Introduction
China’s market is complex and therefore needs an appropriate entry strategy to be able to succeed. Multinational corporations which enter the country with mono-dimensional mindset, ignoring China’s multi-faceted diversity, may fail to capture China’s market.
China’s market economy has expanded opportunities for doing business in the country and therefore many companies both domestic and international are racing to establish themselves in the market (Ghemawat 2007, 54).
China’s market today
China’s market environment presents unique complexity with significant differences across the various regions within the country. It has over 800 cities with 200 of them having populations exceeding 1 million. There is a significant variation between China’s cities and towns as they grow at different rates in diverse directions. China’s high economic growth, large size as well as diversity make it to be very unpredictable (Tse 2007).
China’s market is also dynamic as it forms a manufacturing hub for many industries in different sectors. The economy has become dynamic private-sector led since its market liberalization integrating diverse industries and service companies (Fung 2004, 32).
China’s market is very challenging for companies entering the country. Its large population consists of diverse cultures and demographics which influence their lifestyle, which includes spending power and how they react to certain products in market.
Consumer attitudes and demographic makeups vary across cities and towns. The over 800 cities presents different demographics as well as consumer attitudes. Besides, they have different growth rates which further define China’s markets.
Cluster Propositions
Most corporations that enter China’s market tend to categorize Chinese cities depending on their market or demographic characteristics to enable them determine areas which best suit their particular needs (Ho 2005). Segmenting industrial markets could be challenging due to the greater complexity in industrial products, buying processes as well as buying criteria.
Clustering/segmentation is further complicated by complementary products, contracting as well as financing. In clustering, it is important to identify the most important differences that exist among current as well as potential consumers.
Thus, most companies that enter China tend to group cities in terms of geographic closeness, demographic relationships, trade and economic outlook as well as similarity in industry composition and government policies.
Atsmon and Magnl (2009) report that consumer research as well as work with both domestic and multinational companies reveal that it is more beneficial to cluster Chinese markets in terms of geographical locations. Each cluster of cities located within a radius of 300 km represents a minimum of 1% of China’s GDP. Besides, clustered cities in China have close trade relationships as well as common economic outlooks.
Kotler’s Bottom-up Approach
Kotler’s model supports demographic clustering where customer data are analyzed to provide an understanding of the similarities that make up certain demographics so as to be able to know whether they have similar needs/characteristics. Companies have to understand the similarities in customers’ purchasing power or attitude.
Due to modern market complexities, Webster (1991, 64) suggests that companies need to adopt Bonoma & Shapiro’s model which proposes that markets should be clustered according to demographics, buyers’ personal characteristics, operating variables as well as purchasing approaches (Bonoma & Shapiro 1984, 106).
Implications
Any company entering China must consider its strategy and structure in relation to the expected competition in Chinese market. It has to modify its structure and adopt strategies which will enable it succeed in the complex and diverse Chinese markets (Yip. 2002, 101). Again, it must consider the factor conditions which are likely to influence its business processes and growth, and demand conditions in the potential market.
Finally, it has to establish whether related and supporting industries exist in the potential market. Supporting and related industries enhances the operations of the firm and also provides an opportunity for partnerships and ventures, therefore allowing companies to achieve economies of scale (Cheston & Kalafatis 1997, 36).
Cluster benefits
Clustering markets allow companies that enter Chinese markets to define and prioritize their target cities. This means that the company is able to understand cities or demographics which the products/services that it offers would provide the greatest economic value to (Dubar & McDonald 2004, 37).
Besides, the company is able to identify the particular features which best suits its business processes. This also means that the company is able to define its competitive advantages in the market clusters identified allowing it to choose one which would support its vision and growth.
Clustering allows companies to adopt efficient venturing strategies. As such, companies entering Chinese markets need to have the capacity to define China’s markets in a way that gives them a better view of the firms to partner with.
Strategic ventures in China enable companies to cut costs by establishing cluster-based sales forces, supply chains as well as distribution channels while covering large geographic areas (Atsmon and Magnl 2009).
Again, customer segmentation allows companies to acquire detailed profile of customers who are interested in the products/services they offer (Chacko 2004, 4; Gross 1995, 28). They are able to group cities according to consumer as well as demographic data which are relevant to their businesses.
Given the close trade relationships that exist between companies in one geographic area, companies are able to benefit from detailed shared customer’s profile.
Basic Clusters
Different clusters, different consumers
Atsmon and Magnl (2009) believe that understanding diverse preferences as well as attitudes among consumers across clusters is very important. In China, Central and Shanghai have comparable populations, and proportions of locals and immigrants.
However, these characteristics create significant differences between the two clusters. While people in Shanghai prefer well-known brands, have less confidence about the future and therefore tend to prioritise savings, people in Central are the exact opposite of the people of Shanghai (Atsmon & Magnl 2009).
Central residents prefer the national TV to local TV meaning that advertisements targeting them should be done on National TV.
Established markets vs. up-and-coming markets
Hangzhou is categorized as an established market due to its large population characterized by many middle class and above families and individuals. However, the growth in middle class population in this city is expected to be modest as compared to that Hefei.
It is expected that by 2015, Hefei will have achieved significant growth in the middle class population. This means that a company planning to enter the Chinese market should explore opportunities in the Hefei market since there are still untapped opportunities in this region.
Three-hour drive, worlds apart
Despite the close proximities between cities or regions, demographic characteristics may differ. Many companies assume that cities in one region have consumers with similar characteristics, which is wrong.
Guangzhou and Shenzhen, which almost overlap one another, have different population characteristics. Shenzhen is mostly dominated by young immigrants who have a different lifestyle from that of the older majority population in Guangzhou.
Conclusion
Any company entering Chinese markets need to segment the markets into clusters and priorities. They must group Chinese cities according to their demographic as well as most relevant consumer data. In addition, their strategies for entering the Chinese markets have to be dynamic and adaptive to be able survive in the constantly evolving China market. In other words, they need to adopt a global strategy.
Reference List
Atsmon, Y. and Magnal, M., 2009. A better approach to China’s markets. Harvard Business Review, 31.
Bonoma, T. and Shapiro, B., 1984. Segmenting industrial markets. Virginia: Lexington Publishers.
Chacko, J. M., 2004, Targeting Asian-Indian American consumers. Journal of International Business and Cultural Studies, pp 1-7.
Cheston, V. and Kalafatis, S., 1997. Normative models and practical applications of segmentation in business markets. Industrial Marketing Management, 26.
Dubar, I., and McDonald, M., 2004. Market segmentation: How to do it, how to profit from it. Oxford: A Butterworth-Heinemann.
Fung, K. C., 2004. Trade and investment: China, the United States, and the Asia-Pacific economies. Santa Cruz: University of California Press.
Ghemawat, P., 2007. Redefining global strategy: Crossing borders in a world where differences still matters. Boston, Massachusetts: McGraw-Hill.
Gross, A., 1995. China market entry strategies. Bethseda: Pacific Bridge Medical.
Ho, D., 2005. Entering the Chinese market. Bloomberg Businessweek. Web.
Tse, E., 2007. Context and complexity: Success in China requires approach for diverse market. Web.
Webster, F., 1991. Industrial marketing strategy, 3rd Ed. New York: John Wiley & Sons.
Yip, G. 2002. Total global strategy II: Managing for world wide advantage. Englewood Cliffs, New Jersey: Prentice Hall.