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Final Report_Dexibit_Rockstars

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Furqon Waspada

DEXIBIT is considering expanding into China's market. While China presents opportunities for growth, there are also challenges to consider. China has a large population and economy that is still growing, but it highly regulates foreign investment and has issues with weak intellectual property protection. DEXIBIT will need to build strong local relationships through agents, consider how to address intellectual property risks, and pay attention to new cybersecurity laws that could increase regulatory barriers. Thoroughly researching the market, competitors, and addressing strategic challenges will be important before entering China.

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DEXIBIT BUSINESS REPORT UNDERSTANDING CHINA : DEXIBITS PLAN TO ENTER CHINAS MARKET
This report is commissioned to examine the possibility of expanding DEXIBITs current market and help to for- mulate appropriate marketing strategies that can be applied in China in the future. The report indicates that entering chinas market is a lucrative deal for DEXIBIT. China as an emerging economy in the Asia pacific re- gion has currently drawn a great deal of attention from both domestic investor and foreign investors. With an expected growth of 7.0% in the fourth quarter, China has been experiencing a slowdown, the lowest one within the last six years (Euromonitor, 2015). As a part of future forecast, 70.9% of china total population will have access to the internet, meaning that almost a bil- lion population will at the very least engage in an on- line platform. Further investigation reveals that in a very specific in- dustry such as tourism with a sub categories of muse- um and art gallery exhibition, the performance showed a mixed result. On one hand, Museums in china are at- tracting more visitors, but in terms of revenue streams, the trend seems to be declining overtime. On the other Contents hand, art gallery exhibition regains its foothold by attracting more visitors in the upcoming years. All calculations however, can be found in the appen- dices below. DEXIBIT, as an aspiring company in providing digi- tal enablement to museum, art gallery exhibitions and cultural heritages, is currently seeking out the opportunity to establish a new market by expand- ing to China. The initial suggestions shows that with existing resources they have, it does present some challenges including but not limiting to use of agent, mode of entry, bigger cost structure and competitors presence in china. The report at some points also exhibits some of its limitation. All the strategies described here are solely based on the general assumption that the market is constant. Furthermore, although the data are valid, it would not be wise to generalize the strategy outside the scope of the market we already researched on. Executive Summary Executive Summary 2 1. External Analysis 3 1.1 Why China 3 1.1.1 Challenges 3 1.1.2 Guanxi 4 1.1.3 Media Censorship 4 1.1.4 Intellectual Property 4 1.1.5 Cybersecurity Law 4 1.2 Industry Analysis 5 1.2.1 Digital Technology 5 1.2.2 Tourism in China 5 1.2.3 Museum Industry 5 1.3 Shanghai 6 1.3.1 Heart of The Nation 6 1.3.2 End-Users Concentration 6 1.4 Competition Landscape 7 1.4.1 Competitiors Profile 7 1.5 Maximizer 8 1.5.1 Experience Level 8 1.5.2 Price Sensitivity 8 1.5.3 Visiting Frequency 9 1.5.4 Age Matters 9 1.6 Expansion Strategy 10 1.6.1 Marketing & Sales Agents 10 1.6.2 Manufacturing Agents 10 1.7 Establishing Network 11 1.7.1 Advantages & Disadvantages 11 1.7.2 Conducting Business 11 1.8 Financial Model 12 1.8.1 Cost Structure 12 1.82 Revenue Projection 13 1.9 Further Actions 14 1.9.1 Recommendations (1) 14 1.9.2 Recommendations (2) 15 References 16 Appendix 19
Why China Strong Economic Growth China has main- tained strong economic growth in recent years, with average GDP growth of 10.22% during 2004-13. The economic fundamen- tals of the country are ro- bust with the indicator of a strong economic growth for the past three decades. Chinas strong external po- sition is evident from its vast foreign exchange reserves. With strong economic fun- damentals, China has sig- nificant market potential for foreign companies like DEX- IBIT to invest. Foreign Direct Investment China surpassed the US and became the largest recipient of foreign direct in- vestment (FDI) in the world in 2014. China only attracted $40.71 billion FDI in 2000 but the country had attracted FDI inflows worth $128.5 billion in 2014.Moreimportantly,Anin- crease of FDI inflow in 2014 was mainly in services sec- tor especially retail, trans- port and finance. Therefore, it is a good news for DEXIBIT since the service industry is booming in China. Bullish Service Sector The service sec- tor of China contribute to 43.67% of the countrys GDP in 2014, which makes service sector accounted for the large part of chinas output. Also, service sector had been increasing rapid- ly from 2010 to 2014. More- over, a significant number of services sector compa- nies are stepping into the market to satisfy consumer needs. Under such circum- stance, it is recommend- ed that DEXIBIT grabs the chance and enter Chinese market. Mobile and Internet Penetration Mobile penetration stood at 97.85 per 100 peo- ple in 2014 with the country having 1.33 billion mobile subscriptions. Additionally, Chinas internet-connected populationtotaled613.55mil- lion at the end of 2013 which counted for 45.1% of the pop- ulation. Although, Broad- band services are mostly restricted to the commer- cial segment, the trend is undergoing a change since more and more residential customers are opting for these services 10.22% $128.5 Billion 43.67% of GDP 1.33 Billion Why China
Although, China is a promising country for the business people to set up their own business or to expand their current market operation. China on the other hand, is still a developing country.By this, government intervention is still prevalent in harnessing industries within the territory. Of so many challanges that we identified so far, DEXIBIT need to take a closer attention at Guanxi-based business relations, high restriction on foreign direct investment, Weak intellectual property rights enforcement, upcoming new cybersecurity law and other challenges.The following paragraph will discus how these challanges are addressed properly. According to Silvia and Simone (2015), Guanxi practice is deeply entrenched in Chinese culture. Es- sentially, Guanxi means a utilitarian capital: the ex- changes of favors enable individuals to achieve per- sonal advantages (Lee and Ellis, 2000). Therefore, it is recommended that DEXIBIT should nurture and maintain Guanxi in China, espe- cially with the local agents. In the meantime, having a good relationship with the local and central govern- ment is also essential to the success of the business in the long term. This report highly advises for any company to treat government as an ally. One obvious example came from the case of Air New Zealand. According to New Zealand Trade and Enterprise (2015), during the process of building up Auckland-Shanghai air service, Air New Zealand gained credibility and support from lower levels of the bureaucracy and stakeholders from low level of management. As such, building a network with top executive levels became much easier