The Success of the Economic Market in Asia - Case Study Example

Executive summary This report primarily addresses the environmental factors that determine the success of the economic market in Asia. The major highlight of the report is the environmental economic factors that cut across social cultural issues as well as economic factors. The analysis touches on success of the car manufacturing industries in china. The success is attributed by the joint ventures in china. The report also highlights the case study of Chang’an. These factors are critically analyzed and compared to how the company uses these factors them to capture a wider market share. The report also highlights the critical success factors in the Asian market. In addition, the dynamic of the auto industry that has attracted massive joint venture in the country is also discussed. The report finalizes by giving recommendation to Australian auto industries that hope to enter the Chinese market. The recommendations are: a) Australian companies ought to observe limits put up by the Chinese government. b) They need to consider surrendering their intellectual property c) Be aware of the political and legal systems d) The Australian companies have to adapt the 4ps of the Chinese market in order to meet the cultural and economic differences. Introduction Several factors control the success of a market. These factors have seen the rise in the motor vehicle industry in china and contributed to the immense success of these car-manufacturing industries. Motor vehicle industries in China have grown tremendously over the last decade. This has enabled the economic level of China to reach greater heights (Luo 2006, p. 10). This paper reports on the beneficial factors and assessment of the car manufacture industry in the Chinese market in reference to the case study about Chang’an Automobile Limited. The paper also gives recommendation to car manufacturing companies that have ventured in China. 1. Environmental factors Environmental factors control a huge percentage of market success. In the Chinese market, these factors are interrelated and aid the company towards market prosperity as well as proving to be an obstacle for the progress of the company. 1.1 China Economic Environment 1.1.1 Foreign Direct Investment The Chinese market is flooded with foreign investment especially in the car-manufacturing sector. The market provides up to 27% of production value. The total contribution of the trade in the country amounts to 58% foreign trade. This is equivalent to the 190 countries, which pitched camp in the country (Gan 2001, p. 9). The success of the Chinese market attracts over 75% of world fortune companies. This credits the economy of the country to experience rapid growth within a very short period. 1.1.2 Foreign reserves Foreign reserves have been enhanced by joining the world trade organization. This has also contributed to the acceleration of economy. The presence of China in the WTO was felt strongly with increase in export and import of various products especially motor vehicle products (Fletcher & Brown 2011, p. 27). In 2006, the foreign direct investment and revenue of exports totaled to $60 billion. In addition, the country managed to generate $1.9 trillion in the year 2008. This recorded substantial benefits of the environmental economic factors in the market. Furthermore, China government financial statistics indicates that the automotive industries contributed to GDP growth of 9.6% after its entry to the WTO. 1.1.3 Infrastructure Despite the strides made in the revival of the economy, china still has a huge task to initiate human and infrastructural development. The country has substandard communication, transport and energy resources. The revenue it collects has to be channeled to fuel the improvement of these crucial sectors. However, the corruption and deterioration of the environment challenges the effort of the government to revive the infrastructure. 1.1.4 International trade China is regarded as the most competitive markets in the world. This is due to government analyses in trade and subsidization of key companies in the global market. The WTO factor also has accelerated the competitiveness in global market (Gan 2001, p. 3). For instance, companies in china are increasing exports in commodities such as textiles and electronics and motor vehicle. 1.2 Political Environment The political and legal environment in any country has the power to control the economic market transaction. This factor attributes the success and evolution of companies in the global economy in the recent past. For instance, in china the multinational automakers partnership is strictly controlled by the political and legal regulation. The political system of the Chinese government gives has the mandate to grant permission to foreign companies to conduct business in China. The Chinese government has stamped a strong influence in the industrial sector. The government follows the code law system dissimilar to countries from the west that is Australia and the USA. This makes the operation in China market a complex and risky affair (Fletcher & Brown 2011, p. 55). 