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BUSINESS IN CHINA & TAIWAN.
Term Paper ID:24771
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Essay Subject:
Global marketing, political & economic environments, regulations, foreign investment, infrastructure, marketing of Coca-Cola in both countries. Table.... More...
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15 Pages / 3375 Words
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Paper Abstract:
Global marketing, political & economic environments, regulations, foreign investment, infrastructure, marketing of Coca-Cola in both countries. Table.
Paper Introduction:
Introduction
Advances in technology and transportation have made it possible for companies to operate on a global level as never before in history. Two nations, China and Taiwan, have increasingly sought economic activity from the West in recent years, and one company, Coca-Cola successfully does business in both locations. This research examines the nature of global marketing, the vagaries of the Chinese and Taiwanese business environments, and the success factors of Coca-Cola in both nations.
Global Marketing
Multinational corporations are those companies which offer products or services in different countries throughout the world, adapting their products to the countries in which they are selling. Global companies
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18). 562): |Geographic Region |Sales |Profits ||North America |33% |21% ||Greater Europe |32% |28% ||Middle & Far East |22% |3 % ||Latin America |11% |18% ||Africa | 2% | 3% | The company itself acknowledges the importance of the Asian market,and notes that more than 55 percent of the world's population lives inmarkets where the average person consumes fewer than 1 servings of Coca-Cola products annually. These officials were previously appointed by the centralauthorities. Atlanta, GA: Coca-Cola, Inc. Infrastructure expansion is not keeping pace with the demands ofconsumers and industry. By marketing to avariety of nations, a company is not so severely affected by a downturn inany one country's economy. The DPP has alsostaked out generally populist positions of concern for the environment andfor working people ("Country Commercial Guide: Taiwan," 1996, p. Despite China's growing emphasis on doing business with the West(Hodgetts & Luthans, 1997, p. Another significant issue is the factthat China does not historically have a large per capita consumption ofsoft drinks. 6). 2). The strength of Taiwan's economy is not in its few largefirms, but in the multitudinous small-to-medium sized firms throughout thenation. Hodgetts, R. Because of a shortage of telephonelines, it can take up to one year to obtain a new telephone connection.Both paging services and cellular phones are available, but inconsistencyin the frequencies used between large cities, roaming service is notavailable. A8). Partly as a result of these efforts, foreign investmentin Taiwan increased significantly in 1994, reversing a four-year decline.Foreign invested firms are generally accorded national treatment, and trade-related capital flow is relatively free. To begin with, companies and countries can no longer operate as if therest of the world did not exist. Some provincial governments, especially thosein fast-growing coastal regions, actively adopt local policy variations.Senior political figures generally agree on the need for further economicreforms and the need for political stability, but there are differencesover the content, pace, and ending point of reforms ("Country CommercialGuide: China," 1996, p. Ecke, R. To step up construction of infrastructure, Taiwan opened power plantsfor private investment in 1994. References 1997 Coca-Cola Annual Report. Lemon sugar cane and guavaare two of the flavors which have found particular popularity with theTaiwanese market, and these are flavors which are popular in Taiwan evenoutside of beverages ("Airborne in Taiwan," 1997, p. 459). NY: John Wiley, 1997. Companies with successful products in one market may decide to ventureinto the international arena in order to increase their sales, profit,market share and long-term opportunity for success. 128). 5). Marketed under theSmart label, these soft drinks are separate from the traditional Coca-Colabranded items such as Coke and Diet Coke, but are designed to enhance thecompany's market share in China and bring more Chinese consumers into theCoca-Cola fold (Deveney, 1997, p. Ministries or the StandingCommittee of the National People's Congress (China's legislature) formulatepolicy on day-to-day issues. Coca-Cola in Taiwan In Taiwan, Coca-Cola has proven successful in part because itrecognizes that its traditional soda products (Coke, Diet Coke and others)may not be widely accepted by the local population, a strategy that it hasalso used with success in China. As the DPP has matured and gained a significant role in thelegislature, where it won 51 of 161 seats in the 1992 election, it hasmodified its demand for immediate Taiwan independence and now calls for thepeople to decide Taiwan's future through a plebiscite. 