US Car Market Entry Strategy - Coursework Example

Marketing Strategy: US Car market entry strategy Introduction: Global marketing is referred to marketing in worldwide scale in order to achieve worldwide presence for any organization. (Hollensen, 2013).One of the product categories, in which global competition has been easy to track in USA, is automotive sales. The growingstrength of rivalry in global marketplaces is a test facing corporations at all stages of participation in international markets. (Anderson &Svensson, 2009) At present the United States has one of the largest automotive markets in the world and is home of 13 auto manufacturers. From 2007 to 2011 auto manufacturer in the USA have produced 8.1 million passenger vehicles annually. After Honda opened its manufacturing unit in 1982, almost all the major European, Japanese, and Korean automaker has manufactured vehicles at one or more U.S. assembly plants. In addition to Honda and the big three U.S. auto companies - General Motors, Ford , Chrysler and other automobile companies like Toyota, Nissan, Hyundai-Kia, BMW, Daimler, Mazda, Mitsubishi, and Subaru all have U.S. manufacturing facilities. In May 2011, Volkswagen started a new U.S. plant, taking the manufacturer count to 13. In addition, many companies also have engine and transmission factories and are directing research and development, design, and testing in the United States. At present automotive industry is accounted for 4%-5% of GDP in USA and till 2011, almost 7, 20,000 employees are associated with this sector. Apart from auto manufacturing industry, other associated industry like auto parts suppliers and auto servicing industry also play major role in the US economy. In2011, total production of the supplier industry amounts$171billion which was 3% of total US manufacturing..With the implementation of an open investment policy, the presence of a large consumer market, access to highly skilled workforce, available high infrastructure and technology, and government encouragements, the United States is the leading place for the future of the auto industry. (Selectusa, nd). In this paper the main objective is to analyze different strategies by which an automotive company can make his entry in the USA car market. What different strategies can the organization take to capture the market and what are the different challenges that the organization may face in this process. The organization is Chery Automobile Co. of China, and the report is about their market strategy to enter the USA market. Chery Automobile Company: An overview: Chery is one of the worlds newest automobile manufacturers, having been established by a local government only in 1997. It is still a state-owned enterprise, which has both benefits and drawbacks. Based in Wuhu, a city in China’s southeastern Anhui province, the companys strategy is tied in with local efforts to promote regional development. Chery produces around 650 cars and commercial vehicles a year, making it Chinas eighth largest producer. The organization also has a corporate tie up with Tata in India to produce and sell Jaguar and Land Rover cars in China. (The Economist, nd). China and Automobile Industry: China is Asia’s one of the leading country is terms of manufacturing car and subsequent automobile accessories. Chery Automobile is a comparatively new company in this sector and also growing very fast. It has an agreement with theChrysler automobile company to sell small cars in the US market under the brand name of Dodge. It is not only helping the organization to get an initial foothold in the USA automobile market. (Handelsblatt, 2007). This agreement also helped the Chinese automobile company to achieve its goal that is to rank among the world’s leading car producing and exporting economies (Fishman, 2006). Fishman also believes that there are large possibilities that American consumers will be visiting Chinese car dealerships such as Chery or Geely in the streets of America. But before drawing the strategies it is necessary that one must look into some key political, economic and communication obstacles. The Political perspective: The main question from the political perspective is a very simple one and that is whether the company Chery, will be able to accommodate Americans’ yearning for high quality, cost effective as well as environmentally-friendly” vehicles that able to create enough appeal to the American psyche, while counteracting adverse stereotypes in linking with cheap merchandise and Communism. The first and foremost thing is to meet the environmental standards set by the US government in order to protect the global warming. In USA only a handful of brands such as Toyota, Honda and Hyundai, have qualified the standard set by the US government. It is the best opportunity for the organization to grab this opportunity and offer high class, fuel proficient, cost effective vehicles to knowledgeable and sensitive American consumers and get a strong hold in the US automobile market. Secondly, organization have to put up with the American awareness, which means generating encouragements for the “average American” and answering bad pigeonholes related to Chinese brands. (Gao et al.; 2007) Here lie few questions that the organization has to answer such as: What makes Chinese cars unique? And why one should buy a car manufactured by Chery Automobile Co.? If one analyzes the old cases the best example is of Hyundai. In the year 1998, when Hyundai launched its car in the US market then they able to promote the catch line very well and that was ‘America’s Best Warranty’: six-year bumper-to-bumper and ten year or 100,000-mile power train coverage. This catch line works very well as by 2003, Hyundai’s sales had soared 315 percent to 375,119 cars (Sqautriglia, 2003). The survey also proves the fact that a new Hyundai, with its unparalleled warranty, is now a much better deal than a used Honda for the Americans at the present time. Thirdly, the main question that Chery Automobile Co. have to face or better to say have to erase the belief from the mind of the American consumer that Chinese autos jeopardize American jobs. To combat this thought process Chery Automobile Co. have to follow the model adopted by different Japanese and Korean Automobile Companies that is setting new job for the American youth to have faith in the company. As mentioned by Gao et. al (2007), Toyota directly hires over 38,000 people, and has invested $16.8 billion in apparatus and facilities in North America. Likewise, Hyundai’s America Technical Center functions from its 200,000-square-foot, $117 million headquarters in Michigan to deliver more job chances for the American Youth and get the belief of the American common people. Another key point that the organization has to fight against is the negative mindset of the American young people about the China’s political ideology of Communism. It is as important as to downplay the tag of “Made in China”. In their opinion, “The concept carries a strong negative connotation in the American mind in part because students are taught at a young age about Americans battling the evil force of Communism throughout the 20th century against the Soviet Union, North Korea, Vietnam and Cuba”. (Gao, et.al, 2007). The Economic Perspective: For Chery Automobile another key aspect to look at is the economical perspective. Still, in the situation