A Chinese Company Entering the British Market

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I was commissioned to prepare this report as an advice to a Chinese company specialized in developing gaming application in its endeavor to venture in the U.K market. As can already be known, domestic markets differ from international or foreign markets in many ways. Understanding the business environment on the international scene would be the best way to devise necessary strategies aimed at winning markets in this respect. Although, it would be expected that many of the challenges featuring in the domestic markets will feature in the international markets, it is expected that these challenges will be more complex. The analysis of a foreign market requires consideration of many more factors than the domestic scene. These issues are those cutting across the social, environmental, political and economic dimensions. The report seeks to identify challenges and opportunities in such a venture, business environment scan and the way forward. To venture in a foreign market – international business, the following need to be considered either as challenges or opportunities.

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Executive Summary

Operating in a new International market consists competing in the international marketplace characterized by working in different languages and borders. In such a setting, different trade regulations of various governing bodies apply and one must comply with them to be global service provider. It demands as clear insight and commitment compared to a local or national level investment. It is prone to changing and diverse environment of operation that is prone to versatility in global demands, political paradigm shifts and regular amendments of different policies and regulations in places of operation.

Considering opportunities identified herein, such a venture in the U.K. computer gaming market is worth undertaking. Worth of investing in this economy is guaranteed by Country’s demographic composition of the target market, the President of the country and his/h policies on International business and relations which are guaranteeing protection of foreign outlay, the official language of the country – English – which is a major world language.

Other factors favoring investing in the U.K. are its relationship with its neighboring countries, value of its currency and its rates of exchange, history of the company’s competitors and their period of survivor in the U.K., the country’s progressive view in liberalized market and European Union’s Market regulations and standardization as entry point to the wider EU market. Analysis of such markets is important to avoid sluggish effects as has been discovered previously (Pöschl, 2003).

However, some challenges are imminent in the process of entering this souk. These are; EU quality standardization, multi – culture business etiquette, understanding and practicing British culture and mannerism, multi-lingual market, entry-free and business licensing, economic down time, acceptance and competition from established competitors. These challenges can nonetheless be tackled in a way that will give the company a competitive advantage.

This report recommends a timed entry to the U.K. market at the beginning of summer due to the availability of a ready market.

Introduction

Strengths

A company can act in different manners in order to win local markets with the same type or number of resources (Halliburton, Jerome, and Davide, n.d.). China Games Inc. is a Chinese company based in Shanghai China and whose core business in development of computer gaming applications and Video games. It was started in 1992 by Sean Wong. By the year 2009, it had a capital base worth USD$ 2.5 billion. The company has penetrated Asian market with success until its management decided to penetrate European market through the U.K. due to high demand for the products offered by computer gaming industry. Additional revenues can be generated through FDI, where the company transfers its capabilities into another market (Barney, 1991; cited in Halliburton, Jerome, and Davide, n.d.). The success of entry of new market may be influenced by company’s resources, capabilities and competencies (Prahaland and Hamel, 1990; cited in Halliburton, Jerome, and Davide, n.d.). Ownership and internationalization have also been considered (Agarwal and Ramaswami, 1992). Mergers and acquisations may provide opportunities of going global (Halliburton et al., 1993; cited in Halliburton, Jerome, and Davide, n.d.). Different firm categories may need an analysis as far as international market entries are concerned (Ekeledo and Sivakumar, 2004; cited in Halliburton, Jerome, and Davide, n.d.). Large corporations are likely to adopt a Greenfield investment while entering foreign markets, as compared to smaller ones, who enter the market through acquisitions to avoid uncertainties (Knickerbocker, 1973; Sanchez-Peinado and Pla-Barber, 2006); Chen and Hu, 2002; cited in Halliburton, Jerome, and Davide, n.d.).

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Though the U.K. is not an emerging market per se, its steady demand for computer gaming applications and video games is rising steadily due to high population category of youth and teenagers using these products. A recent study by British Center for Statistics has indicated that population between 10 and 25 years consist 30% of the whole population of 61.8 million British.

Furthermore, the report says that in every 5 of these persons, 3 are accustomed to computer or video gaming. As such, this report seeks to identify possibility of investing into this potentially high demand market.

