Emerging Market in China - Research Paper Example

EMERGING MARKET IN CHINA due: Table of Contents Table of Contents Introduction 2 Emerging market 3 Characteristics of an emerging market 4 Opportunities in China’s Emerging Market 5 Penetrating the China market 6 Challenges in China’s Emerging Market 7 Product 7 Price 8 Place 9 Promotion 10 China and its relation to Multi-national corporations 11 Strategies for penetrating China market 12 Consumer Behaviour in China’s Emerging Market 12 Bibliography 14 Introduction China has become an emerging market in the recent past, and its impact has been felt global. The rapid development of the China market has been noticed even by the developed countries and kept them on toes lest China overtakes them economically. Most importantly, the emerging market is predicted to grow three times faster than the already developed countries (Rapoza,2014). One of the factors contributing to China’s rapid growth is its high population thus providing enough labour force. Adding a boost to China is the middle-class population which is constantly growing meaning there will be increased the need for their products and services. Upgrade of their infrastructure and expansion of their cities has served a great deal in growing the market (Feyerer,2014). Due to these factors, investors from the developed countries are willing to invest in the China market. However, international markets come with its challenges. For instance, Enderwick (2007) stated that international markets are faced with multiple characteristics . This is because of different cultures of the various foreign investors which may conflict with the cultures of the host countries. This brings along inadequate knowledge of the market, segments and consumer behaviours in each region. In this regard, this essay will analyse the characteristics of China as an emerging market, while touching on common problems to be dealt with in international marketing. Consumer behaviour and recommendation tactics and strategies will also be evaluated. Emerging market Cavusgil et al., (2002) stated that the term of emerging market has been used to generalize the meaning of developing country in characterizing low-income level economies. This was a term first mentioned by Antoine W.Van Agtmael, of the International Finance Corporation (Pacek & Thorniley, 2007). It was, however, unclear how to exactly give a definition of an emerging market back then. Some observers defined it as an extremely low-income economies under the umbrella of emerging market. Some observers included countries that experience a dramatic increase in terms of economic growth, and the rest of the countries not considered developed (Pacek et al. 2007). Emerging market countries have many characteristics in common describing their developing countries. They usually have a substantial agricultural region in between the rural and urban areas. Other characteristics include low productivity, poor level of building the foundation, poor education and nutrition. However, countries with these characteristics must have positive momentum in economies and development (Enderwick, 2007). According to The World Bank’s definition, emerging economy has an average per capita income of less than approximately 9000 USD and is maintaining a great economic transformation. Characteristics of an emerging market There are several aspects that are shared by emerging economies in terms of economic, technological, sociocultural and political aspects. In economic terms, emerging markets have been favoured by some of the fastest growth rate in the world. However, the growth is often unstable except for China, which has enjoyed high and relatively stable expansion in the past twenty years. As a result, an important question has been asked on whether China is still an emerging market. China’s imports and exports have continuously increased, leading to a growth of its economy by 10% each year for the past three decades. China becomes the world second largest economy after the United State. If the growth rate continues, it might overcome the United States by 2020, according to a prediction by Standard Chartered Bank. However, due to the high population in China, an ordinary person earns so little compared to an ordinary person in the United States. China’s average per capita income is still lower than 9000 USD and probably does not deserve the title of an emerging market. Despite the rapid economic growth, there is the complexity accompanying it such as high inflation rates which may cause a price bubble in the stock market. Moreover, the benefits of rapid growth, emerging market is not enjoyed universally because it creates more distances of income which mean rich people will get more and more money, and poor people will get poorer (Enderwick , 2007). The second characteristic is their limited investment in technological development. Most of the technological products are imported from foreign countries, such as the United States. Sociocultural is another characteristic in many emerging markets. Most of the emerging market countries are characterized by cases of ethnic and cultural fragmentation (Luo, 2002). China is a good example for this condition. China contains 92% of Han Chinese which is the largest ethnic group in the world. More than two-third of China’s population is still in the rural sector. However, due to disparities in the income distribution and attractive employment in the urban areas, most people will be attracted to the urban areas increased the population there (Enderwick, 2007). In terms of the political aspect, most of emerging markets have their political issues such as Authoritarianism, Democracy, single-party state, and communism. Such factors have had a lot of