Harvesting in Europe
A research into the opportunities of Harvest International Housewares acquiring business in the European Market
Organization: Harvest International Housewares Institution: Rijksuniversiteit Groningen Name author: Jan-Willem Oudshoorn Student no: 1229265 1stmentor: drs. H.C. Stek 2ndmentor: mr. drs. H.A. Ritsema
Title:
Harvesting in Europe
Subject:
A research into the opportunities of Harvest International Housewares acquiring business with customers in the European Market
Author:
Jan-Willem Oudshoorn
Student number:
S1229265
Supervisors:
drs. H.C. Stek University of Groningen
mr. drs. H.A. Ritsema University of Groningen
Mr R. Ho Harvest International Housewares
Course:
Graduate thesis in Marketing, Business Administration
Company:
Harvest International Housewares Ltd.
Unit 4013 40th Floor Office Tower Convention Plaza No. 1 Harbour Road, Wanchai,
Hong Kong
Date:
March, 2007
Preface
“Do not fear going forward slowly; fear only to stand still.”
Chinese proverb
This thesis is the result of an eight month research internship with the Hong Kong and China based manufacturing company Harvest International Housewares. I am content with finishing this thesis and being able to move on to the next phase. It has proved to be a long, difficult but challenging project which has enabled me to complete my university degree in Marketing, Business Administration.
First and foremost, I would like to thank the employees at Harvest for helping me with this project.
Particularly, I would like to thank my corporate supervisors at Harvest, Ron Ho and Dennis Ho who have both provided me with ample guidance during the course of writing my thesis in Asia. Ron Ho offered much practical advice on the Chinese way of doing business which truly was an eye opening experience. Both Ron and Dennis Ho introduced me to many key representatives of existing and potential customers which proved invaluable to my research. All at Harvest helped in making my time in Hong Kong and China unforgettable! Besides my supervisors at Harvest, I would like to thank AIESEC Hong Kong for helping me with making me feel at home in Hong Kong and advising me how to search for relevant literature in their university libraries.
Also, I thank my professors at the university of Groningen, Huib Stek and Henk Ritsema who provided extensive feedback and recommendations when needed. Furthermore, I would like to thank Minodora Sclavos for correcting my English. Last but not least, I thank all my parents and friends for their support during my study and especially during the writing process. I hope you enjoy reading the end result!
xie xie suo you ban zhu wo xie zhe pian lun wen de peng you men!
(Thank you for all those who have helped me to write this thesis..)
Groningen, March 2007
Jan-Willem Oudshoorn
Table of contents
1. The organization Harvest 5
1.1 Introduction 5
1.2 History 6
1.3 Houseware market 8
1.3.1 The houseware industry 8
1.3.2 Harvests market 9
1.3.3 Product groups 11
1.4 Structure 12
1.4.1 Organizational Structure 12
1.4.2 Marketing activities within the organizational structure 12
1.5 Harvests challenge 14
1.5.1 Which problems can be distinguished? 14
1.5.2. How are these problems perceived? 14
1.5.3. What are the backgrounds of this challenge? 15
1.5.4. In which directions are solutions being sought after? 16
2. Research analysis 18
2.1 Introduction 18
2.2 Problem analysis 19
2.3. Problem Statement 21
2.3.1 Question Statement 21
2.3.2 Sub questions 22
2.3.3 Definitions of the problem statement 23
2.4 Conceptual model 24
2.5 Methodology 27
2.5.1 Type of research and data collection 27
2.5.2 Methods for analysis 28
2.6 Research outline 30
3. The sourcing process of potential customers 31
3.1 Introduction 31
3.2 The sourcing model 32
3.2.1 Supplier search stage 35
3.2.2 Supplier information stage 36
3.2.3 Supplier selection stage 37
3.2.4 Supplier choice stage 38 3.3. The communication instruments during sourcing process 39
3.3.1 Trade magazines 39
3.3.2 E-commerce tools 40
3.3.3 Trade shows 40
3.4 Conclusion 42
4 The roles of communication instruments during the sourcing process 44
4.1 Introduction 44
4.2 The roles according to the trade organizations 48
4.2.1 Supplier search stage 48
4.2.2 Supplier information stage 50
4.2.3 Supplier selection stage 52
4.2.4 Supplier choice stage 54
4.3 The roles according to potential customers 55
4.3.1 Supplier search stage 55
4.3.2 Supplier information stage 58
4.3.3. Supplier selection stage 60
4.3.4 .Supplier choice stage 62
4.4 Conclusion 63
4.4.1 Conclusions on interviews 63
4.4.2 Conclusion on investing communication instruments for Harvest 64
5 Investing in specific marketing communication alternatives 66
5.1 Introduction 66
5.2 The decision model 67
5.2 Trade show objectives and pre-selection 69
5.2.1 Exhibit objective setting 69
5.3.3 Setting general trade show considerations 69
5.3 Trade show criteria and evaluation 72
5.3.1 Setting trade show criteria 72
5.3.2 Attendance and lead Performance criteria 72
5.3.2 Participation Costs 73
5.4 Recommendations on choice for marketing communication instruments 75
6. Research limitations and recommendations for further research 76
6.1 Introduction 76
6.2 Limitations of this research 77
6.3 Recommendations for further research 80
6.3.1 Pre trade show research 81
6.3.2 At trade show research 83
6.3.3 Post trade show research 84
Literature 87
Books 87
Articles 88
Websites 89
Reports 90
Appendices 91
1. The organization Harvest
1.1 Introduction
The first chapter will introduce the reader to the Hong Kong/Chinese organization Harvest International Housewares. The goal of this section is to impart an impression of the manufacturing company that specializes in the production and supply of houseware products.
