PK Electrics’s international marketing analysis Contents Introduction3 The reasons of entering international markets3 Market Saturation3 Market-related factors3 Product Life Cycle4 Two sources of information4 The World Trade Organization4 The International Trade Centre5 Key Opportunities and Threats5 Key Opportunities5 Key Threats6 The Selection Process PK Electrics would Use6 Modes of Market Entry7 Most Appropriate Mode for PK Electrics8 Conclusion8 Reference9 Introduction Since PK Electrics was established in 1987 in Ningbo, Zhejiang province, China.
It has grown from a local supplier producing a limited range of electrical cabling and switches to a national supplier of a wide range of electrical supplies including: cables, sockets, switches and light fittings. It has three factories based in Zhejiang province and good reputation for quality and customer service and competitive price. This report aims to demonstrate the reason of considering entering international markets and the sources of information they should access before entering it.Following by that, it will identify the key opportunities and threats associated with entry into international markets and the process of selecting market to attempt. Then, it will show the advantage and disadvantages of different entry modes and will choose a best method to follow. The reasons of entering international markets Market Saturation Fierce competition from domestic and foreign companies, high cost of production and shortage of the required managerial and technical skills are some reasons why firms might find further investments in home markets less attractive than foreign markets.In PK Electrics, the past few years have seen continual growth, but over the last two years the rate of growth has begun to decline with sales rising 5% and profits by 2% last year.
It implies the domestic market tends to be saturation. Market-related factors Because the management team are aware of big changes in international trading that have occurred over the last 10-15 years with the Chinese economy becoming more market-based and the more recent impact of China joining the World Trade Organization in December 2001.Beside, they have recently met with Trade delegations from several different countries. As a result for these, there may be untapped markets or new opportunities for PK Electrics. For example, if they entry into international market timely, they may gain their market share before other competitors through their good reputation for high quality and customer services as well as competitive price. Moreover, high-income countries provide the greatest demand potential. Product Life CycleMany firms have tended only to operate at home as long as performance there was satisfactory. A new product progresses through a sequence of stages from introduction to growth, maturity, and decline.
This sequence is known as the product life cycle and is associated with changes in the marketing situation, thus impacting the marketing strategy and the marketing mix. [www. quickma. com] The product revenue and profits can be plotted as a function of the lift-cycle stages as shown in the graph below:As PK Electrics’ rate of growth has begun to decline with sales rising 5% and profits by 2% last year, perhaps some of its products life cycle has being entering into the fourth stage that is decline stage. So, as a result for this, to allocate more money to research and develop is significant, meanwhile, entering into international market can be a power to force the company change its product mix and innovate new products.
Two sources of information As mentioned above, PK Electrics has a desire to enter into international market, but before that, it should access some sources of information and they will be shown below.The World Trade Organization In 1995, The World Trade Organization (WTO) was established to succeed the General Agreement on Tariffs and Trade. The WTO exists to regulate international trade. Its key principle in non-discrimination, ensuring that similar products from different countries must be treated the same way. Moreover, it is a member-driven organization which nearly always works on a consensus basis. As an international organization it has a sound and accountable legal basis because all WTO members have ratified the WTO Agreements. International Marketing: An Introduction] Since China joined the WTO in December 2001, it had to open some areas of market to foreign companies meanwhile, it will promote the export of China and it will also benefit PK Electrics entering the international markets. As an enterprise of China which is a member of WTO, PK Electrics should understand the nature of this organization and principles as well as membership of countries.
Then, PK Electrics should access information about the external environment of its destination country, such as political factors.For example, the attitudes of the country’s government, taxation policy and social cultures. In addition, the economic factors and human resources in terms of price of labor force if the company want to set assembly abroad. The International Trade Centre The International Trade Centre (ITC) is the technical cooperation agency of the United Nations Conference on Trade and Development (UNCTAD) and the WTO for operational, enterprise-oriented aspects of trade development.The ITC supports developing and transition economies, and particularly their business sector, in their efforts to realize their full potential for developing exports and improving import operations. There are six areas it works: product and market development; development of trade support services; trade information; human resource development; international purchasing and supply management; and needs assessment and program design for trade promotion. So, from above, it indicates that PK Electrics can get the information and help from the ITC. It will easy to understand the destination market through ITC.
Key Opportunities and Threats In the process of entering the international markets, PK Electrics would face some opportunities and threats, so how can it use its strengths to change switch its threats to opportunities or even its advantages. Key Opportunities According to SWOT analysis, the company’s opportunities are distinct. For example, with rising economic growth and the rising disposable incomes, especially of the urban population, there are increasing people seeking improvements to their homes and living standards.
This means the demand is raising which will improve the company’s sales and profits.And It has a large numbers of potential consumers which will enhance the power of develop new products. Because it want to meet customer’s needs and boost its profits and even reputation for good quality.
The other opportunity is since China had joined into WTO, which means there was a reduction on export tariff. This will benefit PK Electrics develop its oversea markets. In addition, the effective use of new technology will help PK Electrics to improve its production and productivity.
