Marketing strategies for US MNCs in the Chinese market

By | April 20, 2014

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List of figures

 

Figure 1 US-China Trade Statistics from 2001 to 2010………………………………….. 4

Figure 2 Hofstede cultural dimensions analysis of China……………………………….. 4

Figure 3 Hofstede cultural dimensions analysis of the United States………………. 5
Content page

Marketing strategies for US MNCs in the Chinese market……………………………………. 3

  1. Introduction of United States and People’s Republic of China……………………….. 3

1.1      China……………………………………………………………………………………………… 3

1.2      United States…………………………………………………………………………………… 3

  1. Relationship between United States and People’s Republic of China………………. 3

2.1      Political relations……………………………………………………………………………… 3

2.2      Economic and financial relations………………………………………………………… 4

2.3      Socio-cultural relations……………………………………………………………………… 5

2.3.1     Hofstede cultural dimensions analysis……………………………………….. 5

2.3.2     Spreading of US culture in China……………………………………………… 6

  1. Analysis of the implications on marketing strategies for US MNCs in the Chinese market     7

3.1      Foreign market entry mode selection………………………………………………….. 7

3.2      Marketing mix…………………………………………………………………………………. 7

3.2.1     Product………………………………………………………………………………….. 7

3.2.2     Price……………………………………………………………………………………… 8

3.2.3     Placing…………………………………………………………………………………… 8

3.2.4     Promotion………………………………………………………………………………. 9

  1. Concluding remarks…………………………………………………………………………………… 9
  2. Recommendations……………………………………………………………………………………… 9

5.1      Monitor of the macro environments……………………………………………………. 9

5.2      Monitor the industrial trends……………………………………………………………. 10

Reference……………………………………………………………………………………………………… 11

Marketing strategies for US MNCs[1] in the Chinese market

 

1.        Introduction of United States and People’s Republic of China

 

1.1    China

 

China the world’s most populous country together with the world’s second largest economy following the Unites States, but it is the rapid growth that attracts the world’s attention and business opportunities seekers. China also has unique cultural systems that need to be considered before any important business decisions are made.

 

1.2    United States

 

The United States, has long been the world’s largest economy soon after the Second World War, with a free market economy and well build political and social systems, the country has been leading not only the economy of the world but also the cultural side of the world by exporting various products, services and also its culture norms to the rest of the world and China has been one key destination.

 

2.        Relationship between United States and People’s Republic of China

 

2.1    Political relations

 

In term of political relations, it is hard to say whether they are enemies or friends. In the majority of time in the last century, China and the Unites States were not very friendly. And as a matter of fact, until the 1970s, the Unites States government still only place Taiwan as the only legitimate government of the country “China” in term of formal diplomatic relationship (Sheng, 2002, p. 130). But as the US famous saying goes, there is no absolute friends or enemies, suggesting that only interest matters. Since the new century, the two countries are more and more interdependent in term of various economies activities and political cooperation, at present, the political relationship between the countries are still stable though there are uncertainties such as the Taiwan issues. But still politically, it is stable enough for the business men in the two countries to do business in the other country.

 

2.2    Economic and financial relations

 

The interdependence in term of economic and financial activities between China and the Unites States has been long known to the world. In front of the trend of globalization, these two giant economies have everything linked with each other.
Figure 1 US-China Trade Statistics from 2001 to 2010

Source: US Department of Commerce

 

From the figure above, we can see that China has been increasing the export to the United States, though the US export into China grows as well the volume of export and speed of growth just can not catch up with the Chinese counterparts. As a result, the US balance become larger and larger which is believed not able to last for a long term basis. The enlarging US balance of trade against China actually indicates that the China is over depending on the FDI (foreign direct investment) and export driven growth mode to keep its economy moving on. But at present, such reliance and growth mode seems to be able to continue for a long enough period of time.

