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Market Intelligence Report: China

by Team China : Arash, Bita, Lin Zhi, M. Azraai & M. Shahin,

Basic Information:

The official national name of China is People’s Republic of China.

source: Atlapedia

A citizen of China is properly referred to as a Chinese.

source: Atlapedia

Products or materials from China are referred to as Chinese in origin.

source: Atlapedia

Demographics:

The population of China is 1,330,044,544 (July 2008 est.).

source: CIA Factbook

The population of China is growing at a rate of 0.629% (2008 est.).

source: CIA Factbook

The median age of the population of China is 33.6 years (2008 est.).

source: CIA Factbook

The age structure of China is as follows:

0 - 14 years: 20.1% (male 142,085,665 - female 125,300,391)

15

- 64 years: 71.9% (male 491,513,378 - female 465,020,030)

65

years and over: 8% (male 50,652,480 - female 55,472,661) (2008 est.)

source: CIA Factbook

The urban/rural composition of the population of China is 42.2% / 57.8% rural (2007).

source: The UN - World Development Indicators database

The population (in percent) that each ethnic group comprises in China is:

Han Chinese 91.5%, Zhuang, Manchu, Hui, Miao, Uyghur, Tujia, Yi, Mongol, Tibetan, Buyi, Dong, Yao, Korean, and other nationalities 8.5% (2000 census)

source: CIA Factbook

The major languages spoken in China are:

Standard Chinese or Mandarin (Putonghua, based on the Beijing dialect), Yue (Cantonese), Wu (Shanghainese), Minbei (Fuzhou), Minnan (Hokkien-Taiwanese), Xiang, Gan, Hakka dialects.

source: CIA Factbook

Mandarin is the official language.

source: CIA Factbook

The major religions of the country are:

Officially atheist; Daoist (Taoist), Buddhist, Christian 3%–4%, Muslim 1% – 2% (2002 est.)

source: Info Please

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The life expectancy for residents of China is 73.18 years (2008 est.).

source: CIA Factbook

The fertility rate for women in China is 1.77 births per female (2008 est.).

source: CIA Factbook

The infant mortality rate of China is 21.16 deaths per 1,000 live births (2008 est.).

source: CIA Factbook

8% percent of the population in China lives below the poverty line.

source: CIA Factbook

The educational attainment and literacy of adults (age 25 and older) are as follows:

Educational Attainment (2006):

Pre-primary schooling: 45% Primary schooling: 93% Secondary schooling: 69% Primary schooling: 93% Tertiary schooling: 25% Literacy (2006):

Overall: 93.4%

Male: 96%

Female: 90%

source: Country Website

The total number of adults living with HIV/AIDS in China is 840,000 (2003 est.).

source: CIA Factbook

0.1% (2003 est.) percent of the adult population of China is living with HIV/AIDS.

source: CIA Factbook

Government:

China gained its independence from Manchu Dynasty

source: CIA Factbook

China gained its independence on the date 1 October 1949

source: CIA Factbook

The type of government in China is Communist State.

source: CIA Factbook

The current head of state of China is President HU Jintao (since 15 March 2003).

source: CIA Factbook

The official currency of China is the Yuan Renminbi.

source: World Bank Profile

Geography:

The geographic coordinates (latitude and longitude) of China are 35 00 N and 105 00 E.

source: CIA Factbook

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The surface area of China is 9,598,060 sq km.

source: CIA Factbook

The population density (the number of people per square mile) of China is 133.69 people per sq km.

source: CIA Factbook

China shares borders with:

Afghanistan 76 km Bhutan 470 km Burma 2,185 km India 3,380 km Kazakhstan 1,533 km North Korea 1,416 km Kyrgyzstan 858 km Laos 423 km Mongolia 4,677 km Nepal 1,236 km Pakistan 523 km Russia (northeast) 3,605 km Russia (northwest) 40 km Tajikistan 414 km Vietnam 1,281 km Regional Borders: Hong Kong 30 km Macau 0.34 km

source: CIA Factbook

China has 14,500 km of coastline.

source: CIA Factbook

The largest cities in China, by population, are:

Shanghai, 12,665,000 (metro. area), 10,996,500 (city proper); Tianjin (Tientsin), 9,346,000 (metro. area), 4,333,900 (city proper); Wuhan, 3,959,700; Shenyang (Mukden), 3,574,100; Guangzhou, 3,473,800; Haerbin, 2,904,900; Xian, 2,642,100; Chungking (Chongquing) 2,370,100; Chengdu, 2,011,000; Hong Kong (Xianggang), 1,361,200

source: Info Please

The climate of China is extremely diverse; tropical in south to subarctic in north.

source: CIA Factbook

11.09% of the land in China is arable.

source: CIA Factbook

Economics:

The Gross Domestic Product (GDP) of China is $7.099 trillion at purchasing power party (2007 est.).

source: CIA Factbook

The Gross Domestic Product (GDP) of China is growing at an annual rate of 11.9% (2007).

source: CIA Factbook

The GDP per capita of China is $5,400 at purchasing power party (2007 est.).

source: CIA Factbook

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The GDP of China is drawn proportionately from:

Agriculture: 11.3% Industry: 48.6% Services: 40.1% (2007 est.)

source: CIA Factbook

The size of the available labor force in China is 800.7 million (2007 est.).

source: CIA Factbook

The labor force in China works proportionately in:

Agriculture: 43% Industry: 25% Services: 32% (2006 est.)

source: CIA Factbook

The inflation rate for consumer prices in China is 4.8% (2007 est.).

source: CIA Factbook

The unemployment rate in China is 4% in urban areas; substantial unemployment and underemployment in rural areas (2007 est.).

source: CIA Factbook

The major trading partners of China are:

U.S., Hong Kong, Japan, South Korea, Germany, Taiwan (2007).

source: CIA Factbook

The total value of exports from China is $1.22 trillion F.O.B. (2007 est.), and the total value of imports into China is $904.6 billion F.O.B. (2007 est.).

source: CIA Factbook

As a percentage, exports and imports are 37.46 % and 23.41, respectively, of the GDP of China.

source: World Bank Profile

The major exports of China are:

machinery, electrical products, data processing equipment, apparel, textile, steel and mobile phones

source: CIA Factbook

The major imports of China are:

machinery and equipment, oil and mineral fuels, plastics, LED screens, data processing equipment, optical and medical equipment, organic chemicals, steel and copper

source: CIA Factbook

The primary natural resources of China are:

coal, iron ore, petroleum, natural gas, mercury, tin, tungsten, antimony, manganese, molybdenum, vanadium, magnetite, aluminum, lead, zinc, uranium, hydropower potential (world's largest)

source: CIA Factbook

The major industries of China are:

mining and ore processing, iron, steel, aluminum, and other metals, coal; machine building; armaments; textiles and apparel; petroleum; cement; chemicals; fertilizers; consumer products, including footwear, toys, and electronics; food processing; transportation equipment, including automobiles, rail cars and locomotives, ships, and aircraft; telecommunications equipment, commercial space launch vehicles, satellites

source: CIA Factbook

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The major primary products made in China are:

aluminum, antimony, asbestos, bauxite, coal, copper, cotton, fish, iron ore, jute and hemp, lead, livestock, manganese, mercury, oil and natural gas, phosphate rock, rice, salt, soya beans, sugar beets, sulfur, tea, timber, tin ore, tobacco, uranium, wheat, zinc.