1.3 China’s Socio-Cultural Environment With the high population rate, china experiences a major challenge in providing suitable quality goods and services to the large market share it has. The population of china is almost 1.4billion people. The people are largely divided into different religion races and cuts across different ages (Morrison 2006, p. 14). This is a tough task for the companies to cater for this diverse market and satisfy all the individuals. 2. Dynamic of the auto industry 2.1 Government Involvement The government is a key player and stakeholder in the auto industry. The government policy protects the local car industries and promotes development as well as sustaining economic growth (Morrison 2006, p. 11). In several occasion, the government has acknowledged the car manufacturing industry as the pillar of economic growth. The law applied in policy formulation gives the government the mandate to intervening and influencing the industrial sector (Luo 2006, p. 20). This is the reason for the directive to renovate the model of vehicles and coming up with a hybrid vehicle that cuts down air pollution. The strong authority of the government has initiated the manufacture of new car models that are fully technology controlled. These innovations and new designs enabled the industries to gain more market access. Other roles undertaken by the Chinese government include: Encouraging and supporting foreign direct investment through advisory support to multinationals automakers to enter market in a joint venture. Local automakers have been limited to a 50% ownership. It also restricts foreign automakers to a 50% ownership in a joint venture, The government also has laid foundation and plan for new car models such as hybrid and electric cars. The government provides incentives and stimulation of the market in time of financial crisis. The government is responsible for formulation and enacting of policies that affect the automobile industry. In 2009 the government was very vocal in initiating substantial consolidation of the industry in a bid to reduce the highly fragmented market to two tiers. Tier Company Tier 1 SAIC FAW Dongfeng Chang’An Tier 2 Beijing Automotive Guangzhou Auto Chery China Heavy Duty Truck 2.2 Market Growth The rapid market growth has proved that the Chinese economy is suitable for automakers from all parts of the world. This has resulted to making it a competitive destination for auto industries to operate in. the competitive market has increased the productivity of car manufacturers by 10.03% in July 2011. Economist in the country expects that the rapid growth will continue till 2020. By this time the purchasing power of consumers will increase tremendously and the prices will decrease due to market pressure. 2.3 Market Characteristics In the Chinese market the main manufacturers dominating the market are: i. State owned enterprises ii. Sino foreign joint ventures iii. Privately owned domestic firms However, the Chinese market is still highly fragmented and most competitive as compared to the neighboring countries. The annual average production unit stands at 100,000 with prospect of higher unit production to be experienced soon. 2.4 competition The competition of car manufacturing in china is very high. This has also been supplemented by high manufacture of vehicle parts (Holweg, Luo & Oliver 2005, p. 90). The statistic s show that the automotive parts industries is at 8000 industries nationwide and close to 100 whole-vehicle manufacturers. 2.5 Suppliers The suppliers are also keeping up with the high number of industries. The country has about 450 partly owned foreign companies in joint ventures. 3. Chang’an Strategy Chang’an automobile limited made its entry into the Chinese market in the mid 1990s (Luo 2006, p. 34). The strategy it used to capture the market are: 3.1 Market Entry Modes In order for the best results in the market, the company could use the entry nodes shown in the figure below. Diagram 1: modes of entry in a foreign market This company entry mode was very successful since it began joint venture with large multinational companies. This strategy of collaborating with successful, global car manufacturing companies in the international market provided a perfect opportunity for this young industry to cultivate its manufacturing capabilities. The joint ventures were between Chang’an and successful multinationals like, Suzuki, Ford, Mazda, and Volvo (Fletcher & Brown 2011, p. 41). The success of Chang’an confirms that joint ventures are beneficial provided the economic system, culture and marketing strategy are favorable. The major benefit from the joint venture, is gaining technology milestone as well as expertise in various fields. 