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Effective Market Entry Strategy: How to Sell Baby Formula to China?

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Task: How to sell baby formula to china? Analysis of New Market Entry Strategy required for Baby Formula Market expansion in Chinese.

Answer

Introduction
The demand for baby Formula is rising in developing nations like China and India making it important for baby formula manufacturer to master How to sell baby formula to china, India or any other market. Baby Formula refers to edible food being produced by companies to nourish infants below 12 months. It is presented as a powder or in liquid form and should be convenient to use while spoon or bottle feeding the baby. Baby food is being manufactured in many flavors and categories. In the market of the global baby food market, the infant milk is the most popular and sold product. As per the provisions of United States Federal Food, Drug, and Cosmetic Act, the formula of the infant food should represent the food providing nourishment value sufficient for the nutrition of a child which it may say deprived of the breast milk (U.S. Food and Drug Administration, 2015).

The formula for infant food is generally created from the skimmed milk of the cow which is being supplemented by essential vitamins, fatty acids, amino acids, and prebiotics. They are also being prepared from several variants like soya milk, cow milk, formulae of reflux, premature low birth weight formula, hypoallergenic formula, non-lactose formula and various other formulas (Medline Plus, 2015). In the present condition, the baby formulae are perceived as a biological requirement and considering also because of various supplementary factors. Since this food is being given to the infants, the parents should take extreme precautions while selecting a baby food of its ingredients and its usability.

Environmental Analysis on How to sell baby formula to china
In this section, we are going to discuss and analyze the operational environment of the baby food market in China.

Political
According to the new trends and current happenings in the country like halting the one-child policy of the Chinese government. This approach of the government will statistically lead to the probable birth of the 1.52 million infants in the country every year which will boost the sale of infant food product would expectedly multiply with the expected growth of 1015% (Haelein, 2015). It very currently that the Chinese government had withdrawn the one-child policy because of the rising issue of the aging population in the country which is pulling back the economy of the country. As contrary to the one-child policy the country has implied two-child policy in March 2016 which will positively affect and boost the infant formula companies from abroad like Nestle, Wyeth, Mead Johnson, International Nutrition Co., and `Abbott. These companies are expecting an economic growth of 34% expecting a high import of foreign baby formula products in China.

Apart from the new two-child policy, the government of China had implemented very new innovative policies in 2013 regarding the market of Baby food formula. The major policies like strict procedures to check the quality and safety of the components in the baby food formula were implemented by the Chinese government in 2014, thus making the year a milestone in the baby food market of China (Euromonitor, 2015).

Some companies had got major setbacks due to the new import policies of China. The major infant food processing companies like Danone have halted its export of products to China because of strict scrutiny of the tax loopholes which eliminated the scope of permitting the sale of baby food formula at cheap prices through the online means like websites which wee being operated outside of China (Chang, 2016). The major issues that the companies in the baby formula faced were like the increasing cost of production because of the surge in tax by 11.9% as the Chinese government is developing an innovative of its digital and electronic commerce system. Before the implementation of this policy, the foreign companies had an uneven advantage over the domestic and small-scale industries. Because of the unfair competition, the government had been devising policies to rule out the underground market from the domestic market of baby food formula. The people of Chinese ethnicity and citizenship used to order baby food, diapers, and vitamin supplements from this underground market which were operated by the small-scale industries owned by certain online markets and websites. By resorting to this grey market, the customers used to dodge the burden of taxation.

Economical
Among the group of Asia-Pacific countries, the Chinese domestic government is performing extremely well since the projected growth until the year 2020 is deemed to be 7.7% while the global rate is just 6.4%. By the period from 2015 to 2020an an estimate pf $72.7 billion is expected to be generated as revenue (Whitehead, 2015). It should be understood from this data that the consumption of the baby food formula is very high in China as compared to that of the global level. It should also be noted that the cost of the baby product formula is very high in China as a comparison to other countries because of its less availability and high demand. The companies of baby food formula had generated the demand for its product by conducting heavy marketing campaigns and advertisements. These campaigns have made the intuition and perception among the Chinese mothers that the food formula is healthier and worthier than breast milk. The economy of China had improved a lot which has increased the standard of living among Chinese citizens and consecutively impacted a hike of 8% in the per capita income. A little more interesting fact in this circumstance is that the rural areas had displayed a reasonably higher growth of 9.2% than the urban areas. The poverty in the rural area of China has decreased as around 12.32 million citizens had moved up from the Below Poverty Level (Daxue Consulting, 2016). The given scenario makes it clear that the economy of china is on the sustainable path of growth that had resulted in the increased sale of baby food formula. In Chinese culture, children are given utmost priority and considered as the nucleus on whom a very high amount of money is being spent. By the statistics of 2014, the overall consumption of the baby food formula has reached the limit of 28844 RMB and is still at a very dynamic and progressive course.