7-8. Foreignownership is further restricted in industries such as general construction,shipping, mining, legal and accounting services ("Country Commercial Guide: Taiwan," 1996, p. 34-39. Despiteformidable political pressure, Taiwan has built a robust internationaltrade on an unofficial business level with strong economic powersthroughout the world, and its high level of personal income indicates astrong market for products (Barrett, 1997, p. In February 1995, the United States and Chinasigned an agreement on protection of intellectual property which improvedthe atmosphere for bilateral economic relations. 5 8B1126. The Coca-Cola company. Characteristics of Coca-Cola Coca-Cola is the world's largest beverage manufacturer, and has gainedthat position by using foreign partners in many of the nations where itdoes business. Deveney, P. Taiwanese consumers tend to make purchasing decisions based primarilyon price, although a higher price may be more attractive to the Taiwanesebuyer of certain kinds of consumer goods. The situation is no better on the railways wherealmost every first-class passenger car is overbooked. McDonald's, forexample, signed a 2 -year lease for a restaurant site in Beijing (twoblocks from Tiananmen Square) and built a 7 -seat store on the site (thecompany's largest). Introduction Advances in technology and transportation have made it possible forcompanies to operate on a global level as never before in history. Knight-Ridder/Tribune Business News, p. Airborne in Taiwan. High-technologymanagement in China. Aizenman, Joshua. The average family has more than one telephone, and pagers,cellular phones, and fax machines are common for business firms. The drink (which can be translated as"flying high") is designed to appeal to young people and features teaflavors as well as citrus and fruit flavors. Rapid price inflation, corruption, lay-offs from state-runenterprises, a growing gap between coastal regions and the interior, andeconomic disparities between rural and urban areas have contributed torecent dissatisfaction throughout China. (1996, 16 March). This research examines the nature of globalmarketing, the vagaries of the Chinese and Taiwanese business environments,and the success factors of Coca-Cola in both nations. Countries which have pursuedprotectionist strategies in the past are moving away from these strategiesto take a broader view of their environment. Americans, forexample, purchase cars and electronics made in Japan, ham and golf cartsfrom Poland and shoes from Brazil. Country Commercial Guide: China. "World Integration." Canadian Journal of Economics(May 1994): 458-483. Country Commercial Guide: Taiwan. Sanborn, S. (1996). Wall Street Journal, p. There are times that the company uses a similar strategy for Taiwanand China. Since martial law has been lifted, the main opposition party is theDemocratic Progressive Party (DPP). The competition facingcompanies domestically is increasingly from foreign firms. 22. Telephones, FAXes and computers mean that companiesand employers around the world have access to information and employees infar-off locations. 1). Domestic longdistance is available but of varying quality: transmission quality isoften poor and service unreliable. 2). At the core ofthe government's monetary and fiscal problems remains the issue of stateenterprise reforms. Atmultinational companies, internal practices are also changed to reflect theenvironment of the various countries. The company sells its products in nearly 2 countries, and itis not overly dependent on any one nation for its sales and profits.During 1996 (the latest year for which figures are available), thecompany's contributions to sales and profit broke down as follows (Shea,1997, p. Cui, G. 4 ) Coca-Cola in China In recent years, Coca-Cola has turned its attention and marketingresources toward China, a nation which has the largest potential market inthe world. 51). In practice, most significant political decisions are made by a fewkey leaders of the Chinese Communist Party. (1997). Better communications mean that companies and countries no longerexist in remote sites. Martial law, which had been in force since the194 s, was lifted in 1987. China, on the other hand, seeksinternational economic activity as a way to boost its economy and improvethe standard of living for its citizens, many of whom suffer fromunderemployment and are dissatisfied with current practices within China(Cui, 1997, p. Twonations, China and Taiwan, have increasingly sought economic activity fromthe West in recent years, and one company, Coca-Cola successfully doesbusiness in both locations. Large industrial projects, such as the sixth naphtha crackercomplex, large steel mills, and several electronic plants are puttingconsiderable strains on the water supply, a critical part of Coca-Cola'ssuccess ("Country Commercial Guide: Taiwan," 1996, p. There is, however, sufficient technology for most globalcompanies to operate successfully within China ("Country Commercial Guide:China," 1996, p. 34). G., & Tseng, C. 112). SHOOT, pp. (1997, 16 April). Conclusion The success that Coca-Cola enjoys in China and Taiwan dependssignificantly on the company's commitment to pursuing a global strategy.While its flagship brands are available throughout the world, the companyalso introduces products which are likely to have local appeal