Market Entry Options - Chery Cars China - Book Report/Review Example

Market Entry Options Chery Cars China Contents Company Background 2 SWOT analysis of Chery 2 Porter’s five forces 4 Market Entry Strategies 5 Choosing Appropriate Strategy for Entry 6 Conclusion 7 Reference List 8 Company Background Chery Automobile Company Limited is an automotive manufacturer based in China. Started by Chinese Government in the year 1997, the company has become seventh largest automobile manufacturer in China (Chery, 2014c). The corporation is state owned and principal products include minivans, passenger cars and DUVs (Chery, 2014a). The passenger cars are sold under the brand name Chery Marque and commercial vehicles are sold under the brand name Karry. The firm is headquartered in Anhui and operates as a joint venture partner with Qoros, formed in the year 2007. Chery cars have dominated Chinese market for a long time and also exports in huge quantity. The company owns various component manufacturing factories and vehicle assemblies in mainland China. Vehicle assembly is also done in 25 other nations. Chery also owns two research and development facilities and invests a minimum 7 percent of its overall revenue in product development (Chery, 2014b). The company has been involved in many joint venture partnerships with international brands for the manufacturing and production of global brand in China (Chery, 2014d). At present, companies have partnered with Chery in joint venture partnerships. However, the company has not forayed into international market through this strategy. Chery vehicles are manufactured in other nations in semi-complete or complete knock-down kits. These facilities are owned by the local suppliers or management. After the assembly and production of final cars, they are distributed by the local dealers, suppliers and distributors which are strategically chosen by the firm. The firm is planning to enter into USA market which can be described as a saturated automobile market. Competition is extremely high and competitive advantage is majorly achieved by product innovation, distribution or strategic pricing. SWOT analysis of Chery A SWOT analysis approach will be implemented to analyse the company’s strengths, weaknesses, opportunities and threats. Strengths Being a national propriety firm gives Chery strong brand recognition among other global nations. The overall cost of production is low and product pricing is competitive. The vehicles manufactured are reliable in terms of quality and the overall performance has been good. The company has also achieved positive recognitions in national as well as international procedures in quality control (Barney, 2006). Other strength of Chery is its huge base of human resource such as marketing staffs, technical staffs and specialists (Fitz-enz, 2000). The company also has enough capital and the business credits are fine. Weakness The brand spends a lot of capital on innovation, research and independent development. This can be a weakness as the company might run out of funds. The overall reliance on overseas market is high as well as there is a lack of various important service systems such as after-sales service. Though the company has established its base in many developing and emerging nations, the brand advantage and business culture are not prominent enough to create a good impact in international market (Berkowitz and Rudellius, 2000). Opportunity Chery has been involved in joint venture associations with many strong brands such as Jaguar, giving the firm a good experience and knowledge about international brands (Hammond, 2009). The Chinese government have also started investing in development of innovative energy vehicles. Chery is also one of the biggest vehicle exporters from China. Threats Competition in the Chinese automobile market has become fierce. The company will have to deal with various factors such as trade barriers as well as currency appreciation while entering into the foreign market (Johnson, Scholes and Whittington, 2005). The overall financial condition in the global market is down which can further devalue the new brands. Porter’s five forces Before entering into any market, various factors and situations should be analysed. One of the critical factors understands the barriers to entry as well as various risks associated with the new market. In order to understand the above, Porter’s evaluation of the US automobile market will be helpful. Customers Bargaining power of US consumers in this automobile market can be considered as strong. Market is competitive and people have a lot of information apart from brand advertisements and communication. Even though brand loyalty is high among auto customers, they are willing to shift for better quality and fuel economy (Williams and Cutis, 2012). Thus, bargaining power of automakers is weak. Suppliers The bargaining power of suppliers is considered weak in US. Automotive industry is competitive and the market is flooded with national and international brands. As a result of the high number of foreign suppliers, US automakers are at an advantageous position as they can reduce costs at any time. Thus, automakers have strong bargaining power over part suppliers. Competitors Intensity of competitive rivalry is extremely high in US auto market. The market is dominated by almost 20 big automakers with almost 80 percent of the market share. Current leading brands include Nissan, Toyota, Hyundai and Honda. Thus, any new competitor entering into US soil might find it difficult to create an impact unless it is highly valued and recognised among the local consumers (Jim, 2006). New Entrants The treat of new entrants is low. The market is already saturated and almost all global brands have established there bases in US. Also, people are brand loyal and do not easily shift brands. However, car-buyers are becoming more price-sensitive and thus more open to new designs and more economical cars. Instability in fuel and price economy is also a reason for the volatility in this segment. Substitute products Substitute products for cars include public and private transport such as trams, buses and trans. The threat for substitute products is low as the target consumer base for care manufacturers is different (David, 2001). Market Entry Strategies Before finalising the most appropriate market entry strategy for Chery cars, it is important to understand the various market entry strategies used by organisations for international expansion. Direct Exporting Direct exporting is the process of selling directly in the foreign market. This is done by establishing distributors or sales agents which represent the company in that local market. In case of automobile industry, direct distributors or dealers can be appointed by the foreign company. However, proper monitoring is needed in order to make a smooth flow in the local market. Also, choice of distributors and