Acknowledgements

I would wish to express my sincere gratitude to Professor Mr. Ewoud Jansen (my tutor) in University of Fontys Business Management. He has given me a great hand by guiding me though this project. Without his help, the thesis would not have been possible.

Next, as to Mr Nando Kitwich, the CEO of KV Connections, I am heartily thankful. Because of him, I could get this precious opportunity to reach the real business world. He has made his support available everywhere. With his patient guidance and abundant knowledge, I have learnt a lot.

Lastly, I am indebted to my colleague Mr Shufan Hu in KV connections, who help me go through my internships.

Preface

This report will enable Vendee concept to make a decision on whether they should enter the Chinese market with their Poultry processing equipment or not. Furthermore, this report will enable Fontys University of Applied Science in Eindhoven to evaluate the competencies of the trainee.

This report is structured in seven chapters; readers from Vendee concept can overlook

It is hoped that this report is satisfactory for our stakeholders Vendee concept and Fontys University of Applied Science.

3.3 Customer analysis.

3.4 Industry analysis.

3.4.1 Entry barriers.

3.4.2. Substitutes.

3.4.3. Customers.

3.4.5. Suppliers.

3.4.5. Industry rivalry.

3.4.6 Conclusion.

Part 4 SWOT.

4.1 SWOT Analysis.

4.2 Confrontation matrix.

4.3 Organizational consequences.

4.4 Marketing objective.

Part 5 Implementation Plan.

5.1 Entry model & Risk analysis.

5.2 Distribution channel

5.3 Pricing policy.

5.4 Communication Strategy.

5.5 Financial plan.

5.5.1 Price set up.

5.5.2 Volume forecast

5.5.3 Sales plan.

Part 6 Conclusion and recommendation.

6.1 Conclusion.

6.2 Recommendation.

Appendix 1:

Appendix 2:

Appendix 3.

Appendix 4.

Appendix 5. 42

3.3 Customer analysis

In order to get a deep understanding about potential consumers’ behavior, questionnaires have been conducted by telephone interview. 25 out of 35 customers were willing to answer questions. The majority of respondents were originally from Beijing area. For consumer survey analysis and telephone interview is in appendix 6.

The standard of purchasing has summarized through the telephone interviews with 25 Chinese modern poultry processing companies, which slaughter throughputs of between 2500 and 4000 birds/hour. The machinery to be used by customers in the plant should be decided on the level of technology best suited to their management system chosen and the estimated maximum throughputs envisaged for the foreseeable future. Equipment is usually bought to last for ten years after which time it is worn out, obsolete or redundant.

VENDEE CONCEPT’s customers include modern poultry slaughterhouses & processing plants in China. The largest competitor Stork Poultry processing is a benchmark for VENDEE CONCEPT. At present, they are cooperating with 13 among 25 Chinese poultry processing plants; five plants of them are in the top 10 companies in the poultry processing industry in 2008. It’s worth mentioning that there are 3 customers of Stork Poultry Processing expressed that they are willing to have a consideration of replacement for greater profits, because the Stork products are rather expensive.

According to 25 Chinese modern poultry processing companies’ response and by reading their future investment plan in 2014, there are 7 establishments intending to invest more than 3million RMB in manufacturing and infrastructure construction.  Moreover, there are 4 out of 25 poultry processing companies are willing to consider the cheap equipment, 8 poultry processing companies are willing to consider the advanced innovative products. Finally, stable quality and comprehensive service were considered as the preferred elements for the other 13 companies.  (See appendix 5)

Figure 7Key elements for customers to choose equipment

It can be seen that the equipment with stable quality and comprehensive service is the strongest element in the Chinese poultry processing market.

3.4 Industry analysis

An effective model to analyze the competitive environment is the 5- forces model developed by Porter. The model analyses the industry attractiveness and consists of five competitive factors of influence: entry barriers, substitutes, customers, suppliers and industry rivalry.

3.4.1 Entry barriers

Technology:

According to the desk research, most Chinese manufacturers have sufficient ability to design and produce this kind of poultry machines. This means the barriers for new entrants are quite high.

Table 4 China’s corporate income tax rate

(Source: Retrieved from VOX )

Subsidies:

A large number of foreign enterprises can benefit subsidies from the Chinese Government, firms including foreign-invested enterprises, privately owned firms located with free trade zones.  From a long-term perspective, there is also a high possibility that new competitors can entry the market.

