1.Introduction
This paper focuses on how Safe & Healthy Company(S&H) enters the foreign market, with a particular concentration onenvironment analysis and market entry methods. It considers the comparableenvironment of 5 foreign markets, such as South Korea,Japan, Malaysia, Saudi Arabia and Turkey and the factors affectingentry method selection.
Now, S&H Company is based in Shanghai. It is a medium-sized food companywith producing, packaging and distribution of own label milk powder to majorChinese food market. The major product is baby milk powder. Recently, changesin the competitive environment of the retail sector are expected to reduce pricesin the major market areas. S&H has forecasted that it will lead to reduce profitsin the short-medium term (up to five years).
Facing the serious situation, S&H plans to expandits business abroad to survive and develop. And S&H wishes to continue supplyingown label products in the foreign market. Due to limited resources of S&H,it wishes to select one country from South Korea,Japan, Malaysia, Saudi Arabia and Turkey to expand its existingbusiness without any radical change of current operations.
So, it is very important thing to S&H that itshould select which country and which entry method. The following content isabout economic, socio-cultural, political-legal and technology analysis onthese fie countries. After comparing, S&H will select one country anddiscuss market entry method and the reasons of making decisions.
2.Environmental Analysis
The first task is to analyze environmental analysisbefore an enterprise decides to enter a foreign market. S&H Company willanalyze four aspects, which are economic, technology, socio-cultural andpolitical-legal environments to select which is the best foreign country toenter from Malaysia, Japan, South Korea,Turkey and Saudi Arabia.
2.1 Economic Analysis
To international marketers, they face the traditionaltask of economic analysis for foreign market, which they plan to enter. Theycan know main problems: first, how big is the baby milk powder market? Second,what is the baby milk powder market like? The results of the analysis can helpinternational marketers to know the potential market and measure the feasibilitiesof the marketing task.
Now, S&H Company will analyze the size of five country’smarkets and economy through population information and some standards. (SeeTable 1)
Table 1
Population Information
Malaysia
Japan
South Korea
Turkey
Saudi Arabia
Population growth rate (2002)
1.91%
0.15%
0.85%
1.20%
3.27%
Birth rate (births/1,000 population) (2002)
24.22
10.03
14.55
17.95
37.25
Infant mortality rate (deaths/1,000 live births)
19.66
3.84
7.58
45.77
49.59
Total fertility (children born/woman) (2002)
3.18
1.42
1.72
2.07
6.15
Source: Geographyiq.com, 2004
This diagram unfolds a clear comparison between Malaysia, Japan,South Korea, Turkey and Saudi Arabia as a whole in fouraspects, namely, population growth rate, birth rate, infant mortality rate andtotal fertility in 2002.
Although the birth rate of Saudi Arabia is the highest amongfive countries, its infant mortality rate is also the highest. The data is respectively37.25 and 49.59. It shows Saudi Arabia isn’t a steady baby milk powder. Similarly,the infant mortality rate of Turkeyis 45.77, but its birthrate is less two times than its infant mortality rate.So the market is not stable. The marketer even feels there is not a big marketin Turkey.In contrast, the birthrates of Malaysia,Japan and South Korea are very low but the birthrates aresharply higher than their infant mortality rate, especially Japan and South Korea. In addition, thefertilities of Malaysia, Japan and South Korea are higher than Turkeyand Saudi Arabia.These indicate that there are big and stable sizes of baby milk powder marketsin Malaysia, Japan and South Korea.
