China's Strategy to Take Company International - Business Plan Example

Penetrating the International Market al Affiliation) Executive Summary Chrysler Corporation is an American-based automobile manufacturer. It is among the biggest carmakers in North America. It products range from Chrysler luxury cars, Jeep, Dodge, and Ram. It sells its products in the internationally dominating a huge part of the European market. However, its attempt to penetrate the Chinese market has been thwarted by other major players in the industry. Over the years, Chrysler has become a force to reckon within the automotive industry. The corporation has created some spectacular cars by integrating them with emerging technologies. The Chinese automotive industry is one of the largest in the world given its huge population. According to statistics, since 2008, the annual production and sale of automobiles in China exceeded that of the United States and Japan combined. Most foreign automobiles manufacturers have formed joint ventures with local manufacturers in an attempt to penetrate the Chinese market. Some of the foreign companies include Toyota, Nissan, Volkswagen, and General Motors. Indigenous automobile manufacturers that operate independently also command a huge part of the automobile industry. Most automobiles manufactured in China are sold within the subcontinent (Johnson& Tellis, 2008). The paper attempts to provide an analysis of the key business strategies for penetrating the Chinese automobile market. Chrysler Corporation has invested heavily in research and development. Its manufacturing process is technology intensive thus; this serves as a competitive advantage for the company over other industry players dominating the Chinese market. Brief History China is a developing nation with a capitalistic economy politically controlled by a communist government. It is home to 2 billion people approximately a third of the world population. It has a broad variety of climate and landscapes. South China is wet and tropical while the northern part is dry. The northeast part bordering Russia experiences extreme winter condition. The country is subdivided into 23 provinces, 5 independent regions, and 4 municipalities. The Chinese economy has experienced rapid transformation over the past decade. In the past, China was not open to international trade and had cut off its foreign relations. However, in the late 20th-century things began to change as the country joined regional economic groups such as the World Trade Organization. Statistics shows that China is now one the second largest economy with economic ties to many countries. Political and Cultural Barriers to Market Penetration As earlier mentioned, China has a capitalist economy controlled by the communist leadership. To protect domestic manufacturers, the Chinese government has instituted measures to curtail domination of the automobile industry by foreign companies. Foreign Corporation aiming to tap the extensive Chinese automobile market are required to merge their operations with domestic manufacturers. Such restrictions aim at protecting local automobile manufacturers from external competition. Cultural Issues Unlike the US where Christianity is the dominant religion, China is a multi-religion country. Confucianism is the dominant religion that defines the Chinese culture. The religion makes the Chinese culture more tolerant to foreign influence. Buddhism is the second most dominant religion followed closely by Christianity (Herrmann & Datta, 2002). Buddhism promotes cross-cultural communication with foreign countries therefore China religious background provides a minimal limitation to the Chinese market penetration. The Chinese middle class has an endless cultural imperative that shapes their consumption pattern. For the Chrysler Corporation to harness their spending power, it must realize that becoming modern and international is not equivalent to becoming Western. Chinese middle-class exhibits a distinct blend of motivation and conflict. A successful market penetration and subsequent brand success are rooted in the recognition and appreciation of the middle class underlying motivation. Cultural Challenges Chinese culture is different from the US and other western countries. The way domestic companies carry out their business differs significantly from the foreigners. Therefore, cultural differences are a cause of conflicts between foreign companies and the local consumers. The nation language in China is the Chinese language. Language barrier is a major issue affecting foreign companies seeking to enter the Chinese market. Most of the local cannot communicate in English. On the other hand, it may take a while before a foreigner can learn the Chinese language. While conducting business, the parties involved should understand each other. Therefore, foreign companies would need to outsource translators while communicating with the locals. Imports and Exports China is the second largest trading nation in terms of imports and exports. Since joining the world trade organization, its share in the global market doubled accounting for 11% of the world’s exports and 10% of trade imports. Its primary exports include