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Running head: INTERNATIONAL BUSINESS PRACTICES
MGM355 2
MGM355-1403B-02
International Business Practices
Roderick D. Goodrum
Individual Project Phase 5
Colorado Technical University
Instructor: Lester Willis
09/17/2014
Introduction
Establishment of a business in a foreign land depends on strict
evaluation and analysis of various factors inclusive of; the
barriers to entry in the foreign nation, the legal systems,
customer base, potentiality of growth, economic performance,
and the cultural framework of the natives there. Failure to
scrutinize such factors might impact success of the business
negatively (Schill, 2014). This paper discusses the factors that a
regional bank needs to consider before expanding into a foreign
nation, China for this case. It uses Union Bancshares (UNB), a
Californian based regional bank as an example.
Possible challenges in the new environment

2. This may be analyzed in three perspectives; educational
discrepancies, cultural differences, and other social
demographics. Culture refers to the values and norms held by
members of a given society; the good and the bad defined by a
society. Cultural conflict is felt a great depth in the work place,
if the workers therein are from different ethnic origins. For
UNB to ensure it gains a positive reputation in the public
sector, the company’s management will need to employ workers
from diverse cultural setups. Despite this move being positive
in some way, the conflicts arising in the work place due to
differing cultural expectations might hamper work progress
negatively leading to poor performance. Another challenge is
education level of potential employees within the locality
within which the company plans to establish itself. Specific
technical personnel might be inadequate in China compelling
UNB’s management to outsource workers from far geographical
locations, this is a costly process.
Legal and political environments
The legal systems in China are flexible rather than static. This
poses a great challenge to foreign investors since laws regarding
foreign investors might change negatively at the time of their
investment. In People’s Republic of China, laws governing the
business sector are made in the National People’s Congress
(NPC) and the judicial system is vested with the power of
ensuring all parties comply. When making a foreign direct
investment, the first step is to describe in detail the pros and
cons of the business to China’s economy, if the pros exceed the
cons then the business is listed under the permitted category as
long as all other factors have been fully satisfied. China is a
politically stable nation despite its long term poor relation with
Taiwan. This is a positive indicator for UNB since business
operations are not likely to be disrupted due to political clash.
Government involvement in the private sector
A comparison to the US business practice is made to gauge the
level with which the government intervenes in private
businesses in People’s Republic of china. The chart below is

3. used to illustrate this concept;
As is evident in the illustration, the Chinese government
involves itself in business practice than the US government
does; this may be due to regulatory reasons. It is both
advantageous and disadvantageous to firms that plan to invest in
Chinese economy such as UNB; it is advisable for such a firm to
weigh both sides. Too much government involvement might
mean harsh and stricter regulatory measures. This makes it hard
and expensive for the business to run its operations. The level
of profits that the firm makes is divided in accordance with
some agreed percentage, reducing the level of business
proceeds.
Type of economic system in China
There are four types of economic systems; traditional economy,
command economy, market economy and mixed economic
system. China has a mixed economic system (Naughton, 2007);
a combination of both command and market economic system.
In a command economic system, the government has full control
of vital resources that determine business operations; this
system is an advancement of the traditional economic system
where no centralized regulation of businesses and resources
exist. A command economic system arises when resources in a
given economy increase with time creating the need to establish
a federal government to control use of the resources. In China, a
traditional economic system existed until 1949 when a command
economic system was adopted.
The Korean war of 1952 to 1956 had a negative impact on the
economy that later resulted in modification of cultural
framework of the natives in a bid to cushion the poor economic
performance (Cultural Revolution), this occurred in 1968 to
1976. The result was an increment in the nation’s economic
resources and adoption of market economic system in 1980
(Drabek and Mavroidis, 2013). From 2005 to date, a mixed
economic system has been witnessed. Growth of GDP in each
economic system is presented below from 1952 to 2004.

