International Marketing Entry Strategy for Cow & Gate in China - Essay Example

?International Marketing Entry Strategy for Cow & Gate in China 0 Introduction Cow & Gate (C&G) is the leading baby feeding brand in the UK, dedicated to providing tailored nutrition to babies. C&G Specializes in producing milk for the healthy development and growth of bottlefed babies, infants and toddlers (Cow & Gate, 2013). The company has over 35 products catering to different needs at different ages, all of which provide excellent nutrition to children. They work closely with the medical profession to develop the best foods for babies. Demand for foreign milk power has been high in China since 2008 when at least 300,000 children fell ill after consuming milk laced with industrial chemical melamine (Shanghai Daily, 2013). Recognizing that China has huge potential for baby food, C&G aims to enter and market its products in China. An evaluation of the business environment and market potential would help decide international marketing for China. 2.0 PEST Analysis of China 2.1 Political China’s political and social landscape is stable because of decades or opening up of the economy and the reforms that have been brought about. The Communist Party of China (CPC) has improved governance according to the needs of the people. Political stability has been achieved as people were invited to participate in politics (China Daily, 2011). The voices of people have been heard and their interests safeguarded. The Chinese people seek stability, improvement in the standards of living and enhancement of national strength. There are apprehensions whether under new leadership of Xi Jinping decentralization and liberalization would continue unchanged (Huang, 2013). Protests have become the natural form of expression due to lack of direct elections and a string civil society. As such, the provincial leaders take steps they consider appropriate to promote growth and maintain political stability. However, discretionary action is required as force can lead to violence and leniency can encourage protestors to extract even more from the system. The top authorities however, work in the interest of the people. Nevertheless, the nation lacks accountability at the bottom level and this, needs to be changed. 2.2 Economic Economic reforms in the country have been in place since the 1970s when the economy started moving from a centrally planned one to a more market-oriented one. It has opened up the economy to the world and its accession to World Trade Organization further accelerated the process of integration into the world economy. As a result China became the world’s largest exporter in 2010. State-owned enterprises that are considered important to ‘economic security’ are given support. The restructuring of the economy has led to ten-fold increase in GDP which currently stands at $8.26 trillion (CIA, 2013). China was the second largest economy in the world in 2012 but still per capital income is below the world average. In 2005 China revalued its currency and moved to an exchange rate system that references several currencies. Unemployment rate in China is 6.1 percent and inflation rate is 3.2 percent (Sharma, 2012). China has a labour force of 815.3 million as of 2010, of which 43 percent are in the service sector. China’s economy has experienced a strong annual GDP growth rate of ten percent in the past five years (Bharat Book Bureau, 2012). The drivers of growth of the Chinese economy include high rate of savings, abundance of skilled labour, and urban growth. Inward FDI has been a strong driver of economic growth in China. Leading MNCs in every sector have been making inroads in China which has positively impacted the local manufacturers. It encouraged innovation and consequently led to low-cost production. Economic reforms and simplification of tax laws and FDI procedures have made China a very attractive destination for investment and growth. 2.3 Social China has a population of over 1.3 billion of 16.6 percent are in the age group of 0-14 years. The literacy rate is 92.8 percent and the main religion followed is Buddhism. The official language is Mandarin which is spoken by over 14 percent of the people in the world. However, China has declared one-child policy in 1979 and it is believed that forced abortions are taking place. This policy has led to social conflict, high administrative costs and gender imbalance. This has led to demographic crisis and while the slowdown in birth can also cause a dramatic rise in the ratio of pensioners to young workers needed to support them (Waldmeir, 2013). Rising affluence also has a tendency to lower the birth rates. This policy is likely to be reversed as it has vested interests while it has also adversely impacted the birth rate. The birth rate is expected to fall by 27 percent to 164 million by 2025, as estimated by United Nations (Hays, 2012). The new leadership is expected to change the one-child policy as it will affect the labour force. At the same time, according to McKinsey Global Institute, the urban middle class is emerging as a large and complex consumer segment whose spending power will redefine the Chinese market (Farrell, Gersch and Stephenson, 2006). The disposable income is phenomenal and they consume luxury goods voraciously. The number of middle class households is expected to double 100 million by 2015 (Jones and Mao, 2012). 