3.4.2. Substitutes

Increased quality of substitutes: According to the research, the quality of substitute machine is on a high level, most companies recruited specialized persons.

High switching costs for consumers: Switching costs to consumers can come in the form of monetary costs, once a machine is bought and settled, it is hard to completely switch or change. The harder and more costly it is to switch to a substitute, the lower threat of that substitute.

3.4.3. Customers

The switching costs to other suppliers are high, while there are many substitutes and buyers do not very sensitive in price (according to the customer analysis), customers are more focus on quality and after sale services. So the buyers have neutral bargaining power.

3.4.5. Suppliers

Since the equipment and spare part are shipped from the Europe, there are no suppliers in China.

3.4.5. Industry rivalry

There are not many competitors in Chinese market, the industry of growth is high, according to the annual report of the Poultry Processing Company, and the growth rate in 2012 was 7.8%.  Rivalry among existing competitors can be regarded as low.

3.4.6 Conclusion

With the information derived from the market analysis, it is possible to identify the opportunities and threats are for Vendee Concept in Chinese market.

Opportunities

• High variety of distribution channels
• High product demand
• Growing Market
• Trade fairs/exhibitions
• Low bargaining power

Threats

• Strong competition
• Unfair practices/Corruption

Part 4 SWOT

4.1 SWOT Analysis

From all data gathered from the internal and external analysis, strengths, weakness, opportunities and threats of Vendee Concept are formulated as follows:

Table 5 SWOT Analysis

From the SWOT analysis above it can be concluded that there is a market potential in china although there is competition from the dominant players Stork poultry processing and Fomaco. VENDEE CONCEPT would gain market share by showing its competitive advantages in the future.

4.2 Confrontation matrix

In this part of the report, the recommendations for VENDEE CONCEPT are given to use of the confrontation matrix to provide several strategic options for the company and based upon these strategic options the company chooses, develops and pursue its business strategy. ( Export planning,  P37). Bearing in mind that VENDEE CONCEPT is not the world-wide market leader in poultry processing equipment industry (see competitor analysis) and a new brand to the Chinese market, it needs to focus on market development and therefore should stick to an offensive strategy in order to gain market share.

Table 6 Confrontation matrix

The growing market and especially the high product demand reveal prosperous future opportunities which VENDEE CONCEPT can meet through focusing on the development of markets that are in line with customer trends (focusing on quality and service, see customer analysis), however, VENDEE CONCEPT needs to fight against Stork poultry processing’s market coverage by building more brand awareness.

4.3 Organizational consequences

The Ansoff Product-Market Growth Matrix is a marketing tool that helps determine what strategy to choose. The matrix consists of four strategies (Essink-Matzinger & Gerritsen-van Veghel, 2006, p. 102):

VENDEE CONCEPT makes use of mainly one strategy aim to expand its markets and spread its products and reputation in China.

Table 7 Marketing strategy

New markets are developed by introducing existing brand that already gained a world- wide reputation. In this connection VENDEE CONCEPT should transfer the image and use their customized equipment to adapt the local trend of the Chinese poultry processing industry. Nowadays, in times of fierce competition in Chinese market, it is necessary to pay attention to customer intimacy in order to stay (competitive) in the new market. There are two dominant reasons Vendee Concept must pay attention to customer intimacy in Chinese market. Firstly, Vendee concept is a new brand to the Chinese market, thus lacking the capability to attain the product leadership in the short-term. Secondly, Vendee Concept cannot provide a cost-effective delivery due to the physical distance. Therefore, a strong relationship with customers and distributors can minimize the psychological distance. In addition, customer intimacy strategy sticks to Vendee Concept’s overall principles of doing business. In the case of Vendee Concept, this means the need to apply its value-added services at a premium price. The focus is on CRM, exceeding customer expectations, reliability and being close to the customers. There are three aspects of the Vendee Concept to connect and manage relationship with clients.

