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Research on the Market Entry Strategy Adopted by It Luggage Ltd to Expand into Chinese Market

Nyamweya is a Kenyan scholar who has done many years of research on a diversity of topics

1.0 Introduction to the Study

Effective market entry in a given forein markets needs a structural approach. When a business makes decisions of entering a foreign market, there are diverse options to choose from (Tailor, 2011). However, these options vary with risk, level of control, and cost of the option chosen. Nonetheless, the use of indirect method including using an agent, distributors, government involvement or exporting directly has been the most form of entry strategy. Other complex forms include use of export processing zone, use of joint ventures among others. A company can as well decide to employ franchising method, joint venture, partnering with a host company, buying of a company, piggybacking, Greenfield investments, and Turnkey projects. In essence, globalization has seen many companies strife to increase their competitive edges by adopting the right foreign entry approach to enabling them achieve a competitive advantage as well as in improving their general performance. Nonetheless, choosing the right strategy for the right company may not be an easy endeavor since the strategy adopted depends on the company’s assets and resources (Wirtz, 2011).

It Luggage Ltd is a United Kingdom company that is involved in the design of quality but affordable luggage for leisure and business needs. This company which was established in 1985 is a truly international company having a presence across 46 countries with products surpassing over 7 million per annum. In fact, the company is regarded as one of the most successful luggage producers globally (itluggage.com, 2020). The company entered China market in 2014 and went on to create what is regarded as unrivalled competition. With a high level showroom and committed staff, the company is able to deliver factory accreditation and complete compliance on all its products (itluggage.com, 2020). In this regard, this regard is designed to establish the entry market strategy adopted by It Luggage in venturing into the Chinese market successfully. The insights generated from this research will be beneficial to marketers, business owners and companies and stakeholders in the luggage manufacturing sector to identify the right approach to deploy in a market such as China. Furthermore, researchers will also be stirred to pursue this subject further and more specifically on the marketing approach that works in China and that which may not work.

1.1 Statement of the Problem

Many Western companies of all sizes and shapes find it a challenge entering the Chinese market. Despite the ambiguous nature of the economic climate in Europe, China’s economy has consistently shown signs of growth over the last recent years(Wirtz, 2011). This country is also poised to overtake the United States as the 2nd largest economy globally by 2022 and destine to become an epicenter for global business and development in the next years. In this respect, it becomes critical for companies to understand how to enter a complex and large market such as China in this B2B sphere. Therefore, this research is intended to unearth the challenges that It Luggage faced when venturing into the Chinese market and how it addressed them. Other marketers will learn from It Luggage approach to leverage their success when entering China.

1.2 Objectives of the Study

The aim of this research is to explore the international strategy adopted by It Luggage to expand into Chinese market. This will work towards providing reference to similar brands wishing to venture into the same market. The specific objectives which this research seeks to address include the following

(1) To identify the key factors motivating It Luggage Ltd to expand into Chinese market;

(2) To Analyze the market entry mode used by It Luggage to enter into Chinese market;

(3) To Explore the Factors Influencing It Luggage to adopt such entry mode;

(4) To evaluate the effectiveness of It Luggage’s entry strategy in Chinese market, and provide some recommendations for It Luggage to better operate in Chinese market.

1.3 Research Questions

This study seeks to address the following research questions.

i) Which factors motivated IT Luggage Ltd to venture into the Chinese market?

ii) What entry mode(s) did IT Luggage Ltd use when entering the Chinese market?

iii) What factors influenced IT Luggage to adopt those entry modes?

iv) Are the entry strategies adopted by IT Luggage in the Chinese market effective?

v) What can IT Luggage do to improve its operation in the Chinese Market?

1.4 Scope of the Study

The focus of this study is to establish market entry modes for foreign companies in China. More specifically, the focus will be to identify the market entry strategies that work in China against those that do not work. While many companies have entered China but failed along the way such as Uber, eBay, Groupon, Nike and even Home Depot, some others have such as IT Luggage succeeded. However, studies affirm that the success of particular businesses or lack of it in the China market is largely determined by the strategies used m (Tailor, 2011). It is against this backdrop that this study seeks to establish what strategies that made IT Luggage successful in the extensive market.

