An Analysis of the International Strategy of SMEs of China
 
(With the case study of Tongji Building Mold Factory)
 
Table of Contents
 
1. Introduction. 3
 
2. Literature review.. 4
 
2.1 History. 4
 
2.2 Policy. 6
 
2.3 Current conditions 7
 
3. Methods and implementation. 9
 
3.1 Data collection. 9
 
3.2 Sample size. 9
 
3.3 Analytical method. 9
 
4. Research findings 10
 
4.1 Feature analysis of SMEs’ overseas market 10
 
4.1.1 Severe competition. 10
 
4.1.2 Flexible marketing strategy in entering the international market 10
 
4.2 SWOT analysis 11
 
4.2.1 Strengths 11
 
4.2.2 Weaknesses 12
 
4.2.3 Opportunities 12
 
4.2.4 Threats 12
 
4.3 Analysis of entry strategies 13
 
4.3.1 Selection of entry mode. 13
 
4.3.2 PEST analysis of the target market 13
 
4.3.3 Production positioning. 14
 
4.3.4 Pricing. 14
 
4.3.5 Business channels 14
 
4.3.6 Customer management 15
 
5. A case study of Shanghai Tongji Building Mold Factory. 16
 
5.1 Company introduction. 16
 
5.2 Strategy analysis 16
 
5.3 Effectiveness 18
 
6. Conclusion and recommendations 19
 
References: 19
 
Appendix: 20
 
1. Introduction
 
With the more and more influence from the international market, small and medium enterprises (SMEs) of China are confronted with the problem of how to enter the international market and to compete against their business rivals (Chalmers, 2009). However, for these enterprises, to enter the international market is by no means an easy thing. Judging by the present technological and financial conditions, Chinese SMEs still need to improve their competitive strength so as to better suit the customer demands of the international markets. This is due to a variety of difficulties confronted by these enterprises such as the deficient technological support and the lack of scientific management, which are both important in enhancing the competitive power of cross-border businesses (Holman, 2007). In the meanwhile, the selection of the suitable entry mode and strategy is as well important for the sustained development of the Chinese SMEs in the international marketplaces. In this research paper, the author intends to use Shanghai Tongji Building Mold Factory as an example to illustrate how Chinese SMEs have to do in order to survive international business competition. In order to achieve this, this research paper will use both primary and secondary data to analyze the current situation of international business competition. This will be chiefly concerning the competitive surroundings of the international market according to the requirements of technological innovation, management improvement and also the social and cultural impact upon the development strategies of these enterprises.#p#分頁標題#e#
 
By and large, severe competition can be considered to be the chief feature of the international business at the present time. And this is necessarily the major issue for Chinese SMEs to enter the international market. On the whole, the entry of Chinese SMEs into the international market has to observe the specific environment of the targeted marketplace (Zhang Lei, 2010). These features of the targeted market environment may be impacted by a series of factors ranging from the local economic condition and the legal systems (Croes and Vanegas, 2010). As a result, for Chinese SMEs to compete the international business rivals, it is of the first importance to study the features of the targeted marketplaces. Generally speaking, Chinese SEMs have to observe three major features of the international marketplaces so as to be efficient in business competition. In the first place, Chinese SMEs have to study the features of international customer needs and also the trends of the changes of these needs. Only in this way can these enterprises provide products and services that are welcome in the international market. Secondly, the difference of the legal systems in different targeted marketplaces is also important for these enterprises to observe so as to make suitable development strategies in these different markets. Thirdly, it is also very important to study the cultural and traditional traits of the targeted marketplaces of the international society in order to better understand the diversified features of the customer psychology. So, international business competition is by no means an easy matter. On the contrary, it is definitely a systematic and strategic decision-making process that is related to the righteous and efficient choice of the development strategy of Chinese SMEs in the international market.
 
