The Body Shop in the Chinese Cosmetics Market - Essay Example

April 27, The Body Shop enter the Chinese cosmetics market Introduction The Financial Times ifies China as an upper middle income economy. The average per capita income is US$6,000. Likewise, more than half of the China cities are classified as urban center. Gone are the days when the majority of the China cities are farms or agricultural in nature (Wolf, 2014). Further, China is expected to surpass the United States economy during 2019 (Li, 2010). Setting up the Body Shop branch in China will generate high revenues, high customer demand, and profits. China’s Economic Environment China’s economic environment continues to improve (Arnon, 2009). There are many improvements in the China society. Since 1949, the telltale signs of China’s economic improvement are convincing (Raiklin, 2012). First, China was able to resolve its anarchy and disorder issues. With the resolution of the two issues, businesses can now flourish. The resolution of the two issues indicates peace and order currently prevails in today’s china environment. Further, peace and order allows the current and future customers to freely visit the nearest stores (Ferrell, 2011). The current and future customers are not fearful of being robbed while crossing the street towards the nearest department store. Similarly, the typical Chinese customers is assured that he will be able to visit the nearest corner store without be shot or killed by the street gangs. With peace and order prevailing, the customers are able to visit the stores during late nights to buy their food, medicines, and other personal necessities (Raiklin, 2013). The peace and order allows the stores to open up their shops (Hartline, 2011). The store owners will not fear that the store will be robbed. The presence of police officers watching the busy China streets will discourage the current and future store robbers from implementing their illegal activities. The stores will be able generate enough sales to pay for the costs and expenses of operating the stores (Raiklin, 2013). Street gangs will discourage economic benefits (Baumol, 2009). The stores located within street gang-infested streets will constantly be robbed by street gangs. Street gangs may threaten current and future customers who enter the store. Consequently, the current and future customers may decide to buy from safer places. China’s peaceful economic climate will ensure the Body Shop will continue to generate higher store visits and purchases from current and future customers. With the two issues resolved, the people learn to obey societal rules (Weihrich, 2009). The people learn to implement the peace and order provisions and other statutes. The provisions include an orderly movement of the people within prescribed procedures. For example, the customers fall in line when paying their purchases to the store cashier. By falling in line, the customers show they respect the rights of the other store customers. Consequently, the peace and order continues to permeate the China store environment (Raiklin, 2013). The success of the China economy is pegged on a shift to a faster economic environment. China discarded its s previously slow economy. The previous economy is classified as agriculture economy. The economy requires the farmers to plant food sources. The farmers must wait until the plants are harvested. After the harvest, the farmers can now sell the plants (Wall, 2011). However, food harvests may not generate the expected cash inflows. The hurricanes will completely wipe out the farmers’ food sources. Insect pests will devour a significant portion of the farm plants. Consequently, the reduced food harvests will translate to lower cash inflows (Daft, 2011). Further, different areas of China generate different economic conditions (Dijk, 2011). The Dijk research shows that China’s economy was badly hit by the United States economic depression. The United States economy took an unexpected economic dive during 2008. The United States economic depression continued until 2012. With the 2008 decline in the United States economy, there was a corresponding estimated 40 percent decline in China companies’ exports to the United States and other affected countries (Dijk, 2011). The United States economic depression affected the China economy (Blinder, 2011). The United States economic depression forced many United States companies into bankruptcy. Next, the bankrupt companies retrenched many of their line and staff employees. As the United States unemployment picture increase, more and more people could no longer purchase their preferred food and other purchase preferences. With the decline in the United States residents’ purchasing power, the demand for goods imported from China declined. With the decline in the China products, the China companies had to resolve the declining United States product demands. Next, the china companies had to reduce their employees. Since the employees could no longer make the products, the retrenched employees lost their jobs. Consequently, the unemployment rate of China during the2008 next few years increased (Dent, 2009). To resolve the United States-triggered economic depression, the China government leaders invested economic stimulus funds into the local economy. The 2008 stimulus fund was estimated at US$ 500 billion. China prioritized the setting up of export processing zones. The China zones allowed United States and other foreign countries to transfer their production facilities into China. Consequently, the United States and other foreign companies accepted the China’s offer to relocate their production facilities into China (Dent, 2009). This is understandable. The United States companies will be able to recover from the economy depression by relocating the production facilities into China’s export processing zones. The