Multi – lingual market

The U.K. is in the larger EU market that comprises more than 16 languages. The company will be part of this EU souk. Though English is the primary language in the U.K., it is not the standard language in the European and it only caters for a smaller portion of EU. Once certified through EU quality standards, the business will be serving customers beyond British borders. To fully adapt to this emerging market, company must seek ways of tackling communication barrier beyond the U.K. Some other factors such as the competitive behavior (Ronbinson and McDougall, 2001); proximity of business; the behavior of competition (Bengtsson, 1998) (cited in Halliburton, Jerome, and Davide, n.d.) that may be important consideration in establishing new markets.

Opportunities

Country’s demographic composition of the target market

As a company specializing in gaming applications, it is important to consider factor such as the population category that form gaming application market. Youth and teenagers aged between 10 and 25 are the main market target of our products. According to a 2010 British population survey, this age blanket represents 30% of a population of 61.8 millions. Such a population segment could provide a ready marketing considering that 4 in every five British teenagers have access to a computer more than thrice a week. They are accustomed to using computers in learning and entertainment especially computer games. Any investment must guarantee return on investment before committing any resources. Size of a country helps an investor estimate the size of his market area and possibilities of further segmentation and market niche. Population size helps in estimating the demand for the products/services to be introduces in the market. A large population can be an indicator of return on investment especially if the investor has already established the levels of demand for his products/ in the emerging market.

Of important consideration while entering new markets is the commercial viability of the move. The company must be able to weigh the benefits of getting into the markets, and the costs involved, and thus, the final expectations according to sales projected. Another consideration is the political nature of the country. Political climate has a great impact on business. Sometimes, political climate manifests through dictatorship of the market structures through informal rulings among others. Of great concern while entering markets is the stability of the political climate in the area intended to be settled on.

The other considerations to be made will be social and economic strengths, which have an impact on the buying strengths of the consumer. The consumers’ ability to buy is a key determinant of whether the company will make profits or not. In addition, the company should be willing to assess the economic stability of the country in which it is entering in.

Business Climate

Markets

A number of challenges need to be overcome as far as international markets are concerned (Romilly, 2007). Of concern in UK regarding the games software market is the threat they face from online sellers of the commodities. In fact, online consumption is expected to be rising in the future as the number of people using the internet sores high, and every company must need to align its strategy in this direction.

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The existence of market for the products and services being sold in the market which is being ventured into is very important. In fact, it should be the key consideration of entering markets, or rather; existence of markets for the company’s products should be a key consideration while entering markets. There is engagement of “distribution of intellectual property products” (Spectrum Strategy Consultants, n.d.). The following are the major participants in this market in the UK scenario;

Developers of the games: these include designers, part-time programmers, and artists among other people.

Publishers: those involved in selecting the titles of the games, funding of the developments, managing the testing and distributing to users among other things.

Distributors: Are those who act to link the retail and the publisher. During the days “the UK games retail market was primarily composed of small independent stores”, these acted more than to being the wholesaler for the products (Spectrum Strategy Consultants, n.d.).

Retailers: they sell the products to the consumer.

User platform: is another category of players in this industry and include the iTV and TV, as well as the mobile phones.

Console manufacturer: these levy a license fee for the software console.

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The Global Market Size for the Gamming Software

There has been a large growth in the “global leisure software industry “over the last five years”, with estimate ranging at 13 billion pounds. The majority of the market is covered by the gaming software (which carries home 13 billion pounds) and the rest goes to the likes of home software, education among others (Spectrum Strategy Consultants, n.d.). This shows that the gaming software market is very viable. Entry of more players in the market may increase risks and challenges for those involved (Doyle, Jonathan and Ian, 2007; cited in Doron, Kate, and Samant, 2007).

In this market, the European market is the second in terms of total control of the gaming software market (with a control of 4.1 billion pounds), compared to leaders, the United States, who have a control worth 4.5 billion pounds.

The largest contributor of gaming software is the console gaming software, with 68% coverage, and which has a 55% control of the market in Europe. In Japan, it controls 94%. This type of product in this area is a good money earner, since it covers software for the “handheld devices” (Spectrum Strategy Consultants, n.d.). The latter “represent 6-7% of the US and European market, but closer to 25% of sales in Japan” (Spectrum Strategy Consultants, n.d.).

For this company, the console market will be a good target, with projections of growth ranging at 15% “Compound Annual Growth Rate” (Spectrum Strategy Consultants, n.d.) (4) “over the nest five years both in terms of volume and value with the introduction of the new generation console devices” (Spectrum Strategy Consultants, n.d.; 10).