GUANXI AND CULTURAL BARRIER Chinas product market regulation is still way above other BRICS nations. Liberalization and deregu- lation have been slow in almost all areas. Figure 7 (see appendix) illustrates 2014 FDI Regulatory Restrictive- ness Index. China is identified as the most restrictive nation among its BRICS counterparts. In a similar vein, Internet censorship is com- mon practice done by the Chinese government. This preventive action is taken to ensure that none of the many sensitive topics are allowed to be discussed publicly. FDI RESTRICTION AND MEDIA CENCORCSHIP China famously has a very weak record of in- tellectual property rights (IPR) protection. Intellectual property in China has been merely imitative rather than being innovative, and the enforcement of IPR is ineffective. In fact, China's poor IPR practices resulted in China been added to the United States Trade Rep- resentative (USTR)'s Priority Watch List, which is the category for US trading partners with the most seri- ous IPR violations in 2014 by the International Intel- lectual Property Alliance (IIPA). Piracy is widely prevalent in music, films, tele- vision programming, books and journals, software and other copyrighted products. (MarketLine, 2015) Furthermore, many Chinese illegal intellectual com- panies just directly duplicate trendy products. Since imitation is the main actions for most Shan Zhai com- panies, that is to say, DEXIBIT might be duplicate ille- gally in China when it gain high brand awareness and market and DEXIBIT should be ready for it. (Feng & Li, 2011) INTELLECTUAL PROPERTY CYCBERSECURITY LAW According to the Fortune magazine (2015), China is drafting a law that requires organizations es- pecially Internet service providers (ISP) to store data that have been collected domestically in China. Fortune believes the new cybersecurity law will increase barriers for foreign companies to do business in China. Therefore, it serves as a precaution for DEXIB- IT not to take this matter lightly. Alternatively, DEXIBIT could store their data in the reliable agents Challanges Challanges Cybersecurity is a shared responsibility
Digital Landscape The digital trend, in terms of internet subscribers, reaches out to 198 million subscribers in 2013, a slightly greater than European subscribers. While the data seems convincing since China has a much larger population, the e-commerce-driven activity only accounts for less than 50% as to the US market by now. By this, China's digital trend has set to out- pace in the near foreseeable future (Euromonitor, 2015) INTERNET SUBSCRIBER TELECOMMUNICATION INDUSTRY INTERNET USER BASE China is a global lead- er in mobile and inter- net subscribers with a total of more than 380 million subscribers. The trend becomes ap- parent among middle youth who aspires to be a tech savvy. Telecommunication in- dustries are heavily in- vesting in 4G network and fibre-optic and at the same time, smart- phone sales hit 350 mil- lion units in 2015, and it is expected to grow rapidly. Massive internet user base drives rap- id growth in e-com- merce. Total sales generated from using online platforms as a market place accounts for as much as USD 9.1 Billion in profit. An Art Book is A Museum Without Wall Museum Overview 3660 museums in China 190 new museums each year 400,000 visitors for each museum in ratio 400,000,000 visitors every year CNY 41,000,000 in total revenue Why Shanghai Heart of The Nation The tourism outlook in Shanghai holds a great deal of opportunities to exploit. With an average dispos- able income of the population around 80,000 Yuan (USD 12,604), Shanghai can be considered as a city where the heart of economic activities occurs. Shanghai can also host and handle both national and international events at the same time (Euromonitor, 2014). A sharp increase of 64% in Shanghai tourism proves to be the indicator how attractive the city is. In summary, Shanghais long term potential remains strong in the tourism sector. End-Users Consentration Although the number of museum visitors in Shang- hai is far less superior to other cities such as Jiangxi, Sichuan and Hunan, Shanghai is still a home for more than 7,000 billionaires The city is also drawing a great deal of attention where students across China are spending their holiday in (Customer Segment Research, 2015). Based on the data above we can say that the cus- tomer target for end customers are concentrated in Shanghai (The Power of Proximity, 2011).
End-Users Profile ATTITUDE PROFILE BEHAVIOUR PROFILE DEMOGRAPHIC PROFILE Maximizer Tech Savvy Artist Educated People Insensitive to Price Change Most Receptive to Museum Apps Sensitive to Price Change Higher Value on Functionality Enjoy Museum Expe- rience Online Visiting Frequency is High Museum as a Source of Inspiration Visiting Frequency is Low Moderate to High Purchasing Power Low to Moderate Purchasing Power Moderate Purchas- ing Power Moderate to High Purchasing Power Competition Landscape The report identifies several competitiors in the related market, these competitiors however are mostly based outside China. Based on the intial report, we are able to identify four companies. the competitive landscape can be classified into several categories. The first category is a company that is predominantly based in New Zealand. The second category is companies that are considered as a big and stable company, generating more than USD 100 million. The third category is a a com- pany that actuallty resembles DEXIBIT in terms of its business model and is still growing within the Chinas territory. Story, in particular, is a startup company com- peting on a similar platform as DEXIBIT is. Story is a New Zealand based company and has been operating for a couple of years. The company offers a wide array of mobile applications that helps museums, art ex- hibition, and cultural heritage exhibition to enhance their customer experience. By offering an interactive platform that is able to cater a real-time analytics, the company aims to target not only the museum manage- ment team but also attempts to engage directly with the end customers. Adage is a global leader in providing interactive application for museum and art exhibition. The US- based company mainly operates in the domain of web customization, web design and mobile website applica- tion. As per current market, they have been generating for more than $286 Million in revenue resulting from partnership and their e-commerce platform. However, Adage does not directly compete on business analytic platform. MyOrpheo is founded in 1992 in the US and has been installing their mobile application for more than 1,000 sites ranging from museums, art exhibitions and also cultural heritages. With a focus on maintaining a high quality level of service, MyOrpheo emphasizes their operation in catering mobile and web application as well as data analytic application. Although, the com- panys branch is situated across cities, MyOrpheo has not decided to enter the chinas market yet. Muti-prism is a Chinese-based company that creates mobile and web application designated for museums, art galleries, and cultural heritage as well. It was founded in 2012 and has been awarded as the best technology based company for museum by Chinese association of museum. The service they offer includes beacon installation, designing a creative museum appli- cation and additional service such as data analytic.
