International Market Entry and Development in

the China: A Case for Low-Emissions Vehicles

in the in the Automobile Industry.
Bolaji Akinyemi

Northumbria University

Executive Summary
With the ever-increasing globalisation of business, organizations continue to find
themselves entwined in direct relationships with a new set of stakeholders that are
completely different from what they always knew, while even the home-based
stakeholders are now more assertive and highly demanding, this has been triggered
especially by the emerging information age which relies on the duo of the internet
and the information technology that come along within it.
Most products and brands which were hitherto locally owned now belong to
organizations that are thousands of miles away from the country, and there is hardly
any country of the world that is presently not engaged in international trade and
investment with organizations from other countries. One of such countries is China,
which has seen its economic fortunes improve in the last decade as a result its
aggressive involvement in foreign direct investment.
In accessing foreign countries, organizations engage in international business and
marketing, which involve the transaction of business and other value-adding
activities which involve the direct movement of the organizations goods or services
to consumers and users to one or more other countries apart from the home country,
all with the objective of earning profit. International marketing involves carrying out
marketing activities in more than one country, and at this level several complexities
are involved some of which have been discussed in this paper.
This paper discusses and critically evaluates China as a target and location for
foreign direct entry and international marketing, the automobile sector was selected
analysis, and Dunning & Lundans (2008) OLI entry strategy was suggested based
on the resource advantage of a low engine capacity and low emissions motor vehicle
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that was just introduced, and which already controls the UK market. In suggesting
entry into the Chinese market, several factors influencing such a strategy were
accessed from various studies and analysed with regards to their effect on the
organizations entry efforts.
Specific issues of market entry and development were discussed such as entry
modes (Dunning & Lundan (2008), as well as market characteristics, networking and
organizational performance which were presented in the framework by
Leelapanyalert (2009) based on Ghauri & Holstius (1996). A search of literature
revealed that FDI in China are mainly based on the contractual joint venture frame
work and few on wholly foreign-owned enterprises, and that the Chinese
Government are making positive efforts to stimulate investment and striking a
balance between foreign and local organizations with incentives. Recommendations
were based on the critical analysis of this literature.

International Market Entry and Development in

the China: A Case for Low-Emissions Vehicles in
the in the Automobile Industry.
Introduction
International market entry decisions are ever dynamic and complex, and involve
several different levels of continuous engagements that are aimed at advancing the
objectives of the firm such as gaining considerable market share, and increasing
sales, with a view to optimizing organizational profits while being enmeshed with
customers, competitors, suppliers and other audience in a foreign country. Choice of
entry mode has increasingly gained the attention of practitioners and researchers
and has resulted in several different empirical investigations of immeasurable
proportions from which various frameworks have developed.
Extant literature that have assessed each of the choice mode frameworks till date,
have not identified any of the modes as universally accepted, however, Pan & Tse
(2000) suggested that where host country governments do not dictate the entry
mode, then firms may as well choose the mode that aligns with their peculiar
strategies and objectives. Based on my client organizations quest for organic
growth, the automobile industry in the Peoples Republic of China has been selected
for entry based on its wide market, stable political conditions, dynamic market
competition, all of which make the country attractive for trade and investment
(Jeannet and Hennessey, 2004), and specifically enhances accelerated growth
which my client urgently craves.
Studies have presented understanding into entry modes regarding the Peoples
Republic of China (Child and Tse, 2001, Sun, 1999, Wei et al., 2005), and these

