Abstract
The Asian market presents tremendous potential for fast-moving consumer goods (FMCG). The report evaluates the feasibility of South Korea, Vietnam, and China as a new market for personal beauty, body lotion product. The Asian region is a good market to consider for the organization as it seeks to expand revenue from retail sales.
Introduction
The Asian market presents a tremendous potential for fast-moving consumer goods (FMCG) healthcare and specialty chemical products with the growth rate being about 7.4 per year. Therefore, the region is a good market to consider for the organization that is seeking to expand its retail sales for the newly launched body lotion product targeting the FMCG market. An attractive feature of the market is the high population growth rate and a large existing population. Global sales for FMCG sales online are expected to reach about $130 billion over a decade, by the year 2025. Therefore, the organization is seeking to be part of the growth by expanding into a country in South East Asia, and it has considered the three options being reviewed in this feasibility report.
Methodology
Three options have been selected for expansion, and they are Korea, China, and Vietnam as the country markets for the company to enter. The options are analyzed neutrally irrespective of the eventually market entry mode that the company decides to use. Some entry options are available such as joint venture and foreign direct investment in a fully owned subsidiary. The company may also opt to be an exporter to the markets with a business partner serving as its distributor. The other option is to license a local company that is already in the country to carry the new body lotion brand and share the proceeds of sales at an agreed percentage or submit royalty payments to the organization.
Criteria
The analysis has been looking at key economic performance indicators for the countries analyzed. It has also focused on the FMCG trends in those countries. Another category looked into was the retail landscape and opportunities for market entry that are available. Under this category, the analysis considered geographical distance, cultural distance, economic distance and administration distance characteristics of the market considered for expansion. Responses to the concerns have been used to verify the lucrativeness of a particular location over another, and this helped to inform the recommendations of this feasibility report.
The size of the market has been reviewed according to performance in previous years. Here, the key concern is whether the market is growing at a sufficient rate that would provide adequate room for a new entrant to make a viable return on investments. All three options considered have a relatively high population that is enough to support the breaking-even of the business in the first year, as long as there is sufficient uptake of the product and successful strategies to out-compete the incumbents.
After eliminating other options, the last option is analyzed deeper to find out whether there are additional features of the market and the country that are lucrative for the organization to consider as a suitable place to set up its new business venture of retailing its new body lotion product.
Conclusions
All countries are in the same geographical region of East Asia, and they enjoy similar cultural orientations although there are specifics like language, which differ. China has a population of 1.3 billion people. South Korea has a population of 50 million people while Vietnam has 89.7 million people.
South Korea has emerged as a cosmetic giant because of being the world’s most exciting and fast-changing beauty market. It has been a key trendsetter and its personal care and beauty retail market posted a 5.8% growth year on year in 2013, which shows that the market is still at a young stage of growth compared to the likes of the UK that registered only 2.1% in the same year. Much of the industry’s products have been for export.
Beauty firms set up in Korea enjoy a good reputation in neighboring countries such as China where total exports reached US$290.63 million in 2013. South Korea has also demonstrated a viable e-commerce potential. Its sales forecasts for online sales were $25.3 billion by 2017, which will be a 33% increase from the previous estimates made in 2013. The indicators show that the country will continue being a good location for setting up a manufacturing facility or making it a central distribution location for subsequent exports into the neighboring countries because it’s retail and export infrastructure is well developed (Cosmobeuty Seoul 1-5).
For Vietnam, the indicators show that while the overall FMCG market is shrinking, the sub-category of personal care is expanding rapidly in the rural areas (Kantar Worldpanel 4). It gives sufficient incentives for a new entrant to join the market and take advantage of the lack of adequate consumer association with the existing brand names and their susceptibility to testing new brands.
The Chinese FMCG market is decelerating. The country also shows a fierce battle between foreign and local brands. The deceleration seems to have stabilized at about a 5% annual growth rate in 2014. Personal care sales continue to increase while sales in other categories of FMCG continue to decline. Growth in the country has mainly concentrated in lower-tier cities. In high tier cities, it has stagnated. While growth remains small, there has been much activity on the market for prices and packaging as sellers seek to find the right combination that will assure them sufficient returns. Prices rose and fell below the inflation rate of 2.5% in 2014 with some products showing negative price growth.
Recommendation
South Korea is the best option because it occupies an excellent trading position within the ASEAN region that would be a key determinant of the success in the business entering the region. It allows for the cultural exchange between members of the country’s involvement in the regional market. It is also well connected to the Western nations because it is an important trading partner exporting electronic goods and automobiles. It is also home to some expatriates from across the world that helps local and foreign companies to crack the ASEAN market. Therefore, it has all the necessary factors for the growth of a new entrant.
Discussion
The Chinese market is decelerating, and many players already characterize it. There would be too many rivals to compete with for a new entrant. Moreover, it presents the challenge of foreign vs. local brands. While international brands have an allure for Chinese consumers especially when they are personal care products linked to celebrities, the distribution network will still be tough to handle for a new entrant. The reliance on local partners may ease things, but it will also lead to the dilution of the brand as a Westernized brand. Therefore, it is best to enter China as a fully owned foreign brand. Nevertheless, based on the initial goals of the organization, which are to realize the highest possible growth in sales in the first year of entry into a market, the Chinese option is no longer suitable (Statista par. 1).
