Impact Of Non Governmental Organizations

Published Date: 02 Nov 2017

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China & India

ACIS 5304 Semester Paper

Joshua Khan, Peter Oh, Diana Tong

Spring 2012

Abstract: Comparing and understanding the history, traditions, and risks of China and India, American companies are better equipped in doing business in these two countries. In doing so, this paper demonstrates how globalization and non-governmental organizations influences China and India.

Table of Contents

Assignment Page Number

Introduction 2

History 2-4

Culture and Customs 4-7

Current Business Environment 7-8

Current Accounting Environment 8-10

Business Legal Environment 10-12

Human Resource Issues 12-13

Risks 13-14

Impact of Globalization 14-16

Impact of Non-Governmental Organizations 16-17

China & India 17-19

China vs. India 19-21

Conclusion 21

References 22-24

Introduction

As two of the world’s most ancient civilizations, China and India continue to preserve their many traditions and customs while influencing global businesses. These countries have kept their customs while rapidly evolving during the late half of the 19th century. It is imperative that corporations entering these countries develop an appreciation and understanding of Chinese and Indian culture, traditions, and business environments.

History

China is the oldest continuous major world civilization, its history dating back almost four thousand years. Chinese civilization was developed through Confucian ideology and common written language. Although Confucius is one of the most ancient scholars, his teachings and ideas are still prevalent in modern Chinese society.

During the Qing Dynasty, Beijing was formed as China’s capital. It was during this time that the British traded opium in China. This led to the Opium War in 1840 and the British ceded Hong Kong. This war brought western culture and western influence into China on a large scale (15).

In the early 20th century, revolutionary military uprising swept across China to overthrow the Qing court. Sun Yat-sen set out to unite fragmented China by forming the Chinese Nationalist People's Party (Kuomintang) and the Chinese Communist Party. Soon after, Mao Zedong became the new leader, and he drove out the Nationalist party into desolate land. The Japanese invaded China between 1931 and 1945. In 1949, the Communist party occupied most of the country, with Chairman Mao as their leader and later proclaimed founder of People’s Republic of China. The Chinese Nationalist Party then fled to Taiwan and called themselves, the "Republic of China." During Chairman Mao’s reign, the economy was damaged by high inflation and disrupted transportation links, so China undertook massive economic and social reconstruction programs.

In the 1960s, Chairman Mao sought political attack on pragmatists such as Liu Shaoqi, Deng Xiaoping and others, and this led to the Great Proletarian Cultural Revolution. During this time, the radical youth in China called themselves the Red Guards and they attacked the parties and state organizations that went against Chairman Mao. Soon after, on April 5, 1976, Beijing citizens protested in Tiananmen Square in memory of Premier Zhou Enlai. However, the authorities did not approve of this and thus suppressed the demonstration through brute force. Deng Xiaoping was blamed for the disorder and the government stripped him of all official positions (15).

After the death of Chairman Mao in September of 1976, New Party Chairman and Premier, Hua Guofeng, arrested Mao’s wife and those whom she worked to campaign against Deng Xiaoping. China then adopted economic reform policies such as central planning and foreign direct investment that aimed at expanding rural income and incentives. As a result, new legal codes were formed by the National People’s Congress in 1979. During this time, Deng Xiaoping visited the United States to form economic relations and this allowed for open trade with the U.S. Soon after, in the late 1980, Mao’s Cultural Revolution brought about changes in China which included policies such as improved standard of living. Also during this time, literature and the arts blossomed and this allowed the Chinese intellectuals to establish relationships with scholars from other countries. Finally, Mao unified the Chinese spoken language to mandarin (15).

In 1989, high inflation and the death of Hu Yaobang caused the Student Movement at Tiananmen Square. Students, intellectuals, and other parts of the urban population protested to end official corruption and to defend their freedom guaranteed by the Chinese constitution. During the protest, armed forces brutally suppressed demonstrators from the streets. They killed hundreds of students and protesters. Due to the protests in China, Deng Xiaoping renewed a push for a market-oriented economy (15).

A few years after the protest while Deng’s health was deteriorating, President Jiang Zemin and other officials assumed control of China’s day-to-day functions of the government. He was then re-elected as President in March 1998. President Hu Jintao succeeded Jiang Zemin in March 2003. President Hu was committed to economic reform and opened up China to the outside world. Through his policies, numerous Chinese scholars went overseas to study in universities around the world. Thus, entering and leaving China became much easier than what it was before. As a result, U.S. Corporations sought out China as one of the first places to outsource manufacturing. Also, travel between China and Taiwan opened up trade between the two regions.

Similar to China, India has a long history. According to numerous scholars, the first civilization was established by the Dravidians around 2500 BC in the Indus River Valley. This civilization was dependent on agriculture. After about 1000 years, the Aryans came and this is when Hinduism came into existence (16). In the 10th and 11th centuries, India was invaded by the Turks and the Afghans and these countries brought Islam along with them. As a result, the Hindu and Muslim dynasties left impressions on one another from the 11th century to the 15th century (16).

In the 1600s, the descendants of Genghis Khan created the Moghul dynasty. During the same time, Europeans started invading India in search of trade as India accumulated 25% of world’s GDP in 1800. European countries fought among themselves for control of India. Ultimately, the British became victorious and they created the East India Trading Company. This Trading Company allowed the British to enjoy exotic and valuable goods, like spices, perfume, etc. As a result, the British ruled India for about 200 years (16). Not only did they rule India but by the 1850s, the British expanded so much that they also controlled most of Bangladesh and Pakistan as well (16). During their rule, they changed the political, social, and economic systems.

However, in the early 1900s, many Indians wanted liberty from the English. The main leader to lead this revolution was Gandhi. He rose to power in 1916, and during his time, he decreased poverty, ended caste discrimination, and increased women’s rights. Also in 1920, "Gandhi transformed the Indian National Political Party into a mass movement against the British" (16). He did this by promoting people to use non-violent resistant actions, like non-cooperation, with the British. Gandhi was so dedicated in leading the Indian people to independence that he was imprisoned in 1942 for leading a rally known as "Quit India" (16). Even though he had to go to jail, his efforts paid off, as India became a free country on August 15, 1947 under the leadership of Prime Minister Jawaharlal Nehru.