Maximizer Maximizer Prefer the utmost immersive museum and gallery experience Extravagant and high-quality lifestyle. Insensitive to price High Purchasing Power Visiting Frequency: Moderate to High Middle to Upper class Average age: 30 to mid 40 Education level: College Grads Above Behavior Attitude Purchasing Power Price Sensitive EXPERIENCE LEVEL PRICE SENSITIVITY Bringing museum experience to the utmost is a requirement to keep the customer engaged. Maximizers are seen as potential cus- tomers that both have the tendency to enjoy the museum and the tendency to justify their social class. According to the report (Magni and Poh, 2013), capturing immersive experience for this end-us- ers requires tech-enabled customer engage- ment. This can be achieved through using an online mobile platform where simplicity is the key driver to its success. Of all the challenges that the chinese middle class presents to marketers, understand- ing the specific needs and purchasing power of the group is of utmost importance. Middle class consumers have rising purchasing power and are increasingly willing to pay more for higher quality, brand names, and differentiated fea- tures (Song and Cui, 2009) Chinese middle income class is less price sensi- tive compared with any other classes under the same category. However, one must understand that putting the right pricetag still matters. VISITING FREQUENCY AGE MATTERS This affluent type customers are by far more likely to be enjoying museums frequently as opposed to tech savvy and educated people. The similar traits with artists but have more dis- posable income at hand can be an advantage to the museum and exhibition owner. It is also understandable that 23% of this end user (Maximizer) spends their time doing out- door activities. These outdoor activities, as the report suggests is a way for this end user seg- ment to find a gateaway from the workplace. Middle income class in Beijing aged between 30s to mid 40s (Euromonitor, 2015). Recent data shows that this class category is accustomed to using social-media platform as a means of communication and e-commerce place. To be more precise, 66.4% of the total middle youth class are currently using WeChat as the most popular social media. The data demon- strate a promising customer target in relation to digital trend (Euromonitor, 2015)
Mode of Entry The chance of being a hit in China depends on how DEXIBIT builds upon their relation- ship with the existing business entities in China. For this part, we'd like to focus on the creation of channels in China. New Zealand Trade and Enterprise stringly recommends that partnering with local agents ensure the easiness of making the initial contact of establishing market presence. local agents in relation to DEXIBITs current business model can be divided into two different partner- ship. sales and distribution agents and manufacturing agents. Sales 01 Marketing agents Manufacture 02 Museums 03 End-users 04 Hard-wares Promotion APP MARKETING AND SALES AGENTS This kind of local part- ners helps DEXIBIT to target the market in Shanghai easily. its a quick way to bypass local culture. We suggest that going to partner with local partners would be the most feasible way to conduct business. Their primary job is to ensure that the devices can be sold to various museums and art gal- lery venues. MANUFACTURING AGENTS This kind of partnership seeks out the possibility of provid- ing reliable hardware manu- facturers in China. Foxconn as the leading tech- nology manufacturer in China serves as a good starting point to create a mutual partnership with. It also allows to drive the cost structure down as the company does not necessarily have to outsource their prod- uct from Europe. Establishing Network New Zealand trade and enterprise strongly suggests all the New Zealand companies need to do re- search first and then physically visit the market to build connections and look for face to face advice and information from different sources before making any decisions on how to enter the Chinese market. (New Zealand Trade & Enterprise, 2015). Nevertheless, the use of agents as it has been pre- viously stated before posesses several advantages and disadvantages as well. LOCAL AGENTS ADVANTAGES DISADVANTAGES Agents have the right to claim a large amount of compensation when the agency agreement about to finish Double taxation might happen, should take local law into consideration its very costly to manage stock inventory Agents are usually not exclusive, they might also sell similar products which have to be controlled. Overpromising a key lesson that many Kiwi com- panies learnt was many Chinese agents will exag- gerate their ability Raising your costs and selling price Reducing your control over sales and marketing Potentially increasing the risk of your product being counterfeited. Data are not allowed to take out from China Partners potentially become rivals once they understand how the business works CONDUCTING BUSINESS DEXIBIT needs to assign the selected local agent to promote the products to the three museums in Shanghai. As soon as the negotiation is wrapped up, provide relevant training to DEXIBITs key partners. STEP 1 STEP 2 We identify three potential clients to be targeting for the initial phase, of three clients are Shanghai National Museum, Shanghai National Mu- seum of Art and Shanghai Urban Planning Exhibition Center STEP 3 STEP 4 Once the hardware equipment is installed. Encourage the three muse- ums to promote the software application using several channels to the end users. Beacons andWifi Markers need to be manufactured at the predetermined local manufacturing agents. Ship the equipment to the museum and in- stall all the devices afterwards.
