D U R H A M   U N I V E R S I T Y   U N D E R G R A D U A T E   D I S S E R T A T I O N   2 0 1 0  

Anonymous Code: Z0508507 

10th March  20100 

Market Entry for International Manufacturing firms: An Evaluation of the Strategic Entry Options Available to BFG International for Entering China 

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In the name of Allah, Most Gracious,

Most Merciful

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Declaration

“This dissertation is the result of my own work. Material from the published or

unpublished work of others, which is referred to in the dissertation, is credited to

the author in question in the text. The dissertation is 11,997 words in length.

Research ethics issues have been considered and handled appropriately within the

Durham Business School guidelines and procedures.”

CANDIDATE SIGNATURE

_____________________________________________________

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Executive Summary

The aim of this study was to find out, by the means of assessing micro and macro

factors, the ideal entry strategy for BFG International for entering China. The use

of interviews, existing market research and an observational study made the basis

for the argument. We are aware that the Chinese market is a significant market,

with a population of 1.3 million. However, these figures, and other factors of the

market, are only a quantifiable part of the entry in to China, and do not reflect

other concerns of the market. Although many firms succeed in their Chinese

operations, several have failed. Therefore, this study is largely based on

qualitative data in order to assess the firm-specific factors that essentially make

the basis for deciding upon a market entry mode.

The findings of this study were suggestive of a Foreign Direct Investment (FDI)

strategy to be applied by the company in to China. This will require higher levels

of resource and personnel commitment, nevertheless, the findings are suggestive

that it will also increase market share significantly. We found that by the means of

FDI, BFG International will enable itself to ideally obtain its forecasted turnovers.

Also, the FDI strategy will allow for not only revenue maximisation, but also cost

reduction in order to achieve the goals of the firm. On the other hand, an export

strategy may only provide an increase in revenue, and the findings are suggestive

of a market that presents a fairly difficult entry for exporters, with several

indigenous competitors. One major concern however, was the obtaining of

finance for an FDI project. Although this is outside the scope of this research, a

brief recommendation is made at the end.

 

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Table of Contents 

1  Introduction...........................................................................................................6 1.1  Introduction to BFG International......................................................................7 1.2  Introduction to the Market for Composite Products ....................................8 1.3  Understanding the Research Problem ..............................................................8 1.4  Expected Contributions of this Study.................................................................9 1.5  Choice of Study ..........................................................................................................9 

2  Literature Review ............................................................................................. 11 2.1  Modes of Entry........................................................................................................ 11 2.1.1  Proximity‐Concentration Trade Off.......................................................................12 2.1.2  Transaction Cost Approach.......................................................................................12 2.1.3  First Mover Advantage................................................................................................13 2.1.4  Taxation as a determining factor for location...................................................13 

2.2  The Uppsala Internationalisation Model....................................................... 14 2.3  The Eclectic Paradigm.......................................................................................... 16 2.4  Network Theory (Guanxi)................................................................................... 19 2.5  Learning Theory .................................................................................................... 20 2.6  Non­Equity Based Entry ...................................................................................... 21 2.6.1  Export Performance in Emerging Markets.........................................................23 

2.7  Equity Based Entry................................................................................................ 23 2.8  Market Entry Motivations................................................................................... 25 2.8.1  Cost Reduction Model..................................................................................................26 2.8.2  Revenue Maximisation Approach...........................................................................27 

2.9  Market Entry Concerns........................................................................................ 27 2.10  Discussion of Literature Review .................................................................... 29 

3  Methodology ....................................................................................................... 30 3.1  Research Approach ............................................................................................... 30 3.1.1  Primary Sources of Information..............................................................................30 3.1.2  Secondary Sources of Information.........................................................................31 

3.2  Data Collection ....................................................................................................... 31 3.3  Research Design..................................................................................................... 32 

4  Findings and Data Analysis............................................................................ 35 4.1  Study of Foreign Activity ..................................................................................... 35 4.1.1  Distribution of Foreign Activity ..............................................................................36 

4.2  Study of Market Potential ................................................................................... 38 4.3  Benefits and Costs of Exporting and FDI........................................................ 40 4.4  SWOT Analysis........................................................................................................ 42 4.4.1  Identifying the Strengths and Weaknesses ........................................................42 4.4.2  Identifying the Opportunities and Threats ........................................................44 

5  Limitations .......................................................................................................... 46 

6  Conclusion and Recommendations............................................................. 47 

7  References ........................................................................................................... 50 8  Appendices .......................................................................................................... 56   

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“To Evaluate the Strategic Entry Options available to BFG International

When Entering China”

1 Introduction 

The purpose of this study is to evaluate and recommend the ideal mode of entry

into the Chinese fibreglass market for BFG International. BFG International is a

globally reputable company, based in Bahrain with a supply network spread

across five continents. The company is associated with the manufacturing of

composite products made primarily from fibreglass.

The entry of manufacturing firms into new international markets has been a vital

component of the globalised markets that we experience everyday. Firms of all

sizes are now looking at methods of entering new markets. The entry of new

markets has become a crucial factor for survival in the competitive marketplace.

Making the right entry choice for particular markets is an extremely important

decision for firms to make.

Often, it is developing countries such as China that firms first look at when

seeking new market entry. These markets display strong potentials for growth and

usually offer the right mix of costs reduction and revenue maximisation benefits

to firms that look to enter them. Nevertheless, these markets are also usually the

most complex, and thus entry must be well executed.

Firms must choose carefully which type of entry they should opt for. Differences

in entry strategy can be associated to the level of commitment that the firm aims

to give to a market, and the outcomes that are expected from entering the market.

The different types of entries can be associated with the following variables:

• High level of commitment for cost reduction (Wholly

owned facility)

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• High level of commitment to maximise revenue (Wholly

owned facility exporting to neighbouring markets)

• Low level of commitment to maximise revenue (Joint

venture or merger/acquisition)

• Low level of commitment to test new markets (Export)

The various options provide diverse types of opportunities for different scales of

businesses. Predictably, firms with high turnovers, yet low profitability may opt

for cost-cutting approaches in new markets. They are more concerned with the

markets opportunity for cost reduction rather than motivations of increased

turnover. Choosing the right strategy can make companies potentially more

profitable in the long run whilst achieving their growth targets.

As each market presents its own opportunities and threats, this study aims to

recommend BFG International the ideal method to entering the Chinese

Fibreglass Market. This investigates the following questions:

• What are the main choices available to BFG International to enter

China?

• Are there any trends that BFG International is following that

support its move in to China?

• What are the motivations and concerns behind the different entry

modes for BFG International

• And therefore, what is the most suitable entry strategy for BFG

International when entering China?

1.1 Introduction to BFG International 

BFG International is a reputable member of the industry involved in the design

and manufacturing of composite products since 1975, giving it 35 years of

experience in the fibreglass field. It is engaged in various sects of the industry

ranging from architectural domes to train bathroom cabins. Over these years, BFG

has rapidly grown to become an internationally known supplier for various

multimillion-dollar projects, and has been a credible player in the market for its

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research breakthroughs and unique ideas. The timeline (appendix A) illustrates the

growth of BFG in international markets. The product portfolio (BFG International

website) shows the vast range of products that BFG International has supplied for

a variety of both national and international projects. Varying market entry

strategies were used to execute these tasks.

1.2 Introduction to the Market for Composite Products 

The market for fibreglass has been rapidly growing amidst the new technologies

and applications for its use. Market research by Fredric Romier (2009) has shown

that the industry growth over the last 20 years has ranged between 4% and 10%

annually. He added that certain applications, such as wind energy, have seen

double-digit growth annually. In his book, A. Brent Strong (2008) discusses the

applications for composite. He identified land transportation methods such as

cars, trains, buses and trucks as a major market for fibreglass reinforced

composites. As early as 1953, when the Corvette® sports car was born, the use of

a fibreglass body made fibreglass a recognised and popular material for transport.

This brought the industry to a new beginning, where the properties of this material

were appreciated for several applications. Today, fibreglass is known to be the

efficient material for construction, marine, corrosion products, electrical, sports,

medical, energy generation, and aerospace amongst several other small and large

applications.

With the growth of the applications, there has been a tremendous increase in the

demand for composite products. This has led to an increase in the number of firms

in the market; however, the management at BFG International believe that there is

still a gap between the supply and demand for the products, especially in China.

1.3 Understanding the Research Problem 

Although BFG International already has a presence in China, it is not entirely

satisfied with the outcomes and believes that in order to achieve its forecasted

turnovers for the upcoming years a new strategy to enter China in a more suitable

manner is required. Currently BFG International has a joint venture with Chinese

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Railway General Company (CRGC), a state-owned subsidiary of Chinese

Railways. The standing issue is that although the technologies and funding were

mutual, the terms and conditions state that BFG cannot use this facility for any

activities outside the needs of Chinese Railways. This restricts BFG International

from achieving total exposure to the Chinese market to reach its full potential.

BFG International has seen a large scope for potential business opportunities in

China, and believes that it is an ideal location for Chinese manufactured fibreglass

goods to be exported to other countries such as South Korea, Japan and even

Australia, where BFG has secured a large-scale project very recently.

In contrast to this, BFG has underlined the concerns of entering a competitive

market such as China with such high commitment. Therefore, the alternative

solution would be a low commitment, low return approach. This would mean that

instead of setting up a new factory in China that can cater to China as well as

neighbouring countries, it would apply an export strategy to enter China. This

strategy may be executed by using its existing facilities in Bahrain, India and the

Philippines.

