International Market Development of Ariel Motor Company in China - Essay Example

International market entry and development of Ariel Motor Company in China Executive Summary The report is based on the market entry and market development strategy of Ariel Motor Company, a light weight sports car and bike manufacturing and marketing firm in England. The discussion is focused on the market expansion strategy of Ariel Motor Company in China market. The discussion has evaluated the company structure and its internal strength and weaknesses. The further discussion has also illustrated the factors of macro environment in China which can affect the business expansion plan of the organisation. The proper discussion of the political, legal, socio-cultural, technological and environmental condition of China has allowed to efficiently evaluating the scopes and barriers of market entry for the organisation. The discussion has also evaluated the Hofstede’s cultural dimensions of the China population to detail their purchasing behaviour. This analysis has allowed the study to demonstrate the rationale behind choosing the China automobile market. The next section of the discussion has evaluated different international entry modes and their advantages and disadvantages. It has also provided details about the China market entry strategies of different leading organisation such as Volkswagen, General Motors and Toyota. This study has assisted to select joint venture as a suitable entry mode for the organisation in China market. The study has elaborated different external and internal factors that are influencing the international market entry procedure. Finally the report has detailed the market development strategies of the organisation in terms of different marketing mix tools. Table of Contents Introduction 5 Company overview 5 Internal analysis of the organisation 6 Strengths and weaknesses 6 External analysis of China automobile market 6 PESTLE Analysis 7 Political factors 7 Economical factors 7 Socio-cultural factors 8 Legal factors 8 Technological factors 8 Environmental factors 9 Opportunities and Threats 10 Competition analysis of China automobile market 11 Culture and consumer behaviour in China 12 Recognition of need 12 Information search 12 Evaluation of alternatives and purchasing behaviour 12 Hofstede’s cultural dimensions of China 13 Rationale for selecting China automobile industry 14 Accessibility 14 Profitability 14 Market Size 14 Entry mode decision 15 Entry modes used by other companies 18 Market entry mode for Ariel Motor Company 19 Internal factors 19 External factors 20 Marketing plan 21 International product decision 22 Pricing decision 23 Promotion and advertising decision 23 Distribution channel 24 Conclusion 25 Appendices 26 Reference List 28 Introduction The report is based on designing the international market entry mode and market strategy development for a British automobile business, Ariel Motor Company. The report will assist the management of the organisation to analyze the international market entry and development strategies for China automobile market. The discussion will give details about the external market environment of China and competitive position of its automobile industry. The study will also illustrate the available market entry mode while discussing the suitable market entry strategy for the organisation in the China market. Finally, the report will detail about the elements of marketing mix to discuss the market development strategies of the organisation. Company overview Ariel Motor Company is the smallest automotive company situated in Somerset, England. Currently, the organisation possesses a total of 19 employees. Till date, the organisation has produced almost 1000 Atom cars with a production target of 100 cars per year. The business is well-known for its extremely light weight and high performance sports cars and motor cycles (Into Somerset, 2015). The well-known brands of the organisation include Ariel Ace motor bike and Arial Atom sports car. Though the organisation mainly operates in the Europe market, they also exports 40% of Atom car to the market of New Zealand, USA and UAE (Ariel Motor Co, 2015). Internal analysis of the organisation Strengths and weaknesses (Source: Ariel Motor Co, 2015; Into Somerset, 2015) External analysis of China automobile market The external market analysis will enable the management to evaluate the effects of different environmental factors of the China market in the automobile industry (Doole and Lowe, 2012). PESTLE Analysis Political factors The Chinese automobile industry is very fragmented since a long time. The central government official of China was expressed concern regarding the unrestricted expansion of the China automobile industry. Hence, they are pushing the joint venture approaches in the China automobile industry that will increase the support for the arrival of new domestic companies. The assistance of China central government through the foreign investment policy has assisted a number of domestic automobile companies of China to facilitate the technologies and engineering capabilities of different foreign organisations (APCO Worldwide, 2010). After the accession of World Trade organisation (WTO), the government of China has displayed greater interest in terms of attracting