Global Marketing Strategy of Chery Automobile Company ltd - Coursework Example

Global Marketing Strategy: Chery Automobile Company ltd Executive Summary The paper focuses on the business of Chery Automobile Company Ltd. The company is a state-owned automobile firm in China, primarily engaging in the manufacturing of cars, SUVs and minivans. Since its inception in 1997, the organization has experienced high growth rates in its business. However, its business was at its zenith in 2010, when aggregate sales were estimated to be 700000 units. This paper seeks to estimate the appropriate market entry strategy for Chery cars in U.S. The primary objective of the paper is to find the appropriate entry strategy for the organization. It should be noted that if the company desires to trade in the market of U.S., its business would be subjected to cut-throat competition in there. Many potential rivals in the industry would generate several entry barriers for the organization in form of limit pricing or patents. The existing rivals of the company in the U.S. surely experience economies of scale in production. Chery cars will not have this opportunity in U.S. in the initial years. Such atrocities might significantly increase the cost of operations for the company. Thus, it is very important for the company to estimate the most strategic mode of entry in the market of U.S. The paper at the end suggests that exporting through an export managing company would be the best option for Chery cars. Contents Contents 3 Introduction 4 Chery Automobile Company Ltd: An Overview 4 China and Automobile Industry 4 Objective of the Paper 4 Advantages and Disadvantages of U.S. Car Market 4 Main Body 5 Direct Exports 5 Indirect Exports 6 Foreign Direct Investment 7 Market entry options previously espoused by Chery Cars 7 Market Entry Option of Toyota and Volkswagen in U.S 8 Conclusion 8 Recommended Entry Mode for Chery Cars 9 Reference List 11 Introduction Chery Automobile Company Ltd: An Overview The paper focuses on the business of Chery Automobile Company Ltd. The company is a state-owned automobile firm in China, primarily engaging in the manufacture of cars, SUVs and minivans. The headquarters of the company is located in Anhui, China, but it also operates in nations like, Argentina, Egypt, Malaysia, Iran, Uruguay and many other nations across the globe. Since its inception in 1997, the organization has experienced high growth rates in its business. However, its business was at its zenith in 2010, when the aggregate sales was estimated to be 700000 units. China and Automobile Industry It should be noticed that the domestic market (China) of Chery cars is highly competitive in nature. This is because the automobile industry in China is considered to be the largest industry in the world, since 2008. It is analyzed that 2008 onwards, the annual production of automobile industry in China had been more than that of European Union or U.S. (Drauz, 2013). The organization of Chery cars has experienced a severe loss in its sales, since 2010. Thus, if the small organization of Chery cars desires to exploit its business resources out of the saturated market of China, it needs to undertake the decision of business internationalization (Triantis, 1999). Objective of the Paper This paper seeks to estimate the appropriate market entry strategy for Chery cars in U.S. The primary objective of the paper is to find an entry strategy befitting the organization. Advantages and Disadvantages of U.S. Car Market If the company of Chery cars is able to trade in the market of U.S., then its business would experience a wide range of customers in the market there. This would help the organization to enjoy a greater amount of demand. With the essence of high demand, the company would experience economies of scale in production process and hence, enhance its brand value and revenue in the long run (Brock, 2013). Even so, it should be noted that if the company desires to trade in the market of U.S., its business would be subjected to cut-throat competition in the U.S. market. Many potential rivals in the industry would generate several entry barriers for the organization in the form of limit pricing or patents (Voss, Tsikriktsis and Frohlich, 2002). The existing rivals of the company in the U.S surely experiences economies of scale in production. Chery cars will not have this opportunity in U.S., in the initial years. Such atrocities might significantly increase the cost of operations for the company. Thus, it is very important for the company to estimate the most strategic mode of entry in the market of U.S. (Select USA, 2014). Main Body Direct Exports This is the method of the exporting company to sell its product or services directly to the actual buyers. The processes of export are not tackled by any intermediate entity. The exporting company in this case undertakes important tasks related to sales, like, market research, distribution in the market, payment collection and logistics of shipment (Crebo-Rediker, 2013). Advantage The company experiences high profits from the exports as this process eliminates the costs of intermediaries. The company gets a better idea about its potential and non-potential customers in business. The resource allocation in business is more efficient. Disadvantage A greater amount of time, money and energy is required for following this mode of entry. ‘People Power’ to generate customer base cannot be utilized in this form of business. The responsibilities in business are high. If the product is technological in nature, then the organization needs to set up an on-site start-up training process in business in order to address the technical questions of the consumers. This process is the best when the company sells a small volume of products in the foreign market (Wasserman, 2003). Indirect Exports This is the process of exports in which the exporting organization exports its products through intermediaries of the foreign market. In this process of exports, the exporting company does not incur any cost of marketing. However, the degree of control on products and business decisions of the company in the foreign market is very low (Mahajan, 2008). Advantage The exporting company gets a very fast access to the foreign market. The company can accumulate more resources in business (Moran, Graham and Blomström, 2005). The level of financial commitment is low for the exporting organization and hence, the risk associated with business internationalization would also be very low. The overall cost of operations of the company becomes low and hence, the company can use the accumulated resources for other purposes related to business development, like, research development and framing new strategists for growth (Vaidya, 2006). Disadvantage The company constantly faces risk of losing its business brand value in the market. The company does not practically learn to extend business in foreign markets, as it strongly depends on the trading partner of the foreign country (Consumer Reports, 2013). If the choice of foreign market distributor or the partner company is not good, then it can generate huge loss of business in the foreign nation. The aggregate sales of the company become relatively low as compared to the case of direct exports (Terpstra and Sarathy, 2001). Foreign Direct