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MARKETING SKATEBOARDS IN GUANGZHOU, CHINA.
Term Paper ID:24779
Essay Subject:
Marketing plan. Objectives, economics, product analysis, promotion, distribution, documentation, joint ventures, duties & taxes. Tables.... More...
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Paper Abstract:
Marketing plan. Objectives, economics, product analysis, promotion, distribution, documentation, joint ventures, duties & taxes. Tables.
Paper Introduction:
I. EXECUTIVE SUMMARY
A plan is detailed for the marketing of skateboards produced in the United States in the People’s Republic of China (PRC). Marketing objectives, pro forma financial statements, and resource requirements are addressed.
The target market for skateboards in Guangzhou will be teenagers. Teenagers around the world they have similar likes and dislikes. Teens almost everywhere buy a common gallery of products. Persons in the 13-to-19 year old age bracket will comprise the primary target market for the skateboards to be exported to the PRC. Those persons in the relevant age bracket residing in Guangzhou will be targeted. Teenagers in families with annual incomes in excess of (6300 per annum will be targeted.
First year sales
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Bills of lading and air waybills mustconform strictly to the conditions and terms of the buyer's letter ofcredit. The plasticcovered wooden skateboard will be of good but not top quality in relationto the products sold in the United States.2. Both a marketingbudget and profit and loss statement are included. The import agent in the PRCwill accept the skateboards in Hong Kong. Asurvey by the United States consulate in Guangzhou of imported Americanbrand-name consumer products found that United States goods in Guangzhouare much more expensive than equivalent products in Hong Kong. "Stepping Toward Prosperity: The Development of Entrepreneurial Ventures in China and Russia." Journal of Small Business Management 34 (July 1996): 75-85.Rich, A. B. Chinese law in thisarea, however, is less developed, and there are legal risks associated withthis form of doing business because the Chinese government is likely toissue regulations in the future concerning cooperative joint ventures. 3. This sales level is a mid-level estimate.3. Nor are there any official channels through which foreignersmay appeal the value assigned to products they wish to market in China. Cooperative or contractual joint ventures may take any form agreedupon by the Chinese and foreign partners (Rich 25). If Guangzhou consumers seem to think anything"'foreign' is good, they appear to view anything 'American' as even better. An equity joint venture relationship will be established with awholesales located in Guangzhou. Persons in the 13-to-19 year old age bracket will comprise the primarytarget market for the skateboards to be exported to the PRC. Product cost: US$1,525, . A. The new rulescover the design, manufacture, installation, and operation. "Fun for the '9 s." China Business Review 21 (September- October 1994): 16-21.Barnes, D. The PRC requires all trade to be approved by licensed tradingcompanies (Rich 24). "A Financial Primer for Investors in China." Business Horizons 38 (July-August 1995): 32-36. In addition to the turnover tax, a corporateincome tax is assessed on net profits. Distribution expenses: US$3 , . Pro Forma Annual Profit and Loss Statements Pro forma statements are presented for the first two years ofoperation. Retailers Many foreign enterprises set up specialized counters in departmentstores in the PRC that sell the products on a consignment basis (Unlocking21). Today, most foreign trade is conductedthrough import/export companies at these local levels. Retailers,wholesales, import agents, and warehousing are covered.1. Thedestination port will be Hong Kong, as this port is the gateway toGuangzhou.2. Representative offices are officially recognized by the Chinesegovernment. Thisprofit level estimate is the net return to the venture on sales. The technique facilitatesfiltration of the ink through the polymer structure of the thermoplasticpolyester resin sheet used as the outer cover of skateboards. The target market for skateboards in Guangzhou will be teenagers.Teenagers around the world they have similar likes and dislikes (Tully 9 ). Because of relatively high disposable incomes, manyyoung persons in Guangzhou are quick to snap up the latest fashions-regardless of price. Profit Expectations First year profit expectations for the skateboard sales in Guangzhouare US$25 , . Since the tablesare classified as internal documents, however, foreigners are not allowedto see them. A. Teenagers in families withannual incomes in excess of (63 per annum will be targeted. An import agent will be contracted to bring the skateboards intothe PRC from Hong Kong.4. Over the last few years, however, theadministration of foreign trade has gradually been transferred from variousindustrial ministries and specialized import and export companies under theMinistry of Foreign Economic Relations and Trade (MOFERT) to the provinces,cities, and autonomous regions. The retail price of the skateboard marketed in Guangzhou will beUS$1 . Freight Forwarder A freight