Cost Structure Revenue Projection The following information will provide an overview of a possible annual income the company can generate from selling their products that include hardware sales (Beacons and WiFi Mark- ers), monthly subscription fee, consulting service, business analytic software as well as its sub- scription fee Revenue Stream 2016 2017 2018 Hardware Sales Beacon Tough Beacon Wifi Marker Business Analytic Software Annual Subscription (Beacon and Markers) Consulting Service $48,510 $64,680 $368,676 $36,000 N/A $125,760 $53,361 $71,148 $405,543 $39,600 N/A $138,336 $58,697 $78,262 $446,097 $43,560 N/A $152,169 The first assumptions are the calculation regarding the beacon sales, tough beacon sales and Wi-Fi marker sales.The revenue generated from selling the hardware can be obtained using complex calculation including museum spaces and number of targeted museum in the first year. The second assumption is the annual subscription of business analytic software. So far, we are unable to get the average annual subscription fee for this revenue stream. Due to the nature of the business analytic soft- ware that requires massive customization, we used $300/Annum for the annual subscription fee. The third assumption is the fee imposed by providing consulting service. Considering that DEXIBIT is a rel- atively new player in the industry, we decide to charge the client as much as $80/hour for the consulting service and multiply it by 262 weekdays in a year. The fourth assumption is the market growth rate that stands at 10% market growth rate annually. Total Revenue $778,787$707,908$643,626 REVENUE ASSUMPTIONS Expenses 2016 2017 2018 COGS Employee Salary Marketing Campaign Other Expenses $153,137 $51,490 $35,399 $153,137 $153,137 Total Expenses $468,513 $231,705 $56,639 $62,303 The first assumption the calculation regarding the COGS (Cost of Good Sold), our assumption on this matter is based on the average industry COGS which is around 36%. The second assumption is calculating the employees salary. We divided the job position into four category. ac- countant, IT Developer, marketer and administration staff. All of them are paid in Yuan instead of New Zealand dollar.The average salary for the calculation is taken from the average Shanghai people earn for each job position. The third assumption is the marketing campaign and other expenses. the calculations shown up in the table are gleaned by using the assumption of 8% and 5% of the revenue generated in the same year. Nevertheless, its up to the management whether the marketing expenses should increase every year or remain the same. The fourth assumption is the currency that is being used here. The currency rate for all the calculations, both ex- penses and revenue streams is (1 NZD = 4.15 CNY) EXPENSES ASSUMPTIONS The discussion abouth how the cost structured is devised once DEXIBIT decide to enter the Chinas market is as follows. However, the cost structure as described below is far from flawless. Thus, its important for the management to read thoroughly what assumptions that are being used to explain the model. $254,875 $280,363 $38,939$32,181 $500,005 $534,742
Recommendations 1 2 3 The need to formulate a posi- tive marketing campaign is undoubt- edly required to create positive cus- tomer relationship both with the direct customers (Museum, Art Gal- leries, and Cultural Heritage) and with the targeted customer segments. MARKETING CAMPAIGN Finding key partners that are reliable and provides with superior product quality is a must for DEXIBIT to ensure that their revenue streams keep flowing. The partnership com- prises finding the right hardware manufacturers and finding the right local agents. FINDING OUT RELIABLE PARTNERS Increased competition among this market should not be taken lightly. That said, even though none of the competitors we already identified have technically competed on the same offering, DEXIBIT should move swiftly to capture critical components of the business model. This includes establishing vertical integration across suppliers and local agents to prevent the competitors from crowd- ing in the market. VERTICAL INTEGRATION 4 5 6 Guanxi and its complexity in building relationship could be a real obstacle in the process. Thus, it is bad- ly advised for DEXIBIT to utilize the gatekeeper as individuals who are able to ease two ways of communica- tion. USING GATEKEEPERS Focusing on the scope of Art Galleries and Exhibition will nurture relation- ship. However, it can only be done through harnessing relationship with local talents (photographers, artists, and designer enthusiast). COLLABORATING WITH TALENTS WeChat, as the most popular social media platform, would provide DEXIBITaspacetopromotetheirprod- uct using their QR scanning feature. It does not have to be a big collabora- tion, but it is worthwhile to consider having a partnership with WeChat. WECHAT AS PARTNER Recommendations
References Adage Technology. (2015). Retrieved from http://www.adagetechnologies.com/ Alibaba. (2015). Alibaba Group Announces March Quarter 2015 and Full Fiscal Year 2015 Results Axiell (2015). Retrieved from http://www.axiell.com/ . (2015). Baidu Announces First Quarter 2015 Result. Retrieved from http://ir./ phoenix.zhtml?c=188488&p=irol-reportsAnnual Chinas Middle Income Consumers. (2013). Retrieved from http://www.cbbc.org/cbbc/media/cbbc_ media/KnowledgeLibrary/Reports/Sector%20Profile/CBBC-China-s-Middle-Income-Consum- ers.pdf Chow J. (2013, November). China's Museum Moment. Wall Street Journal - Eastern Edition. p. D3. City Travel Briefing: Shanghai. (2014, January 1). Retrieved from http://www.portal.euromonitor.com Colburn, K. (2014). Disruptive Technology: Opportunities, Threats or Distractions? Franchising World, 46(11), 22-23 Company Also Appoints New CEO and New Member of the Board of Directors Retrieved from http:// www.alibabagroup.com/en/ir/financial_fullyear Customer Segment Research in Shanghai. (2015, July 05). Retrieved from http://docin. com/p-697924656.html Feng, W., Yin, L., & Li, T. (2011). Research on the Phenomena of "SHAN ZHAI" and the Corresponding Intellectual Property Rights Strategies of China. International Management Review, 7(1), 74-81. Fortune(2015)HowChina'sproposedcybersecuritylawcouldimpacttechcompaniesRetrievedfrom http://fortune.com/2015/07/08/chinas-proposed-cybersecurity-law-impact-tech-companies/ Gutner, T. (2004).China in Transition. Businessweek, (3894), 96. Hollander, D. (2015). The Shape of Things to Come. Best's Review, (6), 53. Holmquist, L.,Tracz,W., & Selby, R. (2006). An Evaluation of DSSA-ADAGETechnology. Crosstalk, 9(12), 25-28. Magni, M & Poh, F. (2013, June 01). Winning the battle for Chinas new middle class. Retrieved from http://www.mckinsey.com/insights/consumer_and_retail/winning_the_battle_for_chinas_ new_middle_class Marceux, Pavel. 