Case 23 • Two Dogs Bites into the World Market: Focus on Japan • 747

APPAREL MARKET IN BELGIUM(MILLIONS U.S. DOLLARS)

1997 1998 1999

Total market size 2,890 2,952 3,098Total local production 1,824 1,863 1,956Total exports 986 1,008 2,200Total imports 2,052 2,097 1,058Total imports from U.S. 81 82 85Exchange rate: $ = BEF 35.7 36.3 37

1999 and 2000. There is a continued strong market interestfor American sporting and leisure apparel, as American stylesare popular and designer and branded products are less pricesensitive in Belgium. Major competitors of the local Belgianmarkets come from manufacturers and designers in France,Germany, and Italy. For low-budget clothing and mass dis-tribution items, low-cost producers in the Far East, such asChina, Thailand, and Indonesia continue to provide the bulkof imports. Benetton has the opportunity to gain market sharein this country by promoting their sportswear and leisureapparel that appeal to this market’s consumers. As you cansee by the following table, Belgium’s market size is growing,as is its local production figures. Although, the total importsdeclined in 1999, Benetton still has the capacity to formalize ajoint venture with local retailers and set up their distributionsystem to begin reaping profits.

DISCUSSION QUESTIONS

1. How has Benetton’s uniform communications strategytranslated into sales and profit in different parts of theworld?

2. Does its pricing strategy reflect positively on Benetton’snet profit?

3. Should Benetton restructure its distribution and man-ufacturing network in order to hedge foreign currencyfluctuations?

4. Should Benetton continue to focus on increasing marketshare in the U.S. by focusing on department store growth, orincreasing store expansion? In addition, should it be focus-ing more on ‘‘crisis management’’ rather than expansion inthe aftermath of the death penalty campaign?

5. Should Benetton restructure the communications strategyto incorporate both the two-tiered approach and a morecountry-tailored positioning strategy?

6. Benetton’s advertising budget is only 4 percent of theirsales. This is a rather low number, especially consider-ing that most of this budget has been spent on developingtheir image advertisements. Should Benetton increase theiradvertising budget, and if so, should more go to traditionalclothing and sports equipment advertisements?

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CASE 23

TWO DOGS BITES INTO THE WORLD MARKET: FOCUS ON JAPAN

CREATION OF ‘‘TWO DOGS’’

On a cool winter day in Adelaide, South Australia, a city with apopulation of 1.1 million, Duncan MacGillivray found himselfin a conversation with his neighbor who had too many lemonsfor which he was trying to find a use. MacGillivray, who owneda pub in the city, decided to brew the lemons into an alcoholicdrink to serve as a refreshing alternative to draught beer. Thuswas born the world’s first commercial brewed alcoholic lemondrink. The brew, which became known as TWO DOGSafter a joke, became a highly popular drink and was soonmade available on tap (draught) in pubs all around Adelaide,as shown in Exhibit 1.

The popularity of the drink quickly spread by word ofmouth. In response to the dramatic increase in sales, thecompany commenced bottling the drinks in 1994 to increaseits product availability in the distribution channel. To meetthe demand, TWO DOGS was produced under contractby a local brewery in Adelaide. This enabled the com-pany to focus its resources on marketing and brand-building

This case was prepared by Professor Amal Karunaratna of the Universityof Adelaide, Australia for class discussion rather than to illustrate eithereffective or ineffective management of a situation described (2003).

activities, instead of investing in a costly commercial brewingand bottling facility.

TWO DOGS quickly gained market acceptance, firstlybecause consumers loved the new taste sensation of ‘‘brewedalcoholic lemonade,’’ but also because it filled a real marketniche for a ready-made beverage similar to beer but with aneasy flavor profile. TWO DOGS exceeded initial expecta-tions when it reached domestic sales of over 400,000 casesin the first twelve months, and extended its presence to thewhole of Australia within one year of launch.

The success of TWO DOGS attracted competitors, whosought to emulate TWO DOGS and capitalize on the newlycreated and rapidly growing consumer niche. The first com-petitor came in late 1994 from Australia’s largest brewer(Fosters); the product ‘‘Sub Zero’’ was a sweetened alcoholicsoda targeted at young adults. By 1995, there were dozens ofdifferent sweet alcoholic drinks, all brightly colored, exoticallyflavored with catchy names including ‘‘Z’’, ‘‘KGB’’, ‘‘Cactus’’,‘‘Ruski’’, ‘‘DNA’’, shown below in Exhibit 2.