 

2.3    Socio-cultural relations

2.3.1            Hofstede cultural dimensions analysis

Figure 2 Hofstede cultural dimensions analysis of China
Source: geert-hofstede.com 2011

Figure 3 Hofstede cultural dimensions analysis of the United States

Source: geert-hofstede.com 2011

 

The above two figure shows the district two cultural systems of China and the United States using Hofstede’s five cultural dimensions, the typology was proposed by Hofstede with particular influence over the cross cultural management research (Tian, 2004, p. 18) by examining the five identified cultural dimensions: Power distance, Individualism, Masculinity / Femininity, Uncertainty avoidance and Long term orientation. The only similar dimension shared in the two cultural systems is the individualism (IDV) in which China scores 66 while US scores 62. And in term of power distance which has close link with the political structure and long time social norms, China’s score is much higher than that of the US indicating that there is a culture of obedience to the authority (Chee & West 2007, p. 127). In term of another very district dimension, the long term orientation (LTO), China’s score is extreme high suggesting not only the fact that the Chinese people have long been quite long term oriented and prepare well for the future uncertainties but also reflect that the country’ well fare is not yet enjoyed by the majority of people. In contrast, the long term orientation (LTO) of the United States is much lower with a score of 29 only.

 

2.3.2            Spreading of US culture in China

 

With deepen of the reform and opening up policy in China, not only the economic conditions change largely, people’s mind and acceptance to different culture also change a lot. Look at the streets of the large and medium cities of China, the shadow of the US culture could be seen everywhere: McDonald, KFC, Nike and Hollywood motives. For example, the Chinese consumers are even crazier than consumers in any other countries in getting an iPhone, and in Beijing, an Apple store was even forced to shut down the store after a few hours of madness last year (gottabemobile.com 2010). Hence the US culture has significant impacts and influences on the Chinese consumers.

 

 

3.        Analysis of the implications on marketing strategies for US MNCs in the Chinese market

 

3.1    Foreign market entry mode selection

 

Foreign market entry mode refer to the methods of business organization employed by the international firms with the aim to enter into a particular foreign market (Jones 2009, p. 7) to expand their business and the usual entry modes include exporting, licensing, joint ventures, and direct investment. Foreign market entry modes differ in degree of risk they present, the control and commitment of resources (McDonald, Burton & Dowling 2002, p. 207). As we have analyzed above, through the political relation between the US government and the Chinese government does not goes really well. But politically, it is stable enough for the business men in the two countries to do business in the other country. Hence, for the US MNCs, the political stability enables them to enter into the Chinese market using any available entry modes without the necessity to consider the political risks.

 

3.2    Marketing mix

 

3.2.1            Product

 

Product strategy refers to the way the product component of the marketing mix is used to achieve a firm’s objectives (Longenecker, Moore, Palich & Petty 2006, p. 318) in term of setting of product line and product mix design. The product design and other strategies should consider several factors: firstly, the companies need to identify who will be the major customers and which market the products are to be sold, if the target market is China, then the product design, packaging and other product functions should fit in the special cultural needs of the Chinese customers. In another perspective, because as mentioned above, US culture has significant impacts and influences on the Chinese consumers in term of the preference of the US made products with obvious US feature, hence it could be a strategy for the US MNCs to copy the product strategies rather than applying the adaption according to the local market needs.

 

3.2.2            Price

 

One of the traditional 4P marketing mix is the pricing strategy which is said to be critical the survival of many business. Usual pricing strategies include psychological pricing, discount pricing, skim pricing, penetrating pricing and so on (Greene 2008). With the fast spreading of the US culture in China, now people are more ever willing to buy oversea products and famous brands from the US even at high prices. And also there is a weird trend in China that people with high incomes would love to buy those expensive but quality products and brands, the more expansive, the more they would love it. Under such circumstances, to the MNCs operating in the Chinese market, skimming pricing strategy could be a useful and effective way to skim the large and sound profits.

 

3.2.3            Placing

 

Placing strategy refer to the methods that companies adopt to deliver the end products from the manufacturers to the hands of the customers which involves a transfer of ownership directly or indirectly to the customers (Thomas 2008, p. 19). As mentioned above, right now China is still depending on the FDI (foreign direct investment) and export driven growth mode to keep its economy moving on which means that China will still act as the factory for US while US business companies could manufacturing products with low cost in China and export back to the US and other major developed economies in exchange for sound profits. In this way, such interdependence relationship has significant implications for company’s placing strategy choices. For the US MNCs, the will need to plan well for the distribution channel and logistics management to reduce the cost of transportation between the place of production and the target market.

