Analysing Global Marketing Environment - Assignment Example

Analyzing Global Marketing Environment Letter of transmittal Rachel Dowes, Chief Executive Officer Toyota Motor Corporation 1 Toyota-Cho, Toyota City, Aichi Prefecture 471-8571, Japan Dear Mrs. Rachel Dowes, As agreed on 25th march 2012, I’m presenting to you a report entitled ‘analyzing global marketing environment’. The report analyses the environment of china as a desirable destination to as to assist the management in assessing the viability of china as a favorable business opportunity. The report does do by conducting the PESTLE analysis of the country. Each of the factors is analyzed followed by a discussion of the outcomes and their potential marketing implications. In addition to an analysis of the Chinese automobile industry, the competitors that Toyota may face in their venture in the country are also analyzed. Finally, the report summarizes the main points in this report and the finding from the report. It is my sincere wish and thought that the content of this report will be adequate and hence measures outlined in this report will be put in place so as to venture into china since it seems as a favorable place for investment. Yours Sincerely, John smith Global Marketer Toyota Motor Corporation Executive summary This report aims at conducting an environmental analysis of China as a viable destination of the Toyota cars so as to assist the management in assessing the viability of the business opportunity. The report will start with foreign background information of the company which will be closely followed by a description of the product to be marketed to the foreign market, the report will also discuses the selected foreign country including the rationales for its selection and lastly the environmental analysis which will analyses the environment in the selected foreign country the aspects to be considered under this section will include all the aspects of the PETSLE analysis that is the political, economic, legal , social, environmental, and technological. Under each aspect there will be a description of the relevant factors and the outcomes and their potential marketing implications to Toyota venture into the Chinese market. Contents Letter of transmittal 1 Executive summary 1 Contents 3 List of figures 4 Purpose of the report 5 Limitations of the report 5 Scope of the report 5 Background 5 Company background information 5 Product information 6 Chinese automobile industry 6 Environmental analysis 8 Political and Legal factors 9 Economic environment 11 Social environment 14 Environmental factors 15 Technological factors 16 Industry and the competitors 17 Internal environment 18 References 20 List of figures Figure 1 China’s Annual GDP per Capita Growth Rate in Percentages: Year 2000-2009 Figure 2 FDI in China in billion USD: Year 2000 to 2009 Figure 3 FDI Growth Rate in China: April 2009 - April 2010 Introduction Purpose of the report The purpose of this report is to provide a detailed analysis of the Chinese Business environment and the vehicle industry there. The information will be used by Toyota Corporation to ensure when they start marketing their products in China their operations and marketing strategies will lead to the long term success in the Chinese market. The report looks at the political, economic, economic, social and technological factors that may affect Toyota venture into the country. Limitations of the report These findings of this report in that the information provides secondary and has its reliability cannot be ascertained. Furthermore China is a huge country and each province may not conform to the general business environment discussed in this report. Scope of the report The report assesses the impact of the business climate on operations China intends to carry out there. The report to ensure a detailed and focused analysis, has divide China’s macro-environment into five main categories. The vehicle industry keeps changing every few months with new innovations and products coming up. For this reason this report is limited to factors that have a direct impact to Toyota’s operations in China every few months Background Company background information Toyota Motor Corporation which is also commonly known as Toyota started as a follow-up undertaking from the initiator car company which was referred to as Toyoda Automatic Loom Works back in the late nineteen nineties and the company was been run by Kiichiro Toyoda. Afterwards the company has been a recognized brand in the automobile industry. The company is based in Japan with the head office in Toyota City. The company as well as the Toyota brand is widely recognized due to the large sale numbers that it has made since its establishment. The company owns and at the same time operates the Lexus brand and the Scion brands the company has a larger majority share in other companies such as in Daihatsu and Hino Motors, Isuzu Motors, Fuji Heavy Industries and many others. The company has various other locations where they manufacture there products, for example in India. The companies mainly focuses on the development as well as the manufacture of vehicles and at the same time it aims at creating job opportunities through dealer networks and also through the use of appurtenant industries. The company has approximately 522 subsidiaries. The