Nero in China

Entry Modes

The choice of entry mode is decisive for the successful performance of the business in the foreign market. After China’s accession in the World Trade Organisation in 2001 the Foreign Direct Investments in the country were stimulated by introducing the non-tariff barriers, tax exemptions and lower tax rate.( Cavusgil, 2002) The fact that the most of the foreign investments in China are made in the form of direct investments is a good indicator, that the country is not considered as a high-risky region for investments. The most common forms of direct investments are Joint Ventures and Wholly Foreign-Owned Enterprises. We recognise the latter one as most appropriate for entering the Chinese market for a number of reasons. Before making the decision, transaction cost must be taken under consideration. As the Joint Venture involves a partner it may offer an advantage, because being from China he will have a local knowledge and this can be in favour to reduce the transaction cost. From other side they are more expensive to establish and operate. (Geng Cui, 2005) Sometimes there’s a risk the company’s technology, in this case it’s the technology of making the coffee, to be copied from the partner. Another disadvantage of the Joint Venture is the possibility to arise conflicts between the partners. In the form of Wholly Foreign-Owned Enterprise the business holds the capital and has complete control over it. As China is highly regulated country, in order to deal with the cultural differences and local rules we intend to employ local experts to help us with the legal and regulatory system in the country. As part of our entry strategy, before entering the market we are planning to establish an office in China of our Nero coffee chain where we’ll have the opportunity to collect information, establish local contacts and research the market potential.

Promotion

‘Product and promotion go hand in hand in foreign markets and together are able to create or destroy...