India’s economic growth is similar to China. After the creation of the new state in 1947, the highly influential leader Jawarlal Nehru was the socialist-minded leader of India. For the next 40 years, India’s economy grew at a snail’s pace. This period was called "License Raj", which required licenses for trivial things. Up till the early 1990s, due to socialist policies and the gulf-war, India suffered so much that they were at the point of bankruptcy. However, all was not lost during the socialist era, as first Prime Minister Nehru gave India its finest education institutes. In the 1990s Finance Minister Manmohan Singh used capitalist ideologies and this in turn propelled India’s economic growth.

Unfortunately not everyone appreciated Gandhi’s efforts and he was assassinated in 1948. His led to political instability throughout India. This is primarily due to many different leaders taking power since the 1950s. Not only has there been continual personnel change but also India has had to deal with numerous political struggles with Pakistan. India and Pakistan have been locked in a struggle after India became a free nation because the Hindu leaders of an area known as Kashmir decided to join India even though there were a lot of Muslims living there (16). As a result, there have been wars, the most notable ones being in 1947 and 1965 between these two countries for this land. However, India and Pakistan have been trying to restore a better relationship. Fortunately, the numbers of conflicts between India and Pakistan have died down, but there are still skirmishes and rivalries between the two nations.

Culture & Customs

Looking at Geert Hofstede’s analysis, China has a high power distance. With a score of 80, Chinese society believes that inequalities amongst people are acceptable (17). At the business level, subordinates are expected to listen and obey their superiors. Thus, unfortunately, there is generally no defense against superiors that abuse their power. Although power distance is high, Chinese individualism is low, with a score of 20 (17). China is a highly collectivist culture, which is similar to other Asian cultures. According to Confucius, "He who wished to secure the good of others, has already secured his own." This quote means that the Chinese people generally act in the interest of the group.

Third, China is 66% masculinity-driven (17). For instance, Chinese people will sacrifice leisure and family to become successful. For example, a Chinese hairdresser, like many other kinds of service personnel, will provide services until very late at night. When my family and I traveled to Shanghai, we were able to walk into a salon at 12 am to get our hair washed, dried and styled for under 60Y (approximately $10). Also, many migrated farmers leave their families behind in faraway places in order to obtain better work in the cities. Fourth, Chinese people are comfortable with ambiguity. With a low score of 30 on uncertainty avoidance, Chinese culture is concerned about adherence to truth and rules, but not necessarily laws (17). As a matter of fact, the Chinese are comfortable with ambiguity because they believe that pragmatism is a way of life. Even the Chinese language is full of ambiguous meanings that could be difficult for westerners to interpret.

Finally, the Chinese are long-term oriented because they view time in hundreds of years as a result of their long history. China’s score is 118 and this is the highest in the world. Thus, investments tend to be long-term, such as one hundred years, whereas in the U.S., organizations value long-term as more than one year. Also, Chinese people are thrifty and sparing with resources, because many focus on saving for retirement or helping the next generation or family.

According to the Geert Hofstede analysis, one sees that India has a power distance of 77, which is high. This is primarily due to their culture emphasizing a hierarchical structure. This means that there is a superior/inferior relationship between people. Not only does India have a hierarchical structure, but according to Hofstede, "one of their emphasis is not on treating other as equals" (18). Second, India is slightly more collectivist than individualistic, as their score is 48. This means that, for the most part, Indians make decisions by consulting one another instead of making decisions by themselves. However, it is important to note that India is more individualistic than China. Third, India has a masculine society score of 56 because Indians place a high focus on being "results driven" (18). It should be noted that it is not as masculine as China. This is due the fact that Indians do not indulge themselves in success because they are taught to practice humility (18). Fourth, Indians have a low uncertainty avoidance rating of 40. This translates as Indians being flexible and comfortable with ambiguity and trying new things. Thus, India places a lot more emphasis on innovation rather than compliance with the rules (18). Finally, Indians have a long-term orientation, as their score is 61. This, however, is not as long-term as many other Asian countries. India has more of a long-term orientation because a lot of its society is dictated by a respect for tradition. Not only do people respect tradition, but as people tend to save money for the long run, their spending habits are also thrifty. (18). Finally, oftentimes the deadlines for projects are fluid and Indian companies tend to invest in long-term projects. In conclusion, according to the Hofstede analysis, one can see that India has a culture that is hierarchical, collectivist, masculine, long-term, with a low uncertainty avoidance.

With the help of Hofstede’s analysis, one can see clearly that China and India differ from the United State in customs as well as cultural and political issues. These factors influence the ways companies conduct business.

In China, going out to eat at the best restaurant in town will make or break the deal. Chinese people feel insulted if you do not let them pay. Also, when conducting business, one should dress formally and avoid bright colors unless told otherwise. Finally, when it comes to distance, do not be alarmed if a Chinese person stands very close and does not move back (37).

Like how Americans take off Christmas and Thanksgiving, the Chinese go on vacation during their lunar holidays, such as Lunar New Years and the Mid-Autumn Festival (37). Not only do the Chinese celebrate lunar holidays, but they also believe in the Zodiac and Feng Shui. When a room has good Feng Shui, the Chinese believe it brings prosperity and luck. Also, even though corruption in the government is changing for the better, there is still the custom of giving gifts and red-envelopes filled with money in order to get a job or position in an organization or the government. According to the Corruption Perceptions Index, on a scale of one to ten, China received a score of 3.6, with 0 being highly corrupt and 10 being clean (9). However, bribes do not always work, so it is dangerous to assume that money can get whatever a person wants.

