International Business School
Hanze University of Applied Sciences

Dutch Food Company Pursuing the Chinese Market
Research paper

Authors: Nicole Elze, Gediminas Gargasas, Weili Gu, Francia Solórzano
Class: MIBM Group A, 2015 - 2016
Group name: SEHCH
Date: 11 January 2016
Place: Groningen

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Abstract
The consumer demand for high quality healthy food in East China is increasing and is thus attractive for businesses in the food industry. This paper assessed the Chinese food market from a perspective of a Dutch food company, which is willing to export. Four aspects of international business were covered, namely the involvement in international markets, value chain, dynamic capabilities and marketing. Both perspectives, current theoretical body of knowledge and most recent market information, have been combined to provide a complete and current situation of the food market in China. In the current literature, little is found regarding the Chinese consumer behavior especially towards foreign high quality food. The paper presents the most relevant information on four aspects of international business with an additional focus on marketing and potential clients and distributors in order to lay a foundation for any food exporter willing to export to China.

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Table of contents
1.

Introduction ................................................................................................................................... 3

2.

Methodology .................................................................................................................................. 4

Section A ................................................................................................................................................ 5
3.

Literature review .......................................................................................................................... 5
3.1 Internationalization....................................................................................................................... 5
3.2 Value Chain and Value Network................................................................................................. 10
3.3 Dynamic capabilities .................................................................................................................. 11

Section B .............................................................................................................................................. 13
3.4 Marketing .................................................................................................................................... 13
Section C .............................................................................................................................................. 22
Executive Summary ........................................................................................................................... 22
Potential Distributors ....................................................................................................................... 23
5 Conclusion and Discussion .............................................................................................................. 29
Reference List ...................................................................................................................................... 31
Appendices ........................................................................................................................................... 42

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1. Introduction
The global economy we are living in offers a wide variety of opportunities for firms. These opportunities however are tightly entwined with risks and uncertainty. The main objective of this research report is to adapt four business factors that need to be considered for a successful launch of a product in the Chinese food sector. A certain amount of research is required to build a strategy for entering a foreign market. Thus, one of the objectives is to decrease uncertainty on several levels. Like which internationalization theory might be best suited to enter the Chinese food market? What key factors like value chain, competitive advantage and dynamic capabilities need to be considered? When, how and to what extent should marketing be involved? Finally and most importantly, which Dutch product would be best suited for the Chinese consumers?
The lack of specific literature makes it difficult to pinpoint techniques proven to be successful. As a result, a part of the research is analyzing the theoretical foundation and adapting it on the criteria of the given business case, being a food company with the ambition to export food products to China. A company's ability to adapt to a new market is related to developing a good business model (Wernerfelt, 1984; Barney, 1986; 1991). This research report ought to provide insights and a foundation on how to successfully enter the Chinese market as a company in the food sector by determining potential export products and tailoring the four discussed factors to this case.
The report is split into three sections. Part A covers the internationalization theories and suitable entry strategies, as well as dynamic capabilities required and possible value adding activities. Part B assesses the findings related to marketing in the academic literature and combines it with current market information. Part C functions as a summary of the report and provides practical information on possible clients and distributors for any food exporter.
The second chapter covers the method of research. The third chapter gives a general view on the current body of knowledge of four facets of international business. For each facet, being internationalization, value chain, dynamic capabilities and marketing, a link is made to this specific case where possible. The fourth chapter concludes the current findings and discusses the limitations.

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2. Methodology
The aim of the present research is to provide practical insights about potential food products to be exported to China by a Dutch food company. Given this nature of the research, a descriptive approach has been found as most suitable. Hence, the following research questions has been designed to serve a guideline for the paper: “What does a Dutch food company need to consider when exporting food products to China?”. Once the main question is answered, the four facets of international business will be outlined to support the potential export process. These facets are internationalization, value chain, dynamic capabilities and marketing. In order to answer the main research question, the academic databases Business Source
Premier, Elsevier Science Direct and Google Scholar have been used as sources for articles.
Relevant findings included research related to any export activities to China and Asia, as well as research conducted on consumer behavior towards food in China. For the marketing part, a
DESTEP-analysis has been executed in order to lay a foundation of the macro environment of the food industry in China. Adding, a market audit to acquire a better view on industries leading companies and the distribution developments within. The data for the marketing part comes from Europass, which can be seen as a valid and reliable source for market data.
Limitations
Several factors limit the validity of this research. Due to limited time and resources a full analysis cannot be conducted. Nevertheless, this report serves as a starting point for further analyses. 4

Section A
Part A covers the internationalization theories and suitable entry strategies, as well as dynamic capabilities required and possible value adding activities.
3. Literature review
This review assesses the current knowledge about three facets of international business, namely internationalization, value chain and dynamic capabilities. These three examine the known theories and apply these to this business case where possible.
3.1 Internationalization
The internationalization of firms is part of our globally linked world and there are different theoretical constructs that can be used as a guideline for entering a foreign market.
Economic Approach
Rationality is one of the main aspects in this approach as investment decisions and decision maker are assumed to be made or be rational (Andersson, 2000; Buckley et al., 2007; Seifert and Machado-da-Silva, 2007).
Dunning´s Eclectic Theory
Dunning´s Eclectic Theory describes advantages needed to pursue foreign markets (Dunning,
1988). Firstly the Ownership advantages, which are distinct for the firm (Ekeledo and
Sivakumar, 1998; Mtigwe, 2006) and have to pose a competitive advantage in the foreign country as well (Holsapple et al., 2006). Secondly the Location advantages, which refer to the fact that there have to be advantages connected to the new location (Mtigwe, 2006). Seeing as most of the location advantages might be difficult to exploit for a Dutch food company in
China, Holsapple et al. (2006, p.39) statement that “..in the absence of location advantages
..[…] foreign markets would best be served entirely by exports” seems fitting. Lastly, the
Internalization advantages, which arise due to maintaining ownership advantages within the firm contrary to involving outside parties (Mtigwe, 2006).
Product Life Cycle Model
The Product Life Cycle Model was the approach to frame “globalization in the context of the product cycle” (Roberts and Senturia, 1996, p. 492). In the introduction phase the product is developed in the home county of the firm (Melin, 1992; Lou et al. 2005; Almor et al., 2006).
Exporting of the product takes place in this phase, primarily to gain experience on foreign markets (Melin, 1992; Kwon and Hu, 1995; Sikorski and Menkhoff, 2000). During the growth phase exportation will expand and aim to achieve stabilization in the host country
(Melin, 1992). This eventually causes a transfer of production towards lower cost countries
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(maturity phase), from which products will be exported to the home country (Vernon,
1966/2004).
Transaction Cost Approach
The Transaction Cost Approach is primarily concerned with costs related to foreign activities and to what extend and how these are connected to Internalization (Coase, 1937; Johanson and Mattsson, 1987). An internalization approach is favored when a high degree of transaction costs is expected (Johanson and Mattsson, 1987; Madhok, 1997). The more alike home and host country are, the lower is the cost associated with risks and administration.
Therefore it seems to be a logical approach to first expand into adjoining countries (Johanson and Mattsson, 1987).
Behavioral Approach
In the behavioral approach however, the focus is on knowledge and experience acquired by individuals and how this impacts the firm's international behavior (Andersson, 2000; Clercq et al., 2005).
Aharoni
Aharoni´s approach on internationalization is connected with studying to what extent environmental and organizational aspects have an impact on decision-making (Sykianakis and Bellas, 2005). The process of entering a foreign market is strongly affected by knowledge and uncertainty (Buckley and Ghauri, 2004). According to Aharoni (1966; 2004) this internationalization process is triggered by a severe occurrence that leads to the desire to enter a particular country with a specific form of investment.
Uppsala Model
The Uppsala Model analyses the sequential way of how firms tap into new markets and how this process is related and connected to knowledge development (Leonidou and Katsikeas,
1996). As a result the model describes internationalization as a gradual procedure of increasing commitment to a host country while progressively gaining knowledge concurrently (Johanson and Vahlne, 1977, Johanson and Wiedersheim-Paul, 2004).
Innovation-related Internationalization Models
The Innovation-related Models considers internationalization to be a process and takes a gradual step-by-step progress as a basis (Andersen, 1993). The amount of steps differs in existing literature (Vissak, 2003) but there is consent that every step or phase in the internationalization process is viewed as an innovation that is associated with an increase of experience and respectively involvement (Andersen, 1993; Gankema et al., 2000; Vissak,
2003).