forwarder will not be used. Promotion Promotional considerations are covered in this section. Thus, the advertising for the skateboards in Guangzhou willfeature sports celebrities. Mark-ups and Discounts The mark-up on cost will be 25 percent.6. These organizations can only represent a foreign business,performing liaison and promotional functions. PRO FORMA FINANCIAL BUDGETS Pro forma budgets are presented in this section. Warehousing Warehousing of the skateboards will be provided by the Guangzhou-basedwholesaler with whom a joint venture relationship will be established. These designs will have American themes.3. Equity joint ventures are limited liability companies whose profitsand losses are shared according to the proportion of investment contributedby each partner (Rich 25). WORKS CITEDAtkinson, L. Governmentinspections of amusement parks will be carried out nationwide. The target market for skateboards in Guangzhou will be teenagers.Teenagers around the world they have similar likes and dislikes. Teensalmost everywhere buy a common gallery of products. Retail Price Pricing reforms in the PRC have allowed recreational goods promotersto seek their own price on the market, within certain guidelines (Atkinson18). 5. The dominant form of foreign investmentin China is the joint venture. The objective of this sales promotionwill be to encourage product sales. The State Bureau of Technical Supervision, the Ministryof Construction, and four other government departments issued a newregulation in 1994 giving the central government greater control over theconstruction and operation of amusement parks (Atkinson 2 ). Core, packaging, andsupport services components are covered.1. Wholly foreign-owned firms are liable for a tax of 2 to 4 percent of profits as well asan additional local levy that is fixed at 1 percent of the national incometax. Gross Margins The gross margin on the product will be 31.25 percent.7. Packaging Component Product promotion will rely in part on the association of theskateboards with the United States. EXECUTIVE SUMMARY A plan is detailed for the marketing of skateboards produced in theUnited States in the People's Republic of China (PRC). Local authorities will not approve shipments thatvary even in the slightest form from the original contract.5. Advertisingsales promotion, personal selling, and other promotional methods areaddressed.1. Since the early-198 s, importsof consumer goods generally have been tightly regulated by centralauthorities, who prioritized hard-currency expenditures for imports ofadvanced technologies and equipment. 4. Advertising To reach the global teenage audience (including those teenagers inGuangzhou), marketers must penetrate the "curious, impatient, thrill-seeking minds of teenagers. Marketingobjectives, pro forma financial statements, and resource requirements areaddressed. Mode Selection Ocean freight will be used to transport the skateboards from San Diegoto Hong Kong. Channels of Distribution Channels of distribution are addressed in this section. Teens almost everywhere buy a common gallery of products. Title will not pass to the joint ventureorganization in Guangzhou until the skateboards are received in acceptablephysical condition. First year profitexpectations for the skateboard sales in Guangzhou are US$25 , . Price Price considerations are covered in this section. Costs will be a part of the overalladvertising and promotional costs, which will be limited to $125, in thefirst year.3. Other costs: US$25 , . Chineseincomes taxes will be paid on profits at an estimated rate of 15 percent,as the joint venture organization will be located in an SEZ.5. Distribution From Origin to Destination Distribution factors are covered in this section. C. D. Persons in the 13-to-19 year old age bracket will comprise the primary target market for theskateboards to be exported to the PRC. Port Selection The port of origin will be San Diego, California, as this city will bethe location of the production facilities for the skateboards. Port selection,mode selection, packing, documentation, and freight forwarding areaddressed.1. Documentation Required Before imported goods can enter the country, Chinese customs officialsmust examine and approve all import documents (Unlocking 21). The production of consumer goods in China at present cannot cope withthe changes in consumer demand (Unlocking 2 ). Core Component A hot-stamping process called sublimation printing will be used tolaminate skateboards with colorful decorations. This sales level is a mid-level estimate. The estimate is that customs duties will approximate US$1 perskateboard. "Teens: The Most Global Market of All." Fortune 129 (16 May 1994): 9 ."Unlocking the Consumer Market." China Business Review 19 (November- December 1992): 18-25.Yadong L., and Min C. Import documentation is a highly regulated process (rich 28).Standard contracts must have price data, required packing and shippingmarks, shipping documentation, technical specifications, payment terms, andinspection and insurance arrangements. F. The PRC has a wide variety of partial or total exemptions that arebased on the type of project and the location of the firm (Yadong and Min34). The anticipation is that before Chines income tax profit will beUS$1 