Country Report

Paper # 1: Business & Country Analysis

Doing a Caf Business in China

Global Business Management
October 15, 2010
I. Introduction
Cafes, restaurants, bars and other places offering wide range of dishes and drinks are in high demand
everywhere in the world. I decided to start a caf named Coffee house XXX in China, Beijing. Why in
China? The answer is pretty obvious: China is developing at a rapid pace and, therefore, offers many
growth opportunities. The main purpose of the paper is to provide a comprehensive analysis concerning
the country in relation to the chosen industry.
There are some points why China is considered to be a nice place to set a business. First of all, it is
rather easy to start a business there and operate it. It takes about 40 days and requires 14 procedures to
be completed. Second, China is the most populated country in the world and the level of income of its
citizens is increasing. Its residents are starting to enjoy high standards of living and improved education.
Third, China attracts big amounts of foreign investments, which provide high economic growth rates.
However, before starting a business there it is important to learn Chinese business culture, Chinese
language, and get used to the complicated government rules and tax system. All in all, the above stated
will provide the best environment to open a caf called XXX.
The paper covers such aspects as physical and demographic features of China, cultural / social,
political, legal, ethical, and economic profiles, trade, investment and foreign policy profiles. These
profiles have great impact on doing business in China.

II. Company description
Coffee house XXX will represent a small cozy caf owned by a proprietor Antonina Semenova in
Beijing. Besides the owner, the caf will have 5 employees: 2 waitresses, a barista, a chief, and a cleaner.
XXX will specialize on self-made hamburgers and sandwiches, but the menu will also include several
dishes of Russian cuisine. Besides dishes, the caf will offer desserts and genuine coffee. All the supplies
and inventories will come from the local markets; bread, buns, and cakes will be ordered specially from
the Asian French Bakery Tout Les Jours.
The cafe will be located in the Korean district of Beijing not far from several universities with many
international students. This location will provide constant inflow of guests. Though, there will be such
competitors as McDonalds, Starbucks, KFC, and Korean food restaurants around, the caf will draw
everybodys attention because it will not only have a colorful sign and attractive interior design, but also
because it will conduct advertising campaigns in the Universities, and will offer discounts and bonuses.
Prices for the drinks and dishes will be based on cost of production and on prices of similar products of
competitors.
Since the cuisine is mostly western, there will be no need in local personnel. The only requirement will
be that staff contacting with guests could speak Chinese and English. The proximity to the university will
be again beneficial because the students will become a source of potential employees.
Coffee house XXX will have many attractive features, and hopefully it will become one of the most
visited places in this district of Beijing and will expand its activities in other districts and towns.

III. Identification and Analysis of Country Variables

Physical and demographic profiles

Geography
The countrys full name the Peoples Republic of China is used for constitutional and political
purposes. China is third largest country in the world with the land area of about 9.6 million sq. km.
Though the territory is rather broad, China has only one time zone: GMT+8 hours. This is very
convenient for doing business in China.
The territory of China contains a big variety of landscapes: from sea shores and grasslands in the East
and South to valleys and mountain ranges in the West and North. China borders with 14 countries such
as Afghanistan, Bhutan, India, Kazakhstan, Kyrgyzstan, Laos, Mongolia, Myanmar, Nepal, North Korea,
Pakistan, Russia, Tajikistan, and Vietnam. Since many young people from these countries come to China
to study, they can become potential customers of XXX cafe.
There are about 160 cities in China with the population exceeding one million citizens. However,
according to the China-profile web site the biggest cities are Shanghai, Beijing, Chongqing, Shenzhen,
and Guangzhou. It will be very important to keep this in mind if XXX has intention to expand to other
cities.
The climate in China is diverse because the territory of the country is rather huge and because of
complex topography. According to China Travel Most parts of China are located in temperate zones.
Areas in the south lie in tropical and sub-tropical zones, while those in the north are close to cold
temperate zones. For the XXX climate can be very crucial since the temperature directly affects
peoples decision whether to visit a caf or not. If the weather is hot it is unlikely that somebody comes
to caf to eat or drink coffee; however, they may come to drink soda or just to spend time in the cool
room.

Resources
The land of China is used for many different purposes: from manufacturing to agricultural. There are
not so many plains and croplands; however, many crops are raised in China including wheat, corn, and
soy. Chinese also grow rice, peanuts, tea, sugarcane, and citrus plants which is very important for the
caf because these products can be used on the menu and there will be no need to buy imported more
expensive items.
Almost 19% of the territory of China is covered with forests. Moreover, China has huge reserves of
timber - about 12.5 million cubic meters. China is also one of the countries with the richest amount of
mineral resources such as tin, zinc, iron, silver, gold, etc. It also has relatively big amount of different
energy resources including coal, gas, and oil. However, gas and oil resources are rather scarce and
poorly explored yet. On the territory of China there are several rivers and other water reservoirs,
existence of which creates beneficial conditions of hydro energy usage and development.
When opening a caf in China it is important to consider energy resources, because caf consumes
much electricity. The cost of electricity per kilowatt an hour is very high, though Chinese hydro
generation is considered to be the best in the world 680 million kilowatt.