source: Atlapedia

The external debt of China is $363 billion (31 December 2007 est.).

source: CIA Factbook

China received $1,641 million (2007) in economic aid.

source: CIA Factbook

Physical Infrastructure:

There are a total of 1,930,544 km of roads and highways in China. Of these roadways, 1,575,571 km (includes 41,005 km of expressways) are paved and 354,973 km (2005) are unpaved.

source: CIA Factbook

There are a total of 75,438 km (2005) of railways in China

source: CIA Factbook

There are a total of 467 (2007) airports in China, with 403 having paved runways and 64 having unpaved runways.

source: CIA Factbook

There are 124,000 km (2006) of navigable waterways in China.

source: CIA Factbook

The port cities of China are:

Dalian, Guangzhou, Ningbo, Qingdao, Qinhuangdao, Shanghai, Shenzhen, Tianjin

source: CIA Factbook

Communications Infrastructure:

There are 2200 daily newspapers in China, with a circulation of 96.6 (2006).

source: Country Website

For every 1,000 people in China, there are 320 radios and 325.183 televisions.

source: CIA Factbook

There are 369 AM radio stations and 259 FM radio stations in China.

source: Info Please

There are 3,240 (1997) broadcast television stations in China.

source: CIA Factbook

For every 1,000 people in China, there are 350,433,000 (2005) telephone mainlines and 547,286,000 (2007) mobile phones.

source: CIA Factbook

For every 1,000 people in China, there are 52,990,000 (2004) computers.

source: CIA Factbook

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There are an estimated 162,000,000 million (2007) Internet users in China.

source: CIA Factbook

There are 3 ISP's, or Internet Service Providers, in China.

source: CIA Factbook

(.ch) is the two-letter Internet country code for China.

source: CIA Factbook

More Information:

The URL of the e-government site for China is http://www.english.gov.cn/.

source: Country Website

The embassy for China in the United States can be contacted at:

Chief of Mission: Ambassador ZHOU Wenzhong chancery: 2300 Connecticut Avenue NW, Washington, DC 20008 telephone: [1] (202) 328-2500

FAX: [1] (202) 328-2582 Consulate(s) General: Chicago, Houston, Los Angeles, New York, San Francisco

source: CIA Factbook

The American embassy in China can be contacted at:

Chief of Mission: Ambassador Clark T. RANDT, Jr. embassy: 55 An Jia Lou Lu, 100600 Beijing mailing address: PSC 461, Box 50, FPO AP 96521-0002 telephone: [86] (10) 8531-3000 FAX: [86] (10) 8531-3300 Consulate(s) General: Chengdu, Guangzhou, Hong Kong and Macau, Shanghai, Shenyang

source: CIA Factbook

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BUSINESS ENVIRONMENT ANALYSIS REPORT: China

by Team China : Arash, Bita, Lin Zhi, M. Azraai & M. Shahin,

Demographics

Criteria

Rating

Total Population

7

Population Growth Rate

3

Age Structure

3

Middle Class Size

7

Urban/Rural Composition

7

Overall Demographics Rating

77 %

"Overall Demographics Rating" is a percentage-based grade derived from the average of all ratings, on a scale of 1 to 7, that the team assigned to the criteria.

Talking Points

Total

With total population of 1,330,044,544 (2008) China is the most populous country in the world.

Population

In this report, China has been rated as 7 in terms of total population.

 
 

A quarter century after establishing China's one-child policy by Chinese leader Deng Xiaoping

in 1979, population growth rate of China is 0.0629% today and in this respect China is the

154th country among the 236 world countries.

 

Population

 

Growth Rate

In

adequate) to 1 (Not at all adequate), among 236 listed countries, the total number of countries

order to rate China in terms of population growth on Likert-type scale ranging from 7 (Highly

divided into 7. There are approximately 34 countries in each tier.

 

The rate of China which is 154th country and located in the range of 140 – 174 will be 3.

 

In order to rate China in terms of age structure on Likert-type scale ranging from 7 (Highly adequate) to 1 (Not at all adequate), among 225 listed countries, the total number of countries divided into 7. There are approximately 32 countries in each tier.

Age Structure

Considering the product (M-BOX) which is an electronic game, we assume that potential customers will not be over 29 year old. Therefore, we considered the average rate of the three below sets of Age Structures.

20.8% of total population of China is 0 – 14 years, in this respect; China is the 161st among 225 countries.

 

9.3% of total population of China is 15 – 19 years, in this respect; China is the 121st among 224 countries.

8.04% of total population of China is 20 – 24 years, in this respect; China is the 148th out of 224 countries.

In

this report, Age Structure of China has been rated as 3.

 

Over the last two decades, Chinese households’ real income and living standard have been improved considerably. According to the Chinese Academy of Social Sciences (CASS), families with assets valued from 150,000 Yuan (US$18,137) to 300,000 Yuan (US$36,275) can be classified as middle class.

Middle Class

Size

Also, Miller McCune’s assumption shows 15% of increase in the middle class size during the year 2002 to 2008 for China. According to the Adler’s report, the size of the middle class

Chinese people for the year ended 2008 equal to 197 million which is the second biggest size

of

the middle class society in the world after the US.

China has been rated as 7 in terms of its “Middle Class Size”.

 

Urban/Rural

The proportion of urban citizens in compare with rural residence of China is 42.2% - 57.8%. In this respect, China is not in the list of high urban populous countries, but, having the largest population in the world, results in having the biggest urban society in the world with the total number of 527,018,000 citizens in 2007.

Composition

In

addition, with an average annual rate of 2%, estimated by the UN, the population of people

in

urban areas of China will be 822,209,000 by the year of 2009.

Since, China is the home town of the largest urban society in the world; this alternative has been rated as 7.

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Government

Criteria

Rating

Government Stability

6

Economic Freedom

2

Openness to FDI

7

Legal System

6

Currency Convertibility

4

Overall Government Rating

71 %

"Overall Government Rating" is a percentage-based grade derived from the average of all ratings, on a scale of 1 to 7, that the team assigned to the criteria.

Talking Points

Government

In terms of Government Stability, China has been ranked as the 46th country by The Worldwide Governance Indicators (WGI), a project that reports aggregate and individual governance indicators for 212 countries and territories over the period 1996–2007. The report considered these six dimensions of governance: Voice and Accountability, Political Stability and Absence of Violence, Government Effectiveness, Regulatory Quality, Rule of Law, Control of Corruption.

According to the worldwide governance indicator (WGI), the alternative of Government Stability in this report has been rated as 6.

Stability

Economic

Based on Economic Freedom Index which offers a time-tested formula for sustained economic growth and grounded in the classical liberal economic theories of Adam Smith and Friedrich Hayek, in terms of Economic Freedom China with the percentile of 52.8% ranked as the 126th country among 157 evaluated countries in 2008.

Therefore, in this report, the variable of Economic Freedom of China has been rated as 2.

Freedom

Openness to

Among developing economies China and Hong Kong have been listed as the largest recipients of FDI and at the top, followed by Singapore, Mexico and Brazil. In compare with 176 countries around the world, China with FDI inflow of $ 67,821,040,000 ranked as the second country after the US (2005).

Therefore, the alternative of openness to FDI has been rated as 7.

FDI

Legal System

According to the Worldwide Governance Indicator (WGI), China is the 46th country in terms of Regulatory Quality (RQ) and 42nd country for due to its Rule of Law (RL) among 212 listed countries.

