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  • Subject area(s): Marketing
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  • Published on: 14th September 2019
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As a company expands in a specific country, even after establishing and penetrating the market, it must always keep updated on the trends, demands and threats that could occur anytime. Changes in uncontrollable factors in a country, such as economical, cultural and political, can significantly influence a firm's strategy, approach and interest. The real estate industry is one of the pillars of economic growth, generating billions of dollars every year. Thus, slight variations or trends in the demand or supply of housing can substantially affect any real estate firm and, to some extent, the country itself. As a matter of fact, it is important for LJ Hooker to keep analysing changes in significantly dynamic markets, such as China.

The relevant factors to be taken into account are the following. Cultural forces influence the perception of buyers and the segmentation a company wishes to achieve; thus, it is important for LJ Hooker to understand China by this viewpoint. Furthermore, economic, financial and political forces are significantly intertwined and dynamic, implying that small variations can have substantial effects on a larger scale.

1. Cultural forces

China is heterophilous, meaning that it presents different cultures within its borders. This increases the complexity of doing business and could lead to complications while trying to do marketing abroad. For instance, the presence of seven main languages, with dozens of dialects for each, certainly creates a barrier for companies who wish to start conducting their business in China (CIA, 2017). In LJ Hooker's case, this is mitigated by the numerous agents it employs and by the close connection of the founder and the expert to the Chinese culture and dialects.

Furthermore, a critical point to consider is the cultural distance between Australia and China. By looking at Hofstede's cultural dimensions, the main difference between China and Australia lies in the individualistic or collectivistic dimension (Hofstede, 2017). This implies that China's culture relies on relationships and networks. Thus, it is crucial for LJ Hooker's to pursue a marketing strategy that reflects the values of relationship marketing. This can be done through the employment of a great number of agents, as they do, in order to have closer and more stable connections between the customers and the firm. Additionally, power distance is perceived noticeably different by the two countries. This implies that power is distributed unequally among the Chinese society and it is accepted, although in Australia it is not. However, LJ Hooker aims to focus on a niche, the wealthy Chinese, which have a similar powerful position in Chinese society, and thus can be regarded as a uniform group. Therefore, this cultural difference should not create incongruences that could damage the relationship between the firm and its customers. Overall, Hofstede's dimensions of cultural distance are somehow alleviated by the origins of the founder, Joseph Hooker, and by the presence of the numerous Chinese agents and experts.

A factor that could influence the future of LJ Hooker in China is education. Many wealthy Chinese are not satisfied with Chinese higher education, by stating that it focuses mainly on academic performances and not on children's development (Yan, 2015). As a matter of fact, in 2016, Chinese enrolments in Australian higher education institutions rose by 23% (Dodd, 2016). This is a considerable opportunity for LJ Hooker, since wealthy Chinese parents generally buy properties for their children living abroad.

Generally, cultural forces and trends in China present several opportunities and advantages for LJ Hooker. As mentioned, China presents different cultures within its borders, implying that noticeable differences could be of another nature between the cultural regions. As a matter of fact, interestingly, some Chinese provinces are essentially considered as different nations when observing culture, language, and economy.

2. Economic forces

The cultural diversity in China is both a consequence and result of the significant economic differences between its provinces. One of these differences is noticeable in the distribution of wealth. Most of the Eastern provinces present a higher GDP per person, up to five times more than other poorer regions (Economist, 2016). Indeed, as Evan Osnos (2014, p. 6) states, “The difference in life expectancy and income between China's wealthiest cities and its poorest provinces is the difference between New York and Ghana”. This disparity simplifies tasks such as selection and segmentation of the market for those companies that aim to focus on a niche. As a matter of fact, LJ Hooker's customers consist of wealthy Chinese, implying that its marketing efforts should be only directed to those areas where the GDP per person is significantly higher, such as the regions of Shanghai and Beijing. This significantly reduces the complexity and width of the Chinese market, and provides a benefit for LJ Hooker leading to a clearer and more specific customer base.

Generally, China's GDP had been one of the fastest growing GDPs in the last decade (World Bank, 2017). Therefore, this growth can be regarded as a significant opportunity for LJ Hooker, considering that in the next years its potential customer base would considerably increase. These mentioned economic forces are closely related to political and financial forces. Indeed, the growing GDP is also the result of several financial policies established in order to retain capital in China.

3. Political and financial forces

The Free Trade Agreement between Australia and China, which includes goods, services and investment is a considerable advantage for keeping trading with China. China is, indeed, Australia's largest trading partner, and Australia is China's main exporter of services (DFAT, 2017). The collaboration also leads to the introduction of advantages for Chinese investors such as the capital gain tax, established to prompt them to invest in Australian properties. As a result of these benefits, Chinese investment in Australia's real estate reached AUD $16 billion between 2009 and 2016, and it became number one source of property investment in Australia (Colliers International, 2016).

For the above mentioned reason, Chinese investments were considered to reach substantial levels in the next years. However, there have been some considerable changes. Two of the primary ones are the increase of the Australian tax for foreign home buyers and the interruption of loans and mortgages to non-Australian residents or home buyers with foreign income (Colliers International, 2016). These policies were implemented in order to make housing more affordable to the Australian population by reducing foreign demand. On the other hand, China initiated a capital control programme to limit the outflows and maintain more capital within its borders: it has, indeed, reclaimed 84% of its total global foreign property investments (Edwards, 2017). These changes are having a considerable negative effect on Australia's real estate market, considering that China accounted for 12 to 25%, depending on the state or territory, of the property transactions (Edwards, 2017). LJ Hooker must take these facts into account when deciding whether to continue focusing on China or not. As a matter of fact, it is a significant threat, since the returns on LJ Hooker's Chinese investments would drop if the economic and financial policies in China and Australia would keep reflecting this protectionist direction.

Generally, although the Free Trade Agreement is an important benefit, the changes in policies and taxes present a considerable threat for LJ Hooker. These are entirely macroeconomic factors, that could severely affect the future of the Chinese investment in the Australian real estate.

4. Conclusion

Australia and China have always been significantly close two-way trading partners. China is Australia's biggest trading partner and they are, as mentioned, in a close Free Trade Agreement. By looking at the given present information, the cultural and economical forces present considerable opportunities that could greatly benefit LJ Hooker. However, the financial forces in this case notably outweigh the advantages. These changes occurred during the last months of 2016, meaning that the real consequences are yet to become visible. Nevertheless, in few months, the increase of Australian taxes and the Chinese capital control already created a significant reduction in China's foreign investment. Thus, in the long-term, if these policies would remain valid, LJ Hooker should not focus on China. The firm would risk focusing on a market that would be losing its potential, instead of focusing more intensively on other countries such as India and Japan, more open to foreign investment.

Conclusively, although it is in LJ Hooker's best interest not to focus on the Chinese market, it should keep informed and updated on China and Australia's policy and tax developments. These are very dynamic and fluctuating factors; slight variations could have significant implications for LJ Hooker and, in some cases, present considerable opportunities.

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