Introduction
The ultimate goal of a business corporation is to maximise profits. In order to achieve this goal, some crucial factors are always in place and business managers ought to keep them under control as they determine the success of a corporation in attaining its goal.
Among the most crucial factors is the new market entry strategy, which is often a tasking operation as different markets pose different challenges to the business operations, and hence the ultimate goal of making and maximising profits (Gillespie et al. 2007).
A new market entry is done is various ways depending on the nature of products and customers’ tastes and preferences. Therefore, business managers should understand these factors when making the choice of the method with which to enter a new market.
This paper focuses on the challenges that foreign automobile makers face when entering the US market, with Cherry Automobile Company, China, as the case study.
Market Challenges that are faced by Foreign Automobile Makers in US
The US automobile industry is normally challenging for new market entrants due to various factors, which include customers’ tastes and preferences, traditional beliefs that some countries produce cars of inferior qualities, product pricing, and competition from both local and international automobile makers.
The challenges make it difficult for new entrants to access the market, and thus some automobiles opt to settle for other international markets first in order for US customers to gain confidence in the products by learning from international customers’ satisfaction.
Beginning with customers’ tastes and preferences, the US automobile market is the most competitive in the world due to the presence of many international and local automobile industry players (Kotler & Keller 2012).
The car market is large enough to accommodate new entrants, but customers’ tastes and preferences play a major role in determining the success of a player in the market (Brady2010).
Traditionally, Americans believed in buying local cars, which were often made by the world’s leading automaker – the General Motors, until after the Second World War when they gained confidence in the Japanese automobile products (Nargundkar2009).
Since the entry of the Japanese automobile products in the US market, many other international automobile makers have entered the market, but surprisingly, they all fight against the conservative customers’ tastes of Japanese and local automobile products (Kerin 2012).
Japanese cars have stood out as competent in terms of affordability and high quality in the US market and they are second most purchased cars after the General Motors. The majority of customers do not use luxury cars, and thus they buy affordable and high quality vehicles.
Fuel efficiency is a major factor that a majority of customers consider before buying cars and this aspect explains why the Japanese cars gained popularity amongst the US customers. Hence, the management of Chery Cars China should ensure that its cars adhere to the tastes and preferences of the US customers before getting into the market (Markman&Phan2011).
Another challenge that new entrants face in the US market is the traditional belief that some countries produce inferior quality products, and thus customers tend to shun products from such countries (Anderson & Svensson 2009).
The majority of the US customers do not have confidence in Chinese machineries and automobiles as they are perceived to last for a short time and they do not perform well as opposed to the Japanese products (Terpstra et al. 2006).
The problem with the US customers is that they perceive ‘products’ as a nation-related issue rather than company-related, and thus even a Chinese company producing quality products may undergo challenges simply for carrying the ‘Chinese’ tag (Vietor2007).
It is very difficult to change the attitude that the US customers have towards Chinese-made products. They strongly believe that Chinese companies imitate other international products and consequently they produce inferior quality, which they sell at cheap prices. China is a fast growing economy in the global market and a majority of its manufacturers produce affordable products for nearly all forms of global markets.
Hence, other developed nations perceive Chinese products as goods designed for third world economies. In a bid to end this misconception, Chery automobile makers should prove to the US customers that its cars are of high quality and suitable for the developed world markets.
New entrants into the US market encounter challenges in product pricing. Unlike many other markets across the world, the US has many subsidiary automobile making companies drawn from the world leading players in the industry.
Local manufacturing plays a major role in ensuring that products are priced competitively after considering that production cost is fully met and price set within the affordability bracket (Johansson 2006). Hence, new entrants prefer to export their fully assembled cars into the US market and sell them at local competitive prices.
Alternatively, they can set up a subsidiary firm in the US in a bid to minimise production and shipping costs incurred during exportation (Czinkota & Ronkainen 2012).
The US car market is often regarded as the most competitive in the world as buyers look out for affordability and quality as the basic factors in determining the model to choose (Goldstein& Lee 2005). Hence, automobile makers tend to produce high quality cars and sell them at lowest prices possible.
This aspect implies that market forces in the US pull the price to the lowest limit unlike in other international markets where sellers set up their own prices.
Therefore, the management of Chery Automobile should choose the market entrant method that will lower the cost of production in order to set car prices at the lowest level, while retaining the original quality (Cateora & Graham 2006).
Lastly, competition from both local and international automobile makers poses a great challenge to new market entrants in the US automobile industry. Established automobile makers have an added advantage over the new entrants as they have already earned the customers’ confidence and learned the types of products that sell fast in the market (Hochbaum et al. 2011).