2.4 Technical The Chinese consumers are highly technology-conscious as a survey by KPMG (2012) revealed that Chinese consumers see the highest take up of e-commerce and new technologies. China is also leading the way in mobile banking space because of the smart-phones. Consumer are even willing to have their personal information tracked for advertising in return for lower costs or free content. They engage in online shopping for personal products as well as for luxury shopping. China has 500 million internet users with 15.251 million internet hosts (Sharma, 2012). China telecom alone serves 55 million broadband subscribers. Apart from the telecom sector, China also boasts of pioneering pebble bed nuclear reactors which are cooler and safer than conventional nuclear reactors. China has also unveiled a proto-type train which can run at a speed of 500km/h. This is the first ultra-fast speed train developed by its domestic railway industry. China has also constructed a large manned space station and made an attempt at robotic exploration of Mars. The analysis of the external environment suggests that China presents a host of business opportunities in different sectors where investments would reap growth and profits for the investor. C&G can thus safely invest in China and enter with baby food products. 3.0 Target Market Appraisal 3.1 Size As per Euromonitor (2012) baby food in China is expected to witness robust sales growth due to urbanization and double-digit birth rates. China is the biggest market in Asia in baby food sales with an annual sales figure of US$ 6 billion (Agri-food Trade Service, 2011). China’s baby food sales value increased by 21.3 percent in 2010 as the country was yet to recover from the milk scandal of 2008, coupled with busy consumer lifestyles. One hundred seventy nine new baby food products were launched in the Chinese market between June 2010 and June 2011. Despite the one-child policy, China continues to have 16 million new births per year which is responsible for 20 percent growth in the baby formula market in the past five years (Jones and Mao, 2012). The market is expected to double to US$ 16 billion by 2016. 3.2 Growth of the Baby Food Market in China Demand for foreign-brand milk power has been high in China since 2008 when mainland dairies in China were found to mix melamine in milk formula (Hume, 2013). The local people have lost confidence in local baby food formulas and seek supplies from Australia and New Zealand. Some local companies, like Beingmate Scientific-Industry-Trade Share Co. Ltd. and Wonder Sun Dairy Co. Ltd that were not involved in the scandal have been able to increase their market share by one percent (Agri-food Trade Service, 2011). The performance of the baby food market is forecast to grow with an anticipated compound annual growth rate (CAGR) of 13.6 percent for the period 2010-2015 (Datamonitor, 2011). 3.3 Competitor Profile Mead Johnson is the leading baby food producer in China and has been retaining the lead position for the past two years (Euromonitor, 2012). It is supposed to have a safer image compared to its competitor, Abbott, which is reported to contain less nutritious ingredients. Fonterra is the world’s largest exporter of dairy and it plans to move into China as the baby milk market in China is very lucrative (Hume, 2013). Its growth strategy is focused on China and the company is developing an integrated milk business through two large dairy farms. Currently Nestle SA is the leading player in the baby food market in China generating a 43.1 percent share of the total market value (Datamonitor, 2011). HJ Heinz Company accounts for another 25.6 percent share of the market. The top three players in the Chinese baby food market hold 79.1 percent of the total market value (Appendix A), demonstrating that the Chinese baby food market is highly concentrated. 3.4 Buyer Behaviour and Trends in the sector Consumers in China usually breast feed their babies up to six months of age as it helps improve the immune system but they need to get back to work in four months. The Chinese mothers continue to work after having children which is a big driving force behind 10 percent annual growth in the baby food sales in China (Jones and Mao, 2012). Chinese mothers tend to take less maternity leave than their western counterparts which is also responsible for growth in baby food sales. Many baby formulae in China are promoted as being beneficial to the immune system as they are unable to promote it as being “closer than ever to breast milk” (Agri-food Trade Service, 2011). The Chinese parents seek baby food that has added vitamins and minerals or that is calcium-fortified. Organic baby food has also entered the Chinese market and is preferred by consumers as a safer way to feed their babies. However, this would require educating the consumers on the long-term benefits of organize food. 4.0 Market Entry Method Market entry can usually be undertaken in four ways – through licensing, exports, joint ventures and wholly owned subsidiaries (WOS). In the case of baby formula licensing is not advisable as control over the product is required. WOS is also not a feasible proposition as C&G is not equipped with local knowledge, the cultural nuances and local regulations in the sector. Joint Ventures would require finding a local partner which again may be difficult for C&G to assess and partner with. Under the circumstances direct exports through an existing local distributor, dealing in baby formula and who knows the local market well, is the best choice. Thus the market entry method for baby food in China should be through exports. Tie-ups should be made based on the distribution model. This is because a local distributor would understand the importance of the product and make the necessary network depending upon the local regulations about baby food. Moreover, the local distributor would understand the cultural nuances, considered very important for reaching out to the Chinese consumer. The local distributor would understand what the consumer needs are and also relate the product benefits to the dealers and consumers. 