1.4 Expected Contributions of this Study 

By conducting extensive research about the concerns that surround BFG

International’s entry into the Chinese market and comparing this with the motives,

strengths and weaknesses that the company possesses, we aim to suggest the most

suitable strategy to BFG International to enter China. This study will go beyond

the basic principals of market entry, and will make use of several models,

thoughts, and approaches to find the ideal solution for the growth of the company

in terms of its current state to determine whether a high or low commitment

should be made to the market.

1.5 Choice of Study  This study is of particular interest to me as BFG International is a family-owned

business, which I intend to join upon completion of my education. I believe that

the Chinese market is one that no business aiming to become a market leader can

ignore simply because of the potential power of this market. I deem that the

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advantages of entering China go beyond the revenue maximisation and cost

reduction potential of China and that the Chinese market offers the ability for

firms to learn from the fast pace and efficient business culture. China prevails far

ahead of any nation in its exports, imports and its ability to attract foreign

investment. China boasts a trade surplus, whereas other developed nations such as

the USA and the UK are in a trade deficit, and therefore strongly promotes

exporting firm to enter China.

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2 Literature Review  This section will identify current ideologies in regards to the topic ‘entry

strategies’ and simultaneously identify the gaps in the current research. Firstly,

two key theories of market entry will be discussed which look at the process and

motivations of internationalisation. The modes of entry will also be reviewed, with

an attempt to keep relevance to manufacturing firms. However there seems to be a

lack of pertinent information specific to the industry in question. To conclude, the

motivations and concerns will be outlined as perceived by existing research.

 

2.1 Modes of Entry 

Entry strategies for multi-national companies entering new markets such as China

are vast; however, each method has its benefits and costs. The four main entry

strategies that the company may consider for international growth are the

following:

1. Exporting using a distributor in China,

2. Setting up with a joint venture in China,

3. Merging with an already established manufacturer and

4. Setting up a wholly owned facility in China (FDI)

Each provides different motivations, and could have diverse implications for firms

of varying sizes and distinct styles of management.

There are several methods of operation for new market entry (Asmussen, Benito

and Petersen, 2009) that have been identified as being dependent on a variation of

factors such as taxation (Mutti and Grubert, 2004), availability of internal finance

(Quer, Claver and Andreu, 2007) and competition intensity (Eicher and Kang,

2005), however, the critical motives for new market entry are innate within the

firm-specific advantages such as ownership, locational and internalisation

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advantages (Dunning, 1988) and the firms Knowledge ( Johanson and Vahlne,

1988)

2.1.1 Proximity‐Concentration Trade Off  Helpman, Melitz and Yeaple (2004) recognises the aforementioned methods of

entry as providing firms in varying industries with different outcomes. Their

model focuses on the motives and concerns of distinct strategies that may be used

for new market entry. The model confirms the existence of the ‘proximity-

concentration trade-off’, which is the key concern for firms when choosing the

mode of entry. Their findings suggest that close proximity to markets may be a

vital component to choosing an export strategy rather than FDI (FDI) due to the

reduced transport costs enabling them to stay competitive in the market without

the need to place significant resources. Nevertheless studies of proximity have

confirmed that closer proximity to foreign markets may encourage firms to

indulge in FDI, as market proximity can often be contradictory with concerns of

cultural and language barriers that tend to widen as proximity decreases (Kevin

Zhang, 2005). The study of firms from Hong Kong and Taiwan investing in China

by Zhang suggests that proximity may increase the comfort for firms to invest

abroad.

2.1.2 Transaction Cost Approach 

The transaction cost model suggests that entry decisions are based on the level of

resources that the firm will require for foreign entry (Anderson and Gatignon,

1986). Although most studies consider the transaction costs of the entry, they do

not relate this to performance. The study of Brouthers (2002), looked at the firms

entry and performance in light of the transaction cost approach. Their findings

were consistent with the hypotheses that the firms that chose entry modes that

were part of the extended transaction cost model had reported ‘significantly better

performance’ (Brouthers, 2002, Pp. 215). Their study confirms the relationship

between higher resource commitment and performance, which enlightens the

importance of the Transaction Cost Model.

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2.1.3 First Mover Advantage 

Porter’s (1986) view suggests that first movers into a market are often the

eventual leaders. However, in a contrasting view, many scholars (Crain, 1966;

Walker 1969, Cited in Mascarenhas, 1992) have suggested that the success of new

entrants into a market is based not only on timing, but also on political,

technological and environmental decisions. Essentially, early entrants to a market

may have preliminary success, but would not benefit from the newest and most

efficient technologies and government schemes, thus giving some ability for

future entrants to perform competitively.

Nevertheless, in support of Porter, Caves (1982) and Root‘s (1987) (cited in

Chang and Rosenweig, 2001) findings went on to suggest that within the

international markets, new goods must be introduced ahead of the competitors to

large markets with potential growth opportunities. Mascarenhas’ (1992) findings

supported also supported these findings, concluding that the surviving first

entrants of a market maintained higher long-term market share followed

respectively by early followers and late entrants. However, he added that in

markets with localisation pressures, first entrants and late entrants survived longer

than early followers. Nevertheless, late entrants still have a small share of the

market only, and therefore must enhance their competitiveness with other means,

such as financial resources and scale of marketing expertise.

2.1.4 Taxation as a determining factor for location 

The choice of entry strategy and location for a firm may be associated to the

taxation policy of the market they intend to enter (Hortsman and Markusen, 1992,

Cited In: Devereux and Griffith, 1998). Devereux and Griffith (1998) associated

taxation to be a key concern for US firms entering Europe. Their findings were

suggestive of taxation having an impact on the entry mode decision. However, it

was discovered that taxation only had a ‘quantitatively significant’ role in choice

of location and that this was not the single defying factor in the choice of entry, or

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size of entry. The study of Andreas Haufler and Ian Wooton (1998) added that the

country size also impacted the choice of entry and location. Therefore, a larger

country could attract investment or trade despite having slightly higher taxation as

it provides the ability to enter a greater market.

2.2 The Uppsala Internationalisation Model 

The Uppsala Internationalisation Model (Johanson & Vahlne, 1977) is one of the

pioneering models of internationalisation that seeks look at the process by which

the enterprise obtains gradual global presence. The model makes a distinction

between ‘state and change’. State aspects are market commitment and market

share whereas the change aspects are considered to be current business activity

and commitment decisions.

Market knowledge and market commitment are thought to have an effect on the

decision made regarding the level of contribution of a firms resources and the

manner in which current activities are conducted by the firm. The two knowledge

types that are outlined are objective knowledge and experiential knowledge.

Johanson and Vahlnes’ model implies that experiential knowledge is the ‘primary

way of reducing marketing uncertainty.’ This means that a company can make a

more fertile commitment of resources as it gains experience from its activities in

the new market. This will in turn place more of the firm’s resources within the

market.

A key characteristic of this model is that it strongly emphasizes that firms enter

new markets facing many opportunities and problems, but will find solutions to

the problems by the knowledge it gains, and thus promote their solution within the

market to take advantage of the opportunities.

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In effect, Johanson and Vahlnes’ model ‘expects that the internationalisation

process, once it has started, will tend to proceed regardless of whether strategic

decisions in that direction are made or not.’( Johanson and Vahlne, 1977)

Figure 2.1 below illustrates the internationalisation process of firms as seen by

the Uppsala model.

Johanson and Vahlne’s model has rooted from empirical research based on

Swedish firms that compete internationally (Carlson, 1966,1975: Cited from

Johanson & Vahlne 1977). Although Johanson and Vahlne have questioned their

own models validity as being ‘limited to countries like Sweden which are rather

small and highly industrialized’ (Johanson and Vahlne, 1977), follow up

empirical studies of many researchers including some from the US, Japan, Turkey

and Hawaii have shown consistency in their findings that show that the

commitment levels and decisions are based on current activities and market

knowledge (Bilkey, 1978; Bilkey and Tesar, 1977; Karafakioglu, 1986, Hook &

Czinkota, 1988, Cited From Johanson and Vahlne, 1977).

Adapted From Otto Andersen (1993) 

Figure 2.1: The Internationalisation Process of the Firm

 

 Market 

Knowledge 

 Current Activities 

 Market 

Commitment 

 Commitment Decisions 

State aspects  Change aspects 

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The Uppsala Model may however be disregarded for having an optimistic

approach, which generalizes the idea that all new entrants will stay in the market

upon gaining experience. It does not look at the concept of exiting risky markets

that may not provide future prospects. In addition, the model ignores individual

behaviours by different firms; whereas firms that have limited liability may be

less risk averse than those firms with full liability. This is consistent with the view

of Gollier, Koehl and Rochet, 1997).

The Network Model of Internationalisation and Experiential Knowledge (Richard

Hadley and Heather Wilson, 2003) revisits the Uppsala Model. Their study tests

the links between experiential knowledge, the firm’s degree of internationalisation

and the markets degree of internationalisation. The study found significant

support between the firms internationalisation knowledge and its relation to

market diversity. It went on to suggest that market diversity was a key aspect for a

firm, and that the exposure to culturally differing markets facilitated the firm’s

capabilities for conducting international business.

2.3 The Eclectic Paradigm 

The Eclectic Paradigm (Dunning, 1976) offers a ‘holistic framework’ that can be

used to identify and assess the ‘significance of the factors influencing both the

initial act of foreign production by enterprises and the growth of such production’

(Dunning, 1988, P.1). As the Eclectic Paradigm was first introduced in a seminar

in 1976, the best source available is based on Dunning (1988). Unlike the Uppsala

Model of Internationalisation whereby national firms are ‘transformed’ into

multinational firms, the Eclectic Paradigm is the most widely appreciated

framework of the direct investment theory.