foreign investment within the automobile sector. They have provided lower import tariff to the international automobile organisation to increase their access to the country (Chu, 2011). Economical factors Over the last two decades the economic system of China has shifted from centrally planned economic system to more market oriented system (APCO Worldwide, 2010). The establishment of open policy within China has assisted the economy to witness continuous and rapid growth. This rapid economic growth of China has assisted the country to secure a key position within the global market (APCO Worldwide, 2010). The GDP per capita in China has demonstrated rapid growth in the last 8 years which is equivalent to the 28% of the average GDP of the entire world. The GDP per capita in China has displayed an annual growth rate of 7% within the last two years (Appendix 1). This economic growth of China has increased the Foreign Direct Investments (FDI) within different sectors of the China market. Currently, the FDI of China has demonstrated approximately 12% growth in comparison to 2014 (Appendix 2). Socio-cultural factors The cultural habits and tradition of China is very different from the western countries. It is very essential for foreign organisations to recognise and appreciate the cultural differences while initiating business with the China industry sectors. The analysis of the socio-cultural pattern in China has evaluated that over 70% of the population is covered with the young population. According to recent governmental data, almost 92.8% of the population in China is literate. This situation has increased the employability of the population. This has also influenced the demand for latest technologies within the population (Niu, Dong and Chen, 2012). Legal factors The protection of intellectual properties rights is one of the major legal issues for foreign organisations to expand their business within the China market. The main challenge of international property rights (IPR) protection in China includes the scarcity of effective enforcement of the current regulations. Foreign organisations which are looking forward to expand their business in the China market need to accept the unavoidable IPR infringement (APCO Worldwide, 2010). Technological factors China has adopted the “China IV” standard which is very similar to the “Euro IV” standard. This policy has assisted the country to influence the local and international automobile companies to revise their automobile technologies to support the permitted emission level. This policy has influenced the introduction of cleaner vehicle technology. The China automobile market is also promoting the usage of alternative fuel vehicles, hydrogen and electric cars (APCO Worldwide, 2010). Environmental factors Different environmental factors have influenced the introduction of different technologies within the automobile sector of China. High emission rate and fuel consumption are the major reasons that has initiated the “Green Car” venture within the automobile sector of China. Increasing environmental and noise pollution and decreasing parking space have also influenced the modification of the automobile technologies within China market (APCO Worldwide, 2010). Opportunities and Threats (Source: Ding and EM Akoorie, 2013) Competition analysis of China automobile market (Source: Ding and EM Akoorie, 2013) Culture and consumer behaviour in China Recognition of need The century long culture of Taoism and Confucianism within Chinese population has influenced the focus of individuals towards the family values. The population of China possess deep family values that also reflect in their purchasing behaviours. For typical Chinese population, the major power related to the product buying decision depends on the mature and aged persons of the family (Quer, et al., 2012). Information search According to a research of Elliott and Tam, (2014), 51% of the China population has demonstrated pragmatic type of buying behaviours. This purchasing behaviour influences the consumers to focus on the functional aspects of products which will provide value for their money. Near about 34% of the population has displayed commercialized type of purchasing behaviour which mainly influences the brand awareness and product comparing attitude of the consumers. Collectivism plays an important role in the information search and buying decision of the consumers in China. Collectivism indicates the influence of population to be integrated into a group which also structure the judgemental capability of consumers (Sanders, 2014). The population in China prefer to indulge in groups. The group decision making also assists individual to modify their purchasing behaviour. Evaluation of alternatives and purchasing behaviour “Mianzi” culture in China influences the buying behaviour of luxury items within China population. According to this culture, the population of China wants to be perceived as rich and generous with good taste of products and features. The Chinese population are hugely involved in the purchasing of products with higher social and symbolic values. “Guanxi” culture also influences the luxury purchases in China. According to this culture, the Chinese population believes in maintaining a good relationship with others whether it is an individual