The following standards can indicate the economysituation. (See Table 2)
Table 2
Economy Information
Malaysia
Japan
South Korea
Turkey
Saudi Arabia
GDP-per capita (purchasing power parity) (2002)
$8,800
$28,700
$19,600
$7,300
$11,400
Unemployment rate (2002)
3.80%
5.40%
3.10%
10.80%
25%
Import-partners: China
7.30%
18.30%
11.40%
NA
NA
Import (billion f.o.b.)(2002)
$76.80
$292.10
$148.40
$50.80
$39.50
Household income or consumption by percentage share (Highest)
10%: 38.4%
10%: 21.7%
10%: 24.8%
10%: 32.3%
10%: NA
Source: Geographyiq.com, 2004
Indicators of economic conditions in five countries,in 2002, reflect the great differences that exist between wealthier and poorernations. The purchasing power of Japan,South Korea and Saudi Arabia is stronger than that of Malaysia and Turkey. Of course, pricing and producttypes will affect purchasing power. And unemployment rate can indicate theirexpenditure level. Although household income or consumption of Japan and South Korea is not very higher thanother three countries, their unemployment rates are lower than others.
On the other hand, Chinaisn’t a main import partner for Turkeyand Saudi Arabia.So Chinese companies aren’t familiar with import and trade condition of them. Contrarily,China is a main importpartner for others, especially Japanand South Korea.Their trading relationships with China are closer than others. It isbeneficial to export for Chinese companies.
Final evaluation about economic environment of fivecountries (See Table 3)
Table 3
Evaluation Economic Environment
Very good
Good
Medium
Poor
Very poor
Malaysia
√
Japan
√
South Korea
√
Turkey
√
Saudi Arabia
√
2.2TechnologyAnalysis
Good basic infrastructures will directly affectcompany’s distribution in the foreign market. One aspect is the economic infrastructureis, transportation and communications. Good infrastructures are beneficial totransportation. In addition, perfect TV net, Internet and Radio net are helpfulto send product information to customers and provide promotion information intime. (See Table 4)
Table 4
Infrastructure (Communication & Transportation)
Malaysia
Japan
South Korea
Turkey
Saudi Arabia
Telephones-main lines in use (million)
4.6
60.381
24
19.5
3.9
Telephones-mobile cellular (million)
5
63.88
28
17.1
2.9
Radios (million)
10.9
120.5
47.5
11.3
6.25
Televisions (million)
10.8
86.5
15.9
20.9
5.1
Internet users (million)
5.7
56
25.6
2.5
1.453
Internet service providers (ISPs)
7
73
11
50
22
Waterways (km)
7,296
1,770
1,609
1,200
NA
Airports
114
172
102
120
209
Ports & Harbors
19
21
10
9
11
Railways total (km)
2,418
23,168
3,125
8,607
1,392
Highways (paved) (km)
49,935
534,471
64,808
131,226
45,592
Source: Geographyiq.com, 2004
Firstly, Telephone coverage in Japan and South Korea is wider than otherthree countries. The number of Internet, Radio and TV user in Japan and South Korea are more than otherthree countries. If the company enters Japanand South Korea,it is easily to communicate with local customers and send product information.It is helpful to promote and distribute. The table shows the qualities ofairport and port in South Korea are not the largest among fivecountries. As a whole, the resources of these aspects are balance. Malaysia is same to South Korea. Although the qualitiesof airport and port in Turkeyand Saudi Arabiaare comparatively large, the transportation of milk powder is not suitable touse plane. Waterway is better than other ways. Japanand South Korea is closer toChina than Turkey and Saudi Arabia, so the expenditure oftransportation is low. It is important to transport milk powder in internalcountry after entering the market. Combined with these factors, the transportationresources of Japan and South Korea arebeneficial to S&H.
Final evaluation about technology environment of fivecountries (See Table 5)
Table 5
Evaluation Technology Environment
Very good
Good
Medium
Poor
Very poor
Malaysia
√
Japan
√
South Korea
√
Turkey
√
Saudi Arabia
√
2.3Socio-cultural Analysis
Terpstra, V. and Sarathy, R mention (2000, p90) thatonly in recent years, have socio-cultural influences been identified asdeterminants of marketing behavior, revealing marketing as a cultural as wellas economic phenomenon.