The Eclectic Paradigm according to Dunning aims to explain ‘the extent, form

and pattern of international production.’ It looks at three key sets of advantages

that a firm would like to possess when seeking international growth and face the

challenge of competing with local firms. The first set is ownership-specific

advantages, such as technological superiority within the industry, or lower

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transactional costs that are often associated with multinational organizations. The

second requirement for international production is ability to transfer the

ownership-specific advantages across national borders (Dunning, 1988).

However, this must be internal within the company rather than be sold to other

foreign-based enterprises. The theory of imperfect markets can be used to explain

why the company chooses to exploit its technological base, using it as a resource

for its own foreign operations rather than selling the license to use its technology

to a local rival firm within the same market. Locational advantages are the third

set of advantages that a firm would like to possess. These would consider the

attraction of a certain location for foreign production and are ‘the gist of the

eclectic paradigm of international production’ (Dunning, 1988, P.5).

However, in Dunning’s (1995) reappraisal of the Eclectic Paradigm, he noted that

‘over the last decade or so, a number of events have occurred that, viewed

collectively, suggest that the world economy may be entering a new phase of

market-based capitalism’ (Dunning, 1995, P. 3). In an attempt to update and make

his idea more relevant, he understood that two types of capitalism, hierarchical

and alliance, have led to certain implications on the determinants of Multi-

National Enterprise (MNE) activity.

Dunning (1998) has identified that the early explanations of locational advantages

‘need to be modified as firm-specific assets have become mobile across natural

boundaries’ (Dunning, 1998, P. 45). He suggested that there were 5 different

types of FDI. These were resource seeking, market seeking, efficiency seeking

and strategic asset seeking. Within this, he identified several variables that would

have changed since his earlier studies in 1988 and 1995. These essential changes

have been identified in table 2.1 on the following page.

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Source: John H. Dunning, 1998: Page 53

In its most recent test of the application of Dunnings Eclectic and Envelope

Paradigm, John Dunning, Yong Suhk Pak and Sam Beldona (2007) conducted a

study to assess the foreign ownership strategies of franchisors from the UK and

the USA. Their findings confirmed the relevance of the Eclectic Paradigm, and

ownership, locational and internalisation (OLI) motives for international firms in

today’s market. Their 8 hypotheses were based on the findings of research studies

on nationality, ownership structure, competitive gains, demand and supply,

learning, penetration and control. These hypotheses all make part of the Envelope

Paradigm, and are relevant to the OLI factors of the Eclectic Paradigm. The

Type of FDI 

In the 1970’s  In the 1990’s 

Resource Seeking 

1. Availability, price and quality of natural resources 

2. Infrastructure to enable resources to be exploited, and products arising from them to be exported 

3. Government restrictions on FDI and/or on capital and dividend remissions 

4. Investment incentives e.g. tax holidays 

1. As in the 1970’s, but local opportunities for upgrading the quality of resources and the processing and transportation of their output is a more important locational incentive. 

2. Availability of local partners to jointly promote knowledge and/or capital‐intensive resource exploitation 

Market Seeking 

1. Mainly domestic and occasionally adjacent regional markets 

2. Real wage costs; material costs 3. Transport costs; tariff and non‐tariff 

barriers 4. Privileged access to import licenses 

1. Mostly large growing domestic markets, and adjacent regional markets 

2. Availability and price of skilled and professional labour 3. Presence and competitiveness of related firms, e.g. leading 

industrial suppliers 4. Quality of national and local infrastructure, and institutional 

competence 5. Less spatially related market distortions, but increased role of 

agglomerative spatial economies and local service support facilities.  

6. Macroeconomic and macro‐organisational policies as pursued by host governments  

7. Increased need for presence close to users in knowledge‐intensive sectors 

8. Growing importance of promotional activities by regional or local development agencies. 

Efficiency Seeking 

1. Mainly production cost related (e.g. labour, material, machinery etc.) 

2. Freedom to engage in trade in intermediate and final products 

3. Presence of agglomerative economies e.g. export processing zone 

4. Investment incentives, e.g. tax breaks, accelerated depreciation, grants, subsidized land 

1. As in the 1970’s, but more emphasis placed on market seeking motives 2, 3,4,5,6 and 7 for 1990’s, especially for knowledge‐intensive and integrated MNE activities, e.g. R&D and some office functions 

2. Increased role of governments in removing obstacles to restructuring economic activity and facilitating the upgrade of human resource by appropriate educational and training programs 

3. Availability of specialised spatial clusters e.g. science and industrial parks; and of specialised factor inputs. Opportunities for new initiatives by investing firms: an entrepreneurial environment and one which encourages competitiveness enhancing cooperation within and between firms 

Strategic Asset Seeking 

1. Availability of knowledge‐related assets and markets necessary to protect or enhance ownership specific advantages of investing firms‐ and at the right price 

2. Institutional and other variables influencing ease or difficulty at which such assets can be acquired by foreign firms. 

1. As in the 1970’s but growing geographic dispersion of knowledge‐based assets, and need of firms to harness such assets from foreign locations makes this a more important motive for FDI. 

2. The price and availability of synergistic assets to foreign investors 

3. Opportunities offered for exchange of localised tacit knowledge, ideas and interactive learning 

4. Access to different cultures, institutions and systems; and different consumer demands and preferences 

Some variables influencing the Location of Value Added Activities by MNE’s in the 1970’s and 1980’s 

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results of their study concluded that there seems to be a correlation between the

mode of entry; equity and non-equity based and the 8 hypothesised variables. This

led to the assumption that foreign firms that possessed different objectives for

new market entry would have differing strategies for entry.

2.4 Network Theory (Guanxi) 

‘Guanxi’ is the Chinese word for social networking. It is a popular procedure of

Chinese culture when engaging in business. Within China, the concept of Guanxi

has been given importance in a number of journals. The study of Gordan Chu and

Yanan Ju displays the importance of Guanxi in Chinese society. Their findings

suggest that 92.4 % of their 2000 participants acknowledged the importance of

Guanxi in their daily lives. Moreover, 71.7 % of their participants preferred using

Guanxi connections to ‘get things done’ to the regular bureaucratic processes.

However, the study of Chu and Ju was conducted using only small business

owners who may only represent a particular segment of the market as a whole.

Especially in an industrialised economy such as China, small businesses may feel

that they are disadvantaged by bigger businesses due to Guanxi, yet it may just be

the size of the business that is impacting their success.

In contrast to this Yeung and Tung (1996) discussed in their study ‘Achieving

business success in Confucian society’ that despite the importance given to

Guanxi, the relation it has to business success has not been verified. As the

Chinese government has supported an open door policy for over three decades,

the influx of foreign firms could have had an impact on the regular market

practices, thus reducing the importance of Guanxi as a whole. Nevertheless,

although this may be true, aspects of Guanxi may still be found in the market

place.

Guanxi can be seen as a benefit for the local Chinese society, and may be a hefty

cost for new international businesses positioning their growth in the Chinese

markets. Despite the lack of interest in the ethical perspective of Guanxi within

the locals, the influx of foreign investors has brought some issues to light.

  20 

In terms of Foreign Investors, John Pearce and Richard Robinson discussed in

their study ‘Cultivating Guanxi as a Foreign Investor Strategy’ that Guanxi was

‘the most striking feature and the one most likely to undermine the efforts of

foreign managers.’ This may be seen as a direct threat to the foreign investors,

and may bring the question ‘how is FDI so popular in the Chinese market?’ The

answer as seen by Pearce and Robinson is Joint Ventures.

Most Literature on Guanxi gives an insight only based on the functions and

benefits of Guanxi in Chinese society, and misses out the importance of foreign

concerns or ethical issues that are raised such as corruption and barriers to entry

for foreign investors.

2.5 Learning Theory 

A study by Bilkey and Tesar (1977) looked at a selection of small and medium

firms within several industries to investigate the process by which firms enter new

markets. Their findings clearly suggested that the learning theory could be applied

to the export development process of these companies. The research methodology

was to send out questionnaires to 816 firms sampled randomly from a list of 4,701

listings in the classifieds directory. A total of 423 fully answered questionnaires

were returned, representing 52% of the sample. Using an analytical methodology,

each stage of the export development process, being the dependent variable, was

analysed by the multiple regression equation.

Bilkey and Tesars’ findings were a clear representation of the export behaviour of

several firms at different stages of developing (learning) their export strategies.

Interestingly, one of their key findings suggested that as firms developed to

further export stages, they perceived more barriers to entry. Although this seems

like a disagreement to the concept of learning theory (Autio, Sapienza and

Almeida, 2000), the implication of it can be derived from the Uppsala Model,

which suggests that as firms become more and more engaged in exports, they will

face larger challenges. However they will be able to cope with the challenges

based on their experience and knowledge of the markets to which they are

exporting. The study also found that the single determinant factor for exports for

  21 

almost 60% of the firms was based on receiving an unsolicited initial export

order.

On the contrary, the study of Bilkey and Tesar lacks the ability to be generalised

to other countries as it is based on manufacturing firms in Wisconsin only.

Wisconsin is a highly industrialised state, notably due to its richness of natural

resources such as iron ore and lumber. Moreover, Wisconsin provides a strategic

location for export firms due to its close proximity to shipping ports at

Milwaukee, thus enabling firms to find exporting as a convenient source for

business growth and revenue maximisation. For industries that are not ideally

located with access to ports and natural resources, the scenario may differ. The

costs associated with exporting may be a lot higher. Competing with local firms

may only consequently be based on quality only, not price. Therefore, such

barriers to entry may not be tackled only by just experiential knowledge as

suggested by Johanson and Vahlne (1977).