Another target market is the PC gamming software market which is expected to grow also. According to Spectrum Strategy Consultants (n.d.), “downward pressure on retail prices is expected to significantly slow, if not halt, growth in the overall value of this market with only 6% CAGR growth expected” (10).

UK would be a rich target because it dominates the gaming software market in the European market. it covers 26% of the total software market in Europe. In addition, UK has 8.7% control of the world gaming software market. th US controls 36% and Japan 20% for the world market in this sector.

For PC gaming software market, UK has a good control and hence companies willing to venture in these markets can realize good sales. The opportunities include the possibility of the games “becoming truly mass-markets” (Spectrum Strategy Consultants, n.d.) and;

with the latest generation of more powerful consoles and falling prices points attracting new types of consumers to the market in droves.

Consumers are at the same time being attracted by the increased values of production, “are leading to greater levels of sophistication in the end product” and are “driving up the cost and complexity of games production” (Spectrum Strategy Consultants, n.d.). These factors are dictating the competitiveness of the UK market as far as gaming software products are concerned. There has been hits-driven situation for the market in UK as far as computer games are concerned. For each of the “3000 games reported to have been released in the UK in 2000, the top 99 titles (3.3% of development) accounted for 55% of all sales” (Spectrum Strategy Consultants, n.d.). This is compared to the US case where a small number of titles are concentrated upon as far as market is concerned. Spectrum Strategy Consultants (n.d.) has expressed that this may continue, with the games industry becoming “more mass-market, and the power of marketing budgets or recognized titles will be strengthened” (; 11).

The mechanisms of sales of these commodities in the market will be of important consideration. As far as the gaming software markets are concerned, “majority of sales for a title will usually occur in the first 3 months following their release” and this leads to the reducing of the time utilized by publishers in recouping their investments. Compared to the “back catalogues” from other industries, those of the computer experience limited value (Spectrum Strategy Consultants, n.d.). They capture 51% of the share of the market, but realized low levels for sales in the “week ending 25 August 2001” (Spectrum Strategy Consultants, n.d.; 11).

For realistic graphics, there is experience large upsurge in quantities, while complexity for gameplay also increases because of the “vastly increased storage capacities”, “processing power” and “advancements in console technology” in the market (Spectrum Strategy Consultants, n.d.). The company must employ tactics to survive in this market, as far as technology is concerned. Technology is in no wonder being utilized as a competitive edge by many companies around the world.

Games are becoming more lavish and cinematic, setting a standard which consumers are now beginning to expect

The high values of production require large amounts of resources although it is possible that they will be more appealing to the masses. A premium console will take up to an average budget range of 1-2 million pounds with 20 people working in a team. In addition, this team will be working for about 18-24 months.

Another aspect regarding entry into such a market is the place of the consumer. It is important that the company will have to be concerned about the consumer demands, and build products and services which are more geared at meeting the demands of the consumer.

The company would want to know is the challenges relating to these markets. The challenges are important because special mechanisms will be required so as to survive in the market. Of particular concern would be the changing consumer demand as far as consumption of games software products is concerned. Such challenges will be expected to determine the way forward regarding the gaming software industry

Weaknesses

European standardization

EU requirements and regulations on products’/services’ quality and value is one of the strictest in the world. The company must strive to meet and surpass the set standards in order to enter and remain in this market. This requires quality management, innovation and perpetual development in products the company is going to offer to this market.

Multi – culture business etiquette

Being part of EU demands that businesses in the U.K. learn and understand various culture across Europe which compose the buying and service utilizing community. EU market consists of more than 16 cultures which must be understood and handled accordingly. It will be like learning to do business from scratch.

British culture and mannerism

British are considered conservative when it comes to manners and culture. The company needs to understand the British ways of life right from general conduct up to manners such as table, conversation and business transaction styles. To learn all these demand interaction and orientation in this society. The company must learn on how to conduct its business in the British setting. Reduction of cultures in host countries has been tries out by Japanese firms (Hennart, 1991; cited in cited in Halliburton, Jerome, and Davide, n.d.)

Threats

Entry fee and business licensing

There are extremely expensive charges on newcomers in EU market. The.U.K. will charge entry fee to the company and then other fees for compliance and levies will follow. The company must be able to justify and meet these charges.

Economic downtime

Europe and the Western economies are in the process of recovering from 2009/2010 economic downturn. In fact, some members of EU such as Greece are seeking bail out for debts from the EU. This might not arguer well for the company. However, considering they rate of recovery, the company can still go ahead and enter into the market but it might take time before realizing worthy return on investment.