per unit. Finances,personnel, and production capacity are covered. per skateboard from San Diegoto Guangzhou.2. Rail will be used to transport the skateboards from HongKong to Guangzhou.3. G. The tradingcompanies, which operate on a commission basis, typically act as agents andlook after import procedures and documentation for the end user.Commercial enterprises are allowed to choose their own agents/tradingcompanies according to the scope of business of the foreign trade companiesinvolved. A turnover tax applies to both domestic and foreign firms and consistsmainly of a value-added tax (VAT), with the standard VAT rate fixed at 17percent (Yadong and Min 34). Cost of Shipment of Goods Shipping costs are estimated at US$5. Marketingobjectives, pro forma financial statements, and resource requirements areaddressed. Marketing Budget The pro forma marketing budget for the first year is as follows: 1. For equity joint ventures, thestandard national rate is 3 percent (payable to the central authorities),to which a local surcharge of three-percent must be added. A government agency issues import and export licensesas well as business licenses to trading companies. The objective of the advertising will be tobuild an American image for the skateboards. As an example, income tax is cut by half from for joint ventureswhose exports exceed 7 percent of their total output, bring in advancedtechnology, or are located in the special economic zones (SEZs) or thetechnology development zones. Methods of Payment Payment for the cost of the skateboards will be by bank transfer fromthe joint venture organization to the production company in San Diego.Profit remittances will be handled separately at the end of operatingyears. In Guangzhou, these values are based on Hong Kong prices and arecompiled in tables which are updated periodically. This mode of distribution has proven an effective marketing approach,particularly for brand-name products familiar to Chinese consumers.Department store retailing will be used to market the skateboards inGuangzhou.2. Foreign entrepreneurs may experience delays inreceiving any payments due to the time required by Chinese banks to obtainexport documentation. I. Advertising and promotion expenses: US$125, . 2. Transportation Costs Total transportation costs are estimated at US$6.6 per skateboard.3. Selling expense: US$5 , . "Cantonese Consumer Stampede." China Business Review 19 (November-December 1992): 28-33.Matthews, C. Costs for all advertising and other promotionalactivities will be limited to five-percent of expected annual sales, or$125, in the first year.2. Target Market Economic growth has resulted in increased incomes and greaterpurchasing power among the population of Guangzhou (Unlocking 18). H. Those persons in the relevant agebracket residing in Guangzhou will be targeted. E. Support Services Component A skateboard facility will be constructed in conjunction with aChinese partner to assure that purchasers of skateboards have a place touse the products. Anequity joint venture relationship will be established with a wholesaleslocated in Guangzhou.3. "Doing Business in China." Management Accounting 78 (August 1996): 22-28.Tully, S. THE MARKETING PLAN A plan is detailed for the marketing of skateboards produced in theUnited States in the People's Republic of China (PRC). This belief is evident from the growing popularity of American symbols inGuangdong packaging and marketing efforts" (Barnes 3 ). According to the terms of the 3 1 agreementbetween the PRC and the United States, however, China must eliminate about75 percent of its various import controls over the period ending in 1997.Currently, some 53 consumer items require import licenses, including suchgoods as confectionery, tobacco products, coffee products, videotaperecorders, air conditioners, refrigerators, washing machines, radiocassette recorders, televisions, cameras, watches, automobiles,motorcycles, skateboards, and computers. The rapid urbanization of Guangdong is a factor that has helped boostsales of consumer goods in the province, wherein Guangzhou is the largestcity (Barnes 29). V. Those personsin the relevant age bracket residing in Guangzhou will be targeted.Teenagers in families with annual incomes in excess of (63 per annum willbe targeted.2. Product Adoption The product is addressed in this section. J. Obtaining an importlicense requires adherence to strict procedures. Rising income levels have boosted tremendously the level ofexpenditure of Guangzhou residents (Unlocking 18). B. This estimate is subject to revision once actual importingbegins and customs officials of the PRC value the product.4. II. While profits are shared according to thepercentage of ownership, business decisions are made equally by allpartners-regardless of ownership proportion between Chinese and foreignpartners. Commercial invoice requirementsmust be followed to the letter. Foreign contributions must be more than 25percent of the registered capital, which is defined by the Ministry ofFinance. Marketing Objectives Marketing objectives for the skateboard venture are discussed.Factors related to the "four Ps of marketing," terms of sale, and methodsof payment are covered.1. Packing lists must show weight and contents of each package