4. China’s involvement in international trade
As Wang (2011) notes, China is the second largest economy
globally by GDP after the US. The country is a major player in
international trade, dealing mainly in importation and
exportation. Australia is the main trading partner with
exportation and importation firms there forming a bulk of the
country’s foreign investors. The government is involved in this
kind of business mainly through regulatory functions; it sets and
monitors taxation, nature of imports and exports and formulates
policies that ensure good business practice. China’s
encouragement of importation and exportation businesses will
help UNB’s investment. UNB will be the facilitator of foreign
exchange services, financial consultation, and money lending
services, and other banking services for foreign investors, not
only from Australia but across the globe.
Presence of UNB in China will influence its investment plans in
other developing nations in the East. China acts as a central
ground upon which other investors from developing nations
such as Taiwan, Kazakhstan, Cambodia, Malaysia, Pakistan,
Thailand, and Vietnam converge for business transactions.
China is the central source of supplies in these nations, and a
major consumer too owing to its ever growing population. For a
banking institution therefore, it will be easier to identify the
probable developing countries to invest banking services in
when in China through a thorough scrutiny of market
information there. The image below strengthens the central
location of the ‘economic powerhouse’, China, which is
surrounded by many developing nations with investment
opportunities for UNB;
China is involved in regional integration efforts; it supports the
come-together of nations in facilitating regional trade and other
developmental factors. It is a member of the Asia Cooperation
Dialogue (ACD) of which Laos, Japan, South Korea, Pakistan,
Thailand, Vietnam, Cambodia, India, Indonesia, Myanmar,

5. Philippines, Singapore and Brunei are member states. The
purpose of ACD is to foster collaboration of the member states
through intertwining of their political, economic and
educational plans. Additionally, it is in place to ensure the
previously separate regional organizations in the East such as
ASEAN and SAARC are integrated together. This is a clear
demonstration that China is in full support of regional
integration.
The chosen location
A number of reasons make China the best investment
destination for a regional bank like UNB: the well performing
economic sectors, a factor that will ensure many business
participants enter Chinese market, banks in this case acting as
intermediaries of money transfer between buyers and sellers;
political stability, a factor which reflects internationalism, the
idea of encouraging foreign investment in its land with minimal
legal restrictions; the good relation of China with the West,
makes UNB, a US based banking institution the confidence of
successful investment there since it would possibly face
minimal legal restrictive measures like standardized taxation;
and the high population of China that projects a large customer
base for banking investors.
Overall assessment as a manager
Expansion of banking services to a foreign land requires heavy
financial investment; in such a case, business risks are bulky
too. As a manager of UNB regional bank, it would be advisable
to assess the following areas before making a final investment
decision; risk level, benefit of the investment to all the
stakeholders, and the best entry mode. Risk is one characteristic
of entrepreneurship; however, to assure success of a business, it
is advisable that the risk level be as low as possible. Given the
economic stability and high market performance of Chinese
economy, investing in China is associated with minimal risks.
This investment will be beneficial to all the stakeholders since
an increased income for the company will mean a higher
dividend ratio for the shareholders. To achieve the set

6. objectives as a company, a joint venture presence in the foreign
nation would be much suitable than Greenfield operations, it
reduces the risks even further.
Advising an MNC on Latin America investment plan
A Multinational Corporation (MNC) is a large firm with global
operations. To facilitate its financing in Latin America,
assessment of foreign currency risk should be considered as an
important factor for the company’s management. Foreign
exchange rates are never static; they keep changing from time to
time in accordance with world economic performance. 1
Chinese Yuan equals 0.16 US dollars. This figure may increase
or decrease with time. To succeed in its foreign investment
plans, the MNC’s management should put in place measures that
monitor performance of the dollar and enter Latin American
market at the time when the exchange rate is at its lowest. This
will ensure that the company faces minimal financial milestone.
Swap and Exchange-traded fund are the two foreign
exchange instruments that the MNC may use to minimize
foreign exchange risks. The latter are open ended investment
companies that are capable of being traded daily while Swap is
an exchange between two parties over a given period of time.
Both instruments help cushion the risk associated with currency
fluctuation.
References
Drabek, Z., & Mavroidis, P. C. (2013). Regulation of foreign
investment: Challenges to international harmonization.

7. Singapore: World Scientific Publishing Company.
Naughton, B. (2007). The Chinese economy: Transitions and
growth. Cambridge, MA: MIT Press.
Schill, S. (2014). The multilateralization of international
investment law.
Wang, L. (2011). Foreign direct investment and urban growth in
China. Burlington, VT: Ashgate.
XE: (USD/CNY) US Dollar to Chinese Yuan Renminbi Rate.
(n.d.). Retrieved from
http://www.xe.com/currencyconverter/convert/?Amount=1
&From=USD&To=CNY