2.6 Non‐Equity Based Entry  

Exporting may be done in numerous ways. Agents, representatives, licensing and

franchising are some of the methods commonly used for exports. Exporting

allows companies to have a presence in markets that they plan to enter without the

need for large investments and commitment. Although there are numerous studies

that disregard exporting as a method of obtaining new market entry and

promoting business growth, many findings have supported this concept.

Traditionally, the first step towards entering a new market for most firms is

through exporting. This serves as a platform for future development and

exploitation of the new markets (Kogut & Chang, 1996). Exports have been

encouraged by many governments in order to reduce the trade deficits that most

countries face. However, others have argued that exporting is not the most

effective way of entering new markets. Whilst exporting could provide a fast low-

cost low-risk approach of entering new markets, it can be a weak strategy to use

which lacks control and prospects of gaining in depth market knowledge (Zahra et

al., 1997).

  22 

There is however a strong critical view that exporting activities may not provide

the same sort of returns for different sized businesses, and that large corporations

can in effect obtain greater benefits in the export market, which pushes out

smaller businesses by creating barriers to entry (Mayer and Ottaviano, 2008).

Other aspects that may create barriers to entry are the indigenous firms, which

restrict foreign competitors from exploiting their local market by being able to sell

at lower prices, thus placing foreign firms in a geographical disadvantage (Limão

and Venables, 2001). Nevertheless, the decline in transport costs over the years

has decreased the effects of geographical disadvantage (Hummels, 1999).

Michael R. Czinkota and Wesley J. Johnston (1983) conducted a study on the

scope of exports for small and medium enterprises (SME) using a sample from

three different industries regarding the implications of exports in relation to sales

volumes. The study looked at the effects of firm size on exporting activities for

industries that are not tied down by location restrictions due to the nature of their

business and thus had the option of moving to different territories. The study

noted the attitudes of the firm’s management in regards to export activities. The

information was compared between firms that had annual sales volumes of less

than $5 million and those that had annual sales volumes of between $5 million an

$50 million. Using a Likert-Type Scale of 1-5 with 5 being strongly agree and 1

being strongly disagree, managers ranked several questions such as “exporting is

a desirable task for my firm” and “profits from exports have fully met my

expectations.” The findings suggested that almost all managers answered a mean

answer of above 3. This suggested that all managers were quite satisfied with their

exporting activities. They also found that there was no significant difference

between the responses for small and medium sized businesses. Moreover, in

general, the response of medium sized businesses tended to be slightly higher for

almost all questions.

However, Czinkota and Johnston had a few drawbacks to their study. Their

criteria for small and medium businesses may have been slightly overrated with

small businesses being listed as businesses with annual sales of less than $5

million and medium businesses as having annual sales of between $5 million and

$50 million. Another key criticism to their findings was that they only sampled

  23 

firms from three different industries, out of a possibility of hundreds. This reduces

the reliability and the application of their findings to any other industry.

Nevertheless, the study does provide basic information on the growth opportunity

that exports provide for different sizes of operations, not specifically small or

medium enterprises and therefore it may be relevant in a wider context than

aimed.

2.6.1 Export Performance in Emerging Markets  International firms in emerging markets are often characterised as being small

compared to the international firms in developed economies (Deeksha Singh,

2009, Pp. 324). Firms in emerging markets carry out international growth using

export strategies, which are based on low commitment, whereas the firms in

developed economies tend to opt for high commitment strategies such as FDI to

expand to new markets (Singh, 2009).

The export performance of firms in emerging markets has been studied by

Deeksha Singh (2009). Singh focused his study of export performance on the

resource-based view to identify the factors that affect the exporting performance

of international firms from emerging markets. His findings identified that research

and development expenditure had a positive correlation to export sales. Similarly,

group association also showed an increase in export sales. However, interestingly,

Advertising efforts had a negative impact on export sales. This may be due to the

fact that advertising is often targeted to the home market, especially in emerging

markets where generalisation is that firms do not have large advertising budgets.

2.7 Equity Based Entry  

Equity based entry methods involve methods associated with higher levels of

commitment and risk as compared to non-equity based entry. Key methods

include joint ventures, mergers and acquisitions and the setting up of a wholly

owned facility in a country other than that of the company’s origin by Greenfield

investments or otherwise. FDI enables the firm to capture as much as 100%

control over its activities, and depending on the mode of FDI chosen, the need to

  24 

transfer technologies and share key knowledge and expert skills can be reduced,

and sometimes even eliminated.

FDI can be explained by using the final stage of the Uppsala Model of

Internationalisation (1977), which associates FDI as being based on high

commitment to the market after several steps of learning about the target market

through exporting. This model is based on the learning theory and explains that

firms can engage most efficiently in FDI by gaining experiential and objective

knowledge, which in effect would decrease the risks and uncertainties involved

with high commitment entry strategies.

Minj-Je Tang and Chwo-Ming Joseph Yu (1990) did one particular study that

looked at the different production based entry strategies available. Whereas many

past studies examined the cost reduction approach to foreign production, this

study focuses on the revenue maximisation approach. In their empirical study,

they compared the different modes of entry such as FDI, licensing, joint venture

and a combination of licensing and joint venture (JVL) to assess which strategy

was the optimal strategy for foreign market entry. Their findings suggested that

having a wholly owned subsidiary is the optimal strategy for foreign entry. They

noted that this was due to the higher level of economic profit that it yields due to

the increased activity in a new market compared to the other strategies. Moreover,

their conclusions showed that FDI provides the firm with the ability to ‘control

the know-how indefinitely’. They associated the higher profitability in wholly

owned subsidiaries to inefficient downstream operations. High profits in FDI are

noted to be ‘mainly due to the fact that transfer prices in other entry strategies are

higher than marginal costs’.

Nevertheless, their study may provide only a general perspective of the actual

costs that are incurred for different modes of entry. Whereas entering markets

with minimal barriers to entry may be associated with lower costs of market entry,

entry to highly competitive markets may increase the market entry costs.

Moreover, it would be fair to criticise that as the study is based on the revenue

maximisation approach, higher costs of entry could certainly be associated with

such an approach. Revenue maximisation in the long run may involve highly

  25 

automated production methods, a capital intensive approach to production,

whereas cost reduction approaches may be more labour intensive, reducing the

initial set up costs considerably. In order to compare different modes of entry, it is

therefore important to consider the market scenario. Also, firms that seek solely

revenue maximisation may only consider approaches that do not involve

commitment and merely provide increase in sales, whereas companies looking for

cost reduction may consider high commitment approaches, which may not

increase sales, but will certainly obtain reduced costs in the long run.

2.8 Market Entry Motivations 

Firms are often indulging in measures to globalise their presence, thus they tend

to enter new markets for purely sales, purely production or both, depending on

their perception of the market, and the characteristics of the business. But what

may be the reasons behind this?

The reasons for market entry are synchronised for most parts; however particular

features of a market may attract one type of firm more than another. There have

been several studies in the past looking at the reasons behind market entry. In

consistency with Dunning’s (1995) view, homogenous firms would like to have

basic ownership advantages such as control, and would like to possess

competitive advantages such as technological advantages and informational

advantages when considering new market entry (Porter, 1985). These can be

labelled as tangible and intangible assets.

A vital motivator for many firms is the opportunity to be the first, or at least an

early entrant with a new product into the market. Having a competitive advantage

of a unique product, or one that is more developed than that of any rival can

arguably provide a similar motivation. This correlates with Porter’s (1986) view

that early entry leads to the company becoming the market leader. On the

contrary, early market entry with a new product would also implicate a lack of

market knowledge and thus increase the risk of entering fresh markets.

  26 

2.8.1 Cost Reduction Model  Another noted motive for firms to enter is based on the cost reduction model.

Most studies regarding entry strategies assume that firms are seeking cost

reductions from their foreign activities. In a fairly recent literature, Kevin Zhang

(2005) suggested that FDI from neighbouring countries Taiwan and Hong Kong

made up a major percentage of the total pool of FDI in Mainland China. The

motives that Zhang hypothesised were:

• China’s export promotion FDI Strategies

• Hong Kong and Taiwan’s specific advantages in export-

oriented FDI

• Unique links with China (Chinese Connections)

• China’s large pool of cheap labour

The empirical findings of Zhang found that the primary motivator for FDI from

Hong Kong and Taiwan was based on the ability to exploit cheap labour. This

clearly suggests that the motives of foreign investment are largely explained by

cost reduction theories. Keeping in mind that 50.32% of realised FDI in China

comes from Hong Kong (Zhang, 2005), the implications of Zhang’s findings can

be praised for providing a fairly sampled result. Nevertheless, it must be noted

that between 1960 and 1970, during the rapid economic growth within Taiwan

and Hong Kong, the cost of labour drove labour intensive manufacturers out of

the competition, thus leaving them with no option but to exploit the cheap labour

availability in China.

A report by Eghbal (2008) suggested that although the labour was cheap, the

availability was not as wide as Zhang implicated He found that the ease of

employing workers ranking by the World Bank ranked China 88 out of 178, far

behind Hong Kong and Thailand. In addition, it suggested that non-wage labour

costs, which took into account social security payments and payroll taxes were

significantly high standing at 44% of the salary, compared to Hong Kong at only

5%. The study concluded to suggest that foreign firms were therefore finding it

  27 

less attractive to invest in China. This can be supported by the decrease in FDI in

2007

2.8.2 Revenue Maximisation Approach 

Alternatively, the study of Tang and Yu (1990) as reviewed earlier perceived

market entry from the revenue maximisation approach. This meant that whilst

firms indulged in foreign activity, their motivation was based on increased sales

revenue rather than reducing costs. The study compared several modes of entry to

find which provided the best profits for its investors. Although their study

provided an insight into the profitability of different methods, it gives no

importance to the costs that are incurred by different entry strategies.

