Highland Springs Entry into China

Highland Springs Entry into China International Marketing: Highland Springs Entry into China Market Selection and Environmental Analysis Executive Summary â€Å"Increased global communication has also created a greater diversity in the marketplace. Consumers are becoming more sophisticated because of the increased scope of communication, requiring a flexible and responsive strategy, instead of standardisation.† (Prevos, 2008) page Despite converging consumer and market factors, intrinsic differences still exist between country markets and even within countries in terms of regional and cultural factors.Ref More recent debate has tended to centred around the notion of increasing fragmentation, thought to be in conflict with the concept of globalisation itself ref and Yangs (1995)page research deals in much detail with what he refers to as â€Å"the seeming contradiction between rising nationalism and globalism† citing that â€Å"it appears that political and economic boundaries need not necessarily converge anymore.† Although many believe that C consumer markets have converged in terms of tastes and preferences across markets, thus offering potential for strategically equivalent segmentation (Kale Sudharsham, 1987). Tthere still exists vast disparities in terms of the PESTLE factors impacting upon business, particularly social and cultural elements but also the regulatory factors which govern industry, and ultimately, determine the strategies firms opt to pursue. Thise report shall proceed to analyses those factors which impact most on Highland Springs entry into the Chinese market and the subsequent strategies it pursues. It is by no means exhaustive as there are so many inter-related factors at play simultaneously and in varying degrees from a global perspective. Thee report has attempted to analyse those factors deemed to beconsiders the most significant factors, and in particular, with a focuses on the cultural elements which eaffect consumer behaviour and which have the most direct impact o n the strategy which Highland Springs opts to pursue strategy in the Chinese market in the launch of its premium bottled water brand. Environmental Analysis â€Å"There exists a well-developed literature of market failures committed abroad by international marketersOne major reason of such failures is poor market selection.† (Rahman, 2003) Although From table 1, It is clear that China is viewed as offers offering muchsignificant potential for western manufacturers, particularly of consumer goodshowever , a thorough environmental analysis is highly recommended, Ggiven the stage of Chinas economic development and the fact that despite its rapid and impressive progression in recent years, it still lags behind developed markets not only in terms of consumer buying habits and and sophistication, but also most significantly, in terms of market infrastructure which impacts significantly on the subsequent elements of the marketing strategy to be implemented, particularly distribution and logistical elements of bringing the product to market. The Chinese market is highly fragmented on a regional basis and is characterised by much diversity in terms of consumer income as well as propensity to buy certain goods or products. Such disparities are most notable when analysing the vast discrepancies in income levels between the urban and rural populations. â€Å"Few of us know even simple facts about the geography, culture, and economics of countries other than our own. Even fewer people have at their fingertips details that tell whether their goods will sell in a particular market.† Cavusgil (1985) states that few people know the basic tenents of geography, culture or economies of countries different from their own and continues that there are even fewer people who know whether their products will be sold successfully in specific markets. (Cavusgil, 1985) Chinas market is geographically vast in comparison to Highland Springs domestic UK market and its other international markets primarily in developed economies, with much higher numbers of potential consumers. It is also highly diverse in cultural terms internally than the company may be used to dealing with in international markets and characterised by huge differences in terms of social and cultural aspects including language variations on a regional basis which implies that a standardised approach is less applicable. Arguably, Carey (2006) posits that much of the demand for Western-type products is forecast in the highly urbanised areas and in the special economic zones where many workers with available spending power are located and given the nature of the product, considered at the luxury end of the market, this is highly relevant. Despite its progression, as Carey (2006) highlightscontinues that, â€Å"tThough urban incomes are rising, the majority of the Chinese population rem ains mired in rural poverty, awaiting economic and political reforms that may not happen for another decade, if at all.† Table 21. Off-Trade Sales Value and Growth of Bottled Water Region Value ($ million, 2003) CAGR (1998-2003) CAGR (forecast) (2003-08) East China 827.5 18.4% 12.0% North and Northeast China 511.5 17.8% 12.0% Mid-China 466.8 22.3% 16.0% South China 475.7 18.0% 12.0% Southwest China 335.7 23.1% 16.0% Northwest China 179.6 24.3% 16.0% Source: Euromonitor. Soft Drinks in China. April 2004. Check Chinas economic progression has resulted in increased demand for many products and services, such as for example mineral water. In addition, the fact that as clean drinking water is a scarce commodity, has seen the market has grown rapidly in recent times, highlighted by the table abovesince 1989 (Table 2), though this also has implications for the strategy to be adopted, particularly with regarding to issues relating to Corporate Social Responsibility. Highland Spring is different from many of the suppliers