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Marketing strategies of Chinese companies

Focus on Germany and EU

Diplomarbeit 2008 84 Seiten

BWL - Offline-Marketing und Online-Marketing


Table of contents

List of abbreviation

List of illustratio

List of table


1. International Background
1.1 Upgrade in high-tech-premiership
1.2 "Go global" - politics of Chinese central government
1.3 Securing resource
1.4 Know-how transfer
1.5 Motivation from inside China
1.6 Advantage by state-aid
1.7 Strategic objectives and measures

2. Chinese companies in Germany
2.1 Area and Branch
2.2 Introduction of Chinese companies

3. Marketing strategies of Chinese companies
3.1 Marketing basic strategies
3.2 Possible options of marketing entry strategies
3.3 Marketing entry strategies of Chinese companies
3.3.1 Entry without marketing effort Indirect exporting Home country agencies - trading companies Licensing Original equipment manufacturing (OEM) - "China procurement" Turnkey contract
3.3.2 Entry with marketing effort Direct exporting Trade fairs Trade agent or distributor overseas Sales subsidiary overseas Strategical alliance Joint Venture R&D alliance Wholly owned manufacturing subsidiary (FDI) Assembly plant R&D centers Logistic centers Merges&Acquisitions (M&A) Acquisition of Business Units or total companies Acquisition of R&D centers Acquisition of shares
3.3 Steps of Chinese investment overseas and competitive strategies
3.4 Other strategies
3.4.1 Regional market exploration Bridge-head strategy Waterfall strategy
3.4.2 Market segmentation strategy
3.4.3 Industry concentration as platform of Globalization
3.4.4 IPO overseas
3.4.5 Application of traditional Chinese strategies

4. Issues in China's internationalization
4.1 Integration issues in Chinese M&A
4.2 Consideration before divesting to a Chinese acquirer
4.3 Others issues in China's internationalization
4.4 Solutions

5. Challenges and chances for German companies
5.1 Challenges as competitors from China
5.2 Chances as strategic partners from china

6. Conclusion


Internet source


List of abbreviations:

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List of figures

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List of tables

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Ten or fifteen years ago global business was mainly in the hands of a select number of multinational giants. Small and medium-sized business concentrated on their home markets and perhaps one or two neighboring countries. Not so any longer. Even the smallest businesses have realized that they have something to market in distant countries. Under these circumstances, Chinese companies of all sizes in various industries have recently opened to foreign competition. According to the Chinese Commerce Ministry's new release on relevant report, the Chinese foreign investment reached a new record of 26,51 billion US-Dollars in 2007. This represented a growth of 25,3 percent compared to 2006.[1] After the quantity expansion, the quality offensive comes silently. Today, Chinese companies throw not only millions of T-Shirts, toys or plastic bowls in the international market but also wireless LCD-televisions, telecom-equipment and precision tools as well. Chinese companies have realized that a competitive advantage based on low costs, low prices and large quantities in a global economy cannot defend itself long. Consequently, they focus consistently on innovation and brands. In addition, China's globalization also needs strong mental forces. China does not just want to be a world factory, but instead be an internationally competitive market place that Western competitors already are.

In the involvement of Chinese companies abroad aimed at specific markets, several strategies are recognizable. German and European companies are facing new chances and challenges at the same time. People must correctly assess the situation and corporate strategies and business concepts, with which they respond effectively and sustainably. This is the reason why I decided to write this thesis. The following questions are the focus:

- In what areas and branches do Chinese companies concentrate in German market?
- Which Chinese companies go abroad? What are their market entry strategies? What are their competitive strategies? And what are the steps of Chinese investments?
- What problems in the Chinese M&A business in Germany? How to overcome or avoid them? What are other problems?
- What branches are suffering from Chinese competition in Germany and EU? Chances or threats? How can German companies face this shift in a global economy and respond appropriately?

The entry of Chinese rivals in global market is similar to when Japanese and Korean companies emerged in last three decades. But the effect is stronger due to the size and dynamism of the Chinese economy and the ambitious Chinese. German companies, which have clearly defined and shared markets, are suddenly seeing a direct Chinese competition. The wave of Western investment in China tends to roll back increasingly. German companies must be prepared to respond appropriately to this wave. You have to see new chances and challengers early on your radar screen, analyze their objectives and strategies, and develop appropriate measures and countermeasures. You can attack your challengers in the home market or set up strategic cooperation. It is now important to defend profitable market share which was set up for long time and conquer new, promising markets. The Chinese offensive requires tailor-made responses. This reliable information is indispensable. Who are the attackers? Who are the partners? and Where are they? What strategies they pursue is now a matter of competitive intelligence and competitive strategy in global competition.