• VENDEE CONCEPT wants to create awareness in new market and getting Chinese customers to try its offering. VENDEE CONCEPT should make agreements with its distributors to offer free equipment installation and a short-term free maintenance (1 -3 years) to customers until VENDEE CONCEPT get a substantial market share in China. The idea derived from a successful entry plan by La Vie, a center heating company from France. They have reached 4% market share within 6 months by using this plan in 2011. (Cyclone’s Business Marketing Blog, 2011)
• Vendee Concept should build a Chinese official website, which provide the all the appointed distributor information. Furthermore, the website should be interactive, in a way which enables customers to leave a message on it. Then, Vendee Concept will take steps to solve customers’ problems immediately. High market prestige will be earned by taking this step.
• Vendee Concept should attend Chinese poultry processing equipment exhibitions as much as possible. The benefits and functions of their equipment will be introduced clearly to customers. Thus, brand awareness will be built.

4.4 Marketing objective

To get an idea of what this marketing strategy means, a marketing objective is set up. A marketing objective is to show what VENDEE CONCEPT wants to reach through marketing in a certain period of time. Keeping this in mind, the following objective has been formulated:

1. To commit 5% of the firm’s production of exports for the first year and to expand this to 20% within five years.
2. To establish committed partnerships with distributors in China, that will effectively represent VENDEE Concepts’ products in each of the channels.
3. To establish an effective and efficient export department that will be able to administer the export activities.

Part 5 Implementation Plan

The last research question: “What is the feasible implementation plan for the formulated strategies?” Is answered by designing the implementation plan based on the strategies from Part 4. It includes the choices of entry model, distribution decision, communication plan, price policy and marketing budget.

5.1 Entry model & Risk analysis

International companies need to decide on how much to adapt their marketing strategy when entering a new market.  Based on the confrontation matrix, VENDEE CONCEPT will have to look at the market entry strategy.

As mentioned in appendix 6 (distribution analysis), the best approach to enter the Chinese market for VENDEE CONCEPT’s poultry processing equipment is through indirect exporting, which is as well consistent to VENDEE CONCEPT’s business strategy (Chapter 2.4)  Therefore, it is vital to make use of some reliable end distributors in China.

The end distributors should only mediates between two parties, so VENDEE CONCEPT can make their own decisions. The advantages are that the end distributors have a strong knowledge of the market, a strong knowledge of (potential) customers, a strong knowledge of the product and possibilities and finally, a strong knowledge of the competitors and developments within the market. Several reliable distributors have been mentioned in appendix 6.

As long as VENDEE CONCEPT succeeds in this point, it will merge its position in the China market.

However, working with a distributor you cannot directly control the implementation of the marketing mix elements in the export country itself. (Exporting planning, P 125) Of course, VENDEE CONCEPT can make agreements, guidelines and visits, but this still no guarantee that the Chinese distributor will fulfill exactly VENDEE CONCEPT’s requirements. Therefore, the level of market control is diminishing. Depending on the certain activities, like R&D, production, marketing, sales and services, will not be included in the shared activities. Please see the figure

Market entry modes: level of market control

Figure 8 Market entry model

(Source: Leeman, 2009) Figure

5.2 Distribution channel

The target group for distribution channel based on the export method above is addressed through the following channels in the figure   .

For VENDEE CONCEPT’s poultry processing equipment business, distribution outlets are the ones who directly deal with customers. Vendee concept chooses this distribution channel for market coverage because of the high consultation involvement with their poultry processing equipment. Vendee concept will help distributors to provide support and service for the product. The distributor will carry on inventory of products and a sufficient supply of spare parts and also maintains adequate facilities and personnel for normal servicing operations.

The terms and length of association between Vendee concept and Chinese distributors will be established by contract. Vendee concept would prefer to begin with a relatively short trial period and then extend the contract if the relationship proves satisfactory to both parties.

In order to save cost, Vendee concept will mainly use ship transport to From Bordeaux to Datong (Beijing area), normally, the deliver time of ship transport from Europe to China is 3-4 weeks.

5.3 Pricing policy

There are many factors to consider when VENDEE CONCEPT is setting prices for the Chinese market. Since the high cost of the material and labor in Europe, the price won’t be set too low in China.  On the other hand, if VENDEE CONCEPT sets the price too high they probably won’t sell a thing and their competitors or the Chinese government won’t be much bothered by imports of VENDEE CONCEPT’s equipment.

VENDEE CONCEPT’s poultry processing equipment as an alternative product to Stork poultry processing’s, customers will be attracted when VENDEE CONCEPT offers a lower price than its main competitors.