The chapter will commence with a brief overview of the history of the organization. This is presented in order to place the type of organization, and its development in context and boundaries. Harvest has evolved through a series of developments since it was founded in 1988. The developments relevant for this research will be discussed.
Next, a detailed overview is presented of the market in which Harvest operates. After this explanation, the structure of the organization at present is explained. This is done to produce an outline of the type of organization Harvest is, and the nature of business it is in. The existing structure has consequences for the marketing activities of Harvest.
A portrayal of the current challenges within the commercial structure is given, in order to get a better understanding of the current situation of the company. This will also lead to the research design, discussed in chapter 2.
1.2 History
Harvest International Housewares, hereon called Harvest, is an organization that manufactures and trades in a variety of houseware items. A more detailed description of houseware is presented in 1.3 The company was founded in 1988 by current managing director Ronald Ho. It was initially active solely as a Hong Kong trading company, sourcing items in mainland China and exporting them to customers in the United States, Japan and Europe. A trading company is a marketing intermediary that undertakes exporting, importing, counter trading and manufacturing1. At that time, Harvest was one of many Hong Kong trading organizations to capitalize on the opportunity of sourcing items for customers in China. According to the Hong Kong trading council, scores of Hong Kong based trading companies are still currently active in the houseware market2.
During the years of being a Hong Kong based trading company, Harvest did not produce its own items. It acted as a broker between Western customers and Chinese manufacturers. Harvests added value lay in the fact that the organization knew how to source houseware products for its customers in the Chinese market. However, over the course of several years in the Nineties, more and more Western companies were making the decision to buy items directly from Chinese manufacturers. Hong Kong's total exports of houseware products dropped by 15% in 2000 compared to 1997 (pre-handover era) amid the trend of direct shipment from supplying places to the end markets and the fierce competition within the industry predominantly originating from the Chinese mainland. More overseas buyers chose to engage indigenous Chinese companies which offer competitive prices and improving quality3. Since the vast Asian country further opened its economic perimeters, China was fast becoming a very attractive partner. Many Western customers that started to do business directly with the Chinese supplier terminated their relationship with Harvest. Consequently, Harvest was rapidly losing its added value as a trading organization, as Chinese manufacturers excluded the middleman and offered lower prices directly to Western companies.
As a reaction to the threat of having lost value for its customers, and having found opportunities within China, Harvest decided to go into a joint venture with a Chinese partner. In 1999 they built their first production facility in Shenzhen, called Harvest Manufacturing (see appendix 1). Since then, Harvest as also completed the construction of a new production facility in 2003. The new factory is in close proximity to the older facility. Both facilities are in operation, producing houseware items, mainly based on wire, tubing and plastic injection and having a combined production space of 50,000 square meters. The manufacturing plant employs on average 1,000 factory workers.
1 Hoffman et.al, 2003: 616
2 http://stat.tdc.org.hk/monthly/prodt366.htm
3 HKTDC report 2000
In 2003, the factories also acquired the ISO 9001 license. Many organizations require their suppliers to have ISO 9001 registration. The biggest portion of this license is that current processes are redesigned to address all of the requirements in the ISO standard. This specifically significant for the development of business for Chinese manufacturers, as quality issues rise up frequently between customers and the factory4(See appendix 2).
Harvests revenue has quadrupled in the course of 7 years, see graph 1.1. The growth of the company is consistent with the growth of the houseware industry in China (see appendix 3).
In order to assure growth, Harvest continually strives to sell large volumes of houseware items.
Harvest increased its revenue significantly in the year 2001 when the organization started to produce houseware items itself. Revenues made another noteworthy increase in the year 2004 when Harvest started to make use of the second production facility.
Since Harvest has built factories, it has continually shifted its focus from trade to production. In the last 3 years, over 80% of the items which are sold to Harvests customers are produced in the factories of Harvest, while only 20% is still sourced from other factories in Southern China. In the coming years Harvest plans on directing most of its attention to the production and less on the trade in houseware items. Harvest understands it will continually lose value in the market place if they maintain the role as a trading organization.
4http://www.the9000store.com/Intro-to-ISO-9001.aspx
Harvest Sales
0 5 10 15 20 25
year 1999
year 2000
year 2001
year 2002
year 2003
year 2004
year 2005
USD (in millions)
Reeks1
Figure 1.1: revenue increase of Harvest
1.3 Houseware market
1.3.1 The houseware industry
The total value of houseware export volume from China is USD 27.43 billion in 2005. The houseware export volume to EU has reached to USD 9.19 billion, increasing by 19.9% over the last year and accounting for one third of the total amount.; the trade volume to USA reaches USD 4.71 billion, increasing by 10.2%, taking up 17.3%.5 Graph 1.2 shows the growth forecasts for geographical markets within the houseware industry for the coming year.
