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Opportunities:
- Opportunity - able to achieve globalisation – vast amount of customers – KFC; Starbucks
- Rapidly emerging market segments, particularly demand for consumer goods & services. For example, in 2014 China is expected to provide around 35% of global demand for smartphones - that's around 440 million smartphones sold in China alone. – Apple; IKEA
- Still a source of relatively low-cost and high quality supply despite rising wage costs - China's factories still have enormous capacity and a reputation for producing to a high quality too – Apple(foxconn)
- China has become one of the most important markets for all global car manufacturers where Chinese consumers have demonstrated that they prefer foreign brands – Jaguar- Landrover
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Threats
- Time and cost to establish profitable market
- position – competitive position can deteriorate quickly – KFC; IKEA; Starbucks
- Growing & intense local competition from firms with their own global ambitions – Apple (intense market for smartphones)
- Is competition fair in China? Govt protection and subsidy of domestic industries and firms + greater scrutiny of activities of foreign businesses
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Risks
- Poor infrastructure in China – makes it harder to operate in China – Alibaba; IKEA (have to local near transport networks)
- Failure to understand the market – Tesco
- Greater commitment – KFC; Starbucks; IKEA
- PLUS THE THREATS.
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Rewards
- Globalisation – KFC;
- Huge potential rewards in terms of profits and continuous growth – Starbucks; Apple; IKEA; KFC
- Operating within another countries allows a business to develop there market knowledge - Tesco
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Factors affecting sucess
- Level of commitment and timescale (internal) – KFC; Starbucks; IKEA
- Localisation: adapting the product to meet needs of Chinese customers – IKEA; Starbucks; KFC
- Choosing a suitable joint venture partner(s) - particularly in industries or markets where the Chinese govt requires that JV partners are required – Jaguar-Landrover; Starbucks
- Scale – reaching a scale of operation that enables the business to operate efficiently. Remember that China is huge by any measure - geography, population etc – YUM (KFC); Starbucks
- Brand reputation – having brand values that Chinese customers aspire to (e.g. cars, luxury goods) – Starbucks; Jaguar Landrover.
- Prepared to invest for the long-term – build scale; develop market understanding & accept initial losses in order to grow market share – KFC (building infrastructure); Alibaba (investing in transportation networks)
- The rate of growth in consumer spending in China is now around 10-12%- compared to 2% in the West; so sales should double every 5-6 years (External)
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Failure:
- Having the right skills in place – have experience in entering new market – if not failure is likely. (internal) - Tesco (lacked scale and underestimated Chinese consumers)
- Taken too long to realise to see China as an opportunity (external) - ?
- State-owned Chinese businesses have easy access to capital (external) - ?
- Failure to building a trust relationship up with consumers - Ebay
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Advantages and disadvantages to a way businesses can operate in China
- Mostly by joint ventures – Starbucks; Jaguar Landrover; GSK
- Don’t always have to have a physical presence – Alibaba (Alipay)
- Can enter the market without any joint ventures – usually hard and other factors normally help the business be successful – KFC; IKEA
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Ethical and Environmental issues.
- Poor working conditions – Apple;
- Health and safety scares – KFC (bird flu)
- Corruptions within China - Bribes – GSK
- Pollution -
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Business strategy affected by developments China
- Localisation – IKEA; Starbucks; KFC
- Guanxi – Alipay;
- Economic changes - globalisation - KFC; Starbucks;
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Starbucks
- Localisation - extra space and difference on menu
- Commitment and long term investment
- Success - Starbucks has a 60 per cent share of China's emerging coffee house market &
- CSR - importance of ethical sourcing (prices paid to coffee farmers) + other social projects
- Entered by JV with ..
- Charges higher prices compared to USA
- Tea drinking nation - hard to enter the (niche) market
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IKEA
- Long term commitment to enable them to be success - entered in..
- Exceeded 6 billion yuan (HK$7.5 billion). It saw more than 15 million visitors - 7.3 million of whom visited the Beijing flagship store.
- Originally price strategy wasn't correct but when changed to enable them to compete - Successful - prices dropped by 60%
- Sales rose 35% percent in 2003. Sales were up 50% in the first three months of 2004 alone.
- Entered with a JV to adapt to local needs
- Profit achieved is reinvested into Ikea and its social enterprise activities
- IKEA has built its PRC stores near public transportation lines, offers local home delivery and long-distance delivery to major cities in China for a fee, maintains taxi lanes, and offers fee-based assembly services
- Chinese chains and companies are copying IKEA products for cheaper prices
- Factories within China - 30% of IKEA's range comes from China.
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Jaguar Land Rover
- Sales increased by 80% in 2012
- In 2014 sales increased by almost a third to 95,000
- Entered by using a JV with Chery Automobile Company Ltd instead of just exporting to China
- Introduced a number of fuel-efficient vehicles making a crucial contribution to environment protection
- Staff development programme
- Within China its has 3 Land Rover Experience Centres 3 ports and 5 parts distribution centres and 2 Training Academies.
- Good CSR - helps communties - 4 million to the quake-affected Ya’an area & establish 20 “Happy Sports Classrooms” for 20 primary schools - provide 6000 children with sport facilities.
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Apple
- It has a market share of around 5%. In the last twelve months it sold approximately 16 million iPhones there
- Android phones sells for less than $100, while Apple lists the iPhone 5C at $739, and the 5S at $871
- A deal has been set up with China Mobile - likely to add many billions of dollars of annual revenues for Apple.
- Use of Foxconn to manufacture the products - Child labour; poor working conditions; and work 60 hours a week and do not give their workers one day of rest per seven working days.
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Alibaba
- Alipay – 49% market share in the electronic payment method.
- It has achieved this by building trust between the company and its customers by allowing the customer to pay after they have received the product.
- Alipay have no physical present in the market.
- Shows that to build trust you don’t necessarily have to show a commitment based on how long they have operated within China but by adopting there business to the ways of the Chinese customers have a significant impact on how successful they are.
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Yum/KFC
- China has accounted for 40 percent of its operating profit
- In 2013, it opened 428 new KFCs in China and has the largest home-delivery business in the country
- 4,600 outlets operating within China, in more than 900 cities
- Localisation - adapting the menu - a bowl of congee, a rice porridge with different features.
- Own distribution system
- First westernised fast food outlet to pentrate market 1987
- Some of Yum’s suppliers were giving chickens unapproved levels of antibiotics, touching off sensitivities about food safety in the country
- Outbreak of bird flu 2013 - sales declined.
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