Market Entry Strategy For Ocado In China – Analysis And Recommendations

Overview of the Chinese Retail Market

Ocado was established in the year 2000 in the United Kingdom. The company got its place in the London Stock Exchange on July in the year 2010. The company is the largest online grocery dealer and caters to more than 500,000 customers who are satisfied with the service offered by the company. The objective of the company is to provide the customers various experiences with respect to the ranges in shopping and the prices of the products, which will help in building long-term bonds with the customers. The company operated with an end-to-end operating solution, which is based on technological advancements and internet protocol. Since the world in developing on a faster pace, the consumers are shifting to the advanced technologies for their shopping (Grade 2015). The purpose of the assignment is to develop a strategical plan for Ocado so that it can enter the Chinese market. There is a huge demand of products in the Chinese market because of the different cultures that are present in the market. This will help in maximizing the profits for the company. Being an emerging market for the company, it can utilize the potential that is present in the market and avail the cheap labor cost as well.

In the last thirty years, the shopping habits of the Chinese consumers have changed largely, which has helped many new companies to enter the market. Due to the high income of the people, their purchasing power has increased, which has led to a boom in purchasing products from the foreign companies. With respect to the grocery sector, the consumers now prefer healthy foods from different companies, which have led to an inflow of many foreign companies establishing their brands in the Chinese market.

Political

The World Trade Organization (WTO) had promoted free trade with the foreign countries with China by removing all the barriers and encouraging the western countries to enter the market and cater to the needs of one of the most populated countries in the world. This helped in creating joint ventures between three malls such as Anshan, Fushan and Qinhuangdao. Apart from this, opening of eighteen new hypermarkets were expected in China by 2010 (Tomba 2014).

The economy of China has been open from 1978. The country transformed its economy in to a market-oriented factor that will help in creating an impact not only on China but also on the world as well. The reforms that China had made helped in increasing the level of entrepreneurship to be affected in the country over the last twenty years. This resulted in a reduction of poverty and the per capita income of the people had increased. This resulted in the decrease of the exchange rate, which proved that the economy was developing at a very fast pace (Economy and Levi 2014).

Opportunities and Challenges for Ocado in China

The rising population in the country has affected the economic growth largely. The current population of china is estimated to be more than 1.3 billion and will continue to grow by 0.50 percent every year. To curb this problem, the government has implemented birth limitation policy so that the citizens can abide by the rule. The unemployment rate in the country can be estimated to be around 4.5 percent, which has forced the government to increase the minimum wages (Li et al. 2014).

China has great opportunities in the technological fields with respect to biotechnology and computers, which has helped the country in making modern innovation in these fields. The Trans-Pacific contact has helped the country in boosting up the cooperation with United States with respect to scientific research. The year 2006 saw China and US enter in to a five-year Science and Technology Agreement, which will help both the countries to be technologically advanced in their respective fields. Both the countries enjoy close relationship with Japan and Europe that will help them in gaining cooperation with respect to science and technological advancements (Jer 2014).

The Chinese market is home to industrial development that has serious negative impacts on the environment due to the increase in the levels of pollution and the depletion of natural resources. The year 2007 saw the country as the largest emitter of carbon dioxide and other harmful gases that led to greenhouse effect. Scarcity of water is also another issue in the country due to the large amount of industrial effluents being flown in the water. It is estimated that the government to clear the pollution spends around 7 to 10 percent of the economy (Li and Liu 2014).

Currently, the country is seen being an active participant to reduce the environmental pollution. It has discussed with the developed countries how to curb the pollution levels and the issues that are concerned with the environment of the developing countries.

To encourage foreign companies to invest in the Chinese market, the government has managed to set up a completely different law, which will help the foreign investors to carry on with their investments in a better way.  The government made three basic rules and regulation that is law on Chinese-Foreign Equity Joint Ventures, the law on Wholly-Owned Enterprises and the law on Chinese-Foreign Contractual Joint Ventures. These laws made it easy for the foreign companies to come and invest in the Chinese market. These laws provided the base for the foreign companies to operate freely in the country as it protected the rights and interests of the overseas investors (Shou et al. 2014).

Threat of new entrants

Analysis of Ocado’s Strengths and Weaknesses

One of the major barriers for entering in the Chinese market would be the well-established brands that have been operating in the market. Companies like Walmart, Auchan and Yihaodian will provide stiff resistance to Ocado as they operate in the same way. These brands have customer loyalty as they have operating in the Chinese market for a long time. They have access to all the resources in the country along with the promotional activities such as advertising, which will help them in protecting the major share in the market. It can be said that the threat to Ocado is on a medium scale, as the rules and regulations set by the Chinese government will help the company in establishing their brand image (Wu 2015).

The supermarket industry has a high level of competitive pressure that is created by the rival sellers to gain the top position in the market. The Chinese market has seen high levels of promotion and wars with respect to price because of the high level of competition that is present in the market. The growth in the population and the needs of the consumers and the average number of people in the household has raised the demand for supermarkets in China. The technological advancements have allowed the people to order the products that they want to be delivered at their place. Companies like Yihaodian and Auchan are serving that purpose in the country for a long time, which has helped them in earning the loyalty of the customer (Rothaermel 2015).

The company has categorized its suppliers in four main sections that are the food suppliers, non-food suppliers, non-perishable and perishable suppliers, which helps the company to sort the products accordingly. The companies in the market have a low bargaining power as the big retailers help in determining the prices of the product because of the availability of the potential suppliers in the Chinese market. The company can stand a chance to gain if it can identify the suppliers as it has done in the parent country that is the United Kingdom (Wei 2015).

