Part I.
Short Answers: Please read the questions carefully and answer two (2) of the following three (3) questions. Please note that each question has two parts.
Question 1. Economic and Market Environment in China
1.Please 1) explain what we mean by the “China Syndrome” suffered by foreign firms during the earlier years of FDI in China (12 marks), and 2) how these misconceptions of the China market have heightened risks and hampered the operations of foreign firms in China with one example of a failed foreign operation? (13 marks) (Total 25 marks).
Question 2. Hong Kong’s Economic Relationship with the Mainland
2. Please 1) explain briefly what the Closer Economic Partnership Arrangement (CEPA) between Hong Kong and Chinese mainland isand its historical background and rationale (12 marks), and 2) explain what kind of products and firms may be at a better position to take advantage of the CEPA with an example for a Hong Kong and another example for a non-Hong Kong firm (13 marks) (Total 25 marks).
Question 3. China’s Consumer Market
3.Based on the pyramid structure of the China’s consumer market proposed by Cui and Liu (1999), 1) please compare and contrast the LARGEST and the SMALLEST consumer segments in terms of their demographics and psychographics (12 marks), and 2) discuss their consumption patterns, lifestyles, and responses to marketing strategies for each of the two segments(13 marks) (Total 25marks).
Part II.
Hershey joint venture targets Chinese sweet tooth
In January 2008, U.S. candy and snacks group Hershey Co. and South Korea's Lotte Confectionery Co. will set up an $80 million joint venture to make and distribute chocolate products in China, aiming to boost share in a market dominated by Mars Inc. Lotte is South Korea's largest confectionary and ice cream manufacturer with successful Xylitol gum and a variety of other refreshment products. Hershey, Pennsylvania-based Hershey, the largest U.S. candy maker, manufactures chocolate brands such as Kisses, Reese's and Hershey's. The joint venture is in the Jinshan manufacturing facility in Shanghai but headquartered in Hong Kong. The venture will start to produce chocolate in August. Along with sharing production facilities in the country, the two companies will also work together on distributing their products throughout both China.
The Hershey Company is the largest North American manufacturer of quality chocolate and sugar confectionery products. With revenues of nearly $5 billion and more than 13,000 employees worldwide, The Hershey Company markets such iconic brands as Hershey's, Reese's, Hershey's Kisses, and Ice Breakers. Hershey is the leader in the fast-growing dark and premium chocolate segment, with such brands as Hershey's Special Dark, Hershey's Extra Dark and Cacao Reserve by Hershey's. Hershey's Ice Breakers franchise delivers refreshment across a variety of mint and gum flavors and formats.
Lotte and Hershey said that the chocolate products market in China is currently estimated to be worth 600 billion won (US$639 million). Though currently smaller than mature markets like Japan, demand for chocolate in China is estimated to be growing by around 10 - 15 per cent a yearand sees doubling every few years in tandem with economic growth.It could become the global leader in the sector over the next few years. However, China’s chocolate market is 50 percent controlled by Mars, another big U.S. company that own famous chocolate brands like M&Ms.
The deal potentially opens the door on a huge market for the maker of Hershey's Kisses and Reese's peanut butter cups. The company wants to start shipping its products to retail locations in China by this August. “By 2010, we want to have the No.2 market share in China, or about 23 percent," Hershey Senior Vice President John P. Bilbrey said, adding its market share now hovers around 10-12 percent in some parts of the country. Through this alliance, they hope to grab in advance a portion of the China’s expanding chocolate market.
Hershey's products are already exported to and widely sold in China, although they are relatively expensive for local tastes and so mainly sold at top tier stores. The Shanghai region is considered the most lucrative for confectioners selling in China, given the local taste for sweets and the relatively strong spending power of its consumers.
According to the company, “We know our brands appeal to Chinese consumers, and we are taking a significant step in building the supply chain capabilities to bring our products to market. Working with Lotte, we'll be able to produce affordable products in the right flavors and formats for the local Chinese market. The manufacturing facility in Jinshan also gives us the flexibility to make products closer to our consumers, bringing locally relevant and innovative new products to markets faster and fresher." The facility will enable Hershey to expand its business within China.
