Introduction
Risk management acts as one of the key elements in any business environment that seek to determine whether an organization is bound for success or failure. However, this would depend wholly on whether a company or organization is well positioned to identify some of the underlying risks. That means that the ability for an organization to identify some of the risks acts as a determinant of its ability to maintain that positive structure of the performance. The risks may be financial or non-financial risks depending on the specific activities that a business is involved in its bid to capturing a specific market. In this case, Apple, Inc. has made a strategic decision to gain entry into China as part of its business growth strategy in a bid to define its performance outcomes. Consequently, this highlights the need for having to embark on an in-depth risk analysis of China to help in determining its overall viability in meeting set business expectations for Apple, Inc. as a multinational company.
Brief Country Risk Assessment
A brief overview of China about some of the risks that it may portend, one of the key aspects to note is that the business environment in China is somewhat stable when compared to some of the other countries in Asia. The stability of the business environment in China can be attributed to the fact that the Chinese government invests heavily in promoting an effective business structure that attracts both local and international investors. From an economic point of view, China projects strong economic fundamentals attributed to the fact that it is the second largest economy in the world. Thus, this means that businesses engaging in the Chinese business environment find themselves in that favourable position from which to define their growth capacities both for local and international businesses.
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Political Risks for Business
From a political perspective, China projects several key risks that the top-level management at Apple, Inc. would need to understand as part of the risk assessment and management process. The crucial first risk revolves around trade and currency disputes in which China is pitted against some of the stronger economies in the world including the United States and the European Union. Although China was able to weather the global financial crisis that affected countries around the world, the country faces a significant challenge due to increased friction with some of the other economies attributed to increased trade imbalances. The United States government is focusing much of its attention on the Chinese trade policy in a bid to determining its effectiveness for the United States (Ip, 2009). From a political perspective, this creates increased risks for investors, as well as, the Chinese capital markets, as the political shifts may impact the business environment in the country.
The second political risk that the management at Apple, Inc. would need to understand while expanding to China revolves around the business laws in the country, which make it somewhat challenging for foreign investors to engage in direct investment (Wedeman, 2013). Apple, Inc., being a multinational corporation expects to engage in direct investment in China as part of its approach towards defining business growth and success. However, the business laws in China seek to create some of the pauses for global businesses in their bid to investing in the Chinese business environment. The laws also touch on issues of taxation, as the country has implemented a tax regime that seeks to favor local investment when compared to the idea of foreign investment. For Apple, Inc. it would be essential to evaluate these laws to determine their viability about creating a favorable business environment for the company.
Economic Risks for Business
From an economic perspective, Apple, Inc. has the role of embarking on an adequate assessment of the economic risks posed by China, as this would determine whether China is well positioned as an active country for investment. The first economic risk to note in China revolves around the issue of economic stagnation attributed to the fact that China has an accumulating debt level that has created notable concern. The Chinese government has invested heavily in infrastructure development including construction of roads and rails among other critical economic projects (Tao, 2017). However, this has come at a cost to the Chinese economy, which has experienced notable stagnation, as the country is not experiencing any form of growth considering that much of the value is directed towards infrastructure development. From an investor point of view, this portends a significant risk of engaging in business thinking that it creates a situation where companies would fail in their approach to defining success in the Chinese business environment.
The second economic risk to consider when engaging in risk assessment of China is on the issue of corruption, which has been on the rise in recent years. According to Ip (2009), China has experienced a significant increase in issues of bribery, kickbacks, theft, and misspending specifically within the public sphere. Approximately 3% of the country’s GDP is lost through corruption annually with the ruling party Communist Party of China failing in its approach towards implementation of policies to prevent such economic threats. The long-term effect of corruption in the Chinese market is that it creates some form of challenge for foreign investors intending to invest in the country. The management at Apple, Inc. would need to focus much of its attention towards this particular economic risk, as it will determine whether China is a viable country for investment.
Social Risks for Business
Another critical element that Apple, Inc. would need to consider when considering China as a country for investment is the social risks associated with the business environment in the Chinese market. These risks may determine whether Apple, Inc.'s investment in China would achieve intended goals and expectations about building that definite structure for business performance. The first social risk to note in China is on the issue of lifestyle changes among consumers in China, which creates a significant challenge for businesses in keeping up with such changes. In any business environment, a company or organization must be willing to maintain that active position by understanding and moving with the lifestyle changes among consumers (Wang, 2015). China, being the most populous country in the world, has experienced a significant shift among consumers primarily focusing on the area of technology incorporation in specific areas of the society.
From that perspective, Apple, Inc. may experience a significant challenge in meeting some of these expectations among consumers, as well as, keeping up to date with the lifestyle changes as part of its approach towards remaining relevant. The second social risk to note is that the concept of business ethics is relatively new in the Chinese business environment, which creates a significant challenge especially in areas that include corporate governance. A review of most of the private companies operating in the Chinese business environment indicates that a single individual, who in most cases is the chairperson of the company, is solely responsible for issues surrounding corporate governance (Wedeman, 2013). That creates a significant social risk for multinational companies, as it means that these companies may find themselves in some form of conflict through the adoption of business ethics that do not conform to expectations in the business environment. The management at Apple, Inc. would need to take note of the concept of business ethics in China as part of ensuring that the company achieves its intended goals.