Firstly, literacycan affect a firm to communicate with local customers. (See Figure 1)
Figure 1
Generally speaking, the opportunity of buying babymilk powder by mother is more than by father. So the literacy of mother willaffect the firm’s marketing activities. If consumers are largelyilliterate, advertising programs and package labels need to be adapted.
The figuredisplays the literacy of male and female in Japanand South Koreaare stronger than other three countries. The literacy of female in Saudi Arabia and Turkey is relatively low. If thecompany exports milk powder to Turkey,Malaysia and Saudi Arabia,it should use easy words as advertisement. Otherwise, it will bring salesdifficulties. Contrarily, entering Japanand South Koreais helpful to promote and distribute.
In addition, ethnic group and languagewill have great effect on promotion in foreign market. (See Table 6)
Table 6
Socio-cultural Information
Malaysia
Japan
South Korea
Turkey
Saudi Arabia
Ethnic groups
Malay and other indigenous 58%(A)
Japanese 99%(B)
Homogeneous (C)
Turkish 80%, Kurdish 20% (estimated)
Arab 90%, Afro-Asian 10%
Languages
Bahasa Melayu (official), English, Chinese dialects
Japanese
Korean (D)
Turkish (official), Kurdish, Arabic, Armenian, Greek
Arabic
Note:
(A)Chinese 24%, Indian 8%, others 10%
(B)Others: 1% (Korean 511,262, Chinese 244,241, Brazilian 182,232, Filipino 89,851, other 237,914)
(C)Except for about 20,000 Chinese
(D)English widely taught in junior high and high school
Source: Geographyiq.com, 2004
Firstly, thereis a single ethnic group in Japanand South Korea, but thereare various ethnic groups in other three countries, especially Malaysia. Thecompany should only consider single culture if entering Japan or South Korea and aren’t afraid tohave a loss due to various cultures and taboo. Secondly, Chinese companies arenot familiar with Arabic culture because of less culture communication andthere are many languages in Turkey.It will have barriers to company’s promotion. Compared to Turkey and Saudi Arabia, in fact, Chinahas more chances to communicate with Japanand South Koreabecause of their short distance. They only use single language, which are respectivelyJapanese and Korean. In addition, in South Korea, English widely taughtin junior high and high school. And people even use Chinese, it is helpful topromote for the company. If the company uses English to send their productinformation in Japan, South Korea and Malaysia, it doesn’t bring tremendouslanguage barriers.
Final evaluation about socio-cultural environment offive countries (See Table 7)
Table 7
Evaluation Socio-cultural Environment
Very good
Good
Medium
Poor
Very poor
Malaysia
√
Japan
√
South Korea
√
Turkey
√
Saudi Arabia
√
2.4Political-legal Analysis
The process and expenditure of import productinspection are complicated and expensive in Japan. It doesn’t waste much timeon registering process in South Korea. And the polities about import of Saudi Arabiaare strict. The regulation about milk powder is that the foreign company mustget special license from government department. (My.mofvom.gov.cn,2004) In addition, Japanese government strictly controls import and discrimination.The law and regulation of Turkeyare not healthiness and there is serious protectionism. And the society isn’tsafe in Turkey.There are no quota requirements and tariff barriers in Saudi Arabia.
Final evaluationabout political-legal environment of five countries (See Table 8)
Table 8
Evaluation Political-legal Environment
Very good
Good
Medium
Poor
Very poor
Malaysia
√
Japan
√
South Korea
√
Turkey
√
Saudi Arabia
√
3. Selection Country
According to above analysis, S&Hselects South Koreaas foreign market through measuring the following standards. (See Figure 2)
Market Attraction
High
Middle
Low
Competition Advantage
High
Low
Risk
Middle
South Korea
Low
Japan
Malaysia
High
High
Middle
Low
Saudi Arabia
Turkey
Figure 2
According to figure 2, there are three main indicatiors,which may influence on S&H entry strategy, including competition advantage,market attraction and risk. It is obvious that South Korea with middle competitionadvantage, high market attraction and low risk is the best choice. And the restfour countries have more or less disadvantages. In contrast to South Korea, Japanis in all square, however, the relative laws are very strict in particular to China. Andthere is serious discrimination, especially to China. Hence, the first choice forS&H is South Korea.
