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Opportunities and challenges for foreign companies in China

  1. Summary

With the increasingly open market today, foreign companies increasingly see that China, a powerful consumer group, has entered the Chinese market one after another. After China acceded to the WTO, it has sprung up like mushrooms after a spring rain. So then, after foreign companies have entered China for so many years, What opportunities and challenges will they face? Below I will take Procter & Gamble as an example to talk about the opportunities and challenges of foreign companies in China.

  1. Keywords

P&G strategy policy external environment

  1. Introduction
    As a foreign company, P&G's marketing strategy in China can be a successful example of the daily chemical and fast-moving consumer industry. It has big brand marketing strategies, staged marketing strategies, advertising strategies, differentiated marketing, scientific research, and continuous innovation. Foreign-funded enterprises have entered China for a long time, so based on the fierce market competition and numerous brands, what opportunities and challenges are foreign capital in China?

From the perspective of market share, among the seven types of products P&G involved, four kinds of P&G all occupy a dominant position. In 2003, Procter & Gamble's sales revenue in China reached 1.8 billion US dollars, accounting for about 3% of its total revenue. Although P&G's growth in major markets such as the United States has slowed, its sales in the Chinese market have continued to increase. In 2003, China ranked P&G's sixth-largest market, up to four places from 2000.

Procter & Gamble first entered the Chinese market in 1988 through a joint venture. P&G has followed traditional methods for more than ten years, focusing on high-end products and targeting China's relatively affluent coastal markets. Recently, under the pressure of growth and profitability, P&G changed its strategy and shifted its focus to the "mid-end consumer customer base." Therefore, P&G currently has high-end brands such as Lancome and SK-Ⅱ.

Below, I will explain one by one from marketing.

I will analyze in detail the following strategies: product strategy, pricing strategy, marketing strategy, promotion strategy.

Product strategy: Due to the different cultures and living habits of other countries, multinational companies generally adopt two strategies, standardization of products and differentiation of products. As the name implies, the standardization of products is to provide products with uniform standards and the same quality all over the world.

And differentiation is to produce the products they need according to different target markets and different consumer groups. So, again, I take P&G as an example. I personally think that P&G uses a combination of these two features.

Procter & Gamble implements unified standardization of brands and has 24 brands under its umbrella worldwide. The differentiation is also apparent. After entering China, P&G designs and develops different products for people with varying hair types and other needs in China. The most notable is that the Chinese need anti-dandruff, so Head & Shoulders specializes in anti-dandruff and has formed the product positioning. When people want to choose anti-dandruff products, Head & Shoulders is the first choice.

Pricing strategy: Pricing is the most critical problem multinational companies face after entering a country because different countries have different consumption power and income levels, and it is also related to the country's culture.

This is related to the company's product positioning. Some companies have implemented high-price positioning to return funds as quickly as possible or change the product itself. For example Apple, we all know that Apple's products are costly. In addition to the brand effect, the main reason is that the update speed of electronic products is breakneck. So how to maximize product profits and return funds in a short period? Only set a high price.

Some companies will position their products as low-end companies after entering the market. They will be able to seize market share in the future, so they set prices very low. Market demand is also the main factor. The relationship between supply and demand. When the demand increases, the price will naturally fall, and vice versa, the price will rise. Competitor behavior: changes according to the pricing changes of competitors. As recently, Procter & Gamble has led the FMCG industry in a new round of price increases.

And the company itself will not lose money to sell at a price lower than cost. Generally, two pricing methods are implemented: a combination of cost-plus process and market cognition value. The cost-plus method adds some gross profit to the cost price to price, which ensures that the product is sold at a low price and there is some profit. On the other hand, the market perception value is the positioning of such a brand in the minds of consumers, and consumers think that the product should be priced at how much. This can make consumers accept it and make the brand play its best role, and ensure profitability.

Marketing channels: I will explain horizontal development and vertical development.

Horizontal development: both mergers and merging of companies in the same industry.

Here I will give an example of L'Oreal, whose brands such as Little Nurse, Yue Sai, and Garnier are all acquired. This broadens the company's marketing channels, and different brands have different marketing channels. And the vertical development: the upcoming merger of the upstream and downstream of the enterprise. An enterprise has many links to produce and sell products, such as retailers, distributors, manufacturers, etc. If one link is annexed, costs can be reduced, and risks can also be reduced.

Promotional channels: advertising.

Advertising can quickly increase product awareness and the company's reputation and use advertising to induce consumer demand and guide consumption tendencies. Procter & Gamble not only emphasizes interest demands but also interprets concepts from the brand's efficacy, such as Rejoice: "Shampoo and hair care combo," Head & Shoulders "anti-dandruff," Pantene "hair care expert," and so on. And also used emotional appeal. For example, "Crest" and the National Dental Prevention Group promote the concept of "root moth prevention" to prevent tooth and tooth care; "Shufujia" and the Chinese Medical Association promote the idea of "health, sterilization, and skincare"; shampoo "dandruff, health, and suppleness" "Idea and so on.