'In Focus: China Has More Broadband Internet SubscribersThan All Of Europe'. Portal. euromonitor.com.ezproxy.auckland.ac.nz. N.p., 2015. Web. 2 Nov. 2015. Market line. (2015) Country Reports - China. China Country Monitor, 1-26. Microsoft. (2014) Microsoft 2014 Annual Report. Retrieved from http://www.microsoft.com/investor/reports/ ar14/index.html Multi-Prism. (2015). About Multi-Prism. Retrieved from http://www.3lengjing.com/about/ Myorhoeo. (2015). About MyOrhpeo Retrieved from http://myorpheo.com/ New Zealand Trade & Enterprise. (2015) .Using agents and distributors Retrieved October 17th, 2015 from https://www.nzte.govt.nz/en/export/export-markets/greater-china/china/sales-and-marketing/us- ing-agents-and-distributors/ New Zealand Trade & Enterprise. (2015). Dealing with government and local authorities Retrieved October 17th, 2015 from https://www.nzte.govt.nz/en/export/export-markets/greater-china/china/enter- ing-the-market/dealing-with-government-and-local-authorities/ Poon, K. (2005). Business Guides. London: China-Britain Business Council. Salary Information for Multi-Prism (2015). Retrieved from http://www.jobui.com/company/10636968/salary/ Salary Report in Shanghai (2014). Retrieved from http://wenku./link?url=BHjEw8pX4nIyfxk4Q0u- wo_ahmBgYmfzKWgKp08SMx-IbKdrQI_YQYVKYgt5BC3JONXJo421TZ0vQhflh-M9-k1KQLKim94orfL- 1ZLft2qXe Shanghais Office Rent (2015). Retrieved from http://sh.ganji.com/fang8/h0/ Song, K & Cui, A. (2009, January 01). Understanding chinas middle class. Retrieved from http://www.chinab- usinessreview.com/understanding-chinas-middle-class/ Story. (2015). About Story. Retrieved from http://www.storyinc.co.nz/about/ Technology, Communication and Media, (2015). Retrieved 2 November 2015, from http://www.portal.euro- monitor.com.ezproxy.auckland.ac.nz/portal/analysis/tab Tencent. (2015). Interim Report. Retrieved from http://www.tencent.com/en-us/ir/reports.shtml The Best Seven Museum in Shanghai (2015). Retrieved from http://www.chinahighlights.com/shanghai/ top-seven-museums.htm The National Bureau of Statistics of China (2015). China National Museum Report 2013. Retrieved October 17th, 2015, from http://data.stats.gov.cn/search.htm?s=%E5%8D%9A%E7%89%A9%E9%A6%86 The Power of Proximity: The Complex Story of 21st Century Cities. (2011, October 10). Retrieved from http:// References
portal.euromonitor.com Travel in China (2015, September 16). Retrieved from http://www.portal.euromonitor.com Travelchinaguide.com,. (2015). China Tourism: Statistics and Data. Retrieved 26 October 2015, from http:// www.travelchinaguide.com/tourism/ Tsang, N. F., Lee, L. Y., & Qu, H. (2015). Service quality research on Chinas hospitality and tourism indus- try. International Journal of Contemporary Hospitality Management, 27(3), 473-497. Doi: 10.1108/ IJCHM-01-2014-0048 Ying, L. I. (2014). The Analysis on developing situation and strategy of the museum tourism products in China [J]. Human Geography, 4, 006. References Figure 3 FDI inflows in China, 2004-14 (Marketline, 2015) Figure 4 GDP composition by sector in China, 2014 (Marketline, 2015) Appendices Figure1.theNationalBureauofStatisticsofChina(2015) Figure 2 GDP & Growth Rate in China, 2009-19 (Market- line, 2015)
Figure 5 Service Output in China (Marketline, 2015) Figure 6 Internet Users In China (Marketline,2015) Figure 7 FDI Regulatory Restrictiveness Index, 2014 (Marketline, 2015) Figure 11 Sector Wise FDI Restrictiveness In China, 2014 (Marketline,2015) Appendices Appendices

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Final Report_Dexibit_Rockstars

  • 1. DEXIBIT BUSINESS REPORT UNDERSTANDING CHINA : DEXIBITS PLAN TO ENTER CHINAS MARKET
  • 2. This report is commissioned to examine the possibility of expanding DEXIBITs current market and help to for- mulate appropriate marketing strategies that can be applied in China in the future. The report indicates that entering chinas market is a lucrative deal for DEXIBIT. China as an emerging economy in the Asia pacific re- gion has currently drawn a great deal of attention from both domestic investor and foreign investors. With an expected growth of 7.0% in the fourth quarter, China has been experiencing a slowdown, the lowest one within the last six years (Euromonitor, 2015). As a part of future forecast, 70.9% of china total population will have access to the internet, meaning that almost a bil- lion population will at the very least engage in an on- line platform. Further investigation reveals that in a very specific in- dustry such as tourism with a sub categories of muse- um and art gallery exhibition, the performance showed a mixed result. On one hand, Museums in china are at- tracting more visitors, but in terms of revenue streams, the trend seems to be declining overtime. On the other Contents hand, art gallery exhibition regains its foothold by attracting more visitors in the upcoming years. All calculations however, can be found in the appen- dices below. DEXIBIT, as an aspiring company in providing digi- tal enablement to museum, art gallery exhibitions and cultural heritages, is currently seeking out the opportunity to establish a new market by expand- ing to China. The initial suggestions shows that with existing resources they have, it does present some challenges including but not limiting to use of agent, mode of entry, bigger cost structure and competitors presence in china. The report at some points also exhibits some of its limitation. All the strategies described here are solely based on the general assumption that the market is constant. Furthermore, although the data are valid, it would not be wise to generalize the strategy outside the scope of the market we already researched on. Executive Summary Executive Summary 2 1. External Analysis 3 1.1 Why China 3 1.1.1 Challenges 3 1.1.2 Guanxi 4 1.1.3 Media Censorship 4 1.1.4 Intellectual Property 4 1.1.5 Cybersecurity Law 4 1.2 Industry Analysis 5 1.2.1 Digital Technology 5 1.2.2 Tourism in China 5 1.2.3 Museum Industry 5 1.3 Shanghai 6 1.3.1 Heart of The Nation 6 1.3.2 End-Users Concentration 6 1.4 Competition Landscape 7 1.4.1 Competitiors Profile 7 1.5 Maximizer 8 1.5.1 Experience Level 8 1.5.2 Price Sensitivity 8 1.5.3 Visiting Frequency 9 1.5.4 Age Matters 9 1.6 Expansion Strategy 10 1.6.1 Marketing & Sales Agents 10 1.6.2 Manufacturing Agents 10 1.7 Establishing Network 11 1.7.1 Advantages & Disadvantages 11 1.7.2 Conducting Business 11 1.8 Financial Model 12 1.8.1 Cost Structure 12 1.82 Revenue Projection 13 1.9 Further Actions 14 1.9.1 Recommendations (1) 14 1.9.2 Recommendations (2) 15 References 16 Appendix 19