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Business and especially international business is a vastly growing and fast changing environment. But the internationalization theories analyzed were developed at a time where the impact of technology and internet could not have been predicted to the full extent. Hence it raises the question whether these theories are applicable to present business cases. Made assumptions have changed over time and new determinants, that have arisen are neglected. It is a fact that the process of internationalization has speed-up, which is one of the reasons why models, which concentrate more on the beginning of the internationalization process are required (Johanson and Vahlne, 2003). In addition to the aforementioned problem; internationalization theories were developed for multinational enterprises (MNE). As a fact it is quite common nowadays for small and medium sized firms to expand into foreign countries as well, but research concerning internationalization theories has clearly focused on
MNE, hence the applicability for the business case in this paper is questionable (Jones, 1999;
Alon, 2004; Collinson and Houlden, 2005; Glückler, 2006; Mtigwe, 2006; Zhao and Hsu,
2007). Theory needs to draw level with real life observation; the most prominent approaches, which try to fill this gap, seem to be the Born Globals and the Network Theory.
Entry strategies
Internationalization theories are closely related to entry strategy. There are numerous factors to be considered if companies want to enter into new markets. To narrow down the broad and complex topic of entry strategies, the focus will be on outlining advantages and disadvantages while taking opportunity costs into account, as well as considering the impact of timing and scale of entry.
Advantages and disadvantages of entry strategies in China
Before entering a foreign market however, firms need to decide on an entry strategy. This implies the need to determine an entry mode, defined as “a structural agreement that allows a firm to implement its product market strategy in a host country either by carrying out only the marketing operations (i.e., via export modes), or both production and marketing operations there by itself or in partnership with others (contractual modes, joint ventures, wholly owned operations)” (Sharma and Erramilli, 2004, p. 2). The different modes can be clustered based on control and risk (Kazmi et al., 2013). They range from no control and low risk when choosing export as an entry mode, to wholly owned subsidiaries at the other end of the chain with the highest control for the firm but the highest risk/investment as well.
The highest level of control can be achieved by entering a foreign market in a wholly owned subsidiary. This level of control however comes at the price of high cost and risks, especially in consideration of missing knowledge about Chinese language, culture, market know-how and local regulation (Kazmi et al., 2013). Though the selection of the specific partner has a major impact, joint ventures usually have very high opportunity costs as well (Kazmi et al.,
2013). An advantage of this entry mode is the ability to penetrate a market quicker and costs in general are lower as is the original firms control, which mostly is perceived as a
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disadvantage (Hill, 2012). From a financial perspective franchising or licensing offer entry modes with lower risk than the two aforementioned modes. Along with this lessened financial risk goes a loss of control on aspects such as manufacturing or marketing of the product (Hill,
2012). Exporting has the lowest opportunity cost of all the entry modes since firms can tap into new markets relatively quick with comparatively low costs. Distribution and marketing are usually outsourced however, which can pose problems. Another downside of exporting are the occurring high transportation costs.
Entry modes with high control are especially beneficial for firms who have a need of on-site subsidiaries/representatives but want to protect certain intangible assets, for example in the technology sector. Since this is not specifically the case for a Dutch food company entering
China, the disadvantages of cost and risk outweigh the advantages of entering with a highcontrol entry mode. Quality and origin are two main and vital aspects detected in the marketing section of this report, further in the report. This leads to the conclusion that licensing and franchising as entry modes that give up control of production and marketing might be counterproductive in upholding the key selling propositions. A contractual agreement with a well conducted partner could be an option since it would contribute to overcoming intercultural difficulties, such as governmental restrictions, import regulations, distribution problematics, language barriers and similar. This is especially true for a hostile host country such as China (Fong, 2014). But larger firms have a better ability to deal with risks and costs than small or middle sized firms and usually have a higher investment at their disposal (Ekeledo and Sivakumar, 2004). Firm size is conclusively positive associated with choosing an entry mode of higher ownership control, which therefore points towards exporting as the most suited entry mode for this case.
Timing and scale of entry
Murray et al., (2012) analyzed the relation between time of entry and performance/survival of firms in China and came to the conclusion that while early entrants have higher market share, chances of survival are lower than late entrants. The results state it is critical for early entrants to achieve a considerable market share in order to counterbalance first-mover disadvantages, which is also supported by Niu et al. (2013). Entry timing and performance are also closely related to scale of entry (also referred to as investment size or similar).
Early entrant’s survival is positively influenced by investment size. A large scale of entry requires a significant commitment of resources and is only advisable if the firm is prepared to deal with the long term impact and the resulting limited strategic flexibility (Hill, 2012).
Choosing a small scale of entry has the advantage of allowing a firm to learn about the market while reducing company’s exposure. Conclusively to the aforementioned relation between commitment and early entrants, capturing first mover advantage will be difficult as well as establishing considerate market share.
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Case specific applicability
According to Hill (2012) one of the main advantages of entering a country through exporting is the fact that with this entry mode setting up manufacturing facilities can be bypassed. This does apply to the case of a Dutch food company entering China as well, since products will further on be manufactured in the home country, to keep the prestigious image as the key characteristic of the products. The resulting cost-saving potential can therefore be fully utilized. When entering a foreign market via exporting a company is also able to acquire first-hand information. While keeping risk relatively low, experience on various factors can be gained.
This surely does apply for food companies as well.
One of the most prominent disadvantages is the fact, that continuing manufacturing in the home country can be inadvisable from a cost perspective, if low-labor countries provide promising opportunities (Hill, 2012). Since quality and origin are vital for the case of a Dutch food company, selling products in China and relocating manufacturing is connected with considerable downsides; this disadvantage fully impacts. Conclusively, the high transport costs resulting from exporting as an entry mode cannot be avoided and also apply for this case. As described earlier, exporting is a low-control entry mode. Especially outsourcing marketing and distribution affects this case and can cause problems since aligning goals and views with company-external workforce can be challenging. In order to maximize advantages and increase the chance to succeed in the foreign markets, structuring beforehand is thus helpful.
A proactive approach is usually perceived as more beneficial especially for small and medium sized companies (Hill, 2012). This is closely related to the fact that every form of internationalization begins with identifying opportunities in foreign markets. Acquiring and analyzing information is an essential step, therefore it is advisable to consider consulting a foreign trade expert before entering a foreign market; for example export consultancies (Hill,
2012).
Achieving an experience curve can be connected to the advice of concentrating resources to one specific country. This is also supported by research, which have found proof that while former international experience can be helpful, it is the specific host country experience that is crucial (Claver and Quer, 2005). Identifying intercultural differences is closely related to this and additionally further strengthens the standpoint of essentiality of profound analysis before entering the market.
The aspects financing, export and import regulations as well as possible (governmental) restrictions need to be evaluated as a next step (Hill, 2012). It is crucial to keep in mind not to
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underestimate the management commitment required for successful internationalization, since this can be a downfall if left out of the equation.
3.2 Value Chain and Value Network
Every firm is a collection of activities and all these activities are showed as a value chain. In this sector, the concept of value network and value network will be showed as well as how they are illuminated on value creating logic.
Value Chain
The concept of value chain was put forward by Porter as a basic tool to evaluate all the activities a firm performs as well as the source of the competitive advantage (Porter and
Barnes, 2001). Those value activities are diverted into two broad types. Primary activities include inbound logistics, operations, outbound logistics, marketing and service. Secondary activities or supporting activities are firm infrastructure, human resource management, technology development and procurement (Porter and Barnes, 2001).
For each firm, those activities are mainly performed as design, produce, market, deliver and support its products (Porter and Barnes, 2001). The purpose of analyzing a supply chain is to determine which activity can increase the customer value and lower the costs. As a food company, those activities mainly concern quality, timeliness, logistics and productivity.
Quality is related to customer value. Timeliness means the reaction time for a requirement.
Logistics cost is made up with preparation, distribution, transportation and warehousing.
Productivity concerns efficiency while using available resources (Turia et al., 2013).
Value network
The value chain has been used to understand and analyze firms (Porter, 1980; 1985). It has also been proven to be useful when portraying the value activities with the traditional industries (Peppard and Rylander, 2006). However, the traditional value chain would become an inappropriate device when the products and services are dematerialized (Hakansson and
Snehota, 1989; Normann and Ramirez, 1994；Campbell and Wilson, 1996; Parolini, 1999;
Tapscott et al., 2000). In the value network, value will be co-created which means it does not focus on the firm or the industry, but the value-creating system itself in which different sections as supplier, partners, and customers work together to co-produce value (Peppard and
Rylander, 2006).
Applying the theory of value network to a food company whose products are actually not dematerialized though, it appeared that competitors, partners and other members in business networks are not showed in the old value chain model (Peppard and Rylander, 2006).
Partners for a food company could be trade companies or the local supermarkets in China.
Major European supermarkets like Carrefour and Metro have already got branches in China
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and a large number of food trading companies are enjoying Government policies in the
Shanghai Pilot Free Trade Zone (Chang et al., 2004). Despite that, Yuki, as a local Chinese supermarket which has eleven years of selling imported food, now has launched chain stores around the country (Yuki, 2015). As the theory indicates, the manager of the food company must view the health and well-being of their network as well as the individual partners that compose it, to be as important as their own company’s (Iansiti and Levien, 2004).
Value Creation and Value Adding Activities
The value chain for a food industry is basically constructed of a series of activities including growing, processing and selling which are taken control by a network of stakeholders. A food company is responsible for the selling part and throughout it, it can add value to its products.
According to Riedmatten et al., (2013), the food industry is highly competitive as customers always have multiple choices. The food companies are trying to keep their customers by creating value based on quality, price and service.
The quality of the food can be a key factor to customer’s decision. To keep the quality, the food company needs to make sure that the product itself and the ingredients meet the quality standards (Riedmatten et al., 2013).
It is estimated that 50 percent of the purchasing decisions are influenced by packaging. As a result, the packaging can offer the company value-added functionality not only by adding critical information of the products on the package, but also by taking part in the areas of sustainable packaging as many of the food companies have already done to differentiate the products from other competitors (Riedmatten et al., 2013).
Location Economics
For a firm that is trying to doing business well among the global market, the location economics generally means that the firm will make profit by applying each value adding activity to the place where its conditions are most conducive to the activity. Those conditions include economic, political and cultural conditions. To have a clear vision of this, a global web should be created with different locations around the world where value is maximized or the cost of value creation is minimized (Hill, 2007).
In this case, a food company could extend its branches to the places where their producer or customer is located as it could lower the cost of value creation by cutting the transportation cost as well as help the firm to achieve a low-cost position.
3.3 Dynamic capabilities
A set of distinct qualities based on the importance of developed business processes within a company, that can help create a favorable environment is known as the firm's Dynamic
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Capabilities (Teece, 2014). This theory recognizes the importance of critical resources that are valuable, rare, inimitable and non-substitutable (VRIN) and the competitive advantage
(Wernerfelt, 1984; Barney, 1986; 1991). It is focused on a firm's ability to discover innovation in their business processes and adjust it to implement good business models and strategies (Teece, 2014).
Dynamic capabilities can be used in three stages: coordination/integration (sensing); guided learnings (seizing); reconfiguration/transformation (Teece et al., 1997). Teece et al. (1997) discuss how this processes help to build a company’s strengths, by matching its business processes with the environment.
Teece (forthcoming) argues on the profound influence that dynamic capabilities have on a firm's performance when the environment dynamism is high. Dynamic markets like China are dependent on a firm's ability to rapidly create new knowledge and develop flexible internal processes. Therefore, when planning to foray into the Chinese market, a managerial strategy can benefit of using scenario planning to build valuable business models (and strategies).
Within the internationalization perspective the firm should be flexible enough to acquire knowledge and adapt it in order to reduce uncertainty (Prange and Verdier, 2011). The adaptation of this knowledge (threshold and consolidating capability) in the Chinese market influences the firm's ability to become competitive (Tallman and Fladmore-Lindquist, 2002).
In the future it is to be kept in mind that as firms get older, they lose flexibility and it becomes difficult to swiftly learn competencies that are necessary to grow in the Chinese market (Autio, Sapienza, and Almeida, 2000). Thus, it is important for a firm to develop dynamic capabilities that are focused on sensing opportunities and threats, seizing them and reconfiguring the company into market-oriented decisions considering political factors and
Guanxi (especial type buyer-supplier relationship in China) (Teece, 2007).
The intrinsic value of a business model built on the development of signature processes is that when a firm forays into the food industry, will be more flexible when facing market obstacles. This in itself could represent the basis for a management innovation strategy that can reduce uncertainty and adapts to the environment.
By developing a marketing network and starting to establish good relationships with local distribution channels and high-end clients, the firm becomes able to acquire the necessary knowledge that in the future would allow them to create a competitive advantage. These relationships will also allow them to develop closer knowledge of the Chinese consumers and their needs. To make the products successful the firm has to have a clear vision of the food industry in China, developing a clear strategy for the consumer differences among provinces based on internal capabilities (swift processes, customer knowledge, distribution advantages, key value adding activities).
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Section B
This marketing section, the fourth facet of international business, inspects the academic articles regarding consumer behavior, communication, potential competition and potential product evaluation in the first half. The second half of it covers the analysis of the macro environment and conducts a market audit in the mentioned field.
3.4 Marketing
In the Chinese market ninety percent of the consumers are worried about food safety, thus the need for better quality food rises (Confronte et al., 2013; Chen et al., 2014; Ortega et al.,
2014). The current literature covers the topic only to a certain extent. Several authors focus on consumers’ behavior and attitude towards organic and green food and state that these might be the answer to the rising demand for quality. Unfortunately, limited knowledge is known regarding the behavior and attitude of Chinese consumer towards foreign foods.
Nevertheless, this amount of current knowledge on high quality food provides sufficient early insights on how a western marketer could assess the Chinese food market.
Consumer behavior
As it turns out, especially the young and consumers with higher incomes are demanding higher quality and healthy food products (Thøgersen and Zhou, 2012; Confronte et al., 2013;
Yu et al., 2014; Wu et al., 2015). Hence the two segments should form the primary target group. In urban areas, consumers hold a positive attitude towards foreign products coming from “prestigious countries” (Batra et al., 2000). More specifically, there is a rising demand for exotic foods like chocolate confectionery, cheese and yoghurt (Euromonitor, 2015).
Compared to conventional foods, the price premium for organic and green food differentiates between 62% and 130%, because these products are being perceived as safer, healthier and better tasting (Meng, 2007). As for the majority of the consumers, high prices and limited availability have been identified as the main reasons for not buying organic or safe food
(Thøgersen and Zhou, 2012). Euromonitor (2015) expects the Chinese consumers to purchase international foods through online stores more often. The online grocery shopping market is expected to grow in the period of 2014-2020 by 334% (Euromonitor, 2015). This growth is mainly driven by the fact that shoppers use more digital technologies and because ecommerce is penetrating the rural areas of China.
Communication and distribution
Because the majority of the food consumers are unaware of qualitative and safety benefits of foreign and organic foods, the (online) promotional and communicational activities and services should focus on educating the Chinese consumer and promoting food certification
(Chen et al., 2011; Liu et al., 2013). Consequently, the buyers can be used as role models and opinion leaders. Chen et al. (2014) advises to offer tasting to stimulate the demand.
Moreover, a communication strategy focusing on quality would result in recurring orders
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(Liu, 2008; Zhu et al., 2013). When it comes to geographical segmentation, especially the consumers in East China are willing to pay premium for higher quality food (Wu et al., 2012;
Ortega et al., 2014; Yu et al., 2014). However, the consumers in Shanghai are relatively more price sensitive towards higher quality food and certification does not influence their buying behavior (Sirieix et al., 2011; Ekaterina, 2015). Overall, the supermarkets are the most trustworthy purchase location for consumers seeking for high quality food (Qing et al., 2006;
Li, 2007; Tang et al., 2010). Online retailers like Alibaba and Amazon, which already have launched websites specializing in imported food in China, should also be considered
(Euromonitor, 2015).
Competition
As the trend indicates, the consumers in East China seek for high quality and healthy foreign foods. Hence it is the reason this area is chosen to focus the research on. Although further investigation is necessary, the potential competitors in East China can already be signalized.
When it comes to dairy products, Bright Food, Inner Mongolia Mengniu Dairy and Inner
Mongolia Yili Dairy are the leading players. The former is focused on healthy foods and has the strongest presence in East China, whereas the latter two are well represented in the whole
China (Euromonitor, 2015). Other international market players to be kept in the view and eventually used as market entry references are: Ting Hsin International and Want Want.
Evaluation of potential products
For a company, evaluating potential export products requires a checklist. For obvious reasons such a list does not exist, however an attempt can be made using the current knowledge. The two main evaluation categories on such hypothetical list would be testing the sensory and non-sensory attributes of food with consumers. Both attributes play a significant role in influencing the consumer and are the most preferred indicators of quality and safety (Chen et al., 2011; Wu et al., 2015). The non-sensory attributes are health related benefits and traceability information (Sirieix et al., 2011; Thøgersen and Zhou 2012; Ekaterina, 2015).
The sensory attributes include appearance, fragrance and taste. It is thus the goal to find out, whether the same qualities apply to the foreign foods as well. As mentioned before, due to increasing demand in healthy exotic food in China the research will focus products as dairy.
Furthermore, an in depth analysis should be performed in order to investigate market sizes, profit margins in the product categories and valuable marketing campaigns. Hence, it would allow the company to focus more on a specific region or channel.
3.4.1 Macro Environment
The management of a firm cannot influence every single factor in their environment. Macroenvironmental factors are of that nature and can have an impact on the organization's performance. Hence, it is crucial to be aware of the current setting and the changes in the macro environment. To analyze it, the DESTEP analysis has been conducted, which includes
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demographic, economic, social, technological, ecological and legal/regulatory factors. The analysis serves as a tool to shed light on environmental forces, which might have an influence on the organization (Crane et al., 2006; Grewal and Levy, 2007). Only the most relevant data will be reported in order to present condensed and valuable information to the client.
Scope of the analysis
To further improve validity of the analysis and its findings, any further analyses will mainly, and where possible exclusively, focus on the East China region (Wu et al., 2012; Ortega et al., 2014; Yu et al., 2014), urban consumers (Batra et al., 2000), higher educated (Thøgersen and Zhou, 2012; Chen et al., 2014), high earners (Chen et al., 2014) and the two identified segments as signalized in reviewed literature (Thøgersen and Zhou, 2012; Confronte et al.,
2013; Yu et al., 2014b; Wu et al., 2015). Hence, fourteen provinces (An Hui, Beijing, Fu
Jiang, Guang Dong, He Bei, He Nan, Hu Bei, Hu Nan, Jiang Su, Jiang Xi, Shan Dong,
Shanghai, Tianjin, Zhe Jiang) have been selected for further investigation. Appendix I gives a visual representation of the scope.
Demographic
By the end of 2013, China’s total population has reached 1.36 billion inhabitants (NBSC,
2014; The World Bank, 2015). The average yearly population growth rate of 0.5% has remained steady over the last 15 years but is expected to increase as of 2016 due to newly approved two-child birth policy (FT, 2015; WSJ, 2015). But due to previously held one-child policy, the society has aged significantly and a shortage of (young) workers increased over the last three decades. The number of Chinese living in urban areas has been increasing
(53.73%), and has surpassed the number of residents in rural areas. This is a positive development for any foreign company, as urban consumers hold a more positive attitude towards products from “prestigious countries” (Batra et al., 2000). Within the fourteen preselected provinces a total of 449 million inhabitants live in an urban environment. In 2010,
China represented 12% or about 31 million of the world’s tertiary education graduates
(OECD, 2011).
Due to economic growth and rapid rise in wages, China’s middle class is growing rapidly
(CNBC, 2015; Euromonitor, 2015), consequently providing the middle class with more spending power and higher spending on food.
The income within the provinces differs extremely, as shown at Figure 1. In Beijing, the average income per (urban) person per year is estimated to be €13,151, while in the province of He Nan the average is at €5,416. The disposable household income is standing now at
€13,073 and will keep rising with an average of 8.1% a year (Euromonitor, 2015).

