Export Market Analysis - China - Case Study Example

Export Market Analysis Name Institution 3.0 In Depth Analysis and Selection of Target Market 3.1 China 3.1.1 Business Environment Ever since 1990s the China government has encouraged capital flow into the country in form of direct foreign investment. Today many attributes in the country’s business context continue to attract investors into the country. One of those is the high level of private sector growth (Balfour 2004). The growth requires subsidiary complements and this is where foreign investors have come in. In the recent past, high growth in unexpected banking and high tech sectors has greatly attracted the attention of multinational companies. Other sectors that are on the verge of boom include energy, electronics, general manufacturing, retailing among others (Walsh 2011). A unique attribute that concerns investors with interest in China is competition with China’s native companies. The two issues raised are the expansionist strategies of these companies in overseas markets and the favourable treatment they receive from the government and policy makers. the two issues are tricky to negotiate as of today but there are hopes expressed by executives of companies that have established businesses there that the playing ground is poised to be fairer in the near future (Walsh 2011). China has continued with protection policies in some strategic industries even after membership to the WTO. Some of the protected sectors include agriculture, petroleum products, machinery and certain manufactured commodities. Pundits argue that China still needs to do a lot more to enforce the protocol of accessions and the WTO agreement by extensive review of its regulations and abolishment of some protectionist measures. It is worth noting the advancements that the country has made in trying to revise its tariffs. The country was able to reach its benchmark of lowering tariffs on over seven thousand items by year 2010. For example tariffs on automobiles were down to 25% in 2005 from ranges of 80-100% by the time of signing the agreement (ABS, 2012). China continues to promise abolishment of other restrictions that are not in line with the WTO guidelines on importation. Such include elimination of foreign exchange control by the government, import licensing and imposition of import quotas (ABS, 2012). 3.1.2 Political Environment One of the greatest hurdles that investors have pointed out with China market is the number and extent of bureaucracies that are required for business start-up. Since 2006, when China started to reform its regulations to promote real investment in the country, administrative licensing has been the major complaint by virtually all respondents (USCBC 2011). Another major issue with China is policy regulations in pricing. Many companies have complained that the expensive licenses necessitate rising of pricing but policy makers in the country raised serious concerns. They particularly pointed out to feeding inflation in the economy a situation they could not tolerate. There is the China’s Antimonopoly law that checks pricing and regulates market dominance by few players (USCBC 2011). 3.2 Indonesia 3.2.1 Business Environment Understanding the business culture has been tipped as a significant milestone in successful business venture in Indonesia. Pundits have put it that establishing a relationship with a person or an agency is an investment worth taking in this part of the world. The aspect of negotiated contracts is still significant in doing business. People in this country are not prone to breach of contracts that are drawn with distinguished peers even if such could have few or no legal implication (Dean 2008). It is worth noting that recent reforms by the government have greatly changed the approach to business and the playing ground is much smoother than it was few years ago. This report recounts some of the attributes of the business environment in this country The most vital complement in Indonesia’s business context is the amendment of legislation that allowed fully owned companies from foreign countries to operate in most of the sectors (Dean 2010). Foreign investors can now operate without the prior requirement of forming joint ventures or partnership. New entrants in the business get the assistance of notaries who make the process a bit easier. These experts enable the investor to navigate the legal and regulatory system and other bureaucracies at reasonable fees. Besides this assistance, the notaries hold a high social status and are significant enough in establishing networks with consumer groups. Indonesia’s legal system with regard to bankruptcy, company laws and capital market is still not based on international best practice. The government tries to enhance their implementation by appointing ad hoc judges to commercial courts to promote their application as part of the country’s legal framework (Dean 2008). 3.2.2 Political Environment There are still many hindrances to business in Indonesia that are politically instigated. There many policies and procedures that do not allow the market system to operate freely. Some of these bureaucracies are discussed herein. One of the political interferences to the market system is the price control on some commodities. Unfortunately, electronic products are among those. Apple Inc may find it challenging to operate in such an environment. Other related products with these regulations include electricity and liquefied petroleum gas (Dean 2010). The government has also put regulations on mergers and acquisitions. Usually consent of 75% of shareholders is required to form a merger. There are legal provisions that protect the minority shareholders, which make hostile acquisition almost impossible. There is Anti-Monopoly and Unfair Competition Law that makes it illegal for any company to hold 50% of the domestic market, or two or three companies hold 75% of the market share between them. All contracts that lead to monopoly are prohibited in the economy. Small scale operators and cooperatives are exempted from these restrictions as the legislation recognizes them as institutions producing vital commodities for use by members of the society. However, this exemption makes the playing ground not to be fair on the side of large multinationals (DTT LTD 2011). Tax practice in the country has its hinges as well. For instance, the country has many tax treaties with certain countries and companies that hail from these countries are accorded preferential treatment in tax payment. The law divides corporations as resident and non-resident. All companies are entitled to 25% income tax but resident companies have a 50% waiver on condition that they reach the threshold for the required market coverage. Another unfair attribute in this country’s tax system is the capital gains tax. In fact it attracts the same level of tax rate as normal income (DTT LTD 2011). 