Campbell Soup in China

Introduction

Campbell Soup Company is a global soup giant with 60 per cent market share under its belt. The company has for long enjoyed its market leadership with presence in key market segments such as: soups, sauces, baked goods, beverages and snack foods. Its products are sold in 120 different countries. Campbell Soup’s brand life cycle has reached its maturity and the biggest challenge at this stage is to sustain its market share and continue to dominate. The mainstream target market of Campbell Soup comprises of baby boomers that are now in their 50s. Since its target market is aging, so is its demand in the Western markets. And it has become tough to acquire share in the “younger” age segment owing to the economic slump in major Western markets such as US and Europe where the falling disposable incomes of individuals is translating into a declining demand of its products. With the growth in the emerging economies such as India, China, Russia, etc, Campbell Soup has opened a new window for company’s strategic direction which leads it to tap these emerging markets (Foreman-Peck 310). China offers a handful of opportunities for the company and its products from market entry route to consumer demand and from trade liberation to cheap labor. As a management consultant, I would like to recommend China as the most suitable market to enter for Campbell Soup. In the report, the favorable factors associated with the Chinese market are thoroughly explained and discussed for relevance.

Country’s Background

China’s rich culture and traditions are famous all over the world. China is a country filled with colors, culture and tradition. It follows collectivism and the family culture whereby giving importance to all those products that provide the family-feel to them. Their houses, parks, malls, and household products are all built in same manner. Predominantly being an agricultural country, China has progressed radically over the last few decades as a global trader of industrial goods, consumer electronics, food, apparel and succeeded in various other industries (Hu and Khan 5). It has stepped into every major global industry and poses threats to foreign companies. The biggest global competitive advantage that China enjoys is the low cost of production. Labor in China is available at a very cheap cost. For this reason the labor market in China has caught attention of manufacturing firms and retailers all over the world. China’s economic growth has started which is attributable to the growth in the various industries that China has stepped into, to the rising standard of education that the government has invested tremendously in, to the growth in domestic businesses as well as to the multinationals operating in the country that has increased employment rate and improved the standard of living of a common man (Hu and Khan 7).

Favorable Market Conditions

Operating in an international business environment is even more complex than having only single regional market to deal with. What adds to the complexity in managing international business performance and profitability is the influence of the changing economy in different markets, the effects of which come in the form of fluctuations in exchange rates, interest rates, labor supply and cost, and cost of production (Hill 148). Each of these affects the profitability of the international businesses as they have wings spread across different countries at the same time. For this reason, market conditions in the host country have to be favorable for a foreign brand to enter. China has been seen to welcome various multinationals every year and the main reason behind this is the favorable market conditions that exist in the country (Hill 189).

While the global market for soups has either declined or remained stagnant during the economic slump, China together with Russia continued to grow in the soup market and now represent 40 per cent of the total global sales in the soup industry. This is highly impressive considering the fact that the Western market was previously the centre of all soup sales but now the favorable market conditions in Asian markets, such as China, are responsible for a major portion of the global sales (“Our Brands”).

The so-called credit crunch has already started affecting major Western economies. Warren Buffet, the billionaire founder of Berkshire Hathaway hailed as the most successful investor ever described the US economy as already in recession. Invariably, the economic downturn will reach Europe and the UK as well (Hill 213). This will mean that people’s disposable incomes may go down. At the same time, consumer spending will slow down even more in the face of higher inflation and job market uncertainty. In China, however, people are enjoying high incomes owing to the increase in the international market share of Chinese products. They, thus, have enough finance to purchase international brands for their regular use (Hu and Khan 8). China has a good mobile market, automobile as well as technology items market along with luxury brands.

The situation in UK and US may directly affect Campbell Soup. Consumers may switch to cheaper brands and start shopping for its brands as a ‘treat’. In China people are switching towards foreign goods, thus, attract foreign brands like Campbell Soups. At the same time, incomes are rising in Eastern Europe, Russia and Dubai where Campbell recently opened its stores. Revenues from these markets may partly offset the decrease in consumer spending in the West. One can assume that people tend to eat out less in times of economic turmoil. This may, actually, benefit Campbell Soup as people stay home and buy its foods, perceived to be of higher quality (Hill 211).

