The Importance of Properly Assessing Social, Environmental and Political Risks in Foreign Direct Investment in Chinese IT Industry

Abstract

China has grabbed the attention from the world after the GFC as it has nearly not influenced by the GFC in 2008. With the high growth rate of GDP and shifting from labor-intensive production to capital intensive production, Chinese IT market has been seen as a rising new market. There are massive investments has been injected the Chinese IT market. This essay analysis the environment and political risks in Chinese IT market with some examples in recent years, in order to have a clear visual angle on investment in China, helps the investors and academic researchers in the world. Index Terms—Globalization; Business and government relation; Invest in China; Investment risks I. I NTRODUCTION As globalization has been sharply processing since World War Ⅱ, it leads to the role of multinational enterprises (MNEs) has been increasing in both business and politic ways. With the development of MNEs, the foreign direct investment (FDI) risks have been exposed as well. This essay is going to argue the importance of assessing and the roles of government institutions, social culture, market environment and sense of environment protections in FDI, because they can result in different risks to MNEs. To prove the argument, this essay contains five sections with examples of FDI and market situation in Chinese IT industry. Firstly this paper would briefly explain the IT industry and show the pattern of IT industry in China. Then explaining the importance of government institutions in FDI, and how government affects MNEs by using three different functions and bringing political risks. After that, this essay shows how culture elements work as a dual role in FDI and may bring culture risks to MNEs. This paper explains the market environment's influence on FDI and market environment risks could be faced by MNEs in a foreign market. At last, it points out the necessity of a sense of environment protection and it may create environment risks for MNEs by not properly protecting environment in a foreign country.