Considering both criteria, the legal system of China has been rated as 6.

Currency

The currency of the People’s Republic of China, the Yuan (Renminbi), is freely convertible for current account transactions. Since, December 1, 1996, China has adopted the Article VIII of the International Monetary Fund (IMF) Articles of Agreement. The obligation imposed by Article VIII include: (1) the avoidance of restrictions on current payments, (2) the avoidance of discriminatory currency practices, and (3) the convertibility of foreign-held balances. By adopting these obligations, China has removed all restrictions on payments and transfer for current transactions, which plainly are the most relevant for international trade. China has also taken steps towards full convertibility of capital account transactions. Recently, China has permitted foreign investors to acquire financing from the domestic Chinese market, and has permitted foreign banks to issue RMB securities. China has also launched the qualified foreign institutional investors (QFII) program to facilitate foreign capital flow. In accordance with provisions of the IMF Articles of Agreement, however, China maintains a few restrictions on the movement of capital to prevent malicious attacks by speculative international short-term capital and to help maintain regional financial stability. At the other hand, China to has started Yuan (or Renminbi) fully convertibility trial in Tianjin. This will allow investors in the northern city of Tianjin greater freedom to buy and sell currencies as part of moves towards a fully convertible Yuan.

Since, there are some restrictions and the currency of China is not fully convertible, in this report the currency convertibility of China has been rated as 4 in this report.

Convertibility

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Physical Infrastructure

Physical Infrastructure

Criteria

Rating

Roads and Highways

7

Railways

7

Airports

7

Navigable Waterways

7

Ports

7

Overall Physical Infrastructure Rating

100 %

"Overall Physical Infrastructure Rating" is a percentage-based grade derived from the average of all ratings, on a scale of 1 to 7, that the team assigned to the criteria.

Talking Points

Roads and

There are a total of 1,930,544 km of roads and highways in China. Of these roadways, 1,575,571 km (includes 41,005 km of expressways) are paved and 354,973 km (2005) are unpaved. In this respect, China is the 3rd country among 185 countries.

The Variable of roads and highways for China has been rated as 7.

Highways

Railways

Total of 75,438 km (2005) of railways has been ranked China as the 4th country among 233 listed countries. Also, in terms of goods transported, China with 1,934,612 million ton/km is the 2nd country among 111 listed countries.

In this report, the Variable of railways of China has been rated as 7.

Airports

In terms of total number of airports, China with 467 (2007) airports, that 403 having paved runways and 64 having unpaved runways is the 16th country among 251 countries.

The rate of China in terms of its Airports in this report is 7.

Navigable

China with 124,000 km. of navigable waterways has been ranked as the 1st country in the world.

Waterways

In terms of navigable waterways, China has been rated as 7 in this report.

Ports

In terms of container port traffic, China is the 1th country in the world (2005). Also, The median number of ports among 221 countries around the world is 6.

China with total number of 7 ports (Dalian, Guangzhou, Ningbo, Qingdao, Qinhuangdao, Shanghai, Shenzhen, Tianjin) locates over the median.

In terms of ports, China has been rated as 7.

Economics

Criteria

Rating

GDP Growth Rate

7

Per Capita GDP

4

Consumer Inflation Rate

4

Trade as Share of GDP

3

Potential Market

7

Overall Economics Rating

71 %

"Overall Economics Rating" is a percentage-based grade derived from the average of all ratings, on a scale of 1 to 7, that the team assigned to the criteria.

Talking Points

GDP Growth

The real GDP growth rate of China of 11.9% has been ranked the country as the 9th country among the 216 listed countries (2007 est.).

Rate

In this report, China has been rated as 7 in terms of real growth rate of GDP.

Per Capita

As we know, GDP per capita based on purchasing power parity (PPP GDP) is gross domestic product converted to international Dollars using purchasing power parity rates. An international Dollar that has the same purchasing power over GDP as the U.S. Dollar has in the United States. In 2005, China with 6,170.21 $ GDP per capita based on PPP, had been the 83th country out of 169 countries.

China has been rated as 4 in terms of per capita GDP.

GDP

Consumer

The consumer inflation rate of China is 4.8 (2007) ranked the country as the 106th country out of 220 countries.

Inflation Rate

China has been rated as 4 in terms of its moderate level of consumer inflation rate.

Trade as Share of GDP

International trade in goods and services is a principal channel of economic integration. A convenient way to measure the importance of international trade is to calculate the share of trade in GDP. (OECD 2008). In 2005, China with 69.33 % share in GDP, ranked as the 125th country among 187 countries.

China has been rated as 3 in terms of level of trade as share of GDP.

Potential

Potential Market Index (PMI) has been calculated based on weighted average of eight

Market

dimensions over a scale of 1 to 100. Each dimension is measured using various indicators, and are weighted in determining their contribution to the Overall Market Potential.

These determinates and their contributed weights are: Market Size (10/50), Market Growth Rate (6/50), Market Intensity (7/50), Market Consumption Capacity (5/50), Commercial Infrastructure (7/50), Economic Freedom (5/50), Market Receptivity (6/50) and Country Risk (4/50). In 2008, China with the score of 100 has been ranked as the second country among 27 emerging markets after Hong Kong.

In this report, the Potential Market of China has been rated as 7.

Communications Infrastructure

Criteria

Rating

Fixed Telephone Market

7

Wireless Telephone Market

7

PC Ownership

7

Internet Users

7

TV Ownership

7

Overall Communications Infrastructure Rating

100 %

"Overall Communications Infrastructure Rating" is a percentage-based grade derived from the average of all ratings, on a scale of 1 to 7, that the team assigned to the criteria.

Talking Points

Fixed

Having 350,433,000 fixed telephone lines (2005) has been ranked China as the first country in the world in terms of total number of fixed telephone line.

Telephone

Market

In this report, the alternative Fixed Telephone of China has been rated as 7.

Wireless

In terms of total number of wireless telephones, having 393,428,000 has been ranked China as the first country in the world (2005).

Telephone

Market

In this report, the alternative Wireless Telephone has been rated as 7.

PC Ownership

Having 52,990,000 personal computers has been ranked China as the 3rd country among the 170 countries in the world.

In this report, the PC ownership has been rated as 7.

Internet Users

China with 162,000,000 Internet users is the second country after the US (2007).

The alternative of Internet users in this report has been rated as 7.

TV Ownership

There are 400,000 Television sets in the China and in terms of total number of Television, China is the first country in the world (1997).

In this report, the TV ownership has been rated as 7.

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SUMMARY BEAR ANALYSIS

AREA OF ANALYSIS

RATING

Demographics

100

%

Government

77

%

Physical Infrastructure

71

%

Economics

71

%

Communications Infrastructure

100

%

Overall Rating for the Country

83.8 %

"Overall Rating for the Country" is a percentage-based grade derived from the average of all grades earned by areas of analysis.

Talking Points

1) Holistic

The overall rate gained by the country shows that China is an appropriate target market for the M-BOX. Although, there is no single ideal criterion in assessing market opportunities and attractiveness. A marketer must therefore employ a set of criteria that is relevant to the market opportunity under consideration.

This report was including the most important factors to assess the global attractiveness of a country. But, some important rates such as rate of unemployment, poverty rate and literate rate also could be added.

