Case Study : Market Entry Asia (Winter Term 2010/ 11)

As an employee of the departmentment for strategic planning of a large retail

enterprise you and your team are considering the entry into the Asian market.
Japan, China and India are at the focus of your considerations. You have made
some intitial inquiries about all three countries. Your concern includes a
variety of large supermarket chains, various specialized markets (electro, DIY,
books, fashion), but also discounters.

Get a first general idea about the economic situation of all three countries. Use the
following questions as guidelines:
a) Structure the strengths and weaknesses of the countries. Firstly, proceed
according to general economic parameters, later additionally according to
those criteria referring to “market entry in retailing“.
b) Which consumption trends can be recognized? Which influence could these
trends have on the positioning of possible market types / ranges of goods in
the respective countries?
c) Which information do you find referring to infrastructure, logistics or the living
situations of people living there ? Which influence is this going to have on
ranges of goods, market forms?
d) In which countries could the classical large consumer market meet with little
response? Which alternative distribution channels (e-commmerce / home
delivery) could be possible?
e) In case you would like to invest in alll three countries – Which kind of market
entry would be advisable (Sprinkler or Cascade Strategy) ?
f) Which complementary sectors of consumption (travelling, cosmetics or other
services) could be installed in which countries? In how far should these
complementary offers be communicated under the regular label (retail trade)?

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WINTER TERM 2010/11 International Marketing Dr. Philipp Plugmann MSc MBA
 Example Japan
Wordwide Japan owns the second largest economy with the highest purchasing
power. Additionally, the Japanese whole and retail trade momentarily is in a phase of
restructuring and innovation as never witnessed before and the land prices have
reached a historic low level.
Additionally, Japan possesses excellently organised and efficient logistics and high
quality standards.. At the moment customer satisfaction lies under 50 %. Therefore
the consumer is prepared to try new suppliers, the more so as the Japanese
customer is easier to be enthused for new products and trends anyway and
furthermore has become more price-conscious due to the economic situation.
Japanese consumers increasingly save more money at their daily shopping to spend
the saved money in other areas. Furthermore rents and property prices, particularly
in a megalopolis like Tokyo, are extraordinarily high in comparison to most congested
areas in Western Europe. As a consequence many Japanese have to live on
smallest living space and do not afford an own vehicle due to the high fees for
parking space in the cities.
As the wages are only increasing very slowly, many consumers try to save at clothes,
electronic devices etc to spend the saved money in luxurious areas such as
travelling. While the turnovers of supermarkets as well as of individual department
stores are permanently regressive, some other large suppliers continuously yield
gains . An example for this is the chain “Shimamura Co.“ which by its more than 1000
branch offices has the market power to keep prices down.
On the other hand online trade has always been active. Rauken Inc. e.g. – Japans
leading virtual shopping centre supplier – expects that in the year 2006 the 400
thousand million (British counting system; this is American 400 billion, German 400
Milliarden) Yen mark will be burst. With the new focus on travelling, lifestyle and
similar areas these constitute 57.50 % of the consumers` total expenses. In
comparison to that it had been only 50.70 % in 1994 at the same period. To be able
to finance their travels, the consumemers save at their daily expenses according to
the Japan research Institute. According to the Ministry of Country, Agriculture,
Infrastructure and Transport the bookings for oversea travels of the leading
enterprises are increasing by 6.7 % every year. The demand is particularly large at
women between 30 and 50 years, an employee of Kinki Nippon Tourist Co. reported.
The Ministry for Economy, Trade and Industry stated that the expenses for fitness
clubs had also risen by 7.4 % to 262.5 thousand million (British counting system;
this is American 262,5 billion, German 262.5 Milliarden) Yen in comparison to the
previous year. The generation of the Baby Boom – people being born between 1947
and 1949 – will reach pension age of 60 years this year and therefore the number of
people spending money for their leisure time will increase further.