China's national economy has overtaken Japan and Germany according to purchsing power-parity, and ranked behind the USA as vice-world champion. It will estimately become number one by the end of 2040 according to the report of investment bank. Goldenman Sachs.[2] Today, under Top-500-Enterprises worldwide, 20 come originally from China. The China's objective is that at least 50 Chinese enterprises become global companies by 2010. International expansion is essential. The investment concentrated not only on the involvement of securing resources but to an increasing degree in foreign high-tech-enterprises as well. About 60 percent of Chinese foreign investment floured into Asia (MOFCOM 2005), primarily in its extractive industry but also in its mobile-network-operator-industry of Asian neighboring countries. Direct investment in South America (16 percent) and Africa (7 percent) face security of oil- and resource. With the investment in North America (7 percent) and Europe (6 percent), the industrial production and service is developed. The sum of Chinese foreign investment accounts for around 26,5 billion US-dollars.[3] This number is less than the direct investment flowing into China in 2007 which accounts for 83 billion US-dollars.[4] However, it is clear that the Chinese FDI is increasing sharply. MOFCOM predicted an annual increase of more than 20 percent till 2010 meaning that China will be reaching a sum of more than 114 billion US-dollar in 2015 (see figure 1).[5]

Figure 1: Chinese FDI grows at 20 percent annually (from 2008 estimated)

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Source: Bain-Analyse, MOFCOM

1.1 Upgrade in high-tech-premiership

China strengthened its industry through the process of joining the WTO by not only its own efforts but also massive inflow of foreign investment. China has attained know-how from foreign investors and been able to join in the competition of international market. China has exceeded the USA as the biggest exporter of high-tech products in branch information and communication; products like mobile phones, laptops, computers and digital cameras are at the top of export list. The official and private investment in R&D is increasing at higher-than-average The expense of R&D will be raised to 2,5 percent of total economic performance according to the new, eleventh Five-Year-Plan. This means that China will be able to spend as much money as the European Union does on R&D in 2010. The Objective is to raise previous low proportion of national innovation to 60 percent till 2020 and reduce the dependence on foreign techniques. By means of aid to the high-tech-sector like information-technology, software-development, and Pharmaceutical industry, the high-tech proportion is to be raised to 35 percent on export.[6] A common platform for military, civil research, and the accelerated market launch of scientific and technological innovation is to help achieve this objective. At the same time, the praxis-orientated university education and research are improved and Chinese students studying in foreign countries are encouraged to come back to work after graduation. It creates a condition of human resource for China to expand worldwide. China see its future as high-tech country, it learns, adapts and duplicates technology and management-knowhow from west and transfers them into its own products successfully.

1.2 “Go global”- politics of Chinese central government

The internationalization strategy is still strong in China’s state-owned economy and it is not purely business matter. It follows rather explicit political-strategy objectives. Consequantly, the former State President, Jiang Zemin, propagated in 2001, the strategy "Zou Chu Qu – go global". It was reflected in the tenth Five-Year Plan of the People's Republic of China (2000 to 2005). At that time, the goal was: creation of world brands of 500 medium-sized and 5,000 small-sized state and collective funded or private Chinese multinational companies. The 150 leading Chinese Companies were seen as a test of the international competitiveness in Chinese economy. This strategy was expanded and clarified in the eleventh Five-Year Plan (2006 to 2010). The Department of Commerce promotes more than 100 Chinese (home-grown) multinational companies with a high-tech export volume of 1 billion U.S. dollars per year and more than 1,000 Chinese (backbone Chinese) companies with a high-tech export volume of more than 100 million U.S. dollars per year. The Buildup of real assets abroad, in view of foreign exchange reserves, amounted for about 1 trillion U.S. dollars by the end of 2006.[7] It serves as a complement or alternative to the further accumulation of foreign exchange reserves in U.S. government bonds. Additional motives are the international diversification and risk spreading (into Europe, South America, Africa and the Middle East). The political background for this promotion is obvious: China is interested in investment in the main export markets and avoidance of threat of trade disputes with the U.S. or Europe. At the same time, the existing dependence on high-tech imports is to be reduced. At the moment, more than half of the components for Chinese high-tech products come from abroad, especially from Japan, South Korea, Taiwan and Hong Kong. China itself has not yet succeeded in its own R&D that could replace those supplies. Thus, acquisition abroad is attractive: the existing technological distance should be reduced. In addition, China wanted to demonstrate economic performance through their own brands and thus imposed higher profits through its own marketing rather than mere supply for foreign Corporations. The Chinese trade ministry appealed in 2005 that China should export "famous Chinese Brand names". Computers from Lenovo, television from TCL, washing machines from Haier, microwave ovens from Galanz and Tsingtao Beer which already have become the world's leading brands in each branch, are only the precursor. The political appeal resonates national pride and sense of mission - the "go global" strategy is also part of a larger Campaign, during which the dissemination of Chinese Language and culture is promoted.[8]