  • 3. Why China Strong Economic Growth China has main- tained strong economic growth in recent years, with average GDP growth of 10.22% during 2004-13. The economic fundamen- tals of the country are ro- bust with the indicator of a strong economic growth for the past three decades. Chinas strong external po- sition is evident from its vast foreign exchange reserves. With strong economic fun- damentals, China has sig- nificant market potential for foreign companies like DEX- IBIT to invest. Foreign Direct Investment China surpassed the US and became the largest recipient of foreign direct in- vestment (FDI) in the world in 2014. China only attracted $40.71 billion FDI in 2000 but the country had attracted FDI inflows worth $128.5 billion in 2014.Moreimportantly,Anin- crease of FDI inflow in 2014 was mainly in services sec- tor especially retail, trans- port and finance. Therefore, it is a good news for DEXIBIT since the service industry is booming in China. Bullish Service Sector The service sec- tor of China contribute to 43.67% of the countrys GDP in 2014, which makes service sector accounted for the large part of chinas output. Also, service sector had been increasing rapid- ly from 2010 to 2014. More- over, a significant number of services sector compa- nies are stepping into the market to satisfy consumer needs. Under such circum- stance, it is recommend- ed that DEXIBIT grabs the chance and enter Chinese market. Mobile and Internet Penetration Mobile penetration stood at 97.85 per 100 peo- ple in 2014 with the country having 1.33 billion mobile subscriptions. Additionally, Chinas internet-connected populationtotaled613.55mil- lion at the end of 2013 which counted for 45.1% of the pop- ulation. Although, Broad- band services are mostly restricted to the commer- cial segment, the trend is undergoing a change since more and more residential customers are opting for these services 10.22% $128.5 Billion 43.67% of GDP 1.33 Billion Why China
  • 4. Although, China is a promising country for the business people to set up their own business or to expand their current market operation. China on the other hand, is still a developing country.By this, government intervention is still prevalent in harnessing industries within the territory. Of so many challanges that we identified so far, DEXIBIT need to take a closer attention at Guanxi-based business relations, high restriction on foreign direct investment, Weak intellectual property rights enforcement, upcoming new cybersecurity law and other challenges.The following paragraph will discus how these challanges are addressed properly. According to Silvia and Simone (2015), Guanxi practice is deeply entrenched in Chinese culture. Es- sentially, Guanxi means a utilitarian capital: the ex- changes of favors enable individuals to achieve per- sonal advantages (Lee and Ellis, 2000). Therefore, it is recommended that DEXIBIT should nurture and maintain Guanxi in China, espe- cially with the local agents. In the meantime, having a good relationship with the local and central govern- ment is also essential to the success of the business in the long term. This report highly advises for any company to treat government as an ally. One obvious example came from the case of Air New Zealand. According to New Zealand Trade and Enterprise (2015), during the process of building up Auckland-Shanghai air service, Air New Zealand gained credibility and support from lower levels of the bureaucracy and stakeholders from low level of management. As such, building a network with top executive levels became much easier GUANXI AND CULTURAL BARRIER Chinas product market regulation is still way above other BRICS nations. Liberalization and deregu- lation have been slow in almost all areas. Figure 7 (see appendix) illustrates 2014 FDI Regulatory Restrictive- ness Index. China is identified as the most restrictive nation among its BRICS counterparts. In a similar vein, Internet censorship is com- mon practice done by the Chinese government. This preventive action is taken to ensure that none of the many sensitive topics are allowed to be discussed publicly. FDI RESTRICTION AND MEDIA CENCORCSHIP China famously has a very weak record of in- tellectual property rights (IPR) protection. Intellectual property in China has been merely imitative rather than being innovative, and the enforcement of IPR is ineffective. In fact, China's poor IPR practices resulted in China been added to the United States Trade Rep- resentative (USTR)'s Priority Watch List, which is the category for US trading partners with the most seri- ous IPR violations in 2014 by the International Intel- lectual Property Alliance (IIPA). Piracy is widely prevalent in music, films, tele- vision programming, books and journals, software and other copyrighted products. (MarketLine, 2015) Furthermore, many Chinese illegal intellectual com- panies just directly duplicate trendy products. Since imitation is the main actions for most Shan Zhai com- panies, that is to say, DEXIBIT might be duplicate ille- gally in China when it gain high brand awareness and market and DEXIBIT should be ready for it. (Feng & Li, 2011) INTELLECTUAL PROPERTY CYCBERSECURITY LAW According to the Fortune magazine (2015), China is drafting a law that requires organizations es- pecially Internet service providers (ISP) to store data that have been collected domestically in China. Fortune believes the new cybersecurity law will increase barriers for foreign companies to do business in China. Therefore, it serves as a precaution for DEXIB- IT not to take this matter lightly. Alternatively, DEXIBIT could store their data in the reliable agents Challanges Challanges Cybersecurity is a shared responsibility
  • 5. Digital Landscape The digital trend, in terms of internet subscribers, reaches out to 198 million subscribers in 2013, a slightly greater than European subscribers. While the data seems convincing since China has a much larger population, the e-commerce-driven activity only accounts for less than 50% as to the US market by now. By this, China's digital trend has set to out- pace in the near foreseeable future (Euromonitor, 2015) INTERNET SUBSCRIBER TELECOMMUNICATION INDUSTRY INTERNET USER BASE China is a global lead- er in mobile and inter- net subscribers with a total of more than 380 million subscribers. The trend becomes ap- parent among middle youth who aspires to be a tech savvy. Telecommunication in- dustries are heavily in- vesting in 4G network and fibre-optic and at the same time, smart- phone sales hit 350 mil- lion units in 2015, and it is expected to grow rapidly. Massive internet user base drives rap- id growth in e-com- merce. Total sales generated from using online platforms as a market place accounts for as much as USD 9.1 Billion in profit. An Art Book is A Museum Without Wall Museum Overview 3660 museums in China 190 new museums each year 400,000 visitors for each museum in ratio 400,000,000 visitors every year CNY 41,000,000 in total revenue Why Shanghai Heart of The Nation The tourism outlook in Shanghai holds a great deal of opportunities to exploit. With an average dispos- able income of the population around 80,000 Yuan (USD 12,604), Shanghai can be considered as a city where the heart of economic activities occurs. Shanghai can also host and handle both national and international events at the same time (Euromonitor, 2014). A sharp increase of 64% in Shanghai tourism proves to be the indicator how attractive the city is. In summary, Shanghais long term potential remains strong in the tourism sector. End-Users Consentration Although the number of museum visitors in Shang- hai is far less superior to other cities such as Jiangxi, Sichuan and Hunan, Shanghai is still a home for more than 7,000 billionaires The city is also drawing a great deal of attention where students across China are spending their holiday in (Customer Segment Research, 2015). Based on the data above we can say that the cus- tomer target for end customers are concentrated in Shanghai (The Power of Proximity, 2011).