Assessment

At the other hand, it is generally accepted that buyers of Westernized goods are likely to be in the middle class or above, so, it would be better to emphasize more on purchase power and middle class size, i.e. considering only one alternative out of 25 related to the middle class size seems to be inadequate.

In overall and as a standard report, this is an acceptable report, however, for a large amount of investing, companies should stress more on assessing the potential market of the same categories of products.

2) Key Factors to Watch

As we learned, there are several crucial factors in assessing new market opportunities such as, product-market dimensions, major product-market difference, structural characteristics of national market, competitor analysis, potential target markets, relevant trends, explanation of changes, success factors, and strategic options.

There are also many complex issues associated with global expansion. Some of these issues have been identified by Dymsza (1972) who highlights the following as these most relevant:

1. The firm must deal with multiple political, economic, legal, social and cultural environments as well as various rates of change within each of them. 2. Interactions between national and foreign environments are complex because of national sovereignty issues and widely differing economic and social conditions. 3. Geographic separation, cultural and national differences, and variations in business practices all tend to make communication between headquarters and overseas affiliates difficult. 4. Analysis of present and future competition may be more difficult to undertake in a number of countries because of differences in industrial structure and business practices. 5. The degree of significant economic, marketing and other information required for planning varies a great deal among countries in availability, depth and reliability.

In addition and particularly in terms of China, there are three main questions that any company considering expansion into China should honestly think about:

1. Does China fit into the company’s overall strategy or are we blindly following a current trend? 2. Why do we want to enter the Chinese market? 3. What are my competitive advantages and how can they be useful in China?

Finally, and in case of M-BOX, it seems that it is insufficient just to understand and apply usual business models and strategies. We also have to consider the consumer’s behavior toward Western products and particularly the M-BOX.

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3) Short-Term

Considering all available sources of time series data, market trends and repeated experience

Assessment

and non-periodic fluctuations of economic activity in China confirm the improvement of business environment of China for the next 12 months.

Also, results of a survey conducted by the Economist Intelligence Unit of 400 executives at multinational companies with operations in China demonstrate an improving business environment for the coming 12 months. More than 60% of respondents were optimistic about the improvement in economic conditions, revenue from domestic sales, revenue from exports out of China, profitability, and investment in China over the next 12 months, while almost 30% expected that the condition will remain same as the past year.

The OECD’s Main Economic Indicators (MEI) which is a comparative statistics that provide an overview of recent international economic developments through the presentation of a wide range of short-term economic indicators, have forecasted a shiny weather for the business environment of China in the next 12 months.

Therefore, the group believes that the China’s business environment will improve in the short run.

4) Long-Term

Several economic reports and OECD’s survey results show that the economic growth of China has averaged 9½ per cent over the past two decades and seems likely to continue at that pace for some time.

A marked evolution in economic policies has led to a long period of sustained economic expansion. National income has been doubling every 8 years and this has been reflected in the reduction of the poverty rate to much lower levels. Indeed, by some accounts, over half of the reduction in absolute poverty in the world between 1980 and 2000 occurred in China.

Assessment

At the other end of the scale, average incomes in major coastal areas are on a similar development path to that seen in other East Asian countries one generation ago.

Considerable challenges face the economy, not the least of which is a rapid increase in the age of the population, but continued evolution of economic policies, especially in the areas of the allocation of capital, labor mobility, urbanization and the creation of a improved framework for the development of the private sector of the economy, should ensure that this development momentum is sustained.

Also, according to the Adler’s Report, improvement in real income and living standard in China has been projected to be continued and consequently, the middle class population of China will be 334 million in 2015. It means China will pass the United States in terms of middle-class population in 2016. In addition, urbanization is increasing in China, with an average annual rate of 2% estimated by the UN, by the year 2010 the Chinese people who live in urban areas will be more than 838,500,000 which will be the largest society of city dwellers in the world – people who have money in their pockets.

Therefore, we believe that the country’s business environment will improve in the long run.

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References

1

Agency, C. (2008). The CIA World Factbook 2009 (CIA World Factbook). New York: Skyhorse Publishing.

2

Feulner, E., Holmes, K., Kim, A., Markheim, D., & O'Grady, M. (2008). 2008 Index of Economic Freedom. Washington DC: Heritage Foundation.

3

Bank, W. (2008). World Development Indicators 2008 (World Development Indicators). New York: World Bank Publications.

4

Porter, M., Sala-I-Martin, X., & Schwab, K. (2007). The Global Competitiveness Report 2007-2008 (Global Competitiveness Report). New York: Palgrave Macmillan.

5

Z. Lawrence, R., Blanke, J., Drzeniek Hanouz, M., & Moavenzadeh, J. (2008). The Global Enabling Trade Report. Geneva: World Economic Forum.

6

NationMaster - World Statistics, Country Comparisons. Retrieved January 2009, from http://www.nationmaster.com.

7

Market Potential Index for Emerging Markets - 2008 | globalEDGE. Retrieved January 29, 2009, from http://globaledge.msu.edu/ResourceDesk/mpi/.

8

United Nations Statistics Division. Retrieved January 23, 2009, from http://unstats.un.org/unsd/default.htm.

9

Adler, D.R. (2008). Miller-McCune - Turning Research Into Solutions. Retrieved January 14, 2009, from http://www.miller-mccune.com.

10

Bank, W. (2008). Worldwide Governance Indicator 1996 – 2007 (Governance Matters 2008). New York: World Bank Publications.

11

Knip., & Victor. (2006). Culture Counts! Teaching Business Students Why and How to Leverage Cultural Analysis to Optimize Global Macro-Environmental Scanning. Journal of Competitive Intelligence and Management, 3(4), 85-110.

12

Kohn., & Kamilla. (2005). Idea generation in new product development through business environmental scanning: the case of XCar. Marketing Intelligence & Planning, 23(7), 688-704.

13

Ministry of Commerce of the People's Republic of China. Retrieved January 13, 2009, from http://english.mofcom.gov.cn/.

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China Daily Website - Connecting China Connecting the World. Retrieved January 12, 2009, from http://www.chinadaily.com.cn/.

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8

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Market Entry Strategy Analysis: China

CChhaalllleennggeess

1. DEMOGRAPHICS

by Team China: Arash, Bita, Lin Zhi,M. Azraai, Shahin

Aging China. As a result of China’s one-child policy, China will be facing the challenge of a more rapidly aging population and a rapidly increasing dependency ratio. It is expected between 2010 and 2040, the proportion of people aged 65 and older will rise from 7 percent to 25 percent. This grand demographic change poses critical questions about how to provide and sustain an adequate retirement income and a minimum level of health care for the elderly, who will number more than 332 million in 2050. The Chinese government faces enormous challenges as it tries to steer the rapidly aging nation toward a market economy and orderly integration into the global economic system.

Gender Imbalance. The gender ratio in China is now close to 120 boys for 100 girls. However, some say that many girls in rural China are unregistered because their parents do not want to lose their chance to produce a male heir.

Population Dispersion. 70% of the population is located in the south, and east coastal regions. Then China cannot be considered as one single market.

2. GOVERNMENT

China joined the WTO in 2001 but some tariffs have not removed yet and protections for intellectual property rights are not consistently enforced.

China has started to liberalize its economy since the early 1980s, however, the ruling Communist Party maintains tight control of political expression, speech, assembly, and religion and has ultimate authority over economic decisions.

Although, China’s economy has grown rapidly, however, corruption and a weak rule of law remain serious problems.

It is reported that legal system that cannot guarantee the sanctity of contracts.