1.3 Securing resource

The motives of global expansion strategy of Chinese resource companies are both entrepreneurial and political in nature:

It is to improve the world market position and also to keep long-term security of resources for the country. For this reason, more than half of China's foreign acquisitions are in the purchase of raw material sources. The growing demand of oil and raw material may not be satisfied by the China's own reserves, even with massive use of other energy sources (Coal, liquefied petroleum gas, nuclear energy, alternative energy sources). In 2008, the crude oil consumption is more than twice as high as the domestic production, about 60 percent of the crude oil demand must be covered by oil imports abroad. The same is for other commodities, e.g. for metals such as zinc or copper, which is essential for the Chinese electronics industry and their exports. Therefore, China is striving for a strategy for long-term resource security, with specific loans and incentives. It includes the commitment to oil exploration as well as the purchase of oil fields and the construction of pipelines and refineries, the construction of deep-sea ports for the transport of raw materials - and if necessary, with military security of these plants. China National Offshore Oil Corporation’s (CNOOC),which failed with its offer in the U.S., acquired 45 percent of a large field of crude oil in Nigeria in April 2006 using 2.1 billion euros, Sinopec concluded a new oil and gas agreement in Ecuador, Iran and Nigeria in 2006. The industry leader, China National Petroleum Corporation (CNPC), maintains foreign projects in 23 countries worldwide. China tries to diversify its oil-suppliers and depend on individual countries as little as possible and avoid geographic, and strategic conflicts with the United States. In the list of suppliers, Saudi Arabia, Angola, Oman, Indonesia, Iran and Russia, other projects are still in planning. In addition to oil, natural gas plays an increasingly important role causing countries such as Qatar, Iran and Australia to be gas partners of importance. The resource companies in China already have been at the 500-turnover-strongest Companies worldwide and are still predominantly State-owned companies. The stock issued to the minority shares (15 to 30 percent) give foreign Investors no right to speak - China thinks of the strategic importance of these industries as the national welfare. Swaps (Barter) with suppliers in developing countries are on the agenda. The cheap Chinese goods are often in return. Sales, e.g. In Africa, are very important for Chinese industry because they are not internationally competitive. For the raw materials of zinc, copper, nickel and lead, Chinese companies such as Baoshan Iron & Steel Corp. or the China Minmetals Corporation have built up strategic partnerships with so many different countries such as Canada and Pakistan. At the same time, Chinese keep Corporate investments in raw material-mines in the U.S., Brazil, Chile, Cuba, Zambia, Vietnam and Papua New Guinea. There are contracts and negotiations with Australia (bauxite, uranium), Mexico and North Korea (iron ore) and Canada (oil sands, uranium). Some acquisitions set off fears of a strategic takeover in the host country, e.g. Conservative circles in the United States successfully stopped a takeover of an important strategic industry by a Chinese Company.[9]

1.4 Know-how transfer

For Chinese industrial enterprises, the internationalization is a matter of the purchase of western know-how. The expectation is ranging from patents and technologies to management, process, system and strategic know-how. The market entry in industrialized countries requires internationally known brand names and global Production and distribution networks. Todays, most Chinese companies stand only at the beginning. Many acquisitions, therefore, primarily serve the goal of brand ownership as well as the win of sales- and service-network. But Western Management know-how also is highly valued. Since the management is large, complex structures and international staff is unknown territory for many Chinese executives, it will be strengthened by recruiting western executives for Chinese companies. e.g. The international service business, such as hotels and tourism. But the recruitment of an ex-manager from General Motors, Phil Murtaugh, in the second largest Chinese automotive group Shanghai Automotive Industries Corporation (SAIC) is celebrated as a coup by the Chinese press in June 2006. Through further internationalization of management, Chinese companies try to make their manage- ment strong for global competition. They want the high speed of globalization and the rapid success, and this could be realized by acquisitions. M&A will be the fastest way for the internationalization of Chinese enterprises.[10] The investment could bring new technologies, brand names, distribution channels and management-knowledge. Examples include the purchase of the notebook division of IBM by Lenovo or takeover of the production of television sets from Thomson by TCL. In this way, Chinese companies are trying to upgrade their international competitiveness quali- tatively and sustainably.

