Analysis of International Marketing of Chinese Companies - Assignment Example

Analysis of International Marketing Table of Contents 1.0 Introduction 1.1 Global branding 1 1.2 Internationalization process 1 2.0 Global Brand 2.1 Global brand – its seven features 2 2.2 Overview – TsingTao 2 2.3 Strength in home market 2 2.4 Geographical coverage and balance of sales 3 2.5 Similar consumer needs 3 2.6 Consistent positioning 4 2.7 Consumers value the Country of origin (COO) 5 2.8 Product category focus 6 2.9 Corporate name 6 2.10 Analysis 6 3.0. Chinese outward investment 9 3.1. Internationalization process theories 10 3.2. Theories applicable to Chinese firms 12 4.0. Conclusion 13 References 15 Appendix 17 1.0 Introduction 1.1 Global branding Telecommunications and youth are the two forces that urge the international marketers to focus on global brands. Technological advancement in transportation and communications are responsible for cross-border convergence of tastes and values (Quelch, 1999). Technology has enhanced the speed of transfer of ideas and these very forces have also made it possible to identify similar segments of customers globally. These cross-border segments comprising of younger, richer and more urban population have prompted the international marketer to think in terms of global brands. Global branding provides definite benefits to the international marketer – added value for consumers, lower costs, cross-border learning, and cultural benefits for the company. Global brand building requires an integrated communications effort to which the target consumer can easily relate. Thus, a global brand has been defined as” any brand, which has a large global presence and the ability to affect consumer behaviour globally and consistently trades around the globe, is a global brand”, by the CMO of Samsung Electronics in 2006 (Llle, 2009). Brands such as Coca-Cola, IBM, Microsoft and Nokia are global brands as they fulfill all the criteria. 1.2 Internationalization process The internationalization process for global brands must follow a definite strategy. The advertisements round the world should reflect the current brand strategy and each country subsidiary has the right to choose the advertisements (Quelch, 1999). The brand logo and the brand slogan remain the same globally although it could be communicated in the local language. The brand logo becomes its distinguishing feature and all these communication devices help towards building a visual imagery for the brand around the world every day. However, despite the convergence of tastes, consumer behaviour is not homogenous in the global market place. The cultures, political system and the economies across borders are heterogeneous and hence standardization of marketing mix would not result in building an effective global brand (Zou, Andrus, Norvell, 1997). Standardization ignores customer needs and can cause local resistance. Therefore, altering the marketing mix is critical to global brands as in the case of McDonald's. McDonald's has adopted the principle of ‘think global, act local’ which implies that they have made changes as per local laws, customs and tastes (Vignali, 2001). Thus, the internationalization process requires standardization of brand name, logo and slogans but the marketing mix has to be altered to suit the local environment. 2.0 Global Brand 2.1 Global brand – its seven features Differences exist in the brands’ global qualities, which is the reason that consumers prefer one global brand over another. Nevertheless, Quelch found seven common features to global brands. This report evaluates TsingTao, the Chinese beer company, as a global brand and its effectiveness in the global market. 2.2 Overview – TsingTao Tsingtao Brewery, created in 1903, as a German-British brewing company in China was introduced to the US market in 1972 (Llle, 2009). 2.3 Strength in home market Tsingtao is firmly established in the home market and accounts for over 50% of beer exports from China, which makes it one of the most popular Chinese brands (Llle, 2009). Since 1997, it has acquired more than 40 domestic and foreign breweries and tripled its annual production. Tsingtao’s recorded growth in earnings was much higher than the 10-15% expected by analysts (Datamonitor, 2005). Tsingtao has established itself as a major player in the premium segment in China (Kennedy, 2002). To become a premium brand, it has taken advantage of the rapid segmentation of the Chinese beer market. The beer market in China is highly fragmented and there are as many as 400 brewers in China trying to capture market share (Media, 2004). The Chinese government is trying to build it into an export brand but the label is 101 years old and lacks the vibrant image that global consumers seek today. However, within China, it still is the strongest beer brand despite international beer brands established in China having a greet brand strength than Tsingtao (Shaw, 2004). 