Five Years Strategic Plan Essay

Executive summary You are employed by a Swiss subsidiary of a transnational company in the processed food business whose products are sold via retailers and direct to the food service industry in a number of countries. Recently in Swiss subsidiary has been allocated responsibility for the Asia-Pacific Region and you have been assigned the task of spearheading the firm’s push into china and adjacent countries. In the light of opportunities and constraints to be awaited on the chinese market, the evaluation of alternative entry options showed that our best opportunity was on health food products related to the dairy products actual massive trend. We also decided to adress chinese cultural sensitivity issues by entering in long term close relationship with customers instead of being too focused on quick deals and to adapt our networking strategy to chosen entry strategy. We also examined how we should select a strategic partner, should the Chinese government advise us to do so, and how we should be adapting our global marketing processes to the issues raised by national sovereignty in China. Finally, we decided to include as adjacent market either Thailand or Vietnam in order to benefit from the existing trade relationship between them and China, even if countertrade obligations are to be met. INTRODUCTION The overall purpose of this paper is to present our five years strategic plan which objective is to enable our firm to become a major player in the processed food market adressed to retailers and food service industry. Among our very wide range of products, we will examine alternative market entry options in the light of potential opportunity and constraints, then examine the question of the influence of cultural sensitivity on negociations and on introduction of our product to chineses market. The next step of our analysis will be to examine the impact of adhesion of China to WTO on market environment and the consequences of cultural sensitivity to network and relationships. Our next field of investigation will be to examine the threat represented by a potential obligation to enter a strategic alliance with a local player and by our global company culture regarding national sovereignty issues. And we will finally include perspective of developping an adjacent market with eventually compulsory countertrade involved. Section 1 Alternative chinese market entry option for breakfast cereals and cereal bars in the light of potential opportunities and constraints. The recent huge success of dairy products in China, although a majority of the population is lactose intolerant and milk was never part of the traditional chinese food is showing that chinese market has become increasingly open to adopting foreign fooding habits. This is even reinforced by the success encoutered by Mc Donald’s and Starbucks. But one very interesting element of dairy products success is that its main reason and marketing idea is to value its good impact on health. This is what makes us think that the best way to introduce our firm’s product range is to be highly positionned on health benefits to be awaited from consuming our products, their total safety through high level controls. In terms of politics, China is a stable country, which has invested huge efforts into modernisation of its institutions and legal framework in order to enter the World Trade Organisation (WTO) in 2001. Contract enforcement and business matters involving foreigners are to be brought before high courts specifically trained. Intellectual property protection is still a broad problem through counterfaiting and brands like Starbucks are now facing parasite competitors who sell similar products to much lower prices. Chinese market is a huge opportunity but the country still lacks infrastructure and geographic entry has to be limited to main big cities, with a view of extending to the ever increasing number of middle sized cities growing all around the country. The idea of staying in urban areas is linked to two factors: our products are distributed through retailers networks, and food service industry which can only be found in big cities in China at the moment. As we work with retailers and food service industry, indirect market entry strategy through intermediary could prove worthy, at least at the beginning, as long as our products are not known. We could benefit from the intermediary’s network and his expertise on selling foreign products to chinese market. However, using and intermediary is not the prefered solution as it would increase our costs, and as chinese market is very price sensitive due to copycats, keeping good price/value ratio is a key strategic point. With direct market entry methods, we would have more control on market reactions and be able to lower our export costs. Alternative solutions to enter market range from specialised trade fairs (on dairy products, health products, breakfast and snacking products, etc†¦) to a campain of trial gifts to be organised with either yoghurt or milk distributors, or by giving free samples in school, university and working areas cafeterias. We could also reach agreements with already installed foreign companies who would be interested in distributing our products on their shelves. Considering our objective of becoming a major player on processed food within the next 5 years, it would probably be worth it to make a large upfront investment to develop internal expertise in chinese market, in order to maintain our own relationships in the target market, which could be later used in order to introduce other product range on the same market. Therefore, and in the context of a long term investment, prefered market entry would be on health safe products targeting families and young working singles. SWOT Analysis Opportunities: Economic climate : a double digit economic development favourable to high quality trendy foreign food processed products with an attraction to health promising food. Demographic changes turning a