Knowing Chinese customs is important, as is observing cultural and political issues. Although Chinese culture has a lot of emphasis on Confucian teachings, a few factors are changing. For instance, the one-child rule goes against having a big family, migration of people from rural to urban areas, seemingly unlimited economic growth, and the 36 strategies that teach winning at any cost. Because of the one-child policy, the Chinese people have developed a child-dependent society. This means that the next generation will have to work longer hours to support their parents. Also, the one child policy is leading to a decrease in population. This in turn is causing a situation where there is not enough funds to cover the baby boomers (37).

"Guanxi," the Chinese word for relationships, is used quite often in business, especially when networking and interacting with people (37). First, one’s reputation is very important due to the value of hierarchy and saving face. Second, when it comes to agreements, a handshake in China is equivalent to a contract in the U.S. In China, "yes" means yes, but "no" and "maybe" mean no (37). Third, deadlines are useless because the Chinese do not like to be rushed. Fourth, when it comes to empathy and gratitude, Chinese people prefer gratitude more than empathy, for empathy is a sign of disrespecting privacy. Fifth, the Chinese are fascinated with western pop culture and are always eager to know more about what it’s like to live in America. When I visited China, all my relatives asked me so many questions about life in the U.S. that I regretfully left without knowing much about their own lives. Sixth, when it comes to gender roles and sex discrimination, women have less success compared to men. For instance, women’s wages are significantly lower than for men. However, China is not completely a male-dominated society. Since the one-child rule, parents with one daughter want the best for their daughters. In Shanghai, women are quite powerful in business and in society, whereas traditional gender roles still reside in other provinces and more rural regions. With the changing culture and reforms throughout the 20th century, China will become more and more like western civilizations.

Culture and customs in India is interlinked with business. First, it is important to keep in mind while doing business that Indians are insensitive to time (22). Second, many places close during the middle of the day for lunch (12-2). Third, many Indian businesses will reflect the manager’s vision (22). Fourth, before one can conduct business with an Indian company it is important for one to build an interpersonal relationship, so that they can view one as a trustworthy and credible person. Fifth, it is important for one to realize that Indians while doing business are very conservative and are often times cautious in making decisions (22). Sixth, it is imperative that one does not call people by their first names. Seventh, if one gets invited for a business dinner than one should be punctual to the event and one should not expect to discuss business issues during dinner (22). It is also important to not bring up sensitive issues such as politics, poverty, and other things that may seem to be sensitive during this time. Finally, one of the most important things to remember while doing business in India is that one should not shake hands with a woman until she offers (22). Thus, it is imperative for a company to follow the customs in place in order to be successful in India.

Not only is it important for companies to follow the customs but they also have to be aware of the cultural and political issues. First, it is important to note that India is a family orientated culture. This basically means that they place a huge emphasis on caring for each other, respecting their elders, and trusting one another (22). Also, it is essential to understand that Indians cannot openly say "no" to others (22). Finally, Indian culture places a premium on higher level education.

India also has numerous political issues currently. The three most important political issues that it is facing in today are dealing with energy scarcity, increasing wealth disparity, and developing a relationship with Pakistan. Currently, India is undergoing such a large industrial boom that they are facing energy and resource shortages. Not only are they facing shortages but they are also one of the largest emitters of CO2. Secondly, there is increasing wealth disparity between the rich and the poor. Indian’s are becoming prosperous due to globalization but others are still relying on farming and other minimal paid work. Finally, India will have to continue to appropriately balance the political tension surrounding Kashmir with Pakistan.

Current Business/Economic Environment

Expanding business to China and India has its advantages and disadvantages. With a population of 1.3 billion, China is one of the first places to expand business. However, caution needs to be used when expanding to China or investing in the Chinese and/or Indian economy.

According to the World Bank 2012 ranking of doing business, China ranked 91 out of 183 (1). Even though the country provides labor cost savings and large market potential, certain factors need to be taken into consideration before doing business in China.. The Economic factors that play a role in the Chinese economy that will be discussed include foreign direct investments, inflation rates, currency and exchange rates, trade, and infrastructure.

China remains one of the top recipients of foreign direct investments (FDI) over the recent years (11). Many companies have invested in China due to the idea of a large population size consists but have little purchasing power. This, provides a great opportunity for them to charge less but sell more in quantity. For instance, Procter and Gamble launched Pampers "Golden Sleep" campaign in 2007 that promoted disposable diapers to China’s largest urban areas (6).

Also, the inflation rate in China is generally on the rise (11). As of March 2012, China reported an inflation rate of 3.6 percent. The Chinese government has countered the inflation rate risk of decreasing prices and delayed purchases by raising controlled prices of resources . They also have purchased large amounts of farmers’ products in order to stabilize prices. However, currency and exchange rates have declined over the years. In 2000, the currency exchange rate was approximately 8 Yuan per 1 U.S. Dollar, and now it is currently 6.3 Yuan per Dollar. The Yuan has appreciated 21% against the dollar in 2008, but then flattened as Chinese authorities were concerned about slipping exports (11).

Ever since China joined the World Trade Organization, China is viewed as economic powerhouse in the global market. China’s export of manufactured goods, garments, electronics, textiles, and other goods and resources has helped the Chinese economy boom over the past eight years. With trade rapidly growing, infrastructure is constantly being repaired and built. When I visited Shanghai, Beijing, and other major cities in 2000, most residencies were small with no air conditioning in apartment complexes no taller than ten stories. When I went back to visit the World Expo in 2010, I was amazed at all the high rise buildings and shopping centers. They were nicer and newer than the ones I saw in the United States. Both the Beijing Olympics in 2008 and the World Expo in Shanghai of 2010 caused the Chinese government to value infrastructure and standard of living in order to give China a better reputation. However, the emphasis on infrastructure has caused other problems to crop up such as government corruption, HIV infections, and other diseases.

Like China, India’s current economic environment is a very promising as the country continues to have staggering growth numbers. They are one of the fastest growing developing countries in the world (42 pg.40). However it is important to note that India’s current economic environment is still smaller than that of China’s. As a matter of fact, companies need to keep in mind that India’s economy is about twelve years behind China’s as demonstrated by the "equation I = C-12" (42 pg.40). Also, India’s current Public Debt is 64.1% of their GDP (42).