electronics, machinery, data processing equipment, mobile phones, and textiles (Whitelock, 2002). China major export partners are the US, Japan, South Korea, and Germany. On the other hand, China major imports include oil and gas, medical equipment, automobiles, metal ores and electrical appliances. Japan, South Korea, US, Germany and Australia are China’s main import partners. Subsidies Subsidies have contributed greatly to China success in the global market. China industrial subsidies are estimated to exceed 30% of the industry output. As a result, China has grown rapidly to become the world’s largest exporter of electrical and machinery. The Chinese government provides subsidies to the manufacturing sector that have significant implication for international trade. Due to the subsidies, the economist estimates that the Chinese exports more than tripled in the past decade. Currently, China is the largest trading nation surpassing both US and Germany measured in terms of overall exports and imports. The subsidies take the form of soft loans, cheap raw material, and availability of other factors of production. The huge subsidies have contributed to the additional global capacity, high exports, and depression of global prices. Tariffs China uses tariffs has a protectionist tool against the domination of it domestic market by foreign companies. The Chinese government has recently imposed new tariffs on motor vehicle imports. The tariffs limit the sale of automobile manufactured overseas by tripling their retail prices to discourage local consumption. Such tariffs have led to an escalation of trade conflicts between China and other nations such as the US. Imposition of tariffs has a huge implication on international trade. Entry Mode Strategic alliance or a formal joint venture is a form of corporate agreement between different companies. Strategic alliances are becoming more popular in the Chinese automobile industry with many foreign automobile manufacturers keen to tap the vast Chinese market. Chrysler Corporation can derive from this form of market entry several benefits. Strategic alliance with an already established Chinese automobile manufacturer will enhance its competitiveness in the Chinese market (Herrmann & Datta, 2002). Japanese motor companies are the dominant leaders in China. Therefore, a strategic alliance will help Chrysler Corporation remain relevant in the international market. However, the company may experience a number of challenges in forming a lasting alliance. Some of the instances include cultural clashes, mistrust, and performance uncertainty. Strategic alliances are suitable where there is goal congruence between the involved parties. Secondly, when the market power of the partnering companies is smaller compared to that of the industry leader. Lastly, in a situation where the companies can learn from each other while controlling the access to their exclusive skills. Recommendation Planning Market Entry Entering a new market can be an effective way of expanding the growth of a company. However, it takes a methodical process to analyze the potential of each expansion opportunity in an accurate manner. Any bad step taken can significantly dent the growth of the business. For Chrysler Corporation to create a foundation for success in the Chinese market, it should invest in the appropriate entry method. The paper will provide a number of steps to analyze the risk and opportunities of entry into a new market. First, the company should define the market. The company should understand the needs of the Chinese consumers. It should consider the demographics and the taste and preferences of the target customers. Demographics relates to the knowledge of the population based on age and gender. Secondly, the firm should carry out a market analysis. The company should carry out a thorough market research. It is important to develop broad understanding of the number of competitors, market growth rate, barriers to market entry, and projected demand in the market. Thirdly, the firm should carry out an internal capability assessment. The assessment helps the firm determine the most suitable entry mode. For instance, to build, buyout an existing company, or form a strategic alliance. During this stage, the firm should considers if it can leverage on its core competencies. Whether it has any sale channels in the new market, it can rely on or whether it has any strategic relationship in place. Fourthly, the firm should prioritize the potential markets once it has concluded the market analysis and the assessment of internal capabilities. The process of prioritizing a market should be based on the ability of the firm to meet the consumer needs. Finally, once an appropriate market is selected, the company should develop an appropriate market entry option. Some of the available options include the acquisition of existing companies, joint venture, franchising, and Foreign Direct Investment. Since Chrysler Corporation is entering a new market, the best entry mode is the strategic alliance (Whitelock, 2002). The success of an entry strategy is partially dependent on factors outside the firm’s control. However, investing in the above steps can help