Executive Summary This paper is to analyze the barriers of entering Chinese pharmaceuticals market and based on that an export strategy is developed for Ego Skin Cream. In this paper, we compare Chinese pharmaceuticals market and Indian pharmaceuticals market for choosing a promising market. Although Chinese market has more advantages than Indian, culture barriers and complex legal system in China are two major factors can’t be ignored. In this case, market entry strategy is the main decision which should be developed to overcome the culture and legal barriers.
Following market entry strategy, STP in China is analyzed. Accordingly, marketing mix is also suggested to change to adapt to Chinese market. In the end, the overall recommendation is provided. Brand and Company Overview Ego Skin Cream is the moisturizing cream product that provides the professional treatment for the dry skin, particularly useful on the face, lips, hands, elbows and heels. It also can be used as a daily facial moisturizer and is suitable for any skin type.
The manufacturer is Ego Pharmaceuticals who own other well-known brands such as QV and Sun Sense.
Ego Pharmaceuticals is an Australian-owned pharmaceutical company providing the skincare products for more than 50 years. Ego Pharmaceuticals presents itself as the specialist in the treatment and prevention of skin diseases and the maintenance of healthy skin. Although two skincare brands QV and Sun Sense have achieved outstanding performance in sales, Ego Skin Cream as a treatment product brand is still out of people’s mind. The causes can be found in many ways. First, most Australian are very conscious of skin care.
Moisturizing cosmetics are generally daily used so that serious dry skin is not a common disease in Australia. In addition, countless well-known brand skincare cosmetics can be found in every pharmacy throughout Australia which is another reason for the bad performance of Ego Skin Cream. In this case, multinational marketing can be an effective strategy for increasing the sales volume. Nowadays, a rapidly growing number of companies have set out to develop multinational business. Generally, there are four drivers for the international marketing: following market needs, improving technology, educing cost as well as increasing information technology (Fletcher and Brown, 2008). Under the circumstances that limited native market and fierce competition, exporting Ego Skin Cream to a prospective market out of Australia is a breakthrough point in improving sale performance. Target market analysis In the international marketing planning process, selecting marketing is the first step and is of great importance. Different criteria are developed for market evaluation. We conduct five stage approaches to analyze the target countries: 1. Domestic issues; 2. Macro environmental issues; 3.
Competitive environments; 4. Response to marketing activities; 5. Firms objectives. Taken first two issues into consideration, China and India are ideal countries for exporting. Both are huge countries in population. According to the statistics from World Development Indicator (2008), China has over 1. 3 billion people, representing 20% of the world’s population, followed by India (1. 1 billion). Huge population indicates the adequate market demand such as pharmaceuticals industry. In terms of Economy, both are developing countries, experiencing rapid economic growth recent years.
China was regarded as the fastest growing Countries in economy (Dornbusch, 1997) and after successive years of growth, China has already emerged as the second largest economy in the world, measured by gross domestic product at purchasing power parity (Dahlman and Aubert, 2001). In recent years, both China and India has witnessed significant progress in pharmaceutical products. China’s output of pharmaceutical product rose from RMB 6. 4 million in 1978 to RMB 104 billion in 1994, growing averagely 18 per cent annually (Nomura, 1996).
However, within the China’s total pharmaceutical sales, domestic firms only accounted for 65% while Indian firms held 77% (Brueckner et al. , 2005). In retrospect, Chinese companies invested small portion in R&D, typically 2% of sales by far away from Indian companies’ 7. 7% (Grace, 2004). Overall, Indian firms are supported by R&D programs and have well positioned themselves in the domestic market so that more intense competition will be confronted in Indian pharmaceuticals industry. Another weakness when exporting to India is that India is among the lowest in the world in terms of per capita consumption of pharmaceuticals, with $4. 0 compared to $13 in China (Greene, 2007). Under those conditions, more promising pharmaceuticals market can be expected in China than in India. Furthermore, with the rising number of affluent Chinese, diseases such as diabetes, cardiovascular diseases and cancer all shows the growing trend, offering a huge market demand for drug development (kermani, 2008). The huge market demands as well as less competition make China an attractive market for pharmaceuticals industry. In terms of firm objectives, the sale volume is expected to increase when launching Ego Skin Cream in China because dry skin is very common in China.