India has grown rapidly because many U.S. multinational corporations have located there to take advantage of India’s low labor costs. India’s labor costs are so low that they are "1/40th" (42 pg.101) of that of the United States. Not only is the labor cheap, but many companies have benefited due to the large number of talented workers. India has a large number of engineering, computer science, and IT graduates that are fluent in English. Thus, this has led to India in having such a large IT service industry. This industry is so large that it is "5x bigger than the IT service industry in China" (42 pg.53).

Even though India has grown rapidly, they have a unique economic environment compared to most countries. India is unique because they have a "mega-market but micro-customers" (42 pg.72). This means that they have a large population but the majority of people are poor. However, companies should not overlook the fact that the middle markets are growing very rapidly (42). As a result, many companies have had to innovate their products to better serve the Indian market. For instance, some companies are packaging their products smaller in order to allow people to purchase them. Not only do companies need to innovate their products to adapt to the demographic differences but they also need to differentiate their products through innovation because the market competition in India is fierce.

Finally, it should be noted that India is more aggressive than China in expanding their companies through mergers and acquisitions (42). India is more aggressive in expanding their companies this way because they have strong financial and post-merger skills. This is attributable to the emphasis on higher level education and strong English skills. Also, it is easier to merge with Indian companies because they are more adapt at horizontal integration. This is a huge factor because many American Multi-National companies hate saying "yes sir" to their foreign counterparts. Thus, this can give the other company involved in the merger/acquisition about the same amount of power and responsibilities as the host company.

Current Accounting Environment

The expected accounting values based on Gray is dependent upon Hofstede’s analysis of China in terms of power distance, individualism, masculinity measures, uncertainty avoidance, and long-term orientation (39). Comparing professionalism and statutory control in accounting, China is more focused on statutory control for multiple reasons. First, Chinese culture believes in a large power distance. Second, China is a very collective society.

Comparing uniformity and flexibility, China focuses on uniformity in their accounting due to their high collectivistic society and large power distance. The People’s Republic of China Generally Accepted Accounting Principles (PRC GAAP) places more restrictions and requirements when reporting financials than US Standards and IFRS (11).

Third, with China being a more masculine society and having weak uncertainty avoidance, Chinese accounting is more conservative than optimistic (39). For instance, PRC GAAP measures short-term investments at lower of cost or market value, with a write-down recognized in net profit(loss), whereas IFRS and U.S (12). GAAP measures investments at fair value. Thus, one can see that the Chinese use this approach because of the Confucian ideology of balance. This means that Chinese accountancy reflects realistic valuation.

Lastly, in terms of secrecy versus transparency, Chinese accounting is secretive but they are moving toward more transparency (39). In the past few years, financial reporting was based on the judgment of the firms, and most firms prefer non-disclosure. However, PRC GAAP now has more transparent disclosure than IFRS and U.S. GAAP. This is due to the fact that, PRC GAAP has three more additional statements than the United States, which includes the statement of allowance for impairment, profit appropriation statement, and statement segmental information (12). Also, disclosure of related party information in financials statement of wholly owned subsidiaries is required in PRC GAAP, but exempt in IFRS and U.S. GAAP (12).

With more American companies outsourcing and offshoring into China, some companies follow IF RS, but most follow PRC GAAP. The PRC GAAP is issued and influenced by two major entities. The Ministry of Finance issues the majority of the laws and regulations, while the China Securities Regulatory Commission issues listed company disclosures. When a company expands their business in China, they will most likely follow PRC GAAP first, then IFRS if the standards are not clear. PRC GAAP follows accrual basis of accounting, but many small businesses and family-owned businesses use cash basis (12). Also, when it comes to valuing assets and liabilities, PRC GAAP mostly uses historical value rather than fair value (12). The basis of property, plant and equipment requires historical cost, similar to U.S. GAAP, but IFRS may use lower of revalued amount or historical cost (12). Another example is the valuation of intangible assets received in a non-monetary transaction. PRC GAAP requires these intangibles to be measured at carrying value, while IFRS and U.S. GAAP measures the intangibles at fair value (12). Finally, even the measurement of revenue is dependent on the amount stipulated on the agreed contract between the buyer and seller, whereas U.S. GAAP and IFRS measure revenue at fair value of the consideration received (12).

Similar to Chinese Accounting, Hofstede Gray analysis determines the way in which India stresses statutory control over professionalism. India’s accounting values statutory control more than professionalism because India is a more collectivist society and they have a large power distance. Thus, the accounting decisions are often made in groups with a "we type mindset" (14). Also, India has a hierarchical structure because they believe that everyone has a place, and this mindset leads to an environment with statutory control.

Second, India leans more towards uniformity than flexibility in their accounting policies. This is mainly due to a large power distance (14). As a result, the lower level people tend to agree with those who have higher positions.

Third, India has an optimistic viewpoint in their accounting values because they rank low in uncertainty avoidance and because they are more of a masculine society (14). India has a low uncertainty avoidance because they tend to be more relaxed, accept ambiguity, more practice than principles based, and they treat deviance less harshly compared to a country with a high uncertainty avoidance. India also has a more masculine society because they value achievement and material success. As a result, these two factors have contributed immensely in India having a more optimistic viewpoint in their accounting.

Finally, India has a more secretive environment than their Western counterparts due to them having a higher ranking in power distance and a lower ranking in individualism (14). The power distance factor plays a large part because upper management may not want to disclose things that may look them bad. Thus, even if a lower level person thinks that this is not legal they will not say anything to upper level management due to the fact that management is so much her up than themselves.

India’s accounting standards are formulated by the Indian Institute of Chartered Accountants and the standards are notified by the Ministry of Corporate Affairs (2). The Institute of Chartered Accountants of India (ICAI) was established in 1949 by the Chartered Accountants Act (40). This law was created to regulate and educate the accountants in India. The ICAI is the primarily governing body of accountants today and it has released around 30 standards so far and they are named AS. The overall objective of the accounting standards is to standardize the accounting practices and improve the reliability of the financial statements.