in the market given that it is considered to be a premium brand which emulates certain lifestyle elements of the developed West in much the same way as Perrier or Evian of France do., Ttherefore entryherefore, entry into the market does not indicate that it would be competing head-on directly with the domestic playerscompetitors. This is relevant as many market commentators see higher income consumers in emerging markets as chooseing to purchase foreign brands which tend to commu nicate wealth and success. In this respect, Highland Spring is therefore at the premium end of the water market and its Scottish origins should allow the brand to align itself alongside the leading foreign brands that are already established in this e market and to which many in the emerging markets such as China are viewed as aspiring toaspire, for example, China. The Scottish origin should also allow it a degree of differentiation to the predominantly French origin of the leading playersbrands. â€Å"Although in countries such as India and China consumption rates are not as high they have risen dramatically, tripling in India and doubling in China over the past 5 years. In countries such as these the main product line is Nestle pure life, a low cost purified tap water with added minerals.† (Edwards, A., 2007) The analysis here has highlighted demonstrated that the potential demand for Highland Spring is likely to derive from those consumers who earn proportionately moremore, for example, in income terms such as professionals and also the younger segments of the market who are likely to be more exposed to Western- style goods particularly with the increase in overseas education and travel as well as exposure to media, such as including the internet and cable/satellite television., though Though censorship remains high in the nation, it is assumed that the nature of the product should not make this such an problem issue as it would for manufacturers of, for example alcoholic beverages, for example. In addition, an important target segment shall be is the expatriate community which could prove a lucrative segment, particularly in the leading cities of Shanghai and Beijing, thus making the hotel, restaurant and leisure segments of the market highly attractiveprofitable. It is unlikely that th e product shall achieve much success in targeting the lower-income segments of the population given the availability of and loyalty to local regional brands as well as the substantially lower prices of such products. This highlights demonstrates how, despite the substantial cultural differences in existence regionally in China, there is still scope to adopt strategically equivalent segmentation (Kale Sudharsham, 1987) across specific target segments in the market, (Kale Sudharsham, 1987).Tthough clearly, adaptation may be necessary to some or all aspects of the marketing variables in the context of the political, regulatory and cultural factors at play. This market analysis is by no means exhaustive but has rather highlighted those factors at play which have the most impact on the subsequent strategy to be pursued by Highland Spring in China. Further information relating to the market and consumer buying behaviour is contained in the appendix. The preliminary analysis has also highlighted demonstrated that despite the diversity inherent in the Chinese market, there is certainly potential for the Highland Spring brand across specific market segments. In addition, despite the apparent differences between consumers in mature markets in comparison to China, in terms of the Highland Spring brand, given the luxury nature of the product, there is also much similarity, thus epitomising Levitts (1983) theory of converging commonality and Ohmaes (1989) view of â€Å"Managing in a Borderless World† where he highlights how leading premium or luxury brands lend themselves more to global standardisation. Simultaneously, while there remains much scope to extend the global branding and positioning of the product in the market, the fact remains that premium bottled water is still regarded by many as considered to be in the infancy stages in China as opposed to the mature markets of the West. This implies that despite convergence, adaptation is still required if not to the product itself, but to the marketing strategy to be implemented in order to obtain â€Å"â€Å"strategic fit† (Aaker, 1992) between the product and the market. An important consideration for Highland Spring in its launch is the image of the industry as a whole, particularly, from an international perspective. Given that many are of the opinion that Wwater is a basic human necessity., Mmany firms within this market continuum ,for example,such as Highland SpringSpring, at the premium end and Nestle at the lower end within this particular sector and Nestle at the other end of the scale, have been criticised for essentially profiteering from emerging economies such asfor example China and India where the availability of clean water is scarce and in some instances, non-existent. This must be considered from both an international as well as local perspective so as to protect the value of the brand and its positioning in consumers minds. The companys commitment to both environmental and social sustainability cannot be over-emphasised in its proposed launch of its product in the Chinese market and must also be considered with regarding to any partn erships or alliances that are formed.entered into. Marketing Mix Strategy Product Strategy â€Å"When it comes to product strategy, managing in a borderless world doesnt mean managing by averages. It doesnt mean that all tastes run together into one amorphous mass of universal appeal.