Business, 16.10.2020 06:01 ekids22

You are an adviser to the CEO of Papa John’s Pizza, who is looking to make some dough by expanding into one of the BRIC economies. He favors China over India, but worries about the presence of "institutional voids" that could make it difficult to operate profitably. Do you think his concerns are warranted

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The CEO is mistaken, since the greatest concerns regarding operating in China are not institutional voids, since the Chinese owns and operates the 4 largest banks in the world, e.g. hundreds of millions of people use credit or debit cards in a daily basis, Wiebo (China's largest social media app) has 500 million users, China is the largest cell phone and app market in the world, etc.

The problem with China is that in order to operate there, you must be willing to obey the government at all times, and comply with everything that they say regardless of what they ask for. Recently some laws in China have changed a little in order to favor foreign investment because a lot of companies were not comfortable having the Chinese government as their partners. Before, if you wanted to do business in China, you had to form some type of joint venture with the Chinese government.

The problem is that China is an authoritarian state, and even though it loosen its grip on private businesses, it still has a lot of control over them. Remember how Google had to accept censorship in order to operate there? The same applies to all companies that do business there, e.g. GM, Ford, Yum, McDonald's, etc.

If companies do not do what Chinese officials say, and not necessarily because a law allows them to, they do not operate there. A few weeks ago, one of the richest Chinese businessman was sentenced to 18 years of jail for protesting against the government. So you either do what the government says, or you rot in jail. The judicial system is an operating branch of the government there, it is not an independent branch like in the US.

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"undercapitalization" is best described as the lack of funds to operate a business normally.

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