Indian accounting employs the accrual basis of accounting due to the standards requiring its use for the preparation of financial statements except for the statement of cash flows (AS 1 paragraph 26). Not only does India use the accrual method but they also tend to value their assets such as inventory and property and equipment at historical cost (AS 2 paragraph 25). However, if there are circumstances when assets need to be revalued than the standards allow that to happen (5). Thus, if an asset becomes impaired than Indian accounting allows for reversal of an impairment loss if recovery is established (5). Also, India allows recognition of revenue even when the conditions of revenue are not met (5). As a result, one can see that Indian accounting uses optimism in their reporting rather than using conservatism.

Even though Indian GAAP is converging with GAAP there remains numerous differences about valuation items and terminology. One of the biggest holdups in India adopting IFRS is in the field of mergers and acquisitions due to need for High Court approval. Not only do they need to seek approval from the courts, but the courts have the power to prescribe accounting requirements in this area (5).

Business Legal Environment

With an economic freedom rank of 30 out of 41 countries in the Asia-Pacific region, China has considerably low economic and market freedom (10). China has such as low rating because the Communist Party influence has led to widespread corruption. Since China is currently a one-party state, the Communist Party has tight control over political expression, religion, speech, and assembly. Thus, even when my family went to vacation in different parts of China, we were warned not to speak out about our Christian faith. Environmental degradation and budget pressures has caused the Chinese government to set even tighter rules on the market dealing with trade and finance. With a population of $1.3 billion, 4.3% unemployment, 3.3% inflation, and $105 billion in foreign direct investment flow, China’s economy is based on four factors that impact the country’s business legal environment: rule of law, limited government, regulatory efficiency, and open markets (10).

Unfortunately, China’s judicial system is weak and is vulnerable to political influence and corruption. According to the 2012 Index of Economic Freedom, the Chinese have little or no property rights since all of the land is state-owned (10). Companies with long-term leases have multiple restrictions and are subject to high fees and taxes. Thus, intellectual property rights are not well-protected. For example, when one walks on the streets of China than one will find fake Gucci, fake Apple’s iPhones and other replicated brand name products. Also, the corruption found in China heavily influences banking, finance, construction, and government procurement.

Second, China’s top income tax rate is 45 percent at the top bracket, compared to the US’ top rate of 35 percent. However, corporations in China pay 25 percent at the highest. Since the Chinese government has control over much of China, government spending has been equivalent to 23 percent of China’s GDP (10) and central government debt has increased to 33.8 percent of China’s GDP.

Third, even though China has low business and monetary freedom, China’s labor freedom exceeds the world average. This is due to the fact that starting a business is relatively easy compared to the rest of the world. However, obtaining license requirements can cost over four times the level of average income. Also, labor laws in 2008 have created more employee contractual rights.

Finally, investments in China are often non-transparent and inefficient. It is nontransparent because China’s government continues a tight grip of financial systems. Thus, the government owns most of the large financial institutions.

Like China, India has a business legal environment as well. The legal environment in India has a three part structure to it. Each district in India is under the supervision of a District Court and each district court is under the power of a "High Court" and finally the supreme court is at the top (35). Thus, the courts in India have the power to veto amendments that violate the constitution as well as intervene if they suspect that a certain government policy is affecting the public in a negative way (35).

As a result, the courts have passed numerous business rules. For instance, the Competition Act of 2002 states that it is not allowed for Indian companies to obtain a monopoly. Thus this bans the practices of price fixing, exclusive dealing, and bid ragging. Although there are laws protecting the business legal environment, India still ranks below many developed countries in terms of a place with a sound business legal environment. According to the heritage foundation, India ranks the 123rd freest place to do business because corruption has gotten worse (23). This is due to the fact that India is still adopting to being a market economy as there are still some state owned enterprises. Also, the restrictive laws and the tough regulatory environment have discouraged the growth of private businesses. There are several reasons why it is difficult to growth private businesses but one of the reasons is that it takes a long to register a business.

Some other legal issues facing companies is how India treats property and intellectual rights. Currently, India ranks about mid pack regarding physical property rights, ranking 44 out of 129, and protection of property rights ranking 57th (23). One can infer from this that although India has much more limited property rights than most Western nations. Also intellectual property rights ranks substantially below Western countries as well with rankings around the 50/129 range (23). Even though India still has issues they have come a long way in providing a freer environment for multinational corporations.

Human Resource Issues

With an increasing number of western companies choosing China as one of the first places to expand production and business, certain challenges will impact the ways managers handle Chinese workers. Major human resource challenges include responsibility delegation, reputation and "saving face," as well as hiring and firing (13).

In the United States and other western cultures, managers tend to delegate responsibility and authority to employees using a horizontal hierarchy. However, Chinese workers are accustomed to a more vertical hierarchical structure where a person’s role is clearly defined. This is due to the fact that according to Hofstede, since China’s power distance is high, they work better by following instructions than by taking their own initiative (17). In order for western companies to embrace this type of organizational structure, managers should divide the workers in small teams. They should also assign a team leader who oversees the group and reports to his or her superior. Finally, the managers should communicate with the group specific expectations they are required to complete.

Another important cultural difference is "saving face." In Chinese, "saving face" is an expression that signifies reputation among networks and society. As a result, Chinese employees highly value their own reputation. This means that Chinese employees are reluctant to admitting mistakes and faults. Therefore, it is more difficult to conduct group performance evaluations or group meetings to brainstorm ideas. That is why that a lot of times there will be silence when asked for their opinions. In order to combat this issue, one should conduct one-on-one meetings so that the Chinese employees will not fear losing face. During this time, be honest with the employee about their performance when speaking to them personally, but never point out names or groups of people when addressing a group.