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Region

# Urban
Population
in Millions

# Rural
Population
in Millions

Aver. Wage of
Employed
persons in
Urban Units
(RMB)

Aver. Wage of
Employed
Persons in
Urban Units
(€)*

Average
Consumer
Expenditure on Food and
Non-Alcoholic
Beverages
2014

Anhui
28,9
31,4
¥47.806
€ 6.760
€576
Beijing
18,3
29,0
¥93.006
€ 13.151
€448
Fu jiang
22,9
14,8
¥48.538
€ 6.863
€884
Guang Dong
72,1
34,3
¥53.318
€ 7.539
€1.145
He Bei
35,3
38,0
¥41.501
€ 5.868
€434
He Nan
41,1
52,9
¥38.301
€ 5.416
€396
Hu Bei
31,6
26,4
¥43.899
€ 6.207
€579
Hu Nan
32,1
34,8
¥42.726
€ 6.041
€574
Jiang Su
22,9
28,5
¥57.177
€ 8.085
€1.203
Jiang Xi
22,1
23,1
¥42.473
€ 6.006
€584
Shan Dong
52,3
45,0
¥46.998
€ 6.646
€567
Shanghai
21,6
2,5
¥90.908
€ 12.854
€1.424
Tianjin
12,1
2,7
¥67.773
€ 9.583
€817
Zhe Jiang
35,9
19,8
¥56.571
€ 7.999
€962
Total/Average
449
383
¥55.071
€ 7.787
€757
Figure 1 Demographics of the fourteen preselected regions (Euromonitor, 2015)