rural population into city office working people whose life standards have increased dramatically over the last few years. Market opening through China’s entering WTO system and making legal and administrative environment more import friendly Threats: Competitive activity: other global firms are already on the market and Mc Donald’s, Vuitton and Starbucks experience of the market show that any brand valuation generates its army of copycat making it difficult to keep up with very low prices in a very price sensitive market. Culture: Reluctance to adopt new foreign fooding habits in a very traditional culture Pricing: chinese market is very sensitive to pricing and client segment will have to be chosen carefully and matched to pricing range. Strength: Health food image connected to dairy products Processed food in a booming ever increasing market Product adaptability: Cereals can be flavoured according to Chinese market tastes Networking: Company’s excellent ethic reputation Large target: Product attractive to kids and adult alike Weaknesses Not enough differentiation in products Need high advertising budget to gain trendy attracting image Section 2 How culture might impact on (i) negotiating in china and (ii) introducing your firm’s product into china. The usual tip when you prepare a business trip to China is to carry business cards, bring an interpreter, wear a conservative suit. These advice are easy to follow and have proven usefull, but they are too superficial to get you into the kind of association with chinese you need to be able to negociate agreements and introducing on a long term perspective the firm’s products in China. Graham and Lam (2003) have described the roots of chinese culture which have bound chinese people for 5,000 years and show through chinese business negociation: agrarism which superseedes business(survival depends on group cooperation and harmony, loyalty and obdience to familly hierarchy), confucianist morality (relations of ruler and ruled between husband and wife, parents and children, older and younger, and of equal between friends), being more concerned by means than by end in negociations, the fact that chinese tend to see easily the big picture, and finally that chinese people are very cynical about rule of law and rules in general, only trusting their families and their bank account. The elements that are important in chinese negociation are: have personal connections (friends, relatives and close associates), use an intermediary in order to avoid suspicion and distrust, be formal in order to show social status, pay attention to interpersonal harmony (smile, be nice and friendly), see the big picture and leave the detail to a later stage, be patient in order to get concessions on prices, never embarrass or provoque a lost of composure to a chinese (equivalent to loosing face), value endurant work more than talent. As a result of the above, introducing our products into China will probably require either a very long time necessary to build a trusted network, or the use of an intermediary. It is of first importance to try to establish close contact with significant actors of the retail and food service industry. The pricing of the products will probably also be of concern, as, if too low, it might not have the value effect, but, too high, it might repell consumers more tempted by a local copycat.    Impact of recent access of China to the WTO on other environmental variables which can be encountered when doing business in China and how it might benefit to our ability to establish worthwhile business in China. When China joined WTO in 2001, it made a transition from a centrally planned economy to a market driven economy. The institutional framework for foreign trade was inexistent, the information transparency culture still to be invented, existing judicial and administrative system inadapted. A tremendous amount of work was requested before China could integrate WTO system. China agreed with its major trading partners to open chinese market within 3 to 4 years to foreign companies in various sectors, including telecommunications, distribution and wholesaling, financial services, and banking and insurance. The change in laws included codifying existing administrative practices into written laws and regulations, therefore increasing transparency and predictability, covering around 200. Foreign trade law had to be modifyed. Regulations on international trade of goods and rules of origins were created. Regulations on transnational mergers and acquisitions and franchising were developped according to their new objectives. Anti-dumping, subsidy, countervailing and safeguard measures were prepared, and altogether, the capacity of the Government to provide legal information to the public was strengthened. Under the China’s central planning system, foreign trade was administered with both tariff and nontariff controls, including quantitative controls which WTO rules require to eliminate. To ensure that the WTO’s nondiscrimination principle is met in the judicial process, China issued an order that took effect on 1 March 2002 to elevate the jurisdiction over commercial cases involving foreigners from the primary courts to the higher level of courts, the question of training the judges to the appropriate regulation still being an issue at the moment. (Mitchell:2004). Altogether, when entering WTO system China had the tools to a market economy. These modifications created a foreign investment friendly framework, but the cultural reluctance to rules and the natural reliance to human bonds are still to be watched when doing business in China (Usunier & Lee:2005). It had a great impact on having major competitors entering the chinese market with success and provides market with the stability and rules needed to establish worthwhile invesment. Section 3 Significance of the focus in China on relationship and network on our chosen entry strategy. As, in China, all business is subject to relationship and network, and as we