1.5 Operational Definitions

Market Entry Mode- This is an approach that a marketer uses when venturing into a foreign market.

Globalization- This word is used in reference to the rising interdependence of the world cultures, economies and populations generated by cross-border trade, technology, flow of people investment and even information.

Transnational Corporation: This is a company that invests and has presence in different countries.

1.6 Research Significance

No size fits all applies to market entry strategies owing to the difference environment, culture, economic situation, political orientation, social aspects or even religion. The research on the market entry strategies adopted by IT Luggage can provide essential insights on management and business investments for investors. The research will work towards helping investors, international marketers and corporate executives to learn about effective strategies to deploy when entering the vast and complex market such as China.This research will as well provide a basis for other researchers to understand what they need to pursue in regard to Chinese market.

2.0 Literature Review

2.1 Introduction

This section is aimed at exploring previous and existing on the subject under discussion. Specifically, the review will be based on market entry options available and used by firms in foreign markets such as China. The author will as well take the opportunity to look at the factors that motivates international companies to invest in the China market. The chapter will close with a summary of the key aspects established in the literature.

2.2 Factors Motivating International Companies to Venture into the Chinese Market

China is considered number 1 for matters related to reliability, manufacturing competency, for safety, currency stability, and constant growth in domestic market. This explains why western companies including those from the United States are hell-bent to seeking a presence there (Bader et al, 2017). This is despite the political sphere in China which is a communist in nature and a one party state alongside the activism of religious minorities in the country. Such issues may not be of much concern to a transnational corporation (He, et al, 2016). Particularly, China is a preferred market base owing to various factors including cheaper corporate tax, cheaper labor, and lower logistics costs due to developed infrastructure and reduced taxes, low levels of corruption; lower cost of energy and fuel as well as a favorable economy (Rapoza, 2019).

According to Froese, and Kishi (2013), China has outpaced India and many Western countries when it comes with the features suitable for business development. The high level of infrastructure with superb bridges, highways and even roads are critical for transportation of goods, and employee movements. As earlier noted, China also boosts strong workforce with a favorable cost of labor. The development of these aspects has a significant impact on the cost of transactions while also increasing earnings, letting investors earn positive returns. Bader et al (2017) also affirms that the large number of China’s population also makes the market a potentially appealing one for international investors in committing their capital to high level industries such as luxury goods, apparel, engineering, information technology and even healthcare. On the other hand, Tailor, (2011) finds that foreign direct investment (FDI) has a tendency of finding its way to countries that are able to sell goods not only to foreign consumers, but also to the local market. Commercial obstacles such as high tariffs are a discouragement to investors. This is because high taxes translate to high inflated prices which will be unfavorable to foreign demand. However, the low trade tariff and large market base enables investors to product and sell final products for a lower price.

2.3 Market Entry Modes Used by Forein Companies when Entering the Chinese Market

According to Collinson, Liu (2019), it is important for companies entering China to choose appropriate market strategies for this market environment. However, the strategies chosen largely depend on a number of factors. These include i) the market demand, ii)the Chinese perception of the foreign investor, iii)the future prospect of the brand’s products, iv) the commitment and resource capability of the foreign investor and finally 5) the timeframe required for successful market entry. Pacific Bridge Medical (2020) describes three basic strategies firm can use when entering China market. The first one is finding a distributor who can facilitate the distribution and marketing of products for the foreign investor. The second one is use of direct channels and the third one is setting up a joint venture with a local company. However, each of these strategies is froth with merits and demerits (Bader et al, 2017).

