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Harley-davidson: Chinese Market Entry

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Globalization divides scientists into supporters and opponents. As a globalist, Latham (2000) categorizes conflicts from two perspectives; optimistic and pessimistic views. Optimists point out that with broader economic activity, extraordinary growth and certain threats, globalization offers opportunities for smaller and more resilient business units. He defines globalization as removing international barriers, such as geographic, social, and cultural constraints(Latham, M. (2000). Globalisation: ending the tyranny of distance. Quadrant, vol. 44, no. 12, pp. 48-53.). However, Peng (2013) argues that globalization will never exist. In practice, transactions are subject to certain regulations and rules. These rules can take the form of formal and informal institutions(Peng, M. (2013). Global strategy, south-western. Mason: Cengage Learning.).

As the leader of the American motorcycle market, Harley-Davidson administration may be optimistic about globalization. This can be derived from several successful attempts to penetrate the global market over the past two decades. Globalization is affecting when Harley-Davidson decided to expand markets outside the United States. This affects companies with four main factors: technical, political and legal, social and economic factors.

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In China, rapid population changes, increased income, increased personal consumption, and an increasingly open business environment have made the Chinese market more attractive to Western companies in various industries. Similarly, the decline in domestic sales has forced many US companies to place China at the center of their long-term global growth strategy.

Company Overview

Harley-Davidson is a leading American motorcycle manufacturer that sells motorcycles worldwide through a network of more than 1,400 dealers. The company offers cruise ships, large tourism models, sport bikes and off-road two-person models. The six motorcycle families include Touring, Trike, Softail, HD Street, Sports Star and their customer vehicle operation (CVO) models. Harley-Davidson’s stall selling branded products, including a variety of cycling gear and clothing (motorcycle clothing). Harley-Davidson Financial Services (HDFS) funds businessmen and consumers in the United States and Canada. The United States accounts for almost 70% of Harley’s revenue. Harley Davidson has a corporate office in Milwaukee, Wisconsin. Manufacturing facilities are located in Wisconsin, Pennsylvania and other cities in Missouri. Outside the United States, Halle plants are located in Thailand, Brazil, India and Australia, with branches in the UK and Singapore. Harley also has a product development center in Wauwatosa, Wisconsin.

China’s Market

China has a population of more than 1.3 billion, and its land area exceeds that of the United States. Therefore, China’s size and scale are more difficult to handle than other markets in Asia (including Japan and South Korea). Despite China’s huge potential market for foreign products and services, understanding where and how to realize these opportunities remains a huge challenge. Whether it is a large multinational company with strong influence in China, or the first-time company to enter the market without Chinese experience, foreign companies of all sizes and shapes lack success in China due to missing a local understanding.

The first thing that foreign companies usually need to know is that China is not a homogeneous market at all. Although China is geopolitical unified, social and economic conditions are more diverse and dispersed from a social and economic perspective. In recent years, the asymmetry of economic growth in different regions of China has exacerbated many economic and social differences that have already existed between different provinces. For example, there are important differences between states in terms of population level, GDP per capita, average income, consumption habits, education level, literacy rate, lifestyle and so on. Therefore, it is no exaggeration to say that China is not a single market, but a set of well-defined individual sub-markets, which have significantly different demographic, economic and cultural characteristics.

Because the nature and composition of markets in different regions of China are very different, foreign companies must carefully consider the optimal geographic location to target the Chinese market as a whole. In the past, these companies were often attracted to coastal areas such as Guangdong, Jiangsu and Shanghai due to their large population and huge income. In particular, foreign companies operating in the consumer market tend to focus on these high-income coastal areas.

Foreign companies in the automotive industry still focus on coastal cities, but commercial markets are often more regional. Like many countries, China is actively promoting the formation of industrial clusters in specific cities or regions, and often allows the entire industrial supply chain to be concentrated in several cities. In many automotive markets, these organizations allow foreign companies to know where their target customers are, the cities to focus on, and where their business is concentrated (especially where they are manufactured locally). The first step in helping to successfully enter the Chinese market strategy is to determine the geographic location of the target market and the best specific location to target first.