zones offer countless benefits to the United States and other foreign countries’ production entities. One of the benefits is lower tax rates. The low China tax rates allow the United States companies to save on taxes (Dent, 2009). Next, the production companies of the United States and other foreign countries can take advantage of the low China residents’ salary preferences (Besley, 2008). The China residents are eager to receive low salary rates. Compared to the salaries paid to United States residents working in productions facilities locating in San Francisco, New York, Florida, Virginia, Alaska or any other state, it is cheaper to pay the salaries of the China residents. The US$ 500 million stimulus fund was allocated into different areas (Dent, 2009). First, almost half of the total amount was allocated to make and repair roads, airports, electricity production facilities and other economy-boosting facilities. Another one fourth of the total stimulus fund was allocated to repair of damaged infrastructure facilities within the Sichuan Province. The province was badly hit by an earthquake. Another ten percent of the total stimulus fund was allocated to the rural development. Rural development focuses on improving the daily life of the China residents. Another estimated ten percent of the total stimulus package was assigned to environmental issues. The government continued its mandate to protect the environment. By protecting the environment, the China residents live a healthy life. Healthy China workers generate better production outputs compared to sick workers. Furthermore, the market economy of Urban China indicates it is now ripe to enter the China cosmetics market (Tsui & Li, 2012). A survey conducted in China shows that an estimated 77 percent of the respondents observed that China society will not progress economically if the companies are targeting high profits. Likewise, the same survey shows that 60 percent of the respondents believe that the difference in income among the residents trigger the people to work harder. Further, the same survey also indicates 79 percent of the China respondents that poor or unresponsive government policies cause poverty among the people. The same survey also shows that people prefer the government institute larger taxes on rich individuals and lesser taxes on the poor individuals. Lastly, the same survey also shows that 60 percent of the China respondents believe that education is one of the factors that force individuals into a state of inescapable China life of poverty. Overall, the China respondents are happy with their current economic condition. As one of the biggest economies of the world, the respondents are very optimistic that their economic is improving (Tsui & Li, 2012). Moreover, the above research clearly shows that it is timely to set up a Body Shop branch in China, Specifically in Shanghai. The initial store will be established in Shanghai. As the demand for the Body Shop cosmetic products will increase, the company will set up additional branches within Shanghai. As the demand continues to delude the Shanghai market, the company will set up other branches in selected China locations. After the initial branch success in Shanghai China, the Body shop will set up branches in other locations having high gross domestic production data. The next body shop location will be in Beijing. Beijing’s generating the highest per capita GDP, 61,876 proves that Beijing is the next Body Shop target market. After branches are set up and flooding the Beijing market segment, the company will expand to a new location, Tianjin market segment. The reason is again obvious. Tianjin was able to generate the third highest per capita (renminbi) GDP, 54,034. After the Tianjin market segment is flooded with Body Shop branches, the company will set up a several branches in Zhejiang. The reason is based on the location’s generating the fourth highest gross domestic production output. Zhejiang was able to generate the huge per capita (renminbi) GDP, 41,967. After the Zhejiang market segment is saturated with many Body Shop branches, the company will set up additional branches in the Jiangsu market segment. Jiangsu was able to produce the fifth highest per capita (renminbi) GDP, 39,483 (Djik, 2012). Further, China’s successful processing trade economic scene ensures the setting up of the Body Shop in China will generate high revenues and profits (Chen 61). China is a popular destination for global outsourcing activities. The foreign companies prefer transferring their production facilities take advantage of the many cost and expense benefits offered by the China Export Processing Zone activities. In 2008 alone, the China Export Processing Zone was able to generate US$ 1,053 billion processing trade amount. The processing export value during the same 2008 year was US$ 675 billion. Moreover, the above discussion clearly shows that it is favorable to set up a new Body Shop Branch in China (Besley, 2008). The companies located within the China Export Processing Zones are generating high processing and exporting revenues. With the high revenue targets, the foreign companies located within the China Export Processing Zone areas must hire additional employees. The high number of employees is needed to meet the foreign companies’ monthly production targets (benchmark). Further, the high number of employees show there is a huge market for the Body Shop products. With more employees working the China Export Processing Zone facilities, more employees have the financial capacity to patronize the products displayed in the Body Shop stores. With more money to spend, the Body Shop branches should be located within reach of the China Export Processing Zone facilities (Hartline, 2011). Moreover, marketing dictates that there are four important P’s of successful strategic marketing (Ferrell, 