Marketing strategies of Chinese companies

Diplomarbeit von Fenghua Tang

Introduction:

Ten or fifteen years ago global business was mainly in the hands of a select number of multinational giants. Small and medium-sized business concentrated on their home markets and perhaps one or two neighboring countries. Not so any longer. Even the smallest businesses have realized that they have something to market in distant countries. Under these circumstances, Chinese companies of all sizes in various industries have recently opened to foreign competition. According to the Chinese Commerce Ministry's new release on relevant report, the Chinese foreign investment reached a new record of 26,51 billion US-Dollars in 2007. This represented a growth of 25,3 percent compared to 2006. After the quantity expansion, the quality offensive comes silently. Today, Chinese companies throw not only millions of T-Shirts, toys or plastic bowls in the international market but also wireless LCD-televisions, telecom-equipment and precision tools as well. Chinese companies have realized that a competitive advantage based on low costs, low prices and large quantities in a global economy cannot defend itself long. Consequently, they focus consistently on innovation and brands. In addition, China's globalization also needs strong mental forces. China does not just want to be a world factory, but instead be an internationally competitive market place that Western competitors already are.

In the involvement of Chinese companies abroad aimed at specific markets, several strategies are recognizable. German and European companies are facing new chances and challenges at the same time. People must correctly assess the situation and corporate strategies and business concepts, with which they respond effectively and sustainably. This is the reason why I decided to write this thesis. The following questions are the focus:

In what areas and branches do Chinese companies concentrate in German market?

Which Chinese companies go abroad? What are their market entry strategies? What are their competitive strategies? And what are the steps of Chinese investments?

What problems in the Chinese M&A business in Germany? How to overcome or avoid them? What are other problems?

What branches are suffering from Chinese competition in Germany and EU? Chances or threats? How can German companies face this shift in a global economy and respond appropriately?

The entry of Chinese rivals in global market is similar to when Japanese and Korean companies emerged in last three decades. But the effect is stronger due to the size and dynamism of the Chinese economy and the ambitious Chinese. German companies, which have clearly defined and shared markets, are suddenly seeing a direct Chinese competition. The wave of Western investment in China tends to roll back increasingly. German companies must be prepared to respond appropriately to this wave. You have to see new chances and challengers early on your radar screen, analyze their objectives and strategies, and develop appropriate measures and countermeasures. You can attack your challengers in the home market or set up strategic cooperation. It is now important to defend profitable market share which was set up for long time and conquer new, promising markets. The Chinese offensive requires tailor-made responses. This reliable information is indispensable. Who are the attackers? Who are the partners? and Where are they? What strategies they pursue is now a matter of competitive intelligence and competitive strategy in global competition.

Table of Contents:

Text Sample:

Chapter 3.3, Marketing entry-strategies of Chinese companies:

According to my analysis: Chinese enterprises enter German markets, mainly through direct or indirect ways: OEM (‘China procurement’) and trade companies in home country are the main form of indirect market access without marketing efforts. In terms of direct market access with marketing efforts, there are three main modes: establishment of own sales channels, strategic alliances and foreign direct investment.

Entry without marketing effort:

Indirect exporting:

Home country agencies - trading companies:

In the period of 1980s and 1990s, Chinese companies often made use of trading companies in the home country to conduct international business. It was an initial phase for them to explore overseas market. Today, it still is used by most small companies in China, e.g. in textile industry.

Licensing:

OEM ‘China procurement’:

Many Chinese companies work as an original Equipment Manufacturer (OEM) for western brands, by which they already have one leg in international market. As OEM they have to meet international requirements on manufacturing technology, management, quality control and effectiveness of production. During the production as OEM, Chinese companies get to know the rule of international competitiveness and built their own reputation at foreign clients as well as in sales channel.

Galanz, a famous Chinese microwave-oven manufacturer, is a typical example for this international strategy. This company is regarded as a pioneer for Chinese OEM-production. Galanz takes advantage of the low labor costs in China and concentrates on a restricted product-portfolio, which is mainly made up of microwave-ovens, air-conditioning and small household appliances. By means of producing for countless brand manufacturers, the company could reach the big economies. In 2005, Galanz reached the production volume of more than 20 millions appliances, of which 14 million were exported.. As trade agents like Fillony or Harvard ordered several hundred thousand microwave ovens, Europe became one of the biggest markets for Galanz. Today, Galanz follows a double strategy. On one hand, Galanz sells its products through big trade channels. On the other hand, it tries to penetrate in western markets as OEM-manufacturer. It is especially effective in the European market. Galanz doesn’t think that the double strategy is a controversy. If this enterprise has developed itself enough with the experience in western markets, it will commit its OEM-orders to enterprises in other developing countries and only produces and sells leading products under the global brand-Galanz.