1.5 Motivation from inside China

The fact that Chinese manufacturers marching the in world market has also
domestic problems: The growth rates and profit margins are falling rapidly in China because the growth of domestic economy is declining, and because domestic and foreign companies are in a tough price war. Many Chinese companies, therefore, concentrate purely on growth of sales and market share, but it is hardly to achieve more within China. Many products are too expensive for the approximately 1 billion Chinese and can find no customers in China except for a narrow well-funded upper and middle class. Provinces and regions, which fight for jobs and treat their local companies perferentially, are fighting off obstacles for the interior expansion. Many Chinese companies have large, not full loaded production capacity - this is particularly serious for household appliances, the so-called white and brown goods.[11] In the domestic market, there has been an overcapacity of around 30-40% in the production of washing machines, refrigerators and microwave ovens, and for televisions even 90%.[12] Therefore, many manufacturers are trying to explore foreign markets and competitive cost advantages in the production may be better off.

1.6 Advantage by state-aid

The Chinese government supports its national champions to expand internationally. During the past decade of WTO accession, the so-called "local content" which shares in state contracts is an effective way, e.g. the State or local Chinese companies pay lower wages and take less social responsibilities than many of their employees benefit from state finance, e.g. extremely favorable access to housing and schools. It is also reported that Chinese companies comply with environmental and safety regulations less than foreign companies. The latter fears to lose its image if it fails. It also appears in accounting and taxes-international companies comply with international Standards, while Chinese companies is often not applicable. The state helps its businesses by means of restructuring, the promotion of selected industrial sectors and cheap loans from state or local banks and lenders, by means of the easier access to research results and cooperation with universities, public or military research institutes. It did work and compensated the disadvantages of difficulty on access to international stock-markets and capital provider.[13]

1.7 Strategic objectives and measures

Chinese industrial enterprises have a good starting position for the mass production of cheaper products through their huge home market and its low manufacturing costs. Many Chinese companies are focusing on the satisfaction of basic needs in the large domestic market and avoiding costly research. They use this advantage to achieve the necessary size before being placed in world market. Thus, the largest Chinese telecommunications providers-China Telecom and China Mobile, with several hundred Million users on a solid basis, participate in telephone companies in neighboring Asian countries. Cooperation with western companies, licensing agree- ments and joint ventures are often the second step to catch up technologically. Many Chinese companies, especially in the high-tech sector, need this cooperation for the necessary product and process know-how. The Joint venture of the automaker SAIC with General Motors and its acquisition of the Korean Ssangyong Motors Co. or the licenses of the cooling equipment manufacturer Haier at German Liebherr are prominent examples. Finally, the production of its own improved products are often widely blamed as plagiarism through a close alignment to western models. Chinese manufacturers are working as subcontractors for several foreign companies and at the same time, they are pooling their expertise and moving to the top in the value chain. This is followed by the export of products with comparatively low quality in markets. e.g. Chinese automobile manufacturers Geely achieved success on export in South America and the Middle East, and many Chinese textile, food and electronics suppliers find customers for its cheap products in Africa. Partially, a horizontal integration, during which several companies in the same industry became regional clusters or - often publicly initiated and supported - to conglomerates together. Chinese business groups often grow almost imperceptibly, and are to international competitors only visible when they finally achieve double-figure Market shares. Therefore, the performance of Chinese Companies as potential competitors in the Chinese and international market always cannot be measured by the familiar methods of analyzing competitor: accounting and corporate governance are often not informative, for smaller and medium-sized Chinese companies, there is little reliable data. This lack of transparency will be funded by the reticular Interdependence and mutual investments of Chinese family clans and foreign Chinese. For the large and powerful Chinese firms, they are in the stage of raising capital and achieving market access to critical sizes. Initial public offerings and models of mixed ownership should guarantee financial base and entrepreneurial orientation. The acquisition of western firms are for increasing demand to know-how and brand awareness. The takeover of PC division of IBM by Lenovo or the acquisition of German company Schneider by TCL are examples. Thus, China's large corporations are well prepared for the conquest of western markets. Haier set up research laboratories in the United States and became the second largest manufacturer of washing machine there, Lenovo moved its corporate headquarters in the United States and Huawei was equipped to be a dreaded western competitors for telecommunication equipment.[14]

2.Chinese companies in Germany

According to a new report, Sino-German's bilateral investment in "one-way street" is changing. Due to economical, geographical and other advantages, Germany became the second most important target country for Chinese investors behind the USA. Special interests lie in German technologies, patents, distribution channels and brands.[15].Since the year of 2000, the scale and quantity of investment have shown rapid growth.