of continually increasing labor cost which is almost $28 per hour and financial difficulty, the US auto makers are able to book profit as compared to other entry level organization. (The Economist, 2006) Chery has to fight this condition to have an impact on the US automotive market. To combat this situation Chery can follow different steps, but those steps in some cases need Chinese government’s support as well. For example, the Korean government to have a strong hold in the US market consolidated its auto industry into just 2companies, Hyundai and Daewoo. To have a strong hold in the market, Daewoo formed a joint venture with General Motors, whereas Hyundai took the more unreceptive way by developing its own network of different dealers in the United States. During 1986, Hyundai presented the simple but consistent Excel to the American market. Within four months of its launch, Hyundai had smashed the record for the highest number of sales by a foreign brand in the first year in the US market. So, as an organization Chery have to adopt a strategy that must support its own financial position and also must produce a car that is cost effective for the people of the USA. (Green, 1992). From the strategy of Korean government is it is very clear that Chery has the opportunity to make entry into a niche market of the US automobile industry and that can be the entry level car market. For example, with low manufacturing costs, and therefore with a lower selling price, Hyundai participated in the American market competing with used Toyotas and Hondas. From the analysis of the American Auto industry, it is very clear that with high labor charges and other matters related to labor unions, had an encouragement to construct high-end cars for higher profit margins. To capture this, Chery can choose to supply higher end vehicles because of American ceilings on the total number of autos have a higher share of total sales volume. The company can also look for an open niche in the entry level cars which they could capture with undercut price and. It will help the organization deliver what US people want and that is new cars, but at used car prices. The organization can take the advantage of low labor cost in China that is as low as $ 2 per hour (The Economist, 2006) which is helpful for them to produce a low cost car. Research shows that developing nations normally lack the technological know-how to build cars that compete with the mid-level and flagship cars offered by established firms, but they do have the labor cost advantage that allows them to compete at the entry level. The most competitive plan for the organization is to produce low cost car with the advantage of low labor cost in China and high technology and can reach up to more numbers of people. Gao et al. (2007), in their review mentioned that market circumstances are ripe for Chinese entry to the American entry level car market and therefore it is important that Chery must consider the current American buyers, and how they have transformed over time. (Gao et.al, 2007). The organization has to realize that American buyers are extremely unlike from those in Mainland China regarding the car purchase. Americans are knowledgeable and sophisticated shoppers for automobiles therefore they are in a position to claim high values from car suppliers. As an organization, Chery have to realize that the customer choice is very much different in America compared to China and in terms of car design and price. (Sit & Liu, 2000). The use of car in China has increased rapidly in the last few years as the number of car manufacturer is rapidly growing in the country and there are over 20 million cars on Chinese roads (Dahl, 2005). The communication Perspective: Chery as an organization has to face another key challenge and that are related to communication challenge. It is one of the key challenges for the organization. There are two major questions; one isnegative observations of China and Chinese brands of the Western world and their low ability in sympathetic local cultures when abroad. Hodder (1999), in his review mentioned that from the very past China as a country generated an intellect of secret, exoticism and complexity from its ancient civilization. (Hodder, 1999). At present China is known as a country of Communism, cheap labor, counterfeits, and sweatshops (Kynge, 2006; Dubey, 2006) and the organization have to rely on this factor while making their strategy. In 2007, the Chinese organization Changfeng’s made an attempt to showcase its new car model in Detroit to represent the fact that Communists lauding competition (Shirouzu, 2007). Chery also can follow this method before making a full-fledged entry into the US market by demonstrating its product in different places in the USA, promoting its own brand value and also by creating interest among the US people. In most of the cases, the common nature of the Americans is that they are very much comfortable to buy American brand which are produced in China but they have some negative perception about Chinese brand. “Sure, the iPod may be manufactured in China, but from an American company retails it, we trust it more,” (Dubey, 2006). Wang (2007) in his review also stated that “despite the ubiquity of Chinese-made goods in American’s everyday lives, research and anecdotal evidence suggest that association with China hurts rather than helps Chinese brands” (Wang, 2007). On the other hand, it is also the fact that “Chinese brands suffer from negative perceptions, and perhaps, negative realities “said Interbrand (2006). So Chery as an organization has to fight against all these negative reputation to build a strong presence in the US market. Last but not the least, as a Chinese auto company, with a very limited experience of marketing and administration in the U.S.; look a new, social tariff. “A World Bank report of 2008 found that more than 85 percent of CEOs of failed Chinese joint-ventures attributed their difficulties to differences in management styles and corporate culture” (Accenture, 2006). So as an organization Chery must have a strong bondage with the present association with the company in order to have a strong hold in the initial stage of entry. Conclusion: Almost all the Chinese companies, especially the automobile companies’ face an up heal tasks while considering the entry in the US automobile market. For Chery automobile it is no exception. As an organization Chery has to downplay the existing country’s reputation for developing cheap goods and to deal with their country’s political ideology as well, along with fighting with the communication and business challenges. But as the domestic market in China is continuously growing it is very important for Chery to export abroad especially to capture massive U.S. market. To achieve the success, Chery as an organization need to recognize their competitive benefits and build the essential operational and communication skills to capitalize on these opportunities. References 1. Accenture (2006). China spreads its wings. Accenture website publication, retrieved on 24.1.2013 from http://www.accenture.com/Global/Research_and_Insights/Policy_And_Corporate_Affairs/ChinaGlobal.htm 2. Anderson, S. & Svensson, G. (2009), Global Marketing: think globally and act locally, Lund: Studentlitteratur 3. Business View (2006). 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