 

3.2.4            Promotion

 

The term promotion mix refers to a number of techniques that are adopted to communicate a firm’s marketing information such as advertising, public relations, publicity, sales promotion, direct marketing, and personal selling (D’Angelo 2010, p. 226). All the marketing promotional techniques such as advertising should be tailored to fit in the Chinese local market needs and the customer preference, and to avoid cultural conflicts companies can also hire the local marketing firms to be in charge of the promotional activities.

 

4.        Concluding remarks

 

To conclude the discussion above, we can see that the political, economical and social relationship between the two giant countries: the Unites States and China though belongs to macro environments also have significant influence over the marketing strategies. Though here no detailed business or a particular MNC is mentioned, these environmental factors also have implications to the general business operations. And in term of the cultural relations, it should been seen that it has the most influential impact over the marketing strategies in China for the US MNCs.

 

5.        Recommendations

 

5.1    Monitor of the macro environments

 

Due to the influential impacts the macro environments on the business practice, it is recommended that the business entities, especially those that are from the oversea market, to closely monitor the changes of the macro conditions which will have significant implications to the business in the future, hence close monitoring is needed. And company could achieve the target of monitoring by frequently checking with the most recent news, economic data and government publications that could be helpful to help the management of companies as reference to make critical decisions.

 

5.2    Monitor the industrial trends

Another recommendation given here is to advise the companies to closely monitor the industrial trends as well as the macro conditions. In the Chinese market, which industries tend to develop in a rapid speed, competitive relationship could change in a few years time because of the change of the competitive forces, such as the increased threat of market entry from local or oversea potential competitors to penetrate into the market. Hence it is recommended that the MNCs put some attention in the industrial trends within the Chinese and international market and evaluate the changes happening out there.

 

5.3

Reference

 

Chee, H. & West, C. 2007, Myths about doing business in China. New York, NY: Palgrave Macmillan. p. 127

 

D’Angelo, J. 2010, Spa Business Strategies: A Plan for Success. New York, NY: Cengage Learning. p. 226

 

Gottabemobile.com 2010. Chinese are iPhone Crazy…Fights Erupt, Beijing Store Closed. 09/ 30/ 2010. Viewed on 4th Dec 2011 [online]: http://www.gottabemobile.com/2010/09/30/chinese-are-iphone-crazy-fights-erupt-beijing-store-closed/

 

Geert-hofstede.com 2011. Cultural dimensions analysis of China. Viewed on 4th Dec 2011 [online]: http://geert-hofstede.com/china.html

 

Geert-hofstede.com 2011. Cultural dimensions analysis of China. Viewed on 4th Dec 2011 [online]: http://geert-hofstede.com/china.html

 

Greene, C. L. 2008. Entrepreneurship: Ideas in Action. 5 edition. Mason: South Western, Cengage Learning.

 

Jones, M. 2009, Internationalization, entrepreneurship and the smaller firm: evidence from around the world. Cheltenham: Edward Elgar Publishing Limited. p. 7

 

Longenecker, J. G., Moore, G. W., Palich, L. E. & Petty, J. W. 2006, Small business management: an entrepreneurial emphasis. Mason: Cengage Learning. p. 318

 

McDonald, F., Burton, F. & Dowling, P. 2002, International business. Cincinnati: South Western College Publishers. p. 207

 

Sheng, L. J. 2002, China and Taiwan: cross-strait relations under Chen Sui-bian. Singapore: Institute of Southeast Asian Studies. p. 130

 

Tian, Q. 2004, A transcultural study of ethical perceptions and judgments between Chinese and German businessmen. Germany: Martin Meidenbauer. p. 18

 

Thomas, R. K. 2008, Health Services Marketing: A Practitioner’s Guide. Germany: Springer Science + Business Media, LLC. p. 19

 

[1] MNCs = Multinational Corporations