Foreign Investments in China
Foreign companies be wooed into believing that china is a good a country to pose their foreign direct investments. This perception has developed since the china government offers a lot of taxation benefits to a nation that invests in it. It should however be noted that the aim of the Chinese government to compromise the alarming rate of investors is to ape the technological skills involved in the production process.
Joint ventures in china, the Equity Joint Venture and Co-operative Joint Venture, require a foreign company to pump a lot of funds in the investment so as to receive all the benefits that they may incur in tax deduction. Pumping a lot of funds for foreign investment is increases the risks that a company may be involved in just in case the business does not succeed. The company may end up not meeting its set goals and objectives hence its closure. There are no other easily affordably mechanisms of land acquisition. The foreign investors use lots of funds to buy land of which the possession is reclaimed after a period of 50 years. In addition, the investors have to make their own operations on the bought land without the assistance of the Chinese government which advocates for sharing the benefits of the organization. A lot of time is also required to create a sale network: the china party must subject the sales into a series of discussions before an amicable decision is arrived at. Ideally, this consumes time which could be put into other constructive work. Similarly, the cultural clash and profit sharing contribute immensely to wastage of time when these agreements are to be made (Liaw, 2007).
The foreign companies in china do not exercise autonomy of sole proprietorship in making its own decision. The company has consulted the china government before any changes are made. This limits the liability of the foreign company and therefore outweighs the real essence of setting up the firm. This underscores the inflexibility of a foreign corporation in china. In addition, the company’s intellectual property is highly exposed to risks of theft since the ownership of the company is under two parties.
Foreign investors should actually risk losing sales by refusing to transfer technology other than being driven by the desire to access sales in china which are short lived. The foreign companies can use other means to access a wider market through other means without necessarily opting for Foreign Direct Investment. The organizations can use online advertisement to access the customers who may in turn purchase the goods online. E-commerce can prove to be very economical and the investors do not need to incur other expenses such as travelling and relocation of the firm. Companies that invest in china are at a high risk of incurring losses since the Chinese laws on partnerships are not fully defined. Businesses in china do not fully operate under a well defined judicial control system. This makes it almost impossible to assess the logistic of the information and hence foreign investors may end up being duped by the natives in the name of partnership. Such important information is bounded within the domain of the CEO or the company heads (Yinya, 2005).
Foreign companies must denote that the main aim of china accepting foreign investment is to acquire the skill used by the company. Not once have the foreign shareholders complained of facing unbendable competition from the partners they signed the joint vendors with. This shows that the foreign companies in china suffer a high risk of imitation and hence don’t enjoy the returns for their innovation. A country which is ready to comply with china terms must be prepared to face all these risks of which the likelihood of success is in doubt. The companies have no alternative but to risk losing sales in china by refusing to transfer technology to the country since there are other suitable ways of acquisition of wider markets such as e-commerce and exportation of already made goods to foreign countries without directly investing.
References
Liaw, K, T. (2007). Investment banking and investment opportunities in China: a comprehensive guide for finance professionals, New York: Wiley and Sons.
Yinya, J. (2005). Investing in China: The Emerging Venture Capital Industry, Chicago: GMB Publishing Ltd.
