Global Marketing Strategy - Essay Example

global marketing strategy al Affiliation) Contents Contents 2 INTRODUCTION 3 POLITICAL, ECONOMICAL, LEGAL AND SOCIOLCULTURE ENVIRONMENT IN CHINA 3 COMPETITION IN THE CHINESE AUTOMOTIVE MARKET 5 CULTURAL AND CONSUMER BEHAVIOR IN CHINA 5 WHY COMPANIES ENTER CHINESE AUTOMOTIVE INDUSTRY 8 THE BEST ENTRY MODE CHINESE AUTOMOTIVE INDUSTRY 9 EXAMPLES OF ENTRY STRATEGIES OF FOREIGN MANUFACTURERS INTO THE CHINESE AUTTOMOTIVE INDUSTRY 12 HOW COMPANY WOULD ADAPT MARKETING MIX 12 CONCLUSION 13 BIBLIOGRAPHY 14 THE CHINA AUTOMOTIVE INDUSTRY INTRODUCTION The Chinese business environment represents an example of an emerging economy that has many marketing opportunities that the foreign investors can capitalize on. The country has an enormous potential in terms of economic growth because of the affordable labor costs and the open access to larger international markets (World Bank Report, 2008). Despite this, foreign investors must through caution to the diverse cultural environment and the vast political differences that define the possibilities of uncertainty and risk aversion for the foreign investments. Therefore, a number of factors determine the choice of foreign entry into the Chinese market. POLITICAL, ECONOMICAL, LEGAL AND SOCIOLCULTURE ENVIRONMENT IN CHINA In the recent past, the Chinese economy has been the world’s biggest destination of Foreign Direct Investments. Over 190 countries invest in China, and the FDI represents a healthy share of the national tax revenue (Foreign Investment in China, 2009). Apart from the FDI, the Chinese Foreign Exchange reserves grow with each new economic year. The exports from China have expanded since the country joined the World Trade Organization in 2001 (Prime, 2002), with the average foreign reserves for the past five years not less than $1 trillion. Inflation is the general increase in prices. In China, the inflation rate is high, but the standard level of the consumer’s purchasing power is relatively as high. Besides, the plummeting of general prices encourages the purchasing behavior of the consumers, helping the Chinese economy to recover the diminishing exports (China Inflation Rate, 2010). With this trend of falling prices over the past decade, the Central Bank of China delays the purchases in order to incubate economic growth. The trading environment in China is competitive being the leading exporters of tungsten, tin, and antimony. Besides, the world’s largest aluminum producer is China. Despite the country’s economic superiority, it still has inadequate communication, transportation, and energy resources. The efforts by China to build a strong infrastructural base are hindered by the natural calamities that Asia is prone to, as well as poor governance. The China’s currency, however, is prone to manipulation due to the instability of the economic environment. Unsteady export levels hinder the stability of the currency, forcing the Central Bank of China to hold back currency at low levels. The political system of China is based on the social state of the multiparty democracy. All the political parties have the choice to participate in the management of the state affairs, therefore offering ideological clashes that often cause political tension in the country. In addition to that, China holds a record for human rights violation, from the intolerance of authorities and the inadequate safeguarding of basic freedoms (China Political Risk Management, 2009). Above all, the political risk is a factor that ranks China as a hazardous investment destination. Companies therefore should consider nationalization before venturing into this market. The socio-cultural nature of the Chinese economy provides a vast diversity in consumer tastes and preferences. Currently the world’s largest population with over 1.1 billion citizens, China’s population still grows at a massive 15 million each year. This poses the challenge for employment in a bid to offer quality services such as education, health, sanitation, food and water. This prompted the government to urge couples to have only one child, as a control strategy of the overwhelming population (Glasse, 2010). The cultural concept of the Chinese defines the values that identify the Chinese as a culture, not a race. Despite the large population and the cultural complexity of the Chinese culture, the Chinese people share various persistent characteristics that are largely influenced by the Confucian Philosophy. This viewpoint, therefore, explains the core of the Chinese culture that emphasizes on the hierarchy in social life, morality, the cultivation of achievement and hard work, and the importance of the family. COMPETITION IN THE CHINESE AUTOMOTIVE MARKET The nature of the market is perfectly competitive. The regulation by the government on the terms and conditions that concern entry and exit into the government acts as cushion for the local