2.4 Geographical coverage and balance of sales The beer brand has a global presence and is sold in more than 50 countries worldwide (Llle, 2009). However, a global brand must have a minimum level of brand recognition, awareness and sales all over the world (Quelch, 1999). Tsingtao has limited coverage apart from Chinese restaurants and grocery stores in foreign countries (Labbrand, 2008). This reduces the brand capacity of winning more brand loyalists. They have a brand that is old, lacks energy and international appeal (Shaw, 2004), 2.5 Similar consumer needs As far as beer is concerned, the consumer needs globally are identical and meet the same widely-held human needs. However, the brand has to be presented in the right manner. They have been using the former prime-minister’s wife to sell beer in Holland (Janssen, 2009). At the same time, they are trying to gain international recognition as they became the Official Domestic Beer Sponsor for the Beijing Olympics by signing a sponsorship agreement with the BOCOG (Beijing Organizing Committee for the Games of the 21st Olympiad). Through their partnership with US based Anheuser-Busch, they are trying to make Tsingtao, the Chinese brand that can be found in the greatest number of countries (Llle, 2009). Nevertheless, consumers respond differently to a stimulus and consumer behaviour differs across regions. This has not been accounted for, by Tsingtao. Moreoevr, they have the traditional Asian beer character, which they have not changed even though consumer tastes change every year. Hence, it is available all over the US but only at the Chinese restaurants (Bryson, 2007). Moreover, it is sold as “Chinese beer” which resembles beer in appearance but not is taste (Global Trends, 2009). 2.6 Consistent positioning Tsingtao lacks brand identity and hence to expand to a larger consumer market, Tsingtao went into a redesigning process in 2007 (Labbrand, 2008). The aim was to support the brand positioning and have a more contemporary design while still maintaining the traditional pagoda medallion and the red and green colour pallet. They tried to bring about a fusion of the eastern and western cultures; they tried to give it sport and youth positioning (Popsop, 2009) but despite all their efforts, the brand has not made much headway in international markets. However, they are making efforts to position themselves among the sport lovers. They have tried up with Cleveland Cavaliers to extend their global reach. Cavaliers share their positioning of “passion, success and happiness” in their efforts to extend their relationship to charity (Fraser, 2009). The NBA looks beyond its own shores and it is expected that this association will give Tsingtao a wider coverage. Overseas brewers have been entering China but Tsingtao has been maintaining its consistent positioning. The brand is increasing its competitiveness with imported labels, such as Carlsberg, Heineken and Budweiser. The company has launched an integrated campaign to refresh its image and to draw attention to the brand’s redesigned packaging (Blecken, 2008). With this strategy it is reinforcing its positioning as the premium brand. Even within China, their main competitors are Budweiser who have a solid brand image (Blecken, 2008) while Tsingtao’s multiple packaging is confusing. 2.7 Consumers value the Country of origin (COO) Consumers associate countries with expertise in particular products, contends Quelch (1999) and beer is certainly not associated with China. The brand is widely recognized in China but lacks the contemporary appeal associated with western brands (Blecken, 2008). Consumers value the country-of-origin image and Tsingtao lacks this brand image. Even at nightclubs the imported brands are preferred over local brands such as Tsingtao. In fact, the “Made in China” brand is suffering a serious setback. The COO of a product has great significance for the consumers particularly in the food, beverages, cosmetics, automobiles and toys sectors (Interbrand, 2007). However, a survey conducted by INTERBRANDS found that 46% of the respondents who took the survey were familiar with the Tsingtao brand. It may be noted here that Tsingtao started marketing to overseas Chinese as its primary customers, when they took the product overseas in 1940. Tsingtao has ranked first as the most effective brand ambassador for China. 2.8 Product category focus Tsingtao lays emphasis on the product focus and they take the consumers through the development phases of the company. They use clear mountainous water and a well developed production process. They have been highlighting this through the Tsingtao Beer Museum (Janssen, 2009). However, they try to project that the product is for sports, for the youth and also for the older segment. In trying to enhance their corporate identity, they have changed the packaging of their core variant. As a result they now have four variants within the main brand. They wanted to create “a classic, distinctive and highly differentiated brand image” without diluting the brand image (Shaw, 2004). They now have the draft, premium and the light variants and the packaging for each variant differs. 2.9 Corporate name Tsingtao’s corporate name is its brand name. Even though it is a German-British brewing company with 27% owned by US-based Anheuser-Busch, these do not feature anywhere in its promotions. It is promoted as “Made in China” brand and this has been the cause of its suffering. 2.10 Analysis Tsingtao has massive global ambitions and they feel they can achieve this by contributing to the overall growth of the nation and helping in making the lives of their own countrymen better (PR Newswire, 2010). Tsingtao has made a niche for itself in the home market and has been recording more growth than expected by analysts. However, to be a global brand requires much more than advertising of the production process. Their development model is led by their output and does not focus on consumer needs. Any brand should be able to give rise to emotional attachment to the brand. Consumers should be able to relate with the brand. Consumers should be able to identify themselves with the brand or the product. The brand personality should match the human personality so that they are attracted towards the brand. Beer otherwise is the same and satisfies the same human needs. A brand is much beyond the name, logo or slogan. It is the stimulus that the consumer perceives when the brand is presented (Berry & Lampo, 2004). Consumers seek more than the functional attributes in a product. They look for non-symbolic qualities known as “brand image” (Batra, Lenk & Wedel, 2010). There