Government Policies and Regulations

Although China’s accession to the World Trade Organization in 2001 opened up China’s business environment to some extent, many industries are still heavily regulated. Many industries are still banned by foreign companies, and many industries remain heavily regulated. For example, China has severely restricted foreign companies’ participation in the petrochemical, energy and telecommunications sectors. Foreign companies wishing to establish domestic production bases in China should first consult the China Foreign Investment Directory, which categorizes foreign investment projects into ‘encouraged’, ‘restricted’ and ‘prohibited’ categories. As for automotive industry, it is encouraged in China, which is encouraged by Automotive Industry Development Policy. (https://books.google.jo/books?id=oDpWHVz2tO0C&pg=PA204&lpg=PA203&ots=xkz_7VjJfL&focus=viewport&dq=automotive+industry+in+china+forbidden,+restrict+or+encourage#v=onepage&q=automotive%20industry%20in%20china%20forbidden%2C%20restrict%20or%20encourage&f=false) As China’s economy develops and regulations and standards for specific industries continue to improve, domestic and foreign companies must comply. Currently, there are several groups of ministries and regulators in China responsible for supervision and industry law.

Regulations are becoming stricter and companies are already working to comply. In recent years, environmental issues caused by improper application of environmental regulations and widespread pollution have led to the introduction of stricter environmental laws. Foreign companies must now perform long environmental assessments to obtain local production permits. Because government regulations often affect the time and cost of entering the market, companies are encouraged to consider the impact of these regulations before entering the market. Notably, it is not because the product has been approved by European regulators or USA, it does not automatically guarantee that the product itself is approved by China.

Before deciding to enter the market, Harley should take the time to research and understand the regulatory environment. After entering the market, it is also important to monitor changes in laws and regulations and their impact on Harley’s business. Chinese regulators are usually slow and difficult to predict before regulatory changes occur. Another problem is that Chinese regulations are often vague and hard to interpret, allowing foreign companies to operate in a more transparent regulatory environment. Market researchers and legal advisers can help Harley better understand how Chinese laws and regulations are interpreted.

Market entry strategy

Place

In recent years, the main wisdom of foreign companies has been focused on Chinese cities (level 1) (Shanghai, Beijing, Guangzhou). National averages These cities are the most mature markets for Chinese consumer behavior, and are often the best testing grounds for foreign companies with little experience in China. Entering China’s level 1 cities can reduce the risk points when entering the market, but it also means that the company faces higher operating costs and greater competition. Shanghai and Guangzhou are the most suitable cities for Harley, these cities are perfect to automotive industry and has the target market population.

Positioning

The market position determines the type of product and the target market for the organization. In order to further increase market share, Harley may choose Shanghai and Guangzhou as the target markets for low-emission motorcycles. Improved economic conditions will increase people’s purchasing power in this target market. Improved transport infrastructure can also help stimulate purchases by residents in these areas. In addition, supporting policies and energy conservation awareness make scooters more attractive to consumers. All in all, Harley is able to target low-emission motorcycles in Shanghai and Guangzhou.

Price

Price here refers to pricing strategies such as discounts and credit terms. This is to offset the benefits and costs of the project. For Chinese car consumers, price is still a sensitive factor affecting purchase behavior. Therefore, Harley needs to adopt a low-cost strategy, and as more consumers enter the market, it will attract more consumers into the target market. Given the traditional spending habits of Chinese residents, the company should encourage car purchase loans to promote consumer buying behaviors at the same time.

Promotion

Promotions include organizing all forms of communication applicable to current products, services and concepts. Advertising, promotion and advertising are common components of promotions. In order to promote products in Shanghai and Guangzhou, Harley can provide various promotion methods. In these areas, TV commercials are very suitable. However, new media is useful, so don’t forget the print promotion. Previous print promotions will continue to be used by those who like these promotional channels. With the popularity of the Internet, communication channels cannot be ignored. In addition to advertising campaigns, Harley outlets can run promotions to attract residents’ attention. In addition, Harley may also conduct public relations activities such as new driver’s license exams, press conferences and public offerings.

Human Resources

Human resources are the experience, skills, and physical strength of the people in the organization. The human resources localization may be suitable for Harley to launch products in the Chinese market. This strategy can first use Chinese talents to solve the shortage of expatriates. Second, human resources strategies can help remove cultural and language barriers and thereby increase commitment to local governments. Third, this strategy is a good way for Harley to improve its target market image. For multinational companies, the allocation of human resources can also help maintain the stability of supervisors and improve work efficiency. So, Harley could take the localization strategy in human resources.

