Project #79986 - marketing 4

Read Case Study 7-1: Prosperity Painting Equipment and answer the following questions in an essay format.

1.      Provide a competitive analysis for Prosperity Painting Equipment.
2.      What are the bases for segmentation appropriate for Prosperity Painting Equipment’s industry? Refer to the automobile industry in your analysis.
3.      Identify the different automobile-manufacturing segments based on the degree of focus on the Chinese market, joint-venture partnership, and export orientation.
4.      Present a targeting strategy that is appropriate for Prosperity Painting Equipment.
Your answers must include content and cite reference materials where appropriate. To assist in this requirement, a good rule of thumb is that each answer should be approximately 200 to 250 words in length.
 

232 Part Three International Marketing Strategy Decisions

Case 7-1 Prosperity Painting Equipment

James Vreeland is an international marketing manager

with Prosperity Painting Equipment in Kunming,

in the Yunnan Province in southwestern China.

He was previously a manager for Baker Equipment,

an equipment manufacturer on the East Coast of

the United States, a former Peace Corps volunteer

in Nepal, and an MBA graduate—with a marketing

concentration—of the College of William and Mary

in Virginia. He recently married a Chinese woman

from Kunming and decided to settle there.

Prosperity Painting Equipment is a supplier of

painting equipment for three small automobile

manufacturing firms—three out of many in China’s

booming automobile industry—and is a mediumsized

firm with reasonable potential for growth in

a rapidly expanding market. Prosperity Painting

Equipment’s competitors are medium-sized and

large state-owned enterprises, as well as smaller private

firms. The firm’s director, Zhang Chen, hired

Vreeland for his excellent English and his polished

presence, and to date, his primary task was to

learn about China’s automobile industry. Zhang

Chen had important decisions to make regarding

the future growth of the company and Vreeland

was going to play an important part in his plan.

The Chinese Automobile Market

Vreeland found that, in 2007, Chinese automobile

manufacturers had a combined share of 29.1 percent

of China’s market, the world’s second largest.

Chinese automakers were ahead of the Japanese,

who had 28.3 percent of the market share. Still,

the Chinese market is dominated by big-name foreign

brands, holding 70.9 percent of the market

share, with most automobiles produced in China

by joint ventures. China has more than 100 automobile

manufacturers, but only 20 produce in

large volume. China’s success in the Chinese market

is attributed to price, especially in the largevehicle

segment, where, for the price of one foreign

heavy truck, one can purchase three Chinese ones.

Automobile buyers are pickier, but a cheap automobile

appeals to many Chinese consumers.

The best-selling brand in China is the Chery (see

Figure 7-6), produced by Chery Automobile,

which was founded in 1997 and is governmentowned.

Its most popular model, the Chery QQ,

appeared 6 months earlier than GM’s Chevy

Spark, the car it copied successfully, because a Chinese

firm somehow got hold of the blueprints. The

Chery sold more cars than Shanghai GM, which

makes Buicks, Chevrolets, and Cadillacs. But it

lagged behind Shanghai General Motors, a joint

venture between Shanghai Automotive Industry

Corp and GM, and Shanghai Volkswagen, a

partnership between Shanghai Automotive and

Volkswagen. It sold 50,000 automobiles overseas

in 2006, with its primary markets in the Middle

East and Eastern Europe. It is currently eyeing

the U.S. and Western European markets, hiring

expertise that will help it launch the Chery in

these markets.

Another important player in the Chinese automobile

industry is SAIC GM Wuling Automobile

Co., a Chinese joint venture with General Motors

(with the Chinese partner owning 50.1 percent),

situated about 1,200 miles west of Shanghai. It

makes commercial minivans and the Chevrolet

Spark minicar. Wuling’s automobiles are tiny,

with the best selling Sunshine van at a third the

size of GM’s Chevrolet Tahoe SUV. The starting

price of a Wuling Sunshine van with a 1-liter engine

is $3,700, about the same price of a low-end Chevy

Spark. Wuling’s sales were 460,000 vehicles in

2006. Production capacity goals are as much as

600,000 to 700,000 vehicles. Wuling’s target customers

earn $200 to $600 a month, do not own

a car, and travel on bicycles, scooters, or motorized

three-wheel vehicles. Wuling’s automobiles—the

Sunshine, and the more upscale Hongtu—are not

designed for mature markets, such as the United

States: The engine and wheels are small, and air

bags are optional. At the Wuling factory, workers

do the jobs that are performed by robots at Western

GM plants, taking advantage of low wages. Wuling

is a model closely studied by GM operations in

other locations, such as India.