minimize the level of risk. Control of Market Entry Risk There are several risks the firm could face while expanding its operation in a new market. The risks can be classified in a general way as affecting the firm’s income, liability, and human resource. The risks may encompass both social-political and economic exposure. Therefore, the company should consider all the threats and opportunities in the Chinese market. Besides, it should take the necessary control measures to minimize the level of risk exposure. The initial phase involves understanding the political and economic environment of the country. In addition, it is important to gain knowledge on the political dynamics, such as industrial regulations, and tax policies Secondly, the firm should consider the entry timing. Early entry has many benefits since an early entrant can prevent the new entries by locking up vital resources. Additionally, early entrants can modify the pattern of consumer tastes that disadvantage the new entrant (Pan, & Tse, 2000). Lastly, the firm should assess the cultural background of the new market. A region cultural setting has a huge implication on the consumption patterns. Culture does not only affect the underlying behavior of the consumer but also the execution of suitable marketing strategy. Marketing Strategies for a New Entrant A competitive strategy majorly depends on the market surrounding and the product portfolio of the existing industry players. The paper will provide a set of marketing strategies that Chrysler Corporation can use to capture a market share of the Chinese market. The firm should introduce a low-priced product in the market. The pricing model entirely depends on the pricing techniques used by the existing players. A price reduction can induce the consumers to change their consumption behavior in favor of the company (Hill, 2008). However, this strategy is likely to lower the profit margin of the company relative to the other players. To minimize the risk of a low profit margin the company should adopt measures to lower its cost of production Secondly, Chrysler Corporation should focus on quality improvement while aiming at a particular market segment. The company should invest heavily in innovation since it creates a competitive advantage. The company should strive to advance the existing product line by incorporating the current technology. Improving the quality of services and product can attract new consumers that were not within the scope of the company. Thirdly, the company should develop new distribution channels better than that of its competitors in the new market. The firm can accomplish this by developing new marketing and advertisement platforms. For instance, the company can market its products in an online platform that is common to the Chinese people such as Alibaba. Lastly, the company should focus on a specific market segment. The company should focus on either a certain gender or age group of its target customer whose demand for its product is higher. For instance, jeep and ram are highly demanded by men. Benefits of World Trade Organization to China China became a member of the World Trade Organization in 2000. Below are a number of benefits of WTO to China. The World Trade Organization has helped stabilize China’s external economic relationship. It has significantly minimized disturbances in foreign trade caused by erratic changes in policy. Through the WTO, China is in a better position to attract foreign investment. The WTO has spurred economic growth in China. Its membership to the World Trade Organization has led to increased competition in the global market (Ekeledo & Sivakumar, 2004). In addition, WTO offers protection of the intellectual property right that has necessitated technological progress in China. Lastly, WTO has helped speed economic reforms in China. As a result, this has significantly boosted China’s foreign relations. In additional, it has led to increased foreign investment in China. Conclusion It cannot be denied that there are significant short-term costs associated with the company’s investment in the new market. However, the company stands to gain greatly in the end given the vast Chinese automobile market. Venturing in a new market requires intensive planning due to the high level of risk involved. References Ekeledo, I., & Sivakumar, K. (2004). International market entry mode strategies of manufacturing firms and service firms: A resource-based perspective. International marketing review, 21(1), 68-101. Herrmann, P., & Datta, D. K. (2002). CEO successor characteristics and the choice of foreign market entry mode: An empirical study. Journal of International Business Studies, 551- 569. Hill, C. (2008). International business: Competing in the global market place. Strategic Direction, 24(9). Johnson, J., & Tellis, G. J. (2008). Drivers of success for market entry into China and India. Journal of Marketing, 72(3), 1-13. Pan, Y., & Tse, D. K. (2000). The hierarchical model of market entry modes. Journal of international business studies, 535-554. Whitelock, J. (2002). Theories of internationalisation and their impact on market entry. International marketing review, 19(4), 342-347. Read More