Sales: Multinational companies are generally world-renowned brands, so general sales are carried out in shopping malls and large supermarkets. With the increase of national income and the effect of a series of consumption promotion policies, in the last five years, the percentage of total retail sales of consumer goods in China has increased by double digits over the previous year, with the lowest being 15.5% in 2009. The highest was 22.7% in 2008, an increase of 18% in 2010, totaling approximately US$2.4 trillion (according to the National Bureau of Statistics).

The policy of expanding domestic demand set out in the "Twelfth Five-Year Plan," significantly increasing residents' consumption is the Chinese government's strategic decision to adjust the structure of economic development and enhance the sustainability of economic growth, plus the exemption of agricultural taxes and the increase of minimum wages issued in recent years. A series of measures such as raising personal income tax standards, subsidizing home appliances to the countryside, etc., make China's futures market more promising.

These are the strategies of foreign companies in China. These strategies are becoming more and more mature. They can be used as a reference for foreign companies about to enter China and those that are still exploring the Chinese market. So this is an opportunity. So Chinese domestic companies are becoming more mature. What are the challenges for foreign investment? What is the external environment?

I will elaborate on the policy below.

In the "Ninth Five-Year Plan" and 2010 long-term goals, China puts forward, "Actively, rationally and effectively use foreign capital, focusing on improving the effectiveness and level, gradually implementing national treatment for foreign-funded enterprises, standardizing the tax system, and fair tax burden. In addition, create equal competition conditions for Chinese and foreign enterprises."

This determines the direction and goal for the adjustment of the current foreign investment treatment policy. That is to say, in the new economic situation, we must adjust my country's foreign investment treatment policy following the principle of national treatment. Thus, sub-national treatment and super-national treatment will eventually return to unified national treatment.

  1. Distinguish between "before opening" and "after opening" national treatment.

National treatment granted to foreign investors is only applicable to foreign investors who have entered my country and have opened the business in my country. For the investors before the opening, only the most-favored-nation treatment is given.

  1. Make full use of the exception clauses of national treatment.

There are multiple ownership economies in our country, with different rights relations and other laws and policies. When accepting national treatment clauses, necessary exceptions should be set according to actual conditions. There should be reservations about provisions contrary to my country's economic development goals, national security, public health, and morality, or corresponding exception clauses should be formulated.

  1. Explanation of "equal situation."

According to international practice, national treatment is only applicable to "equal conditions" or "similar conditions." Therefore, it is not necessary to treat all investors equally regardless of their country's activities, industry, and objective environment. Thus, for example, the practice of stipulating that subsidies to Chinese investors are limited to high-tech production does not violate the principle of national treatment.

  1. There is no "one size fits all" for investment liberalization and foreign investment access. Instead, this step should be carried out step by step and step by step.

Therefore, it is more appropriate to use a positive list to enumerate the industries, fields, and activities that can be freely invested. On the other hand, the negative list cannot or is difficult to exhaust the industries, areas, and activities in which investment liberalization is not allowed in our country.

From the above, we can see that the country has become more and more demanding on foreign investment conditions and requires foreign investors to be more regulated in taxation. As a result, the threshold for foreign capital to enter China has increased, requiring foreign companies to find a suitable product positioning and plan for the market before entering China because the cost of entering China has increased.

External environment: In recent years, public relations crises of foreign-funded enterprises have emerged one after another. For example, Procter & Gamble: Recently, there has been controversy over the pollution of Pampers diapers. Another example is impurities found in Nestlé mineral water. Thus, the quality problems of foreign-funded enterprises' products are emerging one after another. All these are a wake-up call for foreign-funded enterprises. In recent years, the state has issued a series of policies to strictly monitor quality problems because quality problems have brought losses to the Chinese people and harmed the people.

Environmental issues: China now faces air pollution, energy pollution, labor pollution, and garbage pollution. In the past, the erroneous view of political performance regarded "attracting foreign investment" and "export" as the primary indicators for assessing officials' "political performance." As a result, fang-invested enterprises swarmed in and received low tax rates.

However, in recent years, China has gradually revised its policies on foreign-funded enterprises and steadily reduced its preferential treatment for foreign capital. This also requires that after foreign companies enter China, we should strictly check, treat high-polluting companies while pollution, and need them to save resources.

By taking Procter & Gamble as an example, the strategy for foreign-funded enterprises, the state's policies for foreign-funded enterprises, and the pressure of the external environment on foreign-funded enterprises analyzed the opportunities and challenges of foreign-funded enterprises in China. Also, it proved that sentences, opportunities, and challenges coexist.

Tags: Foreign companies in China