Acceptance

As noted before, British tend to be conservative in their every way of life. They are loyal to their country and their fellow countrymen. It will demand extensive marketing and selling process to convince them. However, with excellent services, quality and interpersonal skills, they can be capture and retained as loyal customers. It can nevertheless take time to convince them.

Competitors

The existing competitors enjoy monopoly of coverage. GAMEco.uk for instance has 1, 300 outlets in the U.K. alone. It is also venturing directly in to the EU market by opening franchises in member countries. Though it might take the company some time to settle and establish itself elaborately, providing more choice will be advantageous to the company by neutralizing monopoly and dominance by British and other European companies in their continent.

Considering opportunities and challenges given here, the best and most optimal return on investment guaranteed mode of entry in to the U.K. market is the timed one. If the company can align its entry in to the U.K. market with the beginning of summer, it would realize more sales due to the fact that people are usually in vacation mood. The population segment targeted by company’s products is not going to school and they use most of their time in gaming.

Political Climate

The political climate of a country largely determines the way business is run in the country. Of particular concern would be the way the government is run, and how it impacts business. Policies of a country largely determine the way business progresses within a country, in that they shape daily business happenings. They show the commitment of the country to respond to particular business patterns, how quickly they can do it, and how they understand it. Again, various countries have different policies that are inclined towards certain direction, more than they are to other directions. Whereas some countries largely support development of some products and services through specific government policies, others have policies largely discouraging the same practices. It can, for example be seen that the US has had a non-deterministic situation regarding online gambling, yet it is clearly legalized elsewhere. Therefore, of particular concern would be the policies of the UK government in relation to development of gaming software. PC and mobile console gaming software are allowed for sale in the UK markets and therefore, no barriers would be expected with a legal documentation. A good law protects the copyright and supports development in this direction, while recognizing the need for progress as far as innovation is concerned. Through the copyrights laws of the UK, there is recognition of ownership of programs.

This means that the company will be free to own its products and services as far as gaming software is concerned. Gaming software need be guarded against wrong duplications that reduce prices for the company. This trend has been ongoing in the current computing environment, where the major losers are the companies owning software that are being duplicated illegally. In addition, governments need to recognize that they are also major losers as far as this is concerned; hence the need for a good law that enacts penalties against violators. Where there are copyright laws, it means that the company can take action against violation.

Again, the relations built by the governments with other countries tell its way regarding future business operations. A good country will encourage a situation where there is linkage of companies. Good relations also lead to development of collaborative effort to solve common problems, collaborate in R&D as well as fund projects which are aimed at delivering mutual interests between the collaborating parties. Of particular concern would be the inclination of the UK government towards the companies from China and the Chinese government as a whole.

Britain and China have had good relationships, with the former having interests to encourage the latter (as a developing country), become a global player as well as achieve reforms at home. Such a climate would be viable for the company to take advantage of the investment opportunity in UK.

Governments are one of the most important indicators of economic stability and prosperity and projection trends in all economies. Their policies on foreign relationships, foreign investments and trade relations say more about the country’s readiness to welcome outside investments than everything else. More so, political stability of nations depends on governance and political will of the president and his/her advisers. History of U.K has significantly improved since the departure of Tony Blair. The current Prime Minster, David Cameron has promised to work on increasing foreign investment in his country and develop policies geared towards achieving the same.

The official language

The U.K uses English as its native and official language. English being one of the major world’s languages minimizes market entry barrier in the market of computer games. The company must work on communication modalities among its representatives, the country’s authority and its clients. To minimize on communication barriers, it is advisable to hire labor with local language experience from the local market.

The neighboring countries and their relationship

It is also important to understand the relationship between the U.K. and is neighbors in matters of politics and trade relationships. Learning about trade agreement between the prospective market and its neighbors can augment the company’s chances of expanding its tentacles to those neighbors and thus increasing on its investment and return on the same. The U.K has always had stable economic and political environment since the Word war II. It is a member of European Union and always had cordial relationship with its neighbors. Entering the U.K. market is like entering the EU market.

Currency and rates of exchange

The currency of the prospective market must have value in relation to major world monies. The rate of exchange of currency indicates they value of a country’s economy, its buying power and possible return on its investment. It must also be stable in the global market and able to withstand global economic ripples (Reston, 2009). English Sterling pound is the most valuable currency in the world. Investing in the U.K. will assure the company stable monetary value for its investment, and shares in the stock market.

