Secondary research has highlighted that the UK economy has an ageing population (Office for national statistics, 2009): this therefore has a direct consequence for those businesses in the healthcare sector both private and public and, as such this is highlighted as a particular area of growth. An ageing population will have a direct effect on health care and, as such this sector is likely to experience high levels of growth as more and more is spent on healthcare. Secondly, the sector of communications has been noted as being a particularly strong sector over the past decade and most notably through a difficult recession. With an increasing amount of innovation in both mobile devices and services and, an increasing amount of demand from emerging economies, the communications sector is poised for strong growth. Largely, it is IT sectors which are experiencing rapid growth, largely due to innovations in technology and 'technological spillovers' gained from firms investing in the UK through foreign direct investment. In addition as firms become increasingly 'globalised' there is an increasing demand for advanced communication services to make business happen across economies, for example; an increase in firms using video conferencing to conduct business overseas. The final sector projected for growth is the food and drink sector. The UK is noted as having one of the 'fastest growing food and drink markets in the world' (UK trade and investment, 2009). Currently, the UK food and drink sector produces sales to the extent of 70 billion and employs over 500,000. More specifically the market for cereal is set for growth during the period 2010-2015. The growth in this sector is largely fuelled by innovations in chemistry and nanotechnology which is driving new, innovative products in the food and drink sector.
Get your grade
or your money back
using our Essay Writing Service!
Despite the growing sectors listed above, there are sectors which are currently in decline in the UK. Secondary research has highlighted that the three biggest sectors currently facing decline and projected to experience decline are: agriculture, mining and manufacturing. Agriculture in the UK is facing particular difficulties (see appendix 2). Despite vast amounts of investment from the UK government, the farming industry is in severe decline and farming income has reduced by 50% in five years. In the last two years alone 2/3 of UK farmers have quit and it seems this trend will continue to grow and thus it is inadvisable for entrepreneurs to enter this sector (Food and agriculture research, 2008). Secondly, a steady decline in manufacturing (Hine and Wright, 1998) in the UK is fuelled by companies outsourcing production and moving manufacturing plants abroad in search of lower labour and land costs. The UK economy has steadily seen a shift from a predominately manufacturing based economy to one which is focused on services. The UK economy is unable to compete with the low labour costs of those in developing countries and thus many UK firms are keeping costs low and profits high. This therefore provides a justification as to why any manufacturing based business would be ill advised. Furthermore, research has highlighted that the mining sector within the UK is in decline. The UK trade and investment team have noted this as a sector which is currently in decline. In recent decades there has been a rapid decline in this sector. Since the 1980s there has been a decline particularly in coal mining. Although quarrying is still proving profitable it appears this is a sector which could face increasing trouble in the future.
1.2. Chinese market those industries in decline and those in ascendancy.
Decline (NB very few due to high inflation)
Alcoholic drinks (Beer)
Communications (Euromonitor, 2010).
Health (Euromonitor, 2010)
section 2.0 industry structure and market place information
According to the BRICS study Brazil, Russia, India and China are predicted to be key players in the global economy by 2050 with China being set to be the world's economic superpower by as soon as 2020. Therefore, the Chinese market offers an enormous opportunity for entrepreneurs. In particular, as shown above the alcoholic drinks market is experiencing high levels of growth, particularly those aiming at a high end market. This is largely fuelled by a deregulated market, increasing consumer spending and a change in social attitudes. I would thus advise an entrepreneur to consider entering the local beer market in China where high levels of growth are being experienced and it looks set to be a highly profitable market for those who move in carefully. Once the entrepreneur has entered the Chinese market there may be opportunities to use learnt knowledge to enter the UK food and drink sector which as shown is also in ascendancy.
2.1 size and segmentation of the industry
Table one: beer sales in China 2000-2005. Note estimated 31hl by 2010 (Pavlovic, 2006)
Bn hls (hectolitres, 1 hectolitre =1000litres)
2.2 basic industry statistics
Always on Time
Marked to Standard
In terms of volume China is the words largest market for beer sales, however the market is still under penetrated due to its per capita consumption being low compared to the US and Europe. Therefore, the Chinese market offers great growth opportunities. Lager beer is the biggest sector and in 2005 it accounted for 81% of all alcoholic drinks sold in China. Table one highlights the increasing trend of beer sales in China and emphasises the promising potential the Chinese market may hold for a potential entrepreneur. Chinas beer market is projected to grow at a rate of 6" to 8%, a staggering amount of growth when compared to developed markets which are growing at around 1-2% (Fitzpatrick, 2004). As a result however, China has seen a surge in foreign investors entering the Chinese market which is increasing competition.