Since, China is a large market for soups and has soup tied to its national food customs, Campbell is to face a tough challenge to impress the customers. However, a strong demand for its products exists in the market as Chinese consumers and retailers seek consumption of foreign brands owing to their social aspirations (Ferraro 138). These are discussed in detail later.

The Internet has become a powerful selling channel in China. The Internet accounts for 8% of the amount spent in global advertising. This amount is growing rapidly. This only highlights the fact that to capture the Chinese target audience which is very much influenced by gadgets, mobile phones and technology, it is necessary to use the quickest means to attaining them such as internet and technologically advanced media (“The Chinese Food Market”). Mobile phone shopping is just taking off but it is likely to grow considerably in the years to come, which presents a clear business opportunity (Hu and Khan 9).

Threat of new entrants in China is low. This is because it takes enormous capital investments to set up a successful chain of stores. The market is mature and an entrant would need to offer something radically new, which is rather difficult to do in food and apparel retailing. All major retailers have strong established brand names and so enjoy customer loyalty which becomes increasingly important in homogenous markets. The incumbents are firmly holding their market shares and would utilize all means to counter any new entrants including litigation (Whitelock 340).

Economic Growth and Trade Liberation

According to Kenwood and Laougheed (1999), slow-downs in the economy are meant for a short term and economic growth is certain to happen. The following factors account for economic growth of any country:

• Advancements in technology that maximize efficiency and production output;
• Increase in know-how, education, human development index and the culture of learning that leads to innovation and become a source of competitive edge in the international trade market;
• Use of natural resources for maximizing production;
• Increase in financial resources that are used in investments in research and development, improvement in infrastructure that invites foreign investors, increases overall production capacity of the country, and allows the domestic players to compete internationally;
• Rise in the literacy rate that improves the skill level of employees or in other words the human capital; more labor inputs available lead to a higher rate of economic growth;
• A country having low barriers to trade both encourages domestic companies to trade and invites foreign companies to enter the domestic market and increase competition, both of which contribute to economic growth of the country;
• International market’s hostility, level of competition and level of government’s support for international trade all influence international trade that in return contributes towards economic growth of a country (Whitelock 345).

It has been reported by economists and analysts that a country’s rise in the international trade  results in economic growth of that country in return. When a country liberalizes trade and opens up the economy, economic growth is stimulated. More specifically, international trade influences the economic growth through the following effects. China’s success in terms of economic growth is attributable to its trade liberation. It has reduced import duties that results in rise in foreign exports that come into the country (Hu and Khan 8).

When firms trade with other countries they contribute towards overall global competitiveness. Domestic companies make them competitive, induce efficiency in their operational activities and equip themselves through investing in improving human capital, research and development for the global competitiveness (Whitelock 343).

Globalization resulted in global integration of business activities that has contributed towards an increase in the number of entrepreneurs in the economy that make use of advancements in technology. This increases efficiency and, thus, productivity which advances the country in fuelling the economic growth. In such a way, global competition invites and increases level of innovation that is required for economic growth (Hill 316).

The governments which are liberal for trade and not protectionist conserning exporting and importing of the products achieve better foreign trade returns that contribute towards economic growth. Developing countries implement more protectionist policies on trade than developed nations so as to defend their growing domestic industries from foreign competition and anti-dumping of foreign imports in the country (Kuo and Yang 599).

Developed countries import apparel, textiles, and other labor intensive goods from developing countries that sell these products at cheaper costs. Mostly retailers in UK purchase fiber and cotton from countries like India and Pakistan as it costs them cheaper to purchase these raw materials from developing countries than to buy them from their local suppliers. This fuels their total output and finished goods for sale. Developing countries earn export revenues in return. It benefits their economy. For developed countries, importing cheap supplies results in more output, lower costs of production, and more profits that are used in investment projects which eventually contribute towards economic growth of the country (Hill, 341)

International trade results in generation of excess financial resources for a country. Income is mainly earned from exporting goods to growing markets and importing cheap supplies to support production which is further exported to earn more revenues. Companies equip themselves via advancements in technology to improve quality of products, introduce innovation in products, benefit human capital, invest more in research, and development, to create demand for their products in foreign markets. This could allow them to export more and, thus, to earn revenues in return which would fuel their economic growth (Kuo and Yang 602).