Economic
China’s economy and especially its Gross Domestic Product (GDP) are seeing a lower increase by each year. Where its GDP in 2011 grew by 9.5%, in 2014 the economic growth slightly fell to roughly 7.3%, resulting in a GDP of €8.99 trillion. It is expected that the growth of GDP will continue to decrease for the next two years (The Guardian, 2015; FT,
2015a; 2015b; The World Bank, 2015b; NBSC, 2014). Fortunately, the tertiary sector
(service industry) is becoming a more and more attractive industry as with every year it adds more value to the GDP. This sector has doubled over the last two decades and now accounts for 46% of China’s GDP (Economist, 2014; The World Bank, 2015), making an entry within this sector worthy to consider for outsiders. Moreover, as the average wage continues to increase every year, it is presumable that the demand for more services and goods will increase in parallel (Euromonitor, 2015). More detailed, the annual gross income per capita will grow at a rate of 5.3% on average per year at least until 2030. China has imported a total of €39 billion worth of food (and live animals) in 2014.
Social
Euromonitor (2015) expects the health goods to be the best performing consumers’ expenditure category until 2030, next to the medical services. Societal ageing blended with continuing growth of income (Euromonitor, 2015) and growing awareness of healthy nourishment are the most influencing factors for this trend (Thøgersen and Zhou, 2012;
Confronte et al., 2013; Yu et al., 2014; Wu et al., 2015). Furthermore, western culture is
16

highly attractive under teenagers making them more reachable to marketers. Hence, making this the opportunity for foreign healthy food companies.
Food might be the most important element of Chinese culture if not the status symbol. In
2014 the consumers spent €559 (CNY 3,951) per capita on food and in the selected provinces
€757, as shown in Figure 1. Due to the food scandals, consumers are concerned, more motivated to buy organic food and driven to improve the health of their children. In relation with the changed children policy, this social trend can be seen as an opportunity. Euromonitor
(2015) indicates women to be the key driver behind the demand for organic food as they do most of the grocery shopping and food preparing.
Technological
Internet retailing has reached a value of €140 billion in 2014 up from €102 in 2013 showing a significant increase in the industry as a result of an increased access to broadband throughout the country (Euromonitor, 2015). In China, the number of internet users has almost doubled from 365 million to 638 million users. For many Chinese internet users, the internet provides with the opportunity to order high quality foreign products which are not available locally.
Moreover, the number of users that do the shopping on their smartphone is rapidly increasing as some stores even see the majority of revenues coming from mobile users (Euromonitor,
2015). Further analysis follows the market audit paragraph.
Legal and Regulatory
As earlier mentioned, the discontinued one-child policy will expectably increase food demand, although it will take time for the change to become noticeable. Furthermore, as of the October 2015, all firms within the food industry have to respect the newest China’s Food
Safety Law as it is as of then in effect (Khlaw, 2015). It requires the firms to follow rules in regards of advertising, online sales, inspection, medical information and more. The reasons for the new regulatory structure are the scandals in the past. Another recent improvement is the improvement in the Chinese importation procedures (China’s Food Safety Law, 2015), which should shorten the time needed for registration for the importers to China. Hence, it offers a more attractive legal situation.
3.4.2 Market Audit and Trends Analysis
This paragraph covers the key trends and developments in the Chinese food industry as well as potential opportunities and threats within.
Growing Industries
One of the current key trends is the ongoing shift from unpackaged to packaged food in
China. Not only are the earlier mentioned food scandals the reason for the shift, also the risen income, increased pace lifestyle and long working hours are driving the packaged food
17

industry (Euromonitor, 2015). In 2015, the volume of dairy sold increased by 9.4%, only baby food showed a steeper growth rate. Whereas the value of dairy sold grew by 14.2%.
This shows an increase in price or demand in higher quality dairy products, as found in reviewed literature. Future forecasts, as seen in Figure 2, show a continuing growth in multiple food categories.
CNY Per Category in billions

Baby Food
Dairy
Soup
Baked Goods
Breakfast Cereals
Sauces, Dressings, Condiments
Ready Meals
Biscuits and Snack Bars
Rice, Pasta and Noodles
Ice Cream and Frozen Desserts
Confectionery
Processed Fruit and Vegetables
Sweet and Savoury Snacks
Processed Meat and Seafood
Spreads
Oils and Fats
Packaged Food

2015

2016

2017

2018

2019

2020

133,49
393,45
0,45
160,14
5,63
92,62
8,54
60,85
202,25
53,11
101,89
8,23
96,64
86,93
7,39
92,19
1503,79

153,28
434,94
0,49
173,77
6,01
99,07
9,06
64,6
211,96
56,16
107,05
8,67
101,63
87,83
7,58
90,55
1612,67

177,54
479,99
0,54
187,72
6,4
105,64
9,61
68,39
223,08
59,18
112,3
9,08
106,63
89,61
7,76
90,56
1734,02

204,47
526,95
0,59
202,15
6,8
112,27
10,17
72,28
235,45
62,14
117,75
9,49
111,56
91,9
7,93
92,12
1864

234,18
576,08
0,64
217,05
7,22
118,92
10,74
76,32
248,95
65,01
123,11
9,91
116,44
94,43
8,08
95,28
2002,37

267,03
627,39
0,69
232,57
7,65
125,55
11,32
80,54
263,5
67,76
128,5
10,35
121,22
97,19
8,23
100,13
2149,64

2015/2020
Increase
in %

100,0%
59,5%
53,3%
45,2%
35,9%
35,6%
32,6%
32,4%
30,3%
27,6%
26,1%
25,8%
25,4%
11,8%
11,4%
8,6%
42,95%

Figure 2 Forecast in Sales of Packaged Food 2015-2020 (Euromonitor, 2015)

Overall, the largest twenty western (packaged) food companies have gained only a slight larger market share over the last five years (Euromonitor, 2015), see Appendix I. This partially corresponds with the ongoing trend of westernizing of China’s tastes and the fact that Chinese experience foreign foods as of a superior quality and safer (Chen et al., 2011;
Liu et al., 2013). This slight increase of market share does partially show that penetrating
Chinese market is a difficult challenge, but not an impossible one. Hence, the challenge is forming a threat to foreign food firms considering export to China.
Purchase Channels
The technological advancements change the way the Chinese are doing groceries. That can mainly be seen in the loss of market share of brick and mortar retailers (Euromonitor, 2015), as shown in Figure 3. In only five years the brick and mortar stores lost roughly 5% to the internet retailers. This does not only show an upcoming trend, but is also an indication of a well established habit among the consumers.
18

% retail value rsp
Store-Based Retailing

2010
99.56

2011
99.21

2012
98.21

2013
97.29

2014
95.98

2015
94.74

-Grocery Retailers

97.57

96.78

94.76

93.09

91.69

90.62

-- Modern Grocery Retailers

59.64

60.15

60.01

59.38

59.00

58.71

--- Convenience Stores

2.90

2.96

3.02

3.06

3.13

3.19

--- Discounters

0.16

0.16

0.16

0.17

0.18

0.19

--- Forecourt Retailers

0.15

0.16

0.16

0.16

0.17

0.17

--- Hypermarkets

16.93

17.64

18.43

18.41

18.36

18.29

--- Supermarkets

39.49

39.22

38.24

37.57

37.16

36.88

-- Traditional Grocery Retailers

37.93

36.63

34.75

33.72

32.68

31.91

--- Food/drink/tobacco specialists

6.10

6.17

6.28

6.59

6.85

7.02

--- Independent Small Grocers

21.35

20.44

19.58

18.69

17.92

17.32

--- Other Grocery Retailers

10.48

10.03

8.88

8.44

7.90

7.57

- Non-Grocery specialists

1.97

2.41

3.42

4.17

4.27

4.09

-- Health and Beauty Specialist Retailers

0.31

0.33

0.37

0.40

0.40

0.39

-- Other Foods Non-Grocery specialists

1.65

2.08

3.05

3.77

3.87

3.70

- Mixed Retailers

0.02

0.03

0.03

0.03

0.03

0.03

Non-Store Retailing

0.44

0.79

1.79

2.71

4.02

5.26

- Vending

0.16

0.16

0.15

0.14

0.14

0.13

- Homeshopping

0.00

0.00

0.00

0.00

0.00

0.01

- Internet Retailing

0.28

0.64

1.64

2.56

3.88

5.12

-

-

-

-

-

-

100.00

100.00

100.00

100.00

100.00

100.00

- Direct Selling
Total

Figure 3 Distribution of Packaged Food (Euromonitor, 2015)

Market Share Distributions
The literature review presented valuable preliminary findings about what product categories are going to experience a high demand in the near future. The earlier mentioned forecast
(Figure 2) confirms and adds that the categories to experience vast growth and a high amount of sales are baby food, dairy, baked goods and the category sauces, dressings and condiments
(Euromonitor, 2015). In this paragraph a light will be shed on the dairy and sauces, dressings and condiments market players. These categories have been selected by the firm, which this research is being conducted for. Hence, to further sharpen the image of the industries, the main players for each will be presented in the pie charts.

19

Dairy

Cheese (sub-category of dairy)

18.6%

20.5%

15.3%

50.4%

3.7%
3.3%

1.6% 2.3%

5.3%
3.3%

3.2%

Inner Mongolia Yili

Yinlu (Nestlé SA)

71.7%

China Mengniu Dairy

Hangzou Wahaha Group

0.8%

Bright Food Group

Inner Mongolia Yili

Momchilovtsi (Bright Food) Bright (Bright Food)

China Mengniu Dairy

Beijing San Yuan Foods

Sanyuan (Beijing San YF)

Others

Others

Yoghurt and Sour Milk (sub-category of dairy)

Sauces, Dressings and Condiments

5.6%

19.0%
31.4%

3.6%
3.1%
2.7%
1.7%
1.5%
0.8%

15.3%
3.3%
3.4%
6.2%

13.9%
7.5%

81.0%

China Mengniu Dairy

Momchilovtsi (Bright Food)

Haday (Foshan Haitian F&F)

Laoganma (Guiyang Nanming LFF)

Inner Mongolia Yili

Hangzhou Wahaha

Totole (Nestlé SA)

Chubang (Guangdong Meixeixian Fl.)