In other examples, the Changan Automobile

Group Co. is an important newcomer to the automobile

industry, with BenBen, a microvan that has

been on the market since 2007. BenBen quickly

became the number two seller in China’s booming

FIGURE 7-6

The Chery automobile is the best-selling car in China; it is

produced by Chery Automobile, which is government-owned.

Chapter 7 International Strategic Planning 233

microvan segment, averaging about 7,000 cars a

month. Its target market is Chinese farmers and

small business owners in smaller provincial towns.

Shanghai Automotive, in turn, acquired design

rights for U.K.’s Rover and is planning to offer an

automobile with a higher sticker price, positioned

upmarket.

For Chinese consumers, in 2004, the automobile

brands with the highest brand recognition are

Santana, Red Flag, Mercedes, Beijing Jeep, Shanghai

VW, BMW, Honda, Volkswagen, Toyota, and

Buick, according to the Gallup Research Co.

LTD. Today, these brands will include many

more local makes, including the Chery.

Chinese Automobile Exports

Vreeland also reviewed the state of Chinese automobile

exports and quickly concluded that this is

a growth market. Chinese automobile manufacturers

exported 340,000 vehicles in 2006, bound

primarily for developing countries in the Middle

East, Russia, and Southeast Asia. About 25 percent

of the passenger cars China exports are made by

Japan’s Honda Motor Company, which owns a

plant in Guangzhou that manufactures cars specifically

intended for overseas markets. Honda

exports its Jazz compact cars to Europe from this

plant.

Predictions of Europe and the United States

being flooded with cheap and popular Chinese

cars may be premature, as Chinese manufacturers

must first build cars that meet European and U.S.

safety and environmental standards, and, equally

important, consumers’ standards for quality. Jiangling

Motors’ Landwind, a copy of Opel’s Frontera,

spectacularly failed European crash tests.

International joint ventures in China, with the

exception of Honda, have little interest in selling

automobiles outside of China, because they would

face political and economic disadvantages. Instead,

they are focusing on tapping the growing Chinese

market. But, even if only few of China’s automobiles

are available in the West (Chrysler has signed

a letter of intent with Chery to build a small car

in China for Chrysler to sell in North America),

they are likely to heighten competition for U.S.

automobile manufacturers worldwide. In the face

of growing political pressure in the U.S. and

Europe to address China’s large trade surplus, this

may spell trouble for Chinese exports in general

in the future.

The Task

Zhang Chen set up a meeting with James Vreeland.

They started their conversation casually exploring

Vreeland’s take on the Chinese automobile industry.

Zhang Chen informed him that the supplier

of painting equipment for the SAIC GM Wuling

Automobile Co., the GM joint venture, has just

been contracted to supply General Motors’ operations

worldwide. Zhang Chen would like Prosperity

Painting Equipment to enter into a similar

relationship, supplying the worldwide operations

of a large automobile manufacturer with painting

equipment.

James Vreeland’s task is to create a presentation

for the company’s investing partners that will segment

the automobile market in China based on

dimensions such as degree of focus on the Chinese

market, joint-venture partnership, export orientation,

and brand recognition. Then, Vreeland is to

present a targeting strategy that is appropriate for

his firm. The strategy proposed must convince

investors to provide the necessary funding for Prosperity

Painting Equipment’s growth.

Analysis Suggestions

1. Provide a competitive analysis for Prosperity

Painting Equipment.

2. What are the bases for segmentation appropriate

for Prosperity Painting Equipment’s industry?

Refer to the automobile industry in your

analysis.

3. Identify the different automobile-manufacturing

segments based on the degree of focus on

the Chinese market, joint-venture partnership,

and export orientation.

4. Present a targeting strategy that is appropriate

for Prosperity Painting Equipment.

Sources: Xiaoguang Fang, Vice Chairman/Senior Strategic Consultant,

Gallup Research Co. LTD, lecture on consumer trends in

China, May 23, 2007, University of Richmond Faculty Seminar,

Beijing, China; ‘‘The Chinese Carmakers,’’ Financial Times, Asia

Edition, April 25, 2007, 16; Gordon Fairclough and Joseph

B. White, ‘‘China Car Makers Pull Ahead at Home,’’ Wall Street

Journal, April 23, 2007, A9; Joseph B. White, ‘‘For GM in

China, Tiny IsMighty; Wuling Venture Plans Expansion as Sales

of Small Cars Surge,’’ Wall Street Journal, April 20, 2007, A9;

‘‘Business: The Sincerest Form of Flattery—Counterfeit Cars in

China,’’ The Economist, Vol. 383, No. 8523, April 7, 2007, p. 76;

Gordon Fairclough, ‘‘China Auto Exports May

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