Therefore, A gap in research can be identified where research is focused on either

a revenue maximisation or cost reduction approach, and the application of both

has not been considered as a joint motive for market entry, which may be the case

for most firms.

2.9 Market Entry Concerns 

Whereas entering new markets has largely been credited with success and growth

in the literatures above, there are certain issues, such as Guanxi and the

communist culture, which may be case specific for firms entering the Confucian

business society. However, there is a lack of knowledge on these issues as such

concerns are invisible and unknown until one enters the market. The Chinese

business ethics, although have been largely praised for being efficiency based and

have been the essence of the development of the booming Chinese economy, do

have some concerns and that prevents the successful development of foreign firms

in the domestic market. It can be said that due to these factors, indigenous firms in

China may have a competitive advantage that foreign firms will need to

strategically tackle.

Michael Porter (1979) discussed the importance of strategy formation in order to

undertake competitive forces. Competition is generally viewed as a major threat

to market entrants; however Porter discussed that whereas competitive forces may

  28 

be a threat, they do provide certain benefits to new entrants. He suggested that

price breaks, promotions and intense selling and marketing methods must be used

to overcome the barriers of entry. The limitation of wholesale channels will thus

make market entry more difficult. Porter suggested that sometimes when barriers

of entry are very high, firms could resort to creating their own distribution

channels. In criticism to this, it can be said that the relevance of distribution

would only be restricted to ‘on the shelf’ goods, and thus would not be as relevant

when studying manufacturing suppliers. As manufacturing suppliers generally

have pre-agreed terms of sale, competition within the market could be considered

to be less of a concern.

In addition to this, the transfer of production methods, skills and technology could

create a potential threat for businesses. It can lead to ‘copycats’ within the market,

seeking to bench on future contracts, thus becoming a direct competitor within the

field. In relation to this, Dunning (1995), in his updated Eclectic Paradigm,

mentioned the motivations of integration. He outlined that a key advantage of

integration is the ability to share resources, knowledge and technology. Although

this does seem beneficial, the need to secure the technologies and resource

advantage that a firm possesses may be more vital for the sake of competitive

advantage.

A study on the impact of FDI on innovation activity in Chinese stated owned

Enterprises (Girma, Gong and Görg, 2009) showed that the association between

foreign investment in state owned enterprises and innovation was positive.

Alternatively, the findings showed that there was a negative association between

the inward FDI and innovative activity in state owned enterprises. However, a

further finding showed that the association was positively correlated for state

owned enterprises that were involved in exports, invested in human capital or had

experience in research and development previously.

  29 

2.10 Discussion of Literature Review  

We have seen throughout the review of literature that the past studies on market

entry techniques and surrounding issues are based on the external environment

and its effects on the firms’ decision of entry strategy. For the context of our study

however, we will consider the internal environment as being an important factor

of strategic decision making for foreign activity. Nevertheless, the key models

such as the Uppsala Internationalisation model and frameworks such as the

Eclectic Paradigm must still be considered, as they are relevant in order to assess

the internal scenario of the firm in terms of market entry. These key theories will

form the basis of the discussion, and will be used to compare our results against in

order to make a significant conclusion.

  30 

3 Methodology 

This Chapter discusses the set of methodologies that will be used to obtain the

information required for the research question. By looking at the appropriateness

of different methodologies, the first section aims to decide which method is the

most effective to help answer the research problem.

As seen in the previous chapter, several different methods of research have been

applied to determine the implications of market entry methods. However, there is

a lack of information available that is firm specific. Therefore, to help answer the

research question, we will first evaluate the research methods available to us.

3.1 Research Approach 

There is a variety of options available that may provide similar feedback for our

research purpose. Whereas many researches have been industry specific, or

country specific, this research consists of a far more constrained condition that is

to be assessed. In order to make the right choice for our firm specific research

scenario, a high degree of precision and reliability is required. Therefore, a

mixture of primary and secondary sources must be used to provide precise

qualitative and quantitative data.

3.1.1 Primary Sources of Information 

Primary data is the data that is observed or collected directly from a process of

direct interaction with the source of information. Primary sources of information

include, but are not limited to questionnaires, focus groups, interviews and

observational studies. Expert informants are often a reliable and essential source

of information for industrial marketing research. Ideally, the consumer marketing

research model would require a large sample; however in the case of industrial

marketing research, a fairly small sample size may be adequate, depending on the

expertise and knowledge of the participant as well as the researcher. A trend of

consistent information may be identified early, thus the need to conduct repetitive

queries is not be necessary. This will assist in reducing the costs that are

  31 

associated with our primary research. The use of questionnaires may be relevant

in the broader context, however may not provide sufficient qualitative data

regarding the firm specific factors that are to be assessed in this study.

3.1.2 Secondary Sources of Information 

Secondary sources of information consist of data that already exists. This data

may have been gathered for different purposes, by different organisations yet may

still be relevant to solve current research problems. Commonly used sources of

secondary information are the Internet, books and journals. The use of readily

available information can reduce the costs and time often associated with

conducting field research. However, drawbacks of secondary information are

noted to be the lack of reliability and relevance. As secondary data contains

information gathered for a research problem other than the one being studied, it

may not serve the purpose as accurately as the research problem may require.

Nevertheless, secondary sources do provide a source of comparison and contrast

for our primary research. It also facilitates the understanding of the research

problem. Therefore, the use of a wide range of secondary sources is vital in the

context of this study.

3.2 Data Collection 

Data collection is done using primary and secondary sources of information. This

study requires the use of primary information in order to obtain firm-specific

information regarding its prospects and plans of growth, and obtaining more

specific information in order to align and update the current scenario of the firm

with that of this study. In order to gain an insight into some of the aspects

regarding the competitive advantages that BFG International possesses, it is

essential to conduct an interview with the directors of the company. Moreover,

this will provide feedback regarding the scope of entry that BFG International is

looking for. In addition to this, information regarding their motives to enter may

also be revealed, allowing us to determine whether entry reasons are based on cost

reduction, revenue maximisation, or both.

  32 

Secondary sources will be used to provide quantitative and qualitative data of firm

specific as well as industry specific information. An analysis of the current

activities and turnover allocations of BFG International will be done to provide in

depth information on the size of entry that is needed. Newspapers and Internet

articles will be used to analyse the broader context of the government policies and

industry performance.

3.3 Research Design 

In order to analyse and suggest the best entry strategy available to BFG

International for entering China, a mixture of primary and secondary research to

provide qualitative and quantitative information was acquired using various

sources.

For our primary sources of information, the below methods were used:

• Observational Study

An observational study involving a factory tour was conducted at the

headquarters of BFG International in Bahrain. This tour enabled a better

understanding of the manufacturing process as well as technologies

involved in the company. In addition, it provided an insight into the extent

of labour and capital-intensive production methods used in the designing

and manufacturing of finished goods.

• Interviews

(1) A formal interview with the corporate director of BFG International

and Chairman of ATMC France, Mr. Mohammed Usman was conducted

(Appendix B) in London to acquire expert information and personal

opinions of the firm’s strengths, weaknesses, opportunities and threats.

This was then compiled into an analysis of the strengths and weaknesses

that was used to assist in choosing the right strategy for entry. The

  33 

interview provided qualitative information with regards to the needs of

BFG International.

(2) A second discussion based telephone interview with Mr. Jeetinder

Chopra, the global manufacturing manager based at the Bahrain

headquarters was conducted (Appendix C) to provide specific information

regarding the process of international integration that is used at BFG

International. The opportunities and threats were then assessed and some

feedback was provided relevant to the entry into the Chinese market.

Additional information regarding logistics was also gathered using the

interview allowing the assessment of costs of exports to and from China.

(3) A third interview with the Business Development Manager, Mr. Majdi

James (Appendix F) was conducted over the telephone in order to

understand the needs and the size of the market in China. Mr. James was

selected as he is based in China, and has up to date information and hands

on experience with the Chinese market. This helped in gaining information

about the current market requirements, as well as possible future products

that can be provided to this market. Furthermore, using a Likert-Scale, Mr.

James was asked to rank the advantages and disadvantages of both an

export and FDI strategy.

In order to increase the reliability and validity of the interview results, the

interviewee’s were asked to go through the notes in order to verify whether their

comments were accurately recorded. Some minor changes were made

accordingly.

For our secondary sources of information, the below methods were used:

• Internet Article and Websites

Using Internet articles and websites, a thorough study was conducted to

outline the benefits and costs of (1) exporting to China from Bahrain and

(2) setting up a factory in China. Additional information was acquired

  34 

using the Internet on labour costs and market size. Also, Internet magazine

publications and online newspaper articles were used to determine the

potential growth and requirements of the market. This was done in order to

see whether or not the market requirements were sufficient for FDI or

whether an export strategy could be feasibly carried out.

• Review of BFG Internationals Foreign Activities

A review of the international activities of the company was conducted by

looking at data provided by them regarding sales volume of export; export

destinations and the scope for future export. This allowed for the

assessment of the feasibility of foreign business for BFG International in

order to make relevant strategic decisions based on the location of their

trade. An analytical comparison between the SWOT factors and the

models such as the Eclectic Paradigm, and the Uppsala

Internationalisation model was drawn up to compare and contrast the

consistency of our findings with the models of internationalisation.

The secondary data was gathered using the most reliable sources accessible.