† (Ohmae,( 1989) states that product strategy does not have to be â€Å"managed by averages†and continues to suggest that individual brands of water can retain their own special taste. The very nature of the product implies that little adaptation should be applied if any at all as part of the appeal and the value of the brand itself, are the Scottish origins. The â€Å"Scottishness† of the brand also appeals to the psychological experience of consumption as highlighted stated by Clegg (2005) â€Å"Working the link between place of origin and product quality is the oldest trick in the brand book. It milks our thirst for mythology and plays mercilessly on our superstitious hope that special places have the power to revitalise and transform.† Highland Spring must however, ensure that it meets with stringent regulatory requirements in the Chinese market and must also ensure that the transportation of the products does not in any way adversely affect the contents and quality of the water itself. The research has also highlighted that many Chinese consumers view bottled water as being ref more beneficial to health with many multinationals such as Nestlà © opting to add vitamins and other health-associated minerals to their water brands in an attempt to appeal to a wider range of consumers and gain advantage over competitors, particularly the local playersbrands. This, however, appears to be more at the lower end of the market rather than the premium end in which Highland Spring should be positioned and appears less relevant as the aesthetic elements of the product have more influence over the purchasing process. Labelling may require adaptation, again given the regulatory environment as well as the language barriers in existence. Although China is characterised by low literacy levels in comparison to the developed World,ref it is assumed that the target segments in question shall be characterised by higher literacy levels than one might normally associate with brands competing in the lower-priced segments. In addition, with regard to product policy, it must also be highlighted that the product itself, while remaining largely standardised across national borders, is at varying stages of the product life cycle in different country markets. Highland Spring can be considered as being in a mature market in the UK and other more developed economies, whereas in China it is at the introduction stages of its cycle and in the consumer adoption process. This has an influence on the subsequent communication and distribution elements of the mix especially at the early stages where communicating the essence of the brand and any associated benefits, both tangible and intangible shall will be of paramount importance. Price Pricing is an important variable to consider as Chinese consumers are deemed to be more price-sensitive than their Western counterparts as highlighted by St-Maurice (2008): â€Å"On average, Chinese consumers are willing to pay a premium of about 2.5 percent for a branded product they purchase regularly, By contrast, in developed markets, premiums for familiar brands can reach 20 percent or more. Our research suggests that rising inflation is making Chinese consumers more price sensitive and less loyal to their preferred brands.† Analysis of competitors pricing policies should be examined especially the leading French players in the market. It may be prudent initially to introduce the product at a lower price than competitors in order to gain a foothold in the market. Appropriate distribution agreements with local agents should facilitate this and assist in keeping prices down initially with the anticipation that margins shall will rise as the product gains a foothold in the market. Given the premium nature of the product it is important than price also communicates the brands quality and prestige image while simultaneously not being positioned so high as to exclude potential customers. Promotion â€Å"As China becomes a major player in the global economy, authorities in Beijing are trying to balance the need for more information with their goal of controlling content as a means to maintain power.† (Zissis, C. and Bhattacharji, P., 2008) This is perhaps the variable in which adaptation is most likely to occur given the cultural differences inherent within the Chinese market. It is also important yet again, to be aware of any regulatory requirements regarding information communicated through promotional media as well as on labelling requirements. However, it is safe to assume that in spite of the variances in terms of regulations as well as language barriers, the promotional element should be relatively consistent on a global basis in order to create a global brand with more universal appeal. Country of origin is an important element to communicate as well as the pureness, quality and superiority of the product highlighting, perhaps, certain elements which may be deemed more important to the Chinese consumer, particularly any health or purity elements which would serve to differentiate and position the brand above the leading foreign competitors in the marketplace. An interesting element to consider is the massive inc reases in the number of Chinese visitors to events such as the annual Edinburgh Festival so some sort of tie-in or complementary advertising with relevant tourist companies or airlines, both international and Chinese operators, may be prudent in heightening brand recognition out with the Chinese market initially. As highlighted by the environmental analysis of the market, literacy levels are substantially lower in the Chinese market yet the target market in question is assumed to be within those segments that possess the relevant literacy levels as well as the available disposable income. The same can be assumed in terms of access to communication mediums such as quality and international press as well as television and internet. The same mediums may not, for example, be options for those companies targeting the lower priced end of the water market where much more local adaptation shall undoubtedly be required and thus images become much more important as well as billboard and regional campaigns such as in-store promotions. However, despite recommendations to promote a global campaign â€Å"adapting global programs to the local level can often improve the effectiveness of a campaign.