American Community Survey
According to U. S. Census Bureau, American Community Survey 2009, there were 750,000 foreign born in the USA where China is about 5. 2%10 of the overall contribution. This statistic really reveals that Wai Yuen Tong will have a high opportunity to find the oversea Chinese as staffs who will bring a large benefit. The main advantage is that they can act as a bridge between the American mangers and the Wai Yuen Tong because they may approach the Chinese medicines more easily and find the major idea of what they are and how to work.
Therefore, they can help explain the major concept of herbs products of Wai Yuen Tong to the American managers so they can find the most suitable way to sell the products. Related and Supporting Industries Express Carrier Support The interstate highway system in USA is perfect enough that it is easily to distribute the herbs products directly to all cities. Besides, there are many express carrier services provided locally such as Quality so they can further deliver the products efficiently with a large coverage.
Direct Marketing/Sales Reps Supports There are three main distribution channels for herbal products in USA including Mass market, Specialty Shops and Direct Sales. 11 Mass market includes food/grocery, drug, mass merchandise, club and convenience stores, including Wal-Mart, Costco, etc. Specialty Shops include supplement and specialty retail outlets, including Whole Foods, GNC, sports nutrition stores, etc.
Direct Sales include Mail Order (including catalogs), direct mail and direct response TV and radio; practitioners representing conventional and alternative practitioners selling to their patients, including ethnic herbals and herb shops; Multilevel (MLM) or network marketing representing firms like Advocare, Herbalife, Nature’s Sunshine, NuSkin (Pharmanex), Nutrilite (Amway/Quixtar), Shaklee, etc. Among these three channels, Direct Sales contributes to the largest proportion which is about 51. 4%. International business strategy
In considering which international business strategy to apply, two key points should be noted, namely the cost reduction pressure and the local responsiveness pressure. As to cost reduction pressure, since the costs of production of WYT products are quite high, we consider our products as mid-range to high end products. Moreover, there is not much resemblance of similar kind of herbal supplements in the US market. So, the pressure for cost reduction is rather low. Next, we have to consider local responsiveness pressure. This factor is further divided into 3 sub-factors in our case.
First of all, consumer taste has to be taken into consideration. In the US, quite a number of people take supplements like blueberry essence and omega3 fish oil in tablet or capsule form. Since WYT products are mainly in the form of capsule and tablet, unfavorable or pungent odor of Chinese herbs could be avoided. Thus, people in the US should be familiar with this kind of supplements and should get used to intaking Chinese herbal supplements. Besides, the US Government has regularly lax regulations on herbal supplements.
Most of the regulations only require simple labeling which could be easily complied with. It is also noted that strict rules on pharmaceutical products will not apply to WYT herbal supplement products. Thirdly, we also have to be aware of the differences in distribution channel. Multiple steps shall be carried out. We will first copy the way of selling practice in Hong Kong, which is to open flagship stores and enable online shopping. When the people in the US become familiar with WYT products, we will start to practice direct-selling method.
This is a popular method used in many foreign countries for selling supplements. So, these 2 steps should not be difficult to carry out. Combining all the three sub-factors of local responsiveness pressure, the pressure is deemed to be low. Also, the pressure for cost reduction is low, too. We, therefore, will choose ‘International’ as our international business strategy. Mode of entry In consideration of the entry mode, we have to first analyze the present situation. We are now re-entering the USA market to rectify the rooted problem hindering the expansion of Wai Yuen Tong to overseas market.
Wai Yuen Tong is now exporting their goods to USA through an agent, named Uncle Bill (USA) Trading Inc. However, the revenue in exporting Wai Yuen Tong goods to USA is very small. (the international revenue, except Hong Kong (country of domicile), other regions in the PRC and Singapore, contributes less than 3% of the total revenue) Uncle Bill is a trading company distributing different kinds of brands. Uncle Bill may not allocate much of its resources on Wai Yuen Tong goods, leading to lower brand awareness and lower sales.