Currently, one third of the 100 turnover-largest Chinese enterprises have opened branches in Germany. In Nordrhein Westfalen and Hessen, the Chinese enterprises reached 718 at the end of 2006.[16] It increased three times in the past three years. For many years, China has sold a great deal of light industrial products in Europe, of which Germany is recorded as the most important market. China's mechanical engineering and electrical industry in Germany are getting more competitive. Unfortunately, almost all these exports are sold by brokers. Other than a small amount of processing fees earned by Chinese companies, the profits are mainly passed to the brokers. To gain access to the German and European market, the enterprises need to establish their own sales network, to establish and improve after-sales service except for their own brands. To achieve these objectives, it is not enough to find a broker. It is a good way for Chinese companies to set up their own distribution companies, or set up joint ventures, or buy up (M&A) German companies, which will help Chinese enterprises to establish their own after-sales service team and help China's German products to enter the European market, and it makes Sino-German bilateral economic relations develop closer. With the introduction of euro zone and geographical extension of the EU Market, German SMEs are facing more intensive competition than before. Currently, they are further impacted by economic downturn. To find room to survive, the deep desire of cooperation with Chinese enterprises are getting stronger step by step. China's textile, household appliances, food and other products have conside- rable market in Germany, while the investment of Chinese enterprises in Germany, cooperation with German companies, exporting parts to assemble in Germany, using advanced German technology to improve product quality and image may help Chinese products to widen market space. With the support of professional organizations such as the German Industry and the commerce chamber, it can help Chinese enterprises find a shortcut to invest in Germany.

According to the survey of United Nations Committee on Trade and Development, China's foreign direct investment will get ahead of Japan for the first time during the next four years, i.e. the fifth largest in the world, the countries ranking from first to fourth are: the United States, Germany, Britain and France, while Asian direct investment in Germany, China ranked at third after Japan and South Korea.[17] In the past few years, China has set up more than 700 enterprises in Germany, e.g. De'long International Strategy Investment Co. Ltd., TCL, Haier, Lenovo, China's offshore companies, and so on. Although this figure is not a small gap, compared with the German-invested enterprises in China, there are still great potential for Chinese investment in Germany as a rising star. Particularly, the old traditional German enterprises, which are in trouble and need a urgent blood transfusion, will find solution from Chinese investors. Because these Chinese enterprises can use brands and sales network established by German companies in EU market; They can produce TV, refrigerators, computers and other products in China and assemble them in Germany and put them directly in local market, e.g. TCL's acquisition of the German electronics company Schneider, they can have the brand "Schneider" on their products and make the image "made in Germany" appear in the market.

2.1 Introduction of Chinese companies

Chinese enterprises are divided into four types:[18]

- state-owned enterprises

They are cumbersome and highly centralized, known for its bureaucratic inefficiency. Its functions tend to be beyond a typical business venture. According to Chinese estimation, one third of schools and hospitals are operated by state-owned enterprises, its social expenses accounts for over 45 percent of overhead. Currently, it is the dominant economic sector in China. In view of its inefficiency, some of them are totally privatised, some of them are relieved of social responsibilities such as free accommodations for employees, or other services such as education and free promotion etc. during China's economic reform. The bottom line is, they are getting more competitive than before. Under the 100 biggest Chinese companies, 85 belong totally to the state or partly to the state.

- collective-owned enterprises

It is the second traditional Chinese corporate form which has been restructured and consolidated. This is a municipal company, which the inhabitants of a village or a city cooperative operate. The future looked rather bleak before a report from July 1999 showed that the Half of the 300 000 Township-companies would go broke because of bad competition and overextension. After the restructuring, the Township company is financially much better than the state-owned enterprises. They came from previous agricultural commune and was financially supported by local government, village committees, families or individuals. Their corporate structures are very different. Some are operated like state-owned enterprises and therefore subject to a strong state influence, while others are poorly disguised private companies. Unlike state enterprises, they are able to hire or fire personnel according to business criteria. While Township enterprises are relatively undisturbed by central government, its success is based on a symbiotic relationship with local administration and depends heavily on a leadership.

- private enterprises

The growth of the private economy in the 1990s was very rapid.[19] Nowadays, it is a typical form of Chinese business that is of much importance in China's economic system. They are often owned and operated by family. Typical forms are simple, centralized corporate structure. They resemble foreign Chinese companies: flexible, cost-conscious, with a high equity ratio. In addition, they have interpersonal networks with similar organizations nationwide. There are many companies like this in form of cost efficient, labour intensive production. The significance of these private enterprises will rise in the course of its expansion nationwide and worldwide.