By understanding human resource challenges in China, managers need to adjust hiring and firing methods. Verifying a previous job on a candidate’s resume is difficult due to the vast number of job and companies. The best thing U.S. companies can do is to spend time interviewing and evaluating performance before hiring an employee. Spending more effort in hiring qualified employees helps with firing issues as well. China’s 2008 Contract Law states that a company cannot "terminate a Chinese employee’s contract without strong evidence of underperformance or wrongdoing" (13). As a result, it is imperative for companies that operate in China to have a Chinese language employee handbook that specifically spells out the employee’s role, rights, and responsibilities. One should, carefully go over the policies and responsibilities when conducting company meetings before the employee signs the work agreement.

There are also human resource issues surrounding Indian workers today. One of the most important issues facing many companies is that the repetitive jobs given to the employee causes physical and psychological problems. For instance, many Indians have a compromised biological clock because they have to work odd hours in order to serve their western counterparts. Not only do many work odd hours, but also some face mental issues because of having to deal with complaints and angry customers all day long. Also, they face burden and physical problems due to the heavy workload while they are working.

Another important human resource issue facing many companies in India is recruiting and retaining workers. Recruiting is a problem because it is a constant battle to get the most qualified employees from going to other employers (20). If the companies get the people that they desire then retaining them is a problem as well primarily due to employees getting frustrated with low pay and having to deal with mediocrity (20). Also, employees leave because they get very little appreciation for what they do on a day to day basis.

Risks

Corruption in China is rampant. This is due to a lack of proper law and conniving statesmen/businessmen committing financial crime. There have been an increasing number of billionaires that have been indicted for corruption. For instance, Huang Guangyu, one of China’s richest businessman, who owns Gome Electronics, was convicted of multiple charges of corruption which included bribing officials. Corruption has been on the rise as a result of China’s economic boom. According to Joseph Cheng, Chairman of Contemporary China Research Center at City University of Hong Kong, "Corruption is quite rampant in China and businesspeople in general believe they have to offer bribes to get transactions done. When political leaders get into trouble, either because of corruption or because of factional struggles, the business groups associated with them tend to get into trouble also" (36). He further added, "Such cases highlight China's chronic tax evasion and widespread ties between ambitious entrepreneurs and political figures" (36).

The power to change law resides in the hands of the Communist party who so far have not reformed the system. According to research provided by Carnegie Endowment for International Peace, Chinese corruption costs $86 billion per year. With communism, the government is directly involved in businesses and economy, providing it with more opportunity to corrupt the system.

Even though entering India might be a great opportunity for many companies, there are numerous challenges associated in doing business there. First, there are numerous operational challenges that companies face when doing business in India. One challenge that they face is the poor infrastructure (42). They have poor infrastructure because they have many unpaved roads, inefficient airports, and suboptimal ports. As a result, it is quite difficult for companies to move goods into and out of the country. Another operational challenge is that even though English is India’s native language, they may use English terms in a different context and this can lead to misinterpretation and miscommunication. Finally, the last major operational challenge is adapting to the local culture and customs in doing business and in making business decisions.

Not only do companies face challenges, but they also face the possibility of corruption. Unfortunately, corruption is really high and rampant in India. In fact India ranks 92nd out of 159 countries in the amount of corruption existent (23). Corruption flourishes in India as a result of an ineffective and weak government. Not only is the government ineffective, but they lack the watchdogs in order to track down corruptive practice and their punishments for offenders are likely to be minimal.

Another risk that is closely associated to corruption is financial crimes. Unfortunately, fraudulent accounting in India has grown rapidly. One of the most notable accounting scandals in India have been the Satyam fraud. Chairman Ragu and his colleagues intentionally inflated their revenues and cash balances (33). Not only have there been huge accounting scandals like this but India has also had to deal with an increasing number of bribes mostly to government officials (91%) (34). However, the majority of the bribes (86%) have been for amounts less than $5,000 (34). The biggest reason for bribes in India is that most people give bribes to people who will give "timely service to which they are entitled" (34). Another major reason for bribes in India is that people use them to conduct business.

Impact of Globalization

Globalization has had positive impacts on China but there are still some negative aspects as well. One the positive aspects are that it has spurred trade. The trade has led to the creation of new jobs. Thus, the new jobs have helped China to alleviate poverty by paying the workers more. Also, in the Macro Quantum world, China used to be the country where companies used to look for cheap labor for offshoring. However, times have changed, and now China has become one of the best places to expand internationally. According to Marber, China has leverage over the U.S. dollar for political control and the Chinese are now financing much of the U.S. debt (29 pg. 78). In 1997, seven of the top 10 most valuable companies were from the United States. However in 2008, Chinese companies such as Petrochina, China Mobile, and Industrial and Commercial Bank in China rank second, third, and sixth, respectively (29 pg. 59). China’s increase in trade and finance due to globalization, has also increased the standard of living has made health care more readily available.

With the exponential energy consumption that has been negatively impacting the whole world, China is beginning to respond to the realities of limited supply. With China importing and consuming the most petroleum from the Middle East, they are beginning to shift from hydrocarbons to renewables, as most developed countries are investing toward. From my trip to the World Expo 2012 in Shanghai, I was privileged to explore all the different nations’ pavilions. The Chinese pavilion was by far the largest and most extravagant. Inside, the Chinese displayed their ideas and prototypes of technologies that could change the world in response to the energy crisis, such as futuristic vehicles and buses as well as eco-friendly apartment complexes and office buildings.

Despite the China’s efforts to become more green, China’s past with vast factory production waste and increased industrialization in the past ten years, has contributed to global warming and pollution. As a matter of fact there are numerous cities in China that are among the most polluted in the world.