The company needs to target the private people, small and medium-sized restaurants along with the distributors of food service in the beginning. This will give the company to get a sizeable portion of the economy, as they will target the lower sections, which will help them in gaining knowledge about the market. The company can maximize its profits initially be maintaining a tight space with respect to the shelf, which will help in keeping the price of the products low. The power of the buyer in the Chinese market in low and can be seen that the trend will continue for the near future (Wu 2015).

Necessary Resources for Market Entry in China

The retail industry with respect to supermarket has to resist competition with a number of other stores. The company has to keep different type of goods and products, which will help in fulfilling the needs of the customers. The threat of substitute in the market is low, as it will be easy for the company to operate in different type of stores (Wei 2015).

The vision of the company was to establish the first supermarket in the present generation.

The mission of the company is to align the customers, various stakeholders and the investors strategically, which will help in building long-term values with the shareholders.

To enter the Chinese market certain consideration need to be done by the company such as the market is not a singular market where every state has a different taste and preference. The middle class in the country is growing rapidly, which is increasing the disposable income of the citizens. To succeed in the market, it is important to have local partners, which will act as a guiding light for the company due to the strong competitors that are present locally (Oglethorpe and Heron 2013).

The company can consider entering the Chinese market through wholly owned subsidiary, which will give the investors of the company complete control over the capital and the equity. It will be easy for the company to export the goods to the country so that the local investors can market the products in the country. This strategy will help the investors to take control of the decisions, operations, and human resources and adapt to the corporate culture that is present in the company. The company through this way can lower the risk of financial losses if they have a local partnership as they have a better knowledge of the market. The economy of China allows the currency to be exchanged from the local currency that is Renminbi to other currencies, which will help the company to have access to the profits who have their headquarters in United Kingdom (Maher and Sollund 2016).

The company can opt for another mode of entry that is by licensing to the distributors or franchising it. The company needs to identify a local distributor that will help the company to manage the products in China. This will help the company to require minimum resources, as the process is simple. There is however, a disadvantage as well that is the company will have no managerial control over the marketing and handling of the product. They will have no knowledge how better the products are being accepted in the Chinese market. the company can reduce the risk by having a number of distributors in the different states that the company wants to carry its operation (Oglethorpe and Heron 2013).

Core Competencies for Success in the Chinese Market

The generic strategies are divided in to cost leadership, focus strategies and differentiation, which are the competitive forces that are present. The company comes under the cost leadership strategy as it tries to reduce the cost of the products. It competes in the market by lowering the cost of the products. In the parent country, it tries to match the prices of the product with that of Tesco, a supermarket chain in UK. It urges the customers to compare the prices of the products before a purchase is being made. The company however, does not stick to this strategy wholly. It tries to deliver the products on time and continuously tries to change the style and quality of the products that would help in grabbing the attention of the customers (Rothaermel 2015).  

The company has a broad range of products. The company offers more than 20,000 products for the customers to choose from, thus arranging a vast array of differentiation. Most of the products are available to the company by Waitrose, a leading UK supermarket that deals in high quality products. The range of the products includes small and big brands so that it can cater to the various needs and preferences of the customers (Metzger 2014).

The company also sells Waitrose branded products, which helps the company to maintain a stable financial position with respect to its future endeavors. The company has gone in to a ten year agreement with Waitrose in 2010, which will help the company to sell more products of Waitrose. However, the company is not dependent on Waitrose as around 85 percent of the items that are present in the company are directly from the suppliers (Hassan, Sistani and Raju 2014).

 The company is very much dependent on the UK market. the entire profit for the company comes from one country only. If there is an economic crisis in the country, then the company will suffer by incurring huge losses. The competition in the area has also increased, which is providing stiff resistance in the growth of the company (Metzger 2014).

The company can expand its products in the non-grocery sector as well in the future. This will provide an opportunity for the customers to choose from a variety of the products. The rate of growth in the non-grocery sector is more than in the grocery section, which will help Ocado to increase its sales revenue (Maher and Solllund 2016).

Recommendations for Market Entry Strategy

The company operates in a highly competitive market where the companies are struggling to create huge customer base. If a recession hits the economy, the customers will be looking for cheaper price products than what the company provides, which will damage the brand image of the company. Another threat is the risk of fraudulent activities that may arise within the company. Since the company mainly operates over the internet and mobile, there is a high chance of the accounts being hacked and breakdowns in the security (Hassan, Sistani and Raju 2014).

Conclusion

Therefore, it can be concluded that to enter the Chinese market Ocado needs to take in to account the external environment of the country. The market entry modes need to be considered by the company so that they do not face any problem in the new market. Since the company follows the cost leadership strategy, it needs to follow the same in the new market as well. The company needs to try out a small market in the beginning so that it can take the feedback of the customers. If the response is good, then the company can plan to set up more locations in the different provinces.

Reference List

Economy, E. and Levi, M., 2014. By All Means Necessary: How China’s Resource Quest is Changing the World. Oxford University Press.

Grade, G.B., 2015.  Financial Analysis: Ocado Group Plc.

Haskel, J., 2015. Understanding innovation better: an intangible investment approach. Asia-Pacific Journal of Accounting & Economics, 22(1), pp.13-23.

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Jer, R., 2014. What makes export manufacturers pursue functional upgrading in an emerging market? A study of Chinese technology new ventures. International Business Review, 23(4), pp.741-749.

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Li, Y., Chen, H., Liu, Y. and Peng, M.W., 2014. Managerial ties, organizational learning, and opportunity capture: A social capital perspective. Asia Pacific Journal of Management, 31(1), pp.271-291.

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Rothaermel, F.T., 2015. Strategic management. New York, NY: McGraw-Hill.

Shou, Z., Chen, J., Zhu, W. and Yang, L., 2014. Firm capability and performance in China: The moderating role of guanxi and institutional forces in domestic and foreign contexts. Journal of Business Research, 67(2), pp.77-82.

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