In essence, market entry through a distributor in China is considered the quickest and easiest means of entering China. However, this approach is least desirable especially when it comes to general market penetration (Froese, and Kishi, 2013). On the other hand, market entry through direct channels could be quite an expensive one as well as being time consuming compared to the use of host distributors or partners. Nonetheless, it may be the best one in the long run in terms of general market generation. This option is also regarded to be an effective mid-term strategy. Direct entry may entail setting up wholly owned subsidiaries which has the benefit of full control and total income over the foreign subsidiaries. Considering that China is a fragmented, huge market, it is thus critical for businesses to explore more market entry strategies that suit their capability, budget and goals (Pacific Bridge Medical, 2020).

Companies have also the option of going the way of strategic alliances. This entails two or more companies combining their operations or value activities for the purpose of achieving a competitive advantage (He, et al, 2016). These firms may then share resources; logistics etc just to achieve their marketing and business goals (Froese, and Kishi 2013). Wirtz (2011) observes that competitive alliances enable businesses to achieve competencies, assets or capability, as well as specialized expertise which they may not be having. Joint ventures can also be put in this category since it entails two or more companies complimentary each other to get resources and expertise. Strategic alliances and joint ventures leads to sharing of profit and ownership with the partners. According to Govindarajan, and Ramamurti (2011), strategic alliances and joint ventures are advantageous to foreign investors since they enable a more direct participation in the host market. In this respect, it will be possible for firms to have a good understanding of how the market works. Furthermore, it become possible for firms to make profit and finance from their operation alongside the ability of exerting greater control of the market through the partnership.

2.4 Summary

This review has unearthed a number of factors that motivate firms to seek a presence in the Chinese market. As noted, these factors include the economic viability of the Chinese market, the vast nature of the Chinese market, favorable market environment including low tariffs, highly developed infrastructure to facilitate logistics, low cost of labor and favorable regulations. This review further assessed market entry strategies that firm use to venture into China market. As noted, these include direct entries (such as setting up of wholly owned subsidiaries), partnering with the local firms through strategic alliances, joint ventures or use of the local distributor. The current research is thus set to unravel the market entry strategy that It Luggage deployed when entering China. The subsequent part will discuss the methodology which this study seeks to employ in conducting the research.

3.0 Methodology

This research is qualitative in nature, meaning that the data to be collected will be non-numerical in nature while deriving meaning from a particular case. Furthermore, this type of research can be done through a case study, cultural texts, life story, personal experience, interview, artifacts, visual texts, historical and interactional (Babbie, 2014). Among the benefits of this research is that the ability capture the changing perceptions of within a specific target group such as the management, employees, customers among others, and the flexibility of the researcher in engaging the respondents accordingly. However, this research is limited in terms of sample size as only a small number of respondents can be engaged in the research. This raises a query of whether the sample considered can correctly reflect the views of the larger target group (Berg and Lune, 2012).

This research will further employ the case study approach in meeting the research objectives. A case study is a research approach which allows a multifaceted, in-depth of issues in their actual life settings. This research is best used when there is a necessity of obtaining an in-depth appreciation of a specific issue, phenomena or event in its natural context (Crowe, 2011). Accordingly, the researcher will use IT Luggage Company in China as the case study. The aim is to obtain detailed response on the issue at hand that is It Luggage’s experience in China and the strategies it used. This will provide lessons to other companies wishing to venture into the China market on what to do and what not to do.

In regard to data collection, interview method will be adopted to collect the primary data. Firstly, the researcher will communicate with the Human Resource department of the It luggage Ltd to explain the aim of the research. After getting permission, the researcher will choose 5 middle managers from the It luggage Ltd to take part in the interview. The respondents will be drawn from the executive level, sales and marketing department, logistics, research and development, Projects, and Human Resource departments. The interview will be conducted in the meeting room of the company during the evening of a specified work day. This will be shortly after official working hours where the respondents will be engaged for about 30-45 minutes before they close business and go to their various homes. According to Moore (2014) the benefits of using an interview as a data collection approach owes to its ability to correct the speech, misunderstanding or mistake. A respondent or researcher can also seek clarification on the questions or responses provided. This is usually not possible with the use of say, questionnaires. Furthermore, interview method makes it possible for the researcher to select suitable respondents that can provide the right answers to what is being provided for. What is more, interviews make it possible to select sufficient information by ensuring that the respondent duly answers the questions appropriately. However, the downside of interviews is that apart from being extensively time consuming, the outcome largely depends on the capability of the interviewer in engaging the respondents effectively. If the interviewer has no competency to interview people, then the interview may turn out to be a disaster with questions not being answered appropriately (Moore, 2014). However, for this research, the interviewer is competent enough and he is sure of engaging the respondents appropriately. In this regard, the author purposes to exploit the benefits of the interview method such as the ability to get the right respondents, and getting appropriate answers to answer the research objectives in a most efficient way.