5.4 Communication Strategy

B2B organizations have a very important goal:  To acquire customers (have them invested in their company through the purchase of product and/or services) and build relationships with these customers with a continued positive outcome in the form of testimonials and/or returned purchasing (Content Rules by Ann Handley & CC Chapman). VENDEE CONCEPT should follow a customer focused communication strategy.

Table Communication strategy

5.5 Financial plan

The financial plan is interaction with the export marketing plan. Moreover it confirms that the marketing plan is aligned with realistic costs. Normally, the financial plan is linked in several ways: pricing set up, the sales forecast, and the marketing expenditure budget ( Hollese, 2010).

5.5.1 Price set up

First of all, it is important to define which price to use, the selling price could be wholesale price, e-tailing price and retail price. (Export plan by joris.J.A Leeman) VENDEE CONCEPT only focuses on B2B clients, hence the selling price is sole in this case. The second important aspect about the pricing set up is to know how to execute a target price that is to identify the average base price of competitor in the Chinese market.  A table below shows the selling price of 3 top leaders in Chinese market.

Target price set up-calculation

The target price is set up- calculation can be used to calculate the maximum allowed or targeted buying price (Leeman, 2010)

Consumer price= Landed costs+ Wholesaler costs+ Retailer costs, the table below shows the detailed figure in the calculation. (Figures are provided by VENDEE CONCEPT Company).

Selling expenses: As mentioned in communication strategy, it is important for VENDEE CONCEPT to build awareness at the very first beginning; a few actions need to be executed, for instance: attending exhibitions, seminars, providing the right information at the right part of their buying cycle, provide manuals, training and customer services.  VENDEE CONCEPT planned to spend around 35,000 RMB in providing training and free customer after sell service. This is 20% of the buying price.

Distribution costs: A Chinese website will be established to support the distribution in China. To design an official website and own the domain name in China will cost EUR 500 per year, with annual maintenance of the website costing around EUR 380^[1]. (Approximately 7,480 RMB) The costs of distribution are around 5% according to the figure provided by internal information of VENDEE CONCEPT. The total distribution costs can be estimated at 6%.

Adm. Overhead expenses: VENDEE CONCEPT will hire at least one native export administrator in China, who in charge of communication with intermediaries, participation in trade associations, which will cost an average salary of EUR 2,000 per month. (Approximately 17,000 RMB) Meanwhile, a French expatriate-team will also in charge of training disturbers how to install and maintains the machines.  That costs were estimated at 15% of the Buying Price goods.

Table 9 Sales Plan

5.5.2 Volume forecast

Based on the research in Chapter 3, the market leader occupied 20% of market shares in China by selling 45 units of the poultry processing machine. The market size can be estimated at 225 units in total.

According to the formula: Volume calculation= market size* target market share * market growth, the volume can be calculated as 225 * 5% * 1.05=11.8, rounded to 12 units.

5.5.3 Sales plan

After knowing the price and sales volumes, sales plan can be calculated easily:

Sales plan= price * volume = 628,875*12=7,546,500.

Therefore, sales plan (turnover or revenue) is forecasted as 7,546,500  RMB.

Part 6 Conclusion and recommendation

During the last 14 weeks, the Vendee concept project was conducted in order to find out what is a feasible strategy to export their poultry processing equipment into Chinese market.

6.1 Conclusion

From the internal analysis, it is obvious that Vendee concept is quite successful in the poultry processing equipment industry. Vendee concept has sufficient international skills and experience in entering a new market. From having conducted the external analysis. The overall commercial environment regarding the poultry processing equipment industry is positive in China. According to The Food Institute China, Chinese modern poultry processing factories with a growth rate of 0.57% over the past two years which serves as a big market for VENDEE CONCEPT. Because this industry is growing fast in China, some strong competitors have been shifting to China; next, the region of Beijing was identified as having a high potential market among the overall population. In addition, the potential customers were found to be currently using competitors’ alternative products, there are 7 potential customers intend to invest more than 3million RMB in manufacturing and infrastructure construction.  Based on the competitive analysis, there are three competitors that exist in the current market, namely Strok poultry processing, Fomaco and connect group. Stork poultry processing is the main competitor of Vendee concept and the largest supplier in poultry processing equipment industry with a 20 % market share in China. However, Stork poultry processing is facing a problem regarding expensive price which adversely affected the domestic demand.

