Recycled Plastics in China: A Strategic Reference, 2006
ICON Group International, July 2007, Pages: 242
How to Strategically Evaluate China
Perhaps the most efficient way of evaluating China is to consider key dimensions which themselves are composites of multiple factors. Composite portfolio approaches have long been used by strategic planners. The biggest challenge in this approach is to choose the appropriate factors that are the most relevant to international planning. The two measures of greatest relevance to recycled plastics are “latent demand” and “market accessibility”. The figure below summarizes the key dimensions and recommendations of such an approach. Using these two composites, one can prioritize all countries of the world. Countries of high latent demand and high relative accessibility (e.g. easier entry for one firm compared to other firms) are given highest priority. The figure below shows two different scenarios. Accessibility is defined as a firm’s ease of entering or supplying from or to a market (the “supply side”), and latent demand is an indicator of the potential in serving from or to the market (the “demand side”).
Framework for Prioritizing Countries
Demand/Market Potential Driven Firm
Relative Accessibility
Accessibility/Supply Averse Firm
In the top figure, the firm is driven by market potential, whereas the bottom figure represents a firm that is driven by costs or by an aversion to difficult markets. This report treats the reader as coming from a “generic firm” approaching the global market - neither a market-driven nor a cost-driven company. Planners must therefore augment this report with their own company-specific factors that might change the priorities (e.g. a Canadian firm may have higher accessibility in Canada than a German firm).
Latent Demand and Accessibility in China
This report provides a detailed overview of factors driving latent demand and accessibility for recycled plastics in China. Latent demand is largely driven by economic fundamentals specific to recycled plastics. This topic is discussed in Chapter 2 using work carried out in China on behalf of American firms and authored by the United States government (typically commercial attachés or similar persons in local offices of the U.S. Department of State). I have included a number of edits to clarify the information provided. Latent demand only represents half of the picture. Chapter 2 also deals with micro-accessibility for recycled plastics in China. I use the term “micro” since the discussion is focused specifically on recycled plastics.
Chapter 3 is also a stand-alone report that I have authored. It covers proxy pro-forma financial indicators of firms operating in China. I use the word “proxy” because the provided figures only cover a “what if” scenario, based on actual operating results for firms in China. The numbers are only indicative of an average firm whose primary activity is in China. It covers a vertical analysis of the maximum likelihood balance sheet, income statement, and financial ratios of firms operating in China. It does so for a particular Standard Industrial Classification (SIC) code. That code covers “plastics materials, synthetic resins, synthetic rubber, cellulosic and other manmade fibers manufacturing excluding glass”, as defined in Chapter 3. Again, while “plastics materials, synthetic resins, synthetic rubber, cellulosic and other manmade fibers manufacturing excluding glass” does not exactly equate to “recycled plastics”, it nevertheless gives an indicator of how China compares to other countries for a proxy adjacent category along various dimensions.
Chapter 4 deals with macro-accessibility and covers factors that go beyond recycled plastics. A country may at first sight appear to be attractive due to a high latent demand, but it is often less attractive when one considers at the macro level how easy it might be to serve that entire potential and/or general business risks. While accessibility will always vary from one company to another for a given country, the following domains are typically considered when evaluating macro-accessibility in China:
Openness to Trade in China
Openness to Direct Investment in China
Local Marketing and Entry Strategy Alternatives
Local Human Resources
Local Risks
Across these domains, a number of not-so-obvious factors can affect accessibility and risk. These are covered in the Chapter 4, which is a general overview of investment and business conditions in China. Chapter 4 is also presented from the perspective of an American firm, though is equally applicable to most firms entering China. This chapter is also authored by local offices of the U.S. government, as is Chapter 2. Likewise, I have included a number of edits to clarify the provided information as it relates to the general strategic framework mentioned earlier.
