Reasons For Uniliver To Enter Into China Commerce Essay

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Many organizations's try their best to enter into the international market, in order to expand their business. China being the fastest growing emerging markets, many organizations' is eager to enter into China. The main reasons to enter into Chinese domestic market are to establish research and development, take advantage of a skilled labour, engage in cooperate development and to build up long term partnerships.

Uniliver, one of the well-known organizations in the fast moving consumer goods sector entered into China in 1923. This paper will examine the current status of Uniliver in China, technology adaptation and how technology transfer happened in the Chinese market.

INTRODUCTION

International business includes business activities needed to create, ship, and sell goods and services across the national boards. This can be called as international trade; global business and foreign trade. There are many important of international business. It provides source of raw materials and demand for foreign products. This also allows new market and investment opportunities. This also improves the political relations. International business grew over the last half of the twentieth century because of liberalization of both trade and investment, and doing business internationally had become easier. Technological development and opening many of the world's economies to private business are the two major important forces of doing business internationally.

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Many of the foreign companies have flourished in China for over three decades. There are many reasons behind this. Over the past 30 years, China has shown a significant development and growth. Therefore, many multinational companies and foreign companies tend to start their business. There are many other reasons for them into enter into China. China has the third largest economy in the world and with this rapid growth China was able to get importance in international economic and political arena. Chinese massive market and cheap labour is another reason to start business in China.

Uniliver is the world's largest multinational companies which manufacture food, home and personal care products. At present, Uniliver has a large network among the world.In 1923, Lever Brother launched its first business in China, Shanghai. They were able to be the largest soap maker in the country. Uniliver has introduced nearly twenty home, personal, food and beverage to Chinese consumers.

REASONS FOR UNILIVER TO ENTER INTO CHINA

Uniliver entered into Chinese market due to many reasons. Entering into China was a big challenge for them. China with 1300Mn population, it is the biggest population in the world. The main reasons were the emerging markets, high resources and efficiencies in the country. Purchasing power of the buyers in China is over USD 6,600. Emerging economic growth was one of the other reasons to Uniliver to enter into China. Due to the high economy stability, the per capita income is USD 5,500 and their GDB growth is over 10% for the last ten years.

When we draw back Chinese 50 years in the history, they have the stable political regimes. Political stability is an important reason for foreign companies to enter into the country. China is the member of World Trade Organisation since 2005. Many leading international organizations started to enter into Chinese market. At least two Chinese citizens should work as directors in the all foreign companies.

An economic or productive aspect necessary to accomplishing an activity, or to undertake an enterprise and reach desired objectives. Land, labour, and capital are the three basic resources. It is easy to find skilled, cheap labour in China. Raw material are available for low price and the electricity coast is low are some other reasons to Uniliver to penetrate into China. The vast development in technology and innovation is another significant factor to go into Chinese market.

It is apparent that Uniliver penetrated to China in view of economic growth, political stability, resources and technology.

Figure - Uniliver in China by Category

UNILIVER'S STARTEGIES IN CHINA

Uniliver was able to build a sustaining and successful business in China with many difficulties. In order to grow in the Chinese market Uniliver adapted many measures such as to enhance research and development, modern management systems, organizational restructuring. Uniliver position in China was strengthen by adopting strategies like, hiring Chinese employees, setting up an R&D unit and planning for stock market listing. They develop a portfolio of brands, both local and global which were integrated with Chinese traditional technology which in terms fulfill the Chinese consumer's complex needs. The main objective of Uniliver in China is to provide branded and quality products to meet up local desires and tastes. Lux, Lipton, Dove and Ponds are the most popular products among the Chinese and these are developing by the international expertise. The Chinese professionals are used to manage them and communicate between the companies and consumers. However, Uniliver, China makes an effort to balance global and local necessities by developing solutions to convince the demands of target segment.

ENVIRONMENTAL ANALYSIS OF UNILIVER IN CHINA

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External environment means of survival for organization (Johnson, Scholes & Whittington, 2008). Environment scanning is very important to identify threats and opportunities in the business environment. Uniliver in China should foresee changes in the environment then explore opportunities to prepare for threats. In identify or scanning the environment, this paper will use SWOT, PESTEL analysis, Porter's Five Force and BCG Matrix.

4.1 MICRO ENVIRONMENT ANALYSIS

A scan of the internal and external environment is an important part of the market planning process. Environmental factors internal to the firm usually can be classified as strengths or weakness. And those external to the firm can be classified as opportunities or threats. Such an analysis of the strategic environment is referred as SWOT analysis. It provides information that is helpful in analyzing the current conditions in the company as well as in the external environment.