2. Literature review
 
2.1 History
 
The participation of Chinese enterprises in international marketing and international business competition did not begin until the late 1970’s when the Chinese government began to adopt the Reforming and Opening policy as the basic national policy. This is a great push to the prosperity and sustained development of the international marketing of the domestic enterprises in the international market. Especially, from the mid-1990’s, international marketing of Chinese business organizations has been very active. Figures show that there has been a sharp increase of the number of enterprises engaged in export of goods and services to the international market. The trend is illustrated by the following chart:
 
Chart 1: The change of the number of firms targeted at export
 
From this chart, it is obvious that from the earlier 1990s, there has been a very sharp increase of the number of export-oriented enterprises in China. This can be regarded as the impact of the Reforming and Opening policies of the Chinese government in the previous ten years. Encouraged by the central government and the overall legal systems of the national economics, business organizations in China began to seek development in the international market. This is largely due to the reason of the domestic pressure of marketing and also the need to change the management style of modern businesses with the great advancement of technological innovation. Promoted by this, there has been a severe competition in the export-oriented businesses and the overall international marketing of domestic enterprises (Croes and Vanegas, 2010). Especially, with the impact of the Asian-Pacific financial crisis beginning from the mid-1990’s, there has been a violent change of the prices of raw materials and other expenses for Chinese enterprises to enter the international market. This is especially a serious problem with the SMEs because these enterprises are mainly operated by the private sector of the national economy. Different from the state-owned enterprises, SMEs in China usually do not favor from the governmental support and they are often in a difficult position to obtain the necessary resources to maintain a sustained development in the targeted marketplace. So, in order to gain the support from the government, SMEs in China have to on the one hand innovate technologies and cut short development expenses, on the other hand, they also have to keep a good relationship with the government in order to obtain favor from the government, which is a very important factor for the business success in the particular business culture of the Chinese soil.#p#分頁標題#e#
 
2.2 Policy
 
With the fast development of the international businesses, the government of China has been supporting the export-oriented business organizations, including the enterprises of the private sector (Prudhisan, 2010). This is especially illustrated by the change of the governmental role in guiding the economic development of the whole society. As is known to all, China has long been influenced by the so-called planned economy after the establishment of the People’s Republic of China in the late 1940’s. However, this old-styled economic system can not suit the fast development of the domestic economy in the late 1970’s. And it is in this situation that the government of China began to change its policies concerning the economic development route in the whole nation. This change is especially illustrated by the transitioning role of the government from a babysitter to a policy maker of the domestic enterprises. The following figure illustrated this change of the governmental role:
 
Chart 2: The change of governmental role in the national business network
 
The direct effect of the change of the governmental role in guiding the economic development of the nation is most obviously illustrated in the more independent decision-making of individual business organizations, which in the past is largely determined by the various types of limitations by the government. In the field of international marketing, this implies the liberation of the national business organizations to choose suitable competitive strategies in the international market. This is best illustrated by the sharp increase of business organizations targeted at international business since the mid-1990’s.
 
2.3 Current conditions
 
With the impact of the role change by the government, the business organizations (and enterprises of the private sector of the national economy) began to obtain independence and flexibility in choosing the suitable management strategies to develop their businesses in both the domestic and international markets. And this directly led to the sharp increase of the foreign investment share by the Chinese SMEs in the international market. The following chart shows the distribution of the foreign investment by Chinese enterprises in the international market:
 
Chart 3: Distribution of China’s foreign investment in the international market
 
(Source from: iResearch of Chiese economy)
 
Obviously, from this chart, it is easy to find that the investment of Chinese enterprises is chiefly limited in the traditional big markets of the world. These mainly include three regions, i.e., Asia, Europe and North America. Especially, influenced by the geographical traits, a great amount of the foreign investment by Chinese enterprises is targeted to the neighboring Asian countries (Bairoch, et al., 2010). This is due to three major factors. In the first place, geographically, these markets are convenient for the Chinese enterprises to obtain raw materials and thus can greatly cut short the expenses they need to enter the international market. Secondly, cultural link between China and these neighboring countries has made it easier in international integration of the Chinese business organizations. In the third place, similar management experience of business organizations in the Asian cultural background is also one important element of the business cooperation and integration in the Asian market.#p#分頁標題#e#
 
3. Methods and implementation
 
3.1 Data collection
 
In order to be more convincing to illustrate the necessity of participating into the international integration for the sustained development of China’s SMEs, this research paper intends to use both primary data and secondary data. The primary data is a simple questionnaire that is intended to investigate into the opinions of individual staff members working in Shanghai Tongji Building Bold Factory. (For details of the primary investigation see the appendix at the end of this paper.) Their opinions can be regarded as highly representative in reflecting the professional views about how China’s SMEs should be integrated into the international background. The secondary data of this research mainly includes the published documents of China’s SMEs in entering the international market.
 