suppliers should be strategic (Anderson and Coughlan, 1997). Partnering Partnering has become almost necessary while entering in few markets such as Asia. Partnering can be in many forms such as co-marketing activities or strategic alliance for production or manufacturing (Bradley, 2002). Partnering can be a useful strategy for those markets where the social as well as business culture is largely different from the parent country. As a result, associating with the local partners will help in bringing local knowledge, contacts as well as exact target customers. Joint ventures Looking at the current business environment, joint venture has turned out to be one of the most favourable entry strategies among companies. In this form of partnership an independently managed organisation is formed through joint partnership of two companies. This entry mode can be beneficial if the product, service or market have similar aligning goals and strategies (Janet, 2002). Profits and risks are shared. Choosing Appropriate Strategy for Entry Comparing with its various counterparts, it can be concluded that entering into the US market will be tough as the automobile market is high competitive, saturated and dominated by few major brands who refuse to step aside. However, factors such as demand uncertainty, intensity of advertising, scale or entry, entry time of various followers as well as scope of the current economy will have critical influence on the overall success of Chery Automobiles in USA. Moreover, it has also been seen that late entrants have successfully established themselves in markets with their innovative advertisements, communication strategies, unique offering and targeting the right consumers (Jeannet and Hennessey, 2004; Root, 1994). Organisations expecting persistent success in the market need to consider two important factors. The first is exact determination of the consumers and their demands (Rose and Hinings, 1999). This is critical as it will help in determining whether Chery automobiles serve the need and expectations of US customers. Second is analysing the competitive situation, competitors as well as the dimensions of competition. This will help in evaluating Chery’s own ability and efficiency in gaining competitive advantage. The result of competitive situation with the key consumer demands is the key factor in determining the extent of success for Chery. The company has experience of joint venture partnership. Also, Chery has been selling its brands in various emerging and developing nations. However, entering in United States will be new as it is a developed market, especially in automobile industry. The most appropriate strategy for entering into US market will be direct exporting. Chery has been renting knock-out facilities in various emerging nations for assembling and final production of cars. However, the major advantage in these nations was cheap labour as well as availability of facilities and warehouses at lesser costs compared to their own market (Drucker, 1993). However, Chery will lose this opportunity in US market. As a result of its economic development and high influence of trade unions, the average wage is high compared to other developing nations. Also, US follow strict rules and regulations in terms of warehouse management and follows strict labour policies. As a result, it is difficult for Chery to establish warehouses or knock-out facilities in US as the cost of rent, cost of labour will be higher and will add into the overall entry budget. Another factor confirming the appropriateness of the entry strategy is lack of firsthand knowledge regarding the market. By direct exporting in small numbers, the company can tract down initial response and demand among the local consumers. Also, selection of appropriate distributors and deals will take some time for the automobile manufacturer. This, the best strategy will be to export smaller volumes according to the demand. After this pilot survey, the company will have a firsthand knowledge and can further utilise this for creating strategies for better communication and brand awareness. Conclusion The choice of direct exporting as an entry strategy is not easy. There are many risks and threats involved. However, looking at the current economic and social conditions as well as analysing the other entry options, direct exporting has come up to be the most advantageous. The industry analysis of US automobile market has reflected an unstable market, with fluctuating gasoline prices as well as changes in car loan policies (Yip and Hult, 2012). Thus, the overall success of Chery’s entry into US market will not only depend on its marketing and communication strategies, but will also be influenced by the overall market conditions in US. Reference List Anderson, E. and Coughlan, A.T., 1997. International Market Entry and Expansion via Independent or Integrated Channels of Distribution. Journal of Marketing, 51(1), pp 71-82. Barney, J.B., 2006. Strategic Management and competitive advantage: Concepts. New Jersey: Parsons Berkowitz, K. and Rudellius, H., 2000. Marketing. Berkshire: McGraw Hill. Bradley, F. 2002. International Marketing Strategy. London: Pearson Education. Chery, 2014a. Overview. [online]. Retrieved from: http://www.cheryinternational.com/company/index.html [Accessed 27 January 2014]. Chery, 2014b. Oversea Factories. [online]. Retrieved from: http://www.cheryinternational.com/company/Oversea-factories.html [Accessed 27 January 2014]. Chery, 2014c. History. [online]. Retrieved from: http://www.cheryinternational.com/company/history.html [Accessed 27 January 2014]. Chery, 2014d. Development Strategy. [online]. Retrieved from: http://www.cheryinternational.com/company/strategy.html [Accessed 27 January 2014]. David, J., 2001. Principles & practice of marketing. Berkshire: McGraw Hill. Drucker, P. F., 1993. Management tasks, responsibilities, practices. New York: Harper and Row. Fitz-enz, J. 2000. The ROI of Human Capital –Measuring the economic value of employee performance. New York: AMACOM. Hammond, J., 2009. Branding Your Business. London: Kogan Page Limited. Janet, M., 2002. The international business environment. Bath: Palgrave Macmillan. Jeannet, J.P. and Hennessey, H.D., 2004. Global marketing strategies. Houghton Mifflin Jim, S., 2006. Five challenges that China must overcome to sustain economic growth. Joint Economic Committee, United States Congress. Johnson, G., Scholes, K. and Whittington, R., 2005. Exploring corporate strategy. New York: Pearson Education Limited. Root, F. 1994. Entry Strategies for International Markets. San Francisco: Jossey-Bass Inc Publishers. Rose, T. and Hinings, C.R., 1999. Global client’s demands driving change in global business advisory firms. London, England: Routledge. Williams, J. and Cutis, T., 2012. Marketing management in practice. London: Routledge. Yip, G. and Hult, T., 2012. Total Global Strategy. London: Pearson Education. Read More