Up until a few years ago, Hong Kong was a well-known international sourcing centre for houseware products. Nowadays, more buyers choose to engage in business with Chinese companies which offer competitive prices and improving quality. In general, oversees buyers have massively turned toward Southern China to be their supplier for houseware products (see appendix 4)6. Harvest has its factory in the Guangdong province, in the South of China, where 77% of all houseware items are produced.
The forecasts show that the production and export of houseware products will definitely stay within this region, making it appealing for those manufacturers who are active in this business7.
As the houseware industry is diversified, products are not restricted to one kind of definition. The industry covers a wide range of products including bathroom accessories and kitchenware which are made from an array of materials, such as ceramic, metal, paper, and plastic. The most popular characterization regarding this is: furnishings for a house, especially small articles of household equipment8 (See appendix5). As shown in figure 1.3 the HK TDC identifies a number of different groups of products that make up the definition of the term houseware *. The sum of these percentages equals the total houseware market.
5http://cantonfair.org.cn/en/info/96Conclusion.htm
6www.tdctrade.com/main/industries
7http://www.tdctrade.com/tdcnews/0604/06042401.ppt
8 http://www.m-w.com/cgi-bin/dictionary?book=Dictionary&va=Housewares
* Percentages based on HK TDC report of 2005
GROWTH FORECASTS OF DIFFERENT MARKETS FOR HOUSEWARE ITEMS IN 2006
USA………...
EU……….………..
Japan ……….………..
Chinese Mainland………
Emerging Markets………..
19
19
19
16
16
Graph 1.2: Expected growth rates for Houseware export for 2006
1.3.2 Harvests market
As displayed in figure 1.4, the definition includes a plethora of products. Harvest does not have the capabilities of being active in all the markets within the houseware industry. Within the extensive depiction of the term houseware, a classification is made of the items that Harvest is actually capable of producing. The categories in bold and italic represent the specific houseware markets Harvest is active in. The market share of this product range is 38% of the total houseware business.
There are several types of customers within the houseware market which are listed below in figure 1.49. As shown in the figure, retail stores account for almost 20% of the total buying volume.
Manufacturers and importers make up half of the total buyers in the houseware market. This group of companies is increasingly developing arrangements for Chinese contract manufacturing that allows corporations to separate the physical production from research, design etc. More brand holders outsource their production to low-cost areas including the Chinese mainland. Doing business through retail stores or importers and manufacturers each has its advantages. It is however not suitable to do business with both at the same time, because this threatens the relationship with the distribution channels 10.
Currently, over 80% of Harvests customers are American importers or manufacturers. While importers traditionally come to China with regular intervals to source for items, large houseware manufacturers are increasingly being active in mainland China11. Manufacturers are outsourcing the production to China more and more, mostly for economical reasons. The term outsourcing encompasses utilizing
9 HK TDC report 2006
10 Spingola & Kairos: 2004
11 http://www.fantes.com/manufacturer.htm Figure 1.3: the houseware business according to the type of items
Houseware Market percentages
6% 8% 9%
1%3%
9% 7%
10% 5%
5%
8%
4% 6%
6%
4 9%
Ba throom Accessories Home Storage
Gardening & Outdoor Accessories Kitchenware and Gadgets General Housewar e Items Artificial Flow ers
Green Products Handicrafts
Cleaning & Supplies Household Textile
Lighting Pet Supplies
Small Elec trical Appliances Tablew are & Bar Accessories
Furniture Trade Services & Publications
other firms, such as Harvest, for the manufacture of needed components or products12. These customers can still be labeled manufacturers, because they have played small parts in the production process such as the final assembly of different half products or the storage of houseware products in warehouses.
Retailers buy branded houseware products from Harvests customers. For example, a retailer such as Wal-Mart will buy ‘Polder’ branded bathroom accessories and sell these to end-consumers. customers in turn, face a make or buy decision. A make or buy situation involves the decision to perform an activity itself or to purchase it from a subcontracted firm13. Houseware items are simple items to produce, but relatively labor intensive. Chinese manufacturers dominate this world of manufacturing because of low-cost labor. Harvest is one such supplier. These suppliers play the role of contracted manufacturer, supplying the world's biggest brands and retailers' private labels14. Potential customers resell their brands to retailers in large volume. Since Harvest produces austere items that are ideal for mass production, global brands and manufacturers that are active in the houseware market, more often make the decision to outsource the production of their branded products to Chinese factories. This is a special form of sourcing.
Customers are not sourcing actual products that Chinese manufacturers make and which fit within the range of products of customers. Rather, customers are sourcing production capacity and quality that Chinese suppliers are able to provide for which they use to mass produce the products their customers have already designed.