4. Selection “Produce at home”or “Produce overseas”
When the company determines to produce at home orproduce overseas, in fact, the company is to select the entry method betweenExport and Foreign Direct Investment. S&H Company should select export,namely, producing at home. There are some reasons in the following.
The main advantages of export is that the company cangain extra income and profit through putting its precuts into more markets. Itis particularly important to a company, which has a little market share in thehome market because of facing the competitive price and quality of imports. Ifit directly sells its product to the foreign market, the company can highlycontrol researching, designing and making decision about key technology andfacilitate the development of new product. In addition, export can help the companymanufacture scales at home or continue use of production resource at home eventhough its key customers are overseas.
Compared to export, foreign direct Investment has someadvantages. First, if the company adopt wholly owned foreign production, itowns whole manufacturing equipment and 100% ownership will provide it fullfreedom. And it indicates that the company will get 100% profits. Second, it isa good chance to select the best location of factory according to maintenanceof the basic infrastructures, tax policy and local regulations. (Meidenbaum M.& S.James H., 2000) Its obvious disadvantage is that the company needslarge capital to produce overseas.
Although export has some disadvantages, such that itis mainly that the company must deal with diverse barriers when they enter the foreignmarket, such as tariff and quotas. But capital is a big problem to amedium-sized company. The limited capital and production capacity restrict the probabilityof producing overseas because S&H is a medium-sized company. If it producesat home, then exports to foreign country, the method is more feasible thanproducing overseas. So producing overseas is not suitable for S&H Company.
5. Selection Market Entry Method
If S&Hselects Export Management Company, it is better than other indirect exportmethods, such as piggyback.
Terpstra, V. andSarathy, R mention (2000, p380) the company will get the potential advantagesof using an EMC:
l The producer gains instant foreign-market knowledge andcontacts through the operations and experience of the EMC.
l The manufacturer is spared theburden of developing in-house expertise in exporting, a significant costsaving, because the EMC’s costs are spread over the sales of severalmanufacturers.
l Consolidated shipments offerfreight savings to the EMC’s client.
l A line of complementaryproducts can get better foreign representation than the products of just onemanufacturer.
Although the benefits of Piggyback are similar tothose offered by the EMC. S&H Company must to know as Terpstra, V. andSarathy, R mention (2000, p385) mentioned how meets theneeds of geographic diversification and market coverage, economies of scale inexporting, testing foreign markets, and learning international marketing ifS&H company uses Piggyback. In fact, S&H Company doesn’t have enoughabilities to accomplish these tasks according to its background and presentstatus. So Piggyback is not suitable to S&H Company.
6. Details about EMC
After the company has determined to use EMC to enterthe market, it should consider the following factors to select EMC to cooperatewith it in Shanghai.
l Whether the EMC has long exportexperience or not?
l Whatis size of EMC?
l DoesEMC have a good reputation in the foreign market?
l How toreduce the container cost? Etc.
According to these factors, S&H select ShanghaiFoodstuffs Import and Export Corp (Refer to Appendix) to cooperate with it enterSouth Korea.
7. Distribution
S&H Companyaccepts foreign distribution offered to it by Shanghai Foodstuffs Import andExport Corp.
8. Conclusion
Every country has their advantages and disadvantagesthrough analyzing four environments. And there isn’t a perfect country in theworld. After measuring several factors, as a whole, South Korea is more attractive toenter for S&H than others. Although Japanis better than South Koreain some aspects, there is serious discrimination, especially to China. S&Hadopts EMC to export into South Korea, and it accords with company realbackground. So S&H selects South Korea.