3.2 Sample size
 
In order to make the investigation more objective, the author of this research intends to use 100 samples. The purpose of doing so is for the convenience of quantitative analysis. In the meanwhile, the sufficient sample will facilitate the author to gather more objective information about the current status of integration of China’s SMEs in the international market concerning various aspects of issues such as the choice of entry strategy, the cultural influence and legal impact so and so froth.
 
3.3 Analytical method
 
The data collected in the primary investigation will be further analyzed in both qualitative and quantitative methods. The former includes the utilization of comparison and contrasting method to analyze what the SMEs of China are doing in order to suit the requirement of the international market. In the meanwhile, causal analysis will also be used so as to disclose the reason why China’s SMEs should be cooperative with the international society in order to obtain the opportunity of sustainable development. As for the quantitative analysis, this research will mainly use EXCEL charts and statistical tables to evaluate the data collected from both the primary and secondary research.
 
4. Research findings
 
4.1 Feature analysis of SMEs’ overseas market
 
4.1.1 Severe competition
 
As for the factors influencing China’s SMEs in entering the international market, severe competition is one of the chief issues. According to the statistical result of the iResearch of China’s industrial development, about one third of the overseas investment by the domestic business organizations in 2010 had financial difficulty. This is largely due to the severe competition of the international marketplaces require these businesses to invest more resources in technological innovation and buying the new equipment needed for the completion of the production tasks in the new surroundings of the international market. However, due to the fact that most of the SMEs in China are owned by the economy of the private sector, these enterprises are having a variety of difficulties in the international market. And this has put them in a disadvantageous position in the international competition.#p#分頁標題#e#
 
4.1.2 Flexible marketing strategy in entering the international market
 
However, due to the comparatively free structure of the SMEs of China at the present time, these business organizations in the meanwhile have also a great advantage in choosing the mode of entering the international market. And since most of the SMEs are not powerful enough to expand their international market by independent investment, a lot of them have chosen the way of cooperating with some influential international organizations so as to gain the technological support in the world. The development of China’s automobile industry can be regarded as a typical example. For some automobile businesses, cooperation is one of the main strategies to enter the international market. This is convenient in utilizing the available technology to compete against their international rivals.
 
4.2 SWOT analysis
 
4.2.1 Strengths
 
The strengths of China’s SMEs in entering into the international market mainly lie in two major aspects. In the first place, the governmental support has long been an important guarantee with the adoption of the Reforming and Opening policies of the government since the 1980’s. And since government (and the central government in particular) plays a decisive role in the development of the national enterprises of both the state and the private sectors, SMEs in China can obtain policy favor when entering into the international market. This can be understood by the tax favors issued by the government to encourage export of businesses since the 1980’s. Secondly, there is a great flexibility for these SMEs in choosing suitable entry mode into the international market because China’s SMEs have a variety of management styles due to the diversified business cultures in the domestic marketplaces. In this way, the individual business organizations can design the most suitable ways of developing their international marketing according to the specific features of their businesses as well as the needs of the local customers.
 
4.2.2 Weaknesses
 
The chief weakness of the Chinese SMEs in entering the international market is the comparatively lower level of technological strength. This is largely due to the rather backward pace of technological innovation in the domestic market in various industrial fields. The problem is especially serious with some electronic enterprises which mainly depend on the technological innovation in the more and more competitive international marketplace. Also, the lack of financial resources of these private SMEs is another difficulty in entering the international market.
 