Population
China is the most populated country in the world. According to the GeoHive web site the population of
China is 1,345,750,973 people, including 698,405,850 of male population and 647,345,123 of female.
The population is not growing as fast as it grew before, because of Chinese strict family planning policy
prohibiting having more than one child in a family. This, however, decreases young population and
increases the number of old and very old people in the country. According to China Tells Chinas young
population (20-29 year old) will reach its peak by 2015. Since 2015 the size of such population will
continue to go down year by year.
For the Coffee house XXX the young population matters much, since it represents its target audience.
It is alarming that the growth rate of young people will become negative in near future. Luckily, China is
a land of many international students who can make up a deficiency of local young people.

Language
In every province of China different Chinese language dialects are spoken. Standard Mandarin
(Standard Spoken Chinese), however, is a business language and official modern Chinese spoken
language used in mainland China. One interesting fact pointed out by Abrahamsen and Chan is that
Although English is largely considered the most practical language for business and commerce, Chinese
remains the most widely used language in the world - spoken by one-fifth of the world's population
(para. 4). Since China is developing fast, there arise predictions that in the future Chinese may become
the international language of business. Thats why many young people around the globe are studying
Chinese and go to China to improve their language skills.
For the XXX language plays an important role since the communications in the caf will be mostly in
Chinese. The cafe staff will be of different origin, but everybody will speak Chinese and, if possible,
English.

Education
Education is China is the preliminary sphere of concern of many Chinese parents. They invest big
portions of their household incomes in educations of their children. The government also pays much
attention to this area of Chinese development. According to the Jetcost web site In March 2007, China
announced the decision of making education a national "strategic priority" and *of allocating+ extra
funding from the central government in the next 5 years to improve the compulsory education in rural
areas. Another source The China Perspective provided the following information. In 2004, students
represented 17.5% of the total population. Out of every 10,000 people 103 students attended college or
university, 776 secondary school, 870 primary school. Though the students population decreased
compared to previous years, the amount of people obtaining education increased and keeps increasing.
Since the cafe XXX is surrounded by several universities, the fact that more and more people are
attending universities is favorable and beneficial. The more students will be in the universities, the more
visitors will XXX have.

Workforce characteristics
As estimated by the Nation Master the total workforce of China is 776,047,400 people. Out of which,
according to the National Bureau of Statistics of China, The migrant workers *comprise+ 225.42 million
persons. The unemployment rate in China is 4%, which means that about 31,041,896 Chinese people
are unemployed.

The labor force statistics by occupation is the following: agriculture - 43%, industry - 25%, and services
- 32%. Many industries are of high importance for China today. Such industries are cotton textile,
footwear, toys, consumer electronics, mining and ore processing, iron, coal, machinery, petroleum,
chemicals, fertilizers, automobiles and transportation equipment, telecommunications equipment, and
satellites; however, the agriculture anyway occupies most of Chinese labor force.
The XXX will not represent much interest for Chinese people concerning vacancies, since it will need
only 5 employees. For the caf it will also be not a problem to find staff, because it will provide sufficient
wages and working conditions.

Cultural / social, political, legal, ethical, and economic profiles

Cultural / social profile
China is a very old country which has a great long history, and, therefore, many cultural peculiarities.
As the World Visit Guide web site stated Today, the PRC government has accepted much of traditional
Chinese culture as an integral part of Chinese society, lauding it as an important achievement of the
Chinese civilization and emphasizing it as vital to a Chinese national identity. The traces of Chinese
culture are extremely visible in Chinese art, literature, music, movies, fashion, and architecture. Many
tourists come all over the world to admire great centuries-old history and unique culture of China, thus
providing constant flow of customers to the XXX.
Another important cultural issue is Chinese religion. Most Chinese are nonreligious people; however,
for others Confucianism and Taoism play significant role. Buddhism is also practiced, but by minor
portion of the population. Concerning the social stratification, China values and cares about old people
very much. For young people, the elder generation is very respected and honored. Family is an
important cluster in the society. Chinese people have big families and understand the concept of family
as horizontally extended. In addition, big emphasis is placed on ascribed group memberships, which
makes the Chinese society closed. The social variable doesnt influence the XXX significantly.

Political profile
Today, China has rater stable political situation. China is a communist state where the collectivism
doctrine prevails over the individualism. The government in China is described as authoritarian and
socialist and it controls such areas as the Internet and press. According to the World Visit Guide web site
The country is ruled under the Constitution of the People's Republic of China. Its incumbent Paramount
Leader is President Hu Jintao and premier is Wen Jiabao. Though there are several political parties, the
country is mainly ruled by the Communist Party of China.
For the XXX the political stability matters much. In case of wars, strikes, terrorism or other political
issues, the caf business can suffer much, because of decreased inflow of foreigners into the country.