company develops and manufactures a large of products ranging from automobiles to other related automobiles products. The products that the company manufactures includes: car engines, car electronic appliances as well as devices, stamping dies, vehicles and air conditioning compressors. Product information The selected product that Toyota seeks to sell in china is vehicles. The vehicles produced and manufactured by the company come in various ranges such as RAV4, Lexus brand and the Scion brands. Chinese automobile industry The current states in china show that the country is in a state of evolution. Being a communist state, the political system in china has underwent various drastic changes in the recent years, at the same time a lot of change has also occurred in terms of the country economic system. China is termed as the major developing state in the world currently, over time the country has managed to maintain a standard yearly GDP growth of approximately 8% in several years. Over the recent year the living standards of most Chinese people have been improving from time to time thus making a notable shift most Chinese people are not shifting away from the command economic system and are opting for the mixed economic system in china. With such numerous transformations taking place in the country the state policy has also been affected in relation to the automotive industry this makes china a favorable place for foreign investment. With the high and promising growth rates in the country a large number of manufactures as well as investors are more likely to invest in china and mostly in the automobile industry. Ever since the economic reforms were implemented in china (the deng xiapind reforms) the country has had an economic growth rate of approximately 9.7% (Chinese international economic consultants 2001). Furthermore the country has also achieved a 10.4 % annual growth rate in relation to the demand for cars in the country (Economist Intelligence Unit 2004). Ever since china was accepted in the WTO, numerous numbers of car manufactures have seen china as a potential products for their products and most of them have continued to spread out their actions so as to enter the Chinese market this is also attributed to the fact that there are optimistic forecasts in relation to future development of china and the manufactures are therefore seeing china as a most suitable location for the sale of their products (China Automobile Industry Yearbook 2004). The Chinese government implemented a policy in 2004 so as to cool the already concentrated economy in the country. The policy was comprised of enforce restrictions on access to car loans and also there was an increase in car insurance payment (China Association of Automobile Manufacturers 2004). Increase in price of oil is another force that greatly affects the manufacture in the automotive industry since with increase in cost fewer people tend to purchase the cars. When all these challenges are looked at they make the Chinese market non optimistic. There exist a lot inefficient that have multinational companies in their quest to invest in china. These inefficiencies are associated to the cost structure cost structure, competition and marketing. The automobile industry in china has a great potential but for the investors from foreign countries such as Toyota to be able to enhance all the potentials the company must choose wisely on the location. All in all the inefficiencies that are associated with investment in the Chinese market can be minimized while synergies ought to be increased. Environmental analysis There exist a diverse range of factors that have an effect on the choices that organizational managers make. So as to analyze the factors, most managers group them into a PESTEL model. The macro environment of a country is mainly concerned with major issues as well as other upcoming changes that are present in the business environment. PESTLE is an acronym for the macro environment of a business. This includes the external factors outside the business that have an effect on the operations of the business. PESTLE analysis stands for the environmental, technological, legal, political, economic and social factors. PESTLE analysis is termed as an important aspect of scanning the environment of the business. PESTLE analysis aids a company in determining how various factors have an effect on the company and its well being. As abovementioned, the factors influence on each company is different from their effects on other companies. The figure below shows the macro environment factors that may affect a business. Political and Legal factors Political and legal factors have an unswerving impact on any business operations. Government’s decisions in regard to a business as well as an industry have a great impact on the operations of a business to a varying extent. Political factors are termed as the political forces as well as pressures that may impact on the business performance or those forces that may offer other options for the organization under consideration. Back since the year 2009 to date, china is termed as a major vehicle superpower in the globe. The Chinese automobile industry has grown at an alarming rate as a matter of fact the automobile industry is termed as a major pillar of the Chinese national economy (Dunning 