  • 6. End-Users Profile ATTITUDE PROFILE BEHAVIOUR PROFILE DEMOGRAPHIC PROFILE Maximizer Tech Savvy Artist Educated People Insensitive to Price Change Most Receptive to Museum Apps Sensitive to Price Change Higher Value on Functionality Enjoy Museum Expe- rience Online Visiting Frequency is High Museum as a Source of Inspiration Visiting Frequency is Low Moderate to High Purchasing Power Low to Moderate Purchasing Power Moderate Purchas- ing Power Moderate to High Purchasing Power Competition Landscape The report identifies several competitiors in the related market, these competitiors however are mostly based outside China. Based on the intial report, we are able to identify four companies. the competitive landscape can be classified into several categories. The first category is a company that is predominantly based in New Zealand. The second category is companies that are considered as a big and stable company, generating more than USD 100 million. The third category is a a com- pany that actuallty resembles DEXIBIT in terms of its business model and is still growing within the Chinas territory. Story, in particular, is a startup company com- peting on a similar platform as DEXIBIT is. Story is a New Zealand based company and has been operating for a couple of years. The company offers a wide array of mobile applications that helps museums, art ex- hibition, and cultural heritage exhibition to enhance their customer experience. By offering an interactive platform that is able to cater a real-time analytics, the company aims to target not only the museum manage- ment team but also attempts to engage directly with the end customers. Adage is a global leader in providing interactive application for museum and art exhibition. The US- based company mainly operates in the domain of web customization, web design and mobile website applica- tion. As per current market, they have been generating for more than $286 Million in revenue resulting from partnership and their e-commerce platform. However, Adage does not directly compete on business analytic platform. MyOrpheo is founded in 1992 in the US and has been installing their mobile application for more than 1,000 sites ranging from museums, art exhibitions and also cultural heritages. With a focus on maintaining a high quality level of service, MyOrpheo emphasizes their operation in catering mobile and web application as well as data analytic application. Although, the com- panys branch is situated across cities, MyOrpheo has not decided to enter the chinas market yet. Muti-prism is a Chinese-based company that creates mobile and web application designated for museums, art galleries, and cultural heritage as well. It was founded in 2012 and has been awarded as the best technology based company for museum by Chinese association of museum. The service they offer includes beacon installation, designing a creative museum appli- cation and additional service such as data analytic.
  • 7. Maximizer Maximizer Prefer the utmost immersive museum and gallery experience Extravagant and high-quality lifestyle. Insensitive to price High Purchasing Power Visiting Frequency: Moderate to High Middle to Upper class Average age: 30 to mid 40 Education level: College Grads Above Behavior Attitude Purchasing Power Price Sensitive EXPERIENCE LEVEL PRICE SENSITIVITY Bringing museum experience to the utmost is a requirement to keep the customer engaged. Maximizers are seen as potential cus- tomers that both have the tendency to enjoy the museum and the tendency to justify their social class. According to the report (Magni and Poh, 2013), capturing immersive experience for this end-us- ers requires tech-enabled customer engage- ment. This can be achieved through using an online mobile platform where simplicity is the key driver to its success. Of all the challenges that the chinese middle class presents to marketers, understand- ing the specific needs and purchasing power of the group is of utmost importance. Middle class consumers have rising purchasing power and are increasingly willing to pay more for higher quality, brand names, and differentiated fea- tures (Song and Cui, 2009) Chinese middle income class is less price sensi- tive compared with any other classes under the same category. However, one must understand that putting the right pricetag still matters. VISITING FREQUENCY AGE MATTERS This affluent type customers are by far more likely to be enjoying museums frequently as opposed to tech savvy and educated people. The similar traits with artists but have more dis- posable income at hand can be an advantage to the museum and exhibition owner. It is also understandable that 23% of this end user (Maximizer) spends their time doing out- door activities. These outdoor activities, as the report suggests is a way for this end user seg- ment to find a gateaway from the workplace. Middle income class in Beijing aged between 30s to mid 40s (Euromonitor, 2015). Recent data shows that this class category is accustomed to using social-media platform as a means of communication and e-commerce place. To be more precise, 66.4% of the total middle youth class are currently using WeChat as the most popular social media. The data demon- strate a promising customer target in relation to digital trend (Euromonitor, 2015)
  • 8. Mode of Entry The chance of being a hit in China depends on how DEXIBIT builds upon their relation- ship with the existing business entities in China. For this part, we'd like to focus on the creation of channels in China. New Zealand Trade and Enterprise stringly recommends that partnering with local agents ensure the easiness of making the initial contact of establishing market presence. local agents in relation to DEXIBITs current business model can be divided into two different partner- ship. sales and distribution agents and manufacturing agents. Sales 01 Marketing agents Manufacture 02 Museums 03 End-users 04 Hard-wares Promotion APP MARKETING AND SALES AGENTS This kind of local part- ners helps DEXIBIT to target the market in Shanghai easily. its a quick way to bypass local culture. We suggest that going to partner with local partners would be the most feasible way to conduct business. Their primary job is to ensure that the devices can be sold to various museums and art gal- lery venues. MANUFACTURING AGENTS This kind of partnership seeks out the possibility of provid- ing reliable hardware manu- facturers in China. Foxconn as the leading tech- nology manufacturer in China serves as a good starting point to create a mutual partnership with. It also allows to drive the cost structure down as the company does not necessarily have to outsource their prod- uct from Europe. Establishing Network New Zealand trade and enterprise strongly suggests all the New Zealand companies need to do re- search first and then physically visit the market to build connections and look for face to face advice and information from different sources before making any decisions on how to enter the Chinese market. (New Zealand Trade & Enterprise, 2015). Nevertheless, the use of agents as it has been pre- viously stated before posesses several advantages and disadvantages as well. LOCAL AGENTS ADVANTAGES DISADVANTAGES Agents have the right to claim a large amount of compensation when the agency agreement about to finish Double taxation might happen, should take local law into consideration its very costly to manage stock inventory Agents are usually not exclusive, they might also sell similar products which have to be controlled. Overpromising a key lesson that many Kiwi com- panies learnt was many Chinese agents will exag- gerate their ability Raising your costs and selling price Reducing your control over sales and marketing Potentially increasing the risk of your product being counterfeited. Data are not allowed to take out from China Partners potentially become rivals once they understand how the business works CONDUCTING BUSINESS DEXIBIT needs to assign the selected local agent to promote the products to the three museums in Shanghai. As soon as the negotiation is wrapped up, provide relevant training to DEXIBITs key partners. STEP 1 STEP 2 We identify three potential clients to be targeting for the initial phase, of three clients are Shanghai National Museum, Shanghai National Mu- seum of Art and Shanghai Urban Planning Exhibition Center STEP 3 STEP 4 Once the hardware equipment is installed. Encourage the three muse- ums to promote the software application using several channels to the end users. Beacons andWifi Markers need to be manufactured at the predetermined local manufacturing agents. Ship the equipment to the museum and in- stall all the devices afterwards.
