CUTCO Corporation Chinese Market Analysis and Entry

CUTCO Corporation Chinese Market Analysis and Entry – Table of Contents

• 1.0 Introduction
• 2.0 Selection of Destination Market
  • 2.1 Environmental Analysis of the Chinese Market
    • 2.1.1Political Factors
    • 2.2.2 Economic Factors
    • 2.2.3 Legal Factors
    • 2.1.4 Technological Factors
    • 2.1.5 Ecological Factors
    • 2.1.6 Social Factors
    • 2.1.7 Cultural Factors
• 3.0 Suitable Marketing Mix Strategies
  • 3.1 Price
  • 3.2 Product
  • 3.3 Place and distribution
  • 3.4 Promotion
  • 3.5 A suitable marketing mix
• 4.0 The Suitable Market Entry Strategies
• 5.0 References

Introduction

CUTCO Corporation is one of the leading producers and sellers of kitchen products in the US. The company specializes in cutlery items and in fact, it is the leading producer of the products in the US. CUTCO Corporation was established in 1949 by Alcoa. Initially, the company was known as the Alcas Corporation, but its name was changes to CUTCO Corporation after acquiring the Vector Marketing Corporation in 1985 (Briscoe, Schuler & Tarique, 2013, p. 65). Currently, the company sells its products only in the US and Canada. The company has more than 100 different kitchen cutlery products under the CUTCO name. As well, the company sells a wide variety of kitchen cookware and utensils. Although CUTCO Corporation has gained a significant market share in the US, it has not been able to penetrate in the foreign markets, except in Canada (Briscoe, Schuler & Tarique, 2013, p. 65). Due to its small size, the company may face numerous challenges that may hinder successful entry into the foreign markets. At the same time, expanding to the untapped foreign markets is one of the remaining few options for the company to expand its income. In order to expand its revenue and operations, the company needs to explore the possibility of venturing in new markets. This paper proposes a suitable foreign market in which the organization can expand its operations. In addition, the paper examines the suitable marketing tools that the company should adopt, as well as the most appropriate market entry strategy for the selected market.

Selection of Destination Market

Globalization has led to significant economic transformation of the global market over the last few decades. One of the major aspects of globalization is that it has opened channels for organizations to expand their operations in foreign markets. Multinational corporations have taken advantage of the situation through expanding their operations in all lucrative markets. Apart from the multinational corporations, small and medium enterprises have also been able to participate in the international business. As a result of rapid entry into the international market, some domestic markets that presented lucrative opportunities for local and foreign organizations a few years ago are now saturated. To be precise, markets such as the US, Australia and Europe were very lucrative for foreign and multinational corporations a few decades ago. However, business organizations took the advantage of the situation and quickly expanded their operations in these markets (Frege & Kelly, 2013, p. 17). At the same time, the rate of population growth in these countries has been low over the last three decades. Consequently, the domestic markets in these regions are saturated with products and services offered by local and foreign enterprises. Due to the low rate of population growth, the domestic markets in these regions have been growing at a low rate. As such, these markets are regarded as mature. Due to the limited growth opportunities in such markets, CUTCO Corporation needs to concentrate on other markets with better prospects. In particular, the company needs to focus on emerging markets, such as China.

Although globalization improved the connection of China to the international market, the number of business opportunities in the Chinese market has been increasing over the last three and half decades due to several reasons. In1978, Chinese government came up with economic reforms that helped to transform the local economic from command to a market economy. The reforms supported the growth of the private sector and opened opportunities for foreign enterprises to invest in the country (Niosi, 2010, p. 115). Since then, the government has come up with various reforms that have led to increased integration of Chinese economy and the global economy. One of the key moves that opened the Chinese market to the global market was the entry into the World Trade Organization in 2002. As a result of government reforms, Chinese economy has been expanding at a rapid rate over the past two decades.  In fact, China has recorded an average of 10% economic growth over the past one and half decades. The rapid growth of the Chinese economy has led higher employment rate and increased incomes. At the same time, China is currently the most populous nation, with more than 1.3 billion people.

