tudy of red bull
An Incipient Analysis of Expansion in China

Prepared for:
Eric Ng

Prepared by:
Yin-Fei Ge

6 May 2010
Executive Summary
This report forms for previous analyzing the Chinese market and recommend entry strategies for Red Bull. This report focuses on analyzing the economic, political and legal, and culture environment. By analyzing the three environments one by one, some outcomes have been found and entry strategies are recommended.

Major outcomes are:
a. China has perfect market for Red Bull expansion.
b. China has a lot of methods for transport the products.
c. China’s political system and legal system are different from international political and legal system.
d. China has a unique culture background.

In addition, entry strategies have been formed for aim at outcomes. The strategies are:
a. more selling with low price.
b. Reduce the cost of transport cost.
c. Create good relationship with government.
d. Expansion with study the host country’s culture.

Recommendations have been made that, if implemented, should help Red Bull achieve on expansion to China.
TABLE OF CONTENTS
Item
Executive summary 2
1. Introduction 4
2. Background 4
3. Market Analysis 4 1. Economic Environment 4-5 2. Political and Legal Environment 5-6 3. Culture Environment 6-7 4. Outcomes and potential implications to the company 7-8
4. Market Entry Strategies 8-9
5. Conclusions 9
List of References 10
1. Introduction The purpose of this report is to provide an incipient analysis of Red Bull’s expansion in China. It aims to analyze the economic, political and legal, and culture environment which will assist to locate strategies for Red Bull to expend in China. Although an enterprise’s success and failure depends on the its external and internal reasons, this report will only focus on the external analysis.

2. Background Red Bull was firstly founded in Austria as a energy drink producer by Mateschitz. Although Red Bull attained the license of selling in Austria which cost 3 years, the company still faced a few problems on its slogan and bottle. After unremitting effort, finally, Red Bull’s slogan was designed By Frankfurt Kastner and its shiny silver cans rolled off the production line with the help from Roman Rauch which was the leading soft-drink bottler in Austria. In the early days of Red Bull, the company was operated with losses. In 1995 and 1997, Red Bull hit Britain and United States, it became popular by its unusual promotion style, and the rest of its history is great. Up to 2006, ‘Red bull generated over €2.6 billion in turnover throughout the world with the help of its 3900 employees’ (Hollensen 2008).

3. Market Analysis 1. Economic Environment Overall, China is a burgeoning market which is the second largest economy in the world after the US (Central Intelligence Agency) (2010). The following words will analyze this burgeoning economy, China, in four parts which are population, income, consumption patterns and infrastructure. The population of a market is important, the reason is presented by Czinkota Michael R. & Ronkainen Ilkka A. (2007), ‘the number of people in a particular market provides one of the most basic indicators of market size and is ,in itself, indicative of the potential demand for certain staple items that have universal appeal and are generally affordable’. China has a population at 1324.66 million (World Bank) (2010), which locate China at a market size, which also means within it must have large demand on energy drinks. At income sector, although China has become the second largest economy, its income in per capita items is lower than middle-income; the per capita GDP of China is $6600 (Central Intelligence Agency) (2010). If the income is not ideal, the degree of product selling will be affected. As Czinkota Michael R. & Ronkainen Ilkka A. (2007) presented, ‘income is most indicative of the market potential for most consumer and industrial products and services’. Although the income of China is not high, the economy of is still increasing it should affect the Chinese family’s income which will affect the consumption pattern. Central Intelligence Agency (2010) release the real growth rate of China in 2009 is 8.7%. The increasing will bring the consumption transfer form foods to other parts of life such as entertainment or health. As Czinkota Michael R. & Ronkainen Ilkka A. (2007) believed that ‘as a family’s income increases, the percentage spent on food will decrease, the percentage spent on housing and household operations will be roughly constant, and the amount saved or spent on other purchase will increase’. Another term have to be discussed as a important thing which should be considered by companies --- infrastructure. This term involve communication, transportation and so forth. These things will affect the effectiveness of a company. Generally, China has large amount of airports and other forms of transportation and multiple communicate method such as phone, internet and so forth. For example, China has 482 airports (Central Intelligence Agency) (2010). These offer a positive environment for operating enterprise in China. By above words, to expend to China is worthiness.

2. Political and Legal Environment No matter what kind the enterprise is, no matter what the enterprise produces, the enterprise’s operation will be affected by host country’s political and legal system. And both political and legal system will bring risks to abroad organization. For political sector, China has a relative steady political environment which will offer a chance for economic sector develop without any adversity such as war. However, operating in China still has some sorts of political risks. For example, a company monopolizes a sector which makes domestic company hard to survive; the asset of the company might be affected by government events such as making the company unprofitable by supply source or repatriate the investment. On another hand, the operation process of a company will be affected by the legal system of host country as well. Generally, China’s legal system is ‘based on civil law system; derived from soviet and continental civil legal principles; legislature retains power to interpret statutes; constitution ambiguous on judicial review of legislation; has not accepted compulsory ICJ jurisdiction’ (Central Intelligence Agency) (2010). As present above, because of the rejection of compulsory ICJ Jurisdiction, if a company operates in China, the company should follow the Chinese particular law. An abroad company operates in China; the company will have the opportunity of selling as well as the risk from government.