1993). China implemented an open door rule as from the late 1970s. A major reason for this rule was to save money that was required for upgrading with capital liberalization. China is seen as probable place for Toyota to market as well as establish their presence since the government of china has put measures in place so as to attract a large number of foreign investors and mostly the automobile investors. One of the measure is the that has been put in place is the provision of protection as well as privilege for foreign investors this has in one way made the Chinese market access easier. Toyota can take advantage of this opportunity and establish its operations in china. Also through the joining of the WTO, china was able to open its market to larger group of people as well as countries. The government of china has lowered and relaxed both the policies and tariffs. With the large population and the increased financial power in the country china is an extremely attractive location for Toyota. The Chinese government plays an important role in encouraging the development of the car industry in the country. Therefore in the recent years the incentive policies of the Chinese government will enable many domestic car producers to utilize foreign cars production platforms, engine technology and design. Legal systems also have a vital role to play in international biasness expansion. For an organization to establish a well functioning market economy, the government of china has set up laws and rules. In reference to the legal as well as regulatory measures, in spite of the strict and wide range of regulation that have been placed by the government in regard to foreign investment, there is lack of transparency. Over several years, the government of china has tried to make the operating environment more favorable for the investors. Despite all these some of the Chinese laws are uncertain, bewildering and hard to understand. Most foreign investors are sunned away by the he inconsistent, contradictory, ambiguous and subjective enforcement of most regulations and the lack of simplicity in china investment climate. For Toyota to venture into the Chinese market it ought to make actions that will ensure that it has a due diligence as well as professional advice (Icon Group International 2004). Economic environment Economic factors have an effect to both local and global businesses (Gan 2003). In instances when there is a boom in the economy, recovery from the boom will at times affect the consumer’s behavior and confidence in certain products? Most economic factors affect the customer’s purchasing power and the internal and external state of the country economy both in short term and long term (Perrault & McCarthy 2002). As it has been noted for the last two decades, Chinese have changed from a centrally economic system and have over time adopted a more market oriented approach. Ever since the intuition of the open rule, china has achieved a speedy and constant economic growth and it has gained a key function in the globe. Figure 1 China’s Annual GDP per Capita Growth Rate in Percentages: Year 2000-2009 Source: The World Bank, World Development Indicators Another important point to note is that china seems to be a more favorable place for investors and most automobile manufacturers are moving to china to invest also should take the opportunity and invest in china (World Bank 2011). Figure 2 below depicts the speedy growth that china has achieved in terms FDI since the year 2000 to 2009. The figures show how the country FDI has been increasing over the years. Figure 2 FDI in China in billion USD: Year 2000 to 2009 Source: The World Bank, World Development Indicators In addition fig 5 gives a brief summary of the FDI growth rate during the same span of time (that is from April 2009 to April 2010). Based on the assessments of the economic factors in the country through the use of figures, it is evident that china seems to be a favorable destination for Toyota to invest. Figure 3 FDI Growth Rate in China: April 2009 - April 2010 Source: China Daily 15 May, 2010 Another point in support of these is the increase in FDI which stood at 24.7% in 2010. Based on an article in the china daily, the first four months in the 2010 has achieved foreign investments that amounts to around USD 30.8 billion, which seems to be a 11 % increase as compared to the previous year (Qingfen 2010). Thus it is evident that the Chinese automobile sectors has a lot of potential and it seems as a favorable place for the Toyota to invest in this is due to the high profit potentials in china as well as the booming economy in the country and the large market size that is created by the large population of Chinese people. Social environment The factors that are grouped under the social factors include factors such as change in demographics, change in trends relating to how certain individuals think, live, work and the cultural aspects. It also includes the education level as well as the population’s attitudes towards careers and the stakeholder’s expectations. All those factors, affects the consumer wants and the potential size of the market (Perrault & McCarthy 2002). According to a survey that is usually conducted by the national bureau of statistics to measure the basic condition of approximately 15,000 citizens living