The organization should also not opt to go to Vietnam. The reason for rejecting Vietnam is that the country is experiencing a decline in its FMCG, which points to less lucrative prospects of growth for the company. As global sales for FMCG grow, Vietnam has been experiencing local growth of the overall industry. The country has two major markets namely, the urban and the rural markets. The urban market shows growth in value and volume at 6% and 3% respectively.
The rural market exhibits growth in value and volume at 13% and 10% respectively (Kantar Worldpanel 4-5). The main reason has been the formalization of the retail industry in rural areas and an increase in household incomes throughout the country. There is also less competition for rural areas, which makes it a lucrative target for a new market entrant. However, overall trends in the FMCG industry show declining sales and trade volumes in 2014. Besides the indicators, there are additional trends worth considering. The personal care segment witnessed single-digit growth in value change and volume change in four main cities of Vietnam considered as its urban centers. Meanwhile, the rest of the country, categorized as a rural area experienced double-digit growths for both volume and value change.
Although the personal care category is growing in Vietnam, the conditions affecting the overall industry are likely to influence the sub-category shortly. Reduced earning power of consumers due to economic decline is one of the major reasons. The country is considered a developing one where most consumers’ purchasing power depends on their incomes, and when jobs decline, then the rate of consumption in the economy will also likely subside.
Therefore, the company should not risk entering into this market because of the current good run of the personal care sub-category of its FMCG industry. The market entry will be accompanied by a large investment that needs to be recouped in a few years. Therefore, guaranteed growth prospects are more important than potential growth opportunities expressed in the market (Ronald Berger Strategy Consultants 3-7).
All indicators show that China is a large market that is almost maturing, and it will be difficult for a new entrant to cope with the demands of the market for lowering prices to compete while delivering a superior product compared to the competition. Supermarkets, mini-marts and convenience stores that have been growing at an annual rate of 9%, dominate the Chinese market while hypermarkets have only increased by 3.7% (Bain & Company 3).
China has also been showing appreciation for smaller and modern formats of packaging. It has also been embracing online shopping, which presents additional methods of entering the market. Key drivers are the increase in penetration and purchase frequency. However, for this category, the average price of sales has been declining (Bain & Company 15). However, competition levels in China are too high to support entry strategies for the new company as indicated in the table below.
Table 1: The lucrativeness of the markets at a glance.
Therefore, the option that the organization should take is entering the Korean market. The first reason is that Korea is already a mature market for the FMCG industry. Secondly, it is also serving as a center for exports to the rest of Asia. Since the organization is already looking at the entire region as a place for the growth of its portfolio, launching in Korea will be a good opportunity to keep the vision.
Korea is the gateway to the (Association of South Eastern Asian Nations) ASEAN region. It offers good trade channels for reaching into China, which is the most populous country in the area. The company would be willing to leverage local strengths to protect its market. In South Korea, understanding of the local culture and business norms will take time, but after that, the company will be in an excellent position to defend its market share in the Asian region. Entry into South Korea gives the organization direct competitors who are also eying the regional market. While this can be tough regarding the sophistication of the rivals, it also gives the company sufficient drive to stay innovative, a feature that will help it remain competitive in both the domestic South Korean market and the neighboring markets where it will be exporting to (Nielsen 3-6).
Thirdly, since the organization’s biggest aim is to make rapid sales growth in the initial year and to sustain the growth momentum, the South Korean option is still viable. South Korea has a sizeable population and it is experiencing an increase in online sales in addition to the increase of FMCG industry sales in physical stores. Moreover, it will provide sufficient access to export markets that will help the company achieve its sales growth targets.
The geographical distance of South Korea from Europe and North America is enormous. However, the organization seeks to sell to the domestic market and the regional market. Thus, the distance will only be a hindrance for executives who move throughout the world to attend meetings. On the other hand, the cultural distance is also significant, but the country is also embracing individualism characteristics as it continues to be exposed to Westernized brands, global culture, and education systems. The characteristic makes it easy for a foreign company from the Western world to make inroads in the country and find suitable employees for its venture.
They would be knowledgeable of the foreign culture and the local one. The outcome will be essential for venturing into the domestic market, working with local partners for manufacturing and distribution. It will also come in handy when dealing with administrative bureaucracies and interpret economic indicators.
150-word short explanation paragraph
The situation behind the study is the search for a new market for expansion that would also lead to regional expansion. The company is seeking to grow its brand and its sales. It has to consider emerging markets where there are higher chances of developing the brand. The feasibility research is done for the client organization, and the topic of the study is the introduction of a new body lotion product in South Korea, Vietnam, or China. The criteria used for the study include the size of the markets, the growth trends of the market and their positioning in the region, which affects the ability of the organization to export or confine itself to the domestic market. I am going to consult industry reports from the region for the ASEAN market and the respective country markets regarding FMCG. The focus will be on personal care performance trends and consumer trends.
Works Cited
Bain & Company. Winning Over New Shoppers in China’s New Normal: China Shopper Report Vol. 1. 2015. Web.
Cosmobeuty Seoul. Korea Cosmetic Market Report. 2016. Web.
Kantar Worldpanel. FMCG Monitor: An Integrated Update of Vietnam FMCG Market. 2014. Web.
Nielsen. ASEAN 2015 – Seeing Around the Corner in a New Asian Landscape. 2015. Web.
Ronald Berger Strategy Consultants. Asia Remains Attractive for Market Expansion Services – Study Highlights. 2015. Web.
Statista. Facts and Figures on the Chinese Cosmetics Industry. 2016. Web.