The research conducted with 1800 Chinese women from 5 cities showed that dry skin is a very common complaint which can be found in 30. 8% of the Chinese women (Li et al. , 2005). This research further discovered that two factors are related to dry skin. One is the climate; there are more dry skin cases in northern Chinese city due to the dry climate. Another one is people’s carelessness in skin care. Some use the water or soap only as face cleansing product (Li et al. , 2005). All those results imply good prospects in Ego Skin Cream market in China. Market Entry
It is never easy to enter into a new market, especially China. Chinese market has a lot of special characteristics that always represent the challenge facing companies who are trying to enter. Western businesses are particularly likely to face a variety of problems from all aspects including complex legal system as well as culture conflicts. Thus, understanding the Chinese legal system and business pattern should be given the priority. The first issue is the legal system for entering Chinese pharmaceuticals industry. In recent decades, lots efforts have been put to regulate the pharmaceuticals market by Chinese government.
A series reforms in public health insurance system, distribution system, legislation, and advertising policies has been promulgated in 1990s (Liu and Cheng, 2000). Nowadays, a modernized legislative system is still in the process of establishing. Currently, most relevant laws are the Drug Administration Act of May 1993, Product Quality Act of September 1993, Trademark Law of February 1993, and Intellectual Property Laws of January 1994 (Liu and Cheng, 2000). Apart from the laws, a governmental agency, Chinese State food and Drug Administration (SFDA) takes responsibility for examine and approving the market new comer.
SFDA also supervise “National Institutes of Pharmaceutical Clinical Trials” as the indispensible part of examine and approving. Not every hospital can do the clinical trials. The clinical trials should be conducted with affiliated hospitals of medical universities, some large public hospitals and specialist hospitals (Kermani, 2008). Generally, new medicines that come to Chinese market should undergo the technological procedures, clinical trials and administrative procedures of examine and approving by SFDA.
After those processes, SFDA certificate is released for the medicine. Some time it takes couple of years for those procedures while some companies use personal connections to cut down this period to a great extent. This refers to one of the well-known cultural issue in China: “guanxi”. In China, guanxi is of paramount significance in business matters, and it is widely regarded as the critical success factor in business (Leung and Wong, 1996) for the legal system is complicated and often not transparent (Walters, 2003).
Guanxi is defined as “the set of personal connections which an individual may draw upon to secure resources or advantage when doing business or in the course of social life” (Davies, 1995). As Chinese extensive bureaucracy don’t fully codified and diffused the laws so the rules are not consistently enforced (Boisot and Child, 1996). In this case, guanxi plays an important role in the procedure of application for SFDA certificates. However, SFDA certification has been doubted and the manufacturer’ reputation experience damaging for the widespread corruption in guanxi.
Another important point is the medication classification. In China, medication is widely classified into prescriptive medicine and over-the-counter (OTC) medicine. The prescriptive medicine is only available with doctor’s prescription while OTC can be bought by individuals. In recent years, China’s OTC market saw an evident growth. It valued at US $7. 45 billion in 2007 and is forecast to grow to US $21. 49 billion by 2012 for customers tend to take the self medication from pharmacies instead of taking rescription medicines in hospitals (Business Monitor International, 2008). Therefore, approval for OTC not only implies more choice of distribution but also expect an increasing market. Furthermore, Category A OTCs is only available in pharmacies while Category B OTCs can be sold in both pharmacies and supermarket. In this case, Category B OTCs require a complex distribution system and at the same time consumers are more accessible to Category B OTC medication. Understanding these issues, a clear picture is drawn to help the decision on the entry mode.
The entry mode choice is the selection of an institutional arrangement for operating the international business transactions (Root, 1994). International firms may enter the foreign markets in a variety way, including no involvement, exporting, joint venture, sole venture and licensing. Choosing the most suitable modes is one of the most crucial strategy influence company’s internationalization process. The extent of control is the major factor in choosing entry mode for it is the single most significant factor which determines both risks and returns (Barkema et al. 1996). Other research suggested that country risk and cultural distance should also be taken into consideration when choosing the entry mode (Brouthers and Brouthers, 2001). Considering the important role of “guanxi” and complex legal system, going through state-owned wholesalers can be a feasible choice. On one hand, it reduces the cost for it provides the sale force and existing distributor channels. On the other hand, state-owned wholesalers usually have the close connection to the governmental agency which is beneficial to the medicine examine and approving.
