Uni 3: China & thre Dark Side of the ipad & iphone!

Here is a story that will really get students thinking about the products they buy and use…


The story has been rumbling for a while now, and this article  in the Independent goes into some depth on the background to the problems being experienced at a massive consumer electronics factory in China.

The sheer scale of the operation at the Foxconn factory in the southern Chinese boom town of Shenzhen is mind-boggling. As the article reports: “The chefs slaughter 6,000 pigs a day to feed the company’s nearly 400,000 workers in this giant industrial complex, spread over 1.2 square miles”

Foxconn is clearly benefiting from huge economies of scale at the industrial complex, but at what social cost? It is alleged that up to ten employee suicides are linked to working conditions at Foxconn - a major supplier of components and sub-assemblies to the likes of Apple & Dell.

The article raises many issues of corporate social responsibility - and perhaps asks questions of us as consumers? Are we comfortable with the kind of working conditions endured by people who manufacture the electronic products that we desire and demand?

You don’t find examples like these in many of the standard business studies textbooks:

“The company, which employs over 800,000 workers around the world, is now playing soothing music along the production lines. Over 2,000 singers, dancers and gym trainers have been recruited, and the group is also hiring psychiatrists and Buddhist monks to help with stress. New fences are also being installed on every worker’s dormitory building, according to local media, which are up to three metres high and are meant to prevent suicidal workers from jumping off the roof.”

Promotion: Useful Guide

What is Promotion?

It is no longer enough for a business to have great products. Lots of businesses have those too. Customers need to know about a great product and be persuaded to buy. That is the role of promotion.


Promotion is all about communication. Why because promotion is the way in a business makes its products known to the customers, both current and potential.

The main aim of promotion is to ensure that customers are aware of the existence and positioning of products. Promotion is also used to persuade customers that the product is better than competing products and to remind customers about why they may want to buy.

It is a common mistake to believe that promotion by business is all about advertising. It isn’t. There are a variety of approaches that a business can take to get their message across to customers, although advertising is certainly an important one.

It is important to understand that a business will use more than one method of promotion. The variety of promotional methods used is referred to as the promotional mix.

Which promotional methods are used depends on several factors:

Stage in the life cycle - e.g. advertising is important at the launch stage

Nature of the product - how much information is required by customers before they buy

Competition - what are rivals doing?

Marketing budget - how much can the firm afford?

Marketing strategy - other elements of the mix (price, product, place etc)

Target market - appropriate ways to reach the target market

The main methods of promotion are:
• Advertising

• Public relations & sponsorship

• Personal selling

• Direct marketing

• Sales promotion

The way in which promotion is targeted is traditionally split into two types - “above the line” and “below the line”.

Above the line promotion

This is paid for communication in the independent media e.g. advertising on TV or in the newspapers. Though it can be targeted, it can also be seen by anyone outside the target audience.

The main aims of above-the-line promotion are to inform customers, raise awareness and build brand positioning. Above-the-line tends to have a higher cost since the promotional methods used are less precise.

Below the line promotion

This concerns promotional activities where the business has direct control over the target or intended audience. There are many methods of below-the-line, including sales promotions, direct marketing, personal selling and sponsorship.

What are the aims or promotion?

Promotional activities have a variety of aims:


For example, promotion aims to:

- Inform current and potential customers about the existence of products

- Explain the potential benefits of using the product
- Persuade customers to buy the product
- Help differentiate a product from the competition
- Develop and sustain a brand
- Reassure customers that they have made the right choice

Unit 3: Will outsourcing slow as the pound falls in value?

A good BBC video clip here, which poses an interesting question – how should firms respond to the falling value of sterling? One firm, Clippasafe in Nottingham, has reacted by shifting some of its production back to the UK from China.


We’ve got so used to the idea of deindustrialization in Britain over the last thirty years that it can come as a surprise to see production shifting back to the UK from overseas.

Watch the clip and try to pick out and explain the factors behind Clippasafe’s decision.

Unit 3: Emerging Markets: Strategies for doing business in China

The UKTI service is a superb support for businesses looking to expand into international markets, and they’ve just released a detailed guide to Doing Business in China. Its quite a detailed, 45+ page document, but it includes some expert guidance on factors for businesses to consider - particularly if they are looking to invest in China for the first time…


I have picked out some useful bullet points from the guide that might be useful for students preparing for the AQA BUSS4 (Jan 2010) exam on investing in emerging markets:

QUESTIONS A BUSINESS SHOULD BE ABLE TO ANSWER BEFORE ENTERING THE CHINESE MARKET FOR THE FIRST TIME:

BUSINESS RESOURCES AND CAPABILITIES

What are the unique selling points for your product or service?

