The different ways to enter the Chinese market and the management of the related financial risks.

Abstract

Entering the Chinese market has become one of the biggest challenges of Italian companies of all shapes and sizes. Doing business in one of the fastest growing economies of the world can bring a lot of benefits; however, investors should not underestimate the complexity of such large and different market. The options available to a firm that is trying to achieve this goal include exporting, licensing and franchising, wholly owned enterprise, joint venture and using Hong Kong as entry to mainland China. Obviously, the choice of how to enter the Chinese market is a strategic decision; but, we all know that this strategic choice has also implications on the financial management of a company. This study aims at explaining the link between the entry strategy and the financial risk profile of a company and how the entry mode can affect the financial management of the company. In choosing the most suitable solution, foreign investors should consider some operation-related variables that can bring them to the desired results. Such variables include minimum profit margin, sales volumes, after-sales assistance, etc. Thus, different variables often suggest different entry modes, and accepting these differences involves accepting trade-offs. In addition, the study offers insights into how some real companies have faced or are facing this process and how they balance the different variables in order to achieve success.