is nothing very exciting about the brand and its campaigns to arouse interest and enthusiasm in the consumers. They do not have a balance of sales in other geographical areas even though they have a presence in 50 countries worldwide. Tsingtao beer can be found only at Chinese restaurants and the grocery stores and attracts only the overseas Chinese or the Asians who enjoy the traditional Asian beer character. While the consumer needs as far as beer is concerned, is the same globally, the consumer taste changes from year to year. This has not been recognized by Tsingtao as they continue to produce the same traditional beer that Asians thrive. Hence they are not able to address the wider consumer needs of excitement and change. As far as consistent global positioning is concerned, they are trying to maintain that character of passion, success and happiness. However, they have associated this with charity work and focus on improving the lives of the less fortunate people of the society. They are also trying to appeal to the youth and the sport lovers and this positioning too is reflected in their association with Cleveland Cavaliers and NBA. Chinese products carry a stigma of “Made in China” and this global image is affecting brands including Tsingtao. The COO has a string impact on how the brand is perceived and hence the affect on sales. Beer is not associated with China and hence Tsingtao could use its heritage to enhance its brand image. Tsingtao’s historical background has German and British heritage and is now 27% owned by a US based organization. Germany has a string reputation for beer and if they position themselves as Chinese beer with German technology or production in China, they could attract a larger consumer base because COO has significance where beverages are concerned. Tsingtao has been trying to build its brand image but the Chinese consumers too prefer imported brands. This suggests that Tsingtao is not even popular in the home market as much as a global brand should be, and hence trying to become a global brand would not be an easy feat to achieve. All their campaigns and promotions focus on the “Chinese” brand and perhaps changing this strategy could fetch them faster and better response from global consumers. They are no doubt focusing on product quality and CSR in their community but brand image cannot be enhanced merely by this strategy. They do not have a product category focus. In trying to capture a larger market share, they are positioning themselves for the youth, for the sport-lovers and also trying to enhance their image through their CSR strategy. They have four product variants and they have even changed their packaging. This becomes a little confusing for the consumers. Thus, overall Tsingtao, as of now does not have the features or characteristics required for a global brand. It is known as an Asian or Chinese beer which is confirmed by various reports. However, the brand has ambitious plans and is one of the recognized brands in China. They could achieve the position of a global brand with changes in their strategy as discussed above. 3.0. Chinese outward investment Chinese companies going outward denote China’s reintegration into the world economy (Accenture, 2005). China’s remarkable economic growth came from trade and export dominance. The Chinese companies were labeled as low-cost suppliers and they could capture majority shares in a number of global product markets. However, they realized that to have sustainable growth, they must develop relationship with the global economy they need to stretch beyond the export model. The value of overseas acquisitions completed by Chinese companies doubles in 2004 (Appendix A). The Chinese government has played an important role in the country’s journey towards globalization. The Chinese companies that sought to move overseas were granted a range of benefits such as tax relief and low interest rates. Encouraged by the government support, the Chinese companies entered into a variety of sectors. They are going global in search of new markets, energy sources, raw materials, in search of technology and global human resources (Gao, 2007). With the accession of Chine in the WTO, trade liberalization has given impetus to the manufacturing sector. Inward FDI attracted several multinationals into China which intensified competition for the local companies. To compete with the MNCs in Chine, the domestic companies had to venture overseas in search of expertise in marketing and branding, advanced technological innovation and management (Acenture, 2007). The Chinese companies have the advantage of low-cost manufacturing, leading to low prices in the marketplace (Interbrands, 2007). However, the Chinese companies are still building their capabilities to take their brands overseas. Most are first trying to consolidate their strengths at home. Having firmly established themselves in the home market and accumulated capital to invest overseas, they have been encouraged to invest overseas. In fact “Going Global” became a national policy in the five-year plan for 2001-2005 which enabled the Chinese companies to acquire advanced technology, global brands, managerial know-how and advanced human resources (Gao, 2007). 