  • 9. Cost Structure Revenue Projection The following information will provide an overview of a possible annual income the company can generate from selling their products that include hardware sales (Beacons and WiFi Mark- ers), monthly subscription fee, consulting service, business analytic software as well as its sub- scription fee Revenue Stream 2016 2017 2018 Hardware Sales Beacon Tough Beacon Wifi Marker Business Analytic Software Annual Subscription (Beacon and Markers) Consulting Service $48,510 $64,680 $368,676 $36,000 N/A $125,760 $53,361 $71,148 $405,543 $39,600 N/A $138,336 $58,697 $78,262 $446,097 $43,560 N/A $152,169 The first assumptions are the calculation regarding the beacon sales, tough beacon sales and Wi-Fi marker sales.The revenue generated from selling the hardware can be obtained using complex calculation including museum spaces and number of targeted museum in the first year. The second assumption is the annual subscription of business analytic software. So far, we are unable to get the average annual subscription fee for this revenue stream. Due to the nature of the business analytic soft- ware that requires massive customization, we used $300/Annum for the annual subscription fee. The third assumption is the fee imposed by providing consulting service. Considering that DEXIBIT is a rel- atively new player in the industry, we decide to charge the client as much as $80/hour for the consulting service and multiply it by 262 weekdays in a year. The fourth assumption is the market growth rate that stands at 10% market growth rate annually. Total Revenue $778,787$707,908$643,626 REVENUE ASSUMPTIONS Expenses 2016 2017 2018 COGS Employee Salary Marketing Campaign Other Expenses $153,137 $51,490 $35,399 $153,137 $153,137 Total Expenses $468,513 $231,705 $56,639 $62,303 The first assumption the calculation regarding the COGS (Cost of Good Sold), our assumption on this matter is based on the average industry COGS which is around 36%. The second assumption is calculating the employees salary. We divided the job position into four category. ac- countant, IT Developer, marketer and administration staff. All of them are paid in Yuan instead of New Zealand dollar.The average salary for the calculation is taken from the average Shanghai people earn for each job position. The third assumption is the marketing campaign and other expenses. the calculations shown up in the table are gleaned by using the assumption of 8% and 5% of the revenue generated in the same year. Nevertheless, its up to the management whether the marketing expenses should increase every year or remain the same. The fourth assumption is the currency that is being used here. The currency rate for all the calculations, both ex- penses and revenue streams is (1 NZD = 4.15 CNY) EXPENSES ASSUMPTIONS The discussion abouth how the cost structured is devised once DEXIBIT decide to enter the Chinas market is as follows. However, the cost structure as described below is far from flawless. Thus, its important for the management to read thoroughly what assumptions that are being used to explain the model. $254,875 $280,363 $38,939$32,181 $500,005 $534,742
  • 10. Recommendations 1 2 3 The need to formulate a posi- tive marketing campaign is undoubt- edly required to create positive cus- tomer relationship both with the direct customers (Museum, Art Gal- leries, and Cultural Heritage) and with the targeted customer segments. MARKETING CAMPAIGN Finding key partners that are reliable and provides with superior product quality is a must for DEXIBIT to ensure that their revenue streams keep flowing. The partnership com- prises finding the right hardware manufacturers and finding the right local agents. FINDING OUT RELIABLE PARTNERS Increased competition among this market should not be taken lightly. That said, even though none of the competitors we already identified have technically competed on the same offering, DEXIBIT should move swiftly to capture critical components of the business model. This includes establishing vertical integration across suppliers and local agents to prevent the competitors from crowd- ing in the market. VERTICAL INTEGRATION 4 5 6 Guanxi and its complexity in building relationship could be a real obstacle in the process. Thus, it is bad- ly advised for DEXIBIT to utilize the gatekeeper as individuals who are able to ease two ways of communica- tion. USING GATEKEEPERS Focusing on the scope of Art Galleries and Exhibition will nurture relation- ship. However, it can only be done through harnessing relationship with local talents (photographers, artists, and designer enthusiast). COLLABORATING WITH TALENTS WeChat, as the most popular social media platform, would provide DEXIBITaspacetopromotetheirprod- uct using their QR scanning feature. It does not have to be a big collabora- tion, but it is worthwhile to consider having a partnership with WeChat. WECHAT AS PARTNER Recommendations
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  • 12. portal.euromonitor.com Travel in China (2015, September 16). Retrieved from http://www.portal.euromonitor.com Travelchinaguide.com,. (2015). China Tourism: Statistics and Data. Retrieved 26 October 2015, from http:// www.travelchinaguide.com/tourism/ Tsang, N. F., Lee, L. Y., & Qu, H. (2015). Service quality research on Chinas hospitality and tourism indus- try. International Journal of Contemporary Hospitality Management, 27(3), 473-497. Doi: 10.1108/ IJCHM-01-2014-0048 Ying, L. I. (2014). The Analysis on developing situation and strategy of the museum tourism products in China [J]. Human Geography, 4, 006. References Figure 3 FDI inflows in China, 2004-14 (Marketline, 2015) Figure 4 GDP composition by sector in China, 2014 (Marketline, 2015) Appendices Figure1.theNationalBureauofStatisticsofChina(2015) Figure 2 GDP & Growth Rate in China, 2009-19 (Market- line, 2015)
  • 13. Figure 5 Service Output in China (Marketline, 2015) Figure 6 Internet Users In China (Marketline,2015) Figure 7 FDI Regulatory Restrictiveness Index, 2014 (Marketline, 2015) Figure 11 Sector Wise FDI Restrictiveness In China, 2014 (Marketline,2015) Appendices Appendices