SWOT analysis Porsche entry in China

To make a SWOT analysis about Porsche entrance to mainland China, it will be taken into account multiple factors. Not just linked to the company itself, but also, external factors that contributed or threatened its strategy outcome. This analysis will be based on what has been found for this thesis research, such as from the theoretical discussions by Král et al., (2016), additional sources such as the Christophorus Porsche magazine, the contributions from Mr. Broeker, Mr. Petersen, Mr. Bishop, and will be pointed out below on the four categories: strengths, weaknesses, opportunities, threats.

The first two categories, strengths and weaknesses identified by the author of the

- Prior experience in Hong Kong by the Jebsen group

- Geographical proximity to Hong Kong in case there would be complications at the beginning (e.g., logistics, staff, etc.)

- Reputation of the intermediary partner

- Lower risks to Porsche AG (by choosing indirect export method as Král et al (2016) explains this method as posing less risk to the company using an intermediary)

- Expanding gradually Porsche

operations in mainland China as the Chinese customers would start to get more familiar with sports car as well (instead of an intensive sales operation without building local brand awareness)

Note: own creation of the table based on the research findings

Following now, the other two categories, opportunities and threats identified are:

Table 15: Opportunities and threats

Note: own creation of the table based on the research findings

2.6 Current conditions for Porsche in China

According to some sources and taking now from the Chinese perspective, Porsche as a German sports car manufacturer has demonstrated a “confidence in the Chinese economy and auto market” as Dandan (2020) from China Daily newspaper suggests.

Part of recent conditions that also benefit the automotive sector in China, was the move by the Chinese Ministry of Finance towards import tariffs in 2018. As a report from CNN indicates, the import duties to be cut from the imported cars will represent a decrease from 25% to 15%, which was set to start on July 1, 2018 (Shane, 2018).

The same report by CNN also brings the reaction by Porsche to the analysis, where the company (Porsche), indicates its welcoming towards this change on reduction of tariffs on imported cars, saying that their prices on the Chinese market could be impacted, therefore, lower and becoming more competitive (Shane, 2018). This also correlates to the “niche argument” mentioned on subchapter 2.4.1., when it is discussed about the niche strategy of not manufacturing it in China, but to manufacture in Germany so it can benefit of the country-of-origin effect. As the discussion involving the preferences by Chinese customers towards the car brands, the German brands

have the positioning where the Chinese clients give a high preference to it, especially when it is the second-time car buy, as it was noticed from Lin & Liu (p. 6, 2018) graphic illustration in the subchapter 2.4.1.

In a context even more delicate as the world is currently going through, due to the Covid-19 pandemic, China’s emergence from this obscure and delicate moment for the world “is a strong driving force to help Porsche get back on track” as explained by the president and CEO of Porsche China, Jens Puttfarcken (2020, as cited in Dandan, 2020). He even adds the following, which highlights even more the importance of Porsche’s presence in China: “I think China has become even more important in 2020 for Porsche and we will cater to that by further launching good cars first in China”

(Puttfarcken, J., 2020, as cited in Dandan, 2020).

By having a good performance in this important individual market for Porsche, Puttfarcken (2020, as cited in Dandan, 2020) shows the motivation the company is having to evolve its operation with even more confidence within its operations in China.

But also, to work on exceeding expectations of their customers. China is also the market with the biggest importance for Porsche’s Panamera sedan, with statistics saying that 1 out of 3 Panameras that was produced, was sold in that market (Dandan, 2020).

In another statement demonstrating the relevance of Porsche’s operations in China, Puttfarcken (2020, as cited in Dandan, 2020) also suggests that "No other market in the world will have the Taycan base as early as China does” and that they really appreciate the importance of the Chinese market for their business. Taycan is “a flagship model of Porsche’s first electric sports car” as Dandan (2020) explains.

Puttfarcken, as the president and CEO of Porsche China also says that Porsche is committed at a lifestyle brand for their Chinese customers, rather than just the vehicle itself, whereas for the characteristics of Porsche’s customers in China, they are said to be younger by one entire generation if compared to the other countries (The Luxury Conversation, 2018).