Moreover, firm specific secondary data can be classified as both reliable and

applicable as the company provided it to us.

  35 

4 Findings and Data Analysis 

After the collection and studying of all data, the findings have been analysed and

represented using various methods for classification. The relevancy to different

strategies has been noted throughout the analysis in order to allow for a

conclusion to be drawn. It must be noted that parts of the analysis are based on

the observations that part of the observational study (Appendix F).

4.1 Study of Foreign Activity 

The study of BFG Internationals foreign activity has shown a key significance in

the European market. The turnover allocation has been represented in Figure 4.1

below.

Figure 4.1

By looking at the chart above, we can see that USD 32M of the turnover of BFG

International comes from its customers based in France. This alone represents

55% of the total turnover. Moreover, USD 7M comes from Germany, and USD

2M from the UK and Denmark each. Therefore, it is safe to say that the current

business activities are significantly focused towards the European market, which

represents 74% of the business turnover for 2009.

Source: BFG International, 2010 

  36 

In the context of China, the figures suggest that USD 10M worth of the total

turnover come from within China. This contribution comes from the current joint

venture of BFG in China, and all the needs for the Chinese market are met within

China. We must also note that the operations in China, due to the nature of the

joint venture are all focused on one project, catering to a very small part of a very

large, and to some extent, veiled market for BFG International.

4.1.1 Distribution of Foreign Activity 

We will now analyse the distribution of manufacturing in terms of the turnover

that each country represents. By doing so, we aim to identify any possible cuts in

transaction costs that are possible by using existing facilities to export to China.

Table 4.1 on the following page is a representation of this data.

Table 4.1

Turnover Allocation (in Million USD)

LOCATION

(Floor

space)

France Germany Denmark India UK China Japan USA

Bahrain

(20,000 sqm) 30 7 2 0 1 0 0 0

Philippines

(18,000 sqm) 2 0 0 0 0 5(P) 5 0

India

(6000 sqm) 0 0 0 0 1 0 0 0

France (ATMC)

(no data) 0 0 0 0 0 0 0 0

China

(5000 sqm) 0 0 0 0 0 10 0 0

USA

(4000 sqm) 0 0 0 0 0 0 0 0

(P) Suggests projected figures for 2010

Source: BFG International, 2010

 

  37 

We can see that the majority of the business for Europe is based on exports from

Bahrain. The figures also show that there is a projected USD 5M worth of

business for China that will be handled by the manufacturing facility in the

Philippines. This business is based on a new development that will not be part of

the joint venture contract in China, and thus will be carried out using BFG

Internationals wholly owned facility in the Philippines. The possibility of

exporting to China using the facility in India is outlined.

An important observation to be made is the usage of the facility in France. The

figures suggest that currently this facility is not being used. This is due to the fact

that this facility was acquired only last month, and is currently in the handover

phase. It is crucial to take note that the Bahrain facility, which is the biggest single

facility that BFG International operates, is highly involved in mainly the French

and the rest of the European market.

In order to see the real impact of the opening of the French facility (ATMC), an

interview with Mr. Mohammed Usman, Corporate director of BFG International

and Chairman of ATMC France revealed that although ATMC will be used to

cater for the European market, the facility is not large enough to provide a holistic

solution to the French market. Therefore, it will merely remove some of the

burden that is being faced at the facility in Bahrain, which is, based on the

observational study, currently running at full capacity, and is desperately in need

of expansion. ATMC will be used for only those projects that are capital

intensive, rather than labour intensive, whilst Bahrain, which has a labour force of

500, may carry out labour intensive tasks. This shows BFG Internationals clear

intent to keep Europe based business in Bahrain.

The implications of this are that, if BFG International were to enter China by

export, the only possible option would be the Indian factory, which would ideally

provide close proximity to India, thus reducing logistic costs, enabling BFG

International to stay competitive whilst using an export strategy. This is consistant

with the proximity-concentration trade off (Helpman, Melitz and Yeaple, 2004).

  38 

In the interview, Mr. Usman also added that the Chinese market was one of great

potential, and that specifically the Southern parts of China provided great

incentives for FDI. He added that the tax return incentives, and export benefits

such as the duty drawback were also great benefits not only for the local market,

but encouraged exports too.

An interview with Mr. Chopra, the supply chain manager based in the

headquarters, discussed the opportunities and threats seen in the Chinese market.

He stated that the Chinese market was one that was by large untapped to its full

potential, adding that BFG realises the need to unveil this market in order to meet

its projected turnover targets. In addition to this, BFG needs to look at Japan,

South Korea and to some extent Australia for additional business growth.

Therefore, China, due to its location advantage would provide an ideal solution.

However, it was pointed out that the company was not interested in expanding its

current joint venture with its Chinese alliance due to ‘commercial problems’ that

had occurred in the past. Therefore, the company’s internationalisation strategy

was largely focused on the retention of ‘maximum business in BFG

International’s own facilities rather than with a Joint Venture’ (Appendix D).

When questioned on the restrictions that were perceived by BFG in setting up a

wholly owned company in China, he commented that although China itself is a

vast market, many of the contracts came with strong localisation requirements.

The reason for this was that many of the government projects that form a large

part of the market in China were based on the concept of 100% domestic

production.

4.2 Study of Market Potential 

A third interview, with the business development manager, Mr. Majdi James,

showed the vast opportunities that were available in China. He stated that China

was looking into wind power generation at a large scale, and that the properties of

fibreglass made it an ideal material for this use. He added that BFG International

has previously worked with Hitachi-Subaru on the wind turbines for Japan. This

project was carried out in the Bahrain facility, and an export strategy was applied.

  39 

Moreover, in discussing the market growth of fibreglass in China, he added that

the housing market in China has been a major market for exploitation. He stated

however that a key barrier to entry was price, and therefore only a large-scale

investment in China in setting up a factory could allow entry into this market.

The study of Frederic Romier (2009) that looked into the application, location and

process of fibreglass shows a contrary implication, finding that Asia was the

smallest market for fibreglass products, with only 26% of the market, whereas

Europe held 30% and America held 44% of the market. Although this could seem

like a drawback, it can in fact be a motivation for BFG International to focus on

the Asian market. We previously noted that Europe was currently the biggest

market for BFG, and that operations in the USA were to start very soon. If BFG

focused more on the Asian market, by entering China, it could strategically

become a competitive global player in the fibreglass industry.

In a comparison of magazine and newspaper reports, there was a clear underlying

suggestion of substantial growth in the market for fibreglass in China and the Asia

Pacific. One article found that Akzo Nobel, a Dutch multinational producer of

fibreglass doubled their sales figures in the five years of Chinese market entry.

Chinese operations for Akzo Nobel started with five representative offices in

China, and have now grown to 20 offices, employing 3000 people (Reinforced

Plastics, 2004). The strategy that they have used can support the successful use of

a learning theory for market entry.

Within the same article, Gerber, an American company has identified the market

gap in China, and seen great success. They have reported a growth of 50% in the

number of employees over the first 12 months of market entry.

In agreement to the above, Owens Corning, a multinational giant in the fibreglass

industry has reported in a press report an average growth rate for the industry of

between 5 to 7% per year across the world, and has mentioned that developing

countries such as China and Russia may have even faster growth.

  40 

The fore-mentioned studies show that firms in China are seeking revenue

maximisation, rather than cost reductions as implicated by Zhang (2005).

4.3 Benefits and Costs of Exporting and FDI  

Figure 4.2 below looks at the benefits and costs of exporting to China, and ranks

them in order of importance to BFG international from the point of view of the

Business Development Manager. The scoring was done using a Likert-scale, with

1 being least important and 5 being very important.

Figure 4.2: Benefits and Costs of Export

Benefits Score Costs Score

Less investment required 5 Inability to grow with

market requirements 4

Avoid communication and

management barriers 3

Lack of control over

export agents 3

Avoid rapid changes in

Chinese market 2

High transportation costs

(cross country & inland) 4

Fewer facilities, increasing

control 3

Localisation

Requirements for State

projects

5

Running current facilities to

full capacity 1

Inability to cater to

neighbouring countries 4

TOTAL 14 20

Remarks

• Investment is difficult to obtain in times of recession

• State projects make up a significant size of the total market

• Cross country transport costs are only a concern if exporting from

Bahrain, using Philippines and India will significantly reduce these costs.

Inland transport in Philippines however is very high as the factory is

located far from the nearest port (Costs 800 USD / 40 ft. Container).

  41 

Figure 4.3 below looks at the benefits and costs of FDI in China. The points used

are those that were found throughout the study from Internet articles, newspapers

and interviews.

Figure 4.3: Benefits and Costs of FDI

Benefits Score Costs Score

Wide availability of raw

material 4 Local market forces 3

Cost effective labour

resources 5

VAT on domestic

purchase (i.e. raw

material)

3

15% tax rebate on exports 4 Barriers to entry 2

Key location to serve

several markets 4 “Guanxi” Culture 2

Increase total capacity 5 High costs setting up 5

TOTAL 22 15

Remarks

• Wide availability of material coincides with VAT on domestic purchase.

• 15% tax rebate is only offered on exports when operating from certain

zones such as those located in Export Processing Zone

• Manual labour is available and calculated at the highest provincial

minimum wage of ¥780 (USD 114) per month. China also has very high

non-wage labour costs at 44% (World Bank, adapted from Euromonitor

Achieve, 2008)

• Market forces include language barriers, cultural restrictions, Chinese

business culture and local competition.

