International Investment Entry Mode

Introduction

As one of the world’s leading economies, China is continuously investigating national and international market opportunities to expand its economic status. China engages in economic ties with countries across the globe, regardless of economic situations or political stances. Investment opportunities within China are abundant. One of the sectors that present viable investment opportunities is the Chinese healthcare industry. The Chinese healthcare industry has grown to the second largest in the world – with the United States of America being the largest. This growth is fueled by the aging Chinese population, urbanization and a rise in incomes (Opportunities in China’s Healthcare Market, 2017). The Eastern Daylight Time (March 2017) reported the launch of Healthy China 2030 and the Healthcare China 2017 Conference, whereby foreign investors were openly invited to explore investment opportunities in the healthcare sector in China.

International Investment Entry Mode

All foreign investment opportunities have advantages and disadvantages. This holds even more true for American investors entering the Chinese market. There are distinct differences between these western and eastern cultures, and it is crucial to consider and work around these when deciding on an investment entry mode into the Chinese market. In its societal, political and economic spheres, China adheres to a strict hierarchical structure. Positions of importance are not be questioned, and members down the hierarchy are expected to follow through on decisions without question. Investment in the healthcare market denotes a long-term relationship as it does not solely rely on the immediate supply and acquisition of equipment, medical consumables and disposables, and skills. It is therefore advisable that a contractual joint venture (CJV) is considered as one of the options when entering the Chinese market (China Market Entry Strategies 1995). Joint ventures afford investors the opportunity to penetrate the Chinese market and also keep a measure of control over their involvement, especially in view thereof that the Chinese government is involved at practically all levels (China Market Strategy 1995). The government’s involvement in joint ventures is aimed at “obtaining foreign exchange, increasing industrial efficiency, realizing import substitution, and the creation of new jobs” (China Market Strategy 1995).

A contractual joint venture (CJV) affords the investor the opportunity to retain its autonomy. Thus, the investor remains separate from the investee in terms of legal, contractual and managerial obligations. Each party performs its own duties and agrees on the division of profits. As the parties are regarded as independent “legal entities” (China Market Strategy 1995), they are also taxed separately in accordance with the percentage of profit earned. A CJV can be applied to either long- or short-term partnerships. It presents the investor with the most leeway in the light of socio-economic restrictions in China. A lack of formalized legislation regarding the regulation of CJV’s presents this kind of venture with the greatest challenge. It leaves a backdoor open for sudden and unexpected legislative amendments that can put the CJV, and the investor, at risk.

Communication Strategy

Chand (2017) stated that when foreign investors face differences in culture in the proposed investment sector, a product/communications adaptation strategy should be developed and employed in the instance where skills sets like specialist professional nurses are the product. The labor – in this case the specialist professional nurses – relocating from a western society like the United States should be able to adapt to the cultural environment of China.

When the investment centers around equipment, a product extension/communications adaptations strategy may be considered. Although medical equipment across the globe follow the same trends and require the same infrastructure, the physical environments in highly populated cities may affect the mere extension of the product (Chand 2017). The cultural differences between the United States and China, especially the level of input from lower ranking members, establish a need for a communications strategy that is specifically designed to address these needs. For example, the Chinese would be more open to enter into business with a well-known and established investor. The product/communications adaptation strategy allows the investor to address and implement “dual adaptation … in both the cultural and physical environments” (Chand 2017).

Conclusion

The healthcare sector in China, which is currently the second largest healthcare industry in the world, offers lucrative investment opportunities. It is crucial that potential investors research the socio-economic climate in China and lend special consideration to the cultural differences between western and eastern societies before deciding on an entry-level model and devising a communications and marketing strategy. Research shows that a contractual joint venture and the product/communications adaptation strategy are prominent amongst investors in China.

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