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Case Study: Beer Companies Investing In China

1098 words - 4 pages

What bureaucratic challenges do foreign companies face as they make investment decisions about China?The bureaucratic challenges to foreign companies in china are immense. The Chinese government is run by the communist party which creates a mired of problems for free enterprise businesses in itself. The provincial and mayoral governments have tremendous say on private businesses that open within their district. Some of these mayors run cities that is more populated than some small European countries so there influence on their province is substantial. The government divides their influence by developing an unstated hierarchy for private businesses. This creates an under current of private sector influence on the local economy, because if you are high on the influence scale you can bypass a lot of bureaucratic red tape. Since china is relatively a secret nation it's hard for outside investors to make decisions about their investments unless they have someone from within to help them navigate the complicated Chinese economy. This creates another problem because the Chinese government does not have western investor's best interest in mind when they assign liaisons or partners to western investors.. There are several agreements with the Chinese government that allows foreign investors to participate in their economy like Joint Venture (JV) and Wholly Foreign-Owned Enterprise (WFOE). These agreements have there ups and down offering foreign investors the opportunity to invest in the Chinese economy; however the Chinese terrain and infrastructure is still a major obstacle for foreign investors to navigate.Why do AB and other foreign brewers think the Chinese beer industry so attractive? Use Porters Five Forces Model to determine the attractiveness of the Chinese beer industry (see pages 51 - 61; as well as reviewing the Porter's Five Competitive Forces document posted under "Course Documents").Foreign brewers think the Chinese beer industry is so attractive because their economy is growing rapidly. China is becoming more and more industrialized every year. The Yangtse basin will become the largest manufacturing base in the world in a few years. China has the largest population in the world and with a growing economy that spells billions to be made by foreign brewers. The Shanghai Stock Exchange has grown from meager to the largest in Asia in just ten years. Foreign brewers know that the more the economy grows in china the more their product has a chance to sell and make a profit. The Chinese people are not heavy beer drinkers but the market is just so huge that it would not take a large percentage of people to turn a huge profit for foreign beer brewers. With there economy growing so rapidly its bound to create a market for western style beer with the population earning more money they can afford to purchase things besides essential items. Porter's five forces to competition would apply as such:Threat to new entrants-The Chinese market is being...

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