A comparison between figure 4.2 and figure 4.3 clearly shows that BFG

International’s needs are far more suitably met by FDI rather than an export

strategy. Although there are some concerns with the costs of setting up and

  42 

financing the project in a period of recession, where banks have stepped down on

lending, the benefits of FDI overpower the costs, whereas the costs of export

overpower the benefits. Looking at these results shows clearly that the

implications of FDI are beneficial to the company.

Nevertheless, it must be considered that the price of labour is increasing, which is

one of the essential benefits that BFG seeks. Media Eghbal (2008) reported that

due to the increasing price of commodities, a rise in the cost of living has driven

up the acceptable minimum wage for unskilled labour. There seems to however be

a lack of study on the effects of labour rate on entry strategies.

Moreover, the company may also realise that the 15% tax rebate on exports may

be slightly offset by the VAT on domestic purchase, rather than providing a direct

15% margin. Taxation has been a key concern for new market entry (Singh, 2009)

and thus this may be an alarming factor for BFG International.

4.4 SWOT Analysis  The SWOT analysis framework has been used to identify and explain the key

strengths, weaknesses, opportunities and threats that are faced by BFG

International in the move to enter China.

4.4.1 Identifying the Strengths and Weaknesses 

The interview with Mr. Mohammed Usman outlines the key strengths and

weaknesses as portrayed by him for BFG International. The following strengths

and weaknesses may be noted:

A. BFG International currently has vast experience in global markets

(appendix A), which attends to its experiential knowledge of global

competition and market needs. This, according to Johanson & Vahlnes

(1977) allows the company to prevail into higher commitment into new

markets.

B. BFG International holds key market technologies and is a key player in the

industry for research & development. This may be regarded as intangible

  43 

assets, a key feature of the ownership-specific advantages that a firm may

wish to possess when entering new markets (Dunning, 1988)

C. Prior market existence in China, as well as existing relations with Chinese

raw material suppliers may assist in achieving successful margins of

economy.

D. The company is already CCC certified, which is an essential certification

for importing goods into China.

E. BFG International does not currently have a logistic platform in Asia apart

from the one in Bahrain. This will drastically drive up the costs of

logistics in both scenarios – FDI or exporting to China.

F. BFG International has recently acquired several loans to cover its global

expansion plans for projects in India, France and the USA, therefore

securing finance for large investments may be difficult.

G. BFG has its key experience in a very tight range of products. Whereas the

demands for the Chinese market may require BFG to look at a wider range

of differentiated products suited for the local market. These include the

use of fibreglass panels to insulate homes (Reinforced Plastics, 2006)

The interview breakdown shows that the key concern again is the financing that is

required for setting up a wholly owned company in China. However, in a brief

discussion after the interview, Mr. Usman has said that although securing

financing may be difficult, it is not impossible. He added that the company

possesses strong relationships with several large banks, and that the banks were

keen on investing in Industries rather than real estate after the current global

crisis.

Moreover, by looking at the strengths of the company, we can see that BFG is in a

strong position to efficiently cope with competitive forces, both internal and

external. The vast experience of the company in international markets, as outlined

in appendix A is a vital strength that the company possesses. Its key knowledge,

and research and development resources, along with its team of experienced

managers, many of whom have been with the company for 10 or more years

(appendix B), can be considered as intangible assets for new market entry. These

factors are clearly suggestive of an FDI strategy rather than an export strategy.

  44 

Many of the company’s strengths are in line with the OLI paradigm (Dunning,

1995) and with regards to the Uppsala Model of Internationalisation (Johanson

and Vahlne, 1977), are suggestive of the company’s opportunity to engage in

higher commitment to the new market.

4.4.2 Identifying the Opportunities and Threats 

The interviews with Mr. Jeetinder Chopra and Mr. Majdi James, as well as the use

of other secondary sources have outlined the opportunities and threats that BFG

International, or a company in a similar position may perceive in entering the

Chinese market. The following opportunities and threats may be noted:

A. The large size of the market, and the developing state of the economy

clearly provides plenty of opportunity for growth in the short and long

term.

B. Neighbouring countries are also very large perceived markets. This

gives the opportunity to not only contain its activities within China,

but also across borders throughout Pacific Asia.

C. Exporting to China can provide the opportunity of low risk market

entry, however entry may not be sufficient and feasible in terms of

exporting costs.

D. The opportunity to manufacture in China for the new contract in

Australia can significantly increase profitability, as costs of labour as

well as logistics will reduce. This may be considered a locational

advantage.

E. BFG International can increase its capacity significantly, and thus

allow for future growth prospects.

F. The Chinese market is highly competitive, and both local and foreign

competition is very tough. The competition is largely based on price,

rather than quality, and therefore companies will strive to survive

without performing efficiently. As a new entrant, it is very difficult to

survive the early stages of entry and may be faced with ‘price wars’.

G. China’s state owned companies are involved in similar businesses, and

therefore may restrict entry to the market.

  45 

H. The future is unknown, and if taxation policies and rebates are

removed, the entry strategy may fail.

I. BFG International is a late entrant to the market, and is faced by local

competition of 3500 small, medium and large businesses working

within the same industry in China.

Outlining the opportunities and threats shows that there are many perceived

opportunities for a company to enter the fibreglass market in China. There are

several reports on the vast growth and requirements of the fibreglass market,

which will be outlined in the next section. Moreover, the information is

suggestive of a FDI strategy, which may provide the ability to fully achieve the

available opportunities. An export strategy may be not be able to overcome the

perceived threats, such as points F and G. Merely exporting will not allow for the

same economies of scale to be achieved, and when considering the impact of price

wars, exporting costs may only increase the risk of being forces out of the market.

However, certain threats, such as point H, may be contradictory to the findings of

Porter (1979), who characterised early entry as being an essential component to

achieving market leadership in the long term. Nevertheless, consistently with

Dunning (1995), the locational advantages that are obtained by FDI in China may

outweigh the late entry, as the company can be positioned to cater to more than

just one market.

  46 

5 Limitations 

The limitations of this study are that it restricts itself to qualitative data, and does

not consider the impact of the different strategies on firms already within the

Industry. The use of questionnaires to record feedback on the successful firms that

either export to or have FDI in China could have provided quantitative data to

note any trends of market entry and may also have provided an idea of the best

operations strategy rather than just entry strategy. Moreover, the scope of this

study limits itself to the broader aspect of entry and has mainly focused on firm-

specific factors. A clearer understanding of the external environment may help

provide a more extensive and thus accurate judgement. However, due to the high

costs of such extensive study, it was not possible without sponsorship.

  47 

6 Conclusion and Recommendations 

The purpose of the study was to identify the most suitable entry strategy for BFG

International to enter the Chinese market. Having noted that BFG required 100%

control of its operations, we have discussed the implications of export and FDI

strategies for BFG International to enter China. The data analysis has shown a

consistent need for FDI by BFG International in China. Clearly, there are several

motivations and competitive advantages that are held by the company that are

blatantly suggestive of FDI being the dominant and most suitable strategy for

BFG International to adopt in order to meet its forecasted turnovers.

Moreover, the company has shown keen interest in the Chinese market for its

large size and the potential of its neighbouring countries. These locational

advantages are ideal for BFG International, especially when considering the

export benefits that the Chinese trade zones boast. This again supports the concept

of FDI for the company in question.

When considering the capacity perspective, we can see that all the current

operating factories are working at full capacity, and concerns of safety and quality

may arise unless a solution is found. This immediately dismantles the export

strategy for Chinese market entry as BFG International simply does not have the

capacity to cater to such a vast market.

BFG International can use the FDI strategy not only to cater to the Chinese

market, but also to explore new markets, and cater for existing markets more

efficiently. Strong trade routes, especially from the south coast of China provide

ideal road and sea links to Myanmar, Thailand, Malaysia, Singapore, Indonesia

and even Australia. It may however be argued that the Philippines factory, as

mentioned in Appendix D, should be catering to these markets. In defence to this,

we can see that the Philippines facility is working at its full capacity, and thus, the

requirement for FDI in China is once again deemed necessary.

  48 

Nevertheless, our findings shun light on a key concern that is beyond the scope of

this study, but must be stated. Due to the current economic climate, BFG

International has shown deep concern on the financing of a new facility in China.

The findings have suggested that the company is currently highly indulged in

borrowing, and therefore further borrowing may be difficult to obtain from

conventional sources of finance such as commercial banks. Here, several

suggestions can be made. Firstly, it may be in the interest of the business to

involve investment banks to finance the project. However, the concern with

investment banks is that often, they require a percentage share as a ‘sleeping

partner’. Although BFG International has shown concern over joint venture

strategies, the idea of a sleeping partner may be well suited to their needs.

Secondly, the raising of internal financing by selling off some of its less

productive assets, and/or raising capital amongst the few shareholders may

provide a second solution for finance. Nevertheless, this would significantly

increase the risks that have been associated with FDI, and the liability of the

shareholders will therefore be unlimited. Ideally however, a mixed financing

strategy using internal and external financing may make it easier to obtain

financing than simply using an external source.

A third option would be to sell their existing share with CRGC to another

company, or to CRGC itself, and use the money to re invest in their own facility.

This will provide not only the finance required, but will also allow a smooth exit

from the existing troublesome joint venture.

The study has also identified that several of the benefits that BFG International is

seeking from its foreign production are outdated. Most the outlined benefits that

are being sought after do not consider the synergies that may be achieved by

increasing its foreign capacity. Moreover, in relation to Dunning, 1998 (see table

2.1), the motives that are mentioned correlate more with the ones that Dunning

had outlined in 1970, rather than the updated 1990’s motives. Based on Dunning’s

study, we can see that BFG Internationals need for a FDI strategy can be

identified as mainly market seeking. However, a mixture of cost reduction and

  49 

revenue maximisation benefits are being seeked by BFG International, which can

be achieved by efficiency in the new market.

