China PESTEL Analysis
The PESTEL analysis is an essential tool for the management to identify the positive and negative factors that can impact the growth of any company. They can identify those factors to strategize their development and increase the revenue. China is a powerful country, and in recent years there is rapid development in their economy. It has made it a preferable location of investment for many countries. The PESTEL analysis of China show how the external elements affect the current status of the country.
2. Background of China
To do the PESTEL analysis, people must know about the country’s background and economic conditions. China is one of the most powerful countries, with a population of 1.39B. It has experienced rapid growth in its economy, which has made it a preferred business destination. The low cost of production and high profit margin has allowed many companies to invest in China. China is also dominating the tech investment in other countries. The GDP of China is 14.72 trillion USD (2020) which shows its robust economic condition.
3. China PESTEL Analysis
China has always been an investor's favorite local because of its low-cost labor and ideal business environment. It has helped the country to see growth in its economy. Thus, it is one of the powerful countries. Several external factors related to politics, economy, society, technology, ecology, and law, may affect their status as the best business location. The PESTEL analysis China can spot those factors which can have an impact on China:
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Political condition of any country affects the businesses located within its periphery. Therefore, to provide the organizations with an ideal environment, China must have stable political status. Here are some political factors that can influence China:
- Though the country has good trade relations with most of the other powerful nations, its dispute with the US and countries of South China may ruin the political stability. Hence, disturb the ideal business environment for the investors.
- China has proper strategies to maintain the low cost of the raw materials. The investors can also have a low labor cost which makes it a good choice for business.
- The government makes plans to promote businesses and subsidizes companies. For example, the Chinese government is currently promoting e-commerce businesses.
The economic condition of any country is directly related to its growth. As a country, China has shown impressive economic growth. Thus, making it an ideal location for business investment. PESTEL analysis China can show how economic factors can have an impact on its development:
- In China, the labor cost is significantly low, and hence many reputed companies prefer to hire employees from China. They can also hire experienced labor from this country with a price much lesser than other countries.
- China has a high GDP. Thus, the purchasing power of the people of the country is also significantly higher. Therefore, investors find a good market in China.
- The inflation rate in China is alarmingly high, and the cost of property is also increasing. It can slow down the growth of the economy in the future, which may impact its growth.
The socio-cultural conditions of any country indirectly affect the business and economy of the country. China is not an exception. Here is how sociological factors can impact the growth of the country:
- It has a massive population of which almost 90% of them are literate. Therefore, the business can get expert laborers and employees at a lower cost. The high population is one of the reasons for low labor costs.
- The lifestyle of the people is changing and so are their choices and tastes. As the urban lifestyle is penetrating most of the land, the businesses are also noticing a change in social behavior and purchasing trends.
- China has approximately 420 million internet users, and this number is increasing rapidly. Due to internet access, the number of people using e-commerce is also on the rise. It has made the country the best place for budding e-commerce companies.
Business and technology are intricately related. Technical innovations affect the capacity of production, resulting in a surge in business revenue. PESTEL analysis China can point out how technology can contribute to China’s growth:
- The country has shown advancement in technological innovations. It has changed their mode of production as well as the distribution. The biggest tech giants like Baidu, Alibaba, operating worldwide, can allow businesses to increase their sales.
- China is also making strategies to inspire the people to concentrate on innovations that can be helpful for their growth. These policies can be beneficial for domestic as well as international companies to have better production.
- As the country has good technological support, a considerable population prefers to use e-commerce instead of visiting the store to buy products.
Though ecology does not majorly affect the growth of a country, it may have some indirect impact. China has experienced rapid growth in the last few decades, and as a result, there is urbanization. Here are some ecological issues which can impact China:
- The country has set up some guidelines for the business. It aims to secure the environmental standards of production. It may increase the cost of production and decrease the profit.
- China is also aiming to make electronic vehicles its primary mode of transport. If they can successfully incorporate it, the car manufacturing company may get a better market for production and selling.
- As the country has factories on a considerable scale, they need to work on their technologies. It can reduce the pollution level and the cost of manufacturing.
Certain legal conditions may have an impact on the business of a company. China has some laws that can show the effect on the growth as a business-promoting country:
- The country has banned social media like Facebook, Whatsapp, Twitter, YouTube, which has prevented these platforms from earning revenue.
- China also has some restrictions on the investment of foreign companies. It may decrease the number of international companies investing in the market of the country.
- The country is currently formulating the laws for the eCommerce business, which is, to some extent, troublesome. The state has some laws for taxation and IPs, but there is no law to validate the online contract between the seller and buyer. It may increase the risk of online transactions to eCommerce sites.
4. Key Takeaways
The PESTEL analysis of China shows that several external conditions can impact its growth. The country needs to concentrate on planning to cushion its upcoming economic depression caused due to high inflation. It may save them from a rapid economic slowdown. The nation also needs to make a fair environment for the buyers while promoting eCommerce. They can also use innovative technologies to promote environment-friendly production units. The PESTEL analysis of China shows that the country may get affected by external factors. However, it can retain its growth with apt strategies.
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