The citizens of China are very health conscious, especially about their children Hence for them it is the quality and ingredients of the baby food formula that matters rather than its price (Kong, 2012). Instead of the conventional way of advertisements, it is the discount offered by the company which attracts the consumers further. These trends and preferences of the consumers had made the manufacturers of the baby food formula produce cheaper units meeting high-quality parameters in most legal, ethical and sustainable method thereby meeting the requirements of the customer to assure corporate social responsibility.

Social
There is a strong unawareness among the Chinese citizens about the appropriate food to be given to a small child or infant of age amid 0 to 6 months which is feeding on food in the liquid formula like breast milk and other formulas. There is also ambiguity among the food to be given for a 6 month to a 3-year-old child which should be fed with semifluid food with baby formula and other supplements. As compared to the western countries who show much aversion to the artificial foods the Chinese individuals start eating artificial food at a much lower age. Unlike other countries, the market for baby food formula in China is a very potential one because most of the baby food products in China are made in households since there is no large or potent industry present in this section.

As discussed earlier in this report on How to sell baby formula to china, the revocation of the one-child policy has increased the birth rate of 2014 in China by 1.237% (Daxue Consulting, 2016). As per the report, around 16.87 million infants were born in the year 2014 in China where it should be noted that at present there are 40 million babies in the country between the age of 6 months to 3 years. The study conducted by the government analyzes that even a 100-gm utilization of the product by each baby in the country will generate total revenue of ¥80 billion. The present capacity of the industry is only ¥7 billion. The industry for baby food has a scope of ¥ 60 billion growth though there are 128 baby food manufacturing companies that had an output of 700000 tones as per the records of 2013.

Technology
Because of heavy competition in the baby food processing company and its online retailing network, the e-commerce division in the company is gaining much significance, hence the company which is planning to enter into the Chinese market has to strengthen its technical aspects (Euromonitor, 2015). The economic specialists have opined that even if the economy of China collapses the new companies which are intending to begin a start-up on the baby food process company have a great scope of growth since there will always be a demand for a nontoxic, best quality baby food.

The present happenings and the new trend of high online and e-commerce for the products of baby food are because of the high awareness of the young generations and the millennials who are willing to pay heavy prices for premium quality products. For instance, a small website like Mami Zhidao was able to draw and magnetize around 2 million customers from the year 2015 and was even able to obtain fund and support from SoftBank Group Corp which is an investment and capital lending institute under one of Japan's telecommunication company (Osawa & Carew, 2015). As per one of the estimates analyzed from a survey, the nutrition and diet business for mother and child in both online and offline fields will display the progress of $244 billion (15%) in the financial year of 2016 which has the potential of double up its magnitude by 2020.

Stating further, the advancements and growth in the market of baby food products like the introduction of puree conducted with high- pressure thermal disinfection reduces the presence of carcinogenic factors which may have been generated while going through the thermal conduct while packing, canning, and jarring (Sevenich, et al., 2014). The current studies and expert analysts predict that modern technologies and new inventions would lead to improved production of premium quality baby foods.

Environmental
As China is one of the major economies at global level and have much power in the security council of the United Nations, it is expected in the global market that a strict stance should be taken to make regulations and sanctions on the companies causing pollution and harm to the environment and along with the parameter in quality of baby food should also be scrutinized. Because of the excessive increase in the import of baby food-producing companies from the year 2008, the government has imposed new sanctions and project safety norms to reduce the ingress of new products. The government had intensified this process when the scandalous activities in the baby food industry started to pop up. The major scandal was the presence of melamine in the baby foods which has led to the inauspicious condition of death of 6 infants and admission of 54000 infants in the hospital (Lynch & Wen, 2016). As the consequence, the no of brands that could be sold in China was reduced from 800 to 94 which should be conducted to strict scrutiny under the Certification and Accreditation Administration of China so that the strict safety norms for food could be followed.

By the issue of cheap capitalism, food corruption still exists in the Chinese baby food market which is generating issues like below par quality marked with cheap price defying the societal principles and corporate ethics (Cheng, 2012). The market is very unstable and there are a lot of potential and secret risks viable to the customers of baby food products (Huang, 2014). China is facing the critical issue of water and soil pollution which in turn is leading towards the still unknown health issues and perils. Because of the inconsiderate use of fertilizers and pesticides have polluted the soil and air and thus the crucial raw materials like rice and vegetables are polluted with heavy metals. Even if the government comes up with any strategy the environment conditions require it many years and high investment to remove the pollutant. Thus, the customers of the Chinese market are very skeptical about feeding their kids with these baby food products.

