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Risk assessment for a de novo company in a developing country

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With 6 million autos, trucks and buses manufactured per year, China now ranks in the top 5 nations in the world for automobile manufacturing.The operational risks are nevertheless major. Although the cost of labor is 5-10 times lower than in the developed West, there are a number of side expenses which can make costs higher than thought. Management is not yet developed, either in its people-management skills or in its ability to profitably employ capital equipment and labor. The first risk, therefore, is finding proper operational management to build and operate the plant (Dodds 1995).The second operational risk is the ever-changing nature of Chinese government law. Tax laws are changing rapidly, with the result that an operation that looked profitable last year could become less so in the next few years.

Each region’s interpretation of federal tax and property law is different, which requires a significant understanding of the customs of the province in which one locates the factory.The third and most important operational difficulty is the need to bring on local managers. China operations through Guang Xi, or connections, as much as it does on rational Western notions of supply, labor, and demand. Westerners just landed in China have little chance of breaking into the complex social networks developed in China. The operational risk, therefore, is to find the right, connected local managers, and to tie them to our joint venture in a way that ensures that the company performs.It is not usually possible to buy land for ownership in perpetuity in most Chinese regions. This means that the concept of “ownership” of land has a political dimension which can change with the whims of the central or regional government. Whereas terms were quite loose in the 1980’s and early 1990’s, the Chinese government has significantly hardened its negotiating stance and made it more difficult for foreign companies to take assets from the country. One should count on any investment coming in to stay there.

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preview essay on Risk assessment for a de novo company in a developing country
  • Pages: 8 (2000 words)
  • Document Type: Essay
  • Subject: Unsorted
  • Level: Undergraduate
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