Legal profile
It important to say that Chinese legal system rests on the rule of man, which means that one
authorized person can make decisions without concern for laws and policies. That is why Danels,
Radebaugh, and Sullivan (13th ed.) stated thats Still, China faces challenges, including legislative gaps,
hazy interpretation, lax enforcement, and philosophical disagreements (p.90). The same authors also
provided information about the following things. When starting a business in China a company or
entrepreneur must complete 14 procedures including registering, choosing appropriate tax system,
getting license, securing insurance and other. All these legal procedures will take about 40 days to
complete. Further, China has the most flexibility in hiring and firing plus the greatest discretion in setting
employment conditions (work hours, minimum wages, and benefits). What is also important to consider
is the taxation system. There are 14 kinds of taxes currently applicable to foreign businesses (Value
Added Tax, Consumption Tax, Business Tax, Income Tax, etc.). Closing business in China takes long and is
rater expensive. Despite the last fact, China is ranked third in the top ten countries concerning the ease
of doing business.
It is very convenient that all legal procedures of setting up a business in China are not complicated and
take little time. Of course, the caf will need appropriate license and permissions to operate legally, but
that will not be difficult and will not take long time. The taxes, however, are rather diverse and this may
require patience to learn and understand them all.

Ethic Profile
When considering ethics in China, the most crucial issue is the issue of corruption. China has a high
tendency toward briberies; so many authorities are very corrupt. In the article of Schulman, Stephan
Rothlin, general secretary of the Center for International Business Ethics in Beijing, points out that The
Chinese are very open to considering ethical issues. They want to be global players, and they realize that
in order to become a real global power, they have to eliminate corrupt practices. However, the life
shows that corruption is still there and adjustments still needed.
Though briberies are illegal and must be avoided, it is hard for businesses to operate in corrupt foreign
countries without paying bribes. So, XXX will try to behave ethically and not to pay bribes. However, it
there will be no other chance, the briberies will be inevitable.

Economic profile
There is no need to prove that China is the most developing country of today and it has the largest
economy after the United States in terms of GNI. In his interview to Forbes, President of China Hu has
said that China has ample labor resources, large demand in its domestic market, a high savings rate,
and social and political stability. All these have been favorable conditions for the relatively high
economic growth in China. China adopted free market reforms and generated great economic success.
It has been one of the fastest-growing economies over the past 30 years. It records growth in
productivity, moving up to 9.1% in 2009 (Danels, Radebaugh, and Sullivan). The income per capita in the
urban areas of China is more than $1,900. According to the Trading Economics web site The inflation
rate in China was last reported at 3.50 percent in August of 2010. This figure shows steady rise,
because China's consumer prices have risen at the fastest pace in nearly two years in August, as severe
floods and unusually hot weather destroyed crops, driving up food prices. China has a surplus in its
Current account balance, which indicates that it exports more than imports. This is contradictory to the
country size theory of trade which states that the greater the country the less it relies on exports.
However, it is not surprising for developing country.
All in all, the economic situation in China is rather favorable to start business there. So, XXX only has to
enjoy all the opportunities provided by the country.

Trade, investment, and foreign policy profiles

Trade profile
China is among the worlds top ten export and import countries. The web site Trading Economics
China Balance of Trade - communicates major exports and imports. China mostly exports office
machines and data processing equipment, telecommunications equipment, electrical machinery and
apparel and clothing and it imports mainly commodities: iron and steel, oil and mineral fuels, machinery
and equipment, plastics, optical and medical equipment and organic chemicals. The main trading
partners of China are: European Union, The United States, Japan, Hong Kong and South Korea.
XXX is not influenced by the trade much since the items of trade are not of the cafs interest. All the
necessary products are available either in China, or brought from abroad by the caf.

Investment profile
China is very attractive country for investing taking into account its rapid economic growth, political
and economic stability. However, China is becoming a major exporter of capital itself because many
Chinese companies are expanding abroad. According to the World Bank Group the Foreign direct
investment (FDI) in China was reported at US$94,320,092,013.51 in 2008. Chinas FDI abroad was also
huge - in 2008, China invested an estimated US$41 billion overseas.

Foreign policy profile
China is a member of more than 70 international organizations including the United Nations(UN), the
World Trade Organization (WTO), the Association of Southeast Asian Nations(ASEAN), Asia Pacific
Economic Cooperation (APEC) and others. According to the article Chinas Foreign Affairs and
International Relations China has maintained mutually beneficial relations in various fields and at
different levels with major countries in the world. China has friendly relationships with the U.S., good
trading partnership with the EU, and close international affairs with Russia.
All in all, Chinas good relationships with Russia will positively affect the XXX and its Russian owner.

IV. Conclusion
To sum up, it would be fair to say, that the Peoples Republic of China is a good place for a Russian
citizen to start a business, because it has favourable economic conditions and political stability. The caf
XXX will benefit from doing business in China, if its owner takes into account the issues described in the
paper. So, before starting a business there it would be wise to get acquainted with the local rules and
regulations, learn Chinese language, and try to understand Chinas culture and business world
peculiarities.

Bibliography
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