or an organisation (Quer, et al., 2012). Hofstede’s cultural dimensions of China The cultural dimension framework of Hofstede provides valuable details regarding cultural communication within different geographical locations and regions. The six dimension model evaluates the effectiveness of culture and their values in society (Mazanec, et al., 2015). (Source: Appendix 3) Rationale for selecting China automobile industry The accessibility, profitability and market size play an important role in the market selection and market entry decision of the organisation (Huo and Wang, 2012). Accessibility The automobile market of China is very accessible to the international organisation due to liberal government regulations. The more liberal foreign trade investment policies in China as well as new free trade zone in Shanghai have provided immense accessibility to different foreign organisation to initiate business within China. The low import tariff barrier is also playing a role of catalyst to enhance the number of foreign investments within the China market. The import tariff barrier of China is much lower than Japan and South Korea (Ding and EM Akoorie, 2013). The increased governmental regulations regarding the protection of foreign manufacturer through Intellectual Property Right (IPR) has also increased the accessibility of foreign investment within China automobile market (Huo and Wang, 2012). Profitability Profitability is one of the major factors that are influencing the international organisation to enter the China automobile market. The subsidies and tax incentives initiatives of government is influencing foreign organisations to introduce their innovative energy efficient automobile products to the China market. The increased demand of high value and eco-friendly automobiles has increased the profitability of different foreign organisations in China market (Huo and Wang, 2012). Market Size The increase in disposable income and economic condition of the population in China is also enhancing the market size for high technological luxury cars. The automobile market of China has demonstrated most growth potential within the last few years. The per capita ownership of car is very low at 4.78%. Therefore, the attraction towards the new car manufacturer is very high within the population. The domestic automobile manufacturing organisations are still demonstrating fragmented nature. They also possess different R&D issues. Hence, the market entrance of latest automobile manufacturer is highly appreciated by the industry sector (Huo and Wang, 2012). Entry mode decision The foreign market entry mode differs in regards to the degree of risks, control and commitment of the required resources and expected return on investment (Brouthers, 2013). (Source: Brouthers, 2013) Entry modes used by other companies A number of automobile companies have adopted different entry modes to expand their businesses within the China market. Most of the foreign automobile organisations have utilized the joint venture mode to enter the automobile market of China. The entry method of Toyota Motor Company can be considered as an important example for this procedure. This Japanese organisation has entered into China market incrementally. During the early stage of China market expansion, Toyota had focused on utilising exporting facility. Subsequently, the organisation has created a joint venture with Sichuan Travel Automobile for car assembly. This process assists the organisation to standardize their production procedure. It also enabled them to utilize the cheap labour cost of local organisation. This joint venture process also assists the organisation to minimize their distance from the major suppliers in Shanghai and Tianjin (Liang, et al., 2013). The market expansion Volkswagen is also depended on joint venture with First Automotive Works (FAW) and Shanghai Automotive International Company (SAIC). By the end of 2010, the organisation has possessed 40% stake in FAW and 50% stake in SAIC. The major key success factor of the organisation in China market is their long-term joint venture procedure. The sharing of manufacturing techniques has assisted the organisation to introduce market specific products such as Skoda Octavia, New Bora and Audi A6 (Lee, et al., 2012). According to the latest reports, General Motors has established 11 joint ventures within the market of China. Their joint venture with Liuzhou Wuling Motors Co., (SGMW) has assisted the automobile giant to provide best mini commercial vehicle within the China market. This joint venture has allowed the organisation to sell over 1.2 million cars in China by the end of 2011 (Lee, et al., 2012). Market entry mode for Ariel Motor Company According to the analysis of different market entry modes and the business expansion plan of different leading multinational companies, it can be suggested that joint venture would be the best option for Ariel Motor Company to expand the business within the China market. There are a number of internal and external factors that highly influence the choice of this entry mode for the organisations international expansion (Brouthers, 2013). Internal factors Firm size: Ariel Motor Company is a medium sized organisation which possesses very limited number of employees. Joint venture will allow the