The U.S. mass market for houseware items expects good quality at very economical prices. There is intensive pressure from existing American customers to give competitive pricing to the large retail
12 Hoffman, 2003: 81
13 Besanko et.al 2000: 111
14 Gao, Yu et.al., 2003
Importer; 30%
Manufacturer;
21%
Wholesaler/Retai ler; 18%
Exporter; 15%
Other; 16%
Importer Manufacturer Wholesaler/Retailer Exporter
Other types of customers in the houseware industry
Figure 1.4: houseware market according to organizations
stores15. In effect, price plays the major part of doing business, followed by quality and logistics. In other words, American companies do not have a high degree of loyalty with their Chinese suppliers. If another supplier has a lower price, chances are, that business will shift to a rival manufacturer or trading company.
1.3.3 Product groups
The factory is specialized in the manufacturing of many different items based on steel. These include;
wire, tubing and metro shelving products. Harvest also produces items based on plastic. Harvest does not design and produce their own brands of houseware products. Rather, they mass-produce the branded and patented designs of their customers. This way of doing business is called Original Equipment Manufacturing (OEM). In this way, Harvest is used as the contracted manufacturer for companies who own a specific houseware brand. In other words, the customers incorporate Harvests products into their own merchandise for resale under their own brand names. This has an effect on Harvests product groups, while the groups do not include actual items, but represent the capacity and technology to mass manufacture the product designs of their customers.
The first product group includes the technology to produce the type of houseware items based on wire.
Harvest has all the production machines to process raw material into many different houseware items based on wire. The biggest production item, for example, item is the shower caddy. This item is a wire organizer for the bathroom that is hung over the showerhead. Other examples of wire items are wine racks, baskets dish racks etc.
Another product group is based on the production technology to produce items out of tubing.
Examples are; garment racks and laundry hampers. A special kind of tubular product is the metro shelving item. These are storage items, of which the height can be adjusted through grooves in the tubes. Harvest has developed a production line to manufacture these items. Within the factories, Harvest has different welding machines, as well as stamping bending and cutting machines for the wire and tubular products. Harvest also has different lines for the product finishing.
The last group represents the capability to produce items from plastic. Raw plastic material is injected into a mould for the end products. Examples here are; plastic bathmats and plastic laundry boots.
Although this is a smaller part of the production capabilities, Harvest also produces many items with plastic parts for items such as the garment racks. As the production floor has the right moulds, it can produce the whole item itself. Harvest has several different plastic injection machines to manufacture these products or product parts.
15 Spingola & Kairos: 2004
1.4 Structure
The structure for Harvest is defined as the reporting of relationships, groupings and systems of the organization. The organizational structure is given to offer a better understanding of the relationships within the company, and, more importantly, the responsibilities16. The organization Harvest can be split up into two different divisions, Harvest International Housewares and Harvest Manufacturing.
The managing director, Mr. Ronald Ho, is head of both Harvest International Housewares as well as Harvest Manufacturing.
1.4.1 Organizational Structure
Harvest International Housewares is the division which has an office in Hong Kong and makes up the original organization that used to fulfill the role of the trading company. Since Harvest now produces its own houseware products, this office currently deals mostly with support activities. Supporting services are not the primary focus of Harvest, which is rather, the production of houseware items17. Examples of such activities are communication with customers, shipping, logistics and administrative activities.
Harvest Manufacturing is the Chinese division which is comprised of the actual factories in Shenzhen.
While the managing director is also director of Harvest Manufacturing, there is a general manager that leads these factories and is head of the different departments within the Harvest factories. Engineering is the largest department within Harvest. Under the manager of this department there are eight so called supervising officers. These officers are in charge of different activities within the engineering department, such as the handling of raw material, the production process of the products, and finally the packaging. The business department has a set of duties which are concerned with the field in which Harvest operates. Harvest has acquired an ISO certification and in order to commit to this certification, a QC department has been formulated, and is currently employing 45 people18. The last two departments are the HRM and Finance department. The Finance department vastly differs from the Accounting department in Hong Kong, as this department only deals with costs incurred during the production activities of the factory.
1.4.2 Marketing activities within the organizational structure
As is explained in 1.3.4, Harvest manufactures products to order and to the specifications of their customers. The organization concentrates on the production of houseware products rather then the marketing of them. As a result, less attention is given to marketing. An example hereof, is the absence
16 Daft, 2001: 610
17 Besanko, 2000: 112
18 Harvest Manufacturing has one QC employee for every 20 production employees, to ensure the quality standard. This is in compliance with ISO regulations discussed on the website www.iso.org.
of a separate and distinct Marketing department within Harvest. Rather, the management of Harvest International Housewares performs these marketing activities. In particular, the managing director will execute these activities, since he is the one constantly in contact with existing and potential customers.
These activities can be carried out through using the instruments of the marketing mix which is composed of decisions regarding product, price, promotion and place. These instruments are used to achieve a companies overall marketing goals which in Harvests case is to increase its sales of large volumes of houseware items19. The marketing activities of Harvest are limited to activities regarding the acquisition of new customers and the maintenance of relations with current customers. Harvest currently uses the activities of fervently promoting the company most. Maintaining relations with current customers is done through personal contact. An example of this is, the fact that management schedule’s appointments with customers to visit before, during or after specific trade shows. Trade shows can be seen as industrial versions of shopping malls where suppliers and buyers physically come together20. These trade shows form a good setting for management of Harvest to be in contact with current customers. This is a useful platform because there is ample opportunity for management of Harvest and their customers to discuss the current state of business, such as delivery and quality related issues. Meetings are also planned to consider new product designs of customers and the possibilities for Harvest to mass produce them. Finally, customers regularly visit the factories of Harvest in China, where additional business is also discussed. The rest of the contact is done through email.