Thus, a new entry mode would be used to ensure that Wai Yuen Tong goods are selling right and selling good. There are four common modes of entry that we can consider, namely, exporting, international licensing, wholly-owned subsidiaries and strategic alliance. These require different lead time, cost and level of risk-bearing and we will discuss it one by one. As far as exporting is concerned, it requires least time, cost and possesses least level of risk. However, the problem of Uncle Bill may persist for either direct or indirect exporting.
Intra-corporate transfers may be considered. Regarding international licensing, time, cost and level of risk-bearing is also low. As franchising is the key strategy to business development for Wai Yuen Tong at Hong Kong, Wai Yuen Tong is ready for international licensing. Wai Yuen Tong has already developed a comprehensive training system and standardized code of shop design, uniform design and so on. However, US investors may not be interested in entering into franchise agreement due to the low name recognition of Wai Yuen Tong in USA.
For wholly-owned subsidiaries, time, cost and level of risk-bearing is the highest among the four. Time consumed may be lesser in the case of Brownfield strategy, acquiring existing entities or assets. However, as there is no local entity selling dietary supplement with suitable size and price is available for sale, Greenfield strategy, building new entity, is more likely to be adopted if wholly-owned subsidiaries of Wai Yuen Tong is established. In term of strategic alliance, time, cost and level of risk-bearing depend on the way of strategic alliance.
Acquisitions are mergers is too expensive for Wai Yuen Tong. Joint ventures may not suit Wai Yuen Tong for their special tradition Chinese medical nature and global vision. Joint venture with other dietary supplement manufacturing might lead to lose of control over the tradition Chinese medical ingredients, a major element of Wai Yuen Tong’s products. It might also impede global coordination of Wai Yuen Tong, as Wai Yuen Tong is aiming to be a local brand with a global presence.
Networks may be a better strategic alliance for Wai Yuen Tong as it does not require any formal code sharing agreement but it still allow synergy for Wai Yuen Tong and other organization. Therefore, balancing the cost and benefit, Wai Yuen Tong should choose its entry mode from intra-corporate transfers, wholly-owned subsidiaries and networks. Mix of entry mode will be used to enjoy full benefits of them. A progressive entry of US market will be conduct. Started with establishment a wholly-owned subsidiary, Wai Yun Tong (USA), intra-corporate transfers and networks will be followed.
During the lead time for the establishment of WYT(USA), Hong Kong mangers will be sent to recruit staff and collect market information. At the same time, opportunity of networking will be explored. A likely partner will be P&G. As Wai Yuen Tong and P&G has cooperated since 2009, to deliver the Chinese herb shampoos to consumers, trust and networks have been built between Wai Yuen Tong and P&G. With the cooperative relationship, P&G can produce new products fearing the use of traditional Chinese medicine and gather information for the dietary supplement market for the fear of its competitor.
(his competitor, Unilever has already get a line of dietary supplement under the brand of Knorr). P&G is famous for its marketing and supply chain management. Wai Yuen Tong can learn those from P&G and navigate around the barriers of the market, such as insufficient market knowledge and lack of distribution channel network and so on, entering the market rapidly while keeping the costs down. Even if P&G refuse to cooperate with Wai Yuen Tong, the wholly-own subsidiary, WYT(USA) can still operate on its own to import the goods of Wai Yuen Tong by intra-corporate transfer.
By intra-corporate transfer, externality can be reduced while high control can be maintained. The mix of entry mode will be conducted in stages for lower cost, lower risk and higher penetration of market. Implementation Human resources Hong Kong managers will be sent to the US subsidiary. Hong Kong managers have knowledge about Wai Yuen Tong, so they will take up the leading role in setting up the company. They can also utilize knowledge gained from overseas Chinese market since the location is close to China Town. US sales reps and managers are employed as frontline staff.
Wai Yuen Tong has been focusing on the Southeast Asian market, it has limited exposure to the Western market. Therefore, US staff can provides local market knowledge of which WYT is lacking of. Due to cultural differences, there may be communication problems between HK managers and US staff. Thus, we will also employ overseas Chinese to act as a cultural bridge. Overseas Chinese possess knowledge about Chinese medicine and are proficient in both Chinese and English, so they can facilitate communication within company.