Capital Risks for Business
When focusing on the perspective of capital risks, the management at Apple, Inc. would need to reflect on some of the critical elements that would create a potential for the company to experience losses while operating in the Chinese business environment. The first capital risk revolves around increased local borrowing on the part of the local governments, which has created a debt servicing problem (Tao, 2017). Thus, this has created a situation where a country is experiencing some form of a downturn in economic expectations, which may create a significant potential for losses on the part of business performance. By evaluating the inability of the local government to engage in debt servicing, it would be much easier to determine the overall efficiency associated with the Chinese business environment about business uptake and improved performance outlooks.
Business performance depends wholly on the ability for a country to maintain some form of grip on its debt levels, as this would act as key factors that would encourage more investment. The second notable capital risk associated with China is the reform boost hindrance by state capitalism and vested interests with the intention of creating a favorable environment for local investors (Wang, 2015). Although China has a significant potential for business growth, it also projects a significant challenge for multinational companies, as the country focuses more on the idea of business a definite structure of performance for local investors. In the case of Apple, Inc., one of the critical challenges to expect is that the company may find itself facing adverse competition from local companies regardless of its position globally. That competitive structure of the local businesses would arise from the fact that most China has embraced the concept of capitalism as part of its leadership structure.
Impacts of the Revaluation of the Yuan
A revaluation of the Yuan allowing it float freely in international currency exchange rate markets would have a direct impact on U.S. multinationals doing business in the country. These businesses would experience a significant rise in their share prices attributed to the fact that the value of the Yuan would increase significantly, thus, creating a situation where these companies achieve marginal gains in the business environment. Pegging the Yuan to the U.S. dollar created some form of challenge for multinational companies operating in China, as their profit margins depended wholly on the exchange rate (Williamson, 2011). However, allowing the Yuan to float freely would mean that the value of doing business in China would not depend on the exchange rate to the dollar. Instead, U.S. multinationals would find themselves experiencing higher value rates on their profit margins.
However, it would also be essential to note that the trade ties between China and the United States would experience some form of shift attributed to the fact that the Chinese government decided to allow the Yuan to float freely in the international exchange rate markets. That means that U.S. multinationals may experience significant hurdles within both China and United States in their bid to gaining necessary documentation that would allow them to operate within China. On China's exports, the revaluation of the Yuan would act as an efficient platform from which to increase the value of the exports by ensuring that exporters of finished goods gain more from their exports (Williamson, 2011). The revaluation of the Yuan would mean that exporters gain significantly attributed to the fact that the Yuan is not pegged to the U.S. dollar, which may create some form of fluctuations.
According to Schneider (2015), the revaluation of the Yuan expects to build capacity for investors in the exportation of goods from China attributed to the position that the value of the Yuan would be higher than expectations. Ultimately, this would mean that China would see more exports with companies and organizations reorganizing themselves towards engaging in the exportation of their goods to other countries. On Chinese citizens’ standard of living, one of the key aspects to note is that the revaluation of the Yuan would translate to an economic upsurge in China, which would be of value in attracting relevant investment. That means that more people would get employment in the firms and corporations investing the country thereby improving the livelihood of the local communities. The Yuan acts as a critical determinant of investment levels, thus, suggesting the need to engage in a revaluation of the Yuan, as this would help in improving the livelihood of the local communities.
On Chinese inflation, the revaluation of the Yuan would result in allowing the Chinese government to manage inflation attributed to its gains from exports, which would increase, as well as, a reduction in importation costs. The revaluation of the Yuan would mean that China would seek to create an active position from which to reduce its costs of importation attributed to the value of the Yuan when compared to other currencies (Schneider, 2015). Ultimately, this would help reduce the rate of inflation significantly, which would be part of expectations for the Chinese government. On purchasing power parity, consumers would gain moiré purchasing power considering that the Yuan would experience a significant shift regarding its value, thus, increasing the purchasing power parity. However, this would be different for countries that import goods and products from China, as the purchasing power parity would reduce significantly due to the increased costs of importation.
References
Ip, P. K. (2009). The challenge of developing business ethics in China. Journal of Business Ethics , 88 (1), 211-224.
Schneider, H. (2015). IMF: Yuan reforms may bring China 'quite close' to floating rate . Retrieved from https://www.cnbc.com/2015/08/15/imf-yuan-reforms-may-bring-China-quite-close-to-floating-rate.html
Tao, C. (2017). China's financial regulations Are other WTO members' concerns realistic or overcritical?. Deakin Law Review , 22 , 139-170.
Wang, K. Y. (2015). Valuable Nepotism: The FCPA and Hiring Risks in China. Columbia Journal of Law & Social Problems , 49 (3), 459-493.
Wedeman, A. (2013). The Dark Side of Business with Chinese Characteristics. Social research , 80 (4), 1213-1236.
Williamson, J. (2011). China's interest in a revaluation of the Yuan. China Economic Journal , 4 (1), 15-23.