organisation to utilize the cheap labour force within the China market. This process will assist the management to utilize minimum investment in terms of expanding their business in the new market area. The market size also plays a vital role in entry mode decision. The China market is large in size. Therefore, the organisation needs to indulge in long-term commitment with higher level of investment. Joint venture process will assist the organisation to enhance their long-term commitment to the local community while reducing the risk of investment. International experience: The proper knowledge about the international market is very essential to improve the long term performance of the company in the China market. Joint venture procedure will assist the management to share the market knowledge of the local well-established organisation. Therefore, it will assist Ariel Motor Company to enhance their consumer relationship. Product/ services: The nature of products is one of the major internal factors to consider a suitable entry mode. Joint venture will enable the company to adopt different innovative production techniques of the local organisations as per the regulation of government and demand of local populations. External factors Socio-cultural distance: Joint venture procedure will enable the marketers to easily adopt the socio-cultural norms of the organisations of China market. Most of the business segments of China demonstrate high power distance culture in workplaces. This is very different from the highly liberal western business culture. The joint venture process lower down the risks due to the cultural differences. Adapting the work culture of local organisation will enable the marketers to properly utilize the power-distance culture in their China business segment. It also allows the organisation to be considered as an insider of the country. The long-term orientation culture within the population of China demands for trustworthiness and long term relationship (Ding and EM Akoorie, 2013). The selection of joint venture process with local well-established organisation will enable the company to build long-term trust relationship with the consumers. Market Growth: China as a large country also demonstrates higher growth in automobile market. The organisation will require sufficient resources to manage this market growth. Joint venture with local organisation will provide easy access to the local resources. China market possesses highly skilled and cheap workforces. The joint venture process will enable the markers to reduce their production cost by utilizing the cheap labour of China (Ding and EM Akoorie, 2013). This will enable the marketers to increase their investment towards the market growth. Country risks: The joint venture entry mode will also assist the management to efficiently understand and handle the economical, political and operational risks in the China market. The China automobile market is rapidly shifting towards the production of green cars and eco-friendly cars. The government policies are more focused towards promoting the environment friendly vehicles. They have also introduced restrictions towards vehicle with high emissions (Chu, 2011). The joint venture process will enable the management to utilize the new environmental friendly technologies of the partner organisation. This process will reduce the market entry risk for Ariel Motor Company. Few intermediaries: The joint venture process will allow the organisations to indulge in less number of intermediaries while expanding business in the China market. The population of China are highly inclined towards the features and specifications of products. Indulgence of limited number of intermediaries will enable the organisation to efficiently communicate with consumers (Ding and EM Akoorie, 2013). Therefore, it will reduce the risk factors and operational ambiguities. Trade barrier: The joint venture procedure will also enable the marketers to reduce the barriers of different trade policies imposed by China government. Utilizing the manufacturing facilities and resources of the partner organisation will assist the management to dodge the trade related barriers of the China government (Ding and EM Akoorie, 2013). Marketing plan After deciding upon the market entry mode, the organisation also needs to focus on the adaption of the different elements of the marketing mix such as product, price, promotion and advertising and distribution (Turnbull and Valla, 2013). International product decision The product decision of the organisation needs to consider a number of issues such as the lifestyle of the targeted population, green environment issues, differences in the demand in terms of product colour, size and functionality. The organisation needs to provide sufficient importance towards their product standardization procedure while adopting the changing culture and demand of the new market. The management of the organisation needs to invest in the research and development procedure of green cars, fuel efficient car and multiple energy sources car. The products of the organisation are mainly targeted towards the young population of the country. Therefore, the marketers can select red, golden and yellow colours which represent fire/energy, prosperity and prestige respectively. The