generally show that entry modes into China can take several different modes
depending on the level of investment commitment but the joint venture framework
pervades the Chinese automobile industry (Gallagher, 2003). The automobile
industry in China is growing at a very fast rate, resulting from increasing depth of
content and knowledge in this sector which has increased its relevance as an
important driver among the growth indices in the country, however, with this growth
comes pollution which has continued to challenge the economic and environmental
performance of China since the late twentieth century.
China has enjoyed steady economic growth in the past ten years, and it is now the
worlds largest automotive market which is based on foreign exports and domestic
sales, a market characterised by light vehicles of engine capacities below 1.6 litres.,
this study will critically evaluate the Chinese automobile sector, while presenting a
strategy that can be deployed by an automobile firm in introducing low capacity, low
emissions motor vehicles into the Chinese market, but first needs to address specific
issues of market entry and development which feature the Chinese automobile
industry. The proposed organization will be accessing the Chinese economy with its
new range of cutting-edge low emissions vehicles from a European country, for
instance the UK.
The Chinese Automobile Industry: A Critical Evaluation
The increasingly open nature of the economy has led to the exceptional growth in
the performance of the Chinese economy, especially relating to trade and foreign
direct investment, a most profound economic miracle of the 21 st Century. Estimates
show that its profile continues to rise with an 8.7% GDP in 2007, and a 9.2%
expansion in 2009 which peaked at 10.1% in 2010 (Chinability, 2009, Keqiang,
2011), this makes China the largest and fastest growing economy in the world, with
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market setting substantially different from those of Western countries (Lou and Park,
2001). Its increasing significance is particularly notable as a market and
manufacturing centre for the global automobile industry in finished product and
component.
This can be traced to the comprehensive economic reforms introduced in 1978 in
which the country officially allowed foreign direct investment and introduced
incentives to encourage home-based organizations, with a view to improving living
standards in the country, and by extension increased revenue for government (Tseng
and Zebregs, 2002). This liberalization policy has therefore resulted in the new-found
boom which has pushed China to new heights in international investments by foreign
corporations.
However, the peculiarities of the Chinese system engenders considerable challenges
for local businesses as well as international firms because of the countrys size and
the extent of engagement with international business (Child and Tse, 2001). This is
coupled with increased industrial activities which has sustained the continuous
economic growth and has also brought along with it a commensurate environmental
pollution burden that has increased since the move towards market economy and
integration with other countries of the world, especially with Chinas entry into the
World Trade Organization (WTO) (Lanchovichina and Martin, 2004, Zhu et al., 2007).
In order to maintain the need for sustained economic growth, Chinese governments
have continuously highlighted the automobile industry as one of the pillars of the
economy in China (Gallagher, 2003), the government therefore accelerated efforts to
integrate key industries into the global market place, part of which is the automobile
industry, and they have therefore been introducing policy which aims to manipulate

the driving forces of globalization which includes market competition, technological

change and environmental regulations (Gan, 2001) in driving the much needed
growth in the industrial sector, and this applies to the automobile industry.
Increased activities in the automobile sector over the years has enhanced growth
and reduced unemployment, however, this has made it one of the main culprits of
environmental pollution after the energy industry (He et al., 2002), and the
government policy of encouraging private car ownership has been questioned
because of this fact (Gan, 2001), challenges therefore exist in the management and
planning of policy and strategy which aims to mitigate the emerging environmental
pollution burden in China, and this is because of the perceived effect of green house

gases on the global warming phenomenon as well as the health hazards of

C02

gas

which is a waste product of motor vehicles on human beings (Gallagher, 2003).

These trends in environmental pollution and the significant contribution by
automobile industry (Zhu et al., 2007), have therefore stimulated a change in the
Chinese government attitude toward the industry, with more emphasis now on
stricter emission and oil consumption standards, which have seen to the introduction
of tighter environmental regulations (Bi et al., 2004), the government has therefore
been introducing policies which highlight increasing preference for small engine cars,
as well as the intensified support for the development of alternative fuel engines
(CEIBS, 2009).
Extant studies have identified that national and regional determinants influence
foreign direct investments into China, Wei (2004) aggregated these from several
studies, and highlighted that national determinants include market size (measured in
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GDP, GDP per capita, or GNP), rapid economic growth, low labour costs, positive
currency exchange rate, foreign portfolio investment, trade geographical proximity,
and the ratio of FDI to domestic investment, while regional determinants include
market size, agglomeration efforts, infrastructure, human capital, labour costs and
productivity, electricity consumption, and investment incentives. Most of the studies
reviewed agreed that regional market size is a major determinant of FDI in China.
Therefore, it follows that any organization with intent on accessing the Chinese
automobile market can approach the market with fuel efficient cars which my client
already specialises in producing. My client should consider the factors identified
above and target a coastal region for location purposes because of their low
information cost which is a major comparative advantage in China (Wei, 2004).
The organization can therefore approach the Chinese market from a resource-based
perspective (Johnson et al., 2008), using the ownership, location and
Internationalization (OLI) framework (Dunning and Lundan, 2008), with a product
which fits in with the sustainability policy and programs of the Chinese economy to
pave way for easy acceptance in the Chinese market by government and
consumers, since there is a considerable potential for growth given the peculiarities
of China as a profitable market, evidenced mainly by the intensity and size of its
market as well as the accelerated growth potential (Jeannet and Hennessey, 2004).

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