Norton Motorcycles is one of the leading motorcycle company in the UK with a rich corporate heritage dating back to the early 20th century. The company has a presence in 13 major markets in the world and enjoys a loyal customer base. The global financial crisis which resulted in the contraction in the developed world and the accelerated growth rates that the emerging markets are now experiencing made Norton Motorcycles to think about expanding into any of these markets. Norton Motorcycles was contemplating of entering into the Chinese Indian, or the Brazilian markets. As the entry into new market entails lot of initial expenditure, Norton Motorcycles needs to do some through research in order to decide upon which of these three markets it needs to enter. In order to select the appropriate market for the entry of Norton Motor Cycles an analysis of the business environment of China, India, and Brazil was undertaken. Basing upon the analysis, China, with its business friendly business policies and excellent infrastructure facilities is the best country for Norton Motor Cycles to enter.
BUSINESS ENVIRONMENT OF CHINA, INDIA AND BRAZIL
Model for Market Selection
Before a company can enter a new international market for the first time, it is imperative for it evaluate it well. Proper evaluation of the foreign markets is the important to select the best of the possible countries which can be entered now. The importance of systematic evaluation of selection of foreign markets has been stressed by many academic researchers and various model presented by them. The issue of market selection becomes trickier if the market that is to be selected is an emerging market which involves a host of unique factors which are not seen in developed markets. Emerging markets present potential investors with problems like high intervention by the domestic governments, lack of infrastructure facilities, lack of skilled labour, official red tape, etc. Some of the early theories which have dealt with internationalization of firms were mostly influenced by the general marketing theories and have mainly focussed on the core competencies of a firm and the potential opportunities for it in foreign markets. This initial approaches argued that companies which want to approach abroad need to develop marketing and technological advantage in order to overcome the additional issues involved with foreignness. The subsequent models developed in the academic literature focused on the choice of entry mode. Notable among them is the Vernon’s (1966) product cycle model with sequential mode of internationalization which involves starting from indirect export to foreign markets and subsequently upgrading to direct export, formation of joint ventures, and setting up of own manufacturing units. Some scholars from the Nordic School of thought like Johanson (1977) opined that international market selection is constrained by two mutually interrelated key concepts: psychic distance and experiential learning. Psychic distance refers to the lack of knowledge and information which increases uncertainty. As a result companies select markets which have similar economic, social, and cultural systems as their home countries. But the development of information technology, human resources, and consulting services have reduced the explanatory power of psychic distance in the selection of international markets. Some general and context-specific models which were developed later view international market selection to be composed of key stages like preliminary screening, in-depth screening, and final selection (Koch 2001). Preliminary analysis identifies some potential markets for further screening (Root 1994). In-depth analysis using the macro-level indicators will be used to eliminate firms that don’t meet the firm’s objectives and a final selection will be made (Kumar et al. 1994). Below is the objectives, target customer and internal analysis for the selection of the appropriate target market:
Objective for Market Entry
The global financial crisis of 2008 and the subsequent slow growth rates that the developed countries have been experiencing have limited the growth opportunities for companies like Noroton Motorcycles. Despite the slowdown in the western markets, some of the developing markets like China were still experiencing growth rates (FAO n.d.). The booming middle class with high disposable incomes have also taken a liking for exotic and luxury brands from the best. Hence, the main objective behind Norton Motorcycles entry into China, India, or Brazil was to take advantage of the prevalent economic conditions.
Target Customer Segment
The products made by Norton Motor Cycles are expensive with the high end models costing £15,000 and above (Norton Motorcycles n.d.). So the target customers for the products of Norton Motorcycles in the three selected markets of China, Brazil, and India are rich and middle class young customers with high disposable incomes.
Internal Analysis (SWOT Analysis)
Below is the Internal (SWOT analysis) of Norton Motorcycles:
- Good brand image
- Loyal customer base
- Exclusive brand heritage dating back to early 20th century
- Broad product line
- Low investment in R&D
- Lack of direct presence in emerging markets
- Fast growing emerging markets like India and China to explore
- Cheaper manufacturing costs in emerging markets.
- Stiff competition from trendy model made by Japanese manufacturers
- Instable political and economic environments where Norton Motorcycles wants to enter
External Environment Analysis of China, India, and Brazil (PESTEL Analysis)
All the three prospective markets of China, India, and Brazil have stable political environments. While China is a single party authoritarian state, India and Brazil are vibrant democracies. This makes entry into China riskier in the long run as a change in the policies of the communist party of China can impact the business of Norton Motorcycles in the longrun.
The economies of China, India and Brazil have been growing at a steady rate for the past two decades. But the Chinese economy has witnessed double digit growth rates for most part of the two decades and has a growing middle class with very high disposable incomes. This makes China a better fit for the entry of Norton Motorcycles.
Chinese consumers are well informed and higher preference for sophisticated when compared with the Indian and Brazilian customers. The literacy rate of both China and Brazil is higher at 95.1% and 94.4% when compared with India’s literacy rate of 74.4%. This makes both China and Brazil as better targets for the entry of Norton Motorcycles than India.
The high growth in the Chinese economy made the Chinese government to invest more on technology. China also has the higher number of Internet users and the best telecom system in the world. But India and Brazil suffer from under connectivity to Internet and low investments in research and development. The number of research universities in Brazil and India are lower when compared with China.
Environmental and Legal Factors
China, Brazil, and India suffer environmental problems of gigantic proportions. But China suffers from higher degrees of pollution due to a higher reliance on Coal and other fossil fuels. Increase vehicular traffic also made Chinese cities to be covered with smog leading to several health related problems. Being democracies, both India and Brazil have matured legal systems with independent judiciary and elected legislatures. In contrast, China doesn’t have an open legal system which may pose a problem for Norton Motorcycles in the long run.
Apart from the analysis given above, data from the ease of doing business reports published by the World Bank are given below. The ranks which are given below are for the year 2014 and represent the rank of the country among the top factors of ease of doing business.
|Starting a business||158||179||123|
|Dealing with construction permits||185||182||130|
|Trading across borders||74||132||124|
|Adopted from World Bank 2014, Doing business: Measuring business regulations. Available from: < http://www.doingbusiness.org/data/exploreeconomies>. [12 April 2014].|
As can be seen from the data which is presented in the above table, India trails behind both China and Brazil in most of the key business environment factors which makes it easy for a firm to start and launch its business operations.
Between China and Brazil, even though Brazil scores higher than China in overall ranking, China scores in some areas like ease of registering property, ease of trading across border enforcing contracts, and resolving insolvency. The economic environment of China has lot of advantages over India and Brazil. In view of the above analysis, China scores over the two other countries in terms of market attractiveness and business environment for Norton Motorcycles in the long run.
In view of the above analysis, it can be concluded that China presents the best opportunity for Norton Motorcycles to expand. The infrastructural facilities and cheap labour available in China are chief factors which go in favour of China in the long run. Besides, the proximity of China to India and other fast growing Asian economies means that China can be made into an exporting hub for its motor cycles.