China's complex financial system is tightly controlled by the government. The China Banking Regulatory Commission supervised roughly 8,900 financial institutions in 2007.

Foreign investors may access foreign exchange for current account transactions like repatriating profits, but capital account transactions are tightly regulated.

Foreign participation in capital markets is limited. Expanding access to financial services remains a challenge.

3. PHYSICAL INFRASTRUCTURE

In terms of total roads and highways, railways, airports, navigable waterways, and ports, China has been ranked as one of the highest countries by statistics. However, if we take a look on per capita physical infrastructure, China will not be among the first hundred countries. Physical infrastructure of China is not ready to support the manufacturing boom and it may make transportation a challenge. There are vast regional differences including the economical situation that may be a serious challenge for the product distribution.

1
1

4.

ECONOMICS

Although, in second phase of this project (BEAR), some alternatives in the section of Economics did not rated as maximum, however, we would like to give some explanation in order to clarify why we believe that there are not serious challenge in this respect as followed:

Low Rate of per Capita GDP. The rapid per capita growth rate in China has helped to lift many people out of poverty. The share of persons below the international poverty line of $1day has been reduced to just 17% in China in 2007. However, China's per capita GDP (at purchasing power parity or internationally comparable prices) is roughly the same today as South Korea's was in 1982, Taiwan's in 1976, and Japan's in 1961. But, in those years, Japan's investment rate was just above 30 percent of GDP, and South Korea's and Taiwan's were both below 30 percent. None of those countries invested as much capital at comparable stages in their development as China does today.

Low Rate of Trade as Share of GDP. According to OECD report 2008, China is the 125 th country among 187 countries in term of trade as share of GDP; therefore, we rated China 3 out of 7 in this respect. However, low rate of trade as share of GDP of China is reasonable. Today, about half of China’s GDP is devoted to investment and to producing net exports for the rest of the world, and thus only the remaining half is available for consumption, including government consumption. In particular, household consumption in China last year was only 38 percent of GDP, down from 45 percent in 2001. In comparison, household consumption was about 60 percent of GDP in India in 2004, according to the most recent available data. China’s low share of consumption in GDP is, of course, the counterpart of its high national saving rate.

5. COMMUNICATION INFRASTRUCTURE

In second phase of this project (BEAR), we rated Communications Infrastructure of China 7 out of 7 (100%) since, comparison statistics ranked China as one of the first three countries in the world.

However, if we take a look on per capita communications infrastructure, China is not in the first 100 countries. Therefore, it can be considered as challenge for marketing communication.

TTaarrggeett MMaarrkkeett

We passed following steps to determine the target market and logically estimate the potential market for the product:

1. There is no need for more than 1 M-BOX in each family, in the first step; we considered the total number of Chinese households which is 367,260,000 (China Statistical Yearbook 2008).

2. At the moment, competitors are serving a proportion of the market; therefore, we deduct this amount from the target market.

3. We hope to be able to gradually convince customers to shift from substitute products to the M-BOX, so we added the estimated percentage.

4. It is not reasonable if we consider senior citizens as our potential customers. Therefore, we deduct the total number of elder households.

2
2
 

Year1

Year2

Year3

Year4

Year5

Total No. of Households (,000)

367,260

369,570

371,895

374,234

376,588

( + ) Average Market Growth Rate

2,310

2,325

2,339

2,354

2,369

( + ) % Expected to shift from Competitors

0%

5%

8%

10%

10%

( – ) Served by Competitors

1,271

1,162

994

765

533

( – ) Elder families

462

407

351

294

237

Forecasted Potential Market

578

756

994

1,295

1,599

Prepared by Team China based on China Statistical Yearbook 2008

2.1 Main Competitors

2.1.1 Xbox 360

Xbox 360, with wireless controller, is a sleek, customizable gaming and entertainment system. It measures approximately 3.3 by 12.2 by 10.2 inches and weighs 7.7 lbs. It's powered by custom IBM PowerPC-based CPU with three symmetrical cores each running at 3.2 GHz. It also carries a custom ATI graphics processor 10 MB of embedded DRAM. It makes for great looking games in standard TV definition, and even HDTV 1080i televisions. It also supports the widescreen 16:9 format.

Xbox LIVE

Xbox LIVE Silver is a free service that allows any Xbox 360 user with a broadband connection to get online and interact with the Xbox LIVE community. Users can enjoy from several customizations options such as, Avatar that represents your online identity, User Profile, to showcase online reputation and achievements, Friends list to add other Xbox LIVE users to the friends list and chat using the headset or send text messages, Marketplace to download free content from Marketplace such as demos, trailers, music videos, dashboard themes, and lots more, and Microsoft Points to redeem Microsoft Points (available at retail stores or through Xbox LIVE) for extra game content, Arcade games, movies and TV shows, independent videos, and more. Users can upgrade their account to Gold. A one-year subscription to Xbox LIVE Gold is $49.99

NOTE: Almost, six more models of Xbox and several accessories are currently

producing by Microsoft. The aforementioned Xbox is the most popular model of Xbox

which is the closest to the M-BOX in terms of price.

Manufacturer: Microsoft Category: Console Console: Xbox 360 Release Date: 10/23/2007 Price (Mach 20, 2009):

Manufacturer: Microsoft Category: Console Console: Xbox 360 Release Date: 10/23/2007 Price (Mach 20, 2009): $199.99

Release Date: 10/23/2007 Price (Mach 20, 2009): $199.99 Extra Controller Price (Mach 20, 2009): $64.99 Games

Extra Controller Price (Mach 20, 2009): $64.99

$199.99 Extra Controller Price (Mach 20, 2009): $64.99 Games Price New Released: $80 ‐ $120 Old

Games Price New Released: $80 $120 Old Released: from $20 $60

3
3

2.1.2

Pla y Station

PLAYSTA TION 3, co mmonly

home video game consol e produced b y Sony

part of

the

gaming serv ice, the Play Station

Net work, which

dev elopers for o nline play. O ther major fe atures of the

rob ust multimed ia capabilitie s, connectivi ty with the P layStation P ortable,

and

pri mary storage medium. The Blu -ray player o n the market.

Th e PlayStation

3 was first

Japan,

game

Th e PlayStatio n 3 (official ly marketed

abb reviated PS3 ) is the third Co mputer Enter tainment, and

series. A maj or feature th at distinguish es the PlayS tation 3

fro m its predece ssors is its

the success or to the Pla yStation 2 as

unified online

of relying on

PlayStation

contrasts w ith Sony's fo rmer policy

a high-defini tion optical

disc format,

console inc lude its

Blu-ray Disc,

as

its

its

use of

PS3 was als o the first Bl u-ray 2.0 - co mpliant

released on

November

11,

2006 in

2007 in Euro pe and

No vember 17, 2 006 in North

Oc eania. Two S KUs were av ailable at lau nch: a basic model with a 20 GB

har d drive (HD D), and a pr emium mode l with a 60

sev eral addition al features (th e 20 GB mo del was not r eleased in Eu rope or

Oc eania). Since ava ilable models .

then, sever al revisions h ave been m ade to the co nsole's

GB hard dri ve and

America, an d March 23,

The

an easy and con venient way to make your Pl ayStation®St ore purchases without usi ng a credit ca rd. PlayStatio n®Network ca rds are availa ble for purcha se at a var iety of nationa l retail stores.