Acquisition of new customers is another important marketing activity. Since the company is orientated towards production, Harvests information of their market is limited. Their market knowledge is based on Harvests relations with existing customers. Up until now, business has expanded with new customers acquired through Harvests vast network of existing. Therefore, it seems that Harvest plays a passive role in acquiring orders from new customers, relying on a middleman to procure potential customers.
19 Keller, 2003,303
20 Gopalakrishna & Lilien, 1995
1.5 Harvests challenge
Harvest is a Chinese manufacturing company. Their key advantage is the ability to produce products cheap. China dominates world manufacturing because of its low-cost labour, supplying the world's biggest brands and retailers' private labels with products ranging from toys to televisions21. A result of this is that, in order for Harvest to gain profit, these products must be produced in large volume. The houseware market is still growing, which means that Chinese manufacturers can make extra profits without these profits impinging on competitor’s share of the market. However, Harvest is faced with a number of challenges. These challenges and their backgrounds are emphasized, through the application of the Verschuren & Doorewaard (1995)22theory. They state that by asking four questions, the general framework is determined in which the assignment of Harvest will be clarified.
1.5.1 Which problems can be distinguished?
Even though Harvest has increased the amount of business in the past, management has come to realize that the growth of their business is stagnating. This is presented through the revenue statistics represented in figure 1.1 in chapter 1.2 which shows that Harvests revenue has stagnated over the course of the last two years. Existing customers will not place sizable extra orders with the factory, and their efforts in starting business with new customers have not proved fruitful as yet.
1.5.2. How are these problems perceived?
De Leeuw (2001) states that when there is a challenge, or a subjective problem within a company, there is also a problem owner. This is the person or department within a company who is concerned with the current situation and its discrepancy towards the desired situation 23. In this case, higher level management of Harvest International Housewares is the problem owner. More specifically, the specific problem owner is managing director Mr. R. Ho. While the factory has its own management, they are not responsible for acquiring business, this is the responsibility of Mr. Ho. He has the relevant experience and he is the person who is in charge of the marketing activities with the company, and is responsible for making decisions regarding these activities.
Mr. Ho’s perception of the problems is the most relevant, because he has the most responsibility regarding this problem. He perceives the stagnation of revenue in a growing market forms a problem for the manufacturer because apparently Harvest is not taking enough advantage of the opportunities in the market. In the past, he has believed this problem was solvable through doing what the company had always done. “Our company has grown substantially over the past years, so if we are patient but
21 Gao, Wu et. al., 2003
22 Verschuren & Doorewaard, 2000: 30
23 De Leeuw, 2001: 2
persistent in explaining our competence with new or existing customers, they will eventually place a number of sizable orders with us which will help expanding our business.” Mr. Ho’s view of this problem is changing. Since the last two years have shown Harvests growth stagnate, he is surmising if their efforts in developing business with existing and potential customers have been intensive enough, and how they can be intensified.
1.5.3. What are the backgrounds of this challenge?
Harvest initially predicted a certain increase in demand of houseware items which led to development of new production facilities in 2004. By expanding the factory, the company has gained more revenue through the production of more products. Through this expansion, Harvest has created a production capacity of 150 40 foot containers a month. The actual monthly production is around 120 containers a month, an over capacity of 30 foot containers per month. This means that Harvest has predicted a larger growth in revenues than Harvest could deliver. As can be seen in figure 1.1, Harvest has been dealing with stagnation in sales the last two years.
Harvest has established most of its business with existing customers from the USA. American customers themselves recognize the major disadvantages and perils of being dependent on one Chinese supplier. Western companies who are outsourcing their business to Chinese manufacturers will choose several different suppliers to spread their risks. The most important motive to have multiple suppliers in the United States is to keep the price competitive24. Harvest appears to have reached the limitations in growth within their pool of these existing customers. Even though Harvest has developed an image of competent supplier towards several importers and manufacturers, these companies frequently switch suppliers to pressure the Chinese manufactures into keeping the prices as low as possible. Apparently, Harvest cannot create sufficient value for its existing customers in order to increase the production and eliminate the over capacity. A competent supplier has the ability to meet the technical, schedule, financial, non-technical and other contractual requirements of armaments acquisition projects when they are contracted25. Moreover, Harvests network of customers is limited as well. As explained in the last paragraph, Harvest has acquired additional business within the network of its existing customers. Existing American customers would introduce Harvest to other potential customers when they visited China. A prerequisite for this is of course, that the two American companies would not be each others competitors. Unfortunately for Harvest, this network is drying up.
Harvest cannot produce their sort of items for new American companies without that company being a direct competitor with Harvests current customers and thus damaging the relationship with these current customers, something the Chinese company wants to avoid doing at all costs.