5.0 Ethical Considerations

In conducting this research, the author will strive to adhere to the University’s code of conduct governing research processes. This means that before doing the actual research, the management of It Luggage Ltd will be duly informed on the purpose of this research. The research will go on after being approved by the University and the management of It Luggage Ltd. This is the same case with the respondents who will also be informed of their right to take part or refuse to take part in the event they had personal issues that prevented them from doing so. Furthermore, all the key information pertaining to the respondent’s right will be communicated to the interviewee before official commencement of the actual interview. In addition, the identity of all the respondents will be kept anonymous and no personal information will be forwarded to a third party. Basically, all the information of this research will essentially be used for educational purposes and nothing more than that. What is more, all information obtained from outside will be duly cited and referenced as required.


References

Bader, K., Froese, J., Achteresch, A., & Behrens, S. (2017) ‘Expatriates’ influence on the organizational commitment of host country nationals in China: The moderating role of individual values and status characteristics’, European Journal of International Management, 11(2), pp.181–200.

Berg, B.; Lune, H. (2012) Qualitative Research Methods for the Social Sciences (8th ed.). Boston: Boston University Press.

Babbie, E. (2014) The Basics of Social Research. Belmont, California: Wadsworth Cengage.

Collinson, S., & Liu, Y. (2019) ‘Recombination for innovation: Performance outcomes from international partnerships in China’, R&D Management, 49(1), pp.46–63.

Crowe, S., Cresswell, K., Robertson, A., Huby, G., Avery, A., & Sheikh, A. (2011) ‘The case study approach’, BMC medical research methodology, 11 (5), pp.100.

itluggage.com (2020) About it: available at: http://www.itluggage.com/background/3/ (accessed on 16th, March 2020).

Froese, F. J., & Kishi, Y. (2013) ‘Organizational attractiveness of foreign firms in Asia: Soft power matters’, Asian Business & Management, 12(3), pp.281–297.

Govindarajan, V., & Ramamurti, R. (2011) ‘Reverse innovation, emerging markets, and global strategy’, Global Strategy Journal, 1(3–4), pp.191–205.

He, Y., Xu, Y., Pang, Y., Tian, H., & Wu, R. (2016) ‘A regulatory policy to promote renewable energy consumption in China: Review and future evolutionary path’, Renewable Energy, 89 (3) pp.695–705.

Moore, B (2014) 'In-Depth Interviewing" in Routledge Handbook of Research Methods in Military Studies, (eds.) J. Sorters, P. Shields, S Henriette. New York: Routledge, pp.115-128.

Pacific Bridge Medical (2020) China market entry strategies. Available at: https://www.pacificbridgemedical.com/publication/china-market-entry-strategies/ (accessed on 17th, March, 2020).

Rapoza, K (2019)Why American Companies Choose China Over Everyone Else. Available at: https://www.forbes.com/sites/kenrapoza/2019/09/03/why-american-companies-choose-china-over-everyone-else/#6c39101871de (accessed on 17th, March 2020)

Tailor, D (2011) Market entry strategies. Pacific Business Intelligence, available at: http://www.globethoughts.com/2011international-marketing/market-entry strategies (accessed on 18th, March 2020)

Wirtz, R. (2011) ‘Exporting growth’, ABI/INFORM Global, 2 (1). p 6

Comments

Silas Nyamweya (author) from Nairobi, Kenya on January 02, 2021:

If you need such a report customized to your taste, don't hesitate to reach me at silasnyamweya@gmail.com

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