INTERNATIONAL EXPANSION

In the face of fierce domestic competition, the company TwoDogs International (‘‘TDI’’) commenced an international

748 • Case 23 • Two Dogs Bites into the World Market: Focus on Japan

EXHIBIT 1CREATOR DUNCAN MACGILLIVRAY WITH, GLASS OF ORIGINALDRAUGHT TWO DOGS

EXHIBIT 2EARLY COMPETITORS IN AUSTRALIA

expansion program in 1995. Its first market entry was intothe United Kingdom. In the Northern hemisphere summer of1995, riding on the back of the close historical and culturalconnections between Australia and the U.K. (including com-mon language and similar legal and regulatory systems), thefirst eight shipping containers of TWO DOGS arrived in theU.K. TDI initially adopted a direct export strategy, selectingand appointing a relatively small but well-established Englishcider maker as its exclusive distribution partner. The appear-ance of TWO DOGS incited massive consumer interest,such that it was impossible to meet the surging demand giventhe six-week shipping time from Australia. Therefore TDIquickly moved to a licensing strategy, allowing TWO DOGSto be produced in the U.K. Within six months of its officiallaunch in May 1995, TWO DOGS outperformed the initialannual sales target of 300,000 cases, and went on to achieveone million cases in 1996.

Following its U.K. market success, and utilizing its pro-duction base within the European Union, TWO DOGScommenced export from the U.K. into continental Europeincluding Denmark, Finland, France, Germany, Italy, theNetherlands, Norway, Sweden, and Switzerland.

Around the same time, in June 1996, TWO DOGScommenced its U.S. market entry. Learning from the U.K.experience and also due to high import duty on alcoholic bev-erages, TDI adopted a licensing strategy incorporating localproduction from the start. By 2001, with annual sales aroundthe one million cases, TWO DOGS was voted as one of the‘‘Hot Brands’’ in the U.S. by Impact magazine.

The third key market in TDI’s international expansionprogram was Japan. TDI realized it needed distributionstrength to be successful in Japan and in 1997 formedan exclusive import and distribution agreement with Kirin-Seagram, a joint venture between Japan’s leading brewer

Case 23 • Two Dogs Bites into the World Market: Focus on Japan • 749

Kirin and international spirit company Seagrams. A directexport strategy was possible due to the relative proximityof Japan to Australia, only two weeks away by ship. Brandawareness was built gradually, first in Tokyo bars only, thenexpanding nationally. By 2000, TWO DOGS ’ distribu-tion had extended from bars into most major conveniencestores, and achieved the one million case sales benchmarkin 2001.

TWO DOG’S PATH TO INTERNATIONALIZATION

TWO DOGS’ rapid internationalization is rare for a smallcompany. By 1997 TWO DOGS had built a product pres-ence in over 35 countries serviced by production across threecontinents, for which a detailed list is shown in Exhibit 3.

Overall, TDI has been able to achieve its rapid expansionby combining direct export strategies with licensed produc-tion within some key markets, alleviating the need to invest incapital equipment by utilizing its partners’ excess productioncapacity.

TWO DOGS strive for internationalization can beattributed to MacGillivray’s entrepreneurial nature combinedwith his background in commodity trading and shipping busi-nesses. As with most entrepreneurial activities, TDI’s earlyexpansion took place with limited capital.

In February 1997, Pernod Ricard acquired TWO DOGS,ensuring a strengthened resources base that has allowed TDIto pursue its global expansion and brand-building activities.By 2001, the retail value of the TWO DOGS brand’s salesapproached A$100 million, the majority being in overseasmarkets.

PRODUCTS AND BRANDING

Product

TWO DOGS is a fermented beverage made with reallemons. No alcohol or spirit is added at any stage duringthe brewing process as all the alcohol is derived from thefermentation. While the flagship is the Australian OriginalLemon Brew, other flavors have been developed to expandthe range including Orange, Apple, Raspberry, and Blackcur-rant brews, all with around 4 to 5 percent alcohol content.TWO DOGS is packaged in a variety of single serve packsto suit the market conditions with bottle sizes ranging from250 ml to 355 ml and draught product is still available inselected markets. Examples of some TWO DOGS productsare shown in Exhibit 4.

Following its unusual name, a key feature on the pack-aging is the distinctive TWO DOGS brand logo, shown inExhibit 5. Depicting two bulldogs, the logo communicates fun,honesty, and companionship to consumers, and is used as avehicle to position the brand as irreverent and mischievous,capturing the perceived larrikin nature of Australians.

