Extracts from Will Underwood's essay for Bullet Point 4
Short introductory paragraph
The considerable economic growth in China can be exploited by companies
in different ways with differing degrees of success. Dulux grew in China by
basing production there in order to play a full and active part in the market. JLR
originally imported, which despite being costly proved viable to the extent
that they are now planning on producing there. Lego on the other hand currently
solely import (although this too is changing)
Paragraph 2 (the item – Dulux)
Paragraph 3
JLR’s market development strategy (from Ansoff’s matrix) in China has been
based on importing so far. Currently import taxes double or even treble the price
of each model. A Landrover Discovery for instance in the UK is £36K but in China the price is equivalent to £100K.
The high economic growth rates in China over many years (even last year growth
was at 7-8%) has created a growing middle class with a high disposable income
and a taste for foreign luxury brands. JLR have been able to benefit from this with
their strong British luxury brand appealing to the increasingly affluent Chinese
consumer. JLR have been able to charge premium prices and still drive up sales in
the 2013 to their highest ever on the Chinese mainland. All this has been
achieved through importing, but with the Chinese luxury car market still growing
JLR have decided that there are clear advantages to be had from operating in
China rather than just importing (they are building a factory near Shanghai to
be operational in 2014/15). The fundamental advantage this will give them is
the chance to achieve a scale of operation in China which importing might not
have allowed. It also enables them to build cheaper models (with no added
import tax) for their Chinese market in conjunction with their joint venture
partner Chery. Furthermore, they will be able to use Chery’s well established dealer
network to achieve higher market penetration.
Paragraph 4 – Lego (success through importing – although a factory
coming on line in 2017)
Conclusion
To conclude, the extent to which operating in China has an advantage over trading with China is
debatable. There is a fine balance of risks and benefits. Operating in China may
reduce costs but at the cost of sharing with joint venture partners and/or government
officials. Importing therefore may well be expensive but can help protect the values
that have established the brand. One of the key factors from the examples I
have covered would appear to be where the company is in its “lifecycle” of
trading with China – operating in China would appear to be a more attractive
option for a company which has successfully built up knowledge and a brand
reputation in that country through importing first. The nature of the product
and service is also an important influence on whether trading with/ or operating
in China
is the more rewarding option.