Market Entry Mode

One of the most important decisions a company can make when it first enters China is choosing the right entry method. Despite the growing number of foreign companies ‘operating alone in China’, the business model of a joint venture (JV) still has many advantages and is often seen as a lower-risk strategy than wholly foreign owned enterprise (WFOE). Similarly, if a particular market requires a local subsidiary in China, the use of a local broker or small representative office in other markets may be sufficient. The input status depends on many factors. This includes the state of the industry, geographic region, market size (if the company produces or imports products locally), sales levels, and technical and on-site support required by customers. Ultimately, when choosing the most appropriate form, a company must consider all of these factors and the total cost of creating a local entity and hiring local employees.

Export

Exports include direct sales to end consumers and indirect exports of goods sold through middlemen (such as distributors and distributors). The latter allows companies to benefit from local knowledge, while the former allows companies to maintain close relationships with consumers. E-commerce is an important form of direct export. Deficiencies include tariff barriers, transaction prices, transportation costs and exchange rate changes. Generally speaking, exports are the way to enter the market with the lowest risk but the lowest profit.

Licensing

It allows companies in another country to use intellectual property in exchange for loyalty. The company name is usually used and a third party is granted the right to manufacture or sell the product. Franchising is a form of licensing. This enables the company to generate new revenue and build its position in the market with very little time and money investment. However, without strict control by the licensee, this could expose the company to brand risk and create competition in the future.

Joint ventures

Creating a third company with other partners is the preferred way to enter the market, especially in emerging markets. Joint ventures mean that businesses can benefit from infrastructure, local knowledge and partner reputation. This gives you tight control over your licensing work and allows you to scale quickly. One of the challenges is to ensure that the strategic goals of the two companies are aligned. Joint ventures allow sharing of risks and costs in addition to commercial interests. This may be the only way to enter a particular market.

M & A

Mergers and acquisitions have the same advantages as the merged company, but they can improve market management. It provides instant access and fast commercialization to specific business networks without having to worry about conflicts of interest or imbalanced strategic goals. However, this can be expensive and put your business at greater risk than a joint venture.

Greenfield investment

By establishing a wholly-owned subsidiary, the parent company has complete control over sales. It requires a lot of investment, time and money, which is a more dangerous proposal. Investing in Greenfield is a long-term game with many challenges, such as hiring, complying with regulations, understanding market nuances, and acquiring local knowledge. But this is also a way to take full control of your brand and maximize potential benefits.

Joint venture and merger strategies are common. In recent years, Harley is committed to accelerating its positioning in the Chinese market and establishing a brand image. In order to save transportation costs and expenses, Harley can enter by joint ventures, mergers and acquisitions. Given China’s vast territory, these entry methods allow Harley to benefit from existing sales networks established by other companies. At the same time, with the help of partners, Harley has been able to accelerate reconciliation in China. These conditions can also help reduce collection time.

Harley has always been popular for its well-known operating model. The lean manufacturing industry is still applicable at this stage to successfully penetrate the Chinese target market. This helps avoid wasting materials, time, location, etc. Given the sensitivity to consumer demand, Harley should research and develop new products. During this period, product quality must be rigorously tested to maintain a good product image. The implementation of GIS is necessary for management operations.

Conclusion

As China’s economy continues to grow and open to foreign companies, the rewards it receives become more important than the challenges it faces in doing business in China. Despite the old saying ‘everything is possible in China, but no easy task’, many foreign companies doing business in China are still true. China is a growing country, and its market is growing faster than almost anywhere in the world. Therefore, there is no single way for foreign companies to enter the Chinese market. The strategy for each business in China is the industrial sector, product type, business size and culture, long-term business goals, and the company’s global vision. Harley started as a local distributor in the United States. Finally, it started exporting cars to multiple regional markets. In order to achieve greater success, Harley has become a follower of multinational marketing and has now become a true global distributor. Today, Harley uses a local advertising agency to run a manufacturing plant locally and follows a marketing strategy that meets the needs of the marketing department and local consumers. At each stage of global expansion, Harley reviewed its attitude, focus on marketing, and core business philosophy. 

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