critical role in China’s job creation and innovation drive. The private sector accounts for over 70 percent of the technological innovation and new products in China.
The tremendous growth experienced in the private is attributed to the government’s support. The government has played an important role in creating an enabling environment for private investors. For instance, the government has been actively involved in supporting financial inclusion through a mix of both direct and indirect measures. Goldman Sachs will benefit from such an enabling business environment created by the government. It is also important to realize that the government has invested in good infrastructure. This supports businesses, particularly in the private sector.
On the downside, the government has barred private investors from venturing into some critical industries such as healthcare, oil, and railways. This implies that the private sector has been sidelined from some of the otherwise lucrative industries. Worse still, financial institutions are more inclined to state-backed borrowers. This makes it hard for private investors to access funds. On the flipside, this may present an opportunity for Goldman Sachs as it may target the underserviced private borrowers.
China’s Economic System
China’s economic system is described as a social market economy. Since the country initiated market reforms in 1978, the country has shifted from a centrally planned to a market based economy. Since then the economy has experienced rapid economic and social development. The country is credited for lifting over 800 million people out of poverty. It is the second largest economy, playing an important role in the global economy. China is still a developing economy because its per capita income is still a fraction of that in advanced countries like United States.
The history of China’s economic system can be traced back to 1978, when the country began its economic reform in the rural areas. The country achieved this through the introduction of the household contract responsibility system. Under the household contract responsibility system, the farmers were given the right to use land, plan farm work, and ultimately dispose of the produce independently. This led to the elimination of the state monopoly of the purchase and marketing of agricultural products.
By 1984, the economic restructuring had shifted from the rural areas to the cities. After ten years of intense reforms, the government formulated a policy aimed at establishing a market economy.
In 1997, the Chinese government focused on privatizing state-owned enterprises. Some of them were liquidated. The government realized that the private sector was an important component of the socialist economy of China.
Currently, the socialist market economy is well established in the country. The market has played the important role of improving resources allocation (Fisher & Carlsen, 2018). The reforms have led to a rapid economic growth that has made China the world’s second largest economy.
China’s Involvement in International Trade
China has embraced an open-door policy that has increased its involvement in international trade significantly. China recognizes the importance of bilateral and regional economic and trade cooperation. International trade has contributed significantly to the growth of the country’s economy. The country exports a lot of products ranging from textile products, shoes, tires, steel, to chemical products.
China has always taken proactive initiatives aimed at participating and promoting regional economic integration. For instance, China had held 15 rounds of negotiations on free trade with over 28 countries. The country also signed and implemented 10 free trade agreements. This shows that the country places significant importance of international trade. The negotiations and free trade agreements helped to increase the country’s exports (Chaney, 2014). Another important aspect regarding China’s involvement in international trade is that it gives consideration to the interests of all trading partners while settling disputes. This will help Goldman Sachs a lot as it will help in facilitating successful foreign trade. For instance, the location will help the firm in its attempts to invest in other developing countries. Establishment of an office in Shanghai will be beneficial to all stakeholders, given the opportunities presented by China. The private sector investors have been crowded out by government-backed projects. Thus, the company will have ready market for its financial services in the new location. The plant will be financed using asset based financing option. There are some foreign exchange instruments that can be utilized. The foreign exchange instruments include major spots, exotic spots, and options. It is also important to consider the likely impact of inflation and fluctuations in interest rates. This will allow for implementation of appropriate policies.
Conclusion
China presents a strategic location for global expansion and Goldman Sachs should consider establishing its office in Shanghai. Although the country has different cultural, social, and educational characteristics, the challenge can be addressed through cultural awareness and intercultural friendship. China has created an enabling environment for the private sector. The sector contributes to over 60 percent of the country’s GDP. China is actively involved in international trade and it has signed several free trade agreements. Goldman Sachs can leverage the country’s support to invest in other developing countries. Therefore, China is a suitable destination for foreign investment for Goldman Sachs.
References
Buckley, C. (September 28, 2015). Chinese Embrace America’s Culture but Not Its Policies. The New York Times, https://www.nytimes.com/2015/09/29/world/asia/china-united-states-culture-policy.html
Chaney, T. (2014). The network structure of international trade. American Economic Review , 104(11), 3600-3634.
Chimni, B. S. (2017). International institutions today: an imperial global state in the making. In Globalization and International Organizations (pp. 41-78). Routledge.
Fisher, M., & Carlsen, A. (March 9, 2018). How China Is Challenging American Dominance in Asia, The New York Times, https://www.nytimes.com/interactive/2018/03/09/world/asia/china-us-asia-rivalry.html
