The increased involvement of Chinese firms cross-border mergers and acquisitions demonstrate a revitalized global reach that extends beyond the ‘Made in China label’ dominating the lower end spectrum. Today, more Chinese companies operate in the high-end markets, including financial services, real estates, technology and energy platforms where they are becoming powerhouse multinationals (Nie, Dowell, & Lu, 2012). Building on the list of companies expanding into the international markets, the entry of the Yu Beauty Net in the UK and Indian Markets may not surprise the business community given that Chinese overseas investments is diversifying across and increasing dramatically across industries. In this light, this report captures the analysis of the nature, strategic challenges and entry strategies to operate in India and the UK marketing environments.
The Yu Beauty Net is a Chinese-based company operating under the umbrella of the Tianjin Yumeijing Group. The company located in the industrial park of Tianjin New Technology offers specialized child care product. The inception of the Yumeijing brand targeting the children skin care segment has seen its sales increase dramatically in magnitude similar to other products provided by the Tianjin Group. While the Yu Beauty Net has accomplished domestic success, its entry into the foreign markets is trickier. This demands a clarity of purpose and a mature approach to scale its entry in the UK and India markets and perhaps replicate the proven path of success by ChemChina in becoming a multinational player.
The United Kingdom
The direct investment conducted by Chinese investors in Europe demonstrates a low figure. Nevertheless, the recent investment pattern reveals a shift emphasizing rapid focus into the United Kingdom. It demonstrates London as the strongest investment magnet as the gateway to the Western markets given the commitment by the British embassy to improve the UK’s reputation as a business destination. The accession of China into the world economic system and its Go Global policy stimulated the UK-China Investment cooperation. This has deepened commercial ties between the two nations with the UK Trade and Investment office offering expertise and extensive specialist network for the Chinese firms. Considering that no separate rules are imposed by the UK government for foreign business entities, it yields a transparent, open and business-friendly environment. In particular, the UK partners comprising the British Council, UKTI alongside the International Development Department have established closer links with Beijing on health issues ( Foreign & Commonwealth Office, 2013).
The baby care segment in the UK continues to post remarkable growth despite the slow economic recovery in the country. The boost arises from the baby boom witnessed in the country with the birth rate increasing by 23% since 2002. This is fueled primarily by the high immigration, multiple births and the preference for fertility treatment for couples. For example, the births approximated at above the 800000 in the UK remains the highest figure that signals a promising opportunity for the child specific care products going forward (Walker, 2013). The strongest-performing category in the baby care product segment was he sun care, growing by 10% in 2013 compared to 6% attained in 2012. This represents a higher growth given the 5% enjoyed by the entire segment. The growth arises from the strong media attention subjected to the parents to assume increased skin cancer prevention. Moreover, more parents acknowledge that the baby skin is sensitive and so interest in the products effective to for a longer prevention time. Finally, the unusual hot summer witnessed in 2013 has obligated most parents to seek further skin care for their babies and children (Walker, 2013).
The competitive landscape in the segment portrayed tight margins in 2013. Johnson& Johnson brand remained the clear segment leader raking a market share of 34%, though a slight slump of 1% from 2012. The brand is well positioned in the baby care category given the parent trust reflected in their loyalty. The success of its Johnsons Baby brand, toiletries and skin care, pose a competitive duel to the Yu Beauty Net product. Additionally, it will experience competitive threats from niche baby and personal care brands whose reemergence have grabbed a piece of the Johnson market (Walker, 2013).
The slow economic recovery leaves the middle-class consumer cash strapped. The UK population feels the pinch of this situation with a significant population cutting back on summer vacations. The trend erodes a potential market of skin care products as vacations constitute vital purchase occasions for skin care. In addition, high prices account for the deliberate reduction in the application of the skin care (Walker, 2013). However, increased awareness on the impact of excessive exposure to ultraviolet rays is getting the message across to yield enough credentials to engage the British consumers effectively.
The baby and child-specific product segment is projected to witness rise in value sales of two percent at a constant rate. The realization of skin cancer prevention is poised to fuel increased sales estimated at 493 million by the year 2018. Although birth rates in the UK are stabilizing, the increasing immigration could trigger babies’ boom. Again, parents demonstrate their willingness to give the best care they can meet within their means. It suggests that an increased purchasing power in the economic recovery will stimulate their purchasing decisions, especially of high-quality skin care products. This will contribute to the overall growth the category given that most families will gently shift towards the higher-priced products in the future (Walker, 2013).
India population presents an increasing consumer demand that local companies rarely satisfy. The continual development of an organized retail market leaves an investment platform with improved prospects for the foreign investments. Unlike the foreign direct investment regime witnessed in China, India has a restricted policy for its retail sector. Initially, foreign direct investors must comply with the Foreign Exchange Management Act (1999) thus prohibiting an automatic route to several sectors including banking, telecommunications and pharmaceuticals. Secondly, the FEMA provisions cap the investment ownership in companies by directing a lesser of 51% stake to Indian. The government laws, regulations and lengthy procedures impede international trade and investment owing to the restricted access to automatic routes of operating.The approval of foreign direct investment in India is centered at the national level. However, investors are obligated to conduct separate negotiations on licensing and registration requirements at the local levels (Sweeney, 2010).