impact on the capital markets (Pacek et al. 2007). It is, however, still arguable that prevalent characteristic of an emerging market is a political risk. Opportunities in China’s Emerging Market As in international business, emerging markets offer great opportunities. China is the world’s fourth largest emerging economies (Enderwick, 2007). It is even much bigger than Brazil, Russia and India combined. It has as a result attracted foreign investors from all corners of the world, especially from the developed nations. Moreover, China’s population is 1.3 billion, according to the National Bureau of Economic Statistics. In 2011, urban population in China was increasing more than the rural population. It increased from 656 million people to 690 million. As a result, 690 million people in the urban area is a large population.In fact, the urban population, alone doubled the entire population of the United States. Furthermore, urbanized Chinese are improving their living standards. According to Macpherson (2011), there has been a push to house stocking in China over the past decade. Moreover, their terms of transportation are improving as well, from bicycles to motorbikes and even cars. Car sales in China strike almost 14 million vehicles, making it the largest car market in the world. Rising wealth comes with improved nutrition, meaning high consumption and increased demand for food and drinks (Macpherson, 2011). In the future, people will keep changing their way of life from agrarian lifestyle to urbanized one; therefore more cities will be built, and more growth in infrastructure and other services will be witnessed (Gad ,2007). As this result, there is no doubt that seemingly all big companies would like to be in China. Penetrating the China market China is a large market that has attracted many investors. There are already many players in the market, but a large room still exists. Patnerships are critical in China than any other part in the world. Doing business in China offers an a chance to interact well with the government, something which the local players have enjoyed a lot. Other players, such as the American companies have developed a U.S strategy and international strategy, attracting countries such as Russia, Brazil and Japan. This has not been the best most effective way of grabbing the numerous opportunities in China, which is a unique market that deserves its own stand-alone approach. To succeed in China market, you need to have a touch on the ground for better understanding of the consumer and competitive landscapes. As an emerging market, China offers attractive opportunities for ambitious world investors. For instance, there are more than 600 million mobile users in China, which is twice the population of the United States. This is a nich e for investors. Tremendous growth has been witnessed in China, and the most exciting opportunities are yet to come (Mei, 2012). Challenges in China’s Emerging Market Despite the great opportunities in the Chinese market, international marketing has not been without challenges. Enderwick (2007) claims that there are three lessons the marketing manager should be learning. First is the common misunderstanding that entering an emerging market is a passive progress. Local businesses are also competitors, and they cannot be underestimated. These local firms are actively improving their products. Chinese transportation manufacturers now form 50 percent of the world production. They have as a result cut the production cost from 700 US dollars to fewer than 200 dollars in the past decade. This has made Honda lose their Vietnamese motorcycle market share from 90 percent to 30 percent in 5 years. Second, companies in emerging market are fast-learners. They have more experience in the low-income segment than Western companies ever have. Moreover, they are internationalizing to neighbour countries (Enderwick, 2007). China has expanded their car exportation to South Asia, Middle East, and Africa. However, they still lack an appropriate structure. Third, even though emerging market companies’ internationalization might not be the most appropriate measures, this doesn’t mean that they can be underestimated; rather, with poor technology and lack of resource-seeking investment has made them put more focus on their rapidly large home markets. This means the firms need to be fully prepared before venturing into China, and should also be ready to compete with the local businesses. The following factors are worth considering when it comes to emerging markets and multi-national corporations. Product Dawar & Chattopadhy (2002) state that mass market can potentially raise huge profits in the emerging market by having a thorough knowledge of the target and primitively developed products. Products are not based on culture. Thus it can be adapted to a standard level more comfortably than the other components of the marketing mix. However, this adaptation is more likely to suit the Emerging markets in products such as medical products and cosmetics. Local adaptation is still needed in products such as food and general consumer products (Hill and Still,1984). Prahalad (2012) notes that products of the marketing mix in emerging market should be adapted in order to satisfy local consumer as much as possible. This should include redesigning product packaging to more affordable size in order to reach out middle and low class of the economic pyramid (Sy-Changco et al., 2011). It has been argued that products which have rapidly emerged in short period of time are not favoured by consumers. Instead, they prefer basic practical and long lasting products which can easily gather parts (Dawar & Chattopadhy, 2002). The emergence and growth of MNCs in both resource-based industries