marketers also need to provide adequate importance to the usage of local language in the feature description and vehicle detailing manuals due to the language sensitivity of the market. “Mianzi” and “Guanxi” culture of China influences the affinity of population towards luxury items. The rising disposable income is also influencing the purchasing power of the China population. On the other hand, very less number of population demonstrate uncertainty avoidance in terms of new products and technologies. Almost 70% of the China population are open towards experimenting new and innovative products (Ding and EM Akoorie, 2013). Hence, this situation provides immense opportunity to the organisation to introduced high-end luxury and sports cars to the population of China. The management should invest to integrate green car and multiple energy source technologies to their light weight car features. This integration will allow them to introduce new advantages in the form of sports and high performance car to the potential consumers of China. Due to the family culture of China a huge part of the population is inclined towards more spacious cars. Market reports has displayed the indication to increase in the long term demands of large and specious cars in China (Man-ki, 2014). Therefore, the organisation also needs to diversify their product line to large, more specious and family oriented cars. Pricing decision Pricing is one of the major elements for market development. Proper pricing policy ensures higher market reputation as well as increased consumer database (Turnbull and Valla, 2013). Ariel Motor Company is capable of providing unique features cars and motor bikes for the population of China market. The joint venture procedure will enable the markers to adopt the green production techniques of China automobile industry. Therefore, it will allow the organisation to introduce a highly functioning and less fuel consuming vehicle to the young generation of the China market. In this context, the organisation need to utilize value based pricing strategy to attract the consumers towards the values and features of the product. Value-based pricing will enable the organisation to modify the purchasing decision of the consumers in terms of features and values provided by the product line. The management also needs to introduce price skimming strategy which will allow the marketers to penetrate the major parts of the market with higher price. This process will assist the management to generate revenue for their further market expansion. After the proper establishment of the brand in the China market, the organisation should introduce competitive pricing to survive the increasing competition of the market. Promotion and advertising decision Promotional activities and advertisement are very essential for the organisation in the initial phase to increase the brand awareness and visibility. Ariel Motor Company is a medium sized company which is not very well-known within the global market. Therefore, the organisation must create a strong brand position by utilizing one-way and two-way communication procedure. The one-way communication of the organisation needs to consider the advertisement procedure through digital and print media. The organisation needs to consider the local television channels, newspapers, magazines, road side hoardings and outdoor billboards to promote their product visibility to the consumers of China. The organisation also needs to utilize the social media and social networking sites to indulge in two-way communication with potential consumers. The organisation needs to create country and customer specific advertisement procedure. Rather than circulating similar advertisement for all the locations the management needs to create distinctive advertisement by utilizing local celebrities of China. The advertisements of their products also need to focus on the lifestyle and family values of the China population. This process will enable to attract the attention of the consumers. It will also enable them to relate their lifestyle and demands with the product line. The organisation needs to increase the visibility of their offerings and product line through their advertisement in China (Beijing) International Automobile Exhibition 2015. This exhibition is mainly focused on promoting the energy cars in China. This exhibition comprises the car display from different leading companies from almost 18 countries across the globe (WantChinaTimes.com. 2015). The Ariel Motor Company needs to invest adequately to create an attractive visibility of their product line through this exhibition. This promotional process will allow the brand to generate awareness regarding their product specification and performance to the potential consumers. Distribution channel Utilizing the distribution channel of the partner companies will assist the organisation to properly and efficiently distribute their products to the local consumers of China. This process will enable the company to properly distribute their product within the market of China while incurring less cost. Simultaneously, they need to establish adequate customer service centres to eliminate the ambiguity and discomfort of consumers regarding the products. Over 51% of the consumers in China market are focused on exclusive features