Legal
Since the above-mentioned issues in this report on How to sell baby formula to china prevail in the Chinese market of baby food, it is by the means of law enforcement that a solution could be arrived at for these problems (Ni & Zeng, 2009). The new legislation regarding the baby food products has made it mandatory to provide the details regarding the below-listed items.

  • Name of the brand, amount of ingredients per unit volume or weight, and the date of manufacture.
  • Various ingredients and the ratio of the mixtures.
  • Name of the manufacturer and their contact details like the address and phone number.
  • Life expectancy
  • Standard code of the product
  • Basic instructions for the storage.
  • Basic ingredients as guided by the food controlling authority of the nation.
  • The identification number of the license of production.
  • Addition guidelines that should be followed to go along with the nourishment security norms, food laws and other regulations (GAIN, 2015).

The companies entering the baby food processing market of China is strictly required to maintain the documentation of the production and various test conducted on the product and the list of various raw materials and preservatives used. The manufacturers are required to maintain the documents per unit until the 6 months of its expiry date or 2 years if the date of expiration is not specified. Various tests should be conducted on the product by different departments of the government like the General Administration of Quality Supervision, Quarantine and Inspection Department (Sim & Yang, 2016).

The Chinese parliament had made amendments in the law regarding the baby food formulae which states that the Food and Drug Administrating department should be made aware of its key ingredient, the character of chemicals like flavors and preservatives used at the regional level. The formula must get assent and be registered in the China Food and Drug Administration. The report to the China Food and Drug Administration must include the process of production followed, various security measures implemented, and the recipe of product. The board strongly discourages the importing of repacked products manufactured by similar and unknown companies. The companies couldn't produce similar products under different label names.

External Analysis of the Company
The below section of this report on How to sell baby formula to china pertains to an analysis of the external environment of the food companies to identify various threats and opportunities in the market.

Opportunities
As observed by the study conducted by the CAGR the baby formula industry is expected to grow at a rate of 15% in China (Euromonitor, 2015). Various factors like the adoption of two child policies reduced the occurrence of breastfeeding because of the increased employment among women, and some modern trends in the society have led to the increase in baby food consumption (Belasco, 2014).

Because of the import of illegal products into the Chinese baby food market, a lot of private sellers have emerged and are operating the import for around 5900 stores in the economy (Ebeijing.gov, 2015). It is the baby food companies based in New Zealand which are being sold mostly from the outlets and the buying trend of the Chinese customers indicates that the product from Australia is the most preferred one among other global brands.

The e-commerce sale of the baby foods is still very immature and the sale through offline methods is 11 times that of the online methods as per the statistics of the 2013-2014. Although the trend for an increase in the online sale of baby food formulae (EU SME Centre, 2015). The comparatively smaller brands have succumbed to the high risks in the market and are being taken over by the bigger companies, which eliminates the possibility of a new entrant into the market (Daxue Consulting, 2016). As it is expected the e-commerce in the market would boom the relative progress in the distribution channels for the products of baby formulae would also take place.

Since the domestic products have a very bad reputation among the Chinese customers, they prefer the products imported by the foreign giant companies (Daxue Consulting, 2016). Whatever the rice will be, the customers are willing to pay high prices for the premium baby food formulae.

Threats
The market for baby food products is not as amateur as other countries. The domestic economy of China had made a growth of 25% as per the records of the 2012 accounting revenue of RMB 77 billion (USD 12.55 billion). China has around 130 small scale baby food-producing companies working in the domestic economy producing an estimate of 600000 tones of product per year (GAIN, 2013). The domestic companies are finding it hard to sustain their business in the company. Currently, there are 10 giants company operating in the domestic baby food market of China, which has strong potential to crush all the domestic and small-scale industries in the same market. As per the corporate and market statistics of the company in the year 2013, among the 10 giant baby food processing giants, 5 were from foreign countries which were International Nutrition Co, Abbott, Nestle, Wyeth and Mead Johnson controlling an estimate of 35% of the domestic market. If a company is making plans to enter the market of China, they should be aware of the harsh competition and rivalry as a new competitor in the market.

Possessing the market share pf 12%, Shanghai Wyeth Nutritional Co Ltd was the leading company in the baby food processing market would be the topmost risk and competitor to the new entrant into the market (Euromonitor, 2015). The Shanghai Wyeth Nutritional Co Ltd had not faced any cases on defilement in adulteration of the food, hence it is performing very well in the market and had established it as a reliable brand and has tremendous goodwill amongst the parent community. The company had displayed a very tremendous effort in maintaining its reputation and keeping hold of its loyal customer base especially the demographic division with very high purchasing capacities. On the way to maintain its top position and dominance in the market, the company with the help of a newspaper called Huaxi to set for a promotion scheme which encouraged different shoppers to pay a quick visit to its production units established at Suzhou. The company had allowed the visitors to enter and view every section of the industry from the very initial stage to the packing stage. It will be very hard for a new company to replace the position of Shanghai Wyeth Nutritional Co Ltd in the Chinese market.