3.3 Conclusion In the light of the discussion formulated, it is safe to conclude that it is better and less risky for Apple Inc. to start its operations in China than in Indonesia. While Indonesia was first to revise its international investment policies compared to China, many bureaucracies continue to be observed within its framework. On the contrary, the growing interest in China’s market and the optimism that company executives have expressed in the country’s business environment just demonstrate that good days are near for business people (Balfour 2004). 4.0 Entry Strategy 4.1 Distribution Strategy Apple Inc should employ the distribution strategy that is more direct. The company and the final consumers should not far apart due to the nature of China’s market and the inherent nature of the products offered by the company. The company should apply online shopping to enhance efficient shopping. A typical distribution channel would follow the simple structure below: Producer Distribution store retailer consumer The producer, in this regard the Apple Inc would channel the products to its distribution store. The stores are typically under the management of the company. This strategy is aimed at reducing the number of third parties in the channel. The retailers are aimed to connect to the final consumer. They should be well trained on the technicalities of handling the company’s products so as they can offer some guidance to customers on usability. 4.2 Exchange Rate Strategy Apple Inc is a US company using the USD as the local trade currency. Trading in China implies use of the local Chinese Yuan. A in depth evaluation of the exchange rates of the two currencies in the recent past would be prudent to establish the basis of protecting the company from exchange rate fluctuations. The graph below summarizes the trend of the two currencies over the last twelve months. One Year Data The rates herein are expressed in terms of Yuan per unit USD. The trend exemplifies instability in the Chinese Yuan and this call for some protective measure by Apple Inc. The most viable strategy would be to value its products on USD and the same be converted to Yuan at prevailing spot rates. In cases where Yuan’s value is expected to increase (like period between January and March in the graph) the company should engage future contracts with its distributors to lock in prices. 4.3 Marketing Strategy The marketing environment of modern times is complex due to the level of consumer awareness companies have to deal with. That aside, competitors design new strategies each day and being actively in the market demands that such strategies have to be countered. This calls for the application of methods that have influential effects to the consumers. One of these methodologies involves situational influence. This entails taking advantage of the many people who log onto websites by floating so many adverts on these sites (Pride & Ferrel 2003). The next viable appeal strategy is the psychological influences. This entails designing adverts that identify with specific social classes. For instance, adverts that target the teenagers will most likely be put on sites that focus on pop stars or star sportsmen. Such a move works to entice the customer groups by making them feel part of the generational change patterns. These complex strategies have been possible through the use of internet (Mohammad & Mohammad 2011). The online advertising is not any easy. Two major concerns have to come to play. One is unquestionably coming up with an effective advert and devising the entire advertising campaign. The next issue is ensuring total compliance to the acceptable policies and international advertising standards. The commercial advertising firms address the first issue quite professionally and enthusiastically. However, the same cannot be said of the later. 4.4 Cultural Strategy The business context in China calls for adoption of much negotiating to appeal to buyers. This aspect coupled with giving of coupons or gifts aimed at enticing buyers are the two most important attributes that Apple Inc. must remain sensitive to in its venture in the country. Chinese people have a common idea of exchanging business cards even at personal level and this underlines just how much negotiating is influential in establishing business deals. Apple Inc must refrain completely form any product promotion that involves giving free gifts. According to Chinese culture, gifts represent a bribe and hence they are considered a social vice even in the business context (Francesco & Gold 1997). 4.5 Corporate Social Responsibility Strategy Apple has to deal with the issue of electronic waste and green computing initiatives. Critics in other countries have put the company under pressure over its willingness to adopt environmental friendly methods of production, just as many others in the industry. Civil societies argue that while corporate customers need to know the minute details of energy saving in the computing industry, the vendors carry the greatest responsibility. In the grand scheme of things, customers whether corporate or not can only use what is on offer in the market (Michael, 2009). The company needs to come up with environmental friendly model of phones, electronics and related gadgets so that the eco-system can be saved from the degradation brought about by electronic waste. Factual information regarding usages should be well availed to the consumers so that they too play a part in the whole initiative. This would prove particularly important for survival in China’s market. A good strategy is to initiate a waste collection program for all its waste products. Doing this will be perceived as a socially sensitive method of conserving the environment as well as protecting the unsuspecting citizens from the effects of exposed electronic waste materials. 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