3.2 Market Segmentation Chang’an opted to adopt value based market segmentation in a bid to address the industry market requirement. This value-based strategy meets the demand, needs and wants of the consumer. The company has managed to fulfill customer satisfaction (Automotive Business Review, 2009). The strategy offers what consumer prefers. Some of the products offered by the company that are in line with customers’ preference include; i. Changjiang jeep model manufactured specifically for the military market. ii. Mini-vehicles for the customers who prefer low fuel consumption vehicles iii. Self-branded cars specifically made for the economical conscious younger market segment. Such vehicle include Jiexun HEV, Benni (benben in chinse), Alsvin and hatchback 3.3 product service innovation Chang’an has consistently been on the forefront in innovation and modification of the products and services it offers. This has given the company an upper hand in keeping up with the changing consumer demands. This factor is the main competitive edge the company uses to outdo the rest of market players. In addition to innovation, 3.4 Price Setting the right price is crucial to ensure that the company maintains its customer. The company has set prices to cater for different market segment (Roberto, Guo & Jiang 2011, p. 8). The pricing strategy used is market place pricing strategy where the highly fragmented and competitive market is accounted for wholly. 3.5 Relationship and networking market The success of Changa’an is attributed to the provided policies by the government and the joint ventures it entered with prominent and successful companies (Automotive Business Review, 2009). In total, this car manufacturing company has six leading business units. The company also has entered three crucial joint venture and one jointly, owned company (Roberto, Guo & Jiang 2011, p. 11). Other successful benefits include the transfer of technology and development of the car models. The company has also enhanced relationship with Shangai Manufacturing Bureau and the Government of China. 4. Critical success factors a) Open door policy China has been on an open door policy for decades (Gan 2001, p. 5). This has led to the country being termed as the largest automaker in the world. This allowed Chang’an to join alliances with global multinationals. b) Production and adaption of new innovation This open policy is the main reason for the increasing sales growth.car manufacturers are using this opportunity to come up with new car models such as the development of fuel-efficient vehicles. Electric vehicles are also being introduced in the market because of the favorable factors. In addition to development of car models, the market share has increased tremendously due to the rise in demand for private vehicles (Roberto, Guo & Jiang 2011, p. 7). c) Building a brand loyalty The high demand steered the industries to launch low priced brands for the lower class citizens. Chang’an automobile has been on the forefront to develop the self-branded cars for its consumers. This is in line with the company’s collaboration goal of enhancing innovation capability. The self branded cars target specific market segment (Holweg, Luo & Oliver 2005, p. 61). 5. Recommendation For the Australian companies hoping to venture into the Chinese market they have to consider the following recommendations a) Australian companies ought to observe limits put up by the Chinese government. b) They need to consider surrendering their intellectual property c) Be aware of the political and legal systems d) The Australian companies have to adapt the 4ps of the Chinese market in order to meet the cultural and economic differences. References Automotive Business Review 2009, ‘An interview with Chang’an executive: globalization is not a herding effect’, viewed October 10, 2012, www.autobizreview.com/ArticleView.aspx?id¼144 Gan, L 2001, 'Globalisation of the automobile industry in China: Dynamics and barriers in the greening of road transportation', CICERO - Center for International Climate and Environmental Research, pp. 1-18. Fletcher, R & Brown, L 2011, International marketing: an Asia-Pacific perspective, 5th edn, Pearson Australia, Frenchs Forest, Australia Holweg, M, Luo, J and Oliver, N 2005, ‘‘The past, present, and future of China’s automotive industry: a value chain perspective’’, Center for Competitiveness and Innovation Working Paper, Cambridge-MIT Institute, Cambridge. Luo, J 2006, 'Impact ofGovernment Policies on Industrial Evolution: The Case of China's Automotive Industry', pp. 1-110, viewed 25 October, 2012, . Morrison, W 2006, 'China's Economic Condition', Foreign Affairs, Defense, and Trade Division, no. CRS Issue Brief for Congress, pp. 1-17. Roberto, M, Guo, G & Jiang, C 2011, 'Chang'an Automobile and the Chinese automotive industry', Emerald Emerging Markets Case Studies, vol. 1, no. 4, pp. 1-15. The World Factbook: China 2012, viewed October 7, 2012, . Read More