The statutory structure in India exhibits a more convoluted governance of FDI inflows. This yields a less conducive to attract investment in sectors such as pharmaceuticals. It arises from the utilization of vague vehicles, citing protection of the family owned enterprises that employ a significant portion of the population. The restricted environment depicts that the Indian government fails to signal an explicit commitment to attract foreign investment. For example, the industrial licensing is complex and confusing to potential foreign investors. The absence of dramatic break from the past economic policies significantly deters foreign investors from the fear that old investment regimes will return. India investment regimes operate through delegation to federal agencies, including RBI that enacts their self-regulation environment. This translates to additional confusion and uncertainty owing to the lack of enumerated procedures availed to the investors (Sweeney, 2010).
The untapped market availed by the large population leaves India as a lucrative destination for retail business including maternity and baby care products. The segment has witnessed tremendous growth posting a 12% CAGR during the 2011-2014 periods. This arises from the fact that countries with high populations and high per capita GNI are most desirable in terms of retail market potential.Despite the global economic crisis affecting other sectors, there were soaring sales of baby care products. This was contributed by the strong demand of the growing population and expanding middle-class. Besides, consumers demonstrate purchasing confidence, especially among the increasing middle-class segment whose expenditure on baby care products averages a quarter of their income. India represents the fourth largest economy.
While Johnson & Johnson (India) remain the market leader with a share approximated at 73% by 2013, the segment has seen the increased entry will keep the margins tight. The baby-care segment experiences competitive force comprising Wipro, Chicco, and Galenco, alongside Dabur and Emami operating in the unorganized sector. Additionally, imported skin care products are gradually establishing a significant presence with the expanding middle class demonstrating their financial confidence in global brands (Bhushan, 2012). Any entrant should ready to navigate the behavioral barrier exhibited in loyalty to Johnson brand. Moreover, it becomes difficult for new companies to wrestle its strong brand equity, distributed network and established presence, as well as outperform Johnson’s heavy advertising on the mass media. The present composition of the Indian population shows a lucrative future for investments in the baby skin care segment. This arises from the fact that 46.7% of the population is under 24 years while the mean of first mothers is nineteen. Furthermore the population growth rate estimated at 1.25% reveals a continuous growth in the demand for the baby and child specific products (Index Mundi, 2014).
The demand for baby and child-specific care products are projected to rise with parents revealing their desire to prefer premium pricing for better products. It ensues from the increased financial independence amongst working mothers, particularly urban dwellers in the cities of Delhi, Mumbai and Bangalore. While the urban consumers prefer shopping from e-tailers like babyoye.com more Indians are still purchasing from hypermarkets and department stores. The online platform is preferred by the working class given its convenience.
The strong telecommunications background leaves the internet retailing a popular shopping channel amongst the Indians. This is fuelled the working parents preferring a convenient shopping alternative to their tight schedules. The popularity of e-tailing and internet-based transactions have led the experienced operators, including babyoye.com and Flipkart improve embrace technology platforms to revamp their distribution to tier II cities. It suggests that more internet retailers will broaden their baby care product portfolio to satisfy the diverse needs of consumers.This presents a platform for Yu Beauty Net to enter into joint ventures and supply chain arrangements as an entry strategy to the Indian market.
Strategic Market Challenges
The United Kingdom
The communist planners in the Chinese government have in the past translated the ‘Zu chu qu’ policy into the go out message to the Chinese investment community. This aligns to the commitment to shed the cheap and low-tech image attributed to the made in China label. While this seeks to convert the Asian country as a global center of innovation, Yu Beauty may not win the developed market through an international offensive strategy. The explanation to this is lack of western know-how that is essential to win the market. Equally, the reputation of the China shift from the global factory with the intensifying domestic competition raises top concern of China soft power over the developed West. For instance, pressure groups opposed to companies from specific countries often propagate this perception.This translates to a backlash on Chinese products to curtail the communism influence in democratic nations as few consumers can draw a line between government and business interests (Backaler & Han, 2014).
The expansion into the international path exposes Yu Beauty Net to obstacles experienced by Chinese companies moving to the developed West. Initially, most executives operating in the Western-based offices lack the sole authority to reach major decisions. They often take orders from their superiors located in China. The China-based managers lack the basic understanding of the local Western markets, a significant hindrance for the products to navigate in the ever-changing environment. This rounds up to a disadvantaged platform given that Chinese products are associated with a negative perception of counterfeiting the Western products (Backaler & Han, 2014). This implies that by the virtue of Yu Beauty Net being a Chinese firm, its breakthrough products are likely to encounter high consumer resistance. This will translate into high cost and risk of launching the product in the closed market.