3.1. Internationalization process theories The internationalization of firms has become easier due to advancement in information and communication technology (ICT), transportation and other infra structure facilities. Among the most preferred methods of internationalization are the born global, stages model, and network theory. The stage model also known as the Uppsala Model, is a step-by-step internationalization process (Rutashobya & Jaensson (2004)). The firm first starts as a low commitment exporter to committed exporter and then as it gains experience and knowledge, it overcomes the psychic distance phenomenon. They start with irregular export activities and then get into indirect exports. It then starts direct exports by establishing an overseas sales subsidiary. Finally it starts overseas production. This stage model works fine when the cultural distance between two markets is high or under uncertainties there is fear to invest in known markets. Born-Global firm has been defined by McKinsey & Co. as “one which views the world as their marketplace from the outset; they do not see foreign markets as useful adjuncts to the domestic market” (Persinger, Civi & Vostina, 2007). The Born Global firms are usually small and they have less than 500 employees and their annual sales are under $100 million. These firms start exporting within one or two years of their establishment and export about 25% of their production. The motivation is to serve small niche markets that are globally dispersed. The network theory posits that internationalization is the process that takes place through network of relationships. Individual firms or entrepreneurs are bound together into value adding relationships through social capital and trust Rutashobya & Jaensson (2004)). This enables them to minimize the disadvantages of isolation and smallness. 3.2. Theories applicable to Chinese firms The Chinese firms have been going overseas with different motivations. It is basically a resource-based approach where they expect to gain in technology and raw materials or even management techniques. Very few companies such as Lenovo and Sinepac entered the overseas market through acquisition (Accenture, 2007). However, China’s overall overseas acquisition activity has been just US$ 3 bn in 2004 which was a small fraction of the US$243 billion value of the total mergers and acquisitions. The Chinese firms are not Born Globals because they first want to get firmly established in their home market. Most firms first accumulate capital before they venture overseas. Hence they do not fall under the category of Born Global. Most Chinese firms that venture overseas pursue the network theory. They first consolidate their strengths at home and most do not have a marketing department. The Chinese firms focus on prestige markets such as United States and they make no efforts to make themselves relevant compelling to the global consumers. They still carry the Chinese names which is difficult for most foreigners to even spell, let alone pronounce. The websites are also not re-formulated to appeal to local markets. Thus, they tend ti rely on the Chinese expatriates abroad as has been found in the case of products such as Tsingtao and Baidu. Consumer products are mainly sold through Chinese restaurants and grocery stores and that too as Chinese beer with Asian characteristics. They rely on the network of the Chinese to gain a market base. In the case of automobiles, however, Chinese firms enter through exports as in the case of Geely, Chery Exports and Brilliance Auto (Interbrands, 2007). They have adopted the Uppasala Model of step-by-step internationalization as they gained experience and knowledge of the local markets. Thus different Chinese firms follow different models of internationalization. This varies across sectors but the firms that have been firmly first establishing in the domestic market receive government support and encouragement in venturing overseas. However, what is worth noting is that China has now 16 firms that feature in the Fortune Global 500 list which has increased from 11 in 2001 (Accenture, 2007). 4.0. Conclusion While the Chinese companies have been trying to establish their own brand o9verseas, they are yet to achieve the status of a global brand. Venturing overseas dose not automatically provide them with a global brand status. Being a global brand require fulfillment of certain features and characteristics which the Chinese brands lack. As far as Tsingtao is concerned, it cannot be called a global brand because it does not have a balance of sales in all the geographical markets. And in countries where it does have good sales, it is mostly sold through Chinese restaurants or the grocery stores. This shows that it does not have the same appeal with global consumers and mostly caters to the Chinese consumers overseas. It also has a typical Chinese beer characteristic and is known as Asian beer. Moreover, it has four variants within the core product which becomes confusing to the consumer. Its COO characteristic plays a role in undermining the brand value as “Made in China” label carries a stigma with international consumers. The Chinese firms have started looking outward for several reasons. They have received encouragement and support from the local government. Since China lacks in basic management and marketing skills, in technology and raw materials, their attitude towards venturing overseas was basically resource-based. However, they adopted the network theory of venturing overseas. Very few firms have entered through the Born-Global approach while a few like Lenovo have entered through acquisition. Chinese firms as in the case of Tsingtao mostly follow the network theory of internationalization. They first establish themselves firmly in their home market, they discharge their CSR towards the fellow country men and then use the network of Chinese people overseas to create a market. This demonstrates that the psychic distance is the main obstacle in freely venturing overseas. References Accenture. (2007). China spreads its wings - Chinese companies go global. Retrieved online 19 May 2010 from http://www.accenture.com/NR/rdonlyres/6A4C9C07-8C84-4287-9417-203DF3E6A3D1/0/Chinaspreadsitswings.pdf Blecken, D. (2008). Tsingtao campaigns anew. 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