In-Depth Market Analysis and Selection of Target Market - New Zealand, China and the US - Case Study Example

Report Part 2 Name: Course: Institution: Tutor: Report Part 2 Module 3 In-Depth Market Analysis and Selection of Target Market 3.1 In-depth Market Analysis In module 1, three potential markets where Adam Internet can export its services to were explored. These were New Zealand, China and the United States of America. An analysis of each of three markets reveals varying levels of attractiveness. As an example, the three countries have different foreign investment policies. Similarly, they have varied demographic characteristics, a factor that will significantly affect the attractiveness of each country for foreign investment. An examination of New Zealand reveals that because of its close economic cooperation with North America mad Western Europe, the country has developed a stable economy and a lucrative foreign investment market into which Adam Internet can export it services. For a long time, New Zealand has enjoyed relative political stability with successive governments taking various measures to encourage inflow of foreign investments (Dalziel, 2002). A major drawback for New Zealand is that it has unfavourable demographic characteristics compared to either China or the United States. As an example, New Zealand has only 4.5 million people. This figure is indeed small compared to either China or the United States which have 1.3 billion and 350 million people respectively. As such, Adams internet may not realise its profits in New Zealand as faster as it can in China or the United states because of the small number of potential customers. That notwithstanding, the New Zealand government has taken impressive measures to improve the country’s basic infrastructure in an attempt to make it suitable for foreign investment (Phil, 2006). Unlike New Zealand, the United States is a large country with more than 300 million people, which means a large number of potential customers. Economically, the United States is the most developed country in the world. The country has attained unmatched levels of technological development. Over the years, the United States has recorded impressive economic growth rate. Its GDP per capita is very high and thus most of its citizens are middle class income earners. For several decades, the government of the United States of America has developed good trade, economic and political relationships with other countries including Australia. As such, it is relatively easy for Australian companies to export their services to the United States (Zeng, 2008). The country’s infrastructural network is highly modernised and well developed. In particular, the telecommunication system is very modern. This has however made the telecommunication industry to be very competitive. Currently, there are hundreds of companies offering internet and other communication services in the United States. This has compelled the government to impose heavy taxes on foreign companies wishing to invest in the country. This therefore makes the United States less attractive for Adam Internet considering that it is a small company with unstable financial base. Lastly, China is an emerging global economic giant that has quickly gained recognition as an investment destination of choice. Over the past two decades, China has made impressive improvements of its economy. Currently, it is ranked as the second largest economy in the world, after the United States. With more than 1.3 billion people, China is the most populous country in the world and this means good market demographics ideal for foreign investment. In 2001, China joined the world trade organization, resultantly opening up its domestic markets for foreign investment. Today, foreign investors can invest in virtually in every sector of china’s economy, from tourism and hotel management to telecommunication and auto manufacturing (Cheng & Kwan, 2000). A good thing with China’s potentials to host foreign investments is that the country has in the recent years relaxed its political and legal barriers to foreign investment. The country is gradually adopting the western economic policies of capitalism and free market. In addition, the country has embarked on a rapid urbanization program, which will see rapid upgrading of infrastructural networks. Because China is an emerging economy, most of its people are still poor and live in rural areas. As such, internet penetration is relatively low in the country (Pei, 2001). There are thus opportunities for Adams internet to invest in the country and take advantage of low internet penetration. 3.2 Recommendation and Selection of the Target Market Of the three potential markets, China stands out as the most suitable for Adam internet to export its services. In the last one decade, China’s telecommunications market has been growing at tremendous rate and is currently registering about 4 million new subscribers a month (same as the total population of New Zealand). The country has favourable demographics, which guarantee massive consumption of internet services. Because of China’s relatively low tariff regimes and relatively low internet penetration, the demand for internet services will continue to grow (Pei, 2001). This therefore presents a natural opportunity for Adams internet to export its services to the East Asian country. Although internet penetration is relatively low in China, there is high competition in the industry. This has compelled service providers to restructure the quality of other services in order to attract customers. China’s improved competitiveness in the telecommunications industry as well as the commodization of telecommunication services means decreased bargaining power for industry players. This implies that Adam Internet stands to make a lucrative investment if it exports its services to china. The decision by the government to lift legal and political barriers to foreign investment dramatically opened china’s internal markets to foreign competitors. Moreover, the Chinese government has in the recent years taken recommendable steps to facilitate rapid penetration of the internet in the country. The booming domestic market for telecommunication products means that China will for a long time continue to attract more and more foreign investors (Cheng & Kwan, 2000). Module 4: Market Entry Strategies 4.1 Distribution Strategy Designing the right distribution strategy is critical to the success of any foreign investment. A distribution strategy not only provides the vehicle for getting the products or services to the customers but also influences how the products or services are promoted to the potential customers. While there are numerous distribution strategies that Adam internet can employ in order to effectively penetrate the Chinese internet market, it is imperative for the company to make decisions about the cost implications and efficiency of alternative strategies. Considering the situation in China as already identified in the previous section, the best strategy that the company can use to distribute its services in the Chinese market is franchising. According to Lymbersky (2008), franchising is a form of business organization in which the owner of a trade name gives rights to other businesses to trade under the name of the franchisor. A major advantage of franchising as a distribution strategy is that it provides excellent opportunities for rapid expansion without enormous capital outlay. This form of distribution can enable Adam Internet to conserve a considerable amount of capital and at the same time achieve rapid market penetration in China. 