Moreover, capital raising is easy than before. Key Threats One is the management of the company is in the hands of young dynamic team of managers.There is a potential threat for this, such as the conflict between senior managers as well as lacking of experience and managing skills or changes of managing team will lead a successful enterprise to fail. Because, the organization strategy will not be implemented timely and the control system is loose or out of control. Besides, perhaps the new manager will not be familiar with the organization’s strategy for the international market quickly and cannot build a right direction for the future oversea markets development. The other is the fierce competition in the international market which may cause difficulties of entry.
If competitors which have already been an alliance in the industry of electric, it will almost impossible to entry into this market. Because the cost of entry is quite high, and PK Electrics will lose its strengths, such as competitive pricing. As a result, it should avoid go into this kind of market and choose another one. The Selection Process PK Electrics would Use Generally speaking, to set the corporate policy is the first step for PK Electrics that could provide an analysis of all internal and external factors that can affect a firm’s objectives, operations, and plans.Formulated by the firm’s board of directors, corporate policy lays down the firm’s response to known and knowable situations and circumstances. It also determines the formulation and implementation of strategy, and directs and restricts the plans, decisions, and actions of the firm’s officers in achievement of its objectives.
Then, make market assessment criteria, for instance, which product to sell, what price it will be set, and which place to sell them as well as how to promote the product. This is also known as 4Ps. followed by that; we will analyze the potential country markets by SPELT analysis.According to SPELT analysis, PK Electrics should identify the local policy and legislation of destination country, besides, the economic situation and use of new technology are also important to consider.
If the company cannot fulfill the conditions it should stop the assessment process or by contrast, it achieves the opportunity to enter into the markets as well as operate. So it should assess the local products by price, place, and promotion. Moreover, to demonstrate the strength, weakness, external opportunities and threats (as mentioned above) is the key to success.Finally, the company should analyse its core competence, such as good reputation for quality and customer service as well as keeping competitive price. At the beginning of the company entering into the international market, it may face lower risk due to less competition, but the risk will raise against the stiff competition. Because, PK Electrics have recently met with Trade delegations from several different countries which means there may be less players in this industry, as a result, the threshold is lower to entry. Modes of Market EntryIndirect Exports is the exporter not involved in the actual export process.
Instead the export process is undertaken by a third party. This export intermediary an Export Management Company or an Export Trading Company that normally assumes responsibility for finding overseas buyers, shipping products, and getting paid. They wll normally do this way through Export House and Buying Office.
Advantages: the company will be less involvement which means less risk. Disadvantages:it may lost the opportunity to understand its export market and sometimes it may hard to control the situation.Direct Exports occurs where the producing organisation organisation itself performs the export tasks rather than using an intermediary. Sales are made directly to the overseas customer who may be the wholesaler, retailer or end user. There are different types of customers, such as final user, agents, and distributors. Advantages: sales performance will improve, as it is the exports’ own staff to deal the business. And it will be given an opportunity to “learn” overseas markets before investing in bricks and mortar Disadvantages: the risk is more likely from political instability, and subject to local legislation.
Franchising is a form of market approach in which a company, the franchisor, grants, another independent organisation the right to do business in a particular way. Advantages: the level of control is high, and low risk or low cost of entry. In addition, highly motivated business contact with market knowledge, money and give protection of patents. Disadvantages: there may be problems with local legislation and the cost of marketing packages to support franchisees is high. Moreover, it is a time and cost consuming work in finding good franchisees.Besides, it lack of total control of the service quality. Licensing agreements are essentially about the sale of knowledge, access to that knowledge and the means to exploit it.
Advantages: it can avoid expensive transportation cost and trade barriers. In addition to the target country’s currency’s depreciation swings a exporter from export to licensing, political risk is lower than with equity investment. Disadvantages: the company may lack of marketing control; In addition, it can only get money from royalty fees, which has a limited duration (5-10 years only), or a limited rate (no more than 5%).Equity Joint Ventures which take place when an international company shares in the ownership of an enterprise in a target country with local private or public interests. Advantages: the entry mode will help the company reduce risk and cost. Disadvantages: it may help to cultivate the potential rivals. And it may be lack of control if the company invest minority equity. Most Appropriate Mode for PK Electrics Note: the full score is 10.
Source: Root, F R (1994), Entry Strategies for International Markets, Jossey-Bass As can be seen from the table above, the most suitable entry mode for PK Electrics using is Indirect Export.Because the average score is 7. 14 and the total score is 50. By adopting this entry mode, the company will be less involvement which means less risk. The cost of entry is relatively low and easy to get out if there is a recession.
Conclusion This report provides a brief analysis of entering into the pierce international markets for PK Electrics. As can be seen from above, even though there are risk involve in entering into the international markets, it is still worth to attempt.Due to its potential customers and good reputation as well as the situation of China, but the way to entry is still need to be tested by time. Reference http://www. learnmarketing. net/plc3. gif Accessed on 20th December, 2009 http://www.
quickmba. com/marketing/product/lifecycle/ Accessed on 20th December, 2009 Scottish Qualification Authority 2004, International Marketing: An Introduction. China Modern Economic Publishing House,Beijing. http://www. businessdictionary. com/definition/corporate-policy.
html Accessed on 20th December, 2009