† (Aaker and Joachimsthaler, 1999) and this is likely to be reflected in the medium used rather than the promotional messages and images themselves. Sponsorship with leading sporting or other social events and special offers or tie-ins with other products or establishments such as hotel chains and health spas should also be examined in order to gain more exposure for the brand in the early stages. Place Highland Spring is involved in both the on and off- trade in its domestic market whereas in China, sales are likely to be predominantly, if not wholly concentrated in the on-trade, primarily through hotel and restaurant chains and in exclusive wine bar/bistro type establishments in the highly urbanised zones of the main cities of Beijing and Shanghai in order to target segments directly as well as to raise the profile of the brand. Clearly the reputation and standing of such establishments in the market must be consistent with the quality and image of the Highland Spring brand itself. Market Entry Strategy This is perhaps the most important element of Highland Springs launch in the Chinese market as the choice of suitable partnerships in terms of distribution, logistics and retail establishments shall be overwhelmingly important to the subsequent success or failure of the product launch. Analysis has highlighted that the Chinese market per se is still extremely complicated to operate within. Despite the progress made in terms of lowering trade barriers, many obstacles still exist and protectionism is still very much a reality which foreign operators must contend with. As a result, many markets, particularly consumer markets, are characterised by a high proportion of strategic alliances and joint ventures and distribution arrangements than one might normally encounter in more developed economies. Foreign companies appear to have opted for this style of partnership as a means to overcome some of the obstacles in the marketplace, affording them more control over activities and gaining add ed insight into the local operational complexities. This is in line with what Ohmae (1989) refers to as â€Å"market insiderization† achieved through collaboration with local agents established in the market who are aware of the intricacies of operating in the Chinese business environment. Although predominantly entering the market through exporting, also deemed necessary given the nature of the product and the fact that country of origin is an essential part of the brand itself, C collaborative arrangements shall be necessary with domestic Chinese firms in order to facilitate entry into the market, as well as the subsequent distribution of the product itself. The identification of a suitable partner shall be required, one which offers expertise in terms of knowledge of the market and a well-established and reliable distribution network in place with links into prospective retail outlets. Given the premium image of the Highland Spring brand, partners, distributors and any other agents appointed in the market, must also be reliable and well-thought of within the industry. Another important element to consider is that all storage and distribution facilities comply with both Chinese and international regulations to ensure that the product quality shall be retained when in transit and in storage. Highland Spring already have an arrangement in place with a US-based company named Savi Networks and employ the companys SaviTrak(TM) for Wireless Cargo Monitoring system in many of their international markets. This shall be explored in terms of capabilities within the Chinese market as the company is already active in Hong Kong. As Highland Spring explains, â€Å"Whether it is our devotion to protecting our Organic Land or using the latest in technology to manage the flow of our natural product to distant consumers, we are incessant in our quest that the customer experience, whether in Hong Kong or Dubai, be the same quality as those in the UK.† (PR Hub, 2009) Further details of this are contained in the appendix. Clearly a major factor for success is the distribution capability of potential partners in the marketplace. Related companies in the alcoholic and soft drinks segments of the market, particularly international companies such as PepsicoPepsiCo or Diageo, or even in conjunction with other food related companies such as Scottish Salmon, may offer the potential to form collaborative distribution arrangements such as piggybacking. This could also be of benefit not only in terms of lowering costs but also from the point of view of providing non competing but complementary products to the market and may be of particular appeal to many of the larger hotel and retail outlet chains in the nation. This would also substantially lower the risks involved in market entry into the Chinese market. Although on the whole, the analysis has highlighted that some sort of partnership or arrangement with local players is deemed necessary, this does not rule out the opportunity to enter into partnership with other foreign firms already established in the market, and as highlighted in the preceding paragraph, this could provide added opportunity and and economies of scale scale economies for all involved in both the supply and demand for the product in question as explained by Young et al (1989) â€Å"where the company sells its goods abroad through the overseas distribution facilities of another producer; the two firms would normally have complementary, non-competitive products.† References Aaker, D. and Joachimsthaler, E., 1999, The Lure of Global Branding, Harvard Business Review, November-December. 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