manufacturers against the strong international manufacturers. The competition is necessary in defining the type of promotional strategy that a foreign company uses to market its products (Library of Congress, 2009). The culture of the Chinese people make them attached to their local products, hence making it difficult for foreign manufacturers to break the market pattern without having Chinese identity. Besides, the government levies higher taxes for importing substitute products that are readily available in the local support industries. Therefore, the competition is stiff, but regulated. Consequently, China exports the largest volumes of automobile accessories than any other country in the world. This explains the competition levels in the Chinese international market as perfectly competitive. CULTURAL AND CONSUMER BEHAVIOR IN CHINA To determine the behaviors of consumers in China, it is necessary to gather, analyze, and present the information relating to the Chinese culture. The investment in the Chinese economy requires the balance between international and local consumers. Therefore, the market research is necessary to resolve a decision that reduces the risk in investing without knowledge of the environmental uncertainties and the political risk that is available in the Chinese market. The social nature of the Chinese culture presents many uncertainties to foreign investments. Interestingly, the Chinese prefer doing business with people or companies that they have familiarity and connection with. The consumer behavior in China requires foreign companies to work with intermediaries. Nevertheless, the business ties and relationships in China are built with formality and reputation. Besides, the general notion of the Chinese population is critical in the analysis of the foreign investors marketing strategy (Foreign Investment in China, 2009). The Chinese often view representatives of certain foreign companies as the company itself, instead of viewing them as individuals. The rank is important in building relationships in business, and the communication with the Chinese is to take consideration and caution of the importance of rank in the success of a foreign investment. In China, punctuality is a virtue that governs the practices of doing business. In this economy, this culture requires business people to set appointments early, to avoid breaking the norm of punctuality as viewed in the Chinese culture (Shanker, 2003). Nonetheless, the Chinese view late arrivals for appointment as insulting, and in most case it negatively affects the relationship between the investor and the Chinese entity. Contrary to other cultures, the Chinese civilization gives room for argument and airing of views. This culture, as entrenched in the cultural belief of respecting social hierarchy, requires the participants in any discussion to pay full attention of the agenda that the Chinese contributes. The language barrier that exists in China makes it difficult to pass information to the Chinese. The Chinese are attached to their local products, and in order to have any progress in foreign products in the economy, it is obligatory for the foreign company to seek attachment to the Chinese. According to the strategic international strategies, foreign companies achieve this by embracing their culture and communicating in their language to gain the connection that is necessary for the promotion of their foreign product (Calabrese, 2012). Besides, the high inflation rates hinder the purchasing behavior of the Chinese population. They are attracted to products that are cost effective and efficient. In setting up prices, the foreign company has to consider the saving culture fixed in the Chinese consumer behavior. Therefore, in pricing a new product, the foreign company has the options of setting high prices through skimming, or penetrating the market through setting lower prices. Either way, by setting high prices, the manufacturer exposes the inadequate international experience that the company has, or the company has a local informant who feeds them with information concerning the market. By taking the market price, the manufacturer explains the limited preparedness for venturing into the international market. The global market pushes such manufacturers, as they are motivated by the need for expansion into the international market. Most firms that charge a standardized price are motivated by the interconnection between the international markets (Czinkota, Ronkainen and Czinkota, 2009). Finally, the Chinese economy and consumption trends require a manufacturer to adopt the third prototype of pricing. This strategy indicates the preparedness and conversance of the foreign manufactures to the local Chinese consumer needs. This requires the manufacturer to do an in-depth analysis of the local market conditions before evaluating the product price. The Chinese, however, have total control