Yakult Honscha

Jiabao

Shinho (Yantai Shinho Weidamei)

Jia Jia (Hong Kong Jiajia)

Bright Food Group

Others

Knorr (Unilever)

Others

Figure 4 Distribution of the Market Shares in the Dairy industry (Euromonitor, 2015)

Concluding, two consumer segments have been identified in the early stages as potential customers, that being younger consumers and consumers with above average income. These groups have later been further narrowed down and evaluated with additional data and it surfaced that consumers in the regions Guang Dong and Jiang Su spend the highest percentage of their wage on food, followed by the regions Fu Jiang, Zhe Jianga and Shanghai.
Thus, the former two regions should be seen as the primary focus in the early stages of the export activities and the latter three as a secondary focus, since the chances for successful penetration seem to be the highest there. Once a proper position in the market has been established, as a tertiary focus, the exporters should focus Jiang Xi, Hu Nan and Hu Bei, as the percentage of wage spend on foods is same or close to the average of the researched area.

20

The food categories to experience the highest growth in volume sold in the following five years are baby food (100% growth), dairy products (59.5%), soup (53.3%) and baked goods
(45.2%). Unfortunately, the statistics of the industry indicate that it is challenging to acquire a high market share for companies originating from outside China. The reasons for this development are unclear. When it comes down to recommended distribution channels, internet retailers should be part of the distribution strategy, but not play the most crucial role.
Even though supermarkets and independent small supermarkets are losing market share to internet retailers, they still are the main place for doing the groceries. Overall seen, the current and expected situation of the food industry in China is more attractive than threatening. Especially considering the growing demand for healthy foods, exporters should develop a portfolio of health beneficiary products for the maximum leverage. To summarize, the following opportunities have been identified:
-

-

There is a rising demand in healthy and safe foods. The demand is expected to experience an explosion of demand in the following years as the one-child policy has been dismissed, rising urbanization, rapid growth of the middle class and the symbolic status of food in China.
Internet retailing is increasing rapidly and is gaining a higher ground as the choice for doing groceries, and is hence the channel to be considered.

The following threats have been signalized:
- China’s economy keeps growing slower.
- Tighter regulations on food imports.
- Difficult for non-Chinese firms to gain a higher market share

21

Section C
Executive Summary
The main objective of this research report is to adapt business factors that need to be considered for a successful launch of a product in the Chinese food sector by a food exporter.
There are various factors to be considered if companies want to enter into new markets.
Before entering a foreign market however, firms need to decide on an entry strategy. This implies the need to determine an entry mode. After analyzing and then applying the advantages and disadvantages of different entry modes (Joint venture, licensing, franchising and exporting) to the client’s circumstances, it became apparent that exporting is the most success promising choice since advantages could be exploited best and disadvantages impacted the least. Exporting has the lowest opportunity costs, and since food quality and origin are two main issues being faced by Chinese consumers lately it is in the firm's’ best interest to benefit from export advantages. In order to reach a maximum optimization, it is important to structure the internationalization approach and take possible hurdles and disruptions into account – preparation is vital to succeed when entering a foreign country, not only but also in the form of exporting.
As a result of the research conducted it can be concluded that urban, higher educated, high earn young consumers located in East China region are demanding higher quality and healthy food products. Hence as found by the analyses, the consumers in the regions Guang Dong and Jiang Su spend the highest percentage of their wage on food, followed by the regions Fu
Jiang, Zhe Jianga and Shanghai. Thus, the former two regions should be seen as the primary focus in the early stages of the export activities and the latter three as a secondary focus, since the chances for successful penetration seem to be the highest there. Once a proper position in the market has been established, as a tertiary focus, the exporters should focus Jiang Xi, Hu
Nan and Hu Bei, as the percentage of wage spend on foods is same or close to the average of the researched area. Most importantly, there is a rising demand in healthy and safe foods. The demand is expected to experience an explosion of demand in the following years as the onechild policy has been dismissed, rising urbanization, rapid growth of the middle class and the symbolic status of food in China. Unfortunately, due to food scandals, the Chinese government has tightened the regulation on healthy food even further.
When talking about making the product available for this target market, it is to be taken into account that for the Chinese getting to know the product through a previous supplier-buyer relationship is important. Therefore, distribution channels involving an intermediary are necessary in the early stages of taking the product into the Chinese market. Due to online grocery shopping market growth expected in the next five years, one of the distribution channels should also include online stores like Alibaba and Amazon, and unconventional choices like health stores and organic food suppliers.
22

Potential Distributors
Building a relationship with a distributor in China is setting the company out for a long term and important relationship with them. It is important to keep in mind that business in China is based upon building trust over time. That is why a firm must always build relationships that can add value to their business. Because of this is important to thoroughly analyze the options and research about their market strategies. With this information in mind the firm will be able to establish a strategic relationship with the distributor best suited for the product. It is essential to take the next issues into consideration when choosing distribution channels:
• Distributor vs. Agent: the distributor used can also be the one that actually places the product with the clients, but this kind of relationships involves commission payment, marketing strategy agreements and loss of direct connection with the clients. This can be a good option for first time firms foraying in the Chinese markets since could allowed them to take advantage of their already established connections.
• Exclusivity: It is important for a firm to consider setting minimum sales quotas when thinking about developing exclusive contracts with distributors; this will protect the firm from future under-performing or non-performing distributors.
Strategy for choosing a distribution channel
Somers and Barnes (2001) suggest that the strategy to choose a distribution channel should involve the specification of the role of distribution within the marketing mix, selection of a proper distribution channel and its intensity, and finally, a selection of specific channel members. When it comes down to types of distribution channels, Somers and Barnes (2001) discuss that multiple distribution channels can be used to reach different segments of the seller’s market; different sizes of buyers or different regions of the country. It is also to be considered that several distributors in China already have a close loop cycle of distribution, where the distributor is involved in the food processing process as well as the distribution and retailing of food products. Because this circumstances with the distributors and of the differences between regions in China (Zhang et al., 2008), it is recommended to use a number of intermediaries in Eurochoice’s distribution channel:
• Producer - agent - retailer – consumer: for high end restaurants, shops and hotels
• Producer - agent - wholesaler - retailer – consumer: for wholesale clients
It is also recommended the use of either selective or exclusive distribution intensity. This will depend on the goals that Eurochoice sets for the market share and sales forecasting:
• Selective: distribution through multiple, reasonable outlets in the Eastern China or a selected region within it. This can be especially beneficiary in Tianjin, Shanghai,
Hangzhou and Hong Kong (to mention a few of the main trading cities in the east of
China), since these cities represent wide and competitive markets. The distributors mentioned in Table 1 have different clients that can be reached out through them.
• Exclusive: Distribution through single wholesaling middleman and retailer in a region where niche markets can be found in a province.
23

Table 1. Potential Distributors
Name

Company information

Products range

Market channels

Xiamen Xiangyu
Co., Ltd.

Legal representative Wang Longchu
Tel +86-0592-6516003
Fax +86-0592-5051631
Email: stock@xiangyu.cn
Website: www.xiangyu.cn http://www.xiangyu.cn/eng/index.aspx Dairy products

Integrated logistics services, nationwide logistics network system centered by port cities like
Xiamen, Shanghai, Guangzhou,
Qingdao, Tianjin, Tangshan.

Shanghai Hansen
Investment
Developing Co.
Ltd

Address: No. 80 Pingwu Road, Changning District,
Shanghai, Shanghai, China (200052)
Tel: (86 21) 6211-8625 (86 21) 6240-0626
Fax: (86 21) 62136814
E-Mail: hansen@china-hansen.com http://www.globalsources.com/shhansen.co http://www.china-hansen.com/en/introduction.asp

Dairy Products,
Confectionary

Has the prestigious enterprise titles of Class A & Class AA approved by the Customs which enjoys several preferential policies from the Customs and also Class A
Enterprise from commodity inspection and quarantine and conveniently preferential qualification in foreign exchange administration and tax refund cancellation after verification.

Shanghai
Waterman
International
Logistics Co. Ltd

Address: Room 1815-1816 Zhongsheng Building,
Dongchengnan Road, Guancheng District, Dongguan,
Guangdong, China (523000)
Tel: (86 769) 89830090
Fax: (86 769) 89830090 http://www.waterman-logistics.com/ Confectionary

Logistics services for east, south and north cities in China:
Suzhou, Hangzhou, Ningbo,
Canton, Tianjin, Dongguan,
Zhanjiang, Shenzen and Quindao

Hong Kong Food
Investment
Holdings Limited
("HK Food Inv")

Hong Kong HQ: Four Seas Group Building, No.1
Hong Ting Road, Sai Kung, Hong Kong
Tel: (852) 2799 9777
Fax: (852) 2799 2632
GUANGZHOU
Address: RM. 601-604, 6/F, Qianshu Panfu Mansion,
233 Dongfengxi Road, Yuexiu District, Guangzhou
Tel: (86)020–8356 6991
Email: fs-guangzhou@fsmlcn.com

Frozen meats trading, consumer goods retailing and investment in food companies

Includes major supermarket chains, fast food chains, Chinese restaurants, western restaurants, hotels, airlines, catering distributors and frozen meat retailers in the wet market.