China acceded to the WTO in 2001 whereby removing all protectionist trade barriers and encourage free flow of foreign goods (Hu and Khan 8). Although Campbell Soup does not yet have stores in China, they are seriously considering the possibility as the Chinese with their rising incomes and fascination with all Western brands present a great business opportunity. With no trade barrier in the way, usage of the market entry route of export would allow Campbell Soup to enter and penetrate the market quite easily and receive a higher level of profits flow into its home country in return (Williamson 350).

Legal Environment

Chinese government expects companies to be socially responsible and to manufacture healthy and environmentally friendly products. Chinese society is prone to being healthy and efficient. For this reason, their diet includes only healthy and nutritional food elements. They show favorable response for their local or foreign food brand that allows them to stay in shape, healthy and active.

Chinese governments, media and public are urging companies to be environmentally friendly and to reduce packaging. What is more, Chinese government and public have rising concerns for health and safety of products. Campbell Soup will benefit in this regard as the heart and soul of its brand identity is “healthy food.” Positioning itself as a healthy food brand in the market would not only allow it to attain a favorable response from the consumers and a sustainable market position, but also, it would be able to cultivate a corporate social responsibility initiated in the form of a two-fold strategy (Mooij 175).

Waste management presents another dilemma for companies as well as criticism in adding to CO2 pollution. Companies have to adhere to environmental laws and regulations when operating plants in the country. In this regard, Campbell will benefit as it will be shipping the packed goods to the country and not producing them there. As consumers of China become more aware of their rights, the risk of being sued increases. But this can be curbed by ensuring proper quality assurance on all products shipped and exported to the country for sales.

Socio-Cultural Environment

The socio-cultural environment shapes the consumer behavior towards a brand, the employee behavior as well as how a company can communicate with the consumers in the market. Cultural understanding is important for organizational performance, especially in operating in a foreign a market. Cultures have various underlying forces and issues such as high or low context, individualism or collectivism, low or low uncertainty avoidance, masculinity vs femininity, etc that shape communication, behavior, intentions, attitude, opinion, and to a great extent relative individual performance in the context of the organizational culture. The dilemma that comes to the limelight is the extent to which change should be imparted or adaptation should take place to the local culture when a company enters a new market with regard to the organisational culture (Ferraro 245). To resolve this dilemma, two important viewpoints that fall under Neoliberal context of cultural theory provide support. The one important concept which should be understood is that there is no the best answer or the best cultural framework with regard to the level of adaptation, internally or externally. Context is an important determinant of the best type of culture which could be in either form of adaptation or change imposition onto the external environment. This context can be, for example, “customer-centered” or “people centered” approach and also “nationalistic” or “liberal” approach of the company that could be used to determine the level of adaptation needed with the local culture or the level of change needed to be imparted onto the local culture to bring in line with the organisational culture (Ferraro 246).

Organisations that promise high organisational performance as a result of close link with customers, high productivity, value-driven environment within the organisation, specialisation as well as multi-tasking and flexibility to adapt and respond to changes perfectly feet the excellent culture (Gabriel and Lang 103). This is evident in the culture that exists in China.

Like the entire scope of marketing, advertising too is linked closely with social aspects mainly because of the objective of generating consumer appeal, playing with cultural and individual forces, shaping consumer behaviour, and relating to the product in question. For this reason, advertising produces several social effects that focuses on social news and social media (Ferraro 247). Other than the basic information and awareness received by customers about products that they may need, some important criticism that advertising has received from social media over the years is related to the high level of materialism infused into the minds of consumers in order to generate unnecessary desires for company products to result in repeat purchases (Gabriel and Lang 105). This results in positive effects on company sales and profits and makes the overall marketing effort successful, the consumers, on the other hand, and the society as a whole is left with the desire for artificial realities of life linked with superficial mind frames pointing towards unneeded products, for example, fashion labels (Gabriel and Lang 110). Other objections include reinforcement for the consumerism and materialism embedded culture in the society and creation of social stereotypes through symbolic language and images used in advertisements (Ferraro 248). In pursuit of delivering attractive, appealing and thought-provoking messages, images, and sounds, to attract customers and target specific market segments in response to consumer behavior research findings indicating social gaps, companies end up creating cultural shifts in the society to directions that may otherwise be undesirable or unsuitable for the society (Ferraro, 2010). For example, considering the global warming and environmental degradation, it is only understandable now that the present consumerism culture was and is not desirable. Such trend has been prevailing since the industrial revolution (Gabriel and Lang 115).