of their local channels of distribution in the market, hence making it difficult for manufacturers to access the information networks and the feedback systems. It is due to this reason that foreign manufacturers have to team up with local agencies to retrieve information about the market (Glasse, 2010). Thereafter, manufactures get to know what the consumers need. In this case, the Chinese need cheap and efficient products. This requirement obligates the manufacturer to employ other production strategies that are cost effective to maintain the profit margin while meeting the needs of the consumer. In addition to that, the advertising of foreign products by the local agencies creates more connection between the consumers and manufactures. In China therefore, the consumer behavior dictates the prevailing market prices, with the market forces of demand and supply dictating the production costs. WHY COMPANIES ENTER CHINESE AUTOMOTIVE INDUSTRY The Chinese automotive industry influences the likelihood of success for foreign automotive manufacturers. This market has marketing programs that make it a desired destination for the foreign manufacturers. A number of factors explain why giant automotive manufacturers prefer China to other countries. Primarily, the accessibility of the Chinese business environment is friendly. The Chinese government is grappling with pressure to satisfy the growing population, making it desperate to attract investors. The Foreign Direct Investments records in China indicate that it is the largest destination of foreign investments (China Foreign Exchange Reserves, 2009). The government has non-tariff barriers, which make it easy for the movement of labor, services, and materials into the country. The government regulations concerning foreign investments are relaxed, and the import systems are low and affordable compared to the other strong manufacturing economies. Moreover, the profitability of venturing into China is certain, if the political and social risks are maintained. China offers subsidies to local competition, hence making the competition fair and just for the foreign companies. This is the opposite in other manufacturing superpowers, like Germany, that give the market control to local companies, hence leaving no entry loopholes for foreign manufactures. Besides, the government has price control strategies that inhibit the growth of cartels and further promotes fair competition and creativity. Chinese market size offers large prospects of success for both local and foreign manufacturers (World Bank Report, 2008). The population of China has enough spending power despite the savings culture embedded in the consumer behavior, being a strong economy. This large market size, coupled with the increased demand for product innovation, creates the likelihood of return on investments by the foreign automotive investors. Nevertheless, the economy has many support industries that make it easier to produce and export products from China. Industries dealing in aluminum and steel make it convenient to produce automotives in China at subsidized fees (Pressing the Chinese on Currency Valuation, 2009). The availability of such resources as cheap labor and financial services lure foreign automotive manufacturers to invest in China (Foreign Relations, Relations with Neighboring Countries, 2010). The Central Bank of China implements low base lending rates that make it easier to access credit cheaply. This strategy encourages the population also to relinquish the saving habits in return for affordable loans and investment opportunities. Grappling with the high population, China needs to create employment opportunities for the population. China, being a social government, China cannot create jobs for the over one billion citizens, forcing the government to open doors for the creation of jobs by foreign investors. These laborers strive to feed their families and are desperate for job opportunities. Against the human rights code, the manufacturers manipulate the availability of labor by low remuneration. To sum it up, the availability of cheap labor attracts investors into China. THE BEST ENTRY MODE CHINESE AUTOMOTIVE INDUSTRY The entry strategy that a foreign company adopts is necessary in determining the path that a company takes towards achieving its goals. A number of strategies apply in the choice of entry into the Chinese automotive industry. Besides, the factors that determine the choice of entry strategy depend on the objectives and expectations of the foreign company. In the case of automotive manufacture, companies aim to maximize automotive sales and increase profits in the process (Gallagher, 2006). The financial capabilities and constraints also affect the choice of entry strategy into the market. While other firms have existing involvement in other international markets, others do not have the financial strength to venture into