Statistics indicate that the growth of Chinese economy has led more than 500 million persons to move from poverty to the middle class. The growth in economy and overall human welfare has led to improved purchasing power of the people of China. As Gooderham and Grøogaard (2013, p. 362) explain, a significant percentage of Chinese population (especially those who have moved from the low to middle class) have developed interest and preference for imported products, especially from the US. The increased preference for products imported from the US indicates that there are market opportunities for the kitchen products produced by CUTCO Corporation in China. As well, there are numerous trade agreements between China and the US that facilitate trade between the two countries. The agreements support foreign trade by both state and private organizations. In short, China is one of the most lucrative foreign markets that CUTCO Corporation should consider selling its kitchen products (Briscoe, Schuler & Tarique, 2013, p. 123).

2.1 Environmental Analysis of the Chinese Market

The ability of an organization to penetrate and establish itself in any market depends on both external and internal environments of the organization. The eternal environment (also known as macro-environment) is influenced by the economic, legal, political, technological, social, ecological and cultural dimensions of the target market. On the other hand, the external environment (also known as micro-environment) comprises of the internal resources and all stakeholders of a firm. Both the factors of the external and internal environments can facilitate or limit the ability of an organization to expand its operations into a foreign market (McFarlin & Sweeney, 2014, p. 87). However, the interest of an international marketer is to understand the various dimensions of the foreign market. As such, this section will analyze the various dimensions of the external environment with regard to the Chinese market.

• 2.1.1Political Factors

China is a communist state where the central government allows both local and private enterprises to operate with minimal interference. Over the last one decade, the US government has been focusing on enhancing positive relationship with the China government. The good relations that have resulted from the efforts supports trade activities between the two countries (McFarlin & Sweeney, 2014, p. 87).

• 2.2.2 Economic Factors

The US government has developed a positive trade relationship with China. After joining the World Trade Organization in 2002, China agreed to remove trade barriers to the other members, such as the US. Since then, there has been China-US strategic economic dialogue that has been focusing on reducing barriers to trade between the two nations. In short, the trade relations between the two countries enhance the ability of the US private enterprises to conduct business activities in China (McFarlin & Sweeney, 2014, p. 87).

• 2.2.3 Legal Factors

The government of China has created various regulations for foreign enterprises operating in the country. A foreign country operating in China must adhere to the taxation laws, laws on intellectual property rights and labor regulations (Garrik, 2012).

• 2.1.4 Technological Factors

A rapid evolution of technology in the recent years has enabled organizations that manufacture household items to improve their products, to make them unique and to produce them in large scale (McFarlin & Sweeney, 2014, p. 88).

• 2.1.5 Ecological Factors

Any organization considering entering into a foreign market must demonstrate the ability to take care of the natural environment. Although there are no strict laws that limit harm to the natural environment in China, the government of China has been campaigning against engaging activities that lead to environmental damage. The success of entry of an organization dealing with kitchen items in the Chinese market may be influenced by the ability to show responsibility for its activities through engaging protecting the natural environment.

• 2.1.6 Social Factors

As mentioned earlier, a significant proportion of the Chinese population has developed preferences for US-made products. Consequently, there is likelihood for market opportunities for the US-made kitchen products in China (McFarlin & Sweeney, 2014, p. 8).

• 2.1.7 Cultural Factors

There are significant cross-cultural differences between China and the US, mainly due to different values, beliefs, norms and attitudes. A US organization selling kitchen items in China must adapt to the Chinese culture in order to increase the possibility of acceptability in the market (Cooney, Biddulph & Zh, 2012, p. 179)

In summary, the analysis of the external environment shows that the political, economic, social and technological factors are favorable, whereas the other factors are moderate. The factors demonstrate that the external environment does not limit entry and that there are incentives for successful market penetration by the CUTCO Corporation in the Chinese market.

3.0 Suitable Marketing Mix Strategies

Marketing mix is a marketing tool that involves the combination of four elements, namely, place, price promotion and product. Any decision made by an organization that affects any of the four components influences how the products and services of an organization appeal to the customers in the target market. As such, it is CUTCO Corporation to make the most appropriate decisions that would lead to the most suitable combination of the four components (also known as the 4 P’s) during the entry into the Chinese market (Niosi, 2010, p. 332).