Turnkey contract:

Turnkey contract or in Chinese Terminology ‘export of labor’ is a basic model for Chinese construction industry to go global. Generally, a foreign government authorizes a Chinese construction company to complete a project under the a certain agreement. A project business is a comprehensive form of global economic cooperation, in which the technologies and labor would be exchanged.

one example is international economic cooperation company of Zhengjiang, it concluded EPC contract and completed turnkey projects such as the Mannheim Chinese Garden, Bruehl fantasy world- four-star hotel etc, and achieved good social and economic benefits. According to German report, Shanghai investors have a project with 23 million euros investment in the construction of ‘China's convalescence paradise’ in Germany-Hessen. Since the German party refused to issue visa to Chinese construction personnel, the project is still in trouble. The project started on September 30, 2006. In terms of the contract, the investment requires a prerequisite for exporting 150 Chinese construction workers to Germany for the project. Initially, the Hessen state government did not oppose the participation of Chinese workers. However, the construction industry in the state protested, the German Federal Labor Department Hessen recently said: ‘We will not be required to issue work permits to the 150 Chinese construction workers.’ And the hiring of local Construction workers would cause a two-thirds-increase in labor costs. It triggered a dispute of this investment.

Entry with marketing effort:

Direct exporting:

Trade fairs:

It is the most common way for all types of Chinese companies to explore overseas market, especially in the German market. Trade fair has a long history in Germany, and today, is one of the most booming markets for trade fairs. Chinese companies think that Germany is situated in central Europe and owns geographical advantage. In addition, the German trade fair industry has a very good reputation in the business world. It is a shortcut for many small companies to find customers there, to know what other competitors do in the world, and to test their products and marketing strategy. Trade fair is also the most effective way to launch new products so far. Annual polls show that trade fair is the most important tool for purchasers to make decisions. Trade fair is a good chance for Chinese companies which are interested in German market to research their products and market potential.

Trade gent or distributor overseas:

This is the another common way for Chinese companies to explore overseas market. More than 70% Chinese companies (till the end of 2006) in Hamburg are running in international trade. Although they are small, they are the traditional distribution channel for Chinese enterprises to explore the German market. Recently, a few of Chinese champions also began to use this form to go global.

Brilliance China Automotive - joint-venture-partner with BMW, is a typical example. Brilliance Auto signed a contract with HSO Motors Europe - a car dealer in Luxemburg about setting up sales channels and controlling market entry in Germany. In order to speed the market entry, HSO established its own sales organization - Brilliance Motors Germany GmbH. It tries to sign sales and service contracts with wholesalers in congested regionall areas. The first European sales partner is a Belgian car dealer that is responsible for Belgian, Holland and Luxemburg. In Switzerland, Aisa Motor Group AG and in France Asie Auto. In 2007, Brilliance wanted to sell 15.000 cars in Europe, and in 2010 60.000 cars, of which about 12.000 should be sold in Germany.

Sales subsidiary overseas:

This entry form is very popular among Chinese large-sized enterprises.

Haier-the biggest home appliances manufacturer in China, bought up the business unit-refrigerator production from Italian company Meneghetti SPA and keep producing refrigerators for the European market there. They founded the head office in Varese (Italy) and the head office is responsible for marketing and sales in 17 European countries. In Germany, they established their own distribution company, Wettenburg-Haier Germany GmbH. Haier Group introduced side-by-side refrigerator models designed for German market to Metro Group, the largest retailer of Germany.

Huawei technologies-the most successful telecom supplier in China, established its own distribution company in Eschborn, Germany - Huawei technologies Germany GmbH. It has sales offices in Munich, cologne and Duesseldorf. Instead of using M&A as global strategy like Alcatel and Erisson, Huawei places value on organizational development. The company wants to set up a global network to examine details of individual problems and local demand. Unlimited partnership and joint ventures play a very important roll, e.g. partnership with Siemens AG and German Telecom. The COMPAREX Germany GmbH have signed a contract with Huawei-3Com (joint venture of 3Com and Huawei in Hongkong) about the sales and service of Huawei products in Germany.

Baosteel-a state-owned steel manufacturer in Shanghai, set up its own trading company in Hamburg fifteen years ago. It distributes throughout Europe from Hamburg and imports for other Chinese steel manufacturers from Europe. Recently, Baosteel has become global supplier of German Volkswagen.