in the urban centers in china shows that out of 10,000 individual who were surveyed only 114 own cars. In addition, another research that was conducted by Ronald Berger forecast showed that after entry into the WTO there would be an increase in car sales in china and true to the research the numbers of car sales have really increased since china joined the WTO. Also according to investigations that were carried out by the Chinese consumers association, a large number of Chinese prefer buying imported cars as compared to buying their domestically manufactured ones though the imported ones tend to have a higher price. According to the association about 80% of consumers will opt to buy an imported car based on the fact that there exist no wide price gap between the imported car and the domestic car (cars been manufactured in china) this is based on the fact that customers are more inclined to buying products with certain brands hence making brand a more important concept to consider besides price. In 2000, the GDP of china reached US$ 800 when it is interpreted economic principle terms such a GDP, the car prices are said to be almost half the incomes of most families thus a greater number of families will tend to purchase cars. Presently in china approximately 500, 000 families earn an annual salary that adds up to US$ 5400, this is most cases is almost the half price of most cars that are sold in china. This signifies that the country has the basic conditions that are necessary for buying cars for family use rather than for business use also another 300,000, 000 citizens have the ability to buy cars based on the earnings of the urban populace. It is widely recognized that culture has a great impact on most business activities. The Chinese people have many cultural beliefs and habits that are diverse from the western beliefs. Consequently, it is exceedingly vital for Toyota to be familiar with and try to appreciate these diversities while investing in China. With appreciation of the Chinese culture Toyota will be able to operate well in the country (Lin 2010). Environmental factors The environmental factors also add on to the factors that affect the Chinese automobile industry it complement the technological trends in the sector. The green car seems to be a must for all countries in the globe (Genovese, McDonald, Pescatore and Wu 2010). Companies ought to manufacture environmental friendly cars so as to preserve and at t he same time take care of the environment. The modern day cars consume a lot of petrol which also leads to air pollution, sound pollution which is caused by traffic in the major cities. There is also there is also lack of parking spaces to cater for the rising demand. All these factors have been termed and that they have a major impact surrounding environment in terms of future affluence of the industry in almost all places in the world. Based on the present situation in the technology there is a rising demand for cars and there is a rise in the consuming levels of the most Chinese. Currently china has about 26 million people living in the urban centers that is approximately 20% will want to purchase cars based on the luxury lifestyles. Over time the infrastructure in china has been improving this has in turn improved the confidence of most Chinese and a larger number of them tend to buy cars. Technological factors Advances ways and approaches of performing both the old and modern day business operations do not in essence have to apply technology. Nevertheless, a technological factor are important aspects for gaining a comeptive advantage and seems to be major forces that will enhance change as well as efficiency in an organization. Technological factors have a vital role to play in for lowering entry barriers, reduction of minimum efficient levels of production and have a severe impact on the outsourcing decision made by companies the availability of new technology have really changed the business and organization way of performing business a good example of such technology is the use of the internet in that there is an increased response time. With such technology there is faster exchange of the required information which is beneficial to the business as businesses try to adapt to the changed technological aspects that are prevalent in their operating environment (Perrault & McCarthy 2002). Policies have been implemented in the sector which has ultimately led too huge investments by both the local manufacturers and the foreign investors in the country. Technology is been applied in all sectors of the production such as in improving the production facilities, improved on ways of testing safety systems and the application of new and advanced technologies in relation to design (Dunning 1988). With this perceptive the country is making efforts that are aimed at the creation of their own standards. With these the car manufacturers in china will be independent form the patents that are placed by foreign investors. Thus in respect to technological aspects china seems to have all the required technology. Industry and the competitors The markets for car in Japan, US and in Western Europe are stagnant, thus most automobile manufactures are therefore viewing china as a potential place to make their investments. The automotive industry in china seems to be very