After the Chinese Government had developed private companies for many years, the legal equality of private and public companies was realized in 1993. In 1999, it was declared that the private company had become an important Part of the social economy. In 2002, private entrepreneurs were finally allowed to join in the Communist Party of China. At the same time, the ownership of many Chinese companies changed. e.g. Haier is the company of the municipal government of Qingdao, local investors are the managers of the company itself. TCL is the second largest manufacturer of televisions and mobile phones in China. The State is the largest shareholder, but the Japanese Toshiba and Sumitomo Group hold large shares, as well as the TCL managers themselves. At computer giant Lenovo, the Chinese Academy of Sciences, local investors and managers share its ownership. This mixed ownership structure has been allowed increasingly by Chinese companies. They benefit from government’s support (bank loans, Permits, access to government research labs) and enjoy complete entrepreneurial freedom.

- joint venture or wholly owned subsidiary

The form of this kind of enterprises are operated by foreign investors and it doesn't belong to the theme that we are discussing about.

Generally, Chinese enterprises are more hierarchically organized than German

ones. The founder or owner stands at the top of pyramid. His versions are personalized strategic plan of enterprise. He controls the process of the whole enterprise. His command will be enforced "top and down", the right to co-determination of management and employees is few. The internal structures are always simple, even if it is not logical for westerners. Clear and fast decisions will be more valued than long term process of coordination and decisions, because very few of them owns knowledge of business administration and experience of management. This autocratic leadership promotes the efficient decision making and matches fast changing environment. Frequently, the leadership of Chinese enterprises succeed on basis of the principle of "trial and error". Many Chinese companies disappear as fast as they appear in the market (see following figure 2, table1,[20] and table 6,7, and figure 3 in appendix on reference).[21]

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Table 1: overview of advantages and disadvantages of Chinese enterprises

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2.2 area and branch

In Europe, a enormous wave of investment from China appeared, particularly in Germany (see figure 4[22] and table 9, table 10 in appendix). They choose Germany because:[23]

- It leads technically in important branches
- It has the strongest national economy
- It owns the largest market in Europe
- It owns a excellent infrastructure and R&D centers
- It is considered as engine in the European economy
- It is a door leading to Eastern Europe

Besides, there are lots of German family enterprises to be sold in the future. Germany owns many qualified medium-sized enterprises without successors in which Chinese investors are interested. Incomplete statistics show there are more than 1000 Chinese companies in Germany whose investments account for millions of dollars,[24] not including many Chinese restaurants and tourist offices. The Chinese companies are oriented mainly in trade, transport and financial services. Productive investments were relatively small, but is rising. The German medium-sized enterprises with its turnover between 1 and 10 million euro is becoming the target for acquisition because the Chinese need know-how, Quality and long term partnership. PriceWaterhouseCoopers (PWC) predicted that two billion euro from China will be invested in Germany in the next decade and more than 10.000 jobs may appear. Alone in the year 2005, 300 Chinese enterprises invested in Germany.[25]

Figure 4: Chinese investment in EU and Germany

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Source: bureau for statistics, bureau for statistics of Chinese direct investment overseas

According to the number of enterprises, collective enterprises and private enterprises account for about 70 percent, the state-owned enterprises account for 30 percent.[26] In accordance with the amount of investment, however, the state-owned enterprises are still the majority of Chinese investment. According to the regional distribution, the Chinese companies show a "cluster effect" and concentrate mainly in Northern and Centrall Germany. China's enterprises traditionally distribute in the following three areas: First, the region Hamburg. Since the region has the advantages of the harbor, transport facilities, China's trade and shipping logistics enterprises prefer to invest there. Hamburg is also the most concentrated area of Chinese companies in Europe; more than 400 Chinese enterprises gathered here till the end of 2007,[27] 81 percent of them are small and running in trade and logistic industry. Even head office of Cosco ocean carrier is situated in this North German metropolis. Second, the region Ruhr. As it is densely populated and economically developed, 417 Chinese companies with 2465 employees are situated in Nordrhein-Westfahlen till 2007,[28] 70 percent of them concentrate in Duesseldorf and Cologne. They operate mostly in wholesale and retail and concentrate in mechanical engineering, garment and mode, information and communication technology, automobile, metal machining and health industry. The champions are Huawei, Midea and Minmetals. And Third, Frankfurt am Main-the financial capital and air cargo center. This is a concentrated area of China's banks, aviation companies and business associations. There are more than 330 Chinese enterprises,[29] 90 percent of which are small and achieve turnover of less than one million euro anually. The most representative are Chinese Banks including peoples bank of China as central bank and four largest banks in China: Industriall and Commercial Bank of China, Bank of China, China Construction Bank as well as the Bank of Communications (see figure 5). In recent years, the southern region, where high tech and SMEs concentrate, especially Munich, Stuttgart and other cities have become a highlight to Chinese enterprises, an important area for the establishment of a production-oriented enterprise. In terms of size, there are currently over 10 percent of Chinese enterprises, whose turnover account for more than 1 million euros.[30]