have chosen to invest into a direct market entry strategy, we will have to rely on building our network with key players. Relationship marketing involves creating, maintaining and enhancing strong relationships with customers and other stakeholders. This type of marketing is moving away from focusing on individual transactions and moving towards to focusing on on building value-laden relationships and marketing networks. This type of marketing is long term oriented, very demanding as it is aimed at delivering long term value and satisfaction to customer (Kotler &al:2005) It also involves building relationships at different levels: economics, social, technical and legal resulting in high consumer loyalty. Kotler (2005:476), distinguishes five different relationships that can be formed with customers: basic (sale is made but no follow up on satisfaction) Reactive (salesman encourages customer to come back if any question arises) Accountable (salesperson contacts customer shortly after the sale to check that product meets expectations) Proactive (salesperson or company person phones customer from time to time to suggest other products) Partnership (company works with its customers to discover ways to deliver better value) Considering that we intend to sell our product to a large number of customers with medium profit margin, the adapted relationship level would be â€Å"accountable†. Therefore, salesperson would phone retailer or food service company shortly after the sale to check if product meets expectations. Of course, identifying key customers and being more proactive with them would also enhance efficiency of such relationship marketing. Company would probably take advantage to using other marketing tools as giving special treatment and reward to good customers, or inviting them to special events. Chosen strategy network map and discussion on focal and subsidiary relationship involved. First step is to identify key player in retail networking and food service industry, like main wholesalers to be met at trade fair, mass retailers like supermarkets, trendsetters to be identified on TV or sports like football. Next step is to initiate contact with them with a focus on long term relationship and not on result. These relationship, due to their weight on market and the advantage that can be gained from being referenced with them have to be favoured at a first stage. Then, once this network is established, and in order to continue expansion, identify other distribution channels than wholesalers or mass retailers and initiate subsidiary relationship with them, as smaller restaurants, or hotels. Section 4 Adressing the issues related to rumour that Chinese government might request that we enter into a strategic alliance with a Chinese owned firm: selecting and managing strategic alliance partners in china. As in many asian country there is a rumour that we may have to enter a strategic alliance with a chinese partner in order to be allowed to market processed food in China. As Charles Revson, founder of Revlon cosmetics said once â€Å" I don’t meet competition, I crush it† and this should be remembered when entering a strategic partnership with a chinese partner. In fact, as cultural analysis hereabove showed, chinese only trust their family and their bank account, so, in order to enter a sound alliance, a few criterias must be met. Criterias for selecting strategic partner in China should be: good reputation of loyalty and integrity on the market, but also of product quality for reputation purposes natural feeling and common values, understanding of what our goals are and willingness to collaborate extensive network on our targeted customers, on the areas where we have the greatest growth or the most profitable areas proven synergy opportunity between our two companies instead of competition long term relationship seems possible through mutual cooperation (strategic alliance must be a win-win situation in order to be sustainable on the long term) Impact of the issues of national sovereignty in China on application of our standard marketing approaches in order to enhance global image and additional profits through economy of scale. China is very sensitive on the issue raised by separatist claims by   Taiwanese nationalists, Tibet and Xinjiang separatists. Our standard marketing approaches, designed to enhance global image and enable additional profits through economy of scale, mustn’t be a threat to our main objective which is to become a major player in dairy products in China. Therefore, our standard marketing approaches should be amended in order to avoid any differenciation between the average product sold within China and the ones sold in these three areas. The main market should be priviledged against the particularism of the three separatists areas. No marketing argument that our product would be specifically adressed to the separatists areas should be set forth and it should under no circumstances become a selling argument or even be mentioned, because it would probably cause us to loose main market. Section 5 Criteria to select an adjacent market between Taiwan, Thailand, Myanmar, Vietnam The first criteria to take into account is capacity to use both markets to enhance presence on each other. Creating synergies in a market entry phase might be vital and the level of trade relationship already existing between China and that country is the right measurment. The second one is to choose a market which might be governed by the same cultural trends in order to be able to adopt the same marketing approach to both. A third criteria, maybe more operational, is distance and accessibility (custom tariffs, roads, etc†¦) between both territories. This might enable to base product in one country and ship to the other from thereof. Fourth criteria might be existing trade relations with Switzerland which might make it easier for us to start networking, as the swiss image would already be a commercial advantage. Myanmar being subject to economic sanction