Question

You are the CEO of an organization based within the United States and you are looking to make an investment into a foreign country. Your decision is based on the various risk considerations as the long-term returns are basically the same. You have narrowed your search to the following countries, Brazil, India, China, and Russia. Which country would you select, and why did you make that selection? Explain your answer with a well-constructed and cogent response.

Answer 1

I will like to invest in China.

The issue of investing in China is one that is tricky. China offers a lot of market opportunity investments and considerable savings in labor costs. However, there are many pros and cons to conducting business in this country. China’s urbanization and adaption of free market principles are some of the really good reasons to invest in this country. However, the fact that China is a communist country creates other issues.

                One of the major risks of investing in China is that it is a communist country. “So despite all the free market principles that China has faithfully adopted, as a communist nation the rules that govern a public company in China are different than here in the U.S.” (Gad, 2007, p. 2) An Autocratic government is when the best interests of the collective group of people is decided upon by a single person or specific type of control system.

The Chinese do not trade on the same stock exchange as the United States. Many of the trading principles are exactly the same, but the Chinese accounting rules differ from those we use in the United States. Inside stock trading is also something that is done by both countries. However, “In the U.S., insider trading is regulated intensively for obvious reasons: the entire integrity of a market-based system rests on the premise that securities trading is not being manipulated by corporate insiders.” (Gad, 2007, p. 2) In addition, even though there are rewards to investing in China, there are many companies that have come to be untrusted. The reason for that is because their accounting system and financial statements cannot be trusted.

“realizing that it was lagging in the world, China enacted the Law on Joint Ventures Using Chinese and Foreign Investment in 1978.” (p. 88) Once this was enacted, the Chinese government began building a socialist market economy which opened up the country to the global market that for so long it was not a part of. Since that time, the economic policy has boosted the global trade and investment opportunities.

                The overall quality of life for many years has been very poor in China. “In a word, urbanization equals growth and lots of it” (Gad, 2007, p. 1). The reason that urbanization is such an important factor to the rewards of investing in China is because in order for countries to be urbanized, a lot of things need to happen. To start, cities need to be built. In order for cities to be built, there need to be architects to design buildings, construction workers, supplies, etc. “Urbanization means economies shift from those where individuals transform themselves from self-sustainability to specialization. That specialization is the fuel capitalism needs to unleash its power” (Gad, 2007, p. 1). During this lengthy process, businesses are started and many of them become businesses that require shareholders. All of this makes for a better quality of life and typically a wealthier society.

                A safe way to do business with China is to invest in United States companies that are doing business in China. “You get the best of both worlds here: the advantage of a U.S.-regulated, GAAP-adhering public company along with the profit growth potential coming from China.” (Gad, 2007, p. 2) Some of the companies that would fall in this category are Apple and Coca-Cola.

                For anyone that is interested in conducting and investing in China, a lot of research should be done. “US business people and organizations must understand the differences in the economic, political, and cultural environment of the country as these can be difficult to manage and may hinder business development.” (Fogel, 2010, p. 27) Another important piece of advice would be to ensure that proper research has been conducted on the cultural differences in China versus the United States. If the cultural differences in the country are not properly adhered to by anyone looking to do business there, it could really ruin a deal and any potential investment for the future.