However, of the over 7,000 pharmaceuticals distributors in China, 80% are small and the top 3 distributors account for only 20% of the market (Goldman Sachs, 2007). This implies that the distributor channel under wholesaler is complex, unstable and hard to control. Therefore, a representative office should be established in China for cooperating with the wholesaler and getting more control of the market and distribution. Marketing Mix In order to enter a new market, the very first is market segmentation that divide a market into distinct groups of buyers with different needs, haracteristics or behavior who might require separate products or marketing mixes (Kotler, 2007). The second step is evaluating and selecting the segments. The third step is setting the market positioning for the product or brand. Finally, a detailed marketing mix should be developed according to the positioning. Market segmentation can be applied according to different variables. Demographic factors are the most popular bases for segmentation (Kotler, 2007). According to the findings in Li’s research in 2005, gender can be used to segment the market for Ego Skin Cream because over 30% Chinese women have dry skin complaints.
Also geographic can be another base for segmentation for usually women in northern China have more chance to experience dry skin due to the dry climate. Also, a strong way of segmentation is to category customers by their life style. Those who take pay much attention to their skin care probably is more interested in the moisturizing products. Thus we select women in northern China and those who take care of their skin as the target group. According to the limited capital, using an undifferentiated marketing strategy can be a better way for those small international companies.
Compared to differentiate strategy, it relies on mass distribution and mass advertising, aiming at appealing to the largest number of customers. Final, a product positioning need to be developed to differentiates itself in customers’ minds. Ego Skin Cream can position itself as a daily use moisturizing cream. In this way, it can attract both group because those who attach importance to the skin and those who live in the dry climate are more likely to have the habit to use moisturizing cream every day. In order to create the planned positions, marketing mixed should be designed for Ego Skin Cream (Aaker and Shansby, 1982).
When exporting individual product, decisions on product attribute, brand, packaging, labeling and product-support services should be made. According to the language difference, the brand name, instruction and labeling should be translated to Chinese. For it is pharmaceuticals, it has the standard size and packaging which do not need to be changed to adapt Chinese conditions. When setting the price, market-penetration pricing strategy is recommended. Compared to market-skimming which set higher prices, market-penetration pricing set a low initial price because price and uality are the two essential factors that influence Chinese buying decision (Dickson, 2004). In terms of distribution channel, as analyzed above, choosing a state-owned wholesaler is recommended. Considering complex and unstable distributor channels, establishing a representative office in China is necessary to support and regulate local distributors and prevent the channel conflict. They should agree on the pricing policies, territorial rights etc. Last, integrated marketing communications (IMC) mix needs to be set to reach the customers.
It includes advertising, public relation, direct marketing and sale promotion. Advertising should be consistence with the feature “daily use”. Promotion to hospitals should be given the priority because up to 80% of all western pharmaceuticals are distributed through hospitals (Business Monitor International, 2008). Representative office is recommended to sponsor hospital conference directly and at the same time provides the technological support to the personal sale by distributors. What is interesting is that public relationship management can be achieved via internet in China.
In January 2008, 65. 7% Chinese netizens posted comments on internet and 23. 5% comments was posted on blog or space such as Facebook (China Internet Network Information Center, 2008). So advertising on website or a homepage on Facebook can be an economical way to build word of mouth and manage public relationship. Recommendations When facing an increasingly competitive market in Australia, other countries represent potential markets to Ego Skin Cream. In terms of economy and population, both India and China are promising market to target.
However, China has more dry skin cases and less competitive market so that China is recommended as an untapped market which has high potentiality in sale of skin cream. Before launching to Chinese market, a serial of technological and administrative procedure should be passed. Also clinical test is the base for the certification from SFDA. We strongly recommended apply Ego Skin Cream as Category B OTC for OTC has witnessed fast growth and Category B can be widely accessible in pharmacy as well as in supermarket. We recommend to entry Chinese market by using a state-owned wholesaler.
On one hand, it is an economical way to entry the new market for the distribution channel is already existed. On the other hand, without the “guanxi” between state-owned wholesaler and governmental agency, to get certification for the new comer is always with barriers and time-consuming. When cooperating with wholesaler, at the same time, a representative office should be established to supervise the distribution channel and prevent the channel conflicts. According to the research, Ego Skin Cream should target women living in Northern China for they have more dry skin complaints due to the dry climate.
Also those who attach great importance to their skin can also be taken into target. Accordingly, Ego Skin Cream should position itself as a daily use moisturizing cream. Marketing mix is also suggested to be changed to adapt to China. Language on the package, label and instruction should be translated into Chinese. We suggest setting a low price for penetrating the market. In promotion activity, hospital should be put into the first position for a majority of western pharmaceuticals are likely to be distributed in hospital.
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