Market entries to China for Holden Essay
Market entries to China for Holden
With more and more countries taking part in the international trade, the world’s market is expanding in a rapid pace. How to make use of the enlarging market and remain competitive become urgent for those participants. Market diversification is a good way to take full advantage of the resource and improve the efficiency by enlarging the business scope. In addition, it can also ease the pressure of competition and reduce the cost. The report mainly discuss that Australian Holden may enter Chinese market and chooses Shanghai as the target market.
The report firstly analyzes the Australian and Chinese market and briefly introduces Shanghai. Then it presents the market-entry strategies and focuses on comparison on the advantages and disadvantages of Export-based entry and manufacturing-based entry. Through the comparison, the export-based entry is recommended to Holden. Finally, the report analyzes the 4p in marketing, which are price, place, products and promotion. In short, Shanghai is a bid developed country with the encouragement from the government to promote the development of automobile industry.
Holden is founded in 1856 with headquarter in Melbourne and it set into the field of automobile manufacturing after the company designed the body of the car for the first time in 1918. Australia-based GM merged with Holden in 1931 to establish GM-Holden Automobile Corporation. Holden’s Vehicle Operations produce 42 models from four vehicle body styles for domestic and export customers. For domestic market, the facility produces the Commodore range of sedans, Sportwagon and Ute together with Caprice long-wheel base luxury vehicles (Rob M 2011).
Holden’s Global V6 Engine plant is located in Port Melbourne, Victoria and it gives Holden considerable flexibility in the range of engines it can produce for local and international customers including export customers in South Korea, Thailand and China. Holden is a centre of expertise in design and engineering for GM globally. Holden is one of GM’s nine global design centers responsible for vehicles such as the Holden Commodore and Chevrolet Camaro. Holden is also the centre of expertise for large, rear-wheel drive vehicles in the GM family as well as a major power train engineering centre with expertise in R&D and customer programs in V6 and V8 gasoline, CNG and LPG applications.
2.0 International and domestic marketing environment analysis
2.1 The analysis of Australian and Chinese market
The economic crisis has negative effect on the global economy with high unemployment rate. As for Australian automobile industry, both the sales and production decrease. Although there is challenge, opportunity coexists. Holden saw the chance for industrial integration and it is inclined to import components from China and other countries. Hence, Holden is making efforts to enter Chinese market in order to achieve market diversification. The following table format shows the comparative analysis of Chinese and Australian market.
From the above chart, it can be seen that China attracts Australia for the following reasons. Firstly, China is the world’s second largest economic entity and it has seen rapid development in recently years. With largest population in the world, China has wide potential in various industries with strong demand and high level of consumption. With the development of economy and high standard of living, people tend to purchase more expensive products as they have strong purchasing power. What’s more, Chinese government has announce some policies to promote its development, such as purchase tax-free for whose emission below 1.6, cash for energy-saving program and presentation of automobile credit. With the price of oil increasing, the compact vehicle has taken up the most of the market share. All those factors have stimulated the development of automobile industry in China (Piercy, N 1982). Compared with Chinese market, Australian automobile industry is more mature. In short, China is a place with great potential for automobile market.
Shanghai is a global city, with influence in commerce, culture, finance, media, fashion, technology, and transport. Shanghai, the most developed city in China, is a major financial center in the world. With the development of automobile industry in China, the industry also sees rapid booming trend in Shanghai. As one of the earliest cities to carry out Chinese opening policy, Shanghai continues to go out of China, seeking for international level of development. In addition, it is a fairly open city with diverse culture and civilization. Taking consideration above factors, Shanghai will be the target market for Holden.
2.2. Estimated market size and gap analysis in Shanghai
Shanghai is the largest city by population in China and the largest city proper by population in the world. With large population living in the city, their demand of automobile is strong, so there is hug amount of potential customers in Shanghai to buy cars. In addition, they also have strong power for purchase taking consideration of the economy in China. Actually, most young people will choose to buy compact and small cars in Shanghai as it is convenient. Automobile industry growth has been primarily driven by rising domestic demand stemming from rising incomes, a growing middle class, and by supportive industry policies from the Chinese government (Piercy, N 1982).