5.0 Marketing Strategy 5.1 Marketing Objectives The marketing objectives for C&G in China are to gain a market share of 15% of the total baby food market. The SMART objectives would thus be: Specific The challenge is not to create a brand but to position the C&G brand as the ultimate choice for baby formula To influence the grandmothers as they wean the child after the mother returns to work after four months Measurable Extensive promotional strategy would help popularize and familiarize the brand and its varied products in China Achievable These objectives are achievable because China has been seeking foreign products in the baby food sector due to loss of confidence in the local producers. Moreover, due to rising income among the middle class Chinese consumers, they can afford to pay a premium price for premium products. Realistic The objectives are realistic because the environment in China is conducive because of the above stated facts. The outcome would depend upon how the consumers can be reached. This has been explained in the next section. Timed It is intended to achieve the objectives over a period of three years. 5.2 Target Segment The mothers get back to work after four months of the birth of the child (during which period breast-feeding is common) after which the child is in the care of the grandmother (Lindley, 2012). This is the time when baby food is preferred and hence the target segment should be the grandmother as she is choosing what product to buy. The focus of marketing would be on the local Chinese population. 5.3 Source of competitive advantage Competitive advantage can be gained through branding and packaging as the Chinese consumers seek international brand following the scandal. In addition, added vitamins, minerals and calcium should be highlighted in promotions to achieve competitive advantage. Besides, Taurine should also be included in the baby formula, which is amino acid found in breast milk, which helps in the development of the eyes, brain and the nervous system. 6.0 Marketing Mix Recommendations 6.1 Branding/Positioning The Chinese market is different than the global baby food market. Here the baby food has to be positioned as milk and hence the challenge is to not merely to create a brand. The challenge is to position the product as wet baby food. Following the scandal international companies have an advantage as they are supposed to deliver good quality. Hence the brand should be positioned as a premium international brand, which C&G already enjoys. 6.2 Product The Chinese consumers are keener for powdered milk formula and are not interested in liquid milk formula. Dried and prepared baby foods are forecast to grow at least until 2015 (Agri-food Trade Service, 2011). Thus, for the initial entry the focus should be on infant formula and baby cereals. The infant formula should cater to infants and toddlers from 4 months up to 2 years. Subsequently baby juice can be introduced which would be necessary to match the busy lifestyles of the women in China. Fruit flavors are not popular and unflavoured baby milk formula or cereals is preferred. 6.3 Promotion/Packaging Focus should be on promoting powdered milk formula. Packaging should be in small pack sizes of different quantities and multi-packs are becoming preferred package types among the Chinese consumers (Agri-food Trade Service, 2011). Since it facilitates preparation, milk powder should be packaged in small quantities (enough for one feed) which only require addition of fixed quantity of water. In addition, packaging in cans should also be used for larger quantities as this would be economical. Promotions should highlight that the formula is fortified in calcium and no additives/preservatives have been added. Since the target segment is the grandmothers, television advertising should be targeted for this segment and the timing of the slots in television advertising should be the ones that are most popular with this segment. In addition, the laws regulating television advertising would have to be adhered to. 6.4 Distribution While this would be carried out through a local distributor, sales usually take place from Mother and Baby Stores. Therefore, the focus should be on non-grocery retail stores. Hyper markets are not dominant and the baby stores account for one-third of the sales value of baby products, which includes baby food, diapers, and toiletries (Kantar Worldpanel China, 2011). However, infant food formula accounts for over 70% of the total consumer spend on baby products. Young parents prefer to purchase from specialist baby stores or online shops. Forty-six percent of the families bought from baby stores, and 17.4% from online shops compared to 45% from hypermarkets. This suggests that C&G should invest in online format also apart from entering the market through a local distributor. 