4.2 Exchange Rate Strategy It is important for foreign companies to protect their businesses against currency and exchange rate risks. Gitman (2003) has defined exchange rate risk as the risk arising from changes in the value of one currency against the other. This risk should be mitigated in order for a foreign investment to realise its short term and long term profit objectives. In order to avoid the adverse impacts of the exchange rate risks, it is advisable for Adam internet to se tits prices in the Chinese currency if it exports its services to China. This means that it will charge its customers in the local denomination. A major benefit of this strategy is that the company’s revenues will not be affected adversely as a result of changes in the value of the yuan against the Australian dollar. There are other important financial tools that the company can use to mitigate the risks of exchange rates. These include currency options and spot foreign exchange. Currency options refer to the right to sell a certain amount of currency at a specific exchange rate before a specified future time. On the other hand, spot foreign exchange refers to an obligation to sell specified amount of currency at current market rate to be settled in few days. These tools can help Adams Internet circumvent the risks of currency exchange inherent in the Chinese market (Gitman, 2003). 4.3 Marketing Strategy A good marketing strategy is necessary for effective market penetration. Accordingly, Adam Internet must select the best market mix top enable its businesses take roots and be adopted in China. The first step that the company should take in developing a marketing strategy for its business is to create a solid brand name. This will entail creating brand messages and campaigns that can stick with potential customers long after they hear the marketing messages. It is therefore essential for Adam internet to be creative in creating messages and slogans that will make its brand stand out from the numerous competitors operating in China. The company’s brand messages can be communicated to the market through radio, TV and print adverts as well as numerous guerrilla marketing tactics. Some of these tactics include road side shows and demonstrations and online marketing on various social media platforms. The company can also run promotions such as discounted call rates during certain periods. These marketing strategies can greatly help Adam Internet increase the brand awareness of its customers within the shortest time (Homburg, 2009). 4.4 Cultural Strategy Developing a sound cultural strategy will be a critical aspect of Adam Internet’s marketing decisions. This is because of the apparent cultural differences between China and Australia. As a matter of fact, Australia is largely a highly westernized society where European and American lifestyles have become the rule. On the other hand, China is a conservative society that maintains a strong hold on its traditional cultural values and national identity. While English is the official and national language of communication in Australia, Chinese and its variants are the only languages spoken in Australia. It is therefore important for Adam Internet to take these considerations into account before rolling its services in china. The starting point is for the company to be sensitive of its use of language. Essentially, its products should be marketed and promoted in Chinese language because this is the language that is widely understood in China. Certain barriers such as stereotypes and prejudices can be easily overcome by understanding and offering services that are sensitive to the negotiating characteristics of the Chinese people (Borgerson and Schroeder, 2008). 4.5 Corporate Social Responsibility Strategy There is a plethora of ethical responsibility issues related to international investment. One of these issues relates to honesty and quality of services and products. As Adam Internet sets out for the Chinese market, the company should ensure that it offers services that are honesty, of high quality ad capable of meeting the needs of its potential customers. Secondly, the services should be affordable and should reflect general prices in the industry. In China, it is a crime for businesses to charge their customers exorbitantly. Another important ethical issue that the company will be faced with is the need to contribute to charity organizations and other worthy social causes. This is not a statutory requirement but is a good strategy for reaching out to the society and hence potential customers. The company should also implement various measures to enable it contribute effectively to the preservation of China’s cultural heritage (Bhattacharya, Sankar & Korschun, 2011) References Bhattacharya, C. B., Sankar, S. and Korschun, D 2011, Leveraging Corporate Social Responsibility: The Stakeholder Route to Business and Social Value. Cambridge University Press, Cambridge, UK Borgerson, J. L. and Schroeder, E 2008, Building an Ethics of Visual Representation: Contesting Epistemic Closure in Marketing Communication. In Cutting Edge Issues in Business Ethics. M. P. Morland and P. Werhane. Boston, Springer pp. 87–108. Cheng, L.K. and Kwan, Y 2000, What Are the Determinants of the Location of Foreign Direct Investment? The Chinese Experience, Journal of International Economics, vol.51, p. 379-400. Dalziel, P 2002, "New Zealand's Economic Reforms: An assessment", Review of Political Economy, vol.14, no. 1, p. 31–45. Gitman, L 2003, Principles of Managerial Finance, 10th edition, Addison-Wesley Publishing. Homburg, C 2009, Marketing Management - A Contemporary Perspective (1st ed.), London. Lymbersky, C 2008. Market Entry Strategies. Management Laboratory Press, Hamburg Pei, C 2001, The changing trend of FDI patterns in China, The Chinese Econom,y 34(1), p. 89-100. Phil, G 2006, "Succeeding in a Globalised World: The New Zealand Experience". Speech. New Zealand Government. Zeng, M 2008, "Bailout Funding Promises To Pressure Treasury Prices", The Wall Street Journal. Read More