multiple markets, therefore choosing a strategy that utilizes the funds that the company owns. The abilities, skills, and attitude of the management also define the reason why a company settles for a specific strategy. The power and nature of the competition in the market, coupled with the tariff barriers determine the choice of entry strategy as well. In the Chinese automotive industry, the competition is perfect, though it has many players. The barriers to entry in this industry are minimal, hence luring both giant and minor companies to invest. In addition to the competition, such limitations as the infrastructural development and the legal frameworks determine the entry choice strategy (Kotabe and Helsen, 2008). The socio cultural factor distinguishes the difference between the Chinese culture, their social life and the foreign manufacturers’ home country. This often causes uncertainty, as cultural differences constitute to major failures in communication. The distance of China from the home country also influences the decision, as the further the distance, the more likelihood to use agents or joint venture in entering the industry (The Economist, 2006). International marketing strategy entry modes are either through export, intermediate or hierarchical modes. These rules govern the entry modes, the naïve rule stating that the entry mode is the same for all the markets while ignoring the heterogeneity of individual markets. The pragmatic rule illustrates a workable mode of entry for each foreign market, whereas the strategy rule involves the analytical approach of all the options available in a systematic manner. The export mode of entry involves indirect, direct, and cooperative export. In direct export, the manufacturer is responsible for the exporting activities. The manufacturer has direct contact with the first intermediary of the foreign market. On the other hand, the indirect export guarantees zero involvement of the manufacturer in the process of exporting. Instead, the manufacturer uses trading companies and export houses to execute these roles. Cooperative export involves collaboration with other firms in exporting. Principally, the forms of indirect exporting include domestic purchasing, where foreign entities in the manufacturer’s home country export the products to another country. Export houses especially assist SMEs to maintain and develop international sales (Mukherjee, 2012). Piggybacking is an entry strategy that involves one manufacturer carrying products on behalf of another. Direct exporting using distributors involves the distributor representing the manufacturer in servicing and sales. The agent exporting is whereby an independent company sells products to the customers on behalf of the manufacturer. The intermediate entry modes characterize the best strategy of entry into the Chinese automotive industry. The major reason why companies set up overseas services and manufacturing operations is to avoid the problems associated with product design. It also reduces the transport, warehouse, and tariff costs (Pike, 2009). Through contract manufacturing, the foreign automotive company signs a contract with a local manufacturer in a bid to reduce the trade barriers. This strategy enables the foreign investor to have control of the distribution and marketing of the products. The license agreement offers valuable incentives for foreign investors in exchange for the license. Such incentives include patents, technical advice, marketing assistance, the use of a trademark name and manufacturing knowledge. Franchising is a method that is market oriented, and deals with selling the services of a major automotive to other small independent investors that have on business experiences. There are various types of franchising, package franchising, product franchising. The most common feature of intermediary mode of entry is the joint venture, where companies form a partnership that is based on the host and foreign countries. This is a regulation requirement for the entry into the Chinese automotive market, as the government strives to give the local industries a share of the total market revenue (Balfour, 2004). Joint venture is strategy that opens opportunities for both the local and foreign manufacturers. Besides, the speed at which the foreign company adapts to the modules of the local market is relatively fast due to the shared knowledge of the market structures. The joint ventures enable the companies to share the risks and costs that come with investing in this diverse market. EXAMPLES OF ENTRY STRATEGIES OF FOREIGN MANUFACTURERS INTO THE CHINESE AUTTOMOTIVE INDUSTRY The major entry strategy that foreign manufacturers employ in the entry into the Chinese automotive industry is the joint venture. The Chinese biggest automotive manufacturers include Chang’an, FAW, Dongfeng and Shanghai General Motors (SAIC). The SAIC has joint ventures with American