Recommendations
In this report, a wide external and internal analysis of the situation on the issue of How to sell baby formula to china by a new entrant is discussed. It is observed that the company has a lot of opportunities in the domestic market in China. The opportunities have further widened and boosted by the present advancements like retrieval of the one-child policy, the trend in selecting the foreign brands thus making a new purchasing culture and custom among the Chinese customers. Although this is the case, the issue of heavy competition and rivalry should not be ignored by the management of penetrating the market as it will be very hard for a mediocre company to deal with the harsh conditions. How to sell baby formula to china or India, requires companies to use the brownfield market entry strategy and build strategic alliance or mergers within the market to achieve success.

References
Belasco, W. J. (2014). Appetite for change: How the counterculture took on the food industry (2nd ed.). New York: Cornell University Press.

Chang, R. (2016, April 18). China Tax Rules to Cool Gray Market for Danone, A2 Baby Milk. Retrieved from Bloomberg.com: https://www.bloomberg.com/news/articles/2016-04-17/china-tax-rules-to-cool-gray-market-for-danone-a2-baby-formula

Cheng, H. (2012). Cheap capitalism: A sociological study of food crime in China. British Journal of Criminology, 52(2), pp. 254-273.

Daxue Consulting. (2016). The Baby Food Market in China: a valuable Industry. Retrieved from Daxue Consulting – Market Research China: https://daxueconsulting.com/baby-food-market-in-china/

Ebeijing.gov. (2015). Mothers buy foreign formula online. Retrieved from Ebeijing.gov.cn: https://www.ebeijing.gov.cn/BeijingInformation/BeijingNewsUpdate/t1107974.htm

EU SME Centre. (2015). The Food & Beverage Market in China. China: EU SME Centre.

Euromonitor. (2015). Baby Food in China. Euromonitor.

GAIN. (2013). China - Peoples Republic of China’s Baby Formula Market. China: Global Agricultural Information Network.

GAIN. (2015). China - Peoples Republic of China’s Food Safety Law (2015). China: Global Agricultural Information Network.

Haenlein, O. (2015, November 4). Worldwide infant formula sales set to rocket as China ends the one-child policy. Retrieved from Dairyreporter.com: https://www.dairyreporter.com/Markets/Worldwide-infant-formula-sales-set-to-rocket-as-China-ends-one-child-policy

Huang, Y. (2014, July 16). The 2008 Milk Scandal Revisited. Retrieved from Forbes.com: https://www.forbes.com/sites/yanzhonghuang/2014/07/16/the-2008-milk-scandal-revisited/#14c08bf74428

Kong, D. (2012). Does corporate social responsibility matter in the food industry? Evidence from a natural experiment in China. Food Policy, 37(3), pp. 323-334.

Lynch, J., & Wen, P. (2016, April 14). China tightens infant formula regulations. Retrieved from The Sydney Morning Herald: https://www.smh.com.au/business/china-tightens-infant-formula-regulations-20160413-go5x5g.html

Medline Plus. (2015, November 05). Infant formulas - an overview. Retrieved from Medline Plus Medical Encyclopedia: https://medlineplus.gov/ency/article/002447.htm

Ni, H. G., & Zeng, H. (2009). Law enforcement is key to China's food safety. Environmental Pollution, 157(7), pp. 1990-1992.

Osawa, J., & Carew, R. (2015, November 15). Chinese Baby-Goods Market Grows Up Fast. Retrieved from The Wall Street Journal: https://www.wsj.com/articles/infant-formula-baby-business-in-china-is-growing-up-fast-1447619404

Sevenich, R., Kleinstueck, E., Crews, C., Anderson, W., Pye, C., Riddellova, K., . . . Knorr, D. (2014). High‐Pressure Thermal Sterilization: Food Safety and Food Quality of Baby Food Puree. Journal of food science, 79(2), pp. M230-M237.

Sim, A., & Yang, Y. (2016, April 19). China: An Overview of the New Food Safety Law. Retrieved from Foodsafetymagazine.com: https://www.foodsafetymagazine.com/enewsletter/china-an-overview-of-the-new-food-safety-law/

U.S. Food and Drug Administration. (2015, May 06). Questions & Answers for Consumers Concerning Infant Formula. Retrieved from People At Risk of Foodborne Illness: https://www.fda.gov/Food/FoodborneIllnessContaminants/PeopleAtRisk/ucm108079.htm#1

Whitehead, R. J. (2015, November 30). China drives global baby food growth. Retrieved from Foodnavigator-asia.com: https://www.foodnavigator-asia.com/Markets/China-drives-global-baby-food-growth


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