2011). One of the P’s is place. In order to generate high revenues and profits, the companies must be able to reach the current and future customers. A person living in London will surely not ride a Jet plane to Beijing, China just to buy a bottle of Body Shop beauty product. In the same manner, a person who lives in France will not ride a helicopter to visit the Body Shop store in Shanghai, China. By setting up a Body Shop branch within the vicinity of the China Export Processing Zone facilities, the current and future customers Body Shop customers, employees working within the China Export Processing Zone facilities, can easily acquire their favourite Body Shop cosmetic item. Next, the Body Shop will be sold at reasonable prices. The reasonable price does not automatically mean the lowest prices in the market. Some current and future customers may equate a lower price product as an inferior quality product compared to the higher priced competitors’ products. Further, the reasonable price does not automatically mean the highest price in the market (Weihrich, 2009). The highest price may discourage the poor or cash-strapped current and future customers from purchasing their desired products. Economics dictates that as the price of the product increases, there is a corresponding decline in the demand for the products. This is because the poor or cash-strapped current and future customers may be forced to buy the lower priced competitors’ products and services (Burkard, 2011). In terms of quality, the company must continue to sell high quality products. Proven previously successful in other market segments, the Body Shop can project high demand for the Body Shop cosmetic items in the new market segment, China. Consequently, the prior success of the Body Shop products within the United Kingdom economic market segment will ensure the people of China will love the Body Shop product (Burkard, 2011). Next, the company will advertise the many benefits of the Body Shop products. The company will hire local China movie or television start to promote the benefits of the Body Shop alternative cosmetic items. Consequently, the fans of the China stars will be easily persuaded to buy the Body Shop products. Allocating funds to advertise the many benefits of the Body Shop products will ensure a strong demand for the Body Shop items (Besley, 2008). Challenges There many challenges in the selected emerging markets (Burkard, 2011). First, the company must teach the current and future customers the many benefits of using the body shop products. Since the product is new in China, the initial reaction is doubt. The current and future customers may doubt whether the product is effective or a scam. Next, the local China residents may prefer their old fashioned way of doing things. They prefer their usual may of beautifying their face. They may feel that they have grown to trust the current products. Third, the company may be faced with pricing issues. The company may learn that the Chinese person has low salaries. Consequently, the average Chinese person cannot afford products that are priced high or excessive. Another challenge is place. The company must do its best to ensure the target market is able to purchase the Body shop products. Lastly, the China residents may not like the Western or European beauty treatments. With the China person’s yellow skin, the China person may not be as beautiful or handsome as the White or Caucasian person, using the same cosmetic products. Mitigation of risks A research will be conducted to mitigate the risks (Daft, 2011). The research will come in the form of a survey. The company will conduct a feasibility study. The target market, current and future customers, is asked to fill up the blanks in the questionnaire. An oral interview type of survey can be conducted. The survey results will indicate what the current and future customers prefer. The survey results will be used as basis for producing and selling the Body Shop cosmetic items. The survey findings will assure management that the next batch of Body Shop products will fill the current and future customers’ cosmetic product demands. Proposed China Entry Strategy The proposed entry strategy is to set up an initial branch in Shanghai, China. China. The US$500 million stimulus package hastened the China’s economic recovery. After the stimulus package was implemented, many sectors showed favorable economic indicators. First, Shanghai generated the highest per capita (renminbi) GDP, 75,536. Second, Beijing generated the highest per capita (renminbi) GDP, 61,876. Next, Tianjin generated the third highest per capita (renminbi) GDP, 54,034. Further, Zhejiang generated the fourth highest per capita (renminbi) GDP, 41,967. Finally, Jiangsu generated the fifth highest per capita (renminbi) GDP, 39,483 (Djik, 2012). The above discussion clearly shows that it is best to set up the body shop in Shanghai. Shanghai has the highest Gross domestic production. With more domestic production, more employees receive higher salaries and wages. Normally, companies with higher profits and revenues are able to pay higher salaries and other benefits to its line and staff employees compared to companies generating lower revenues and net profits (Besley, 2008). Since employees from Shanghai have the highest per capita gross domestic production, then more employees are paid higher salaries compared to companies with lesser gross domestic production outputs. Consequently, more China employees within the Shanghai economic market segment will be able to buy the body shop products. With more purchasing power, more Body Shop products will be sold in Shanghai, compared to setting up a shop in Guizhou China (Burkard, 2011). Further, Guizhou, China has the lowest gross domestic production output. The average gross domestic production of Guizhou is US$ 8,789. This is