giants Chevrolet, and German manufacturer Volkswagen. Dongfeng, on the other hand, is second to SAIC in car production in China as at 2014. The joint ventures that the company has include Japanese manufacturers of Nissan, Honda, and Kia, while they also have joint ventures with French manufacturers Peugeot as well as Citroen. The FAW Corporation is also a Chinese automotive Company that is state owned. The Company sells approximately ten brands of cars, but has foreign joint ventures with German manufacturer of Volkswagen and Japanese manufacturers of Toyota and Mazda. The Chang’an brand has joint ventures with American manufacturer Ford, Japanese Suzuki, as well as French Peugeot (Reuvid, 2006). The bestselling brand in the Chinese car collection is the Volkswagen. HOW COMPANY WOULD ADAPT MARKETING MIX The company adapts to the market mix when the product’s quality suits the standards of the international market. Besides, the company learns more about the cultural diversity of the Chinese market, and embraces the diversity to perfectly fit into the production cycle. The production of homogenous products also affects the adaptation of the company into the market, as the consumers buy authentic goods. Other factors determine the manner in which the company adapts such as the product liability, the legal standards, and the usage of the product across many consumers. This enables the company to achieve a credible market position through the combination of effective promotional strategies and pricing. Besides, by building a brand that is recognized all over the international market, the company settles into the market mix by enjoy a loyal customer base, which is independent on the external pressures of the hosting government. The branding strategy involves strategic promotions on the most prominent media of advertisement, which reaches the largest number of potential consumers. CONCLUSION In conclusion, the Chinese automotive industry explains the clear example of an emerging industry that expands upon each new financial year. The government should step in to put stiffer regulations concerning the remuneration of the local laborers who work in these industries. Besides, other countries should relax their regulations and attract foreign investments in order to challenge the superiority of China. BIBLIOGRAPHY Balfour, F. (2004). Chinese reform picks up speed, Business Week, March 8, 46. 27 MBAA Proceedings 2010 - Papers Background Notes: China, US Department of State, Retrieved June 19, 2009 from http://www.state.gov/r/pa/ei/bgn/18902.htm Calabrese, G. (2012). The greening of the automotive industry. Basingstoke, Hampshire: Palgrave Macmillan. China Foreign Exchange Reserves, US State Administration, Retrieved December 19, 2009, from http://www.chinability.com/Reserves.htm China Inflation Rate, Trading Economics, Retrieved January 19, 2010, From http://www.tradingeconomics.com/Economics/Inflation-CPI.aspx China Political Risk Management, China Monitor, Retrieved March 18, 2009, from http://www.chinariskmanagement.com/Political.html Czinkota, M., Ronkainen, I. and Czinkota, M. (2009). Global marketing. Toronto: Nelson Education. Foreign Investment in China. USCBC, Retrieved June 19, 2009, from http://www.uschina.org/info/forecast/2007/foreign-investment.html Foreign Relations, Relations with Neighboring Countries. Retrieved March 18, 2010, from http://www.china.org.cn/english/en-shuzi2004/dwgx/dw-zb.htm Gallagher, K. (2006). China shifts gears. Cambridge, Mass.: MIT Press. Glasse, J. (2010). Foreign Business in China Political Instability. Retrieved March 17, 2010, from http://www.faqs.org/abstracts/Business-international/ Kotabe, M. and Helsen, K. (2008). Global marketing management. Hoboken, NJ: J. Wiley. Library of Congress, 2009 Report on China, Retrieved February 17, 2009 from http://libraryofcongress.org Mukherjee, A. (2012). Social Efficiency of Entry with Market Leaders. Journal of Economics & Management Strategy, 21(2), pp.431-444. Pike. J. (2009). People’s Republic of China Infrastructure. Retrieved June 19, 2009, From http://www.globalsecurity.org/military/world/china/infras.htm Pressing the Chinese on Currency Valuation. Shop Floor, Retrieved June 19, 2009, From http://www.shopfloor.org/ 2009/01/23/pressing-the-chinese-on-currency 28 MBAA Proceedings 2010 - Papers 29 MBAA Proceedings 2010 - Papers Prime, P. B. (2002). China joins WTO: How, why and what now? Business Economics, (April), 26-32. Reuvid, J. (2006). The Automotive Industry in Emerging Markets. Blue Ibex. Shanker, D. (2003). Developing countries, China and economic institutions, Social Science Research Network, Retrieved on January 30, 2010 from http://papers.ssrn.com/so13/papers.cfm/abstract_id=277928 The Economist (2006). A Chinese coup, January 7, 65. World Bank Report (2008). GDP and economic indicators of China, Retrieved on February 12, 2009 from http://www.worldbank.org Read More