4.2.3 Opportunities
 
Despite the above-mentioned difficulties and disadvantages, China’s SMEs have a vast opportunity to develop their businesses in the international market. Of these chances, the fast development of the international market and the growing consuming capacity of the international customers are the most important ones. Especially, since China is located in East Asia, one most active economic zone of the whole globe at the present time, this opportunity seems to be extremely important in promoting the integration pace of China’s enterprises into the world economic system. In the Asian-Pacific regions, China has been playing and is still playing an important part in stimulating the development of the local economy. The replacement of Japan to become the world second largest economy according to GDP can be seen as an important illustration. So, at the present condition, how to utilize this advantage and enter the international business competition can be regarded as both a challenge and a great opportunity for China’s SMEs in the international marketplace.#p#分頁標題#e#
 
4.2.4 Threats
 
At the present time, severe competition is still the most important threat to the sustained development of China’s SEMs in the international market. This is especially serious with some high-tech businesses that depend on the quicker pace of technological innovation such as electronic businesses, car manufacturing and the production of artistic products and services.
 
4.3 Analysis of entry strategies
 
4.3.1 Selection of entry mode
 
To select a suitable entry mode into the international business society is one chief element of effective management of the international business by China’s SMEs. At the present time, there are mainly two major aspects of entry modes. First, cooperation is still considered to be the chief way for China’s SMEs to enter the global market. This is because of the fact that China is nowadays in the lower level of technological development. Obviously, the main advantage of cooperation (and especially regional cooperation with the neighboring countries in Asia) is the convenient way of absorbing the technology, business resources and management experience in the international market. In the second place, FDI (i.e., foreign direct investment) is also adopted by some SMEs in some developing markets such as the countries in South Asia and African countries.
 
4.3.2 PEST analysis of the target market
 
For China’s SMEs to enter the international market, a thorough analysis of the PEST conditions of the targeted markets is very important. This includes the understanding of the political, economic, social and technological impacts to the local marketplaces. So, for China’s SMEs to better suit the local conditions of the world market, it is very important for them to be familiar with the all-round information of the local market so as to make rational decisions to enter the targeted marketplaces.
 
4.3.3 Production positioning
 
Product positioning is another important strategy for China’s SMEs in entering the international market. This is because most of the SMEs in China at the present time do not have the technological advantage in the world. So, in order to produce products with lower prices and better quality, China’s SMEs have been focusing on utilizing the comparatively cheaper domestic resources to occupy the international market. For instance, the use of comparatively cheap human labor in the domestic market environment is regarded as one important element for the business success of China’s enterprises in the global market. The most representative industries that depend on cheap and massive human labor include clothing processing industry, food process industry and toy production so and so forth.
 
4.3.4 Pricing
 
Since China’s SMEs do not have brand advantage in the international market, a lot of enterprises choose the lower prices as one main strategy in order to occupy the international market. Take clothing production for instance, since these businesses in China can not compete against those international giants in France and Italy, these enterprises usually target the lower-end customers in the international market. So, lower prices can be regarded as the important strategy to gain the potential to develop these businesses in the more and more intensified international clothing market. However, in the future, how to build up national brands will one day become an important issue of business development in the international background.#p#分頁標題#e#
 
4.3.5 Business channels
 
With the more and more diversified international communication and interaction, there have been a lot of new channels for China’s SMEs to enter the international market (Kulendran and Witt, 2007). For example, with the greater and greater impact of the Internet, China’s SMEs have been utilizing this new communicational channel to influence the international market by conveying more information of these enterprises and to enhance their international influence. Also, with the more and more active interchange of academics studies, many experts with international background can also be used by China’s SMEs to collect and analyze the information of international supply and demands. In this way, the channels of international business of China’s SMEs will be greatly broadened at the present time and in the near future.
 
4.3.6 Customer management
 
Customer management of China’s enterprises in the international background mainly includes the collection and analysis of the trends of customer needs. For instance, the change of the consuming style of the international customers can be regarded as an important issue. This necessarily includes the study of the cultural and social influence upon the preference of the local customers in the targeted marketplace (Kofman, et al., 2008). This is very important in influencing the choice of development route of these enterprises in the more and more intensified international market. Take food industry for example, the diversified tastes of the different local customers in different places of the world are important in influencing the production of food products in the international marketplace. For China’s SMEs, how to study the changes of the international customers and how to cater for these customers according to their special features are crucial to their business management in the international market.
 