However, the whole market is very fragmented and the research and development capacity is weak in China. The Chinese government has implemented a number of tax adjustments and subsidies for automobile purchases. In short, Shanghai has great potential for automobile development with strong demand and high purchase power, while the research and development is relatively weak. Holden can take the advantage to merge into Shanghai and bring about innovation to the whole market.
2.3 Expected sales and market share analysis in China.
According to China Association of Automobile Manufacturers (CAAM), automakers in China sold 18,505,100 new vehicles last year, 2.45% more than 2010, which also creates a historically high. The annual growth rate dropped sharply from the 32.37% seen in 2010. Production rose slight 0.84% to 18,418,900 units. Passenger car sales gained 5.19% on year to 14,472,400, as 14,485,300 units were produced, 4.32% more than 2010. The commercial vehicle market shrank 6.31% to 4,032,700, as production dropped 9.94% to 3,933,600.
Shanghai GM sold 1.23 million cars in 2011, up 18.5 percent from a year earlier. The sales in China are expected to see more growth in the future and It is widely believed that China’s automobile market currently has the most growth potential around the world. The sales of automobile in Shanghai always took a large amount in Shanghai, so Holden expect a huge potential for sales in Shanghai. According to a survey, the domestic market of share for automobile industry in China is 29%, which means that the majority of market share is took up by foreign brand. It is great news for Holden that can make use of its great competitiveness to enter in Chinese market, especially Shanghai.
3.0. Market entry strategies
Marketing entry means that the government of a nation allows citizen or legal person to enter the market to do business and commercial activities. The system for marketing entry indicates the control and management of the government on the market. The purpose of market entry is to stabilize the source of tax and rationally allocate resources. In addition, the market entry aims to pursue public safety and health and maintain sustainable development. The ultimate goal of marketing entry is to maintain free and equal competition for participants, which means that the global market is unified. However, the marketing entry is a process, different country will have various degree for openness considering their economic development level.
When a company has made a decision to enter an overseas market, there are a variety of options open to it (Basche, J.R1971). These options vary with cost, risk and the degree of control. The simplest form of entry strategy is exporting using either a direct or indirect method such as an agent, in the case of the former, or countertrade, in the case of the latter. More complex forms include truly global operations which may involve joint ventures, or export processing zones. Entry strategies: There are a variety of ways in which organizations can enter foreign markets. There are export-based entry, manufacturing-based entry and relationship –based entry. The export-based entry and manufacturing-based entry are compared here.
3.1 The analysis of export-based entry
Exporting is the mostly widely accepted and the most mature form of operating in foreign markets. Exporting can be defined as the marketing of products from one country into another, while no direct manufacturing is required in an overseas country and significant investments in marketing are required. This strategy does not need too much detailed information about the market compared with the manufacturing-based entry, but it still need some necessary information about the local market (Cunningham, M 1986). The export-based entry contains many elements, such as indirect export, direct export, establish sales offices in foreign market and licensing. Direct exporting means that the organization uses agents, distributors or oversea subsidiary or through government agency.
In most cases, the company exports by means of local agents or distributors as they know more about the local market which is important in conducting the business (Jaffee S 1993). In addition, they have advantage in language and they know how to get local customers. Indirect export means that products are exported through trading companies and some export management companies. The advantage of indirect exporting is that the exporters do not need to know much information about the local market as they can rely on trading companies. Another option for exporter is to sell products directly to foreign end-users and this method does not incur intermediary costs and exported can gain higher profits. The web-based B2C and B2B sales are the most common ways to sell products to end-users.
The advantages of exporting are that: Firstly, exporting is very simple and low costs and risk, so it is usually the first forms that companies will choose to get knowledge of the target market. Secondly, as the exporting-based entry is home based, the utilization of domestic plants are increased and costs are decreased at the same time. Thirdly, the method can also help to diversify markets, which reduce the company’s exposure to domestic demand instability.
