Chinese Firm Has Several Options

¶ … Chinese firm has several options for entering the U.S. market. They can purchase Volvo, since it is potentially available; they can purchase only the Volvo North American operations, leaving the European side to Ford or another buyer; they can enter the market greenfield; or they can enter the market via joint venture. An outright Volvo purchase gives the Chinese firm the strongest entry into the market, with existing facilities and market share. However, that option has a very high learning curve since North American is a very different market structurally, politically and economically than China and Volvo has a declining market share in North America, plus Volvo Cars also has European operations, which are not necessarily of strategic value to the Chinese company. The second option mitigates the potential impact of the European operations by taking them out of the picture. It also lowers the price. However, the same cultural, economic and political differences between the U.S. And Chinese markets remain; and they would likely need to find someone to take on the European operations as part of the deal.

The third option, starting greenfield, is the most difficult, requiring massive investment in infrastructure. The main advantage is that the American operation can be set up exactly to the Chinese company's specifications. However, the investment in infrastructure would not make sense - it would support a brand that has not sold a single car in the United States. Automobile factories are not easily scalable, so on an economic level, it would be difficult to justify a Chinese car company entering the U.S. market in this way.

The fourth option, to enter with a joint venture, would allow the Chinese company to enter the market with a partner who understands the local market conditions. It would also help to defray the cost of market entry.

For an automobile company from China to enter the United States would obviously be a matter of long-term penetration, given the cost of infrastructure investment and long-term time horizon to build market share to the point where economies of scale can be achieved. The best alternative to do this is via the joint venture. Starting greenfield makes no economic sense, given that the Chinese company has no brand in the U.S. marketplace. Purchasing Volvo Cars entirely is weak option because the Chinese firm has no interest in the European market at this time. The joint venture option has potential - this is how Toyota began U.S. production (Copper, 1983). However, Toyota had built up market share, and demonstrated strong competitive advantage in production. Without those advantages, the Chinese firm may have little to offer a potential JV partner. This reduces the likelihood of this option occurring and increases the cost in the event that a partner can be found. The best option, therefore, would be to buy the Volvo Cars American operations. This gives the Chinese firm established infrastructure and an established brand, which it can leverage to help establish its own brand as well. Additionally, the price may be favorable right now, as might the opportunity to gain market share should one of the big three go under. A joint venture set up would take years to produce cars, robbing the Chinese firm of the opportunity. Timing favors a Volvo North America purchase.

Acquisition is probably the best way for emerging market firms to enter the U.S. market. The breadth and depth of the differences between emerging markets and developed ones demands that the emerging market company acquire immediately management talent experienced in developed world operations. Moreover, one of the most significant sources of competitive advantage in the developed world is intellectual property. Acquisitions allow for the emerging market firm to acquire that IP in way that joint ventures sometimes do not allow. Acquisitions allow firms to enter a market quickly and apply their own competencies to the business in order to derive further competitive advantage.

2. Global integration has significant impacts for firms such as Starbucks that have built a strong brand based on a consistent product, no matter where the operation is. Global marketing integration demands that the marketing component of the company should also be integrated, and consistent. One of the major implications is with regards to product. Starbucks sought to expand into Asian markets, but their core product of coffee has very low penetration in tea-drinking countries like Japan and China. This major cultural difference could have been a significant impediment. However, Starbucks overcame this by shifting the focus of their marketing towards the other key product - the Starbucks experience. In Asia's densely-packed cities, the need for a "third" place, somewhere to socialize besides work and home, was strong. This was the means for Starbucks to win customers. Those customers have slowly become weaned on coffee, via the syrupy dessert-like coffee drinks on the menu.

Thus, the product did not change but the promotion saw a slight shift when Starbucks entered Asia. In order for this to occur, Starbucks needed to make some adjustments to its logistics systems. In North America, the inputs could be acquired and distributed from a central point of command. Asia's markets are too distant for this to be feasible, so new suppliers had to be found. Maintaining consistency - a Starbucks hallmark - would be more difficult.

Place and price, however, remained consistent. Place has long been a key component of the Starbucks business model. Finding the right location was considered essential. Starbucks has continued to emphasize this part of its marketing program when expanding overseas.

Therefore, the Starbucks strategy with regards to place was relatively easy to integrate on a global scale. Price did not represent a significant challenge. Starbucks price positioning is at the high end, and the Asian markets that they entered have ample high end consumers. A contributing factor to Starbucks' price points, however, it economies of scale. In Asia, they solved this problem by forming a partnership with an existing food service group that had experience with Western franchises. This allowed Starbucks to leverage their partner's existing supplier relationships and economies of scale, allowing for Starbucks to hit the same price points overseas as they do in North America.