The Alcoholic Fruit Beverage Market

The alcoholic fruit beverage market seems to have emergedless than a decade ago. With its sweet flavor along with mod-erate alcohol content, core consumers were young adults andwomen who did not like beer or the taste of traditional wineand spirits. In particular, the young adults to whom thesedrinks appeal often demonstrate low brand loyalty and switchbrands readily, in search of novelty. This type of lifestyle

EXHIBIT 3TWO DOGS INTERNATIONAL NETWORK IN 1997

Australian production servesopportunities in:

U.K. production serves marketsEurope:

Australasia, Asia and Middle East Great BritainNew Zealand ScotlandChina IrelandHong Kong AustriaJapan BermudaSingapore CyprusTaiwan DenmarkMalaysia FinlandThailand FranceUnited Arab Emirates GermanyBahrain GibraltarSri Lanka GreecePapua New Guinea ItalyGuam Malta

Netherlands, Belgium, andU.S. production serves North and Luxembourg

South America: NorwayUnited States SpainCanada SwedenBrazil Switzerland

750 • Case 23 • Two Dogs Bites into the World Market: Focus on Japan

EXHIBIT 4EXAMPLES OF TWO DOGS PRODUCT RANGE, IN 330 MLAND 250 ML BOTTLES

product is highly sensitive to trends and aspirations, andtherefore the marketing mix needs to be adapted to suit localmarket conditions. Consumer preference is based on percep-tions; hence, branding is critical to product differentiation.

The intensity of global competition is high. Barriers to entryare low, switching costs are low, and consumer preferencesfluctuate within trends, so there is good reason to believe thatindividual product life cycles within this category are likelyto be short. For example, wine coolers were highly popularin the 1980s but are now relegated to a niche market in theearly 2000s. The threat of substitutes for any single brand orproduct is extremely high.

ENTRY TO THE JAPANESE MARKET

Pre-Entry Research

TDI’s market selection decision in the UK and the USAwas based on perceived cultural similarity to Australia, allbeing modern western English-speaking countries, so appro-priate market positioning was readily understood. Expansioninto Japan, however, was a different proposition in terms ofunknown culture, laws, trends, lifestyle, and beverage choicesand therefore all activities needed to be based on considerableformal market analysis. Prior to market entry in Japan, TDIspent more than eighteen months conducting market research.

Preliminary Market Research

In order to evaluate the initial feasibility of entering theJapanese market and assess the market potential, TWODOGS first conducted a preliminary assessment thatwas based on gathering data on the macro- and micro-environment including general economic outlook, politicalstability, population size, age of the population and wealthdistribution, and industry trends.

EXHIBIT 5THE DISTINCTIVE TWO DOGS BRAND LOGO

People and Culture

Japan has a highly urbanized population of approximately127 million. Over 44 percent of the population lives in majorcities such as Tokyo, Osaka, and Nagoya. Japan is a homoge-neous, affluent society, with an aging population and one ofthe longest life expectancy rates in the world (83.99 years forwomen and 77.1 years for men).

Japanese people respect long-term relationships, polite-ness, and collectivity whereas Australians tend toward indi-vidualism. On the other hand, modern Japanese are greattravellers and the young adult consumers in particular haveembraced western culture and influences such as fast food,fashion, and music entertainment1 and lifestyle aspirations.

TDI used these data to estimate the size of its potentialmarket in Japan. By segmenting its target market predomi-nantly on the basis of consumer age, the target market size

Case 23 • Two Dogs Bites into the World Market: Focus on Japan • 751

within 20 to 30 age group was estimated to be about 19 million2

and accounted for 15 percent of the total population of Japan.

Economy

Japan is the world’s second largest economy, after the UnitedStates. The Japanese economy is 12 times that of Australia buthas remained in a prolonged state of recession for the last fewyears. Private sector demand remains sluggish due to uncer-tain economic times. Despite stimulus packages introducedby the government, Japan’s economy remains stagnant, whichhas led to fundamental changes in business structure such asthe breakdown of traditional interlinked (keiretsu) businessrelationships.

Nevertheless, Japanese consumers’ per capita income isamong the highest in the world (A$ 70,000 in 1999)3. The rel-ative size of the Japanese market (in terms of population andaffluence) coupled with its small agricultural resource basepresents a good opportunity for food and beverage exporters.Japan is Australia’s largest foreign trading partner with mer-chandise exports from Australia worth A$21.3 billion in 2000,and the composition becoming increasingly diversified withprocessed foods and beverages4.