2.3 Customers and clients
The market can be segmented by age, gender and region:
Females: this group is becoming increasingly important due to increasing levels of disposable income. Currently, men consume more beer than women however the female market offers an opportunity to tap into a market which is relatively un-catered for. Female consumers can be further segmented into two groups.
AGE 16-24 females drink at nightclubs and pubs, driving by brand image. 30-50 year olds predominately drink at formal occasions and whilst dining.
Geographical Region: There are three metropolitan areas where the largest amount of beer is consumed by females: Beijing, Shanghai and Guangzhou. The highest percentage, 40% of all Beijing beer drinkers are female and thus this region provides the greatest opportunity. The needs of this group are light beers, and, an increasing trend towards low calorie, low sugar and low alcohol content.
section 3.0 factors affecting the industry
3.1 Life cycle position: China's beer market is in the growth stage of the product life cycle.
3.2 Competition: see table below.
Direct Competitors Tsingtao, 2 types of premium beer: Tsingtao lager and Tsingtao pure draft. Both quoted as being 'stylish beers' .In addition, local beers: Tsingtao dark beer, Tsingtao spirulina green beer - claimed to promote good health.
Low calorie Tsingtao huan dong launched in 2007, and snow bei shuang April 2008 - low sugar and nutritious. Snow is one of two breweries in China to have national distribution (Economist intelligence unit, 2007).
Budweiser, 47% premium market share (Theodore, 2008).
Woodpecker Cider sold predominately in Peking and Shanghai at premium locations, priced at 10yuan, 3 times the price of local Chinese beer (Rowe, 2000). Cider is becoming increasingly popular in China.
Soft drinks: alternatives to beer.
Wine/vodka based alcoholic drinks.
3.3 Barriers to entry
The threat of new entrants: Beer is relatively simple to produce, international competitors: the Chinese market is seeing an increasing amount of foreign firms entering the Chinese beer industry. High cost of distribution network and infrastructure thus leading to high entry costs. Increased consolidation between firms, takeovers and mergers are prevalent in the industry amongst small local brewers acquired by leading manufacturers e.g. China resources acquired Anhui Shengli brewery (Euromonitor, 2009). Global brands may force smaller breweries out of market due to an advantage of greater advertising power and larger marketing budgets. Ever changing consumer demands and changes in technology could result in more scope for new entrants to offer something different in the market.
The power of suppliers: Increased cost of raw materials, economies of scale increase volume and reduce costs.
The power of buyers: Customers have increasing changing tastes, and, in a recession increasing price sensitivity which could harm a premium brand. Beer is readily available and there are various sources of supply, therefore, any new company would need to work on retaining customers and increasing brand loyalty. Multiple customer needs and preferences (Slocum et al, 2006).
The threat of substitutes: change in social habits, increased emphasis on cutting back on drinking to lead a healthier lifestyle. Changing drinking environment, north china moving away from drinking in nightclubs to drinking at home. However, this could provide an opportunity to tap into a niche market of lower calorie, flavoured beer.
Rivalry amongst existing firms: increased fragmentation and diversification, majority of firms are small to medium sized breweries, 4 large breweries hold only 45% of market share, thus, increased competition between smaller firms. Established firms face market share loss (Slocum et al, 2006).
3.4 PEST analysis
Political (Government regulations and political factors)
This Essay is
a Student's Work
This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.Examples of our work
SYSTEM: "One country, two systems", China retains a socialist system whilst Hong Kong, Macau and Taiwan have separate capitalist systems
STABIITY: state fragility index ranked China moderate on a scale of extreme to low. Major political unrest involving the Uyghur people, population of 11.7million.
POLICIES: Favourable FDI policies, generally welcoming of inward FDI. Government funding the development of mid china, through infrastructure such as airports.
2 x policies: Develop Chinas west at full blast, and strategy of reviving rusty industrial bases.
REGULATIONS: Age enforcement restrictions of alcohol consumption in china, no sale to under 18s. Severe drink driving regulations, for comparison in the UK if convicted of killing someone through dangerous driving you would get 8years imprisonment, in China it is the death penalty.
Television advertisement time for alcoholic drinks is restricted (Fam et al, 2008)
Interest rate 5.31% .Asset prices soar yet retail prices unaffected.
Unstable Inflation rate currently standing at 5.90% (CIA World fact book, 2009).
BRICS study predicts by 2050, China will become the words largest market.
Economic growth shifting towards inland provinces which now account for 35% of total growth and are stated as growing at a 9.8% growth rate compared to coastal region growth of 7.7%.