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WINTER TERM 2010/11 International Marketing Dr. Philipp Plugmann MSc MBA
 Example China
China is one of the fastest growing markets of the world. Even though the GDP is still
lower than that of Germany (about 1.7 billion; British counting system, trillion or
million million in American, 1.7 “Billionen“ in German; in comparison to 2.24 billion in
2005) (British; American 2.24 trillion or million million ) but the growth and above all
the further prospects in a market of about 1.3 thousand million (British) consumers
add to the Chinese market`s high attractiveness.
To understand the Chinese market and the Chinese people, looking back into the
past is a good starting point. Over thousands of years the Chinese have conceived of
themselves as the centre of the world. For a long time they had been superior to
other peoples to such an extent that they misconceived the danger of the Europeans.
They rather confined themselves to demonstrating their power and resting on their
superiority. With this, the Chinese have shared the fate of other leading nations and
have “declined“. The thought, however, that China is the navel of the world is still
deeply rooted in many heads. Additionally Confucianism had a very strong influence
on China. This places the family above everything, allocates fixed roles in life and
regulates the living together of the people. With Communism the role of the woman
became strengthened. There are several influencing factors determining the China of
today. Not always do these factors work in one direction. To describe it with a
quotation: “In China everything is possible, but one cannot rely on anything of it.“
(Frankenstein, Hong Kong University). In the China business this means to be
prepared for every possible eventuality and to have several alternative “Plans B“ up
your sleeve. These above all include good planning.
Chinese like western products and are fixated on brands. Accordingly the signs are
not bad in principle. And of course China as a (still) low wages country is also
attractive for production. Many “buts“ are following:
- Some sectors are still under access barriers.
- To build up solid distribution channels in China is not easy and even
impossible country-wide at the moment (and not really useful).
- Technology is very quickly copied either under compulsion or under the
cover of privacy.
- Western products and brands are copied very quickly. Local manufacturers
are then offering a seemingly equivalent product quite inexpensively, most
of the time under the same name. In case of doubt this might ruin your
reputation.
- “Law“ as known in Germany is not existent. The concepts of “law“ and
“contracts” are different in China (even though this is not written down
anywhere): They are mere guidelines that are no longer acknowledged
facing the own disadvantage. You are not “over and done with” once you
have fixed an agreement in writing and signed it. In case of doubt you
might face enforcement problems in court.
- The official China strongly supports its own people: The west should not
easily subdivide the huge market among its members. The Chinese should
rather receive the major portion of the cake. This strongly affects the
legislative and executive bodies.

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 - The regions in China all act very independently and do not care for national
regulations. Beijing simply is very far away.
- Last but not least: As in every aspiring economy making business very
often strongly means personal enrichment.
- It has to be considered, which way you wish to go. Not to work a large
market or not to benefit from the low cost structure is careless in itself; to
work it precipitously can get very expensive. One should plan carefully, not
be pressured and start rather on a smaller scale.

Particularities of the Chinese market at one glance

a) Marketing & Distribution

The “5P“ of Marketing have to be paid decicively more attention to than in Germany:

Product: The basic supply of normal products fluctuates according to the region. As
a whole it can be assumed that the mere offer of western products in China is no
longer a success factor. The basic supply is sufficient. Success comes with variety or
diversification. Next to functional features a success factor is the product design.
This is highly emphasised in China.

Foreign investors benefit from the fact that Chinese prefer foreign products in
certain product categories (e.g. electronics), in others the opposite is the case.
Otherwise : The product has to be tailored to the needs of the target group as done
elsewhere (e.g. richer Chinese in the cities, that do not behave differently to other
High End Shoppers anywhere else in the world).

Service and Quality are still scarce commodities in China. This does not
automatically indicate a genuine product strategy. In China, the target group has to
be specified much more exactly (region, demography) because like in every
economically not yet fully developed country there are variuos possible target groups.