4.1.1 SWOT ANALYSIS FOR UNILEVER IN CHINA

STRENGTHS

Recognized global company with known brand names

Produce in large quantities

Reduce operating cost when use of local resources

Product adaptability since they made use of traditional Chinese science

High product innovations

WEAKNESS

Changes in leadership results in many conflicts

Inability to exploit the various joint ventures in China

Inefficiency in the management of the various brands

Poor relationship with the customers

Poor deal with the cultural differences

Lack understanding of the Chinese customers.

OPPORTUNITIES

The constant change in consumer preference and habits

Large markets share

Entered to Chinese market as the first multinational organization

Growth potential in skin care and health protection

THREATS

Instability political environment in China

Increased completion in the market with new entrants of multinational and local companies

The existence of fake products

High level of competition

Fluctuation in exchange rates

Mature markets

4.2 MACRO ENVIRONMENT ANALYSIS

In analyzing the Macro environment it is essential to identify key factors that have an impact on the organization. Brays, L. (1991) illustrates that PESTEL framework is one effective tool that analysis key areas in the external environment and their inter play with each other to make long term and contingency planning. Macro environment factors will be analysis in this paper by using PESTEL framework.

Political

In order to have the control over Chinese economy and facilitate foreign capital the government of China allow all the international companies to use joint venture. This decision was affected many international companies which wants to function as a wholly owned companies. High political stability and stable regimes for the last 50 years is a key factor for Uniliver to enter into China.

Economic

There is a high competition between international companies and local companies in Chinese market environment. In 1996, Asian financial crisis the economy in China was affected and thereby, reduced the international business. This was resulted in increasing interest rates on loans and affected the value of the Chinese currency. High stability in economy is a positive factor for Uniliver to enter into China. Chinese per capita income is USD 5,500 and the GDP growth is over 10% for the last 10 years. Purchasing power is USD 6,600. These are positive factors for any organization to enter into Chinese market.

Social- cultural

Chinese business culture is influenced by many unique languages, cultures and subcultures. This manipulates the business decisions, attitudes and values. Even in the advertisements Chinese use cultural differences.

Technology

Technology plays a key role in today's competitive business environment. In order to provide better quality and variety of products to the consumers, the Uniliver use new technology and innovations. This has lead to competition between different companies to adopt innovations in their products as well. It has also reduced cost through information technology efficiencies in the global market.

4.3 INDUSTRY ANALYSIS

According to Johnson, Scholes & Whittington (2008, p.77), economic theory defines an industry as a 'group of firms producing the same principle product `or more broadly 'a group of firms producing the products that are close substitutes for each other."

The competitiveness or the profitability potential of the firms within an industry is well explained by Porter's Five Force framework, where Porter identified five competitive forces which determine the nature and extent of competition within an industry.

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Bargaining Power of Customers

Uniliver chinese buyers are not so powerful to pull prices down, but it is esy for customers to move in to a competitior. Threerfore, Uniliver has to be mindful when deciding the prices and keep the customers happy.

Competitive Rivalry within an Industry

Uniliver in China has strong competitors such as P&G, Nestle. They provide similarly attractive products and services. So they have the power to attract and influence the customers by providing more attractive substitutes, marketing techniques and low price.

Threat of Substitute Products

As a result of revolution, today customers like to try something new and better. Unilever is under continuous threat of substitute products and its competitors are already spending huge sums on research and new product development. Unilever has to be very adoptive and closer to its customers so as to get what exactly its customers want.

Threat of New Entrants

In a well developed country like China, Uniliver has a stong brand name. It is very difficult for a new entrant to enter in the market due to the high cost.

Bargaining Power of Supplier

Unilever has a policy of local buying and local manufacturing. Which provides itself an edge to brake power of its suppliers and make them weaker to negotiate at its own terms. Most of time Unilever has blanket agreements with its suppliers to provide for a certain period of time at a certain rate. This strategy help to prevent supplier's from switching to other competitors and charge higher rates. Also Unilever treat its supplier's fairly so as to create more loyalty among them like customers.

PRODUCT LIFE CYCLE

One of the important concepts in marketing is Product Life Cycle. It describes the stages of a product from first unit to the final stage in the market. There are three stages in the product life cycle. They are introduction, growth, maturity and decline. Following strategies can be used to extend the life of the product. They are advertising, adding value, reduce price, and explore new markets and new packaging.