and values of products. A large section of China population is inclined towards the high-end and exclusive products. Hence, exclusive distribution process would be the suitable procedure for the organisation to provide sufficient coverage to their targeted market. Exclusive coverage process will allow them to utilize limited number of specialized distributors. This process will assist the channel partners to provide high level of consumer service. The marketers need to select exclusive distributors as intermediaries to properly handle and control the customer communication and information supply. The incorporation of multiple layers of intermediaries in the distribution channel can reduce the effectiveness of the customer communication of the organisation. The business must use limited number of channel partners (one or two) to ensure efficiency in the communication with consumers. The organisation needs to provide proper training to the channel partners to educate them related to product features and specification. It will enable the marketers to properly distribute the product knowledge to the consumers. The marketer also requires initiation of short term contract with the distributers to ensure efficiency and exclusivity of the distribution process. Conclusion The discussion regarding the market entry strategy of Ariel Motor Company has illustrated various opportunities available within the market of China. The discussion has evaluated the potential opportunities as well as threats for the company to enter in the automobile sector of China. The report has also detailed the cultural differences and preferences of the consumers in the China market. The proper analysis of different entry mode has detailed that the organisation required joint venture to enter in China market. The joint venture procedure will assist the organisation to properly analyse the market demand while maintaining the cost and risks. Finally, the discussion has evaluated the proper utilization of different marketing mix to establish a strong position in the market. Appendices Appendix 1: GDP per Capita growth in China (Source: Trading Economics, 2015a) Appendix 2: FDI growth in China (Source: Trading Economics, 2015b) Appendix 3: Cultural dimensions of China (Source: Schaeffer, 2014). Reference List APCO Worldwide, 2010. Market Analysis Report: China’s Automotive Industry. [pdf] APCO Worldwide. Available at [Accessed 2 May 2015]. Ariel Motor Co, 2015. Ariel Motor Company. [online] Available at [Accessed 2 May 2015]. Brouthers, K. D., 2013. A retrospective on: Institutional, cultural and transaction cost influences on entry mode choice and performance. Journal of International Business Studies, 44(1), pp. 14-22. Chu, W. W., 2011. How the Chinese government promoted a global automobile industry. Industrial and Corporate Change, Industrial and Corporate Change, 20(5) pp. 1235–1276 Ding, Q. and EM Akoorie, M., 2013. The characteristics and historical development path of the globalizing Chinese automobile industry. Journal of Technology Management in China, 8(2), pp. 83-104. Doole, I. and Lowe, R., 2012. International marketing strategy. Connecticut: Cengage Learning. Elliott, G. and Tam, C. C. C., 2014. Does culture matter to Chinese consumers? Empirical evidence. Australasian Marketing Journal, 22(4), pp. 314-324. Huo, H. and Wang, M., 2012. Modeling future vehicle sales and stock in China. Energy Policy, 43, pp. 17-29. Into Somerset, 2015. Ariel Motor Company Case Study. [online] Available at [Accessed 2 May 2015]. Lee, J. W., Abosag, I. and Kwak, J., 2012. The role of networking and commitment in foreign market entry process: Multinational corporations in the Chinese automobile industry. International Business Review, 21(1), pp. 27-39. Liang, X., Ma, L. and Yan, H., 2013. The Supply Chain Management Casebook: Comprehensive Coverage and Best Practices in SCM. United Kingdom: FT Press. Man-ki, K., 2014. Chinas coming baby boom fuels need for more spacious cars. [online] Available at [Accessed 6 May 2015]. Mazanec, J. A., Crotts, J. C., Gursoy, D. and Lu, L., 2015. Homogeneity versus heterogeneity of cultural values: An item-response theoretical approach applying Hofstedes cultural dimensions in a single nation. Tourism Management, 48, pp. 299-304. Niu, Y., Dong, L. C. and Chen, R., 2012. Market entry barriers in China. Journal of Business Research, 65(1), pp. 68-76. Quer, D., Claver, E. and Rienda, L., 2012. Political risk, cultural distance, and outward foreign direct investment: Empirical evidence from large Chinese firms. Asia Pacific journal of management, 29(4), pp. 1089-1104. Sanders, E., 2014. An American Expatriate in China: Evidence of Organizational Culture Crossvergence. Journal of Management, 15(3), pp. 59-72. Schaeffer, R. K., 2014. Community Capitalism in China: The State, the Market, and Collectivism. Pacific Affairs, 87(4), pp. 841-843. Trading Economics, 2015a. China GDP per capita. [online] Available at [Accessed 2 May 2015]. Trading Economics, 2015b. China Foreign Direct Investment. [online] Available at [Accessed 2 May 2015]. Turnbull, P. W. And Valla, J. P. (Eds.), 2013. Strategies for international industrial marketing. London: Routledge. WantChinaTimes.com. 2015. New energy car promotion continues in China. [online] Available at [Accessed 6 May 2015]. Read More