in order tobring additional consumers to the company. Environmental Comparison Understanding the environments in which multinational companiescompete in both China and Taiwan can help aid understanding of why somecompanies are successful, and why other companies face difficulty. Global Marketing Multinational corporations are those companies which offer products orservices in different countries throughout the world, adapting theirproducts to the countries in which they are selling. Taiwan's plan todevelop the island into a regional operations center for domestic andforeign businesses should result in additional liberalization measures.Current plans call for the gradual easing of quotas on the hiring offoreign workers and liberalization of restrictions on telecommunications,banking, and shipping ("Country Commercial Guide: Taiwan," 1996, p. (1995, July). China sharply criticizedthe United States for allowing Taiwan's Lee Teng-hui to make an unofficialvisit in June, and disagreement over human rights, arms proliferation andtrade issues could continue to affect bilateral relations. Taiwan's first democratically electedlegislature was chosen in December 1992. Pavedhighways form an extensive inland transport network, including a north-south freeway and a railway was completed in late 1991 which encircles theisland. The company has taken note of four areasin particular, China, India, Indonesia and Russia, which compriseapproximately 44 percent of the world's population, but where the averageperson consumes only one percent of an American's consumption of Coca-Colaproducts in a year. (1998, 13 February). (1997). Indeed, Coca-Cola has been successful in China ata time when PepsiCo is struggling in the same market (Sanborn, 1998,p. Mosthouseholds have access to electricity and household tap water, except inmountainous and remote areas ("Country Commercial Guide: Taiwan," 1996, p.5). In China, getting around the country can sometimes prove problematic.Domestic airline travel is often difficult to book, and sometimesunreliable. M., & Luthans, F. Taiwan encourages and facilitates direct foreign investment.Regulations affecting foreign enterprises are generally transparent andnon-discriminatory in order to further strong foreign economic relations.Taiwan has taken a number of steps in recent years to improve theinvestment climate, particularly in the service industries. Xerox,for example, has been successful in China primarily because it operates aspart of a joint venture and focuses on a long-term commitment. Although these controls led to a reduction in inflation,monetary policy remained loose, with M2 growth accelerating to 35.9 percentthrough the end of the first quarter of 1995 ("Country Commercial Guide:China," 1996, p. (1997, 6 January).Nation's Restaurant News, p. The set of price stabilization measures announced by thegovernment during the last quarter of 1994 were based on the reintroductionof a broad scale of price controls and other forms of administrativeguidance. A. Coke launches soft drink inChina. The issue ofTaiwan, which China considers part of China, is another destabilizing issuein China-US relations. Coca-Cola has long recognized the importance of internationalmarketing. 37), there remain peculiarities with whichcompanies must contend when conducting business in China. Despitethese difficulties, travel permits previously issued by the Public SecurityBureau are no longer required for travel to most destinations of interestto foreign business people. Travel by rail is reliable but slow and often crowded. Value Line InvestmentSurvey, p. Even though these government growth figuresmay overestimate China's GDP growth by several percentage points, China'seconomic growth nevertheless remains at a level far strong than many otherdeveloping countries ("Country Commercial Guide: China," 1996, p. Withcareful selection, training and strong communication, American companiescan obtain good market representation from Chinese partners ("CountryCommercial Guide: China," 1996, p. Barrett, R. 18). Air traffic has alsotripled over the past decade, making delays in domestic flights common.Although Kaohsiung Harbor is the third largest container port in the world,the average waiting time for entry reaches nearly seven hours. Taiwan is a land of small businesses and traders who import from allover the world. A strong local presence, with awholly-owned subsidiary, branch office, joint venture or agent/distributoris another key to success in the market ("Country Commercial Guide:Taiwan," 1996, p. (1997, May 8). A "negative list" adopted in 199 clearly specifies industriesclosed to foreign investment in industries such as agriculture, cigarettemanufacturing, liquor distilling, petroleum refining, basictelecommunications, broadcasting, and electricity distribution. The Chinese economy is one of the fastest growing in the world. The large number of firms makes it desirable for American companies towork closely with Taiwanese companies in order to penetrate this market. Competition comes not only fromrecognized industrial nations, but also from developing nations and theformer Soviet Union. 6). 18). Only those companies that have been authorized by the centralgovernment to handle export and import business are permitted to signimport and export contracts. 