SHANGHAI
Address: RM 505-506, Yitaili Building, 446
Zhaojiabin Road, Xuhui District, Shanghai
Tel: (86)021-64030077
Fax: (86)021-64164815
Email: shengcheng@fourseassh.com http://www.hongkongfoodinvestment.com.hk/profile.p hp
Alibaba

http://sourcing.alibaba.com/?spm=a2700.7724855.a272
8m.30.UD2LbP&tracelog=newschp_nav_narfq

Food Products in general- Has a Dairy category

Provides access to online market with a 60% of increase in year to year sales

Amazon

http://www.amazon.cn/gp/switchlanguage/homepage.html?ie=UTF8&language=en_CN

Food Products in general- Has a Dairy category

Provides access to online market and logistics services

24

When choosing an agent or distributor for food products it is important to consider the several issues. While the research has been conducted, it became apparent, that it is rare to find English speaking employees at the distributors. This can be seen as an issue when conducting business. Eurochoice should be prepared in advance for this kind of situations in order to avoid miscommunication, since the distributors do not advertise their language skills in advance. However, there is one distributor mentioned that has previous experience with
Dutch companies and therefore could potentially have English speaking contacts.
In the search to find a suitable distributor, it has been observed that their focus is on specific provinces or cities. Consequently, distributing products to all target provinces by one distributor is not an easy task to achieve, therefore a distributor must be chosen for a specific market to foray into.
Cooperation
In recent years, cooperation between parties of a supply chain has been a way for companies to make their supply chains more sustainable (Leitner et al, 2011; Frostenson, Prenkert,
2015). In order to look for different form of cooperation that can help Eurochoice achieve a sustainable and efficient supply chain, there are several options that can be explored. These options include professional LinkedIn groups focused on China that can help the firm to get started on checking the distribution options available:
• China Sourcing (https://www.linkedin.com/groups/2175649/profile)
• China Sourcing Forum (https://www.linkedin.com/groups/1829750/profile)
• China Sourcing, Networking, Import, Export, Trading, Manufacturing
(https://www.linkedin.com/groups/4462099/profile)
• China Sourcing Group (https://www.linkedin.com/groups/2227657/profile)
• China Trade Group (https://www.linkedin.com/groups/44976/profile)
• China Food and beverage importers and distributors
(https://www.linkedin.com/groups/4643123/profile)
New Business Opportunities
Innovation can be described as “the ability to generate novel ideas, develop viable products, services, or processes, and drive new value for the corporation is required to sustain organization effectiveness” (Winby and Worley, 2014). A company’s ability to innovate is crucial when thriving in their environment and is compulsory if firms want to sustain effectiveness. When examining the distribution channels and potential clients available in the
Chinese market, that we were able to see that in the last five years alternative distribution channels in China are experiencing an increase on the role that they play in retail. This can be seen by the rise in online retail of savory snacks, going from 0% in 2010 to 6% in 2015
(Euromonitor, 2015). Therefore, it is important for Eurochoice to recognize these channels as a market opportunity. These alternative distribution channels could be a first step for premium products to find a place in niche markets and provide some brand visibility. Some
25

of these alternative distribution channels are represented by health stores, online stores and foodservice outlets. As an example of these new alternatives, there are some choices that are worth reviewing:
● Tony’s Farm: online organic food supplier for individuals, families, companies, schools, restaurants, boutique markets, and large retailers in Shanghai and Beijing
(Little, 2014). (Address: 7007 Chuannanfeng Gong Lu, Dunyi Lu, Pudong, China.)
● Longxi Hotspring Resort: spa and wellness center, with 4 on site luxury restaurants
(Address: No.8 Shunjing Avenue, Panggezhuang Area, Daxing District, Beijing.)
Logistics and Warehousing
While the research had been conducted, it became obvious that in the actual Chinese market firm’s can find it difficult to procure warehousing space easily. This in itself due to the lack of availability of companies offering these kind of services. In terms of logistics, due to the large availability of these services firms such as Eurochoice are often in average 12 transportation providers (Euromonitor, 2015). it is therefore important to choose the best suitable company to achieve Eurochoice’s distribution objectives. In choosing the appropriate transportation company, a list of available choices is presented below:
Table 2 Potential Logistics Partners
Logistics Company
Name

Company information

Region/ city

Products range

CEVA Logistics

Bo Jepsen
Head of Business Development
Tel: +(86)(21)2310-7313
Bo.Jepsen@cevalogistics.com
http://www.cevalogistics.com/country
/china

10 sites on east China,
Hong Kong and Taiwan

Schneider Logistics

ad-request@schneider.com
Tel: 800-558-6767

18 sites on east China

Transportation Management
Truckload
Intermodal
Temperature-Controlled
Less-Than-Truckload
Outsource Management
Flatbed and Specialized

Peske Logistics China

Room 1801, No. 233 Weihai Rd.
Honi International Building
Shanghai, 200041, China
Tel: +86 21 6327 8566 http://www.penskelogistics.com/asia/ Beijing, Shanghai,
Guangzhou, Jinan,
Shenzhen, and others

Global freight management
Domestic transportation management
4PL
Dedicated contract carriage
Distribution center management
Warehousing locations

XPO Logistics

Global ForwardingRM305 Block A
Guang QI Culture 2899 Xietu Road
Xuhui DistrictShanghaiChinaPhone:
+86 21 38726521
Fax: +86 21 38726567 http://www.xpo.com/ Beijing, Shanghai,
Guangzhou, Jinan,
Shenzhen, and others

Transportation Management
Truckload
Intermodal
Temperature-Controlled
Less-Than-Truckload
Outsource Management

Airfreight
Oceanfreight
Contract Logistics
Ground Transportation services

26

Potential Clients and Establishing Business Connections in China
It is important to remark that Chinese culture is relationship oriented (Gesteland, 2012).
Therefore, potential Chinese customers will expect to know the contact for Eurochoice in person before beginning any kind of business relationship (Grimes, 2014). This can be achieved by for example attending food trade fairs: either in The Netherlands or close by since some Chinese buyers can attend this fairs in order to find new opportunities of business, such as ANUGA in Germany and PLMA in The Netherlands. Another solution would be to meet with sponsors that already do business with Dutch companies (an agent can help set up meetings). Finally, it is also possible to join a trade mission to China: Dutch Chamber of
Commerce and the EU-China Business Association organize this kind of events for Dutch companies. Table 2 provides an overview of several potential clients for Eurochoice.
Table 2. Potential Clients
Client's Name

Client information

Location- Region/City

Products range

Beijing & Northeast China

BHG Market Place is positioned to meet the needs of who desire a higher quality product selection and shopping experience. Beijing Hualian
Hypermarket

Beijing Hualian Group Investment
Holding Co., Ltd.
Address: 5th Floor, Eastern Tower,
Sichuan Building, No.1Fuwai Street,
Xicheng District, Beijing
Zip Code: 100037
Tel: (86)(10)6834-1188 http://en.beijing-hualian.com Tesco Hypermarket

Tel: (86) (21)5294-2239 http://www.cn.tesco.com/ Liaoning Province,
Beijing, Shanghai, Jiangsu province,
Anhui, Tianjin, Hebei, Zhejiang,
Fujian province, Guangdong,
Shandong

All food products and high-end food lines in selected stores

Carriana Holdings

Shenzhen Office (China)
Address: 5/F., Carrianna Friendship
Square, 2002 Renminnan Road, Lo Wu
District, Shenzhen, China
Telephone: (86) 755-2518 2288
Facsimile: (86) 755-8225 8888 www.carrianna.com/html/about.php Hotels and restaurants: Guangdong,
Beijing, Shanghai, Hainan,
Kunming, Wuhan, Hunan, Foshan,
Shenzhen and Hong Kong.
Future trade center in Jiangsu.
Shopping mall at “The Imperial
Square”: Shengzen.
Trade & logistics activities

Depends on the chosen line of business Shangri-La Asia
Ltd.

Address: 28/F Kerry Centre, 683 King's
Road, Quarry Bay, Hong Kong
Phone Number: (852) 2525 9146
Fax Number: (852) 2523 8842
Corporate: www.ir.shangri-la.com
Business: www.shangri-la.com

Asia Pacific, Europe, North
America and the Middle East

Owns and/or operates hotels and resorts

China Chain Store
& Franchise
Association

Address: Room 811,8th floor, Foreign
Economic & Trade Plaza, No 22
Fuchengmenwai STR.,Xicheng District,
Beijing, P.R. China
Ms Angela Bing: +(86) (10) 68784931
Ms Lucy Wu: +(86) (10) 68784930
Fax: +(86) (10) 68784934 http://www.chinaretail.org/ Mainland China

Official representative of retailing & franchise industry in
China.

27

The Azure Qiantang
Hotel

The Azure Qiantang
39 East Wangjiang Road
Shangcheng District
Hangzhou, Zhejiang http://www.fivestaralliance.com/luxuryhotels/hangzhou/the-azure-qiantang Hangzhou, Zhejiang

High end hotel

Four Seasons Hotel

Address: 500 Wei Hai Road, Jing An
District, Shanghai
Tel: +(86) (21) 6256-8888
Fax: +(86) (21) 6256-5678 http://www.fourseasons.com/find_a_hotel _or_resort/?c=t&_s_icmp=tmenu#bylocati on Guangzhou, Beijing, Shanghai,
Shenzen, Hong Kong

High end hotel chain

Oriental Plaza,
Beijing

Grand Hyatt Beijing
Enquiry Hotline : (8610) 8518 1234
Email Address : grandhyattbeijing@hyattintl.com The Malls ( Shop & Kiosk Leasing )
Enquiry Hotline : (8610) 8518 8888 ext.2877 Email Address : retail@orientalplaza.com http://www.orientalplaza.com/engv/index. htm

Beijing- Northeast China

Luxury Restaurant, Hotel and
Shopping mall

Canton Food Fair

Address: Guangzhou Office: Room
712,Guangzhou International Sourcing
Center,No 8 Pazhou Avenue East, Haizhu
District, Guangzhou
Tel: (+86) 152 6795 8555 sales@yiwuen.com Guangzhou

China Import and Export Fair, is held biannually in Guangzhou

International Food
Exhibition &
Guangzhou Import
Food Exhibition

E-Mail: echo.chen@ifechina.com; echo.1002@hotmail.com Tel: +86-20-6108 9279
Fax: +86-20-6108 9279

Guangzhou

Food and beverage producers, processing experts, organic food experts, nutritional food professionals and traders of food and beverage products,
Food testing experts, market analysts, suppliers, dealers, distributors, packaging professionals China International
Import & Export
Food and Beverage
Exhibition

