Organix- Environment in China and India

Topics: Organic food, Organic certification, Economics Pages: 14 (4737 words) Published: December 13, 2012
Executive Summary
This report aims to evaluate whether China or India is worthwhile for Organix’s entry by using PEST analysis. To begin with, China’s business environment will be examined, followed by that of India. The analysis of China starts from the overall economic conditions and factors in Porter’s Diamond. China has developed a mixed economy, with increasing Gross National Income (GNI) and Purchasing Power Parity (PPP). Furthermore, friendly policy on Foreign Direct Investment (FDI), appreciation of RMB, and the huge potential of organic food market are all positive factors for Organix to enter China. However, government debts, factor endowments, infrastructures and capital market all involve certain risks and should not be ignored. Secondly, regarding political and legal system, stable political environment and friendly government policies toward organic food import and agriculture provide opportunities for Organix. On the other hand, the complex overall regulatory system, widespread corruption, and poor intellectual property right (IPR) protection are obstacles for Organix. Finally, considering social issues, China’s education system provides certain amount of high-tech workers that Organix required. However, ‘guanxi’ embedded in Confucianism may require Organix to develop a demanding level of network. Last, four related factors of Hofstede’s five-dimension theory are assessed. For India, political factors are more influential on the business environment for companies in organic food industry like Organix. The economic liberalization and business friendly policies may ease the barriers of entrance. Nonetheless, the organic products import policy, rigid bureaucratic procedures and everlasting corruption problem are unfavorable to its business operation. Additionally, the overlook of IPR in India may lead to the extra cost of Organix on its IPR protection. Concerning economic environment, India’s mixed economy and economic liberalization has boosted the speed of development. The growing PPP and FDI make India remunerative for foreign investors. Meanwhile, the sizable amount of wealth people and the expanding organic food market also imply considerable potential profit for Organix. However, the volatile and high inflation rate and the continual depreciation of Indian Rupee bring uncertainty about Organix’s investment returns. The production factors such as land and labor, and inadequate infrastructures may limit Organix’s prospect in India. Social aspect covers topics such as India’s cultural background, ethic dilemma and four factors from Hofstede’s five dimensions theory. Based on the analysis above, we recommend Organix to enter Chinese market.

Organix is a British company founded in 1992 that produces organic food. Its products are tailored for children from different ages. Organix follows the policy of best nutritional practices with no unnecessary ingredients or added junk.

2.1Economic Environment
2.1.1Economic Background
In terms of economic system, the coexistence of government planning and the market mechanisms forms the mixed economy of China (Yuan, 2003). According to the World Bank (2012), GNI (Figure 1) indicates that China has ascended into the upper middle income country, accompanied by the increasing PPP (Figure 2). Thus, the growing GNI and PPP guarantee the affordability of certain number of people for organic products which generally cost 20% to 100% more than conventional ones (Food and Agriculture Organization of the United Nation, 2012). Additionally, China’s economic reform that regards FDI as an integral part and opens up the economy for international business gradually supports Organix’s entry (Reserve Bank of India, 2011). The trend of RMB appreciation (Figure 3) also implies that more GBP Organix could earn even if its revenues in China remains constant.

Despite the historic high growth rate of GDP (the World Bank, 2012) (Figure 4), the...
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