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The purpose of this report is to analyze the advantages and disadvantages of different distribution methods available to Beijing Oasis and decide which method should be implemented. Based on the advantages and disadvantages of each distribution method, a recommendation will be offered as well as implementation of that decision. Statement of the Problem The most vital issue currently facing Gervais Lavoie is the decision of method of distribution. He has been given three alternatives with which to analyze. Poor distribution decisions in the past have caused businesses to fail dramatically, so he is imminently aware of the magnitude of this decision. What method of distribution should be implemented for Beijing Oasis High Nutrition Food Company Ltd.
to distribute the companys newly developed fruit nectar? This is a problem because, as stated before, the consequences of a poor distribution decision could prove fatal. Situation Through steps to open its markets to international exporters, and to comply with World Trade Organization (WTO) membership application requirements, global trade with China has changed significantly in recent years. After a decade of reform, the economic situation in China has improved enormously. Opportunities are available to foreign companies to enter the Chinese fruit juice market, with tax and land incentives offered to lure foreign business to China's special economic zones, and tariffs lowered to invite imports. The adaptive ability is shown in learning new concepts and rules developed in a market economy, which might involve changing assumptions and the way of thinking.
The fruit juice market in China is dynamic, with many opportunities for international competitors to enter the sector. In 1995, Canada held 1. 6 % of the $ 63. 9 million imported fruit juice market in mainland China, but that share slipped to 1. 0 % in 1996, despite the fact that the value of the market increased to $ 69. 4 million. Imports of fruit juice to Hong Kong decreased to $ 119. 1 million in 1998 from a high of $ 186. 7 million in 1997. Canada supplied 5. 4 % of Hong Kong juice imports in 1998, and could dramatically improve upon its share of China's total fruit juice market. There is a valid argument that emphasizes concentrating resources in enterprises that are less state-controlled on the grounds that they are more efficient. The Chinese experience according to some economists tends to support policies emphasizing small and mid-sized enterprises of all kinds because they can avoid the institutionalized sclerosis of the industrial giants of past years, more rapidly reap greater economies of scale, and so on.
Given recent trends towards healthier lifestyles among younger Chinese consumers, the nutritional advantages of fruit juice are expected to spur significant growth in the sector, providing good opportunities for Canadian exporters. Stronger promotion of the freshness, taste, variety of flavors, and nutritional benefits of juices will help increase sales and gain market share. Exporters should note that as the market continues to expand, several international competitors are establishing a greater presence in China. The most notable international competitors are from the United States, Australia, South Africa, Brazil and Singapore.
Boasting a population of more than 1. 2 billion, China's place as the world's most populated nation is driving interest among companies from around the globe. However, due to the socialist economic principles traditionally practiced by the Chinese government, China remains a relatively new market for international exporters looking to explore opportunities in foreign markets. Basil G. English, author of Global and Multinational Advertising, says, Western advertising agencies and multinational corporations that are planning on entering the Chinese market need to be fully aware of the unique traits of the Chinese economy. Understood properly, these traits can turn into marketing opportunities. If misunderstood, these very same traits can turn into fatal obstacles to competing in the Chinese market.
English continues by offering these traits: Chinas trade/GDP ratio is one of the lowest in the world Imports increase at a phenomenal rate, ranging about 35 % per year 47 % of Chinas GDP is from industry. Other developed nations average about 33 % per year. There is an abundance (almost limitless) of cheap labor as well as low production costs. City dwellers earn three times more income than people living in the countryside. Chinese markets are opening more to foreign suppliers, however the government still retains some control through import quotas, customs restrictions, and various centrally planned economic policies. China's economy is doubling every eight years, and its GDP quadrupled between 1980 and 1995.
Real GDP growth reached 9. 7 % in 1996, slowing to 8. 8 % in 1997. Although official estimates put 1998 GDP growth at 8 %, it is more likely that growth will slow to 7 %. China is increasingly active in the world economy, ranking as the world's 11 th largest trading nation before the Hong Kong reunification. The nation accounts for 2 % of world trade, and foreign trade accounts for 35 % of its GNP.
Alternatives Alternative # 1 Distribute by means of State-owned Distributors. Advantages: Favored by firms with limited financial resources. Relatively inexpensive with a 24 % markup on ex-factory price per district (12 % by umbrella organization and 12 % by each individual district). Good warehousing and transportation coverage.
Virtually every neighborhood is known and could easily be reached. Organization is very well connected to similar organizations in other cities. If the product does well in one city, it can quickly get good coverage in other cities. Disadvantages Organizations are more reactive than proactive. Therefore, they arent very aggressive with their distribution means. State-owned Distributors have a questionable level of product promotion and merchandising efforts.
These organizations have reputations for failing to aggressively develop new accounts or provide timely feedback for new market development. There is a lack of informational technology infrastructures with State-owned Distributors. They have no reliable computerized order taking, delivery confirmation, and accounts collection information systems. The State-owned Distributors are unable to provide Beijing Oasis with timely information regarding status of consigned products. There is difficulty determining sales and payment patterns on both individual accounts and consolidated district basis. This means a chronic delay in payment due to so much paperwork.
Lavoie would need to hire up to 6 sales representatives to ensure promotion, account prospecting, and collection. Financial Impact The financial impact of this alternative is great because the simple fact exists that Lavoie would need to hire six additional sales people to help acquire more accounts. This costs 36, 000 Rmb per year per sales person, totaling 216, 000 Rmb. Also, promotional expenses need to be considered because they are not included in the State-Owned Distributor service. Promotional expenses for competitive foreign distributors are about 5 % of total sales.
Therefore, I estimated that 5 % of the sales figure of $ 1, 000, 000 or 8, 280, 000 Rmb would be needed for promotional use. This equates to about 400, 000 Rmb and $ 48, 300. These figures are represented in Exhibit 4, as well as the break-even analysis. Selling price to restaurants would be 8. 37 as seen in Exhibit 3...
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Research essay sample on Facing Distribution Problems In The Chinese Economy