1 INTRODUCTION & METHODOLOGY 1
1.1 What Does This Report Cover? 1
1.2 How to Strategically Evaluate China 1
1.3 Latent Demand and Accessibility in China 3
2 RECYCLED PLASTICS IN CHINA 5
2.1 Latent Demand and Accessibility: Background 5
2.2 Latent Demand: Market Composition 5
2.3 Latent Demand: Market Data 6
2.4 Latent Demand: Leading Segments 7
2.5 Key Suppliers 7
2.6 Prospective Buyers 8
2.7 Accessibility: Market Entry 8
2.7.1 Import Tariff 9
2.8 Market Issues and Obstacles 9
2.8.1 Import Frauds and Pollution Problems 9
2.8.2 Environmental Protection Standards 10
2.9 Key Contacts 10
2.9.1 Chinese Government Contacts 10
2.9.2 Trade Event Contact 11
3 FINANCIAL INDICATORS: PLASTICS MATERIALS, SYNTHETIC RESINS, SYNTHETIC RUBBER, CELLULOSIC AND OTHER MANMADE FIBERS MANUFACTURING EXCLUDING GLASS 12
3.1 Overview 12
3.1.1 Financial Returns and Gaps in China 13
3.1.2 Labor Productivity Gaps in China 16
3.1.3 Limitations and Extensions 16
3.2 Financial Returns in China: Asset Structure Ratios 17
3.2.1 Overview 17
3.2.2 Assets - Definitions of Terms 17
3.2.3 Asset Structure: Outlook 20
3.2.4 Large Variances: Assets 21
3.2.5 Key Percentiles and Rankings 24
3.3 Financial Returns in China: Liability Structure Ratios 39
3.3.1 Overview 39
3.3.2 Liabilities and Equity - Definitions of Terms 39
3.3.3 Liability Structure: Outlook 41
3.3.4 Large Variances: Liabilities 42
3.3.5 Key Percentiles and Rankings 45
3.4 Financial Returns in China: Income Structure Ratios 58
3.4.1 Overview 58
3.4.2 Income Statements - Definitions of Terms 58
3.4.3 Income Structure: Outlook 60
3.4.4 Large Variances: Income 61
3.4.5 Key Percentiles and Rankings 64
3.5 Financial Returns in China: Profitability Ratios 79
3.5.1 Overview 79
3.5.2 Ratios - Definitions of Terms 79
3.5.3 Ratio Structure: Outlook 81
3.5.4 Large Variances: Ratios 82
3.5.5 Key Percentiles and Rankings 85
3.6 Productivity in China: Asset-Labor Ratios 101
3.6.1 Overview 101
3.6.2 Asset to Labor: Outlook 102
3.6.3 Asset to Labor: International Gaps 103
3.6.4 Key Percentiles and Rankings 106
3.7 Productivity in China: Liability-Labor Ratios 121
3.7.1 Overview 121
3.7.2 Liability to Labor: Outlook 122
3.7.3 Liability and Equity to Labor: International Gaps 123
3.7.4 Key Percentiles and Rankings 126
3.8 Productivity in China: Income-Labor Ratios 139
3.8.1 Overview 139
3.8.2 Income to Labor: Outlook 140
3.8.3 Income to Labor: Gaps 141
3.8.4 Key Percentiles and Rankings 144
4 MACRO-ACCESSIBILITY IN CHINA 159
4.1 Executive Summary 159
4.1.1 Government Intervention Risks 159
4.1.2 Infrastructure Investment 160
4.2 Political Risks 160
4.3 Marketing Strategies 161
4.3.1 Distribution Channel Options 161
4.3.2 Establishing a Presence in China 163
4.3.3 Selling Strategies 164
4.3.4 Advertising and Trade Promotion 165
4.3.5 Pricing Issues 166
4.3.6 Selling to the Government 167
4.3.7 Intellectual Property Risks 167
4.3.8 Local Professional Services 172
4.3.9 Performing Due Diligence 173
4.4 Import and Export Regulation Risks 173
4.4.1 Import Tariffs and Customs Regulations 174
4.4.2 Trade Barrier Risks 175
4.4.3 Import Documentation Requirements 178
4.4.4 Controls on Exports 179
4.4.5 Export Controls 180
4.4.6 Inspection Standards 181
4.4.7 Labeling Issues 183
4.4.8 Additional Trade Issues 183
4.4.9 Restrictions on Imports 184
4.4.10 Customs Contact Information 185
4.5 Investment Climate 185
4.5.1 Openness to Foreign Investment 185
4.5.2 Laws Affecting Foreign Enterprise Establishment 188
4.5.3 Other Laws Relating to Investment 190
4.5.4 Conversion and Transfer Policies 192
4.5.5 Expropriation and Compensation 192
4.5.6 Dispute Settlement 192
4.5.7 Performance Requirements and Incentives 194
4.5.8 Right to Private Ownership and Establishment 195
4.5.9 Transparency of the Regulatory System 196
4.5.10 Capital Market Risks 197
4.5.11 Political Violence 198
4.5.12 Corruption 198
4.5.13 Bilateral Investment Agreements 199
4.5.14 OPIC and Other Investment Insurance 199
4.5.15 Labor 199
4.5.16 Free Trade Zone Options 201
4.6 Trade and Project Financing 201
4.6.1 Banking System 201
4.6.2 Foreign Exchange Control Risks 203
4.6.3 Financing Exports 204
4.6.4 Terms of Payment 206
4.6.5 Insurance 207
4.6.6 Financing Projects 207
4.6.7 Commercial Bank Contacts 207
4.7 Travel Risks 212
4.7.1 Planning and Logistics 213
4.7.2 Temporary Entry of Materials and Personal Belongings 214
4.7.3 Country Data 215
4.7.4 Major U.S. Investors in China 216
4.8 Key Contacts 217
4.8.1 State Commissions 217
4.8.2 Chinese Ministries 217
4.8.3 Associations and Corporations 226
4.8.4 American Chamber of Commerce 228
4.8.5 U.S. Embassy Contacts 229
4.8.6 Contacts in Washington D.C. 231
4.8.7 U.S.-Based Multipliers 232
5 DISCLAIMERS, WARRANTEES, AND USER AGREEMENT PROVISIONS 233
5.1 Disclaimers & Safe Harbor 233
5.2 Icon Group International, Inc. User Agreement Provisions 234
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