Apart from the direct foundation of branches, the form of investment of Chinese enterprises in Germany is more diversified. Transnational mergers and acquisitions, strategic alliances and the establishment of research centers is drawing Chinese attention increasingly. The report of Germany's European Center for Economic Research showed that it grew from 0.5% in 2000 to 3% in 2007 in the proportion of cross-border mergers and acquisitions operated by Chinese enterprises.[31]

According to the branch of investment, trade, logistics and banking services are China's traditional investment. The recent mergers and acquisitions concentrated in machinery manufacturing, specially in machine tool manufacturing. But it has begun to extend to communications services, new energy and environmental protection. With regard to construction contracts and labor export, China's output of labour has been hovering at a low level as German strict limitation of the importation of foreign workers. The output of workers focuses mainly on Chinese cookers and Chinese medicine practitioners, but the quantity is very limited. Construction workers and seafarers are even fewer. In construction contracting, Zhengjiang International took over the turnkey projects such as Mannheim Chinese Garden, Bruehl fantasy world- four star hotel and achieved good social and economic benefits.

Generally, Chinese enterprises are very confident in the German market. According to a German survey: one-third of Chinese enterprises from western regions plan to increase investment in the future, two-thirds of the enterprises will increase em- ployees in the next two years, three quarters of the enterprises believe that they will have greater development in the next two years[32]. At present, however, there are some difficulties for Chinese enterprises. e.g., the lack of liquidity, the lack of language and of professional personnel, visa-processing is too long to rotate the company's personnel regularly, some Chinese enterprises are increasingly creating mutual competition.

Overseas investment of Chinese enterprises shows rapid growth, but it should also be noted that China is beginning its foreign investment later than the developed countries and some other developing countries. It is still much less than the total foreign investment in Germany. Chinese enterprises are still in their early stage in the German market.

The bottom line is, the recent Chinese investments in Germany showed the following characteristics:

- First, the volume of Chinese enterprises increased rapidly-an annual increase of almost 100.[33] Most of them are private enterprises.
- Second, diversity of the investment makes Chinese business extend from the import and export to manufacturing and R&D. The famous domestic enterprises such as ZTE and Huawei Group set up their own marketing and services branch in Germany and the business developed rapidly.
- Third, the M&A investment is rising. It has extended from purchasing bankrupt enterprises to well-running German companies.

The following figure shows us the change and development of Chinese investment in Germany.

Figure 5, the number of Chinese companies in German big cities

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Source: HWF,[34] EUROPA UNIQUE,[35] Die China AG[36]

3. Marketing strategies of Chinese companies

3.1 Marketing basic strategies

Basic Marketing strategies combine different instruments and measures. The combination leads to a consistent, coherent and contradiction-free package of marketing activities. We differentiate the following types of strategies on the basis of their addresses.[37]

Figure 6: category of basic marketing strategies

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3.2 Possible options of marketing entry strategies

If an enterprise decides to expand internationally, which form of running in international market must be taken into account. In summary, it depends on three important factors: (1) the necessary investment, (2) the possibilities of control by company- and marketing activities and (3) the achievable market knowledge.[38] The figure 7 shows the overview of all sorts of marketing alternatives,[39] while table 2 shows the possible options about each form.

After the success in domestic market, the following marketing entry forms could distinguish the process of Step-Up-Strategy: The indirect export means overseas involvement without capital participation (indirect export with external trading companies, licensing, franchising, turnkey contracts etc), and then the direct export with capital participation (direct export with own sales subsidiary, joint ventures, acquisition, full-fledged manufacturing or assembly plant overseas). Alternatively, online cooperation in product supply, communication and distribution could be chosen as form of market entry for online-trade with customer goods.[40] With the enormous demand to brand, techniques and management knowhow, joint ventures and M&A play an important role in the internationalization of Chinese companies, e.g. Huawei telecom technology established a joint venture with Siemens, or Shenyan machine tool co.Ltd merged Schiess AG.

Figure 7. overview of marketing entry alternatives.