and capital intensive industries reflects the growth of Chinaas an emerging market. Firms from the more capital intensive industries suchas bicycles, electrical equipment and other motor vehicle parts has been increasing (Tolentino, 2003). Price There are two main extremes which have been used traditionally in marketing mix, either high margin and low volume, or low margin and high volume. The strong supporting different pricing strategies in the middle to stand competition. It is, however, difficult to set a standard price line across borders, especially in emerging markets. The reason for this is because companies have various rivals in different markets. Moreover, Martenson (1987) mention that prices will be affected by a number of ways such as transportation cost, raw material occasion and channel of marketing by the other economic factors which led to difference in pricing across markets. Prahalad (2010) asserts that the process of identifying the right price in emerging market should be judged by the purchasing power of local consumers, and not based on Western markets or other international markets. Consumers in this market tend to buy cheap-price product that come with reasonable good service and quality. As a result, companies downgrade their high product and service qualities to the acceptable level required from the market because in most cases, consumers in emerging market do not have enough purchasing power to buy those high quality products. Therefore, when it comes to pricing in emerging market, ‘affordability’ should be one in mind (Prahalad & Stuart ,2002). In an emerging market, there are also chances of manipulation of prices. Internal accounting allows MNCs to engage in a kind of high-tech tax evasion. Multinationals can also establish internal costs that raise or lower transfer prices as a way of minimizing the amount of taxes or duties owed to national governments (Cohen,2007). Place Consumers in emerging market have different ways of buying product from people who live in developed countries. Payment (2008) observed that the place element in this marketing mix can be decided and judged by visibility and availability of consumers. Despite the big retail markets and good transportation system in the developed market, retails system in developing countries are faced with lack of automobile ownership. Thus, consumers have to buy products locally and in a small capacity. Therefore, retail store branches are widespread giving the store owner knowledge of their consumer in terms of their buying habit and what they need more or less in their daily life. However, these consumers shop daily, so there are high possibilities of them to change between brands. This is why companies have to find a way of maintaining their consumers. This includes ensuring provision of good service and supply to enhance trust and brand loyalty from their consumers. The MNCs have to carefully select a suitable place for doing business. The place has to be conducive for business . Promotion The promotional decision in developed market is associated with use of media such as radio, TVs, and internet that can give a wide broadcasting on a profitable price to the companies (Parment, 2008). However, in developing a market or emerging market, Methods of promotion can be different. This is because consumers in the emerging market live in rural areas, and they might not have the ability to access the media (Dawar & Chattopadhyay, 2002). Nevertheless, the variety of different education and language can create such difficulty in communication with consumer in emerging markets. However, diverse firms performing in emerging market created a new way to promote their products along with creating their brand awareness. Using a van attached with screen filming about the brands and drive from place to place in the rural area is a new way to promote things in emerging market by Unilever. While the other companies hired product usage to explain how to use their product to local consumers. This is because the instruction that has been written on the package might not be read by those consumers who may or may not be able to read or write (Dawar et al.,2002). Some companies have involved small enterpriser in the local area to represent the product and create brand awareness including promote sales. Promotion of MNCs is done on the host countries to increase their impact in the market. In summary, it is proved that the marketing mix can be adapted to use in emerging market. However, it required firms to put some innovative way of approach their products to the local consumers as well as service system in order to create an effective performance. China and its relation to Multi-national corporations The Chinese government has now opened its doors to international investors and has also created laws and regulations in compliance with World Trade Organization guidelines. The laws are aimed at creating a friendly environment for the world investors and also protection of the market. However, such investors are faced with some risks which they have to consider before fully venturing the Chia market. For instance, the Chinese communist, socially philosophy is still strongly etched into the Chinese culture and impacts on the political and the legal environment something which may affect foreign exchange in the future. The second risk is the staility of the current Chinese regime which has attracted demonstrations on claims of low growth, and inequities of wealth and power. This may scare away potential international investors. Certain firms may also be blocked from entering particular fields or face difficulties regarding wage and price, controls, technology, and unreasonable taxes. The Chinese government, is however, making