Do you know if there is a market for your product in China?

Do you know if you can be competitive in China?

Do you have the time and resources to handle the demands of communication, travel, product delivery and after-sales service?

BUSINESS AIMS

Do you wish to buy from China, sell to China or both?

Do you wish to establish your own company presence in China, for example through a representative office, wholly foreign-owned enterprise (WFOE) or joint venture?

Do you need to be involved in China at all?
KNOWLEDGE

Do you know how to secure payment for your products or service?

Do you know where in China you should start?

Do you know how to locate and screen potential partners, agents or distributors?

IMPORTANT MARKETING QUESTIONS TO CONSIDER

Where is there greatest demand for my product?

Where is there greatest growth potential?

How easy will it be to market, distribute and sell my product in the regions I am considering?

Do I want to start in one of the rapidly growing coastal provinces of China, where there will be more experience of working with foreign companies, but also more competition and higher labour costs?

Do I want to start in one of the inland provinces, where there may be less experience of working with foreign companies, but also less competition and lower labour costs?

Should I enter the China market via Hong Kong, with its well-developed infrastructure and advanced financial and professional services sector?

Given that well over half of hi-tech related exports from China come from Taiwanese companies investing there, should I be looking to enter China via Taiwan?

What are the local/provincial authorities’ attitudes to international trade? Do they welcome it or do they have a reputation for bureaucracy and obstruction?

Are there any investment zones in the area and what benefits are on offer?

The guide goes on to provide a brief checklist for UK business people who are committed to investing in China:
- Leave your preconceptions at home.

- It’s all too easy to be dazzled or overawed by China, but keep hold of your business sense as tightly as you would anywhere else.

- Do your homework on the market and on potential partners.

- Patience is a virtue. Some things may take longer to set up than you think (especially if they involve bureaucracy), so allow for this in your preparations.

- Take a long-term approach, but don’t stick rigidly to your plans. Things often change rapidly and unexpectedly in China.

- Obtaining good quality independent legal and professional advice is essential.

- If your product is in danger of being copied or counterfeited, seek specialist legal advice on how best to protect your intellectual property rights (IPR).

- Don’t forget to carry out due diligence.

Unit 3: Two Reasons India Will Overtake China By 2025

Interesting article HERE making big predictions about two of the BRIC economies, India and China. One of the major issues China faces (along with much of the developed world) is a declining birth-rate and an aging society and the strain this situation will put on the economy in terms of productivity and government finances. On the other hand, India has a young and vibrant workforce “giving India a very important advantage over China as it has a much healthier dependency ratio.” See graphic below.

Furthermore, the “IT services industry in India is thriving on their cheap labour costs, educated and English-speaking workforce, and their entrepreneurial bosses.”

It seems companies from developed countries are tapping into this resource and according to THIS REPORT, India was “ranked third place in global foreign direct investments in 2009 and will continue to remain among the top five attractive destinations for international investors during 2010-11.” With this in mind, perhaps such a bold prediction is not so far from the truth!

Unit 3: Starbucks, extending product life cycle & China

Howard Schultz talks in the video below about how Starbucks has performed strongly during 2010 and about his objectives for Starbucks’ growth in China.


You may remember the launch of Starbucks 'Via' - the brand’s first entry into the instant coffee market. 'Via' has proved a great success, conributing to 15% revenue growth for the firm in the USA and even stronger growth (21%) overseas.

Starbucks is aiming to triple the number of stores in China within the next 5 years - an incredible growth rate, if it can achieve this objective. Schultz admits that growing the brand in China will not be easy (the business has already been trading there for 12 years). Still, it looks like a tremendous opportunity

Here is the video interview:

Unit 3: EU, China & Import Tariffs

The EU imposes tariffs on imports from China, Vietnam and Cuba, because it considers that they are not market economies. The World Trade Organisation allows importers to place extra duties on goods which are being ‘dumped’ on the world market - that is, being sold at a price which is below the price in the country of origin. These two issues came together at the beginning of 2009, when the EU decided to impose anti-dumping duties of up to 87 percent for the next five years on screws, nuts and bolts imported from China - but in mid-2009 China claimed to the WTO that the threshold price had been wrongly calculated, and that the tariff breaks international trade rules.

Over a year later, the WTO has finally reached a decision in China’s favour, saying that the tariffs must be removed - marking a victory for China in its first WTO dispute against the European Union. In a trade dispute between the two, China has imposed its own tariffs on imports from the EU. This story, reported by the BBC and China Daily amongst others, gives evidence for the economic theory that import tariffs tend to lead to retaliation and there is a net reduction in trade - and also for the practical economics which shows that, however sensible the theory may sound, in practice countries often make decisions which suit their own domestic purposes.