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1 Case Study Market Entry Strategy China Week 9. 2 Business in China Risk or Reward? Chinas gradually opening economy, low-cost labour and 1.3 billion.

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Presentation on theme: "1 Case Study Market Entry Strategy China Week 9. 2 Business in China Risk or Reward? Chinas gradually opening economy, low-cost labour and 1.3 billion."— Presentation transcript:

1 1 Case Study Market Entry Strategy China Week 9

2 2 Business in China Risk or Reward? Chinas gradually opening economy, low-cost labour and 1.3 billion population constitute huge untapped markets. But reports of politically motivated violence are on the rise in China, and foreign companies are struggling against an ever-changing regulatory environment, serious copyright infringement problems and unmet profit targets. Right now, over 350,000 multinational corporations are operating in China, but less than 30 percent have made a profit Dr. Usha Haleyprofessor of business management at the University of Tennessee, Knoxville.

3 3 Strategic Plan What elements should be considered? Which are most important? Is the current product OK as it is?

4 4 The Marketing Mantra

5 5 Internal distribution

6 6 Import and distribute

7 7 Consider Strategy How the Chinese "view" the foreign firm's product entering the market Demand for its product Future growth of demand for its product Firm's resources Commitment to entering this market Timeframe to enter

8 8 Is China right? If the plan is to penetrate the Chinese market Could operations be controlled from elsewhere in East Asia to lessen the cost? See cost comparisons (Vietnam - open for business?)

9 9 3 Main Strategies Export via a Hong Kong distributor Export via direct channels in China Set up a joint venture

10 10 Advantages & Disadvantages Market entry via a Hong Kong Distributor is probably the easiest and quickest way to enter China but may be the least desirable in terms of overall market penetration Market entry via direct channels in China is probably more difficult and time consuming than entry via a Hong Kong distributor, but in time may be better off for a firm's overall penetration. This option may be a good mid-term strategy Market entry via a joint venture of some kind may be more difficult and time consuming than the other two export strategies but probably yields the best overall penetration of China's market But note Because China is a huge, fragmented market firms may need to utilize more than one of the above strategies to adequately penetrate the market

11 11 Potential risk areas The size of the country and the differences between the regions The Chinese economic situation and the infrastructure for distribution Lack of knowledge about the market Chinas legal system still imposes restrictions for Foreign Investment Enterprises in marketing and distribution (trade, wholesale, retail) for imported goods and also for goods made in China

12 12 A failure to research The market survey of a German manufacturer for household appliances showed, that there would be only three Chinese competitors within China. Later they recognised, that this were only the Chinese competitors, who operated nation-wide, but there were a lot other manufacturers operating only on a regional basis. The latter manufacturers have very good relations to local authorities which are in charge for technical approval of the goods manufactured by the German company

13 13 Obtain regional knowledge Every region has a different characteristics which can be divided into the following categories: Dialect Mentality Geographical location Population density Infrastructure Industrial structure Product knowledge … which can have a huge impact on marketing and distribution.

14 14 Distribution methodology Import if there is.. Risk of transfer and abuse of know-how Low sales figures dont justify investment Additional products to locally manufactured ones Every company involved in I/E needs a special license (import license) issued by MOFTEC Note Import normally leads to higher prices and lower profit margin

15 15 Pros & Cons of import methodologies

16 16 Strategy should consider these elements The objectives of your company (short term, long term) Nation wide or regional presence Availability of the kinds of products you offer Competition The goods itself Costs of distribution Additional services (repair, after sales service) Required control over the distribution process Customers requirements

17 17 Seven step strategy

18 18 Import or Manufacture? Need to consider Local competition/MNE competition Distribution networks COSTS! Availability of means of production Bottom line must be profit!!!

19 19 Examples of entry modes Coca-Cola Coca-Cola re-entered the Chinese market in 1979. Over the past 20 years, it has established, with its Chinese partners, 23 bottling plants and 27 production locations. Total investment adds up to more than 1.1 billion U.S. dollars, and local employment reached 15,000 The idea is to become a local marketing company, taking advantage of the production capacity already in place, and at the same time seeking new locations for production to build the business in the western part of the country The company is now moving its division office from Hong Kong to Shanghai, as part of its new strategy for the development of its business in China. It has also developed new soft drinks like ice tea that some local consumers favour China could someday become Coca-Cola's largest market in the world

20 20 Examples of entry modes Ford Ford started cooperation with Jiangling Automobile Co., Ltd. in August 1995, and now claims 30 percent of its holdings. The company is Ford's first auto joint venture in China Ford's long-term objectives to establish strategic cooperation ties with Jiangling Automobile Co., Ltd. will not change and the American company is willing to make greater contribution to the development of China's automotive industry Jiangling Automobile Group, the parent company of Jiangling Automobile Co., Ltd., is one of China's 520 major enterprises and is capable of manufacturing 60,000 automobiles per year

21 21 Examples of entry modes Kentucky Fried Chicken See Case Study

22 22 Is entry even advisable? See Extract Japanese Carmakers Shouldn't Race into China

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