Finally, despite the concerns that were beyond the scope of this study, we can

conclude that the best strategy for BFG International to implement in entering

China would be FDI. This will provide the company with a fruitful mix of several

factors such as increased revenue, decreased costs, and the ability to enter new

markets. Therefore, BFG International can assume a successful outcome from its

FDI operation in China. However, they must not only base this decision on the

motive suggested above, and must also keep in mind that the Chinese market is

highly restrictive for foreign competitors, and therefore BFG International must

perform efficiently, and market their products throughout Pacific Asia and

Australia on the basis of a mixture between quality and price. Moreover, BFG

International needs to seek a mixture of the four key motives of FDI, which are

market share, efficiency, resource, and strategic assets (Dunning, 1998). By

applying a fruitful mix of the above, it can be stated that BFG International can

make the most out of its FDI operation in China, gaining efficiency, revenue and

therefore profits.

  50 

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  55 

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  56 

BFG International Timeline

1975- Bahrain Fibre Glass (Bahrain)

BFG first started in 1975 with the name Bahrain Fibre Glass and was mainly engaged in

civil works within the local Bahrain market.

1991- BFG International wholly owned factory set up (Philippines)

First international division was set up in Philippines with an experienced management

team from Bahrain. The purpose of this was to increase production as well as reduce

costs

1997- CDT wholly owned factory set up (Philippines)

The Success of BFG International in Philippines led to growth in the Philippines,

Singapore and Japan and a new factory was set up to cater to the growing business.

2005- BFG International Joint Venture with CRGC (Changchun, China)

BFG formed its first Joint Venture with the Chinese Government owned CRGC to

manufacture train sets for the Chinese Railway. BFG International sold technology rights

to CRGC. BFG International lacks control over this venture, with the management mainly

being in the hands of the Chinese partners.

2009- BFG Chennai wholly owned factory set up (Chennai, India)

BFG secures Delhi Metro project. In order to cope with the size of the project, BFG

International sets up a factory in India to help increase its capacity. Once again,

experienced management from Bahrain headquarters are placed in India.

2009 – Acquisition of ATMC (France)

BFG International finds growing demand for their products in the European market, and

has in the past suffered due to lack of after sales service in Europe. Acquisition of ATMC

goes ahead with a partnership with Bahrain based Investment Bank. ATMC is involved in

a very similar line of business, and brings with it a portfolio of customers.

2010 – Work on new BFG International Factory Begins Whilst new corporate

headquarter is handed over (Bahrain)

BFG establishes a new headquarter in Bahrain. The updated facility increases current

capacity on the shop floor as well as office space. However, the need for a further site is

still required. BFG chooses Bahrain Investment Wharf as an ideal location to promote

exports.

 

8 Appendices Appendix A

  57 

Appendix B

Interview with Mr. Mohammed Usman

As you know, as part of my BA Undergraduate Business Degree at Durham

University, I have chosen to do a dissertation to evaluate the entry strategies

available to BFG International when entering China. For this, I will require to

conduct an interview with yourself, as well as two other members of your team.

Brief: The focus of my dissertation is to evaluate the entry strategies available to

BFG International when entering China. I have outlined that there are two types

of market entries that a firm considers. One is an export strategy, and the other is

FDI. Your response to the following questions will be largely appreciated.

1. What are the key strengths of BFG for international growth in China? 

• Key technologies and skills • Experience of over 30 years • Low  staff  turnover  with  many  staff  members  serving  for 

over 10 years.  • R&D and Quality 

 2. What are  the weaknesses of BFG  for  international  growth  in 

China? • No logistics platform in Asia • High debt/equity ratio • High  amounts  of  borrowing  from  banks  (project  funding 

etc.) • Expertise  are  currently  mainly  focused  on  tight  group  of 

products  

3. Does BFG require full control of its foreign operations? • Recent experience in China with JV was below expectations • 100%  ownership  is  preferred,  although  sleeping  partners 

such as investment banks can be considered  

4. Has BFG got any previous experience in the Chinese market? • China JV with CRGC • Odd  jobs  in  China  for  airport  project.  Exported  from 

Philippines  

5. Which foreign markets does BFG currently operate in? • Vast  range  of  projects  for  many  countries.  However, 

customers  are  mainly  multinational  companies  based  in 

  58 

France,  Germany,  Denmark,  Japan  and  Australia  amongst several others.  

6. Does  BFG  hold  any  technological  advantages  over  local competitors? 

• BFG  has  several  technologies  that  have  been  patented  or have  been  licensed  off  other  companies.  Many  of  these technologies reduce the costs of production; others provide key  benefits  to  end‐users.  I.E.  speaker  sound  technology, anti‐graffiti  technology.  First  user  of  RTM  technology  in Asia.  

 7. What intangible resources does BFG have which may provide 

it  with  a  competitive  advantage  over  local  Chinese manufacturers? 

• Customer relations • Supplier relations • Expertise of staff and directors 

 8. What  benefits  is  BFG  looking  to  acquire  from  its  Chinese 

operations? • Large market – increase revenue • Low manufacturing costs – increase competitiveness • Growth into pacific Asian market • Increase capacity  

 9. What  future  growth  prospects  do  you  see  for  the  fibreglass 

industry as a whole? • Large scope for industry • Many new applications • Market  is  growing  rapidly,  exhibitions  such  as  JEC  have 

encouraged strong growth • Overall, market  is steeply growing, and next 10 years  look 

fruitful  

10. Is the Asia Pacific market a key market for BFG? • Pacific Asia is a very large market • Many benefits within the market 

 11. Does BFG aim to export its manufactured goods from China? 

• Initially focus should be on local market • To cover up utilisation in start up, projects can be offloaded 

to Chinese facility for first year or two • Export benefits make it ideal for exporting 

Thank you very much for your time and I hope that this dissertation will be able to

benefit the company in the near future.

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Appendix C

Notes Gathered from discussion based telephonic interview with Mr.

Jeetinder Chopra:

1. What do you see as the main opportunities for BFG in China?

• Large Potential market

• Locational advantage based on future prospects of BFG

(Australia project)

• Opportunity to increase capacity. Current facilities are over

worked. China is ideal for low cost in comparison to other

countries.

2. What do you see as the main threats for BFG in China?

• Chinese business culture is very different from Bahrain

• Tough competition from local firms

• Competition based on price, BFG associates itself with quality

3. Do you think that the Chinese market is highly competitive, fairly

competitive or not competitive at all?

• China is a highly competitive market, with many large firms

already in the market

• There is local and international competition

4. Do you think China is an important market?

• China is a very large and rapidly growing market. BFG needs

to enter this market in order to achieve its forecasted

turnovers.

5. What is the allocated turnover for each of your markets?

Other comments that were kindly sent by Mr. Jeetinder Chopra along

with the allocated turnover data and forecasted turnovers is attached

as appendix D and E below:

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Appendix D Email from Mr. Jeetinder Chopra providing some key points. Hello Uzair, Please find attached my inputs on the information requested by you. To summarize: a) The cummulative turnover figures do not include the revenues generated from JV facilities as they are independent entities. b) As a strategy, it will be our intention to keep maximum business in BFG's 100% own facilities rather than JV. This is based on our recent experiences wherein we found that allocating any project to JV leads to commercial issues. c) Projected turnover figures of Bahrain include the revenues generated from Bahrain directly and from other new facilities (100% owned that may come up in future) d) We recognize the fact that by focusing only on European market will not meet the projected turnover targets. Maximum growth potential lies in the Fareast market (China,Japan,Korea and to some extent Australia) which is as of now largely untapped to the correct potential by BFG. e) China itself is a huge market but with very strong localization requirements specified in the contracts. f) South of China is a potential area that can be considered for setting up of a new entity, which can cater to Chinese market and potentially Japanese markets. g) Philippines should ideally be serving Japanese,Austrlian and to some extent European projects(which are labour intensive). Please let me know if you any more queries regarding this. Best Regards, Jeetinder

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Appendix E

Files sent by Mr. Jeetinder Chopra regarding BFG performance, turnover

allocation and projected sales revenue. Some information regarding floor

space and labour utility is also provided.

Along with the data, Mr. Chopra added the following notes:

1. As a strategy operations in Bahrain will mainly focus on European markets

2. Chinese market is huge but there are strong localization requirements. The projected increase in Bahrain revenues will mainly come from markets in China and Fareast.

3. The JV sales do not show an increase because as of now our strategy on China is to keep limited business in JV and look for other opportunities by exporting or setting up our own facility in China.

4. The projected turnover consists of revenues from 100% own facilities and does not include the JV figures

 

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Appendix F

Interview with Business Development Manager, Mr. Majdi James

1. What are they key features of the Chinese market?

• Large local market with a population of 1.3 Billion people

• Cheap resources such as labour

• Availability of labour

2. What benefits can BFG gain from entering China?

• Increased sales

• Reduced costs

• Entry to neighbouring countries

3. Are there any concerns with entry to China?

• Chinese business culture is very different from Bahrain

• Strong competition in China with many medium and large

sized businesses within the same industry

• Most state projects require 100% Chinese production

4. What are the implications of exporting to China?

• Exporting to China is a safe way of entering, however it is

very difficult to capture significant market share

• Costs of exports may make it difficult for BFG to be

competitive on price

5. What are the implications of FDI in China?

• FDI in China will allow increase in production

• This production will be based on low costs and will also

maximise sales in Asia

• Exporting from China has many benefits due to the trade

surplus currently faced in China

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Appendix F

Pictures from Observational Study