18). 4). The different faces of the Chineseconsumer. 1541). 3). In itsnegotiations to enter the World Trade Organization (WTO) as a developedeconomy, Taiwan committed to bring its trade and investment regulationsinto full compliance with international standards. Martinsons, M. Political In recent years, Taiwan has made significant progress in itstransition from a single-party, authoritarian policy to a democratic, multi-party political system. Because of this, market penetration is often builton personal relationships and on gaining close working relationships withkey Taiwanese distributors. Traffic has become very crowded in cities andon the freeway as well. As thereserve capacity of the power grid has fallen from over 2 percent toapproximately seven percent, power outages occasionally occur during thesummer. There is strong commitment to foreign business investment in Chinaamong top political leaders. However, the company spent two years in discussionswith the government when it was asked to leave the site to make room for ashopping center. A8. 5 8B1126). Despite the crippling financial costs of support forstate-owned enterprises, there is still little to suggest that the centralgovernment is prepared to risk the labor unrest which might follow anyserious effort to tackle the problem. (1997, 19 September). There are problems associated with entering the Chinese market,however; chief among these is the fact that China is a communist systemwith a highly centralized economy. Beverage World, p. Taiwan does soas a way to secure its independence; if it is unsuccessful in that attempt,it can at least hope that it can gain the "one China, two systems" thatChina has pledged to Hong Kong. Technological Two international airports are located at the north and south ends ofTaiwan, making access relatively easy for international visitors.Fourteen domestic airports connect major cities and key offshore isletswhile five international harbors facilitate import and export trade. This, together with the development ofregional operations centers, may improve Taiwan's infrastructure. Because of this, the company has adopted an aggressivestrategy to promote its products within these regions (1997 Annual Report,1997, p. Although China and Taiwan areboth difficult countries in which to conduct business, particularly forWestern organizations, Coca-Cola has used its tradition of working withforeign partners well, and has demonstrated that it is likely to remain thepremier provider of beverages to the world. Taiwan permits foreign direct investment through new investment,acquisitions, and mergers and takeovers as stipulated by the Statute forInvestment by Foreign Nationals (SIFN) and the Statute for Investment byOverseas Chinese (SIOC), and most industries are open to foreigninvestment. International Management.New York: McGraw-Hill. 2. As of 1995, there were more than 975, registered businesses onTaiwan, including 97, legal factories and an estimated additional2 , illegal factories ("Country Commercial Guide: Taiwan," 1996, p.6). (1996). Strategic Management in aGlobal Economy. This isnot an issue for Coca-Cola, which traditionally works with bottlers andlocal production facilities. The result is that multinationalcompanies have higher relative costs associated with their internationaloperations than their global counterparts. In late 1997, Coca-Cola launched two soft drinks in China which itdoes not market elsewhere. Vernon-Wortzel, Heidi & Lawrence Wortzel. Despite the difficulties, an increasing number of companies throughoutthe world are marketing on an international basis. Northwestern China has beentroubled by occasional unrest among minority ethnic and religious groups.However, dissatisfaction has not often translated into widespread politicalactivity since 1989, in part because the government is working to minimizetensions over its economic policies, but also because it traditionally actsquickly to repress any potential political protests ("Country CommercialGuide: China," 1996, p. For many products and services, companies are turning to thediversification that international marketing brings. A bill passed the Legislative Yuan inearly 1995 to encourage private participation in transportation projects,including a high speed railway, an additional north-south freeway, andseveral east-west freeways. Enter the dragon. China to pay McD for shuttered Beijing unit. New trading blocs, based onregional, not national, interests have formed with the European EconomicCommunity (EEC) and the North American Free Trade Agreement (NAFTA). 22). In 1996, for example, the company marked the Chinese New Yearwith a television commercial featuring a 4 -foot dragon made nearlyentirely of Coke cans. Shea, K. Introducing and marketing products abroadincreases the company's overall market share, and is thus a competitivedecision that many companies are turning to (Vernon-Wortzel & Wortzel,1997, p. 1541. Since the beginning of China's efforts to stabilize its economy in mid-1993, Chinese authorities have been reluctant to pursue tight macroeconomicpolicies that might lead to a sharp economic contraction. As a result of rising incomes, car ownership morethan tripled from 1985 to 1994, causing a shortage of parking spaces,especially in urban areas. Overall Both China and Taiwan actively court western business. 