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  • Subject area(s): Marketing
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  • Published on: 14th September 2019
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INTRODUCTION

In recent years, the subject of international market selection and market failure in China has been gaining increasingly more attention from managers, business researchers and also from the media. However, also, the People's Republic of China (in the following referred to as China) has developed one of the largest and most important markets in the world. This development is a result of growing internationalisation of business activities and the tremendous economic growth of developing nations,  as well as China's Opening-Up reforms. Thus, large overseas markets have been developed, which serve not only as production locations but also as consumer markets as their demand is increasing. In this regards, large consumer markets, especially the Chinese consumer market, have attracted many internationally operating corporations to enter the market. In China, besides the Chinese upper class, businesses focus in particular on the Chinese middle class, as the middle class is expected to grow considerably. However, as the general standard of living in China is rising, more disposable income and more consumer products are available. Also, consumption of the middle class is not only growing extraordinary but also, consumption patterns are changing. This development becomes well notable on the food and beverage market, as food consumption patterns have widely changed. Especially the consumption of imported food products by middle class shows a relatively new phenomenon on the market and offer tremendous business opportunities. Many foreign companies have set foot or intend to set foot within the Chinese market as well as more and more Chinese businesses are sourcing their products directly from other markets outside of China to profit from these opportunities.

A further factor for international companies to enter other markets is the economic pressure concerning the economy of scale resulting from the growing internationalisation. However, also changing market conditions and saturation or shrinkage of home markets are forcing companies to internationalise their operations increasingly. However, after the opening up reforms in China, within the earlier stages of political and economic development, several corporations have failed market entry due to various reasons. Even though sophisticated market and consumer knowledge are more and more widespread and available, some companies still fail to enter the market, or are struggling to adjust to the Chinese market. Therefore, the quickly changing economic and political conditions, shifting consumer attitudes and differentiated consumption patterns are creating the need for further investigation into the possible impact of the consumer on market selection.

Douglas and Craig (1992) showed in their study that already 50 years ago internationalization was becoming a more and more relevant research area.  Further research by Johanson and Vahlne (1977), also stress the increasing significance of business interactions across borders.  Hence, the research area of internationalization developed where some of the most well-known models are the Uppsala internationalization model,  Root's model which emphasise a strategic approach,  Miller‘s model which highlights consecutive steps  also, Yips et al.'s comprehensive “way station model”.  While some researcher advocates a reactive and knowledge based strategy,  others researchers argue for the need for a strategic policy within the internationalization process.   However, internationalisation must be seen as an ongoing process which is influenced by many factors.  As a result, the international market selection gained significant attention due to its relevance to corporate performance.  Here several selection tools have been developed and are widely applied.  Nevertheless, companies still struggle in selecting and entering the right market. Previous attempts to solve the problem on hand include the development of a relationship approach by Andersen and Buvik (2002).  Furthermore, the concept of psychic distance has become more widely applied and recognised while other research tried to development the idea further.  However, even though that the benefits of a strategic process are are clear  and research state the importance of indicators in the selection process,   the complexity is often underestimated by existing models  as only limit indicators are taken into consideration.   

The majority of the studies, however, have been conducted with a focus on already advanced consumer markets, and it is likely that the results can not be directly transferred to the Chinese market. Furthermore, the literature on internationalisation and market selection does exist, as well as information regarding market failure. Both research areas have not been combined to develop a more compressive selection model which combines both the selection process as well as further steps. Also, due to the preliminary research, it is assumed that most internationally operating firms do select their markets and operation areas on primarily economic factors. Therefore, it is argued; that socio-cultural factors are often not given sufficient attention to the market selection and product adaptation process. This behaviour does not support good economic performance as well as it can eventually lead to market failure. Hence, as only limited research with direct consideration of Chinese socio-cultural characteristics is available, increasing focus under special consideration of these socio-cultural factors within the market selection process might lead to improved corporate performance and better market selection. Hence, the aim of the paper is to investigate the importance of these factors within the micro-market selection and further processes as a success factor in the Chinese consumer market on the example of German food exporting companies. Therefore, the paper suggests, that not only market knowledge and resource capabilities do impact the likelihood of economic success in China, but, in particular, the market selection process. In this sense, extra attention is given to specific market characteristics, as these are believed to have a large impact on market choice. This concept is already in parts known and accepted, but not given sufficient attention in the earlier stages of market selection. In particular, the consumer is only taken into consideration at the last phase of market selection.

Therefore, the research question of this study is “How to improve micro market selection in China towards a more consumer orientation selection process?”. To achieve this goal, further sub-questions are developed. These questions focus on the one side on the identification of underlying reasons for company failure in Mainland China, and, on the other hand, the issue of whether or not socio-cultural consumer characteristics are represented in a sufficient manner within existing market selection tools. The aim of the thesis is now to answer this research question and to provide more insight into the subject area. Therefore, the primary focus of the study lies on an analysis of existing literature as well as the detailed discussion of the state of research with regards to a theoretical solution to the problem at hand. Furthermore, this theoretical part is followed by two empirical studies. The researcher intends to find reasons for the market failure of international corporations in Mainland China by existing already occurred market failures within the first part. This approach shall also serve, together with additional material, as the base for the problem clarification. During the second empirical part, the research intends to apply a different perspective. A survey concerning the market selection process based on German food exporting companies is conducted, as the researcher expects to find evidence for his observations and hypothesis from the preliminary investigation. He suspects that companies neglect socio-cultural characteristics within the micro market selection process and further marketing activities. In conclusion, the structure of the paper is explained in more detail.

First, chapter two describes the methodological approach of the study. Then, Chapter three discusses the fundamental problem by highlighting the current economic developments in China. Furthermore, chapter four is stating reasons for the market failure of international corporations in Mainland China. Core objectives and investigative hypotheses are derived from the company failure analysis and further examined within the theoretical part in chapter five and within the empirical study of chapter six and seven. Subsequently is chapter five devoted to the current state of research, stresses basic approaches as well as emphasizes on theoretical inconsistencies in the literature. This chapter tries to offer an answer to the research question from the perspective of theory. A research gap which becomes evident in the end chapter five is then examined in more detail in chapter six and seven. Chapter six serves as a methodology for the questionnaire and describes the methodological approach. The methodological approach is followed by chapter seven, which presents the results initially descriptive and subsequently by testing the hypothesis. Finally, section eight represents the final chapter in which a conclusion is drawn, and a future outlook is provided.

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