Other Considerations that would be necessary

Competitors and their period of survivor

GaMEco.uk is the U.K.’s leading computer games retail supply chain with more than 1, 300 outlets in the country and expanding fast into EU and Australian markets. The company has been operating since early 1990s when it was established. Favorable governmental policies and regulations have been factors behind its existence. There are other suppliers but given the rate at which the market is growing, our entry can capitalize on what the existing players have not been able to supply.

Familiarity and Usability of the offer

Familiarity of the target market with the products offered by the company plus in the its endeavor to expand its global venture. Computer gaming is not a new concept in the U.K. the company will only need to market itself to the market as opposed to scenarios where new products previously unknown to the prospective clients is introduced.

Progressive view

The U.K. society upholds belief in tolerance and gradual in reforms moral, political and religious ideologies and also believes in free forces of market. Existence of foreign investor in their market is considered progress in democratization and liberalization of its market and also an avenue for productive competition that give customers a variety of choices to choose their preferences from. There is fair competition with no authority’s intervention. It is a free market economy with free competition and minimal governmental regulation as a way of attracting potential investors.

European Union’s Market regulations and standardization

Entry into the U.K. market is a passport to EU’s expansive market. By virtual of serving the U.K. market one can freely trade in the wider E.U. territory without harassment due to standardization requirement for entry in any of its signatories.

Challenges

In penetrating European market, the company will experience various challenges such as EU quality standardizations, multi – culture business etiquette, understanding and practicing British culture and mannerism, multi-lingual market, entry free and business licensing, economic down time, acceptance and competition from established competitors.

Here follows a deeper insight into these challenges.

Recommendations

  • The company must seek to satisfy the U.K. market and beyond. High quality products will be important to achieve this.
  • Entry in to the U.K. market must be timed to align with summer when sales for computer gaming are high.
  • It will be necessary to learn European cultures to a broader extent to encompass the whole EU market. The U.K. is European hub and many European converge there for different occasions.
  • It will be advisable to invest in the British Stock market due to its stability and strong currency as compared to other world monies. Company’s stock share can be used to attract customers.

Conclusion

Though there seems to be many challenges in penetrating this market, it is also wise to note that most of these can be utilized by the company to gain competitive advantages. However, proper orientation and familiarization is necessary before serious commitment to venturing. Once the company comes up with high quality and standardized products, authorization in to the market will be granted by the EU and from there it will spread it branches to the wider Europe from the U.K.

References

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Barney, J. (1991) Firm resources and sustained competitive advantage. Journal of Management, 17(1), 99-120.

Bengtsson, L. (1998) Corporate strategy in a small open economy: reducing product diversification while increasing international diversification”, European Management Journal, 18(4).

Chen, H. & Hu, M. (2002) An analysis of determinants of market entry mode and its impact on performance. International Business Review, 11(2), 193-210.

Doron, E., Kate, L., and Samant, P. (2007) Commodities now. Web.

Doyle, E., Jonathan, H., and Ian, J. (2007) Growth in commodity investment: Risks and challenges for commodity market participants. FSA Market Infrastructure Report.

Ekeledo and Sivakumar. (2004) International market entry mode strategies of manufacturing firms and service firms. International Marketing Review, 21(1), 68.

Halliburton C., Hünerberg R., and Töpfer, A. (1993) Strategic marketing options in the single European market.

Halliburton, C., Jerome, C., and Davide, S. (n.d.) European marketing strategies: Market related decision factors for the choice of entry mode. Web.

Hennart. (1991) The transaction cost theory of Joint Venture: an empirical study of Japanese Subsidiaries in the United States, Management Science, 37(4), 483-97.

Knickerbocker, T. (1973) Oligopolistic Reaction and the Multinational Enterprise. Harvard University press.

Pöschl, J. (2003) Sluggish International Business Climate: A Test for the Central and Eastern European Countries’ Endurance. WIFO-Monatsberichte, 76(5), 349-369.

Prahalad, K. and Hamel G. (1990) The core competence of the corporation. Harvard Business Review, 68(3), 79-91.

Romilly, P. (2007) Business and climate change risk: a regional time series analysis. Journal of International Business Studies, 38, 474–480.

Spectrum Strategy Consultants. (n.d.) From exuberant youth to sustainable maturity: Competitiveness analysis of the UK games software sector.Web.

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