• 3.1 Price

The pricing strategy adopted by an organization influences the consumer’s buying propensity. Price is one of the most important components of the marketing mix since it has a direct impact on turnover. There are various pricing strategies that an organization can opt for. One of the options for pricing is competition pricing. In this strategy, an organization sets a price with consideration to the price of the competitors. An organization can adopt a price that is higher, lower or equal to the price of the competitors.  The second option is the skimming pricing. In this strategy, an organization sets a high price initially and then reduces the price gradually while considering the response of the consumers (Swiston, 2007, p. 45). The third option is the product line pricing, which involves setting different prices for products at the same range. Another option is the bundle pricing. In bundle pricing, an organization sells a bundle of goods at a reduced price. A seller can also opt for psychological pricing, which involves giving consideration to the positioning of the price in the market. Another option is to sell products and services at premium prices to reflect the high quality of the products. An organization may also adopt the cost pricing, which involves setting the price while giving consideration to the cost of production (Swiston, 2007, p. 45). The last option is penetration pricing, in which an organization sets a low price initially when entering a new market and increases it later after successful entry.

Given that CUTCO Corporation is considering entering Chinese market, it is essential to give consideration to the cultural aspects, social aspects and other aspects of the targeted consumers. The Chinese are used to products that are sold at low prices. Therefore, it is not advisable for the company to adopt a strategy that would lead to a high price. Since CUTCO Corporation will be new and will be introducing its products in a new market, the most suitable strategy for the company would be the penetration pricing strategy. It will be advisable for CUTCO Corporation to set a low price for its products first and then increase it gradually after successful entry.

• 3.2 Product

The product strategy is also an important aspect of marketing when entering a new market. When designing products for a new market, there are several factors that CUTCO Corporation needs to consider. To start with, the CUTCO Corporation must give consideration to the consumers in the target market. In other words, the company will need to consider the preferences and tastes of the people of China (Frege, & Kelly, 2013, p.58). For instance, the company needs to determine whether the consumers in the Chinese market prefer durable goods or not. Secondly, CUTCO Corporation needs to give consideration to the benefits that the consumers will derive from the kitchen items. If a consumer purchases a plate, for instance, and derives benefits from it, such as durability, he will come back for more plates in the future. Thirdly, needs to decide how to position its brand in the Chinese market. CUTCO Corporation can adopt a brand positioning in which it presents its products as cheap or as premium.  As well, the corporation needs to consider the advantage that its kitchen prodp,ucts will have over similar products produced by competitors. One way of achieving this end is to come up with unique product design and add features that are not incorporated by the competitors (Frege, & Kelly, 2013, p.59).

• 3.3 Place and distribution

Place refers to where, how and when to sell products or services in the targeted market. The term ‘place’ encompasses three components; a) the physical locations where an organization’s product are sold, b) partner organizations through which an organization sells its products and services and c) the internet or the cyberspace. On the other hand, distribution refers to the channel through which a product moves from the manufacturers to the consumer. In other words an organization can decide to sell its products directly to customers without involving the middle men, or sell to wholesalers or to retailers. Although this will be discussed later in this report, CUTCO Corporation will need to come up with a solid strategy for place and distribution, which will be influenced by the entry strategy (Frege, & Kelly, 2013, p. 61).

• 3.4 Promotion

Promotion is a strategy in which organizations use to communicate to consumers about their products and services. The purpose of promotion is to inform the consumers about the products and services and to persuade them to make purchases. Consumers in most markets are bombarded with numerous advertisements and thus, they only pay attention to advertisements that appeal to them. There are different promotional tools that an organization can use and the way in which the organization balances the tools influences the effectiveness of the overall promotional strategy China (Brown, 2010, p. 47).

One of the most common tools used for promotion of products advertisement.  CUTCO Corporation can make use of the mass media to advertise its kitchen products in China. After selecting a suitable brand for its products, the company can advertise its product in through the local televisions and radios. As well, the products can also be displayed in the local newspapers. A more effective strategy would be to display features of the products produced by the company in a magazine and giving the magazines for free o the locals. The magazines can be distributed through all businesses involved in the distribution channel. They can also be placed at strategic points in different organizations that can accept to promote the products of the company (Brown, 2010, p. 47). In all advertisement channels, the organization must present the kitchen products as unique as possible through displaying the unique features.