Price: On average Chinese are very price sensitive. Newly rich Chinese, however,
have to be addressed as separate target group with highest possible prices (and
adequate quality and service). Price is not the decicive factor though. Brand and
quality e.g. also play an important role . Options of financing increase in popularity.
Chinese traditionally are rather conservative as regards raising of credit. Most
Chinese do not put much trust in their own banking system. Accounts and credit
cards are rather the exception than standard. Accordingly, the extension of financing
options is small up to now, though increasing to an extent unknown for Europe.

Promotion (Advertising & Packaging): For many Chinese above all the brand
counts. Chinese might be called brand fetishists whereas it does not matter for the
poorer parts of the population if the product is genuine or not. For this reason
enterprises have to invest particularly in the building up of their brand and attach
corresponding target-group oriented features to it. Trade marks do not exist in China
at the moment. The principle “good and cheap“ that is no longer a contradiciton in
Germany is only slowly gaining acceptance in China. Advertising is made via TV in
the first place. Advertising cannot be carried out differently in a country-wide manner.

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WINTER TERM 2010/11 International Marketing Dr. Philipp Plugmann MSc MBA
 Consumers` addresses are not available to a sufficient extent, the post service is not
yet very reliable (and there are hardly any alternatives to it. The supply of telephones
and Internet is increasing, so that these channels can be developed stronger as
alternatives to TV and radio in the future, Apart from that there are many local forms
of advertising (e.g. billboard advertising) that can hardly be avoided.

Place (Distribution): To distribute in a country-wide manner in China is nearly

impossible. Markets are still extremely regional , national trade chains are hardly
existent. Distributors usually have to cover larger regions, with not many customers
according to the sector. “Salespeople“ as distribution form is nearly unregulated,
could be employed accordingly though. To one`s own protection contracts have to be
worked out carefully. Purchase decisions are not made particularly fast; US-style deal
making is not the Chinese way. This clearly means more effort and not rarely the
buying agent wants to profit personally.

b) Logistics

China is a territorial state that additionally consists of strongly differing population

groups. Therefore China cannot be considered as one market. For the distribution as
well as for the production this has to be taken into consideration. A corresponding
analysis is an indispensable element of a market entry stragtegy.

The transport channels in China are inadequate. Above all and in spite of many
infrastructure projects coastal regions are well developed but do not yet meet
western standards. In the inland or in the western part it gets increasingly more
difficult.

There are only few national transport-service companies which constitutes an

additional problem.
The choice of location depends strongly on the regional authorities and other
conditions.

c) Employees

Skilled workers in China are poorly qualified. A real training does not exist and the
value of employees must not necessarily be regarded as an inherent part of Chinese
corporal culture. Qualified employees are difficult to find and those with good foreign
training nearly as expensive as corresponding German employees.

With about 140 Euro per month (Engineers earn about 400 Euro) average wages in
China are considerably lower than in Germany with about 2400 Euro. It is clear that
production relocations can be very interesting regarding these aspects.

There are no free trade unions in China. The emploees do not enjoy much
protection. Especially foreigners, however, will be accused heavily for “misconduct“.
So dismissals can be enforced more easily by foreign firms; there are no really
reliable regulations about how to handle them though. Not rarely, a case of hardship
has then to be negotiated with the local authorities.

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WINTER TERM 2010/11 International Marketing Dr. Philipp Plugmann MSc MBA
 Example India