attractive this is mainly attributed to the fact that china has an enormous economic growth which is later coupled with both the domestic and export markets. The competitors of the company will include both the domestic manufactures as well as the foreign investors in the car industry who operates in china. One of the major competitors of the company will be General Motors. Another major competitor of the company is Ford motors. This is mainly attributed to the fact the two companies experienced losses in their home countries and turned to china so as to recover and offset the losses they had incurred. Internal environment The internal environment consists of both the strengths and weaknesses of china as a desirable destination or place of investment by Toyota Motor Corporation (Jobber 2004). The strengths of china as market for the Toyota vehicle are many. One of the major strength is the low cost manufacturing in the country; with low manufacturing cost the price of cars do not increase thus many people will be able to purchase the product. China also have a strength in that, there is availability of cheap labor in the country, china has a large population who provide cheap labor to most industries operating in the country and with the cheap labor Toyota will be able to manufacturer’s vehicles at low costs since labor takes a considerable amount of the manufacturer’s money. Strength of china is the availability of market for the Toyota vehicles; this is largely attributed to the large population in china and the increased living standards. One of the major weaknesses in china in terms of the automotive industry is the lack of strong automotive engineering talent pool. Toyota can take advantage of these and bring in their expertise in automotive engineering. Another weakness that faces the Chinese automotive industry is the lack of a strong product innovation and development. Most Chinese manufactures lacks innovation and development and these two aspects seems to be essential aspects for the development as well as sustainability of a business in a global market. These weaknesses may act as an advantage to the foreign investors such as Toyota who want to invest in the country. Conclusion Based on the environmental analysis of china as a potential place for Toyota to investment in, the country seems to be a viable place. Over time china has become one a leading automobile manufacturer since the year 2009 and china seems an attractive place for foreign investment and china can take the opportunity so as to invest in china. With the high population in china there exists a huge market for Toyota and sustainability of growth of the Chinese market as important factors to be considered in Toyotas venture into the Chinese market. Toyota can use its current strengths which are in terms of the technological advancements their quality products, energy efficiency and innovation in the Chinese market. The strong brand recognition of the model will enable it to sustain a high market share in the automobile industry in china. Toyota manufacture of environmental friendly cars places it at an advantage since the government of china is for the idea of car manufacturers who will be able to manufacture cars that are environmental friendly as well as efficient economy this will ensure that Toyota has a wide market share as compared to its competitors. With the speedy rate of economic development in china Toyota has two opportunities. The first opportunity is in the coastal areas of china where over time there is faster development as well as individuals with higher incomes who are in demand for luxury lifestyles. Another opportunity that is available for Toyota is the demand for low cost vehicles by individuals form rural areas. Consequently, by predicting consumer demand and inclinations and at the same time taking advantage of the various government policies will be an important factor in Toyotas venture into china. References China Association of Automobile Manufacturers 2004, www.caam.org.cn China Automotive Industry Yearbook 2004, www.autoyearbook.com.cn Chinese International Economic Consultants 2001, Outlook on Auto Industry in China, Beijing China Dunning 1988, “The Eclectic Paradigm of International Production: A restatement and some possible extensions”, Journal of International Business Studies, Vol. 19 Dunning 1993, “The factors to attract FDI, Multinational Enterprises and the Global Economy”, New York: Addison-Wesley. Economist Intelligence Unit 2004, About China, www.economist.com Gan, 2003, ‘Globalization of the automobile industry in China: dynamics and barriers in greening of the road transportation’, Energy Policy 31, p. 537–551. Genovese, McDonald, Pescatore and Wu 2010, “China and green transportation”, School of Advanced International Studies, Johns Hopkins University, pp. 1-30 Icon Group International 2004, www.icongrouponline.com Jobber D 2004, Principles and Practice of Marketing, 4th edn, The McGraw-Hill companies, London. Lin L. H. 2010, Cultural and Organizational Antecedents of Guanxi: The Chinese Cases, Journal of Business Ethics, p. 99:441–451. Perrault, Jr. William D. and McCarthy & Jerome, E 2002, Basic marketing a global-managerial approach. McGraw-Hill companies Inc, New York. World Bank 2011, viewed 16th April 2012, http://data.worldbank.org/country Read More