Uniliver in China is in the growth level of the product life cycle. During this period products shows better returns on investment, demand and distribution is increasing. The main objective of Uniliver is to take advantage of market share.

http://sblifecycles1011.wikispaces.com/file/view/product-life-cycle-stages-plc.jpg/207253618/348x273/product-life-cycle-stages-plc.jpg

UNILIVER TECHNOLOGY AND TECHNOLOGY TRANSFER IN CHINA

Technology is one of the important aspects in any business to capture the market share. China is unique among the developing countries in terms of technological development. Technological advances in terms of development, production, and exports are moving progressively in China. China has shown a significant growth in economics, political and other arenas due to the usage of latest technology.

In order to operate smoothly, a global business like Uniliver use latest technology as to maintain their business smartly. Uniliver management expects from their employees to desire for competence in technology, the ability to identify with complex information and the commitment to push things throughout the business. Information technology is a really incorporated task that drives innovation to search for competitive advantage. This provides the employees to exploring emerging markets and new ways to work globally.

The one way of capture new technology development was the Uniliver Technology Ventures (UTV). This creates the path for innovations. UTV connects strongly with Unilever's R&D groups by hosting six-month secondments for Unilever R&D scientists.   These secondments focus on scouting key, new technology areas of strong interest to Unilever's new business growth. As competition increases, the importance of rapid innovation becomes ever greater. Innovations cannot happen overnight. Therefore, the Research and Development team at Uniliver takes time to adopt the most appropriate technology in order to provide better products for their consumers.

In order to develop long term relationship in China, most of the foreign companies are willing to transfer their key technology and designs to Chinese subsidiaries. One of the challenges facing European companies coming to China is devising creative solutions to minimize the risk to their intellectual property (IP) associated with such technology transfers. A technology transfer in China happens in many ways. Foreign companies most commonly transfer their technology by licensing their patents, designs, software, trade secrets, and know-how. Ownership of the technology may be transferred, but this type of transfer is less common.

Technology transfer is a threat for competitiveness of all foreign companies as its innovations, brands, creativeness and knowledge.

Key policies in China stress the need for technology transfer and innovation within China. Chinese companies urgently need to develop technology and obtain access to new high‐value markets to reach objectives. As a result of this former Chinese partners of European firms are already or will be soon operating as competitors within China and in other countries. The foreign companies can protect themselves by analyzing their strengths, competitors and Chinese market, design procedures to deal with China.

PORTER'S GENERIC MODEL TO UNILIVER IN CHINA

According to Porter (1980), "there are three potentially successful generic strategic approaches to outperforming other performing other firms in an industry". Uniliver in China constantly tries to develop products with unique, quality and value added products for a premium price. Therefore, Uniliver adopt differentiation strategy, as Uniliver is succeed in internal strengths such as access to leading scientific research, highly skilled and creative product development team, corporate reputation for quality and innovation and strong sales team.

Differentiation. http://blog.browncompany.com/wp-content/uploads/2011/10/PortersModel.jpg

BCG MATRIX FOR UNILIVER IN CHINA

BCG matrix offers a way of examining and making sense of a company's portfolio of product and market interests. It is used to analysis the product range with a view to aiding decisions on how the products should be treated in an internal strategic analysis (Stonehouse, G. et al, 2004).

Uniliver as a leader in a mature market falls under the category cash cows. This shows the return on assets that is greater than the market growth rate, and thus generates more cash than they consume. Cash cows provide the cash required to turn question marks into market leaders, to cover the administrative costs of the company, to fund research and development, to service the corporate debt, and to pay dividends to shareholders. Because the cash cow generates a relatively stable cash flow, its value can be determined with reasonable accuracy by calculating the present value of its cash stream using a discounted cash flow analysis.

Cash Cowshttp://www.quickmba.com/images/strategy/matrix/bcg/growthshare.gif

CONCLUSION

China is unquestionably attractive a country with prospect for both foreign and Chinese-based organizations. As the country is undergoing rapid growth many foreign organizations tend to enter into China take advantage of cheap labor, and to carry out business in both the domestic and international market.

Uniliver has been able to spread their wings to many of the countries. China is one of them and they are really expanding their business in the Chinese domestic market with the help of the advanced technology.

BIBLIOGRAPHY (NOT YET COMPLETED)

Botten, N (2009) CIMA Official learning System enterprise strategy, 2nd edition, UK, Elsevier Ltd http://books.google.lk/books?id=spVXv8BW-ycC&pg=PA275&lpg=PA275&dq=Porter%E2%80%99s+Generic+Model&source=bl&ots=W7p2rho0tO&sig=fehIzRtwe-aiJj7ipXAC6695JMs&hl=en&sa=X&ei=Rv1PUMbbIYzMmAWXroCICw&redir_esc=y#v=onepage&q=Porter%E2%80%99s%20Generic%20Model&f=false