export as means to enter the market are sometimes in low efficiency.
It might be possible that the cost of production and transportation are
excessively high in the manufacturers' native country, or the Chinese
government may have limited the import of certain products.
manufacturing in China has always been encouraging. With huge market and
inexpensive labor market, lots of foreign manufacturers are being attracted
to choose manufacturing in China. By locating their production here, the
manufacturers can customize the design, products, sale and after-sale
service to suit the local markets. With a lower cost of production, it has
also increased the competitiveness of the manufacturer's product in the
Some of license
and contract model as means of market entry are listed below:
In this way, the
manufacturers may produce some or most of the spare parts in their native
country and then transport them to China to be assembled. They can then sell
the end products in China or export them to the overseas market.
This will have
some benefits. Firstly the amount of investment can be reduced, the customs
duty is low and the labor force in china is inexpensive, coupled with China
huge domestic market and incentives from the Chinese government, these make
manufacturing is always referred to as OEM. In this method, what the
manufacturers will do is that they can sub-contract the manufacturing of
their products to local Chinese manufactures and once the products are
produced in accordance to the manufacturers' requirements, the foreign
manufacturers will be in charge of the sales of their own products.
The advantages of
contact manufacturing are that the foreign manufacturers' superiority may
lie in their technology, craft and marketing, but not in manufacturing.
Hence by sub-contracting to local Chinese manufacturer, they can reduce
capital investments and investment risks. As the foreign manufacturers still
have the rights to sell the products, they are able to control their market.
By manufacturing their products in China, it is beneficial to the
relationship with China government as well.
method has its own limitations. Firstly, it might be difficult to find a
suitable local manufacturer and if they do, they will have to share their
profits with them. Once the contract with the local manufacturer ends, the
local manufacturer might become a key competitor then. If this happens, you
may lose control of the technical "know-how" in China.
permit, foreign companies will sign an agreement with Chinese local
companies such that the Chinese companies are given certain rights to the
patents, the trademarks, service marks, technologies etc. The Chinese
companies will produce or sell the products under certain conditions while
paying the foreign companies some royalties. Franchise is one of the most
common methods of trade permit.
By entering the
Chinese market through trade permits, the foreign companies will be able to
break into the market with minimum capital and at the shortest time
possible. The foreign companies are also free from having to pay any taxes
and transportation costs. The risk will be smaller and the foreign companies
can also avoid having their license confiscated. At the same time, after the
product is sold in the local market, should there be any amendments to the
products; the foreign companies need not pay the expenses.
Since the local
companies are given so many responsibilities, this would mean that the
foreign firm will have little control over the product's quality and how the
product is being projected and marketed. Moreover, if the agreement with the
local companies has ended, the local companies might become a potential
competitor as they will be familiar with the operation of the foreign