Comparative Study on Potential Opportunities: China, Eastern Europe and the Former Soviet Union

By Scalise, David | Industrial Management, July/August 1993 | Go to article overview

Comparative Study on Potential Opportunities: China, Eastern Europe and the Former Soviet Union


Scalise, David, Industrial Management


During the past few years, fundamental changes have taken place in the world's political and economic structures. The major cause of these events i s the integration of the world economy. This integration forced closed-economy countries to open to the world market. Consequently, it brought democratic ideas into the political life of those countries.

An integrated world economy puts great pressure on every country to compromise and cooperate with one another. It is in the process of compromising and cooperating that opportunities are generated. Countries that seize these opportunities and manipulate them to their benefit will be the winners and will pave the way for their development. By the same token, countries that overlook or misuse these opportunities will encounter more development difficulties.

THE EUROPEAN COMMUNITY MARKET

If businesses can break into the European Community (EC) market, they will enjoy one of the biggest established free markets in the world. However, because of the intensified competition, huge amounts of investment, attractive and sophisticated technology, vast marketing efforts and strong competitiveness are required. Therefore, this market may be too burdensome and too risky for businesses that have limited resources.

CHINA

China, one of the largest markets in the world, has potential opportunities. China launched its economic reform in 1979. Since then enormous new laws and regulations, including a new constitution designed to reform the nation's economy, have been promulgated.

China desperately needs foreign investment to revive its declining economy. Because of the recent retrenchment policy, however, neither the Chinese government nor individuals have the resources for cash investment. Now is the time for foreign investors to take advantage of this opportunity. China may extend even more favorable treatment to those who are willing to invest now. However, in addition to ethical considerations, investors must carefully assess the political and economic risks.

From a strategic point of view, investing in China is undoubtedly wise and profitable. No one doubts the tremendous potential of the Chinese market-1.3 billion consumers, rich natural resources, a decade-long experience of using foreign investments, relatively complete foreign investment legislation and more than 20 investment protection treaties with foreign countries. The Chinese have the reputation for brand and product loyalty and for respecting personal relationships. Therefore, early establishment in the Chinese market will provide substantial advantages for future development.

China will indisputably become one of the most profitable markets in the world. But without the ability to commit themselves with long-term investment and to absorb political risk, small-and medium-size businesses cannot take advantage of these markets.

THE FORMER SOVIET UNION

Another alternative is to invest in the former Soviet Union. Unlike China, the former Soviet Union effected political reform before economic reform. Multiparty democracy has been formally recognized.

However, Soviet economic reform is in chaos. The nationalist independent movement substantially hindered the continuation of economic reform. Fundamental industries located in only a few republics have caused conflicts of interest among the republics and between local governments and the central government. Resolving the economic problem depends on resolving the nationalist problem; resolving the nationalist problem depends on resolving the economic problem.

Because Gorbachev contributed so much to world peace, in 1990 he was awarded I the Nobel Peace Prize. To maintain the continuity of his international policy and to encourage his domestic economic reform, Western countries offered emergency aid--loans for food from Germany, the United States and Japan; food and technical assistance from the EC. …

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