Add: Room 2001-2002, No.2, Maji Road,
Pilot Free Trade Zone, 200131,Shanghai,
P.R.China
Tel: （86-21）6439-6190 or 5013-1760

Shanghai

Suppliers of import food and beverage Fax: （86-21）5013-1761
E-mail: info@goldenexpo.com.cn
Website URL: www.goldenexpo.com.cn

28

5 Conclusion and Discussion
Now that the analysis has been finalized, the main question “What does a Dutch food company need to consider when exporting food products to China?” can be answered.
First of all, in the literature review phase East China area has been identified as the area with the highest demand for such foods. Two consumer groups, namely young consumers and consumers with higher incomes, are the target groups to be focused on. Baby food and dairy products have been identified as having the highest potential. The communication strategies, when applied, should focus on promoting the quality and origin.
Second of all, it became apparent that exporting is the most success promising choice since advantages could be exploited best and disadvantages impacted the least. Exporting has the lowest opportunity costs, and since food quality and origin are two main issues being faced by Chinese consumers lately it is in the firm's’ best interest to benefit from export advantages.
In order to reach a maximum optimization, it is important to structure the internationalization approach and take possible hurdles and disruptions into account – preparation is vital to succeed when entering a foreign country, not only but also in the form of exporting.
Thirdly, the consumers in the regions Guang Dong and Jiang Su spend the highest percentage of their wage on food, followed by the regions Fu Jiang, Zhe Jianga and Shanghai. Thus, the former two regions should be seen as the primary focus in the early stages of the export activities and the latter three as a secondary focus, since the chances for successful penetration seem to be the highest there. Once a proper position in the market has been established, as a tertiary focus, the exporters should focus Jiang Xi, Hu Nan and Hu Bei, as the percentage of wage spend on foods is same or close to the average of the researched area.
Most importantly, there is a rising demand in healthy and safe foods. The demand is expected to experience an explosion of demand in the following years as the one-child policy has been dismissed, rising urbanization, rapid growth of the middle class and the symbolic status of food in China. Unfortunately, due to food scandals, the Chinese government has tightened the regulation on healthy food even further.
Finally, distribution channels involving an intermediary are necessary in the early stages of taking the product into the Chinese market. Due to online grocery shopping market growth expected in the next five years, one of the distribution channels should also include online stores and unconventional choices like health stores and organic food suppliers.

29

Follow-up Research
Given the limited time and the comprehensive aim of this research, a follow-up qualitative approach has been developed, which can be conducted using the findings of the current paper. Because the research would try to identify the subjective evidence from the participants, the interpretivism approach would be more suited. The face-to-face semi-structured interviews are the appropriate method for collecting the missing data as they help to understand the participant opinions and attitudes towards the products (Arksey and Knight, 1999, p. 2).
Furthermore, open questions and probes could be used to gain “maximum information” of the sample (Collis and Hussey, 2013, p. 135). The preferred amount for the interviews would be twenty. This amount is similar to the one that was used in a qualitative study in Shanghai and enough to saturate categories and achieve accurate findings (Sirieix et al., 2011). The interviews should take place in the cities, which are identified to be most promising in the present In order to pinpoint the products, products from the growing industries should be selected and tested among Chinese students. If resources are limited, the interviews can be conducted with students. Previous studies have proven that young Chinese consumers are one of the consumer groups, which demand high quality food (Thøgersen and Zhou, 2012; Confronte et al., 2013; Yu et al., 2014; Wu et al., 2015). Hence, the students would be a representative part of that population for this research. The two products of each category can be preselected based on up-to-date volume of sales of similar products in China and checked whether no restrictions apply for them. Using the face-to-face semi-structured interviews, the products would get assessed by the participants on the attributes: perceived healthiness
(nutritional value), perceived safety (country of origin and certification), appearance, fragrance and taste as previous studies have confirmed these attributes to be most influential
(Chen et al., 2011; Sirieix et al., 2011; Thøgersen and Zhou, 2012; Ekaterina, 2015; Wu et al., 2015). Furthermore, the willingness to buy and pay is also recommended to get assessed.
The demographic data such as gender, living place and monthly earnings should be recorded to signalize further segmentation possibilities.

30

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Appendices
Appendix I
Share in % of retail value recommended selling price (rsp)

2011

2012

2013

2014

2015

Inner Mongolia Yili Industrial Group Co Ltd
Inner Mongolia Mengniu Dairy Industry (Group) Co Ltd
Nestlé SA
Yihai Kerry Oils & Grains (China) Co Ltd
Ting Hsin International Group
Want Want Holdings Ltd
Bright Dairy & Food Co Ltd
WH Group
Hangzhou Wahaha Group Co Ltd
Mars Inc
COFCO
Xiamen Yinlu Food Co Ltd
Shanghai Wyeth Nutritional Co Ltd
Hebei Yangyuan Zhihui Beverage Co Ltd
Uni-President China Holdings Ltd
Nestlé (China) Ltd
Wrigley Confectionery (China) Ltd
Mead Johnson (Guangzhou) Ltd
Danone, Groupe
Orion (China) Co Ltd
Jinmailang Food Co Ltd
Baixiang Food Group
Wonder Sun Dairy Co Ltd
Dongguan Hsu-Fu-Chi Food Co Ltd
Mondelez China Inc
Beingmate Scientific-Industry-Trade Share Co Ltd
Beijing San Yuan Foods Co Ltd
Mars Foods (China) Co Ltd
People's Food Holdings Ltd
Guangdong Strong (Group) Co Ltd
Royal FrieslandCampina NV
Shandong Luhua Peanut Oil Ltd
Biostime International Holdings Ltd
PepsiCo Inc
Foshan Haitian Flavouring & Food Ltd
Yakult Honsha Co Ltd
Abbott Laboratories Inc
Lee Kum Kee Co Ltd
Coca-Cola Co, The
Unilever Group
Hershey Co, The
Garden Co Ltd, The
Hormel Foods Corp
Vitasoy International Holdings Ltd
Ezaki Glico Co Ltd
Nong Shim Co Ltd
McCormick & Co Inc
Lotte Group
Xuzhou VV Food & Beverage Co Ltd

5,22
5,08
2,92
3,77
3,75
2,07
1,26
2,47
1,28
1,69
1,15
0,49
0,42
0,95
0,84
0,81
0,86
0,68
0,58
0,92
0,75
0,58
0,75
0,68
0,46
0,47
0,82
0,51
0,17
0,42
0,24
0,35
0,29
0,16
0,33
0,29
0,15
0,25
0,11
0,18
0,19
0,09
0,09
0,09
0,06
0,13
0,08

5,18
4,33
3,19
3,91
3,61
2,16
1,33
2,27
1,28
1,73
0,85
0,58
0,62
1,04
0,83
0,8
0,75
0,74
0,66
0,88
0,74
0,61
0,72
0,69
0,48
0,48
0,6
0,42
0,21
0,43
0,34
0,36
0,3
0,19
0,33
0,3
0,15
0,26
0,11
0,17
0,19
0,1
0,1
0,1
0,06
0,13
0,07

5,33
4,46
3,39
3,8
3,46
2,21
1,41
2,06
1,28
1,37
0,94
0,73
0,85
1
0,82
0,79
0,81
0,63
0,71
0,82
0,76
0,61
0,69
0,65
0,71
0,45
0,49
0,59
0,43
0,31
0,44
0,42
0,38
0,32
0,23
0,33
0,32
0,15
0,25
0,13
0,17
0,21
0,11
0,1
0,1
0,1
0,12
0,07

5,5
4,75
3,61
3,33
2,98
2,01
1,63
1,88
1,79
1,29
1,27
1,01
0,9
1,08
0,93
0,82
0,78
0,77
0,71
0,72
0,77
0,71
0,63
0,67
0,61
0,55
0,47
0,5
0,52
0,44
0,38
0,44
0,41
0,39
0,33
0,28
0,34
0,33
0,16
0,25
0,23
0,18
0,19
0,12
0,11
0,1
0,1
0,11
0,06

5,78
4,95
3,75
2,91
2,58
1,97
1,91
1,79
1,58
1,28
1,20
1,03
1,02
0,98
0,86
0,83
0,77
0,76
0,75
0,73
0,72
0,67
0,65
0,64
0,57
0,55
0,5
0,5
0,46
0,45
0,45
0,44
0,42
0,40
0,34
0,34
0,34
0,33
0,31
0,26
0,24
0,18
0,16
0,13
0,11
0,10
0,10
0,10
0,05

Global brand owner
National brand owner

Figure 4 Market Share Distribution among Global and National Brands (Euromonitor, 2015)

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Appendix II Visual Representation of the Scope

Figure 4 In orange, East China. In blue, additionally researched highly urban area.

Appendix III Individual essays “If an established food-producing company was interested in a non-export related entry into China, in which ways would your advice be different?”

Individual Assignment Weili Gu
In this essay, the Dutch food company is about to enter the Chinese market by using the nonexport related entry which means that the company won’t produce the products that is going to enter the Chinese market in the home country, but in the target country instead. Based on the market research, a corporate parenting mode is recommended. Critical analysis will be given in the following row as advantages, disadvantages and recommendations.