Another major ugly side of globalization is human resource abuse. Historically employing Chinese workers have cost less for big multinational firms. Thus, there have been cases in past where employees have been treated unfairly with some examples being salary with holding and unsafe working conditions. The employees were treated fairly for the most part until the Maoist model came into play. The Maoist model, caused labor to be susceptible to abuse, endure disparity in income, unemployment and massive lay-offs. Unfortunately, the migrant workers from rural parts of China have reported the worst treatment. However, policies are being created to give workers more rights. Corporations who do not adhere by the new policies will find themselves being heavily fined by the Chinese government. The main opponents of proposed law are American Chamber of Commerce and European Chamber of Commerce which represents the largest corporations in the world. They are opposed because feel that the workers will become unproductive, cost more and dangerously powerful (8),

Second, child labor has been a perennial problem for China ever since it embarked on its quest of becoming the global manufacturer. Unfortunately, kids are kidnapped or willfully sold off by their parents to the factories. Also, companies may make fake ids for children to show them as legal workers. Even though, the Chinese have a rule where it requires students younger than 16 to be in school, this rule does not hold relevance in rural China. This is due to to families who prefer immediate payback on their children than investing in their education. As a result, NGOs, government and multinational corporations have joined hands to eradicate this problem. So far some child-trafficking rings have been busted but the problem is still far from elimination (8).

Globalization has also impacted India in a positive particularly in the areas of economic development/trade and poverty alleviation. First, Globalization has helped develop India economy because trade has allowed multinational corporations to relocate to India in order to utilize the inexpensive and skilled labor. In turn, this has helped transform the Indian economy into a huge service providing sector for many multinational corporations (29). The economy has changed so radically that not only have they been the recipients of capital investments but also the Indians have given capital to developed countries, making India an economic and financial hub for many companies (29).

Another positive impact of globalization is poverty alleviation in India. The number of people living in poverty "has fallen by 14.18% in rural India during 1982 to 2003" (29 pg.295). India has experienced such decreases in poverty levels because of a shift to capitalism by adopting economic openness, free trade, and foreign direct investment (29). The free trade has allowed multinational corporations to enter India, creating a significant number of Indian jobs. The jobs have allowed the standard of living to increase for many Indians and have thus helped alleviate the poverty problem (29). Unfortunately, globalization has not positively affected everyone in India, and thus there is a growing wealth disparity between those that have been affected by globalization and those that have not.

Unfortunately, globalization has also brought some negative aspects to India. The increased wealth from globalization in India has led to an energy problem, as more people are demanding more energy to fulfill their daily needs. India is facing an energy problem because they are "depleting their reserves at a very rapid rate" (29 pg.102). This is a problem because it can lead to food shortages and other crises. Not only can it lead to crisis but India may get so desperate for energy in the future that it may cause them to use military force to acquire more energy (29).

The other ugly side of globalization is environmental degradation. Environmental degradation is a concern in India because of the increased demand in the use of oil and other environmentally damaging energy sources (29). Tremendous deforestation is going on in India to make way for agricultural commodities. Not only has deforestation led to the increase in global warming but it has also altered the biodiversity in the world tremendously (29). Also, globalization has negatively affected India’s lakes and rivers. Many of India’s lakes and rivers which used to be pure are now filled with chemicals and poisons due to improper disposal procedures used by many companies (29). Not only does India have polluted rivers as a result of globalization but also they have over fished the rivers as well. This practice has negatively caused the biodiversity and the benefits that people benefit from the ocean to decrease. Finally, globalization has caused India’s air quality to be among the worst in the world. Three Indian cities are ranked in the top 10 cities in the world of being the most polluted, with Delhi taking the second sport with a measurement of 150 G/M^3 (29 pg.276).

Next, globalization has impacted the immigration of India. Immigration has positively affected India because India nationals that went to the United States for college are now returning and are helping the Indian economy develop (29). Also, outsourcing which is a product of immigration has increased the number of jobs for Indians (29). This in turn has increased their prosperity and their buying power. However, immigration may also cause ethnic conflict in some parts of India where there is a large minority influence.

Finally, globalization has affected the health structure as well of India. Globalization has caused many Americans to come to India to receive medical care because it is so much cheaper than the care in the United States (29). This in turn has contributed to India’s economic growth. Also, Indian doctors have contributed to the extensive research on diseases such as AIDS and other diseases as well.

In conclusion, globalization has had a lot of positive benefit for India but it also has brought some negative aspects as well.

Impact of Non-Governmental Organizations (NGO)

Globalization has highlighted the need for NGOs. Today’s issues like environmental degradation and universal health require global concern. NGOS are structured a lot differently in China than in rest of the world. China’s government imposes restrictions on NGOs and the government does not let them have autonomous control over sensitive topics like free movement of labor and human rights. This is due to The Chinese government feeling that the they can conspire against lead and create social instability. Due to this, the work of the NGOs is done in economic development, gender equality, environment, children, and many other areas. This in turn creates a semi-official NGO sector called Government Organized NGOS (GONGOs). Purposes of GONGOS are to receive funding and counsel from state and explore novel areas for work like HIV/Aids (25). There are 8 GONGOS in China; the biggest players being All China Youth League, All China Women’s Federation and All-China Federation of Trade Unions. Similarly, China has made progress by joining hands with international NGOs like Oxfam, Save the Children International, World Vision, Amnesty International, WWF, Greenpeace and etc. The Chinese government feels the need for NGOS is critical since it is too absorbed with achieving continual economic growth at the expense of overlooking other areas. The current problems facing NGOs operating in China are legal, lack of funding, accountability, trust and public perception, and effective management and political risk. Even though there are obstacles, NGOS are definitely going to grow because the Chinese are becoming increasingly active about civil rights and conscious behavior (26).

NGO’s have also had a huge impact on the society of India. They have improved the education, human rights, brought social justice, and have brought sustainable development. For instance, an NGO named Tarang formed to give education to every child in the world. They do this by sponsoring students who cannot afford to go to school, providing facilities for education, and providing night school for those who cannot attend school during the day (43). Another NGO named SMILE has also brought education to young students, improved health care in both urban and rural areas, and have helped developed policies to empower women. Finally, other NGO’s such as CRY, Akshaya Trust, LEPRA, and Udaan Welfare have brought health care for the forsaken, helped the environment, and have increased the rights for children. Overall, this NGO’s have helped transform India to the country that we all know in the present day.