5. A case study of Shanghai Tongji Building Mold Factory
 
5.1 Company introduction
 
Shanghai Tongji Building Mold Factory is a small enterprise created by a group of construction engineers in Shanghai, the largest city in China. It is located in Yangpu District of the city and has engaged in the designing and building of construction mold in the domestic market since the late 1990’s. In 2002, the company decided to enter the international building market with the more and more influential of China’s construction businesses in the international market. Especially, since 2005, with a large number of building enterprises beginning to enter the African market due to the governmental support of the basic construction of facilities in Africa, the company has seen the great opportunity of developing its businesses in the African Continent. So far, the company has participated a series of international construction by designing and building construction mold in Africa and in some South Asian countries. The representative works of the company in the above-mentioned markets include the mold of the parliament of Namibia construction, the maintenance scheme of Taji Temple in India and a series of construction mold services for many foreign countries in Shanghai EXPO in 2010. All these building molds have appraised by the users due to the higher quality and elegant style. Today, the company is hiring about 300 skilled technical workers and is ambitious to enter the building mold market of Europe and North America.#p#分頁標題#e#
 
5.2 Strategy analysis
 
Knowing that the competition of the building mold business in the international background is severe, Tongji Building Mold Factory has been focusing on the choice of cautious strategy to enter the international market. These strategies include mainly the following aspects. In the first place, the company is careful in choosing the suitable targeted markets due to the severe competition. So far, the major markets of the company in the overseas backgrounds are mainly limited in Africa and South Asian countries. This is because of the fact that these countries are all under-developed nations and both the technological capacity and financial power do not allow them to purchase more expensive building mold service from the more mature market in Europe and North America. So, since 2002, Tongji Building Mold Factory has chosen to invest business branches in these areas to keep pace with the governmental support by the Chinese central government to aid the African and South Asian countries to enhance the construction of the basic public facilities. This proves to be highly effective in developing the local economy of these regions. In the second place, considering the lack of technical experts in these regions and countries, the company has maintained a sustained technical cooperation with the building organizations in these nations so as to integrate into the local construction market. Thirdly, to gain the support of the local government and try to understand better the legal system, especially those related to the construction market, are what the company have been focusing on to expand its overseas market in the local market of the African and South Asian countries. In order to achieve these goals of overseas investment, Tongji Building Mold Factory has been paying attention to enhance its technological competence to enter the local markets of these countries.
 
The example of Tongji Building Mold Factory can be regarded as a typical example of how the SMEs in China are trying to influence the international market according to their own technological conditions and financial capacity. The experience gained by the company is that to cater for the local customer needs according to the company’s current financial and technological status is effective in making the entry mode as well as the development route of these enterprises in the more and more competitive international background. These methods have proved to be highly effective for the SMEs in China at the present time and present condition.
 
5.3 Effectiveness
 
In adopting the above-mentioned strategies, the company has gained obviously a lot of opportunities in expanding its international market and has been proved to be highly effective. These effectives can be summarized in three major aspects. as Firstly, by integrating into the global market, the awareness of scientific management of the company has been enhanced. This can be illustrated by the investigative result of the following:#p#分頁標題#e#
 
Chart 4: Investigation result about the importance of scientific management to China’s SMEs
 
Obviously, the investigation result revealed in this chart illustrated that the sense of quality management and scientific management have been deeply rooted in the managers of China’s SMEs with the process of entering into the global market. In fact, scientific management is of an important requirement of China’s SMEs to be successful in the global market.
 
Also, both the primary investigation and the literature review of this research have shown that by entering the international market, China’s SMEs can find a new way of understanding the international trends of product and service consumption and production. For Tongji Building Mold Factory, to know this trend is very important because the construction market is also a highly flexible one with the consuming style of the customers changing constantly. And this trend is closely related to the changes of artistic viewpoints and the aesthetic of architecture of the whole world.
 
6. Conclusion and recommendations
 
To summarize, For China’s SMEs, to enter the international market implies the acceptance of the severe international business competition. However, due to the comparatively short history and insufficient experience of international business competition, China’s SMEs are sure to encounter a lot of difficulties in the international market. For these enterprises aiming at competing the international market, risks and opportunities co-exist. The successful experience of Tongji Building Mold Factory and other SMEs in entering the global market lies in that the making of a suitable strategy according to their specific conditions is of the primary importance in integrating into the global business background. With the fast development of China’s national economy in the 21th century, this trend of internationalization will be further enhanced in a new global business culture. And it is only in this way that China’s SMEs can find a better opportunity of further development.
 