The Pennsylvania company has had disappointing sales in the US market during recent months after years of reduced promotional spending. Meanwhile Hershey's faces tough competition from rivals such as the Swiss food behemoth Nestle. One problem Hershey faces is that so far, Americans are the main buyers of its products. With unspectacular U.S. sales growth and more layoffs of hundreds of employees in the US, Hershey is pinning its hopes that people in China will develop a liking for what a long-ago ad campaign called "The Great American Chocolate Bar".
Most people in China prefer fruit as a dessert. If you've ever wandered the streets of Hong Kong, you'll know that Chinese sweets look and taste very much different from the traditional offerings by Hershey. Finding the right flavors to meet local tastes remains a major challenge.For Hershey, that means looking for ways to cater to different tastes, such as offering its Reese's cups with almonds and hazelnut. The company can also try green tea Kisses and almond Reese's cups.
But tastes are changing - driven partly by the desire of young people to adopt some Western customs - so many corner stores in bigger cities such as Beijing and Shanghai now carry chocolate bars. Wrigley, Cadbury, Mars and Nestle: It's hard to mistake the dominant presence of Western candies, gum and chocolates over Asian, and even traditional Chinese herbal candies. “On display at the 7-Eleven store in downtown Beijing, sales of Western candies and chocolates are much better," store manager Wang Peng said. "Dove and Nestle are the most popular here," as shown in this picture of a model sporting an outfit decorated with chocolate candies in a fashion show in Beijing.It helps that stores and retailers in China have been promoting holidays like Valentine's Day to build sales, tapping into the appeal of Western culture. Even though people in Chinahave much lower candy consumption rates, they have a higher proportion of some of the biggest candy consumers - children and teenagers.
The mainland market is full of local and foreign competitors. It also means playing catch-up: With a head start of a decade or more, Hershey's top competitors like Mars and Nestle have accumulated solid market shares while learning important lessons in areas ranging from distribution to pricing.The century-old Hershey, synonymous with chocolate in the United States but relatively unknown abroad, must learn how to get products to shelves in a country where most shoppers are switching fromstreet vendors to supermarkets and convenience stores.In addition, someChinese companieswould copy the products of foreign companies sometimes under similar names.
Another formidable challenge is the rising health-consciousness among the Chinese people. Once a country of catastrophic famines, where a little extra fat was valued as a sign of good health, China is becoming obsessed with being thin. Glossy magazines are filled with skinny models and crammed with ads touting diet pills and teas and odd-looking weight-loss machines. Although the obsession is certainly greatest among young people and in larger cities, diet centers are springing up even in small towns and rural areas. As obesity is on the rise across all age groups, especially among the children, it has become increasingly challenging to market western-style sweets in China, as people try to reduce their daily intake of sugar and fat, often associated with western style food. Hershey hopes to seduce the Shanghai consumers with its sweet candies without drawing too much attention to their sugar content.
Part II.
Questions: Please read the above case and the following questions carefully and answer Two (2) out of thefollowing Three (3) questions. Please note that each question has two parts.
Question 4. Entry Mode Strategies
4. Hersheyhas decided to go into China using a joint venture with a partner from a third place (Korea)instead of on a wholly-owned basis. Based on the case information and classroom discussion, please 1) first discuss its pros and consof the two strategies (joint venture vs. wholly-owned subsidiary) (12 marks) and 2) second, evaluate this strategy ofHershey and justify whether it is an effective strategies and why (13 marks). (25 marks).
Question 5. Entry Order Strategies
5.In comparison with other foreign chocolate producers such as Mars and Nestle,Hersheyis probably not a pioneer in China. Being a follower or a latecomer has its advantages and disadvantages. Based on our discussion of “entry order” strategies, please 1) first name three advantages and three disadvantages of a first-mover vs. those of a latecomer (12 marks), and 2) discuss that given Hershey’ entry position, how it can enact effective operations and marketing strategies to catch up with the market leader (13 marks) (25marks).
Question 6. Standardization vs. Localization of Marketing Strategies
6. 1) First, please compare the standardization strategy and localization strategies in terms of their pros and cons, and explain which of the two strategies is more effective for Hershey to enter the China market? (12 marks)2) Second, depending on your answer to the first question, please recommend marketing mix strategies for Hershey in terms of product assortment, distribution, promotion and pricing for the China market (13 marks) (Total 25 marks).
End-of-Questions
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MKT221 – Marketing in the Chinese Mainland
Second Term Examination, 2007-08