Sankaran Parsupathi has got a new colour TV, trainers of the US-brand Nike and
soon he is going to purchase a car on credit. The 28-years-old engineer from
Bangalore is part of a constantly growing group: India`s middle class. 250 to 300
million people belong to this class – a quarter of the subcontinent`s population.
.
Per definition all households with a monthly income of more than 120 Euro count as
belonging to the middle class, but with the potential of this target group the Indian
market also becomes globally attractive. Manufacturers of consumer goods rub their
hands: After all the average income of an Indian middle-class family has increased
by more than 20 percent between 1999 and 2003. For some years the upcoming
country experiences its first consumtion boom. Young people have their pockets full
of money and want to spend it. Since 2002 the consumer spending has increased by
15 percent per year and it is still increasing. Status symbols become more and more
important
Even if the rural population does hardly notice the boom – India`s higher-income
earners in the cities have learned to live the high life. For the first time in the more
recent history of the world`s second largest nation people spend their income with
both hands. Not only do they own more than their parents and grand-parents, they
also save less.
India`s sovereign Mahatma Gandhi had taught modesty. In the socialist first years of
Indian independence (1947) shopping was frowned upon. There also was hardly
anything to buy: Imports were prohibited, local enterprises were kept small. After
nearly five decades of protectionism, India finally started to cautiously open its
market in the beginning of the nineties. And with the second round of economic
reforms six years ago this image ultimately changed. In the meantime, more and
more young couples leave their parents` home and move into their own flats. They
no longer cook and eat as they did at home like their parents did, but go out. In the
past ten years the expenses in restaurants and inns have doubled. The sale of
ready-made meals has increased in the past seven years by 70 percent. In the
capitals of prosperity Delhi, Bombay und Bangalore more and more glittering, air-
conditioned shopping centres emerge. And the number of mobile phones has
doubled to more than 50 million in 2004. There are already jokes in India that even
the still omnipresent beggars would not know how to survive without a mobile phone.
Further evidence for growing buying power of the Indian middle class are the
numerous new inland-airlines. Alone in the past eight months two new ones have
been opened. Four more are supposed to be added until the end of the year. And
these are not only discounters. At the last aviation fair in Paris-Bourget nearly half of
the ordered airbusses were supplied to Indian enterprises. The national air traffic
presumably is going to increase by 30 percent per year. In 2009, 40 million Indians
would then travel by plane.
By the present purchasing boom of the young rich Indians the sale of high end TVs,
refrigerators and air-conditions has tripled in the past two years. And in 2004 more
than a million passenger cars have been sold in India for the first time. All of these
are promising figures. But even if the Indian middle class is getting increasingly
present and inclined to buy, consumers of luxury goods are going to stay the minority
for a while. This is verified by a survey of the National Council of Applied Economic
Research (NCAER). According to this, only two percent of the households possess
credit cards. The permanent consumer goods most often sold are “useful“ devices
such as ventilators and bicycles.

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WINTER TERM 2010/11 International Marketing Dr. Philipp Plugmann MSc MBA
 In India, real mass consumer goods are still inexpensive products : oil for cooking,
detergents and shampoo. Also regrettable for foreign brand-manufacturers who
expect to find a new super-market in India: no matter if snacks, cigarettes or soap –
most Indians prefer local goods. According to NCAER the “consuming population“ of
the subcontinent consists of 168 to 504 million people. But what they consume and
how much they are willing to spend is another question. Only the “very rich“ – and
these are just about a million households – afford foreign luxury goods. The rest of
the middle class spend their money on tea, plastic buckets or shirts off the peg
instead of Scottish whisky, stereo systems or designer clothes. Portable radios
instead of plasma screens, mopeds instead of Mercedes. These are still reserved for
a small elite. The Indian middle class rather affords the local Ambassador to rise
socially.
The new consumption euphoria by India`s economic liberalization has its drawbacks
though: many families live beyond their means and get into debt. They get credits
they cannot pay back in the end. There were several tragic cases in New Delhi alone
in the past months . Family fathers who were deep in debt killed their wives and
children and then committed suicide, because the financial pressure had become too
strong.
The pattern is always the same: the family lives in elegant neighbourhoods and has a
luxurous life style before everything is getting out of control. Credits are easily
accessible – one of the reasons for the new debt wave. The market for individual
credits has more than doubled since 2001. Suicides among the rural population have
always existed in India in years of bad harvests. In the cities, however, this is a new
phenomenon.
Nevertheless, a McKinsey-Report judges the consumption behaviour in India as
predominantly positive and “healthy”: “The financial growth of the consumers is
driving the whole economic growth. The financing of consumption, however, requires
new abilities in the financial sector to be capable of estimating risks.”
(Source:welt-online)

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WINTER TERM 2010/11 International Marketing Dr. Philipp Plugmann MSc MBA