Therefore, despite the fact that Japan’s economy was in astate of long-term recession, TDI determined that per capitaincome was sufficiently high that consumers would be able toafford foreign luxury products, such as TWO DOGS.

Political and Legal Environment

Overall, Japan has a high level of political stability. Fur-thermore, although the Japanese government has little directinvolvement in the operation of the private sector, throughits ministerial bureaucracies, it maintains tight supervision offirms via regulation and mandatory administrative guidance5.However in regards to trade barriers, the deregulation trendis in favor of foreign exporters; for example, the customs dutywill be abolished on beer and low malt effervescent alcoholicbeverages in 2002.6

TDI obtained specific information regarding the customsclassification of its product and the applicable customs dutiesand liquor taxes in Japan, in order to calculate whether thelanded unit cost of its product appeared commercially viable.

Industry Trends

Finally TDI considered broad consumption trends especiallyof alcoholic beverages. TDI found that from 1990 to 1997,beer consumption was declining, spirits were flat, while winewas growing rapidly from a small base. These changing con-sumption patterns indicated that drink trends were shifting,and could indicate an opportunity for low alcohol drinks suchas TWO DOGS.

Primary Research

Having identified that Japan was an attractive market, TDIneeded to assess whether the TWO DOGS product wouldappeal to Japanese consumers. The first step was to attendFoodex in Tokyo, the world’s largest food and beverage tradeshow, which offered the opportunity of conducting a largenumber of taste trials directly with Japanese consumers ofvarious ages, gender, and socioeconomic status. This initialconsumer feedback was positive; most people seemed to likethe taste of TWO DOGS.

Based on this, TDI sought a local company with a well-established network to distribute TWO DOGS in Japan. Theformal selection process included an initial search, cost andrisk analysis before a decision was made. After investigation,TDI identified the major companies in the Japanese liquorindustry, and through its international contacts arranged anintroduction to Kirin-Seagram Ltd, a subsidiary of Kirin Brew-ery—Japan’s leading beer company. Aside from its strongdistribution capability, Kirin-Seagram was evaluated highlyfor its marketing expertise in the liquor industry, as it wasclear to TDI that a very close understanding of the Japaneseconsumer would be necessary for success.

Together, TDI and Kirin-Seagram carried out more exten-sive research based on consumer surveys and focus groups ofdifferent age groups. The research focused on taste, pack-aging, and labeling. Feedback from the research showedpositive reactions from respondents. They liked the taste andresponded to the TWO DOGS logo positively as ‘‘cute’’.Based on this research, TDI proceeded confidently to launchTWO DOGS in Japan with Kirin-Seagram as its exclusivedistributor in 1998.

Secondary Research

Even after launch, ongoing product testing and consumer sur-veys were conducted to ensure the brand continued to retain itsappeal with Japanese consumers, and to evaluate the effective-ness of advertising campaigns. Consumer surveys conductedsoon after launch found that Japanese consumers found the350 ml TWO DOGS bottles too large; TDI reduced thebottle size to 250 ml, and even though the smaller bottle wassold at the same price, paradoxically, sales increased.

In addition, brand-tracking data were periodically gatheredusing independent research companies to conduct surveysevery six months. Consumers would be surveyed on a range ofdimensions including their level of brand awareness (whetherthey had heard of TWO DOGS) and advertising awareness(whether they could recall seeing a TWO DOGS ad), aswell as their recent drinking habits and purchase intentions.Consumers’ awareness of the TWO DOGS brand rose from40 percent in April 2000 to over 80 percent by June 2001,demonstrating the success of an intensive national televisioncampaign that was run over the same period. From a com-parison of the same data collected on other alcoholic drinks,it was possible to also evaluate whether TWO DOGS wasincreasing its awareness and purchase intention relative tocompetitors, which serves as an indicator of improving marketshare and market positioning.

ADAPTATION OF THE MARKETING MIX

Product

The TWO DOGS Lemon Brew product required no adap-tation to meet the requirements of the Japanese market.Japanese consumers liked the taste, appreciated the uniqueconcept of a naturally fermented lemon brew, and the for-mulation met the necessary regulatory requirements for itsliquor classification. Later, after Lemon Brew was established,other flavors of TWO DOGS were developed or adaptedspecifically for Japan. The first, launched in 2001, was ‘‘TWODOGS Blackcurrant Brew’’ which needed to be renamed‘‘Cassis Brew’’ as the Japanese did not recognize the word

752 • Case 23 • Two Dogs Bites into the World Market: Focus on Japan

‘‘Blackcurrant’’. Then ‘‘TWO DOGS Lychee Brew’’ wasdeveloped specifically to appeal to the particular tastes ofJapanese consumers.