lower than the gross domestic production of Gansu, China. Gansu generated the second to the lowest per capita (renminbi) GDP, 12,085. Further, Yunnan, China generated the third to the last per capita (renminbi) GDP, 12,547 (Djik, 2012) Political Will Implications of the move to enter the China Market There are political implications of the move to invest in China. China’s political policy is implementing the open door policy, allowing foreign companies to benefit from investing in the China economy. The policy was implemented in 1979. The policy was instrumental in making China one of today’s fastest growing and biggest global economies. The government’s policy privileges under foreign direct investments program persuaded the United States, United Kingdom, and other countries’ companies to set up their production facilities in the local China production zones (Liu, 2012). Consequently, foreign investments increased (Liu, 2012). During 2001, the foreign direct investments reached US$ 496,720 million. During 2002, the foreign direct investments reached US$ 550,110 million. During 2006, the foreign direct investments reached US$ 670,760 million. During 2008, the foreign direct investments reached US$ 952,530 million. Lastly, the 2009 foreign direct investments reached US$ 918,040 million. The above data clearly shows that foreign investments in China are very profitable endeavor. The investments from different companies located in the United States, United Kingdom, and other foreign countries continue to rise, taking advantage of the labor cost savings, supply expense savings, and countless other benefits 2012. Further, the entry into the China market has its attracting opportunities (Liu, 2012). The government offers low tax rates for companies setting up their production facilities in China. The government’s priority to maintain low wages persuades the foreign companies to transfer to the China Export Processing Zone facilities. The transfer allows the United States and other foreign companies to save on labour costs. The government’s offering lax industry statutes allows the foreign companies to profitably set up their production plants within China’s selected zones. Likewise, the government’s being instrumental in ensuring all supplies located in China are cheaper than supplies sold in the United States and other foreign countries (Liu, 2012). Likewise, the China government’s ensuring that the land resources in China are cheaper than the land resources in the United States, United Kingdom, and other foreign countries. The low China prices allow the United States, United Kingdom and other companies to save on supply costs. Further, the China political policies are geared towards a global perspective (Halsall, & Cook, 2013). The China government is a communist government. As such, there is only one party running the affairs of the nation, the communist party. The government focuses its globalisation efforts on four major China locations. One of the locations is Shanghai. The second location is Beijing. The fourth location is Tianjin. The fourth location is Chongqing. Furthermore, the government instituted strategies to create a strong demand for the China offers. China hosted the 2008 Olympics. The Olympics was held in Beijing, China. Next, the China government opened up the Shanghai Expo during 2010.The Expo invited many customers and companies to visit the exhibits during the 2010 global event. The aim was to increase the global demand for the China products and services. Today, Beijing is globally accepted as one of the best cities to visit on earth, increasing tourism revenues for the China government. The city’s business segments include the high technology companies. Beijing caters to the primary industry market segment, tertiary industry market segment as well as the secondary industry market segment (Cook & Halsall, 2013). Moreover, each China city differs economically (Chen & Zhang, 2012). The people of China are now well off. They can afford to buy anything they want, with their high salaries. China’s opening its economic doors to the global community ushered in China’s current economic success. China had opened its doors to the global economy more than 31 years ago. China’s Eastern provinces generated per capita net income of rural residents during 1978 was only 1.36. During 1985, China’s Eastern provinces generated per capita net income of rural residents amounting to the higher 1.65. During 1995, China’s Eastern provinces generated per capita net income of rural residents amounting to the higher 2.10 (Chen & Zhang, 2012). On the other hand, China’s Central provinces generated per capita net income of rural residents during 1978 was only 1.04. During 1985, China’s Eastern provinces generated per capita net income of rural residents amounting to the higher 1.18. During 1995, China’s Eastern provinces generated per capita net income of rural residents amounting to the higher 1.32 (Chen & Zhang, 2012). Conclusion The Financial Times equates the China economy as upper middle. Half of the China cities are urban centres. China’s growing economy is expected to surpass the current United States economy. Evidently, the opening of the Body Shop branch in China is expected to produce huge revenues, customer demand, and net profits. References: Arnon, A. ,2009. Perspectives in Keynesian Economics. London: Spring Press. Baumol, W., 2009 Macroeconomics. London: SouthWestern Press. Besley, S., 2008. Essentials of Managerial Finance. London: Cengage Learning. Blinder, A., 2011. Economics: Principles and Policy. London: Cengage Learning. Burkard, N., 2011. Market Segmentation. London: Grin Press. Chen, J., Zhang, W., 2012. Analysis for Regional Differences and Influence Factor of Rural Income in China. Modern Economy , 2012 (3), 578-583. Chen, Y., 2012. 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