24 Guo & Ganeshan, 1995
25 http://www.armscor.com
1.5.4. In which directions are solutions being sought after?
Ansoff (1957) developed a matrix which allows companies to consider ways to grow business via existing and/or new products, in existing and/or new markets – there are four possible product/market combinations. This is represented in figure 2.2. The directions in which Harvest is seeking solutions within these combinations is explained below.
1. Product development and diversification
In business and engineering, new product development (NPD) is the term used to describe the complete process of bringing a new product or service to market. Companies typically see new product development as the first stage in generating and commercializing new products within the overall strategic process of product life cycle management used to maintain or grow their market share26. Diversification is a form of growth marketing strategy for a company. It seeks to increase profitability through greater sales volume obtained from new products and new markets27.
The two possibilities regarding the development of new products are not directions in which Harvest is currently seeking solutions in. The reason for this has been explained in chapter 1.4 stating Harvest does not design its own products. Rather, the company mass produces the designs of its customers.
2. Market penetration
Business growth through market penetration is a third option. Market penetration occurs when a company penetrates the existing market with current products28. Up until now, the company has always aimed at trying to expand their business with existing American customers through close personal contact. During visits to China, Harvest would organize meetings with these customers to discuss new projects and the prospects of Harvest receiving the order. Even though American customers are not all placing extra orders with Harvest, the manufacturer is still developing the relationships with these customers and hoping more orders will transpire.
26 McGrath., 2004: 29
27 Chisnall, 1995, 34
28 Chisnall, 1995, 45
Figure 2.2: Matrix for business growth (Ansoff, 1957)
3. Market development
Finally, there is the option of market development. Market development targets non-buying customers in currently targeted segments. It also targets new customers in new segments. Harvest is seeking solutions through market development in two ways. The first way involves market development, by trying to expand the customer base in Japan. Harvest has some business with Japanese customers, and they aspire to expand their business in this market the same way in which the American market has been developed. Harvest is keeping close personal contact with their customers in Japan and asking these customers for advice on how to develop business with other Japanese customers.
Solutions are also being sought through market penetration is through aiming at expanding business through the European market. Harvest used to be active in the European market as a trading company. Business significantly dropped when, European customers brokered dealings directly through Chinese factories, without using Harvest as a broker in the chain. This problem has been discussed in chapter 1.2. Harvest is now trying to develop and target this market on a different platform, positioning itself as a manufacturer and offering a more competitive price. It has taken action through hiring a temporary European trainee to investigate in what ways Harvest can come into contact with European importers and manufacturers of branded houseware products, who are sourcing Chinese suppliers that can mass-produce their designs for the European market.
2. Research analysis
2.1 Introduction
The introduction of Harvest portrayed in the first chapter and the company’s challenges depicted in chapter two situated the background and set initial boundaries for the actual research analysis which is further developed in this chapter.
The theory of De Leeuw (2001) denotes several stages regarding the analysis and design of a research, presented in figure 2.1. This theory proves to be useful when making choices regarding the core activities that are embodied in the research design by translating the content of the research into the different stages within the research process29. The different activities within circles in the figure are related to each other and the decisions regarding this research must be made in coherence with these activities.
In paragraph 2.2 the delineation of this research is made through the problem analysis. In conformity of the theory on research design, well-considered definitions will be given regarding the problem statement. The objective of this research and the research question of the problem statement are laid out in 2.3.
Paragraph 2.4 will continue with the conceptual model. This will form the core of the research design, as there is a close relationship between the problem statement and conceptual definitions30.
29 De Leeuw, 2001: 166
30 De Leeuw, 2001: 89
Problem statement
Concepts to be used
data Measurements
Methods of analysing
Figure 2.1: ‘ballentent by De Leeuw (2001)
Paragraph 2.5 offers the methodology used in this research. Within the methodology, the type of research and the methods for analysis is discussed. Finally, last paragraph 2.6 will focus on the outline of the research depicting what will be researched in which chapter using what type of data.
2.2 Problem analysis
Harvest is finding it difficult to expand their business within their existing American customer base, because existing American customers are reluctant to do additional business with the same supplier which is explained in 1.5.3.
A feasible option for Harvest is to develop new markets. The European market is such an option.
Figure 1.2 in chapter 1 presented the growth forecasts for the houseware business in the EU. The market in this region proves to be an interesting one for Harvest due to its predicted growth rate of 19%. Exports to the EU have grown as a result of the EU dropping quota restrictions on Chinese houseware products. Also the expanding EU, from 15 to 25 members in May 2004, helped boost the market31.
Secondly, there are several types of products that Harvest is producing which are suitable for the EU market. According to sales reports, wire based bathroom accessories and closet items such as garment racks are selling well in Europe32. Moreover, Europe has many similar types of companies compared with Harvests existing customer base in the USA. These include houseware importers and manufacturers that outsource their production to China. An initial Google search confirms there are hundreds of European companies active in these types of houseware products33.
Finally, Harvests new platform of being a manufacturer creates opportunities for winning back business in this market. The factory is now capable of delivering houseware products at lower costs with a high regard for quality in their ISO certified factory, meaning it can be of value again to potential customers. The fact that Harvest currently has no business in Europe can be seen as an advantage, as they do not have the threat of producing houseware products for European customers that are each others competitors, unlike the situation is for Harvest in the USA.