6.2 Recommendation

Based on the market investigation and analysis elaborated in the previous chapters, below is a list of recommendations addressing the concrete export endeavors of VENDEE CONCEPT targeting the Chinese market in the future.

• Partnering with reputable distributors and get an exclusive contract with distributors to avoid corruption, to gain knowledge about the industry and increase sales, it can minimize the risks that occur when first stepping into a new market. ( The list of reliable distributors can be found in chapter 3.5) To engage customers to try Vendee concept’s offering in a new market. Vendee concept should make agreements with its distributors to provide free equipment installation and a short-term free preventive maintenance (1 -3 years) to customers until VENDEE CONCEPT gets a substantial market share in China.
• Visit both international and Chinese trade fair shows regarding the poultry processing industry as much as possible, this is not only for introducing their product features to the attendants, but also gaining market knowledge and trend with ease, and gaining latest technology concept form competitors.

• Obtain CCC certificate, The CCC safety license requirement by the Chinese government requires manufacturers to obtain the China Compulsory Certification before exporting or selling products covered by CCC system. Poultry processing equipment contains metal raw material which is involved in article 304210000. (export.gov. 2012)

• Developing an online presence by adding the Chinese language and include visual content on Vendee concept’s current website. Furthermore, Use the internet to educate potential customers on ways of self-operation and maintenance to prolong machine life-span.
• The key success factors for Vendee concept are letting potential customers know who and where Vendee concept is, as well as establishing a solid network with them. Therefore, a native speaker export group is essential in this project. The group of people should play a significant role in delivering the information from China to France.

Currently, there are no foreseeable factors that will lead the project to fail if Vendee concept acts upon the strategies and plans of this project.

Appendix 1:

In China, Chicken is the most popular meat which is consumed about 8.165 million tons, followed by ducks and geese, in 2011. (China agriculture yearbook, 2011)

Top companies in China’s poultry industry in 2008

Source: China meat association 2008

Appendix 2:

Questionnaire:

Dear Sir or Madam,

I am the business developer from in KV Connections the Netherlands. I am doing research about the poultry processing market. I am very interested in the food processing related products of your company. May I ask you some related questions?

1. Which product does your company produce or use?
2. What does your company specialize in?
3. Where, when and how did you buy the machines that your company has been used? (Customers)

Or which distribution channel does your company use sell?  Where can I see your    advertisements? (Competitors)

4. How often does your company update or maintain the machines?
5. Is your company willing to see the new product from VENDEE CONCEPT?

Thank you very much!

With kind regards,

Appendix 3

Negative culture which affects doing business in China

China is generally viewed as the most attractive investment destination in the world, despite the country’s high levels of corruption which in China is a cultural phenomenon. The transition process from planned to market economy not only led to unprecedented economic growth rates, but also created opportunities for public officials and others to enrich themselves illegally. Although the Chinese government acknowledges that corruption is endangering political stability and economic growth, and has therefore been pursuing an anti-corruption campaign targeted at both the public and private sector to try to curb the persistent problem. However, as long as the judicial system is flawed, it will be difficult to realize major changes. There are many examples of corruption affecting the judicial system and political interference in connection with dispute settlement is not uncommon.  In addition, there are many companies have run into difficulties with the authorities because of corrupt behavior by their agents or business intermediaries. The activities of agents are difficult to control.

Appendix 4

Stork poultry processing‘s product overview

• Live bird handling
• Killing & defeathering
• Evisceration
• Chilling
• Grading and distribution
• Cut-up

• Deboning & skinning
• Portioning & slicing
• Meat harvesting
• Marinating & tumbling
• Cooling and freezing
• Grading and batching

• Packaging & end of line
• Production management
• Internal logistics
• Weighing
• Further Processing

Appendix 5

Stork poultry processing’s current customers

Fomaco current customers

Connect group’s customers

Poultry processing companies which are using other brand equipment

The following establishments in Beijing area intend to invest more than 3million RMB in manufacturing and infrastructure construction. Most of companies are focusing on developing new product line, updating their equipment; rebuild their slaughterhouse and production site, as well as employee dormitory

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