Campbell Soups is to face a challenge in cracking the culture of China at first. However, understanding the culture and using it in the benefit of establishing a strong brand positioning and equity in the market will turn out to be surprisingly effective and easy. This is so, because Chinese culture is deeply rooted in hospitability, collectivism, team work and efficiency. These traits translate into a friendly business atmosphere and acceptance of consumers. China for this reason has become a favorite location to do business in the contemporary market. The people are family oriented and welcoming (Gabriel and Lang 110).

Despite of the fact that a highly masculine and power distant culture exists in the country, the trend is towards team work and barrier free communication. This results in effective coordination between the locals and the foreign brands (Ferraro 265). For Campbell this translates into a healthy opportunity to locate a suitable distributor and have that distributor understand the company goals and follow them effectively. The cultural element of China will prove to be quite favorable in terms of infusing effectiveness and efficiency in the supply chain. Since, Campbell is to export the brand into the market, coordination and alliance with the local distributors is utmost necessary for successfully penetrating in the market. Because of the team work approach to business the potential sources of channel conflict in the supply chain required to be set up to export the brand into Chain automatically becomes eliminated. 

On the other hand, with regard to consumer demand for Campbell Soup in China, the economic growth and rise in business activity in the country has translated into a fast lifestyle in the society. With increased disposable incomes the buying power has increased but time for cooking in the traditional patterns and methods has reduced. This translates into a growing demand for ready-made or canned products similar to what Campbell Soup has to offer to the country (Gabriel and Lang 119). Greater work mobility means that people have no time to cook, and they often eat on the go (Marshall 226). Food stores can benefit from this by offering a variety of ready meals, snacks and sandwiches.

Chinese people live longer, which means they can spend more during their lifetimes (Ferraro 219). As Campbell Soup’s main customer base is people aged over 40, with a large proportion over 55. This represents a considerably large target market size for Campbell Soups. Also, a large segment of young consumers who seek low-calorie food intake also will find Campbell Soup as an attractive brand.

Infrastructure

One of the biggest hurdles that multinationals face in penetrating across emerging markets in developing countries segments is improper infrastructure. Improper infrastructure in the form of lack of built roads that aid in distribution by trucks or trains. In China, however, owing to the technological advancements, the infrastructure is thriving to conduct efficient business. The infrastructure compliments the fast lifestyle of the Chinese business men and consumers (Hu and Khan 3). Skyscrapers, subways, underpasses, etc all compliment the modern living standard of China and provide evidence of its economic growth. Such infrastructural improvements would allow the company to easily access all urban as well as rural areas in the market and ensure effective distribution.

Conclusion

China presents an ideal market for Campbell Soup to enter into. The country is host to favorable market conditions, trade liberation, favorable legal environment, cheap labor, and favorable socio-cultural environment that translates into consumer demand for the company’s products as well as standard infrastructure required for a multinational to access the market and reach the consumers with ease. Each of these favorable and inviting aspects of the Chinese market was discussed in detail in the paper. The market conditions are favorable in China because of the economic growth in the country, rising disposable incomes and technological advancement. Rise in employment has resulted in a rise in disposable income, whereas improvement in education and infrastructure has resulted in rise in entrepreneurial activity and commercial activity in the country. This has not only invited foreign companies to enter and expand across the country but has improved the domestic business environment tremendously. There is intense rivalry in the country as a result which only evokes a high level of innovation that each firm brings to the market to counter the threat from competition.