Case Studies

Featured Case

Market Entry for New Product Launch

Key Takeaway:
Western Company currently working in China wanted to enter a new market, but needed to validate the need and assess financial risk.

A U.S. Multinational Company (MNC) was extremely interested in exploring and possibly entering the China agricultural market for hand-held agricultural equipment. The MNC was already active in the Chinese market for other products. They wanted to determine the best way to expand both its product and distribution/brand footprint to continue its growth trajectory in China. They had experienced an easing export volume.

The Chinese market for agricultural equipment was defined to be a large market. The MNC engaged East West Associates (EWA) to research the industry and make determinations:
  • Whether the MNC is too late in entering the China market
  • Whether the MNC should enter the China market as a component supplier or an end-product supplier of equipment
  • How the MNC should enter the market - either establish their own Greenfield operation or acquire a China company
Within a 4-month timeframe, EWA personnel were tasked with gathering and validating the following information:
  • The opportunity for the MNC of entering the Chinese agricultural sector, the market size – i.e. the number of units sold, total gross revenue of the industry, and profitability
  • The ease /difficulty of entering the market (local and national government regulations, regional barriers, established competitors, understanding of market fragmentation and regional usage of the products)
  • Recommendation as to type of entity or form of business entry strategy (component supplier or end-product manufacturer, acquisition of Chinese competitor or Greenfield operation)
A secondary market study was conducted utilizing desktop sources (Chinese governmental ministry publications, qualified Chinese studies, etc.). Based on this data, the research identified the size of the domestic market, top 70 suppliers by rank, Chinese government regulations as to subsidies in the agricultural market, and product specifications. Additionally, EWA personnel analyzed the Chinese government’s 5 Year Plan and identified the government’s investment in agriculture by the region.

After conducting manufacturers, dealers, suppliers and end user interviews, a clear understanding of the:
  • Market Size, top 12 Chinese manufacturers of equipment tillers and rice transplanters,
  • Degree of government intervention (subsidies)
  • Market fragmentation
  • Growth trends
  • Industry profitability
  • Industry Supply Chain
  • Channel Strategy
  • Industry Cost Structure
It was determined that no single Chinese competitor was the market leader in 2 or more provinces, which resulted in a very fragmented market. Additionally, national and local Chinese government agricultural subsidies paid the Chinese farmers up to 90% of their cost to purchase the equipment. Subsidies were used to support local / provincial manufacturers and applied to local products in many cases. As a result, it was very difficult to estimate or evaluate on a year-to -year basis the government’s payment of subsidies without significant variances each year by province and product.

This created a very fragmented market and it became evident that, if the MNC wanted to reach 30 % market share, it would require a roll up of 3 to 4 of the manufacturers. There was still the uncertainty of the subsidies that could swing a tiller or rice transplanter price from 10% of the suggested retail price to full price to the farmer. The sales volumes of tillers and rice transplanters moved in direct relationship to amount of government subsidy and thus, natural market forces were skewed heavily.

The MNC decided to redesign their engine power source and sell directly to all 70 Chinese equipment manufacturers and not to enter the end-product business either as a Greenfield or through acquisition.

This market entry strategy allowed deeper penetration into all regions and OEMs. The MNC did not have to make the capital investment to acquire 3 to 4 end product manufacturers and face the uncertainty of the government subsidy issues. Additionally, it allowed the MNC brand to be distributed to outlaying provinces and helped the MNC continue to grow in China.

Servicing China/Asia from Multiple Manufacturing Sites

Attempting to utilize a single facility in Asia to supply multiple countries can prove problematic due to non-tariffs barriers such as lead times to markets, tax rebates, and access to both domestic and international markets.

Market Strategy & Competitive Research

Western client needed critical competitive data on the China market in order to evaluate multiple Market Entry Strategies. East West Associates (EWA) conducted the Market Research on-the-ground in China and evaluated the data with the Company to determine which strategy best met its Financial, Strategic and Operational objectives.

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