China & India

China and India have seen the rise and fall of dynasties and empires. Both countries were rich and full of resources at some point in their histories. Both countries are also becoming world powers again after a period of decadence and struggle for both.

According to the Hofstede Analysis, both countries have nearly identical power distance (77 & 80) (17 & 18). Both countries have a high power distance because both have a mindset of hierarchical structures. Not only do they approve hierarchy but they also find social inequality acceptable (17 & 18). Second, both countries are more collectivist than individualistic. Both cultures have a strong preference to be in a group setting and make decisions as a group rather than as individuals. Thus, a lot of the decision making is made with prerogative of group benefit rather sole benefit. Third, both nations display a masculine society. They both display a high value on success and achievement as both countries are result driven. Fourth, both countries have low uncertainty avoidance. As a result, both countries are comfortable with ambiguity and both countries place a high value on being flexible (17 & 18). Finally, both India and China plan for the long term rather than for the short term in their business decisions.

There are many similar customs and cultures between these two countries ;biggest being family-orientated (17 & 18). Another important similarity between them is that it is important for one to build an interpersonal relationship with the people you are doing business with in order to build up credibility and trustworthiness. Finally, not only are their cultural similarities but also these two countries share some similar political concerns as well. The two most dominant ones facing them are the widening wealth disparity and environmental degradation.

Both countries also have numerous similarities in the business environment as well. First, both are prime locations for businesses to target due to their huge population bases. Second, both countries’ economies are growing rapidly and both are expected to bypass the United States economy in the next 50-100 years. Third, both countries are attractive to enter because of the cheap and effective labor. As a matter of fact India’s labor cost is 1/40th of that of the United States and China’s is 1/20th of that of the United States (42 pg.101). Fourth, with a large population they become "Mega Markets with Microcustomers" (42 pg.73). This is due to the fact that the buying power is very low for the majority of the people due to their low wages. Finally, both countries are experiencing increasing inflation due to price increases and other factors.

In the accounting environment China and India prefer secretive measures and may not disclose some shortcomings. Also both countries emphasize statutory control over professionalism and uniformity over flexibility in their accounting. Finally, companies operating in China and India must use the accrual basis of accounting. However, both countries allow small businesses to use the cash basis of accounting.

As expected, China and India has some similarities in their business legal environment. In general, the business legal environment is weak in both countries due to a weak watchdog function to oversee business decisions and actions. Not only do they have a weak oversight board but they have significantly lower punishments for crimes than their Western counterparts. As a result, one of the biggest similarities is that the business freedom in both countries have worsened (10 & 23). The freedoms have decreased due to increased corruption, bribery and a lack of property and intellectual rights(10 & 23).

Both countries also face common issues regarding HR. First, both countries have a vertical structure in place as a result of a large power distance (17 & 18). As a result, everyone is given a role and often times this role is very repetitive with very little opportunity to move up and get exposed to different things. As a result, the workers in both countries may get physical and mental problems. Second, both countries have recruiting problems. Recruiting is a problem because there is a limited number of people with qualified skills yet so many companies fighting with one another to get the most qualified person as part of their company.

Also, globalization has had similar positive impacts on China and India. The three biggest outcomes is poverty alleviation, economic development, and increased trade. However, globalization has negatively impacted both countries in that increased trade means more industrialization and use of fossil fuels. China and India both consume a large portion of the world’s energy supply (29). The high increase in demand for energy has caused a problem for the environment as well. Environmental issues that China and India both face include global warming, deforestation, and pollution from agriculture polluting the land to carbon polluting the air (29).

Finally, non-governmental organizations in both China and India have made a great impact on improving social, political, and environmental issues. In a lot of cases they have improved the standard of living in both of these countries.

China vs. India

First and foremost, India is the largest democracy in the world by population whereas China is a communist nation with the largest population in the world. China’s communism evolved in the late 1970s by a mix of policies which liberalized the economy. This move has paid strong dividends for China as they have experienced record GDP growth. On the other hand, India has always been democratic since becoming an independent nation but only experienced economic growth when they let go of their socialist policies and adopted a capitalist market system. Also, India has more diversity than China, due to the numerous languages, religions and ethnicities.

Even though China and India are similar in a lot of the Hofstede analysis, there are notable differences in the two. First, even though both are collectivist, India is a lot more individualistic than China as their score is 48 compared to 20. Second, Indians are less masculine than their Chinese counterparts. because Hinduism teaches them to act in humility (18). The last major difference between China and India is their perception of long-term views. India has a long-term orientation primarily because they do not place a huge importance on the concept of time (18). Conversely, China has a long-term orientation because they tend to be thrifty with their money and they invest in long-term projects. They also have a more of a long-term view because they use a probabilistic approach in planning their projects (17).

Even though there are many cultural and political similarities there are notable differences as well. First, compared to China one will find that the businesses in India tend to have the values and beliefs of the managers. Another, business cultural issue is that in India, one should not shake the hand of a woman until the woman offers (22). Finally, Indians are generally more hesitant to say no to others compared to the Chinese (22). Also, there are two different political concerns. First, China is still undergoing the transformation from a communist type regime to more of a democratic one. Second, China and India have different international problems. China is facing issues with Taiwan and Tibet wanting to become separate from China whereas India is dealing with tensions with Pakistan over the region of Kashmir.

The business environment also has differences between the two. First, one needs to keep in mind that India’s economy is about twelve years behind China’s economy (42 pg.40). Second, China’s demographic is older and is aging faster than India’s population. Their population is older due to the "one child policy" (42). Third, China’s economic environment is dependent on the manufacturing sector. As a matter of fact, manufacturing made up of 47% of China’s GDP (42 pg.41). China has such as large manufacturing sector due to its cheap labor and economies of scale. Conversely, India’s modern economy is dependent on the service sector particularly, IT services. India has an advantage over China because they have customer service experience, economies of scale, cheap la