Another promotion strategy option for CUTCO Corporation is to sponsor various small activities within China, such as games and rallies. During such activities, the company can display its products to people who participate and offer free samples to them. During activities that involve competition, CUTCO Corporation can give their kitchen items as prizes to the participants. Most organizations have been using the aforementioned strategies and therefore, the probability for the company to reach its promotional goals may not be high. In this regard, there is need for the company to come up with a more innovative strategy that will attract the attention of the consumers in China. One of the most suitable options is the use of the internet (Anghel, G. 2012, p. 127). Over the last one decade, globalization has paved way for internet revolution all over the world. Today, almost all people in China have stable access to the internet. At the same time, studies have shown that people in China are increasingly using internet as a source of information and communication. Therefore, the internet may be a suitable channel through which the organization can pass information to the consumers about their products. The company can utilize the internet through developing its own website and display its products and related information. The company can then keep referring the consumers to check their kitchen product in the site. A second option is to use the social media. In particular, the Facebook and Twitter have become very popular among the Chinese and people keep on visiting them. CUTCO Corporation can open its own page or forum and invite the consumers to discuss about their products and services (Anghel, 2012, p. 127).

• 3.5 A suitable marketing mix

Base on the above analysis, a suitable market mix for CUTCO Corporation would involve adapting to the local environment in China. Due to the local culture of the Chinese people, the company would need to adopt the penetrations pricing strategy in, which involves selling products at low prices initially in order to attract customers. Once the company gains a size able market share in the country, they can consider increasing the prices gradually. Secondly, the company will nee to come up with unique designs for its products. Further, the company will need to decide on the suitable strategy for place and distribution. Given the rapid evolution of the internet in the recent years, the company should take advantage of it and promote its products through a website and social media, on top of the other promotional techniques (Anghel, 2012, p. 127).

4.0 The Suitable Market Entry Strategies

There are several strategies that an organization can use to enter a new foreign market. One of the available options is direct exporting. Direct exporting involves manufacturing products and exporting them to the foreign markets. An organization can use agents or distributors to sell the products in the foreign market. In such case the agents and distributors work closely to the organization and act as representatives of the organization in the foreign market. Another option for entry is licensing. Licensing involves transferring the rights of production or marketing to another organization in the target market (Lawrence, & Weber, 2011, p. 85). The company that gets the license uses the rights to produce or to market the products and to sell them in the targeted market on behalf of the company that gives license. The strategy is suitable where the organization that gets the license has a significant market share in the target market. Another market strategy option is franchising. Franchising is a strategy that is used by most organization in the US when expanding their operations in the foreign markets. The strategy involves distributing products and services through independent small outlets that are located in the target markets. There are two things that an organization opting for the strategy should consider. First, the organization must be able to present its brand as unique as possible in order to gain recognition in the target market. Secondly, the organization must be cautious when selecting the franchises since they may be source of competition in the future (Lawrence, & Weber, 2011, p. 85).

Another common foreign market entry strategy is partnering. Partnering involves making partnerships with other organizations in the local or the foreign markets or with multinational companies. Partnering can take different forms, from a simple arrangement to a complex alliance. The strategy is usually suitable in cases where an organization decides to sell products in foreign markets where the foreign culture is different from the local culture (Lawrence, & Weber, 2011, p. 86). Forming a joint venture is another strategy that is very common. A joint venture is a form of partnership that leads to the creation of a new company. In other words, the companies involve in a joint venture fuse to form one company (Lawrence, & Weber, 2011, p. 86). The two companies agree to work together and join resources to improve their ability to penetrate in the foreign markets. Another common strategy used by the organizations is buying a company. The strategy involves buying another organization in the foreign market and using the foreign branches to distribute products and services in the foreign market.

Based on the above analysis and the status of CUTCO Corporation, the most suitable strategy for entering the Chinese market is partnering. CUTCO Corporation is a small company and may not be able to purchase another company. At the same time, is difficult to sell kitchen products via franchises. Although a joint venture may be a suitable option, it will lead to massive changes to the company. Fusing with another organization implies that the company has to leave the current brand and establish a new one. Since the culture of the consumers in the US is different from the culture in China, it is advisable for CUTCO Corporation to partner with a local organization in China to distribute its products. Partnering will help to remove all cultural and ethical issues involves and to increase the possibility of acceptability of the products of the organization in the Chinese market.

5.0 References;

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