Beijing and Shanghai score highest in terms of: economy, market opportunities, environment and infrastructure (Economist intelligence unit, 2009).
Largest amount of FDI inflow of all developing countries
Member of world trade organisation since 2001, therefore deeply integrated into global economy (Pan et al, 2006).
Cost increases hit Chinas beer industry, increasing production and transport costs.
RELIGION: Dominant religions are Buddhism and Taoism however, it is important to note that China has several sub religions rising in popularity: Muslim 15 million, Christianity, 10million, and other local, traditional religions. Overall, a highly religious environment.
ATTITUDES TO FOREIGN PRODUCTS (Wong and Zhoi, 2005). Study highlighted Chinese consumers(18-34) have three underlying purchasing motives when purchasing foreign products, "higher perceived prestige, higher perceived quality and higher perceived value" (Wong and Zhoi, 2005 p. 2). It is suggested that consumers prefer foreign brands due to perceived prestige, furthermore, foreign brands have a higher price compared to local brands (Batra et al, 2000) which enhances a consumers self image of being "cosmopolitan, sophisticated and modern"). Perceptions of the above provide intangible value to Chinese consumers. However it is important to note that certain parts of China are now showing a shift away from foreign products to local brands (Zhou, and Hui, 2003).
Rise of low calorie, low alcohol content beers. China is a health conscientious nation. Predominately lager, bitters and stouts do not do well in the Chinese market (Euromonitor, 2009)
Technology and recent developments
Technology plays a relatively minor role in the industry compared to other factors.
Proprietary technology: allows aluminium beer bottles to stay colder longer, take the temperature to below freezing without turning the drink to ice.
Use of more efficient hops, hop storage equipment to allow breweries to gain the maximum flavour from hops. Such highly efficient hop farms are located in North West China where optimal conditions provide optimal hops
section 4.0 FINANCIAL INFORMATION
Sales trends: as noted above there has been an increasing trend in low calorie lagers and flavoured beers fuelled by changing consumer tastes and increasing wealth of young females in China.
Cost of operations: money to be raised from private investment estimated cost to adhere to an estimated £2million, however, this is only an estimate as real costs cannot be derived from market information.
Expected Revenue: The entrepreneur will have to sustain relatively low profitability for up to 5years. Over time the firm can focus on scales of scope to increase market share, moving from Shanghai, first to Beijing and then Guangzhou, this is a highly profitable market but must be entered slowly.
section 5.0 KEY FACTORS FOR SUCESS
Critical Issues: In order for an entrepreneur to be successful in the Chinese beer market they must tailor the marketing mix. China is a difficult market to tap into due to mass fragmentation and thus, any entrepreneur should be advised to target smaller, local markets through local distribution networks. In order to do this, the marketing mix should have a strong local focus as in many of China's rural regions it is typical for consumer to have established, strong and particular tastes when it comes to beer. As a final note I would advise the entrepreneur to follow these aspects of the marketing mix.
section 6.0 OVERVIEW USING THE MARKETING MIX
British beer with a modern twist. Premium and different to anything else designed with Chinese consumers in mind. Country of origin as a brand element, perceptions towards the UK will extend to the product and as noted by Keegan and Green (2003 p 415) is "particularly true for beer". Therefore, a vital part of the brands positioning will be to promote the brutishness of the product.
Product: Modified product, low calorie, less sugar light beer, packaged in a fashionable and eco friendly way. Refreshing light lager with an ABV of 3.5%. New flavours, for example lemon and sweet lime then diversify to other flavours. The use of high quality ingredients is paramount and there is an increasing trend to use organic products which the entrepreneur should explore.
Place: inner city nightclubs, fashionable restaurants, image is key; the product must be only placed in up market locations in order to enhance perceived quality and scarcity associated with a higher price. Shanghai is an ideal location due to its trendy and up market restaurants and bars restaurants such as Bund 18 will be targeted to ensure the brand is associated with high quality.
Promotion: Sponsor high end fashion shows in Shanghai in order to promote brand image. Sales promotion: competitions to win shopping trips.
Price (Doole and Lowe, 1999): Premium price justified by quality of product. Intention of marking the price 25% above local premium brands in order to enhance idea of perceived quality and scarcity associated with foreign brands. In total, the brand will be 60% above the price of mass produced, non premium beers.