PlayStation® Network pre- paid card (ava

ilable in $20 & $50 denomina tions) is

M anufacturer: SO NY C a tegory: Console C onsole: PS3 Re elease Date: 11/
M anufacturer: SO
NY
C a
tegory: Console
C onsole: PS3
Re
elease Date: 11/ 1
1/2006
P
r
ice (Mach 20, 20
09):
$4
99.99
Ex
tra Controller
P
r
ice (Mach 20, 20
09):
$4
9.88
G
a mes Price
N
e w Released: $5
9.82
Ol d Released: fro m
$49.82

PPrr oojjeecctteedd SS aalleess

Fol lowing table

pre vious section (forecasted p otential marke t).

demonstrates

five year sal es forecast f or the produc t based on t he informatio n provided b y

f or the produc t based on t he informatio n provided b y   Fee
 

Fee

%

FY 200 9

FY 2010

FY 2011

FY 2012

FY 2013

BA

SE S YSTEM

100

100

1

00

57,800

 

75,600

99,400

129,500

159,900

EX

TRA CONTROLLER S

30

50

1 5

8,670

11,340

14,910

19,425

23,985

O

N LINE ACCESS KIT

50

30

 

1 5

8,670

 

11,340

14,910

19,425

23,985

D

VD P LAYER K IT

40

20

8 0

46,240

60,480

79,520

103,600

127,920

M

ONTHLY S UBSCRIP

TION (10 X 12)

120

20

 

2 4

13,872

 

18,144

23,856

31,080

38,376

TO TAL PROJECT E D SALES ($000 )

 

135,252

176,904

232,596

303,030

374,166

EX

CHANGE RATE

   

6.8

2

6.82

6.82

6.82

6.82

TO TAL PROJECT E D SALES (IN ,0 0 0 YUAN)

 

922,419

1,206,485

1,586,305

2,066,665

2,551,812

4
4

OOppeerraattiioonnss

4.1 OPERATING CONSIDERATIONS

Operational considerations surrounding the introduction of the M-BOX in China have been listed as followed.

4.1.1 UNDERSTANDING LOCATION OPTIONS

Discover common entry points for setting up offices and factories.

Proximity to market and suppliers

Quality of logistics

Costs (e.g., land, labor, utilities)

Reliability of local infrastructure, particularly the power supply

Availability of a good agent or distributor

Fast growth and high costs versus low costs and low competition

Entering through a gateway like Hong Kong

Availability and longevity of tax or other incentives

Coat-tailing on someone else's existing marketing and distribution network

The level of local authority support for foreign businesses

Where your competition is located

Using a foreign trading zone, trade development zone or special economic zone

Why another American company chose a particular entry point.

4.1.2 SETTING UP LOCAL OFFICES

Explore the options for establishing a business presence in China.

4.1.3 USING COMMUNICATIONS TECHNOLOGY

Learn how to access communication services such as telephones, mobile phones, internet, Email, mail, fax, face-to-face, handling invitations in China.

4.1.4 HOW TO GET PRODUCTS FROM ‘A’ TO ‘B’

Understand the transport infrastructure and options for logistics.

The state of China's transport system

Use local expertise

Using third party logistics companies

Using e-logistics

Future trends

4.1.5 HOW TO LEASE AND BUY BUSINESS PREMISES

An introduction to securing commercial property in China. The firm should find answer for these questions:

Where to get help

What are the costs?

How to lease premises

How to buy premises

Using serviced offices

5
5

4.2

ENGAGING IN LOCAL SALES EFFORTS

Companies that need to manage their business in China can use China-based agents and distributors. An agent sells goods on behalf of the owner and is paid a commission. A distributor buys goods from you at one price and sells them to others at a higher price, making their income from the margin.

Using an agent or distributor to help establish the firm’s market in China can be an attractive option because they:

ADVANTAGES

Provide access to established sales channels and potential customer bases

Can greatly reduce set up costs and time taken to enter the market

Give you access to local knowledge and contacts when dealing with regulatory problems and other issues

However, using agents and distributors can have drawbacks, including:

DISADVANTAGES

Raising the costs and selling price

Reducing control over sales and marketing

Potentially increasing the risk of counterfeiting the product

Many Chinese agents and distributors work for trading companies, which are authorized to deal in a wide range of products. Some of the larger companies have offices in other countries, along with a network of offices and affiliates in China.

However, large agents and distributors sometimes manage so many products; therefore, the firm’s product may not get enough attention. China's size and regional diversity also means the firm will need to engage several agents to cover different areas.

It should be remembered that payments can only be repatriated easily if the goods were imported. If they are China produced, agents can only repay funds after end of year tax has been paid.

4.3 UNDERTAKING LOCAL MANUFACTURING OPERATIONS

The reasons for considering manufacturing in China generally hinge on reducing manufacturing costs for some products, especially products for the mass market and product lines in order to maintain competitiveness in existing markets. In other cases companies have invested in manufacturing in China to supply their China- based clients or for on-selling to a third country.

Strategies can also be positioned around reducing component costs in existing or future product lines while retaining research and development, design and other high end manufacturing in the home country.

For Western companies the emphasis should be on strategic engagement in manufacturing with Chinese partners, making the investment into people and structures and determining involvement based on indirect as well as all direct costs.

Companies will need to gradually develop language and cultural skills in-house (or outsourced), looking at a staged process over time, not a 'great leap forward'. This is arguably less difficult for larger companies, but it is critical for small to medium enterprises to determine up front the benefits versus the costs.

6
6

At the end of the day it's a long-term commitment that requires a lot of planning and preparation.

4.3.1 REASONS TO CONSIDER MANUFACTURING IN CHINA

To maintain international competitiveness through lower costs:

Labor (it is estimated that a company that manufactures in China can cut costs by between 30 and 80 percent depending on how labor intensive the product is)

Manufacturing (efficiencies and economies of scale)

Incentives (offered by Chinese agencies)

Access to China's rapidly growing domestic market.

Brings production closer to Asian and European markets.

Proximity to downstream manufacturers (increasingly based in China) for makers of intermediate goods.

Lower capital costs.

The entrepreneurial spirit of the Chinese and Chinese managers.

Getting access to increasingly competitive and sophisticated Chinese research, science and technology, both in personnel and technologies.

Low labor costs, while remaining an important factor in decision making, should not alone justify moving or setting up Chinese manufacturing operations.

4.3.2 REASONS NOT TO CONSIDER MANUFACTURING IN CHINA

Language and cultural differences - it can be hard to get messages across.

Commercial law is also a work in progress.

High intellectual property protection costs.

Risks to your brand.

Long start-up times.

Increased management overheads - for example communication difficulties, the need for stringent quality controls and the need to redesign operations.

Long supply chains.

Distance from Western markets.

Energy shortages and other operational problems.

Inflexible manufacturing schedules.

Variable quality control.

Longer lead times.

High staff turnover, especially engineers and senior management.

The danger of production overruns by contract manufacturers and leakage of products onto the Chinese domestic and overseas markets.

Variable quality of logistics, though this is improving around major metropolitan areas.

Many of the above represent hidden costs. Sometimes, especially for smaller companies, these indirect costs and issues can outweigh the direct benefits.

7
7

4.4

MANAGEMENT BY PERSONNEL FROM HOME OR HOST NATION

Choosing between expatriate or local hire

ADVANTAGES OF EXPATRIATES

They come from a similar business culture and if they are already an employee they will know the company

Can carry clout in China

Less risk around hiring, such as CV fraud

They are more readily accepted as the company representative than a local hire.

