An opening of the China’s economy has created tremendous opportunities for multinationals seeking for market entry or expansion in China (Kaynak & Chan) However, the Chinese economy evolution and an increased heterogeneity of Chinese customers also create great challenges for global marketers trying to analyze and evaluate the Chinese market.
The attitude towards transnational corporations in China has cardinally changed in the late 1970s when the country opened its economy to the world and became available to foreign direct investment. Throughout the 1980s, many transnational corporations (TNCs) have entered the market, where they were welcomed happily. TNCs received more tax benefits compared to the local companies. At that time, China’s consumer market was characterized by almost absolute preference for products and services of TNCs. China’s economy gained an impetus to the development of foreign economic activity after joining the WTO. China has put into practice such a model of reform that ensures a stable and constant growth of economic indicators, improvement of living standards of the general population and the growth in demand for domestically produced products. The main external factor in the growth of the Chinese economy has been the increase of export products abroad outstripping import growth. This happened along with the continued growth in gross domestic product. Against this background of continuing high investment, attractiveness of the country is determined by a significant inflow of foreign investments. As a result, the investment attractiveness of the country determined by a significant inflow of foreign investments remained high. However, when China entered the World Trade Organization, the government and consumers’ perception of the TNCs in Chinese has changed dramatically. The projects presented by TNCs now have a much more careful analysis of their compliance with national interests. Therefore, entering WTO lead to a higher China’s attractiveness for TNCs along with stricter conditions for them to succeed there (Wang).
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P&G is one of the multinationals that decided to enter the Chinese market. The company used to position their products as high-quality and premium priced. This scenario would not provide them with a significant market share. Therefore, they had to conduct research to find out what product the customers want (Peace 139) and make adjustments that required additional costs. The percentage distribution of profits differs from the distribution of market shares. This means that the company will sell a higher volume of output at lower prices while only a small part of it will be sold at a high price. The company had to produce another size of their products for Chinese low-income customers. They had to produce products with new ingredients popular in China specifically for that market. Another issue is that Chinese are much more closely monitoring the reputation of TNCs than that of domestic companies. If P&G had made a mistake in commercials and had shown disrespect for Chinese traditions, they would have lost a significant market share. However, the main drawback of the strategy implemented was that they started their research only after entering the market. They could have saved costs by doing everything right from the first attempt rather than risk losing everything because of a mistake.
As most of the consumers were people with relatively low income, P&G could focus on this segment of the market. Tastes and preferences of all Chinese slightly differ from American. They want a different product. Therefore, P&G had to produce specific products, with adaptation to the Chinese market (Doole and Lowe 273) As a result, they need to inject significant costs in the new production. With three-tier system P&G has to produce three new lines of products: with cheap ingredients, medium and high-priced. Instead of spending money for the less profitable segment they could focus on those that supposed to bring the most of money. With low costs due to using cheap Chinese materials and labor force the firm could gain good profit from low-income segments.
When P&G entered China, they faced its difficulties and had to adapt to the market. Nevertheless, with their three-tier strategy P&G entering successfully uses opportunities the Chinese market suggests.