3. Culture Environment Another important environment which will affect the enterprise’s operating process in China is culture environment. Basically, the cultural environment consists of language, religion, values and attitudes, manners and customs, and material elements. For the first thing should focus on is language, this is the point which will affect the culture knowledge gaining process and the operating process of a company. Without high quality communication with the government it might cause political risks or loss customers attention; the most matter thing is the company cannot gain the culture knowledge from its employees which will affect the company’s flexibility. Therefore, international manager should familiar with Chinese or hire someone familiar with. Religion is not as important as other terms. However, the religion still should be concerned. For example, in some religion, alcohol is inhibitory. However, most of Chinese are Atheist. The most important part of culture is the values and attitudes. As Czinkota Michael R. & Ronkainen Ilkka A. (2007) explained, ‘values are shared beliefs or group norms that have been internalized by individuals. Attitudes are evaluations of alternatives based on these values’. And an example also provided by them, ‘dealing in China and with the Chinese, the international marketing manager will have to realize that marketing has more to do with cooperation than competition. The Chinese believe that one should build the relationship first and, if that is successful, transactions will follow’ (Czinkota Michael R. & Ronkainen Ilkka A. 2007). These words have shown that expansion to China should focus on the relationship development, both on government and society. The following part is about manners and customs. Both of them have power to change the result of a negotiation. For example, the voice and eye contact of the presenter, in China when the international manager first meets the man who will the manager negotiate with. The manage cannot speak louder or high voice or look up and down to another one. These action will affect the first image of you from other side or the result of the negotiation. The final part of culture is material elements. This term can be understood the physical things which will affect the environment for business such as the transportation’s efficiency. To sum up, the components of culture could directly and indirectly affect the business actions.

4. Outcomes and potential implications to the company By analyze the economic, political and legal, and culture environment, some outcomes and potential implications are found as following words. The outcomes and potential implications are: a. China has perfect market for Red Bull expansion. Although, the income will affect the profit of Red Bull, the company could advisably reduce the price of the product. Although, this action will reduce the profit per capita, it will advance the market share’s increase. Red Bull could achieve the large profit for Chinese market by more selling with low price. b. China has a lot of methods for transport the products. To reduce the supply cost is possible. c. China’s political system and legal system are different from international political and legal system. Operating in China should follow the particular rules of China. d. China has a unique culture background. To achieve the expansion, Red Bull should familiar with the Chinese culture.

4. Market Entry Strategies By reviewing above words, the strategies can be formed as: a. More selling with low price This strategy is concern on the incomes of Chinese families and the trend of ensuing years. Red Bull uses the relative low price to occupy the market. Because of the large size of the market, Red Bull still could own a lot of profit from China. And by the development of China, the increasing income will make the consumption move to entertainment or health; people will need the energy drinks to keep the natural daily life. And result of the high market share, Red Bull will own more from China. b. Reduce the cost of transport cost This strategy is concern on the multiply methods of transport in China. Red Bull could stint cost via reasonable plan its supply chain. For example, the most population collects at coastal. So the company could choose the sea transportation instead of air way. c. Create good relationship with government Because of the concern on the relationship, Red Bull could build good relationship with government to avoid or reduce the political risks via offer more jobs. This action will not only please the government, but also Red Bull. The more jobs offer means the more family incomes have made. And the more income will advance the consumption move to Red Bull Side. d. Expansion with study the host country’s culture This strategy requires Red Bull study the culture of China. To achieve the goal, Red Bull could hire more local employees and managers, or hire someone who has previous expediencies worked in China.

5. Conclusion To conclude, the report has analyzed the economic, political and legal, and culture environment and some outcomes and potential implications are found which is: a. China has perfect market for Red Bull expansion. b. China has a lot of methods for transport the products. c. China’s political system and legal system are different from international political and legal system. d. China has a unique culture background. Furthermore, four entry strategies which are based on four outcomes of analysis have been formed to help Red Bull expansion to China. The strategies are: a. more selling with low price. b. Reduce the cost of transport cost. c. Create good relationship with government. d. Expansion with study the host country’s culture. List of References Hollensen, S 2008, ‘Red Bull: the global market leader in energy drinks is considering further market expansion’, Essentials of global marketing, Pearson Education, Harlow, England, pp. 186-91.

Central Intelligence Agency 2010, China, viewed 3 May 2010, https://www.cia.gov/library/publications/the-world-factbook/geos/ch.html.

Czinkota, MR & Ronkainen IA 2007, International Marketing, 8th edn, Thomson Higher Education, United States of America, pp. 88, p. 90, pp. 93.

The World Bank Group 2010, Viewed 3 May 2010, http://ddp-ext.worldbank.org/ext/ddpreports/ViewSharedReport?&CF=&REPORT_ID=9147&REQUEST_TYPE=VIEWADVANCED.