Hence, the already established industry players pose stiff competition to the new entrants because they understand the market out of experience as well as the customers’ tastes and preferences. Hence, a new market entrant should choose the entrant method that would foster the winning of customers’ confidence easily in a competitive market (Hitt et al. 2008).
The Majority of cars driven on the US roads are locally manufactured through international franchises and subsidiaries, due to the stiff competition between local and international automobile makers.
This observation implies that the market is large enough to accommodate other players, but a new entrant should overcome the threats posed by the market competition through choosing the entrant strategy that would favour the acquisition of competitive strategies equal to the market players (Jones & Khanna 2006). Hence, Chery Automobile should consider the best entrant strategy based on the issues highlighted so far.
Market entry methods available to Chery Automobile in regard to the US Market
Various entry methods are available for Chery Automobile in the US market. As aforementioned, the market is competitive and it has many established automobile makers that have acquired customers’ confidence by producing high quality, but affordable cars.
In addition, a majority of the automobile makers has franchise companies and subsidiaries that do local car manufacturing in the US market. Hence, Chery should focus on the viability of entering the US market through setting up local manufacturing factory, assembling plant, or transporting fully assembled cars from China.
The company has used different entry modes in other parts of the country like in Israel where it formed a joint venture with Israel Corps. In Malaysia, it formed an assembling plant. Therefore, the company has a variety of entry mode options, but this paper will propose the best-suited mode for the US entry.
Considering the first option of setting up a local manufacturing plant in the US, it is very costly to the company, but very important for enabling the company to compete with locally produced brands.
The majority of competitive automobile makers in the world like Toyota, Mercedes, and BMW have subsidiary companies in the US that manufactures some brands not produced in other subsidiaries in a bid to open the world market (Dev& Schultz 2005). This strategy will enable the US citizens to have confidence in Chery Automobiles for then they qualify as locally made cars (Gielens & Dekimpe 2007).
In addition, the company can opt to open a local manufacturing plant that is in line with other company’s brands as the case of Landrover Jaguar, whereby the UK based Landrover automobile company leased the Jaguar brand to the Chery in order to boost its competitiveness in international markets.
This strategy helps the new brand to sell in a new market as the already established brand boosts the new entrant’s marketability to customers may lack confidence in the brand. In addition, the above strategies would allow the company to offer job opportunities for the locals, which would be an added advantage to the country.
Secondly, Chery Automobiles may consider the second option of setting up an assembling plant whereby it will import unfinished cars into the market for further finishing. This option will help the company to offer job opportunities to the US citizens, but the large bit of car manufacturing will be done in overseas plants.
The major problem associated with this option is the inability to earn the confidence of customers who demand locally produced products. In addition, the company will still run at higher costs due to shipping costs incurred. Hence, this option does not seem to guarantee the effectiveness for entering a competitive market like the US.
Thirdly, Chery Automobiles may consider entering the US market by shipping fully assembled cars to the US showrooms from producing factories in China. This option is very effective for a majority of world markets where product pricing is the sole obligation of the manufacturer (Hollensen2014).
However, this strategy may pose some threats to Chery Automobiles if used in the US market where product pricing is determined by market forces and customers have a conviction that Chinese products are of inferior qualities. Hence, this option may not be suitable for the US market due to the great risks it poses to the company.
Looking critically into the US automobile market, the established players are of two main types, which include the luxurious carmakers and the ordinary carmakers. Luxurious carmakers include brands such as Lamborghini, which deals with luxurious sports cars only, and thus it targets the rich and celebrities.
Its market is already well established unlike in the case of ordinary carmakers that have to compete with numerous players in the market. Hence, Chery Automobiles fit in the group of ordinary carmakers where competition is inevitable.
Hence, it is recommendable for Chery Automobiles to choose the option of opening a subsidiary car producing plant whereby it will acquire competitive advantage as a local player, and in the end, it may introduce brands that target different market segments as other well-established players like General Motors.
Conclusion
Chery Automobiles as a new entrant in the market will inevitable face competition form well-established market players in the US automobile market.
Hence, it is necessary for its managers to recommend the market entry strategies, which when implemented will enable the company’s cars to compete effectively against locally made products that exist in the US market.
The best entry option that the company should choose is opening a subsidiary in the US market in order for the made cars to gain the confidence of the locals. Lastly, newly produced cars will require marketing strategies that are competitive and capable of outreaching a large proportion of US citizens in order to increase market size upon entry in the market.
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