from China due to compulsory labor is not a valid adjacent market, though it has entered the asian liberalisation trend and was even acknowledged by the UN Conference on Trade and Development in 2001 as a member that performed ‘well to better’ in the trade liberalisation process under the WTO’s principles It also does not have the right development stage to be interesting and human rights issues might be damaging our image. It has very little commercial bonds with Switzerland. Thailand had rather recent diplomatic relations with China (dating 1975) but shows since then a real will to become a partner of choice of China. Both nations have common roots and share common ancestors. The commercial agreement between the two countries (Sino Thai Free Trade Agreement) only covers fruits and vegetables at the moment but could possibly be extended. Thailand is also member of the WTO. Its main advantage is to already have strong network trade connections with Switzerland (on machinery, watches, etc†¦), where we are based, which could be a decisive advantage for us in terms of network. Taiwan is actually administrated by China which makes it a priviledged area to invest in. It also has a long tradition of trade with China which makes it a good candidate due to the need for trade network to enhance each others, and as a little dragon, it also has the wealth to be interesting, but choosing it would probably not be the best in terms of advantage on chinese market as it does not really add anything different to being only present in China. Also it does not have any specific links with Swiss market. Vietnam has a common frontier with China and is following more or less the same path towards becoming a market economy and entered WTO in january 2007. Though it does not have the same laws, it has a similar development trend, close traditions and the close commercial links with China in all sectors that makes it a suitable adjacent market. It is also a so called little dragon, a booming economy that could be a very profitable market. The trading network between Vietnam and Switzerland is not too developped though Switzerland is present in Vietnam with a swiss embassy in Hanoi. Finally, in order to develop a global brand image in asia, it might be a good choice to choose between Thailand and Vietnam. How to turn the risk of being obliged to countertrade into a profitable trade More than 80 countries nowadays use or require countertrade exchanges. A concensus of experts opinions (Okaroafo, 1989) has put the percentage of the value of world trade volumes related to countertrade at between 20 to 25%. Counter trade usually occurs when countries lack sufficient hard currency. There are five main variants of countertrade which could be of different value to our firm. Entering a barter (exchange of goods or services directly for other goods or services without the use of money as means of purchase or payment) could eventually be interesting if we manage to find good quality bulk products that could be integrated in our products, like fruits or packaging. Using the switch trading practice (in which the country would exchange allowing our importations against an obligation to make a purchase on the domestic market) could also be of interest to us for the same reasons. A buyback (buying machinery necessary to our production in exchange for products) agreement is not a really interesting deal for us as it involves very heavy transportation. Finally, entering an offset agreement (offsetting a hard-currency purchase of an unspecified product) would be a very dangerous operation as we would have to cover currency exchange variations. Proactive strategy to trade profitably with the selected country In order to be ready when the ban on import occurs, we will implement a proactive strategy by identifying products that could be of use in our production process. Then we will start making contacts with producers of these products and gain market knowledge of prices and quality available, identify suitable suppliers that meet our quality requirements and are able to supply us with the adequate quantities. Therefore, when we will be forced to countertrade, we will already have our network in place. Conclusion: As stated in this document, our five year strategic plan on entering Chinese market involves: entering market with health food linked to dairy products mass trendiness with direct marketing tools Always keep in mind the cultural sensitivity of China in order to use it as a competitive advantage instead of a falling trap. Utilise the huge work done by China to be able to keep up with WTO entering necessary standards in terms of transparency and legal framework to our profit in developping our business Invest in developping extended network and long term relationship marketing in order to open the route to introducing our other products on the market later If needed, choose carefully strategic partners Amend global marketing policy in order to avoid sovereignty issues Choose between Thailand and Vietnam as adjacent market, even if countertrade is involved. Reference Table SunfaithChina Ltd,September 2006,†Market Analysis report on China Yoghourt industry†, http://www.mindbranch.com/listing/product/R521-158.html Chen, C, February 2003, â€Å"Got Milk?†, Wall Street Journal http://www.mindfully.org/Food/2003/China-Dairy-Drinks28feb03.htm John L. Graham and N. Mark Lam, 13 october 2003, â€Å"Negotiating in China†, Havard Business School, Excerpted with permission from â€Å"The Chinese Negotiation,† Harvard Business Review, Vol. 81, No. 10, October 2003 Mitchell, A â€Å"Implementing WTO rules: The Importance of Law Reform, Remarks of Arthur M. Mitchell, General Counsel Asian Development Bank, February 2004, apeC Workshop on Best Practices in WTO Capacity Building, http://www.adb.org/Documents/Speeches/2004/sp2004050.asp Vertariu, P., (1992), â€Å"Trends and Developments in International Countertrade,† Business America, (November 2), 2-6. 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