DISADVANTAGES OF EXPATRIATES:

Lack of market knowledge

Unfamiliar with language and culture

Expensive - a generous package may be needed to get them to work in China

Danger of poor adjustment to living in China.

It is suggested not to localize the staff too quickly as the added cost of keeping expatriates on board will be worth it in terms of management and communication benefits. Also, not to develop your new business by regular trips to China alone - the Chinese, like anyone else, will respect and follow those who are on the spot, prepared to roll up their sleeves and demonstrate commitment to them.

However, expats and their families can find it difficult to adjust to life in China, particularly if they are based away from the main centers where there are likely to be few people who can speak English and a small or non-existent expat community. Schooling, sporting, social opportunities and medical facilities, other than those for the Chinese, are limited. In addition, to help reduce expat burn out many companies give generous travel allowances for employees and their families.

SOLUTION: HIRING CHINESE AMERICAN (HALF-PATS)

Hiring Chinese nationals returning home or ethnic Chinese with foreign citizenship can have the advantages of both expats and local hires. They can bring with them market knowledge, bilingual language skills and a familiarity with both Chinese and Western business cultures. However, you need to be sure that they have maintained their Chinese connections.

8
8

EEnnttrryy MMooddeess

Exporting: We choose exporting, when:

The volume of business is not large enough to justify production in the foreign market.

Cost of production in the host country high

The foreign market is characterized by production bottlenecks like infrastructural problems, problems with

materials supplies etc,

There are political or other risks of investment in the foreign country.

There is no guarantee of the market available for a long period.

Foreign investment is not favored by the foreign country concerned.

Licensing or contract manufacturing is not a better alternative.

ADVANTAGES

DISADVANTAGES

Short time taken to enter the market

Losing control over the way the products are priced, advertised, and sold.

Relatively low financial exposure

Faster return on investment

Smaller profit margin

Permit gradual market entry

Vulnerability to tariffs and NTBs

Acquire knowledge about local market

Logistical complexities

Avoid restrictions on foreign investment

Potential conflicts with distributors

Countertrade

ADVANTAGES

DISADVANTAGES

A way to Increase export

Encourage bilateralism at the expense of multilateralism.

A way to mitigate the effects of recession

Suitable in case of foreign exchange problem

Adversely affects export market development

Suitable for selling obsolete products, increasing the sale of capital goods, increasing the aggregate business etc.

Doers often stand to lose in terms of price

Adversely affects competition

Turnkey Project

In fact, it is seems to be a contract rather than a strategy to enter to a market. Turnkey contracts are common in the supply, erection and commissioning of plants, as in the case of oil refineries, steel mills, cement and fertilizer plants, construction projects and franchising agreements.

ADVANTAGES

DISADVANTAGES

Focus firm’s resources on its area of expertise

Most probably, faces cost overrun

Avoid all long-term operational risks

Most probably, faces delay

Most probably, faces confrontation with suppliers

9
9

Management Contract

In a management contract the supplier brings together a package of skills that will provide an integrated service to the client without incurring the risk and benefit of ownership Thus, as Kotler observes, management contracting is a low-risk method of getting into a foreign market and it starts yielding income right from the beginning.

However, besides advantages of management contracts, like any other strategy, it has its own disadvantages as followed.

ADVANTAGES

DISADVANTAGES

The company does not have to commit resource for setting up production facilities.

Probably, loss of potential profits

Less control over the manufacturing process

No risks of foreign investment

May unintentionally transfer proprietary knowledge and techniques to the buyer

Not suitable in cases of high-tech products and cases which involve technical secrets

Easy to drop, If the business does not pick up sufficiently

Licensing & Franchising

Under International licensing, a firm in one country permits a firm in another country to use its intellectual property (such as patents, trademarks, copyrights, technology, technical know-how, marketing skill or some other specific skill).

Franchising is a form of licensing in which a parent company grants another independent entity the right to do business in a prescribed manner.

ADVANTAGES

DISADVANTAGES

Easy ways of entering the foreign markets with minimal commitment of resources and effort

Developing potential competitors

Lower profit

It requires neither capital investment nor knowledge and marketing strength in foreign markets. In fact, foreign markets can be tested without major involvement of capital or management time.

Limited market opportunities

Dependence on Licensee / franchisee

Potential conflicts with Licensee / franchisee

Risk of destroying brand reputation

Reduce the risk of exposure to government intervention and helps to avoid host country regulations

Needs a tight control over Licensee / franchisee’s operation

As a pre-emptive strategy against competitors by combing the foreign markets before the competitors could enter.

10
10

Contract Manufacturing

Under contract manufacturing, a company doing international marketing contracts with firms in foreign countries to manufacture or assemble the products while retaining the responsibility of marketing the product.

ADVANTAGES

DISADVANTAGES

No commit to resource for setting up facilities.

Probably, loss of potential profits from manufacturing

No risks of foreign investment

Less control over the manufacturing process

Production capacity is readily available in the market

Risk of developing potential competitors.

Lower cost of the production

Not suitable in cases of high-tech products and cases which involve technical secrets

Easy to drop, If the business does not pick up sufficiently

Joint Venture

Any strategic alliance between two individuals or entities for more than a transitory period is a joint venture.

ADVANTAGES

DISADVANTAGES

Provide opportunity to rapid entry to a new business, new market

Economy of scale: increased capacity, and provide access to financial resources, technological knowledge and expertise in a lower cost and time

Attain synergy and competitive advantage

Finding the right partner

Different cultures and management styles result in poor integration and co-operation.

The objectives of the venture may not 100 per cent clear and communicated to everyone involved

The partners have different objectives for the joint venture

Sharing of risks with a venture partner

There is an imbalance in levels of expertise, investment or assets brought into the venture by the different partners

The partners don't provide sufficient leadership and support in the early stages

In order to suggest the more appropriate way of entering to China, we also had a review over the

cumulative FDI statistics by different types as of 2007.

Form

No. of Projects

Share %

Realized FDI Value

Share %

Total

594,445

100

703.9

100

Joint Venture

329,210

55.38

344.90

49

Wholly Foreign-owned Enterprises

265,288

44.62

328.46

46.66

FDI Shareholding Inc.

207

0.034

3.67

0.52

Joint Exploration

191

0.032

7.51

1.06

Others

62

0.01

19.43

2.76

Source: Foreign Investment Department of the Ministry of Commerce of China, 2007

As can be seen, statistics show that the most of enterprises entered to China via establishing joint venture.

11
11

Considering all the analysis, we believe that the firm would be successful in entering to China through two stages:

1. Direct exporting and selling via owned office that should be managed by expatriates and “half- expatriates” for the first two years. During this period key personnel would be responsible for cultivating GUANXI relations with officials and businesspeople and seeking for the right partner.

2. Then establishing a joint venture enterprise and start to invest more in China.

As we discussed, the most risk-free method of entering to a foreign market is exporting, but, the method has its own disadvantages.

Establishing an office which is managed by expatriates can reduce the risks of losing control over the way the products are priced, advertised, and sold. In addition, since the product will be sold by the firm, there will be bigger profit margin in compare with selling by agent.

At the other hand, hiring “half-expatriates” who are familiar with the Chinese business environment will help the firm to overcome cultural issues.