attempts to create and enforce a stricter legal system, support freer commerce, and embrace the global marketplace. China has also revitalized its infrastructure over the past decades. Much of its success stems from its promotion of the privatization of enterprises, the integration of monopolies which provides fair competition for all entrepreneurs, and the creation of the treaties and agreements thus promoting foreign business relations. China’s well-developed telecommunications and internet infrastructures have helped it boost the efficiency of communication for both domestic and foreign businesses (Van , 2008). Strategies for penetrating China market The most successful strategy to enter China market would be through setting up a manufacturing company. Manufacturing companies do well in China. However, such companies have been blamed of ignoring locals when giving job opportunities. An investor, may, however, leverage on this fact and employ more locals, a strategy which would win him favours and success (Rief,Straube & Wallenburg, 2011). Consumer Behaviour in China’s Emerging Market - Encountering consumer needs by the right product and service has been a big marketing challenge to many companies. How consumers choose their product is not just because the quality of the product or benefit expected, but also because the product chosen can be an alternative for describing their personality, social status or even a symbolic ambition of their internal needs (Kim et al., 2002). Consumers might have internal needs such as the need for change to something new. Consumer’s choices are mostly influenced by a complex social background. Moreover, the consumer’s choice can also be influenced by a shift in time as their social environment change. Definition of value has been viewed as the result of a combination of culture and origin of society. From this perspective, one type of value may be considered more valuable in a certain market than another market since their culture background, and socio-economic are different. China’s economy has been improving for the recent past years. As a result, Chinese consumers gain more purchasing power to buy alternative items besides goods they need for their daily lives. The items they purchase are all based on their culture. Chinese consumers purchase high-end brand names to provide security. This was because of their restricted experience of the modern free market system (Eckhardt and Houston, 1998). Studies have shown that the high-end brand names purchased by Chinese consumers were a symbol of product function to a greater length than western consumers such as in US and UK (Pan & Schmitt, 1995). Thus, it can be concluded that culture and social condition in China are expected to build their needs through their apparel products. - Consumers in the emerging markets are characterized by the population’s increasing income. In other words, people have been moving up their class to middle class for the past years. As a result, firms should be considering the middle class in emerging market as well as the purchase behaviour. Although, it is not easy to define what ‘middle-class’ is, many marketers define ‘middle-class’ as household ability and some in terms of acceptable income and education. Moreover, it is evident that some middle-class consumers are willing to make an effort to buy items with high value in order to display themselves to their satisfaction needs and they tend to spend more money that higher class. As this result, middle-class in emerging market consumers should be valued more than the high class. Many marketers apply differences in each social value in different culture background. Personal value has been considering to impact behavioural and consumption decisions through attitudes (Pan et al., 1995). In order to create desires, influences need to be satisfied, and consumers pushed to purchase those specific products. Therefore, the value is the most important factor that influences consumers to satisfy their needs. Their needs are influenced and shaped by the social life surrounding them. The goal of marketers is to find consumers’ needs. Functional, social, and experiential aspects are the three basic needs representing the value that reflect consumers’ needs. Consumers needs and problems can be satisfied by the ‘functional’ type. For example, if a consumer wants to buy a car, he will consider the safety of the car when driving it. Social type provides a symbol of the consumers. They satisfy internal needs as how they want other people to think of them. Higher social appearance needs more value of the product to reflect their image or status in the social setting. An excellent illustration of this would be a car imported from European country which seems to give higher status than a car made in the non-European countries. Experiential type satisfies consumers’ needs by giving them an experience of newness. Moreover, in some culture, it can give higher self-esteem when they get something new before somebody else. This type of need is very important because it creates a new demand for consumer products. In conclusion, discussed above, emerging market in China have both opportunities and threats for international businesses. Opportunities involve access to the new sources of products, opportunities to learn and opportunities to invest in the new market which is rapidly growing. However, on the other hand, they provide risks and challenges. This is because of the cultural barrier and different political perspective. Moreover, international marketers should consider the price very carefully since emerging market country can produce products at far lower cost than the Western market can provide. 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