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PART I
 

 
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

  1 
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

  3 
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

  4 
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

  5 
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

  6 
 

PART II
 

 
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
In order to rate China in terms of population growth on Likert-type scale ranging from 7 (Highly
Growth Rate
adequate) to 1 (Not at all adequate), among 236 listed countries, the total number of countries
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.
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
Age Structure
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
Also, Miller McCune’s assumption shows 15% of increase in the middle class size during the
Size
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
Composition 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.
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.

 

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
Stability 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.

Economic Based on Economic Freedom Index which offers a time-tested formula for sustained economic
Freedom 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.

Openness to Among developing economies China and Hong Kong have been listed as the largest
FDI 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.

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
Convertibility 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.

 

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,
Highways 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.

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
Waterways world.
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
Rate among the 216 listed countries (2007 est.).
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
GDP 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.

Consumer The consumer inflation rate of China is 4.8 (2007) ranked the country as the 106th country out
Inflation Rate of 220 countries.
China has been rated as 4 in terms of its moderate level of consumer inflation rate.

Trade as Share International trade in goods and services is a principal channel of economic integration. A
of GDP 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
Telephone the world in terms of total number of fixed telephone line.
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
Telephone as the first country in the world (2005).
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.

 

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
Assessment 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.
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 As we learned, there are several crucial factors in assessing new market opportunities such
to Watch 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.

 

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
Assessment 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.
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.

 

References

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2 Feulner, E., Holmes, K., Kim, A., Markheim, D., & O'Grady, M. (2008). 2008 Index of Economic Freedom.
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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
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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/.

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

 
   

 

 

PART III
 

 
Market Entry Strategy Analysis: China 
by Team China: Arash, Bita, Lin Zhi,M. Azraai, Shahin

C ha l l e ng e s

1. DEMOGRAPHICS

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.

 

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.
th
Low Rate of Trade as Share of GDP. According to OECD report 2008, China is the 125 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.

T a r g et M a r k e t
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.

 

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.  
Manufacturer: Microsoft 
Xbox LIVE Category: Console 
Console: Xbox 360 
Xbox LIVE Silver is a free service that allows any Xbox 360 user with a Release Date: 10/23/2007 
Price (Mach 20, 2009): $199.99 
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 Extra Controller 
Price (Mach 20, 2009): $64.99 
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 Games Price 
producing by Microsoft. The aforementioned Xbox is the most popular model of Xbox New Released: $80 ‐ $120 
Old Released: from $20 ‐ $60 
which is the closest to the M-BOX in terms of price.

 

2.1.2 Pla
ay Station

The
e PlayStation
n 3 (officiallly marketed PLAYSTAT
TION 3, com
mmonly
abb 3) is the third home video game console produced by
breviated PS3 b Sony
Com d the successsor to the PlayyStation 2 as part of
mputer Enterttainment, and
the PlayStation series.
s A major feature tha
at distinguishe
es the PlaySttation 3
from
m its predece
essors is its unified
u online gaming servvice, the PlayyStation
Nettwork, which contrasts wiith Sony's fo
ormer policy of relying on
n game Manufacturer: SON NY 
devvelopers for online
o play. Other
O major fe e console include its
eatures of the Caategory: Console 
Coonsole: PS3 
robust multimed
dia capabilities, connectivitty with the P
PlayStation Po
ortable, Reelease Date: 11/1
11/2006 
d its use of a high-definition optical disc
and d format, Blu-ray Disc, as its Prrice (Mach 20, 20
009): 
$4499.99 
prim
mary storage medium. The PS3 was als
so the first Blu
u-ray 2.0 - co
ompliant  
Blu-ray player on
n the market.  
 
e PlayStation
The n November 11, 2006 in Japan,
n 3 was first released on  
 
Novvember 17, 2 d March 23, 2007 in Euro
2006 in North America, and ope and
Exxtra Controller 
Oce
eania. Two SKUs were avvailable at launch: a basic model with a 20 GB
Prrice (Mach 20, 20009): 
harrd drive (HDD
D), and a prremium mode
el with a 60 GB hard drive and $449.88 
 
sevveral additiona
al features (th
he 20 GB mod
del was not re
eleased in Europe or  
Oce
eania). Since then, severa
al revisions have
h been ma
ade to the co
onsole's  
 
ava
ailable modelss.  
 
The
e PlayStation®
®Network pre-p
paid card (available in $20 & $50 denomina
ations) is  
an easy
e and convvenient way to ore purchases without
o make your PllayStation®Sto
Gaames Price 
usin
ng a credit carrd. PlayStation
n®Network ca
ards are availa
able for purcha
ase at a Neew Released: $599.82 
Olld Released: from
m $49.82 
variiety of national retail stores.

Prro
ojected S
Saal es
Following table demonstrates
d five year salles forecast fo
or the producct based on th
he information
n provided byy
previous section (forecasted po
otential marke
et).