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A corporate parenting mode means that the Dutch food company act as a parent company to a local Chinese food producing company. A parent company refers to a company that controls other companies by owning an influential amount of voting stock or control. Parent companies will typically be larger firms that exhibit control over one or more small subsidiaries in either the same industry or other industries. Parent companies can be either hands-on or hands-off with subsidiaries, depending on the amount of managerial control given to subsidiary managers.
In this case the advantage of the corporate parenting mode is that by controlling the local company, the Dutch food company no longer need to take their time to find distributors and clients as the local food company is familiar with the local market and will do it for their parent company. Then a large sum of money can be saved as the oversea transportation as well as a variety of taxes are no longer necessary which could save a lot of fixed costs and efforts for the Dutch food company.
The disadvantage is also clear, the Dutch food company is well known for its technology, management and the quality of the food. But in China, the food quality issue is emerge, as there are pollutions which make the raw materials unsafe and some of the local companies like to cut corners which make it difficult for the quality control.
Based on the advantages, disadvantages and the corporate parenting mode, there are several recommendations that the Dutch food company could use,
1. There are several value-adding activities while applying the corporate parenting.
Among them was coaching and facilitating which means that the Dutch food company can help the local food company improve their skills and confidence as well as helping them with the facilities needed for the production so that the technology of the local food company can meet the requirement of their parent company.
2. As mentioned that the food quality issue is one of the major social problems in China, thus for the Dutch food company, they need severely strict control of the row materials and every step of the production ensuring that there will not be any problem related to the food quality as it also connects with their reputation.
3. Paying attention to how to adapt the products to the local people, as an example they could change the packaging by replacing the information with Chinese for easy recognize and acceptance.
In my part, the corporate parenting mode is believed to be an appropriate way for the Dutch food company to enter the Chinese market with non-export entry mode and the theory is different from the strategy stated in the report.

Individual Assignment – Nicole Elze
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Over the last decades internationalization grew to be rather a necessity than an exception reserved for specific firms. In this global operating world, China is a major playing field for firms from various industries and sectors, including the food industry.
Should a food-producing company express an interest in entering China with means of a nonexport related entry mode, there are several aspects that have to be taken into consideration before giving advice. Every entry mode strategy has its advantages and disadvantages. Since exporting is not an option; Licensing, Franchising, Joint Venture and Wholly Owned
Subsidiary remain to be evaluated.
From a very broad perspective and taking as a basis that entry modes range from full control/risk to low control/risk, analyzing the question on what the food-producing company hopes to achieve, how they want to achieve it and what they are willing to invest should be of primarily focus.
Since no further information on the food-producing company is given, relation to factors such as firm size, intercultural experience and other firm specific factors are not referred to in detail. If the findings from the report are still acknowledges as a foundation and it is assumed that food quality and origin are vital key factors of successful distribution of foreign food in
China, control of the food production need to be taken into consideration when evaluating possible entry modes.
While the entry modes franchising and licensing can provide some control on the manufacturing of the product through strict contractual agreements and rules; risk of decreasing quality is still present (Hill, 2012). It should also be mentioned that there might not be enough incentive for Chinese locals to enter as a licensee or franchisee in this agreement. A Joint Venture on the other hand would secure a tighter control on quality, since the respective food-producing company would be a part-owner. Depending on company-related preferences and contractual negotiations, the food-company can also discuss percentage shares. If tighter control is preferred, a percent stake above 50 is advisable (Hill, 2012). One of the major advantages from this entry mode can be the bridging of cultural distance. The advices on local market structure, culture as well as the Joint Venture Partners language knowledge are beneficial when establishing business abroad. Another positive aspect of a
Joint Venture is the high possibility of being less subjected to governmental restrictions/interferences (Papyrina, 2007). Even though China joined the World Trade
Organization in 2001 and therefore made entry of foreign firms easier, obstacles still remain
(WTO, 2001). In addition to that the most obvious advantage is the fact that costs and risks of entering a foreign country are shared in a Joint Venture.
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There are downsides to entering in a Joint Venture too. One of these disadvantages is the possible incapability of protecting intangible assets (M. E. Bontempi, 2009). In most researches this aspect refers to technology know-how, which the company wants and needs to protect. It probably is not of primarily concern in the food industry though, but could be a matter of interest in regards to recipe/formula protection of certain food productions. Another disadvantage is the lost opportunity of realizing an experience curve and location economies to the extent the company could when entering with a wholly owned subsidiary. Therefore it is important to evaluate how strongly these two downsides impact the company. It is not possible to generalize that for the whole food industry because it heavily depends on the company’s chosen internationalization strategy as a whole, which is why no further advice regarding this topic can be given at this point.
If a company wants to establish a global internationalization strategy, economies of scale and experience curve are of vital value (Hill, 2012). Entering China in a wholly owned subsidiary might be more favorable then. Location economies, especially in cost-pressure intensive markets can bring a considerable benefit and are necessary if global production system want to be pursuing in a company’s strategic planning (Hill, 2012). Since the report however indicates that cost is not the main selling preposition of foreign food in China, it can be concluded that minimizing production costs, while important, should not pose as the main focus. One of the obvious advantages, since wholly owned subsidiaries exercise the highest control and risk is that profits are not shared but would solely be owned by the respective foodproducing company. The most prominent disadvantage of entering in a wholly owned subsidiary is the high costs and risks. While there are different ways of entering, usually green filed ventures or acquisition, they all have this downside in common (Hill, 2012).

After giving a very short and broad overview on possible entry modes and related advantages and disadvantages, advising the food-producing company on entering China through a Joint
Venture seems most legitimate.

Individual Essay- Francia Solorzano
In the last years there has been an increasing demand for companies to expand their business to new markets (Manrai and Manrai, 2001). Therefore, there is a number of ways firms can entry in a foreign market that present both advantages and disadvantages.

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The company has to consider the investment at their disposal, as well as their willingness of taking risks when sharing intellectual property, the use of new processes and skills with other parties involved in the process (Ekeledo and Sivakumar, 2004; Samadi, 2014).
Open Innovation Platforms
The first recommendation will be a new innovative approach to market food and beverage products in the Chinese market. This option is called open innovation platforms or publicprivate partnership. As presented by Samadi (2014) open innovation platforms or publicprivate partnership are strategies adopted by companies where they get to share certain levels of technology up to some levels as a way of continued and improved productivity in the food sector. Organizations are acknowledging that even their best individual efforts cannot meet complex and interconnected market needs (Harvard Business Review, 2013). Consequently firms are being forced to put aside self-interests and collaborate to build a new business infrastructure to advance their shared objectives. The increasing need to increase efficiency has shaped the industry into sharing new and innovative strategies to benefit all parties involved. Therefore open innovation is a way for a firm to increase efficiency by means of sharing knowledge and skills throughout the value chain (Samadi, 2014).
The starting point in this new approach is to seek a public-private partnership (PPP) – that is involve unusual partners such as the government, non-profit organizations, and academia.
PPPs also represent a new business opportunity as they focus on unusual players such as the government as direct clients. Another role that PPPs can play is of financial buffer/guarantee to provide the firm with funding/subvention for the products to have a competitive pricing or a broader distribution network in the local market.
One example could be an enriched product specifically developed to cater for nutritional deficiencies in the Chinese population. This product targets a niche market with clients such as the government, non-profit organizations or private clients. Specific products such as these can generate higher profits because these clients can afford higher pricing than a normal consumer could.
It is to be noticed that this kind of business model requires cooperation with competitors in the food industry, universities, R&D centers, etc. in order for it to work.
Joint Venture
Based on the research conducted during this term, I was able to realize that firms usually see more advantages in joint ventures than other entry modes such as licensing and franchising.
This is a result of the leverage that spreading costs with partners while gaining sufficient experience to develop competitive advantages represent (Buckley, 2007).
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A joint venture can be thought of a good conventional approach when taking into account the cost linked with risks and administration of an investment (Johanson and Mattsson, 1987;
Madhok, 1997). A joint venture will also allow the company to gain access to the target market rapidly. This will help with the process of acquiring dynamic capabilities that can create an advantage for the firm (swift processes, customer knowledge, distribution advantages, key value adding activities).
When participating in a joint venture a firm also gains insight on key factors that help to adapt to its new environment. These factors involve a range of responses in markets like
China where strategic flexibility and network relationships are key players (Gammeltoft et al., 2012). Abilities like coordinating activities that create business networks add value to the product and the company itself.
There is not a magical solution to strategic advantage in new markets. Every firm has to develop its own strategic fit to succeed. Hence the importance on stablishing strategies and processes that helps the firm to benchmark using price and performance (Sinha, 2007).
Consequently, having good supply chain can help create a better product placement and increase responsiveness incrementing customer satisfaction (Turi, et al., 2014).
Even though the management of human resources could represent a challenge when establishing the best internal practices, in a joint venture the process of aligning goals and views can help create a more accurate marketing approach.
But joint ventures also carry out disadvantages that come from sharing control over the products. Loss of know-how and control over manufacturing processes are the main disadvantages often linked to joint ventures (Hill, 2012).
Individual Essay- Gediminas Gargasas
This brief paper is concerned with an alternative entry mode for a food company willing to export to China. The objective of this paper is to provide an alternative, since this would allow the company to perform further analyses and assess the options. Naturally, the optimal entry mode is situation-dependent. Thus, this paper will focus on the possibility of working in a strategic alliance with other parties.
Strategic alliances are cooperative agreements between direct or indirect competitors. The advantages that surface are not too farfetched from the ones of exporting. The alliance can facilitate entry into China, for example, since it is possible that the other party has already passed the initial stages, has local partners and knows the channels. The main advantage to a food exporter, the subject of this case, would be the reduce in risk. Naturally, this could come at a higher cost, but that is a low cost to pay for shared risks. Finally, an alliance allows to bring skills and assets together. For a food exporter, with a strong product portfolio but weak knowledge of the Asian market, cooperating with an experienced Asian exporter would be of
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a great value. But the strategic alliance option is mainly convenient for the parties that are in a weak(er) competitive position, as then the most can be gained.
For a food company to execute such alliance, it would require to first, select the right partner.
This should be executed with a great caution and for that reason, the assessment progress should not be done too quickly. The assessment should be thorough and be conducted based on as much information as possible and most preferably, should be based on primary data.
The option of strategic alliance is especially recommended, because as reported in the main research paper, it is noticeably difficult for international brands to gain a substantial market share in the Chinese food industry. Appendix I of the main research paper gives an overview of the situation. Thus, a good starting point for the initial phase, gathering of the data, is the list of the companies with already a laid foundation in the Chinese market. Only once a proper amount of information has been collected, the assessment should follow a filtering process with criteria set by the exporter itself. At the end, strategic options should be generated for each potential alliance partner in order to find the match, where the most can be gained from.

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