Investment This is a method through which a company directly makes investment in the production or business of a country. Advantage The business firm has complete freedom on all the activities of business. The firm gains a good knowledge about the nature of business stakeholders in the foreign market (Froot, 2008). The company can generate asset price bubble in business in a very short span of time. Disadvantage The company needs to make large amount of investment and requires long time to settle in foreign market (Cain, 2013). The company faces high risk in business. The cost of operations in the initial years becomes very high, which is why this business form often fails to compete with the potential rivals in the market, for not being able to use economies of scale in production (McEachern, 2012). Market entry options previously espoused by Chery Cars The company of Chery cars has already extended their business wings in other nations of the world, like, North Korea, Vietnam, Egypt and Russia. While entering in these markets, the company has adopted several strategic market entry modes in business. Nonetheless, the nature of business operations in most of the automobile companies of China shows that the companies strongly rely on the method of acquisition, while expanding their business activities. The entry methods, like, joint ventures, FDIs and mergers, have already been adopted by the company of Chery Cars. In the recent past, in 2012, the company has entered in a new joint venture with the organization of Jaguar Land Rover in Changsu (Tao, n.d). The company claimed that with the essence of new technological progress in business, it can enhance its degree of internationalization in business. It can be analyzed that business of the company in these foreign markets are running successfully, at present (Peng, 2010). Market Entry Option of Toyota and Volkswagen in U.S Long back in 1957, the company of Toyota had entered into the market of U.S. through a joint venture (Toyota Group, 2009). The first product with which it entered in the market of U.S. was Toyopet (a small car) (Dapena, 1957). The market of U.S., at that point of time, was very competitive and the company had felt that entering in the market through this process would be most cost effective (Osland, Taylor and Zou, 2001). Volkswagen is a German company, which entered in the market of U.S. long back in 1949. The company had entered in U.S. through direct investment process. The products were sold under the name of ‘Victory Wagon’. In the initial years, the business ran huge losses, but since 1955, it had started to progress (Sherman, 2004). Conclusion The context of the paper precisely elaborates the three major types of market entry options, which can be utilized by a company during business internationalization. It emphasized that among all the different types of entry methods in general, automobile companies in China adopt the method of acquisition and joint ventures for trading products in the foreign markets (Li and Vinten, 1997). However, the paper claimed that U.S. automobile market is highly competitive in nature and thus, the researcher commented that the safest mode of entry for Chery cars in U.S. would be through the assistance of an Export Management Organization (EMC). This is because, unlike all other modes of entry, this would be most cost effective for the organization. Furthermore, the firm would act as a subsidiary in the foreign market and disperse some of the major business tasks or responsibilities to the EMC. Under such circumstances, Chery cars would enjoy economies of scale in production and also, experience a wide base of customers in the foreign nation with the help of the expert marketing techniques introduced by the selected EMC. Only through this method can the organization once again experience high sales, like, 2010, in its near future (Nelson, 1999). Recommended Entry Mode for Chery Cars From the context of the above analysis, it can be claimed that the most strategic market entry option for Chery Cars in U.S. would be to export through an Export Management Company (EMC). Though this method, the company would select a special marketing and distributing company in U.S. to trade its products on behalf of the organization. This specialist company would contribute effective ideas regarding the market characteristics of U.S. and hence, successfully place Chery cars product in U.S. market. This is a type of indirect exporting method (Lambin, n.d.). The company would not use any other indirect entry method, like, Piggyback operations. This is because this type of an entry method would only be successful if a company desires to trade a non-competing product in the foreign market (Dickson and Giglierano, 1986). Piggyback operations is practiced when two partner companies desire to trade complementary product and one helps in the product development process of the other partner (CIA, 2013). The method of domestic purchasing (indirect exporting method) would involve high cost of investment and would not be a feasible option for Chery cars (Davis and Steil, 2001). Moreover, the operations of EMC (paid exporting specialist) would be more efficient than the trading companies. The rationales for selecting EMC mode of entry are as follows: The company would be able to enjoy the essence of economies of scale in manufacturing process. This benefit would be achieved by the organization through the help of its foreign trading partner (Mankiw, 2011). The company would be able to market its product to a wide base of customers in the foreign nation (Campbell and Netzer, 2009). This is a process of indirect exporting, which would help the company earn high investment returns, even when the amount invested is relatively lower. The overall risk in business internationalization would be lower in this mode of entry. The company can utilize the resources and technological expertise of the parent company in the foreign market. In a very short span of time, the aggregate profit and sales of the company would significantly increase. Advantage If the company follows this type of an entry mode, then it can easily increase its profit and revenue in business in a very short period in the foreign market with the help of expert advices given by the selected EMC. The company, with the essence of increased profit, can invest more money in making technological progress in business. If state of technology in the automobiles sold by the company enhances, then brand value of the organization across all its market would also increase. By entering the U.S. market, through the assistance of an EMC, the company would be able to allocate finances in business more efficiently. The overall risk in business, which could be faced in the process of direct exports or FDIs, can rather be reduced through this mode of entry (Blackburn, 2004). Disadvantage The firm would become dependent on the foreign parent organization (the EMC). This might fade the brand value of the organization in the foreign market. The company does not get a real picture of the market, where it trades its product. The company lacks proper knowledge about the characteristic features of consumers in the foreign market (Brux, 2007). Reference List Blackburn, S., 2004. A Case Study. 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