Packaging

Notwithstanding the inclusion of Japanese language on thelabels, there are two areas in which TWO DOGS packaginghad to be substantially adapted in order to succeed in theJapanese market. The first was the bottle, which included theadjustment of bottle size from 350 ml to 250 ml as well as achange from its traditional green glass to clear glass bottles,which are considered easier to recycle in Japan. The secondwas a series of changes to the bottle cap: the original prod-uct had a crown-seal cap (like beer) which requires a bottleopener. When TWO DOGS distribution was extended tothe off-premise, the cap was changed to a ‘‘ring-pull cap’’which is able to be opened by hand and therefore more con-venient. However Japanese consumers were unfamiliar withring-pull caps and found them difficult to open, so finally theproduct was changed to a ‘‘screw cap’’ as found on soft drinks.Exhibit 6 shows the different TWO DOGS ’ bottles andcaps sold in Japan at various times.

Place

The distribution channel for liquor can be divided into ‘‘on-premise’’ and ‘‘off-premise’’. ‘‘On-premise’’ refers to outletsin which consumers buy and consume the product in the sameplace (i.e., on the premises) such as pubs, discos, bars, andrestaurants. ‘‘Off-premise’’ refers to retail stores in which theproducts are consumed away from the point of purchase suchas convenience stores, specialty liquor stores, and supermar-kets. In Japan, the TWO DOGS brand was established inthe on-premise exclusively for the first eighteen months after

its initial launch, so it has built a relatively strong presencein metropolitan bars, western-style restaurants, but also in‘‘Izakaya’’ chains (casual Japanese pubs). After this, TWODOGS distribution was expanded into the off-premise witha key focus being convenience stores, such as 7–11 and Family-mart, as this is where the majority of the young adults targetedby TWO DOGS tend to shop, perhaps on their way out to aparty or while coming home from work. TWO DOGS is alsosold in supermarkets, where it is available mainly for thosewho enjoy consuming the product at home. With its relativepremium price, discount stores are not a targeted channel forTWO DOGS.

Price

Retail prices for most consumer goods are relatively high inJapan; therefore it is expected that TWO DOGS is relativelymore expensive than in its home country. In Australia one 330ml bottle of TWO DOGS can be purchased at about A$2.00dollars in the off-premise and A$5.00 in the on-premise, whilein Japan the 250 ml bottle is priced (in Yen) equivalent toA$3.50 in the off-premise and up to A$9.00 in bars. The keypricing issue for TWO DOGS in Japan is its premium priceagainst most of its competitors. Locally made ‘‘chu-hi’’ drinksare priced at Yen 130 while TWO DOGS is around Yen220 per bottle—a 70 percent premium. This pricing is in linewith the premium positioning of the brand and is influencedby several factors:

• Support to position its brand as premium brand.

• Heavy spending on advertisement and promotion

• Cost of adaptation of products on bottle size and cap

• Cost of importing the product.

EXHIBIT 6PACKAGING CHANGES FOR JAPAN (FROM LEFT TO RIGHT):350 ML WITH CROWN CAP, 250 ML WITH CROWN CAP, 250 MLBOTTLE WITH RIPCAP, AND 250 ML BOTTLE WITH SCREW CAP

Case 23 • Two Dogs Bites into the World Market: Focus on Japan • 753

Advertising and Promotion

TWO DOGS advertising campaign is different in Japan.An obvious distinction is the portrayal of the two dogs. InAustralia and for other selected international markets suchas the U.S. and Germany, the bulldogs are featured as toughparty animals (refer Exhibit 7), while in Japan, the bulldogsare cute lovable characters (Exhibit 8). The Exhibits show thecomparison between TWO DOGS posters in Australia andthat of Japan.

THE FUTURE

Undoubtedly TWO DOGS entry into the Japanese markethas been successful due to the rigorous market research con-ducted, the strength of its distribution partner, and its ability toadapt the marketing mix to suit local conditions. The ongoingchallenge for management is to maintain and grow its marketshare in a highly competitive environment, while selling at apremium price in unfavorable macroeconomic conditions thatare unlikely to improve in the short term.