Distribution Networks Highly selective on trade distribution only (i.e. bars and clubs). High quality service at all times, clean, stylish glasses and bars trained to sell the product to females looking to try something new. Local distribution is key, target a series of cities rather than the whole nation.
section 7.0 methodology and assumptions
All data collected has been collected from secondary sources including Euromonitor and the economist intelligence unit. Those sectors noted as in ascendancy are either in growth or predicted to experience growth in the next few years. It must be noted that the current economic downturn may have played a crucial part in the demise of those sectors listed under decline. The assumption of markets remaining stagnant whilst the entrepreneur decides has been made, this however is not the case as markets are dynamic and therefore this information may change. In addition the use of both porters five forces and the competitive analysis are both stagnant measures and an overview of the competition should again be reviewed when making a decision.
section 8.0 bibliography
CIA world fact book (2009) "Economy: China" [online] Available from:-
https://www.cia.gov/library/publications/the-world-factbook/geos/ch.html [Accessed 15/02/10, 2009]
Cochrane, J, Chen, H, Conigrave, K, Hao, W (2003) "Alcohol use in China". Journal of alcohol and alcoholism, 38 (6) pp. 537-542
Cui, G, Q. Liu (2000) "Regional market segments of china: opportunities and barriers in an emerging economy". Journal of consumer marketing, 17 (1) pp.55-72.
Doole I, R. Lowe (1999) "International marketing strategy". Thomson Business Press: London.
Economist Intelligence Unit (2007) "White storm brewing" Business China.
Economist Intelligence Unit (2009) "Business China" [online] Available http://store.eiu.com/product/1740000174-sample.html [Accessed 15/02/10].
Euromonitor (2010) 'Consumer lifestyles - Hong Kong, China: competition in communications products fuels consumer expenditure' [online] Available from:-
http://www.portal.euromonitor.com/portal/magazines/geographiesheavy.aspx [Accessed 15/02/10].
Euromonitor, (2010) 'Reshaping consumer health in Asia' [online]. Available from:-
https://www.portal.euromonitor.com/portal/resultslist.asapx [Accessed 15/02/10].
Fam, S.K, Waller, D.S, Yang, Z (2008) "Addressing the advertising of controversial products in china: an empirical approach. Journal of business ethics, 88, pp 43-58.
Food and agriculture research (2008) 'The UK farming crisis' [online]. Available from:-
http://www.corporatewatch.org/?lid=2629 [Accessed 14/02/10].
Hao, W., & Young, D. (2000). Drinking pattern and problems in China. Journal of Substance Use, 5(1), 71âˆ’78.
Hine, R.C, Wright, P.W (1998) 'Trade with low wage economies, employment and productivity in uk manufacturing'. The economic journal, 108 (450) pp1500-1510.
Hooley, G, Piercy, N.F, Nicoulaud, B (2008) "Marketing strategy and competitive positioning. Pearson Education Ltd: Essex. Pp73-77
Keegan, W.J Green M.C. (2003). Product and brand decisions. In: Keegan, W.J Green M.C Global marketing. New Jersey: Pearson Education Ltd. 399-444.
Office for national statistics, (2009) 'Aging: fastest increase in the oldest old' [online] Available from: -
http://www.statistics.gov.uk/cci/nugget.asp?ID=949 [Accessed 14/02/10].
Pan, S, Fang, C, Malaga, J (2006) "Alcoholic beverage consumption in china: a censored demand system approach". Applied economics letters, 13, pp 975-979.
Porter, M.E (1998) "On competition". Harvard Business School publishing: USA.
Rowe (2000). "Britons give China a taste for cider". The independent online, [internet] 16 April. Available from: -
http://www.independent.co.uk/news/uk/this-britain/britons-give-china-a-taste-for-cider-721154.html [Accessed 15/02/10]
Slocum, J, Conder, W, Corradini, E, Foster, R, Frazer, R, Lei, d, McGuire, M, Ross, J, Scott, S (2006) "Fermentation in the Chinese beer industry". Organisational dynamics, 35 (1) pp32-48.
Theodore, S (2008) "Beer has big changes on tap" [online]. Available from:-
http://www.bevindustry.com/Articles/Cover_Story/BNP_GUID_9-5-2006_A_10000000000000427113 [Accessed 5/02/10].
UK trade and investment team (2009) 'UK food and drink sector opportunities' [online]. Available from:-
http://www.ukinvest.gov.uk/Food-&-drink/en-GB-list.html [Accessed 14/02/10].
Zhoi, L, Hui, M.K (2003) "Symbolic value of foreign products in the people's republic of china". Journal of international marketing, 11 (2) pp.36-56.
APPENDIX 1 AND 2
GRAPH REFLECTING THE AGEING POPULATION IN THE UK AND GRAPH SHOWING THE DECLINE IN THE AGRICULTURE SECTOR.