References:
 
Bairoch, Paul; Kozul-Wright, Richard (2010), Globalization Myths: Some Historical Reflections on Integration, Industrialization and Growth in the World Economy, dp. no. 113, March, UNCTAD, Geneva. P. 17-19.
 
Chalmers Johnson. (2009). Economic Crisis in East Asia: the clash of capitalisms, Cambridge Journal of Economics, March 3. 3-5
 
Croes, R.R., and Vanegas, M.S. (2010). Econometric study of customer behaviors in Australia and its implications. Business Management, Volume 12, 2005.
 
Jennifer Reid Holman, (2007). Promoting Exercise for Elders, Doc News, June, Vol.4. 17-19.
 
Kofman, Eleonore and Gillian Youngs, Editors, (2008), Globalization: Theory and Practice, New York: Pinter. P.44.
 #p#分頁標題#e#
Kulendran, N., and Witt, S.F. (2007). Forecasting the demand for international business. Journal of Business Research, Vol. 2, 2003.
 
Mittelman, J. H. (2009), The Globalization Syndrome: Transformation and Resistance, Princeton University Press. P.66-67.
 
Prudhisan. (2010). Jumbala in Southeast Asian Affairs, Singapore: ISEAS.
 
Salman, A.K.(2008). Estimating customer demand through cointegration analysis: Swedish data. Current Issues in Business, Vol.5, 2003.
 
Zhang Lei. (2010) The Adaptation of Marketing Environment. Nanjing University Press. Nanjing China.
 
Appendix:
 
Dear Respondent,
 
Thank you very much for participating this investigation. Your responses will not be used for any purpose other than academic study. To the information related to your personal privacy, we guarantee to preserve as a secret. Thanks again.
 
Investigative Questionnaire
 
Your personal data, please:
 
Gender: ____________
 
Age: ____________
 
Education:____________
 
Please choose an answer from the following alternatives:
 
1. In your opinion, what is the most important factor in influencing the development of SMEs of China?
 
A. National economy □
 
B. The huge population of the nation □
 
C. Social system, including the political structure □
 
D. The trend of global integration □
 
E. The combined effect of all the above □
 
2. Please scale your answers concerning the factors influencing the integration of China’s SMEs into the international society according to the following: (1) Definitely agree, (2) Agree, (3) Have no idea, (4) Disagree, or (5) Definitely disagree.
 
1 2 3 4 5
 
(a) The fast development of the national economy □ □ □ □ □
 
(b) The impact of the government □ □ □ □ □
 
(c) Technological innovation □ □ □ □ □
 
(d) The cultural integration of the international society □ □ □ □ □
 
3. In your opinion, which of the following is the most important internal factor in influencing the current development of China’s SMEs?
 
Technological conditions □ Industrial structure □ Management □ The policy of the central government □
 
4. Scientific management is ____________ to the development of SMEs of China.
 
Very important □ Important □ Have no idea □ Not important □
 
5. In your opinion, what should be done for individual SMEs of China to gain sustained development in the international market environment?
 
A. Innovate technology □
 
B. Study the customer needs of the local market □#p#分頁標題#e#
 
C. To be integrated into the world economic system □
 
D. All above □
 
6. Which of the following best describes the current status of the domestic environment of SMEs development?
 
A. Lower capacity of consuming power □
 
B. Lower level of individual income in the domestic market □
 
C. Insufficient investment □
 
D. Lower level of scientific management □
 
E. Others. □
 
7. What will be achieved by SMEs in China to enter the international market?
 
A. They will obtain technological support □
 
B. They will be more flexible in suiting the market culture of the local place in the targeted market □
 
C. They will be gaining the advanced management experience from the international society □
 
D. All above □
 
8. What do you think your company should gain the sustained development in the future?
 
A. To expand investment in the domestic market. □
 
B. To enter the international market □
 
C. To gain more support from the local government of the domestic market □
 
D. To gain the support of international customers □
 
9. What will be the major challenge of your company to enter the international market?
 
A. Severe competition □
 
B. Insufficient capital □
 
C. Lower level of technology □
 
D. Unfamiliarity about the customer needs in the international market □