The problem Harvest has is that they do not have any experience in doing business with European companies as a manufacturer. Harvests existing customers have remained loyal since they were a trading company, and have stayed with the company when they built their own factories. This is
31 http://www.consultgb.com/pdf/cgbnews2June.pdf
32 Sales report HK TDC 2005
33 http://www.europages.com/cgi/epq.cgi?L=nl&TP=huishoudelijk.
Search indicators i.e.: importers and manufacturers of wire iron houseware, bathroom accessories, garden ware, Kitchen Countertop, Shelving systems & waste baskets
consequential for Harvest’s goal to expand business through the European market. The company does not have adequate market information on how European buyers source Chinese suppliers for houseware products. Even though Harvest has done business with European companies in the past, the company has lost most contact information on these European buyers since then. The company’s foremost means of getting information and contacts has been through its current American customers who have very limited information on European companies. Contacting European potential customers through direct emailing will prove to be a very difficult task without knowing who to contact and how to contact them.
It is assumed that most buyers make use of tools that aid them when they are sourcing Chinese suppliers. An example of such a tool is attending trade shows to confer with different suppliers. The questions in this case are; which tools do potential customers make use of that will help them source Chinese suppliers, what role do they play when they are sourcing Chinese suppliers, and how must Harvest invest in those specific tools when the objective is to do business with European buyers of houseware products.
2.3. Problem Statement
The problem statement is the reasoning in which the researcher defines a phenomenon as an academic researchable and relevant research problem34. A problem statement consists of an objective, a research question derived from that objective and conditions under which the research will occur.
2.3.1 Question Statement
Based on the problem analysis examined in the last paragraph, the following objective can be formulated:
Providing a contribution to a possible growth in Harvests business by investigating how potential customers source Chinese suppliers in the houseware industry and offering recommendations to management on investing in specific marketing communication instruments in order to reach these potential customers when they are sourcing Chinese suppliers.
Having clarified the objective for this research, the following research question is formulated:
In which marketing communication instruments should Harvest invest when aiming to acquire business with potential customers?
In order to ascertain if this is an appropriate problem statement for research the relevancy, efficiency and the degree to which it can be researched (research-ingot-driven) must be determined35. De Leeuw (2001) argues that the most important requirement for a suitable objective is that it is relevant to the problem owner36. The objective of Harvest, and Mr. Ho in particular is to realize a growth in business.
By being familiar with the way potential European customers source Chinese suppliers conclusions can be drawn if and how they employ certain communication instruments during this process. Harvest can anticipate on this by presenting itself to potential customers with the help of different marketing instruments. More specifically, the objective to research trade shows is relevant to management of Harvest while the findings and recommendations will influence the management’s decision to invest in relevant marketing instruments. If these instruments are used effectively, it will lead to potential customers knowing about Harvest and placing orders with their factories.
To assess the efficiency of the problem statement the design, composition and execution of the research should contribute to the formulation of an answer regarding the research question. Desk top
34 Jonker & Pennink,2000: 11 35 Jonker & pennink, 2000: 12 36 De Leeuw, 2001: 85
research as well as well as comprehensive qualitative research has been performed to offer concrete answers regarding the research question, and thus meeting the efficiency criteria.
The framework of this research is based on the use of theory regarding the sourcing process of potential customers, communication instruments potential customers have at their disposal to help them source effectively an the role of these instruments during the sourcing process. The study is researchable, because acknowledged theoretical constructs have been developed concerning sourcing processes as well as the use of marketing instruments to help potential customers during the sourcing process.
2.3.2 Sub questions
When analyzing the research question, the first element which must be analyzed is how Western buyers in general source Chinese suppliers to mass-produce their designs. This involves describing the decisions these buyers make and the activities they perform during the sourcing process. The first sub- question relating to this component, is that of research. After this, the focus will turn to the main communication instruments available to the buyers within the sourcing process. When these instruments have been investigated, the question arises which instruments play the most important role specifically for Harvests potential customers within their sourcing process. Finally, communication objectives and specific marketing communication Harvest should choose are researched. These alternatives reflect the perceptions of potential customers who make use of these instruments within the sourcing process. When answering the following four sub questions, a desired answer can be obtained to the overall problem statement in general and research question in specific. In paragraph 2.4 the conceptual model is presented in which, the subjects of the four sub questions are delineated.
1. How can the sourcing process of buyers be described ?
2. Which are the main instruments available to buyers in order to communicate with suppliers during the sourcing process?
3. Which of these communication instruments play the most important communicating role during the sourcing process potential customers?
4. Which specific marketing communication alternatives are most suitable for Harvest to invest in?
Answering these questions will lead to comprehensive conclusions on how potential customers source Chinese suppliers and practical recommendations with regards to performing marketing activities that will influence a potential customer’s decision to place orders with a certain supplier the most.
2.3.3 Definitions of the problem statement
A few concepts have been used within the problem statement, of which the boundaries of their meanings for this research is briefly discussed below.
