To what extent do the opportunities presented by China outweigh the threats?
Justify your answer with reference to your own research and the item above. China is considered to be a leading emerging market in the world of business. Because of this, China can offer a sum of opportunities, such as a promising youthful demographic and a bourgeoning middle class, who have an increasing disposable income. However, with this range of opportunities come potential threats also. These may include the problem of facing increased competition from large firms entering China or correctly understanding the Chinese culture in order to compete with local companies.
Lego for instance has made extensive use of their USP which is so important to the company that their basic “plastic brick” product has remained unchanged with no need to adapt it to different markets, meaning other firms find it hard to compete against such a competitor. Following this, Lego were able to achieve an impressive 35% growth in Asia within six months in 2013, however this is largely down to the huge number of children within Asia at the present moment in time, meaning they were taking advantage of Chinas beneficial demographics, but this may well change in the future which may result in Lego seeing a decline in demand.
To what extent do the opportunities presented by China outweigh the threats? Essay Example
To an extent the opportunities presented by China do outweigh the threats. For example, China can offer a positive range of demographics. This range of demographics can range from a prospective workforce for the future or the chance to target a certain criteria of consumers. In the case of Lego, they targeted Asia’s huge number of children; this benefited them so far as they believe this large target market contributed to their 35% growth in Asia.
Another company who has taken advantage of Chinas demographics is the car manufacturer, Jaguar. Chinas bourgeoning middle class attracted Jaguar as there was more demand from these consumers for luxury cars. Because of this, Jaguar’s market sales are expected to double in six years from 1. 1 million to an impressive 3 million units. China’s demographics can prove to be a huge opportunity for companies. By identifying a potential target market within the population a business can attain a first move advantage and pursue these consumers.
Moreover, by being the first to target these consumers, you have a greater chance of developing a product which is relatively price inelastic, meaning you could increase the price of the product and it would have little effect on the demand for it. Moreover, another significant opportunity proposed by China is that Chinese consumers are very enthusiastic about global products. This means that they like to buy overseas when travelling or via the internet when they can.
However this also benefits companies moving in China, for example Lego being the world’s 2nd biggest toy manufacture means they appeal to Chinese consumers as they essentially deliver a product which is recognised worldwide. This could attribute to Lego’s success in the Asian market. Moreover, one of the most searched for luxury brands in China is Audi. This company, which provides consumers with luxury cars, sold 1. 58 million vehicles in 2013 in China and their sales rose 21% whilst they declined by 0. 9% in Europe.
This evidence suggests that China holds a better future for global brands such as Audi and Lego. This increased interest in global products means larger firms are finding it easier to access consumers in China, meaning they can enter China and almost immediately benefit from increased sales and demand for their products. However, to some extent opportunities presented by China don’t necessarily outweigh the threats. As China is seen universally as an emerging market, it means that there is a significant increase in the amount of companies entering markets within China as they all see the potential it holds.
This means that competition in some markets can be very competitive. Lego for instance, have found that kids are becoming a harder market to deal with as toys have to change all the time to keep up with changing trends coming from new firms entering R&D and releasing new products. One company that has found competing against big competitors hard in China is Tesco. Since entering China Tesco has had to compete against rivals such as sun Art Retail Group and Wal-Mart, both hold a lot of power in China.
Ever since arriving in China in 2008 they have encountered negative growth and found that China is a highly competitive and fragmented market for retail operations. Due to the heavy initial cost of $3. 1 billion and only receiving $10 billion over a 5 year period, the company had no choice but to sell a majority of its Chinese stores to a local retailer – CRE. This is because the local retailer holds a greater competitive advantage then Tesco did alone.
Local companies can pose a huge threat to companies entering the Chinese market, as they already possess a large market share and have had the chance to build on consumer loyalty. Moreover, they are likely to identify consumer trends more easily than a foreign company. Furthermore, large global companies, such as Wal-Mart find it a lot easier to compete in such a market as they have sufficient funds to spend excessive amounts in order to succeed. Following this, another threat posed by China are the regulations that have to be overcome to sell in such a market.
China’s government introduces regulations which can make it hard for global firms to operate within China itself. These regulations can range from internet restrictions to having to test new beauty products on animals. This proved a hard barrier to pass for cosmetic manufacturer L’Oreal in 2013. The firm is barred by European Union rules from testing on animals within the EU, whilst China’s government requires such trials for every new beauty product which of course means L’Oreal cannot pursue their expansion in China.
Additionally, internet-based companies such as Amazon found it hard to experience much growth in China due to internet restrictions which meant consumers in the most case couldn’t access their website. These regulations mean that firms may have to entirely re-negotiate their market strategy when entering China, or in some cases may physically stop particular companies from entering China due to restrictions. In conclusion the opportunities presented by China do outweigh the threats to some extent.
The increasingly large population within China means there is likely to be a huge target market for a particular product(s) which firms can take advantage of and if done so efficiently they could encounter a significant increase in demand and growth. Following this, Chinese consumers are known to be enthusiastic about global products, meaning consumers aren’t likely to just shop with local companies, instead they’ll be interested in diverting to foreign firms, and meaning companies entering China may not have to invest so much cash into their marketing efforts.