EXHIBIT 7TWO DOGS’ POSTER IN AUSTRALIA

EXHIBIT 8TWO DOGS’ POSTERS IN JAPAN

754 • Case 24 • ABC Chemical Company Goes Global

The ongoing economic recession in Japan will continueto erode consumer purchasing power and confidence; luxurygoods will suffer as consumers move toward cheaper products.This is already becoming evident: consumption of cognac andpremium whisky is declining in Japan. Since TWO DOGSwas launched in 1998, there has been massive growth in thesales volume of cheaper products, such as ‘‘Can Chu-Hi’’ and‘‘Hyoketsu Chu-Hi’’. These locally made Japanese brands are,in convenience stores, almost half the price of fully importedTWO DOGS.

DISCUSSION QUESTIONS

1. Should TWO DOGS maintain its premium price and thusrisk losing volume growth to cheaper products during therecession?

2. What effect would lowering its price have on its brandpositioning?

3. Would lowering its price require TWO DOGS to changeto a licensing strategy? If so, should local production be inJapan? Or in nearby Asian countries with lower manufac-turing costs, such as China or Thailand?

4. What other options does TWO DOGS have? Could thecompany change to a multi-brand strategy by introducing anew brand targeting the low-end segment?

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CASE 24

ABC CHEMICAL COMPANY GOES GLOBAL

Driven by competitive pressures, and the attractiveness of theindustry’s fastest growing market in the world, a U.S.-basedchemical manufacturer, ABC Chemical Company (namechanged to maintain confidentiality) considered expansioninto Asia, specifically, China.

William Smith is the International Marketing managerfor ABC Chemical Company. William has been tasked withexpanding ABC’s manufacturing and distribution to the AsiaPacific region. Many changes in the powder coating industryhave forced ABC to reconsider their global strategy. To date,they have exclusively manufactured and exported from theAmericas. Higher costs and tougher competition have forcedABC to look to the Asia Pacific region to reduce these costs(specifically shipping) and remain competitive.

ABC Chemical Company is a U.S.-based business thatmanufactures and distributes specialty chemicals to variousindustries for use in manufacturing finished products. ABCChemical Company’s powder coating division needs to expandinto Asia to remain competitive. Many of the powder coatingdivision’s customers are moving their plants to Asia in anattempt to expand their markets and lower their productioncosts. As well, all of ABC Chemical Company’s competitorsare opening production facilities in Asia to meet their cus-tomer’s needs, to expand their markets, and lower their costs.For Asian and some European manufacturers, powder coat-ings are a commodity with no specific qualities or competitiveadvantages to differentiate one from another. ABC ChemicalCompany believes that in the future, many of these manu-facturers will need more specialized products moving awayfrom a commodity. Gaining a foothold in Asia at this time is

This case was prepared by Kevin Hendrickson, Roberto Mandanici, andScott Solomon of the Fox School of Business and Management at TempleUniversity under the supervision of Professor Masaaki Kotabe for class dis-cussion rather than to illustrate either effective or ineffective managementof a situation described (2003).

critical to ABC Chemical Company’s future. As a commodity,powder coatings are purchased strictly based on price. Ship-ping costs to Asia have raised prices to a point where ABCChemical Company would either lose money if they met theircompetitor’s price or lose customers if they did not. As anexample it costs ABC Chemical Company $1.50 per pound tomanufacture in the U.S. and ship to Asia and only $0.50 perpound to manufacture in Asia.

Following the lead of many of their competitors, ABC haschosen to manufacture in China. Entering China has manybenefits including a large relatively untapped market, loweroverall costs, lower restrictions on production, and a centralproximity to the rest of Asia. Many of ABC Chemical Com-pany’s direct customers are either moving to or are alreadylocated in China. As well, China and Asia are underservedmarkets for ABC Chemical Company and many of their com-petitors. Moving to China is necessary to maintain marketshare as well as seek incremental business from new markets.One of ABC Chemical Company’s goals is to become a globalsupplier of specialty powder coatings. To achieve this goal,they must expand into Asia through China.

ABC Chemical Company has chosen to build its ownplant in China rather than to form a partnership or acquirean existing company. When seeking partners, ABC Chem-ical Company encountered a number of issues surroundingbusiness practices in China. These business practices violatedABC Chemical Company’s code of conduct and ethical objec-tives. Although these specific business practices are commonin China and have been accepted and adopted by competi-tors, ABC Chemical Company has chosen not to follow suit.Instead, ABC Chemical Company has chosen to build theirown facility. While building has a number of advantages, thereare a number of disadvantages to consider as well. Advantagesinclude:

• Full control of the facility

• Building to exacting standards rather than adapting anexisting facility