  Fee  %    FY 2009
9  FY 2010 FY 2011  FY 2012  FY 2013 

BASE 
A SYSTEM  100  100  100  57,800
0  75,600 99,400  129,500  159,900 

EXTRA 
X CONTROLLERSS  30  50  1
15  8,670
0  11,340 14,910  19,425  23,985 

ONLINE 
N ACCESS KIT  50  30  1
15  8,670
0  11,340 14,910  19,425  23,985 

DV
VD PLAYER KIT  40  20  8
80  46,240
0  60,480 79,520  103,600  127,920 

MONTHLY SUBSCRIPPTION (10 X 12)  120  20  2


24  13,872
2  18,144 23,856  31,080  38,376 

OTAL PROJECTEED SALES ($000) 
TO   135,252
2  176,904 232,596  303,030  374,166 

EXCHANGE 
X RATE        6.82
2  6.82 6.82  6.82  6.82 

TO
OTAL PROJECTEED SALES (IN ,00
00 YUAN)  922,419
9  1,206,485 1,586,305  2,066,665  2,551,812 

 

O p e r a t i o ns

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.
9 Proximity to market and suppliers
9 Quality of logistics
9 Costs (e.g., land, labor, utilities)
9 Reliability of local infrastructure, particularly the power supply
9 Availability of a good agent or distributor
9 Fast growth and high costs versus low costs and low competition
9 Entering through a gateway like Hong Kong
9 Availability and longevity of tax or other incentives
9 Coat-tailing on someone else's existing marketing and distribution network
9 The level of local authority support for foreign businesses
9 Where your competition is located
9 Using a foreign trading zone, trade development zone or special economic zone
9 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.

9 The state of China's transport system


9 Use local expertise
9 Using third party logistics companies
9 Using e-logistics
9 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:

9 Where to get help


9 What are the costs?
9 How to lease premises
9 How to buy premises
9 Using serviced offices

 

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.

 

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.

 

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.

 

E n t ry M o de s
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,
• Relatively low financial exposure advertised, and sold.
• 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


• A way to mitigate the effects of recession multilateralism.
• Suitable in case of foreign exchange problem • Adversely affects export market development
• Suitable for selling obsolete products, increasing • Doers often stand to lose in terms of price
the sale of capital goods, increasing the aggregate • Adversely affects competition
business etc.

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

 

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 • Probably, loss of potential profits
setting up production facilities. • Less control over the manufacturing process
• No risks of foreign investment • May unintentionally transfer proprietary knowledge
• Easy to drop, If the business does not pick up and techniques to the buyer
sufficiently
• Not suitable in cases of high-tech products and cases
which involve technical secrets

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 • Developing potential competitors
minimal commitment of resources and effort • Lower profit
• It requires neither capital investment nor knowledge • Limited market opportunities
and marketing strength in foreign markets. In fact, • Dependence on Licensee / franchisee
foreign markets can be tested without major • Potential conflicts with Licensee / franchisee
involvement of capital or management time. • Risk of destroying brand reputation
• Reduce the risk of exposure to government • Needs a tight control over Licensee / franchisee’s
intervention and helps to avoid host country operation
regulations
• As a pre-emptive strategy against competitors by
combing the foreign markets before the competitors
could enter.

 
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
• Easy to drop, If the business does not pick up which involve technical secrets
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 • Finding the right partner


business, new market • Different cultures and management styles result in poor
• Economy of scale: increased capacity, and integration and co-operation.
provide access to financial resources, • The objectives of the venture may not 100 per cent clear
technological knowledge and expertise in a lower and communicated to everyone involved
cost and time • The partners have different objectives for the joint
• Attain synergy and competitive advantage 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 
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.

M a r k e t i n g C am p a i g n
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 
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

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


DIRECT MAIL 5%
PRODUCTS

OUTDOOR 5% GAME STATIONS IN SHOPPING MALLS

PREMIUM ITEMS 5% VIP DISCOUNT CARD FOR PURCHASES REACHING $300

F i n a l A n al ys i s
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 
R e f e re n c e s

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 
APPENDIX 1. COST of a TYPICAL TRIP to BEIJING  

Continental Airlines - 1 Stop


Depart: 09:00am Washington Ronald Reagan Flight 1218 / Flight 89
Wed, Apr 1 Arrive: 01:50pm National Airport (DCA) to Operated by EXPRESSJET
next day Beijing Capital Airport (PEK) AIRLINES INC DBA CO
EXPRESS

Continental Airlines - 1 Stop


Depart: 03:45pm Beijing Capital Airport (PEK) to
Flight 88 / Flight 8643
Sun, Apr 5 Arrive: 10:40pm Washington Dulles International
Operated by COMMUTAIR DBA
next day Airport (IAD)
CONTINENTAL CONNECTION

+ Hotel 

Thu, Apr 2 Check In Capital Hotel, Beijing,


Sun, Apr 5 Check Out
 

Room Type (1 Adult):

Superior Room Included

Deluxe Room + $20.45/Night

Capital Club + $61.38/Night

Total Flight and Hotel $1,189.75


Source: Travelocity

Car Rental Rates (US$)


Airport-
Badaling Xingang Port
downtown Half day Full day Mutianyu Simatai Each extra
Great Wall to Beijing
Options and vice Beijing Beijing Great Wall Great Wall hour after 8
and Ming Dowtown
versa (one- (4 hours) (8 hours) (8 hours) (8 hours) hours
Tombs (one way)
way)
Red Flag $ 30 $ 50 $ 80 $ 100 $ 110 $ 130 $ 190 $8

Hyundai
Sonata
$ 30 $ 50 $ 80 $ 100 $ 110 $ 130 $ 190 $8

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  

Get Rates & Transit Times


Use this simple tool to obtain a rate quote and determine the expected delivery date and time for your shipment.