1. Buyers (industrial -)
Industrial buyers are individuals who purchase goods and services on behalf of the organization they represent37. In this research, Industrial buyers purchase consumer goods, such as houseware products from Chinese suppliers. These include buyers who purchased products who have been designed by others, as well as products that have been designed by the company of the buyer.
2. Potential customers
Potential customers of Harvest include European importers and manufacturers, who are willing to outsource the production of houseware items to Chinese manufacturers like Harvest. Harvest does not focus on doing business directly with retailers. They already have experience doing business through the first group of customers in the USA and Japan. Furthermore, Harvest will not be able to handle doing business with retailers since their orders will often be too large and their deadline will be too tight.
3. Sourcing process
Sourcing involves “buy decisions”, in which an organization finds new suppliers and new ways to secure the delivery of materials, products, making use of knowledge, experience of these suppliers and ways which have not been used before38. Starting from this decision, several phases are distinguished in which sourcing activities are performed regarding the outsourcing of activities39. Sourcing process involves the decision making processes undertaken by business consumers in regards that lead to the placing of an order with a Chinese supplier.
4. Communication instruments
For buyers among which there are potential customers, communication instruments include the different channels, or tools, international buyers use for getting through to and communicating with the network of Chinese suppliers40. This definition applies in synonymous way for ‘sourcing instruments’.
For suppliers, these communication instruments are instruments that are used in order to achieve specific strategic marketing goals. This involves the scope of business marketing communication as defined by Biemans (2000). A differentiation can is made between instruments for one-to-one communication and instruments for mass communication41.
37http://en.mimi.hu/marketingweb/industrial_buyers.html
38Lock & Farrow, 1998: 149
39Kerkhoff, 2006: 48
40www.tdctrade.com
41Biemans, 2000: 392.
2.4 Conceptual model
The conceptual model embodies the research sub questions posed in paragraph 2.3.3 and is presented in presented in figure 2.2. Baarda & de Goede (1997) state a conceptual model is a supposed connection between attributes within a research, also known as concepts42. This model reflects those areas significant for the research.
When investigating organizations, it is necessary to determine which parts of a system the research is limited to. The dotted line represents the demarcation of this research. The parts of the system in which this research takes place is described through the use of the system theory of De Leeuw (2001).
This research focuses on the aspect of the sourcing process of buyers. Within this aspect, the aspect of
42 Baarda & de Goede, 1997: 45 Figure 2.2: Conceptual model
Role of instruments for potential customers
Sourcing Process for Potential Customers
Marketing communications strategy for Harvest
‘Buy’ decision from potential
customer
Preference for Harvest
Instruments to communicate with suppliers during sourcing process
Other instruments during sourcing process
· own network
· chambers of commerce
· Embassies
· membership org. for business trading
· local trade and investment teams trade
magazines
trade websites
trade shows
Harvests communications instruments Other communication instruments
· Advertising other than magazines & websites
· Catalogs & supporting resources
· Public relations
· Direct marketing instruments
· Personal selling Advertise in
trade magazines
Advertise through trade
websites
Exhibit at trade shows
· Set specific communication objectives for the instruments
· Chose specific marketing communications alternatives
the communication between buyers and suppliers is researched, resulting in this research having a level of aggregation translating into an aspect-aspect system43.
The assumption made, is that buyers source production capacity and production quality from Chinese suppliers able to produce the brands of products of their customers, making a buying decision. A website that offers practical advice for businesses, states that careful research is key to doing business with overseas suppliers44. Sourcing is therefore a process characterized by specific activities and decisions. Biemans (2000) states that knowledge of potential customers’ buying, or sourcing, process forms the basis for successful business marketing communications45. Within this sourcing process, the focus in this research lays in the communication with suppliers and specific instruments buyers have to contact and communicate with suppliers. When performing sourcing activities and making these decisions, potential customers can make use of different communication instruments to help them source suppliers as best possible. Examples of these instruments are; exercising recommendations of their own networks and business advisors, going by the reputation of renowned and trusted suppliers, using existing suppliers, attending trade shows and responding to advertisements46. The goal of these instruments is that they offer opportunities to communicate with potential suppliers and help them make decisions regarding the sourcing of the right suppliers.
The tools buyers use to help them with procurement can be translated in to marketing communication instruments for suppliers such as Harvest. These involve opportunities to communicate with potential customers. The different instruments for communicating with potential customers are part of the general marketing communications strategy of an organization. Biemans (2000) states marketing communication involves setting communication objectives, choosing suitable instruments, creating messages and placing these messages in the different media. This research will concentrate on the choice of communication instruments. With regards to these instruments, the author distinguishes between one-to-one communication and mass communication instruments. One-to-one communication includes the use of direct marketing instruments and personal selling. Mass communication includes advertising, public relations, trade shows and other supporting resources such as catalogs47.
HK TDC and Global Sources state that 97% of buyers sourcing for Chinese suppliers make use of three different instruments which aids them during the sourcing process; reading trade magazines,
43De Leeuw, 1986: 74
44http://www.businesslink.gov.uk/
45Biemans, 2000: 99
46 http://www.businesslink.gov.uk/
47Biemans, 2000: 391