6.5 Price Because of the baby food scandal, Chinese consumers prefer premium brand and international brands are perceived as of being of better quality. The most popular brand in baby food in China is international brands except for two local brands. While competitive pricing would have to be looked into, it would be possible to charge a premium price in China for C&G baby food. 6.6 Digital Digital campaigns are picking up in China as the population is technology-conscious. According to Kantar Worldpanel China (2011), the return from digital campaign is high. Consumers that were exposed to digital campaigns returned much higher sales than the control group, according to this study. This implies that digital campaigns have gained popularity and can be used for marketing campaigns. 7.0 Budget The most expensive form of advertising is through television and the least expensive is online advertising. Even for advertising for online products and services, television is the preferred medium. Mobile messaging would not be appropriate for baby food. In the first year 50% of the total budget should be used and 50% of this should be allocated to television advertising. The rest of the annual budget should be equally divided between the print media, sample sachets and promotional brochures that can be distributed through baby stores. Forums on company website would be a healthy and cost-effective way to engage the Chinese mothers. 8.0 Evaluation Evaluation of the marketing strategy has to be conducted periodically as this would help amend the strategy if necessary. The annual sales figures would be the best way to evaluate the marketing efforts. In addition, technology such as data tracking and data mining has made it possible to evaluate the website visitors. It is also possible to evaluate the viewership of the television advertisements. To further evaluate the product pricing and promotion strategy, regular customer feedback should be conducted. The baby food packaging can contain a small chart seeking replies. The same small survey should be available online and the consumers can fill it up. Forum on the website would also enable C&G to gather customer reviews on the company and the product. References Agri-food Trade Service. (2011) Consumer Trends: Baby Food in China. International Markets Bureau. Agriculture and Agri-food Canada. Available from http://www.ats-sea.agr.gc.ca/asi/pdf/5874-eng.pdf [Accessed April 19, 2013] Bharat Book Bureau. (May 2012) PESTLE Analysis of China 2012. Available from http://www.bharatbook.com/market-research-reports/PESTLE-Analysis-of-China-2012.html [Accessed April 19, 2013] China Daily. (March 21, 2011) China is stable, confident. China Daily. Available from http://www.chinadaily.com.cn/opinion/2011-03/21/content_12200545.htm [Accessed April 20, 2013] Cow & Gate. (2013) About Us. Available from http://www.cowandgate.co.uk/about_us# [Accessed April 20, 2013] CIA. (2013) The World Factbook. China. Available from https://www.cia.gov/library/publications/the-world-factbook/geos/ch.html [Accessed April 19, 2013] Euromonitor. (2012) Baby Food in China. Country Report. Available from http://www.euromonitor.com/baby-food-in-china/report Farrell, D., Gersch, UA. and Stephenson, E. (2006) The value of China’s emerging middle class. The McKinsey Quarterly. Available from http://www.mckinseyquarterly.com/The_value_of_Chinas_emerging_middle_class_1798 [Accessed April 19, 2013] Hays, J. (2012) POPULATION OF CHINA: STATISTICS, TRENDS, PATTERNS AND CONSEQUENCES. Available from http://factsanddetails.com/china.php?itemid=129 [Accessed April 19, 2013] Huang, Y. (January 29, 2013) In China, Most Politics Is Local. The Opinion Pages, The New York Times. Available from http://www.nytimes.com/2013/01/30/opinion/global/in-china-most-politics-is-local.html?_r=0 [Accessed April 20, 2013] Hume, N. (March 27, 2013). Fonterra eyes China baby milk market. Financial Times. Available from http://www.ft.com/cms/s/0/7dad2200-96a6-11e2-8950-00144feabdc0.html#axzz2QsoM1icm [Accessed April 19, 2013] Jones, D. and Mao, S. (April 25, 2012) China's moms key to Nestle deal; Working women driving force behind $12B baby-food move. Edmonton Journal [Edmonton, Alta]. ProQuest 1009924565. Kantar Worldpanel China. (2011) Spotlight on China. Available from http://www.kantarworldpanel.com/dwl.php?sn=publications&id=3 [Accessed April 20, 2013] KPMG (April 17, 2012) China's tech-savvy consumers have highest take-up of e-commerce and mobile technologies, says KPMG survey. Available from http://www.kpmg.com/cn/en/pressroom/pressreleases/pages/press-20120417-consumers-convergence.aspx [Accessed April 20, 2013] Lindley, P. (2012) Market Entry Strategy for China. Available from https://globalconnections.hsbc.com/hong-kong/en/articles/market-entry-strategy-china [Accessed April 19, 2013] Shanghai Daily (April 14, 2013) Chinese prompt UK stores' baby milk limit. Available from http://www.shanghaidaily.com/nsp/Business/2013/04/13/Chinese%2Bprompt%2BUK%2Bstores%2Bbaby%2Bmilk%2Blimit/ [Accessed April 19, 2013] Sharma, A. (March 21, 2012) Pestle Analysis of China. Available from http://www.slideshare.net/iamankitsharma/china-pestl-analysis [Accessed April 19, 2013] Waldmeir, P. (February 1, 2013) All change for China’s one-child policy? The Financial Times. Available from http://www.ft.com/cms/s/0/cef2b1c0-28e7-11e2-9591-00144feabdc0.html [Accessed April 19, 2013] Appendix A China Baby Food Market Share: percentage share by value Source: Datamonitor (2011) Read More