After gaining appropriate experience, cultivating necessary guanxi relations and finding the right person for partnering, the firm would be able establish a joint venture.

MMaarrkkeettiinngg CCaammppaaiiggnn

We analyzed and segmented the market, and then we defined a marketing message as: “The entire the life is just a game, now play your life!” we believe the message clearly describe how the product will benefit our clients. Pricing schedule has been prepared and we consider offering price and gift promotion during school holiday.

According to the potential market that we identified earlier, the amount of sales for five years has been estimated.

Due to high level of TV and PC ownership as well as internet users in China, TV commercial, direct email and internet advertising have been considered as the main media for our marketing campaign.

In addition, packaging style and instruction manual, liability insurance, and the product warranty, patent, and copyright policy have been considered.

We considered the marketing budget slightly more than the Average of Marketing Dollars Spent as a percent of

Sales in Video Game Industry which is 3% – 5%.

Marketing Budget Estimation

 

FY 2009

FY 2010

FY 2011

FY 2012

FY 2013

TOTAL PROJECTED SALES ($000)

135,252

176,904

232,596

303,030

374,166

MARKETING BUDGET AS A PERCENT OF SALES FOR M-BOX

7%

6%

5%

5%

5%

TOTAL MARKETING BUDGET ($000)

9,468

10,614

11,630

15,152

18,708

12
12

MEDIUM

% OF SALES

DESCRIPTION

GAME MAGAZINES

5%

COVER PAGE OF SPECIALIZED MAGAZINES SUCH AS HARDCORE GAMER

SATELLITE TV

25%

DISNEY CHANNEL, CARTOON NETWORK, CCTV, AND STAR WORLD

INTERNET

25%

FLASH ADS IN GAME PLANET, GAME ZONE, AND LOCAL WEB AND BLOG PAGES

PROMOTIONS

15%

GIFT PROMOTION AND PRICE PROMOTION DURING SCHOOL HOLIDAYS

TRADE SHOWS

15%

ACTIVE PARTICIPATING IN ELECTRONIC GAMES EXHIBITIONS

DIRECT MAIL

5%

AS A WAY OF INFORMING POSSIBLE CUSTOMERS OF RELATED NEWS AND NEW PRODUCTS

OUTDOOR

5%

GAME STATIONS IN SHOPPING MALLS

PREMIUM ITEMS

5%

VIP DISCOUNT CARD FOR PURCHASES REACHING $300

FFiinnaall AAnnaallyyssiiss

China’s business environment is changing rapidly. Opportunities for foreign companies continue to rise. However, much progress remains to be done in practically implementing the rule of law. The lack of independence for banks, courts, infrastructure, and other key elements drives foreign-invested companies to invest less than they otherwise would in the Chinese economy. The legal system, significantly enhanced, however, it is still remains unreliable. Through the strengthening of intellectual property rights, China’s R&D capabilities are growing. Finally, the age-old practice of GUANXI is becoming a less prominent.

The Chinese economy has positive prospects with a thirty-year history remarkably high growth. If these trends continue, doing business in China will become ever more profitable.

To Go or Not To Go

Considering all the analysis, we believe that the firm would be successful in entering to China, we recommend TO GO through two phases:

1. Direct exporting and selling via owned office that should be managed by expatriates and “half-expatriates” for the first two years. During this period key personnel would be responsible for cultivating GUANXI relations with officials and businesspeople and seeking for the right partner.

2. Then establishing a joint venture enterprise and start to invest more in China.

13
13

RReeffeerreenncceess

1)

Brittan, L. (2006). Doing Business with China. Cambridge: Gmb Publishing. Chee, H., & West, C. (2005). Myths About Doing Business in China. New York: Palgrave Macmillan

2)

Business & Small Business. (n.d.). Retrieved March 19, 2009, from http://www.entrepreneur.com/

3)

China, N. B. (2008). China Statistical Yearbook 2008. Beijing: China Statistics Press.

4)

Doing Business in China . (n.d.). Retrieved March 12, 2009, from http://chinafta.nzte.govt.nz/

5)

PlayStation.com - PLAYSTATION®3. (n.d.). Retrieved March 18, 2009, from

http://www.us.playstation.com/PS3

6)

Saxon, M. (2006). An American's Guide to Doing Business in China: Negotiating Contracts And Agreements; Understanding Culture And Customs; Marketing Products And Services. Avon: Adams Media Corporation.

7)

The World Bank. (n.d.). Retrieved March 24, 2009, from http://web.worldbank.org/

8)

Tian, X. (2007). Managing International Business in China. New York: Cambridge University Press.

9)

Travel: Airfares, hotels, vacations, cruises, car rentals and more at Travelocity.com. (n.d.). Retrieved March 21, 2009, from http://travelocity.com

10)

United States Embassy Beijing, China. (n.d.). Retrieved March 16, 2009, from http://beijing.usembassy- china.org.cn/

11)

Xbox.com | Xbox 360. (n.d.). Retrieved March 18, 2009, from http://www.xbox.com/en-US/hardware

12)

Xi, C. (2008). Doing Business in China. New York: Routledge.

13)

(2008). Business Insights: China: Practical Advice on Entry Strategy and Engagement. London: Kogan Page.

14
14

APPENDIX 1. COST of a TYPICAL TRIP to BEIJING

 

Depart: 09:00am

Washington Ronald Reagan National Airport (DCA) to Beijing Capital Airport (PEK)

Continental Airlines - 1 Stop Flight 1218 / Flight 89 Operated by EXPRESSJET AIRLINES INC DBA CO EXPRESS

Wed, Apr 1

Arrive: 01:50pm

next day

 

Depart: 03:45pm

Beijing Capital Airport (PEK) to Washington Dulles International Airport (IAD)

Continental Airlines - 1 Stop Flight 88 / Flight 8643 Operated by COMMUTAIR DBA CONTINENTAL CONNECTION

Sun, Apr 5

Arrive: 10:40pm

next day

+ Hotel

Thu, Apr 2 Sun, Apr 5

Check In

Capital Hotel, Beijing,

Check Out

Room Type (1 Adult):

 

Superior RoomIncluded

Included

Deluxe Room+ $20.45/Night

+ $20.45/Night

Capital Club+ $61.38/Night

+ $61.38/Night

Source: Travelocity

Total Flight and Hotel

$1,189.75

 

Car Rental Rates (US$)

 
 

Airport-

 

Options

downtown

and vice

versa (one-

way)

Half day

Beijing

(4 hours)

Full day

Beijing

(8 hours)

Badaling

Great Wall

and Ming

Tombs

Mutianyu

Great Wall

(8 hours)

Simatai

Great Wall

(8 hours)

Xingang Port

to Beijing

Dowtown

(one way)

Each extra hour after 8 hours

Red Flag

$ 30

$ 50

$ 80

$ 100

$ 110

$ 130

$ 190

$ 8

Hyundai

$ 30

$ 50

$ 80

$ 100

$ 110

$ 130

$ 190

$ 8

Sonata

Audi A6

$ 65

$ 90

$ 160

$ 200

$ 200

$ 250

$ 280

$ 15

Mercedes

   

S320

$ 100

$ 160

$ 290

$ 390

$ 390

$ 390

$ 450

$ 20

Buick GL8

$

65

$ 90

$ 160

$ 200

$ 200

$ 250

$ 270

$ 15

Source: Beijing Xinhua International Tours

APPENDIX 2. COST of Sending a four foot Crate to BEIJING

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