The disadvantage is that: firstly, high transport costs from the exporter to the target market. Secondly, exporting may encounter some trade barriers and problems with agents will also affect the export (Sharma, D 1989). Thirdly, exporters have lower control of the agents, facing the risk of exchange rate fluctuation, and are subjected to custom duties and tax from the target country. Although the export costs are low, the exporter has to pay for know more about the market, increasing sales, distribution networks, and attracting customers. Furthermore, exporters should design their products as per the requirement of target market. 3.2 The analysis of manufacturing-based entry
Manufacturing-based entry includes joint venture. Joint venture means alliances where there is equity participation from both the foreign entrant and the local companies. The equity participation indicates that one can have minority of stakes, equal stakes or majority of stakes (Terry J 2006). The advantages of joint venture are: firstly, one can decrease the capital risk. Secondly, exporter can use the target companies’ facilities in manufacturing distribution and sales. Thirdly, the exporter can take advantage the local companies to enter the market and they can contact with local government through local companies. Many companies avoid having joint venture as it is complex in coordinating policies, decisions and execution with a different company. Disadvantages of joint venture are that: a. Different in culture and language with communication problems b. Different in managerial styles
c. Different in the motivation behind participation.
d. Selection of the right partners.
Other than above problems, there are also risks in entering in joint venture as the complication at the time of exit, when a foreign entrant decides to leave the market and the joint venture should also have an exit strategy (Yip, G 1982). Another is the company’s intellectual property, which is more difficult to control the access to the technology. Furthermore, if the IP is stolen by local partner, it will become a big problem to deal with.
4.0. Recommendation on how to enter Chinese market
4.1 Market entry strategy choice
An organization wishing to enter other market faces three major issues: a. Marketing – which countries, which segments, how to manage and implement marketing effort, how to enter – with intermediaries or directly, with what information. b. Sourcing – whether to obtain products, make or buy? (Keegan, W1989) c. Investment and control – joint venture, global partner, acquisition.
Decisions in the marketing area focus on the value chain. The strategy or entry alternatives must ensure that the necessary value chain activities are performed and integrated. As for Holden, the export-based strategy is greatly recommended as Firstly, exporting is very simple and low costs and risk, so it is better for Holden to get know more about Chinese market. Secondly, as the exporting-based entry is home based, the utilization of domestic plants are increased and costs are decreased at the same time.
Holden has its own manufacturing plants and it can save costs in this way. (Khoromana, A 1991)Thirdly, the method can also help to diversify markets, which reduce the company’s exposure to domestic demand instability. Holden can gradually come to Chinese market after get a better idea of Chinese market and customer’s demand. Another approach is to direct invest in Chinese market. Holden can set up manufacturing facilities as it is capable of putting large amount of capital with management dedication (Korey, G 1986).
4.2 Estimated budget
The marketing mix is one of the most famous marketing terms. The marketing mix is the tactical or operational part of a marketing plan. The marketing mix is also called the 4Ps which are price, place, product and promotion. |Price |Price is the amount the consumer must exchange to receive the offering | |Place |Place includes company activities that make the product available to target consumers | |Product |Product means the goods-and-services combination the company offers to the target market. | |Promotion |Promotion includes all of the activities marketers undertake to inform consumers about their products | | |and to encourage potential customers to buy these products. |
So the budget includes activities for efforts to make the products available to target consumers, service for the target market and promotion.
4.3 Time frame (2014—2017) for Holden
|Price |Making an analysis of prices in Shanghai and setting the price according to the consumption level. | |Place |Target market: Shanghai | |Product |Holden’s compact and small cars. | |Promotion |Making some advertisement for Holden’s cars with the help of local agents or distributors as it use | | |export-based entry methods |
As Holden uses the export-based entry methods, most work can be done by local agents or distributors and also the budget also includes the pay for them besides the budget for 4ps.
In the recent years, trading has become more and more popular among countries. Trading activities has become increasingly global in some way due to the need to gather and increase the company’s financial bases. Advancement in technology including communication efficiency and better international relations has contributed to the development of the international trade. However, competition has become a great challenge to the expanding of global business, but most companies are making great efforts to solve the problem.
In order to make the good use the situation as the world has become a village and to achieve greater investments and better market opportunities in the international market, it is necessary that primary and secondary market research is done to ensure that information regarding the target markets in countries desired is obtained. To choose the best way for market entry is crucial for a company as it can help the company to diversify market in other countries and help it gain competitiveness in the world with fierce competition.
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Subject: General Motors,
University/College: University of Arkansas System
Type of paper: Thesis/Dissertation Chapter
Date: 10 January 2017
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