Abbildung in dieser Leseprobe nicht enthalten

Source: relevant literature

Table 2 Entry Modes for Foreign Markets[41]

Abbildung in dieser Leseprobe nicht enthalten

The selection of marketing entry strategy depends on internal and external factors of enterprises. These factors, we also say "Driving Forces" and "Restraining Forces" which influence either market selection or strategy selection, should be taken into account, e.g. tariff barrier, non-tariff barrier, cost, transport ability of products, financial demand, language and culture difference, technology, size of enterprise and competitive advantages etc (see table 8 in appendix).

From the point of view of marketing, we know that a company should establish its own subsidiaries, joint ventures or strategic partnership, if it wants to control more overseas business or obtain more market knowledge. This entry strategy, nevertheless, causes not only more controlling possibilities and market knowledge but also higher costs (salary, cost of land, cost of transportation). If a company decides to produce locally, it will face the selection among M&A, establishment or renting of production plant, joint venture or licensing.[42] It is likely for companies to combine the different market entry strategies. If a strong local presence and control of market cultivation should be guaranteed, people will decide to establish a subsidiary. In other cases, people maybe use the form of trade agent for cost advantages.

It is worth more taking into account of establishment of overseas subsidiaries, the more intensive and durable the customer relationship is, the more customer to serve is, the more intensive the contact to local market is, the stronger the presence of competitors in foreign markets is and the stronger the necessary of direct contact to customer is.

Furthermore, people should take the following factors into account as well, if they have to choose a appropriate marketing entry strategy.[43]

- dimension and potential of overseas markets
- national and international treaty, law, political and social factors
- own personnel capacity and diversity management
- availability of qualified labor force in target countries
- types of products or achievement
- distance and accessibility
- the status of distribution channel in overseas market
- existing know-how/intercultural competence
- social competence
- available resources and
- knowledge about culture and conventions

In summary, the figure 8 shows us this entry mechanisms: It is important to view the determinants of national competitive advantage as an interactive system in which activity in any one of the four points of the diamond impacts on all others and vice versa.[44]


[1] (09/2008)

[2] Spiegel Dossier, 2007, p. 1

[3] (09/2008)

[4] (09/2008)

[5] Reinert/Altrichter, 2007, p. 6

[6] Cp. Reisach, 2006, p. 104

[7] Cp.Reisach, 2006, p. 105

[8] Cp. Lunding, 2006, p. 4

[9] Cp. Reisach, 2006, p. 107

[10] Cp. Reisach, 2006, p. 108

[11] Cp. Reisach, 2006, p. 109

[12] Fuchs, 2007, P, 24

[13] Cp.Reisach, 2006, p. 110

[14] Reisach, 2006, p. 111

[15] Reisach/Tauber/Yuan, 2007, p. 87

[16] (09/2008)

[17] (09/2008)

[18] Chen, 2004, p. 192

[19] Howell, 2004, p. 25

[20] Reisach/Tauber/Yuan, 2007, p. 95

[21] Geert,2006, p. 338

[22] Fuchs, 2007, p. 38,40

[23] Fuchs, 2007, p. 39

[24] (09/2008)

[25] Fuchs, 2007, p. 40

[26] (09/2008)

[27] nvtoren.html?tx_ttnews%5Byear%5D=2007&tx_ttnews%5Bmonth%5D=08&tx_ttnews%5Bday%5D=28&cHash=cf97149bc0 (09/2008)

[28] Fuchs, 2007, p. 56

[29] as same as 15

[30] (09/2008)

[31] (09/2008)

[32] (09/2008)

[33] (09/2008)

[34] (09/2008)

[35] hen_investoren.html?tx_ttnews%5Byear%5D=2007&tx_ttnews%5Bmonth%5D=08&tx_ttnews%5Bday%5D=28&cHash=cf97149bc0 (09/2008)

[36] Fuchs, 2007, p. 55

[37] Fritz/von der Oelsnitz, 2001, p. 99

[38] Keegan/Schlegelmilch/Stöttinger 2002, P.288f.

[39] Albaum/Strandskov/Duerr, 2001, p. 309; Preissner, 1997, p. 230

[40] Kollman/Christofor, 2004, p. 106

[41] Johansson, 2003, p. 147

[42] Keegan/Schlegelmilch/stöttinger, 2002, p. 288

[43] Berndt, 2007, p. 153

[44] Keegan/Schlegelmilch, 1999, p. 331


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Fachhochschule Trier - Hochschule für Wirtschaft, Technik und Gestaltung – Wirtschaft, Studiengang International Business
marketing chinese focus germany



Titel: Marketing strategies of Chinese companies