4). Coca-Cola. Washington, DC: U.S.Department of State. The democratization processcontinued with the first direct elections of the Mayors of Taiwan's twolargest cities (Taipei and Kaohsiung) and the Governor of Taiwan Provincein December 1994. By not being dependent on any one country or region for itsprofits, Coca-Cola has insulated itself from the market fluctuations thatplague its competitors. The other major reason that companies consider the internationaleconomy is the availability of markets. Inaddition, the company keeps lines of communication open with both its jointventure partner as well as with Chinese authorities, and it has been ableto thrive in a high-technology market as a result (Martinsons & Tseng,1995, p. In China, foreign companies are not permitted to directly engage intrade other than marketing goods they have manufactured in China. There are two primaryreasons why they do this: competition and markets. The commercial was shown in the United States aswell as China, Hong Kong, Taiwan, Thailand and Vietnam, and shows that thecompany perceives its Asian market as being global and accessible throughtraditional promotional activities such as television commercials (Ecke,1996, p. China's telephone system is undergoing rapid development, and servicequality spans a wide range, from state-of-the-art digital exchanges andcellular systems to the outdated older parts of the system. These are watermelon and coconut flavoreddrinks and are designed to appeal to local tastes. Therewill be increased pressure on these trading blocs to produce results forthe members as a whole, not merely for individual countries or companies. 562. The fact that at the end of 1994 more than8, Chinese firms had that authority (up from 1 or so 15 years prior)demonstrates the Chinese commitment to international business. Standard &Poor's NYSE Stock Reports, p. Journal of Engineering and Technology Management, pp.111-138. Ginseng export prices tumble. J. Generally, inmajor cities, the new digital exchanges provide good local service as wellas high quality international phone and fax service. Aswith air travel, booking can be a difficulty on railways, as well. Economic Taiwan has a population of more than 21 million, and a strong economyas demonstrated by 1994 per capita income of US$11,6 ("Country CommercialGuide: Taiwan," 1996, p. Washington, DC: U.S.Department of State. Acting in a global manner, rather thanmerely as a multinational, the company has introduced Fei Yang, a beveragedeveloped specifically for Taiwan. Grossdomestic product (GDP) slowed to 11.2 percent during the first quarter of1995, 11.8 percent in 1994. This is a significant market opportunity whichoffers high growth opportunities. McDonald's eventually received 1 million yuan for itstroubles, but this episode demonstrates the difficulty of doing business inChina, even when the company has a legal document (a lease, in this case)supporting its cause ("China to Pay," 1997, p. Despite China's strong economic performance, the country continues toface problems. The decision to enternew markets should not be undertaken lightly, however, and products whichare successful in one market may prove difficult to market in other areas.For those companies who conduct careful studies before entering a market,and for those companies which have the marketing acumen to understand themarkets in which they are selling, the rewards from implementing aninternational marketing program can be substantial. Legal and Regulatory Taiwan has taken a number of steps to liberalize its economy andimprove its investment environment as part of its effort to enter the WorldTrade Organization (WTO) and develop the island as an Asia-Pacific Regionaloperations center. The Party's most salient policydifference with the KMT has been the controversial issue of Taiwanindependence. Market opportunity and growth iscertainly present in foreign countries, although purchasing power can varygreatly. Searching for an agent in China can becomplicated by the separation of the two elements that basicallycharacterize international companies: import/export authority andaggressive marketing expertise. The China Business Review, pp. This has long-term ramifications for multinational andglobal companies. The nation enjoys a vigorous import/exporttrade with the rest of the world, although there are increased tensions asthe People's Republic of China, which took possession of Hong Kong in 1997,considers Taiwan a breakaway republic which properly belongs underCommunist rule ("Country Commercial Guide: Taiwan," 1996, p. Global companies arecompanies which operate with a high degree of consistency regardless of thecountry in which the operation occurs (Aizenman, 1994, p. 3). (1997, July-August). Most export performance, localcontent requirements and foreign ownership limits have been removed.Taiwan's comprehensive legal system is designed to protect foreigninvestments and property rights and ensure fair competition ("CountryCommercial Guide: Taiwan," 1996, p. (1997, 15 March). 7).
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