andcertificate of origin. B. These statements may be found on the following page.First YearItem AmountSales US$2,5 , Cost of sales - 1,525, Transportation and marketing costs - 725, Before PRC Income Tax profit US$ 25 , Second YearItem AmountSales US$2,75 , Cost of sales - 1,677,5 Transportation and marketing costs - 797,5 Before PRC Income Tax profit US$ 275, IV. Finances Working capital approximating US$2 , will be required. Wholesale Middlemen Equity joint ventures, contractual joint ventures, and foreign wholly-owned subsidiaries are three types of foreign entry in the PRC markets(Matthews, Qin, and Franklin 81). The most common ways of doing business in the PRC are throughrepresentative offices (Chinese trading companies), importing and exporting(direct trading rights), processing and compensation trade, export andimport licensing, joint ventures, and wholly foreign-owned enterprises(Rich 23). C. The American image of the skateboards will be promoted with freepasses to the skateboard park that will be constructed to support the salesof the skateboards in Guangzhou. Cost of goods,transportation, customs, taxes, mark ups, gross margin, and retail priceare addressed.1. Risingwage levels have increased the demand for products and triggered acorresponding shortage in supplies. Teens go from teddy bears to condoms .... This profit level estimate is the net return to theventure on sales. Superstar athletes exercise a shaman-like power over teen spending(Tully 9 ). The variety of domesticallymanufactured products is too limited and their design too old-fashioned.Even goods that are popular often cannot be produced in quantities greatenough to meet demand, and there are not enough commercial retail outletsto sell them in any case. Foreign ventures with a contract of morethan 1 years are not taxed for the first two profit-making years, thenhave a 5 percent reduction of income tax for the following three years.Those foreign firms that reinvest their profits in China over fiveconsecutive years get a refund of up to 4 percent of the tax payment forreinvestment. Production Capacity Production capacity in the San Diego facility will be set at 2,2 skateboards per month. The retail price of the skateboard marketed in Guangzhou will beUS$1 . Terms of Sales Terms of sale will be FOB. Personnel American personnel for the joint venture operation in Guangzhou willapproximate 1 persons. Packing The skateboards will be packed in foam and secured in wooden crates.This packing will be used to preclude damage to the skateboards in transit.4. A. Custom Duties Duties are generally assessed not according to invoice values, butaccording to product values assigned by Chinese customs officials (Barnes31). Import and Value-Added Taxes Generally speaking, the PRC has not imposed quotas on imports ofconsumer goods, but has restricted their import through currency controls,high tariffs (often in excess of 1 percent), and import licenses forcertain items (Unlocking 21). First year sales of the skateboards in Guangzhou are projected at25, units. Import/Export Agents Foreign exporters continue find it difficult to penetrate the consumergoods market as a result of the PRC's import restrictions through currencycontrols and high tariffs (Unlocking 18). Advertising will be placedprimarily on billboards. Sales Promotion Imported goods are valued as much for their symbolic value as theirinherent quality (Barnes 3 ). Normally, foreign equity contributions must be in the form ofhard working-capital currency. RESOURCE REQUIREMENTS Resource requirements are reviewed in this section. Companiesthat import must obtain letters of credit (issued mainly by the Bank ofChina and other specialized banks), import licenses, and approval to spendforeign exchange (Rich 28). Other Promotional Methods Other promotional methods will not be employed in the venture tomarket skateboards in Guangzhou. Frequently, theassigned values are higher than the actual invoice value. These ventures providethe foreign company with the greatest flexibility. An import agent will be contracted tobring the skateboards into the PRC from Hong Kong. Personal Selling Personal selling will not be employed in the venture to marketskateboards in Guangzhou.4. McC. III. Inall generations and cultures they discover sex, try on new identities, andseek approval from their peers" (Tully 9 ). Warehousing of theskateboards will be provided by the Guangzhou-based wholesaler with whom ajoint venture relationship will be established. They are not allowed toconduct profit-making business activities. Value added taxes will approximate US$3.4 per skateboard. Expected Sales First year sales of the skateboards in Guangzhou are projected at25, units. The foreign brands that attract mostGuangzhou consumers tend to be the same ones that are popular across theborder in Hong Kong. "This situation bodes well for foreign consumerproduct makers looking to export to China or to invest in manufacturingoperations there" (Unlocking 2 ). Therefore, packaging primarily will bein the form of the sublimated designs in the plastic laminate on theskateboard. H., Qin, X., and Franklin, G. Various kinds ofconsumer products, including durable goods, have become popular.
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