The investment regime poses a restrictive environment that deters potential investors from realizing the entry into the lucrative babycare segment. Firstly, the FDI approval process is characterized by increased bureaucracy that raises concern over government influence in the segment’s competitiveness.This demonstrates that an internal political environment that limits the sectors that an international firm may enter.Typically, starting business in India necessitates negotiating a series of economic approvals at the local level process that is no different or the FDI approval. The lengthy approval process generates uncertainties that have likelihood to mean huge differential gains for a proposed FDI project (Sweeney, 2010).
Absence of a vertically integrated approval platform in India leads to infighting between national, provincial and local authorities that delay the investment. It exposes the FDI to the reduced predictability and certainty of securing the investment in time. Comparatively, missing coordination between the state and national agencies breads bureaucratic coffers that translate into an ambiguous investment environment (Sweeney, 2010). FDI must conform to the Indian investment guidance that imposes import restrictions on raw materials imports. The restriction utilizes the rationale forcing foreign entities purchase more supplies from the host country (Tayal & Sharma, 2012). Besides the federal restrictions, FDIs experience local controls through content requirement laws demand that products sold within the country to comply with the local content. The Indian trade barriers limit the proliferation of the organized retail segment to protect domestic producers against the foreign monopoly dominance. This stimulates administrative delays through regulatory controls and bureaucratic rules designed to impair the automatic flow of foreign investment into the country.
The political structure barely supports foreign investors in sectors such as pharmaceutical and retail sectors. They government of the day cite protection of the unorganized sector that forms the pillar of Indian employment.They emphasize the rationale for ensuring the profitability of local firms that would hardly succeed against competition.Equally, foreign investors are faced with lacking speed in the implementation of FDI policies thus exposing FDI to confusion arising from federal and state infighting. This constrains the investment community through anti-competitive and informal practices, alongside regulatory uncertainty (Huang & Tang, 20111).
India regulatory framework traces from a socialist past where protecting essential industries like pharmaceutical remains a coveted national objective. Although India has relatively liberal democracy, market liberalization is trumped in populist protectionism who constitute the majority voting poor. Given that the political class may seek to avoid the wrath of dissenting from the dominant Indian voice, liberalization policies are drifting towards the minority segment (Tang & Huang, 2012). This implies that FDIs in restricted sectors may encounter consumer resistance, especially where infighting could lead to bad taste amongst the Indian consumers. Equally, the inclusion of the educated lot of the Indian population to fuel protection for the unorganized retail market will likely lead to contracting support for foreign investments. This may increase investment complexity given the restrictive antitrust approval system (Sweeney, 2010).
Yu Beauty Net should delegate more independence to its officers operating in the overseas branches for them to strike a stronger relationship with the immediate population that constitutes its consumer market and employees. In addition, consistent investment in public relations will assist the company improve the image of its skin care products. Furthermore, it is through public relation that the company can increase the brand recognition and yield fundamental brand strength to challenge the dominant layers such as Johnson and Johnson.
Yu Beauty Net should target its international offense in the UK by targeting the cash strapped middle class consumers neglected by the Western players. Targeting this niche segment through its low-priced products will create a better platform characterized by Chinese low pricing tag blend with Western know-how to expand. Entering into joint ventures with western suppliers for its raw materials will shed the counterfeit tag on the Chinese products. Finally, the firm should utilize the improved UK-China investment channel and navigate along the neglected plank where established competitors will not take them seriously. This will allow it to move into the premium market segment by building an inward local investment policy to establish its product in the highly open market.
The primary challenge for Yu Beauty Net in the Indian pursuit is overcoming the restrictive environment and successfully positioning its children skin care product in the minds of consumers. This obligates the Tianjin Company to work out an operation synergy and collaboration with leading indigenous cosmetic companies for it to satisfy the Indian preference for local content. Additionally, the organization needs to launch their products in relatively smaller pack sizes to establish a hold in the price sensitive market.
The key to Yu Beauty Net success is finding products that matters to consumers’ requirements. The UK and Indian markets demonstrate an increasing consumer interest in special ingredients and technology. The company should capture the consumer preference for natural ingredients that have low side effects to the most sensitive skins. Secondly, market leaders in both countries target customers mainly the urban elites with premium priced products. Yu Beauty Net should focus their products in the low price segment currently having less competition. The price sensitivity amongst Indian consumers has forced most cosmetic firms launch products in smaller pack sizes. This proves a case for Yu Beauty to embrace small pack sizes given its lower purchase costs and ease of trying new products.
Yu Beauty Net should sell their skin products through a distributed network reaching more tier II cities. This obligates embracing a distributed network comprising shopping malls, supermarket and organized retail channels in the Indian market. Moreover, the company should distribute its products through the luxurious professional outlets in the UK to counter the made in China label. This will benefit the skin care product capture a loyal base as consumers will associate the image of the store with quality, safe and genuine products.
Assuming an active promotion channel will allow the company to initiate a lasting potential of the child skin brand. This demands an aggressive marketing strategy to focus on frequent advertisements and gift promotion. Giving trial packs will facilitate an attractive medium to first-time users. Finally, establishing tie-ups with leading Beauty parlors in organizing exhibitions for the target audience could form an attractive promotional scheme that Yu Beauty Net can vary to suit the taste and fashion of both markets.
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