Porsche has also benefited from the Belt and Road initiative, which was introduced on the macro conditions in China. According to the Deutsche Presse Agentur (DPA) International News, with information from a Porsche spokesman, a freight train for the journey between Germany to Chongqing, located in south-western China, loads with Porsche cars twice a week, citing that usually it carries “88 vehicles in up to 44 containers per trains each time…” (Esch, 2019). The confirmation of such information

can also be confirmed on Porsche AG (2020) annual report of the year 2019.

According to the annual report by Porsche AG (2020, February):

Porsche has traditionally relied on trains for its logistics in Europe. Since April 2019, the sports car manufacturer has also been using rail transport for its transcontinental logistics. This change means that certain cars intended for the Chinese market will be exported via the New Silk Road. Thanks to the 20-day journey by rail, the car logistics process is up to three weeks shorter than with maritime freight. (Porsche AG, 2020, p. 21)

Despite this rail route serving as an extra alternative for Porsche to export its cars to China, as other companies also do so, this rail route accounts just for a smaller share out of the total amount of cars exported to China by Porsche, as the major share on this route is sent via container ships, on one hand taking three weeks more but on the other hand, it is less costly and a larger amount of cars can be transported at once, as reported by the Deutsche Presse Agentur (Esch, 2019)

Conditions for Porsche as for other carmakers have shown to be still favorable in China and as published by Deutsche Welle (www.dw.com) and Ulrich (2020), “One in three German cars are sold in China” (para. 1). On an interview given by Stefan Bratzel, head of the Center of Automotive Management, he explains that having this dependency on the Chinese market has two sides, while on one side, the Chinese market is able to “save” the global and Germany automobile industry, referring to the pandemic period due to the COVID-19, as China has still shown positive numbers in terms of receiving car deliveries, but on another side, it can also be a way of “blackmail”

by China as explained by Bratzel (Deutsche Welle (www.dw.com) and Ulrich, 2020).

2.7 Company’s performance data

According to Porsche Business Performance Newsroom 2019 (2020)⁹, the Chinese market has remained the market with the highest volume for the Porsche company, with deliveries mounting to 86,752 in 2019, placing an increase figure of 8%, if compared with the year before (Business performance 2019, 2020). The most present

9 Business performance 2019 (2020). Newsroom Porsche. Retrieved from: <https://newsroom.porsche.com/en/company/annual-sustainability-report-2019/business-performance-2019.html>. Access on 15, jan, 2020.

model by Porsche, representing then the biggest share of the units delivered in China in 2019, was the Porsche Macan. Out of the total amount delivered in China, the Porsche Macan summed up to 34,619 vehicles to their customers (corresponding to an increase of 26%). Furthermore, 32,683 Cayenne Vehicles were also delivered together with 13,170 Panamera. Another characteristic of the acceptance by the Chinese market was with regard to the “two-door sports car”, which were well accepted by Chinese customers. Porsche Newsroom also indicates the other models and their delivered amounts for China, so it is 4,866 units of the 718 Boxster and 718 Cayman delivered, based on numbers from 2019 (Business performance 2019, 2020).

For six years in a row, China has remained “the largest single global market” for Porsche, according to a press release made by the company (Porsche (China) Motors Ltd., 2021). In the table below, deliveries made by Porsche AG to selected locations in the world are available:

Table 16: Porsche AG Deliveries in Different Locations. 2019 - 2020

Source: (Porsche (China) Motors Ltd., 2021, January 12)

The delivery numbers from the table above leads to the conclusion that while most of the world suffered a decrease in receiving Porsche deliveries, China together with the Asia-Pacific, Africa and Middle East were the only places where the statistics remained positive, with a 3% difference for example in China. One of the reasons attributed to the company still having those numbers of deliveries worldwide, despite the COVID-19 pandemic, and its impacts, is the “strong global positioning” from which the company benefits (Porsche (China) Motors Ltd., para. 6, 2021, January 12).

Positioning therefore, as discussed in the first chapter, is the perception by the consumers towards the brand or the product, as explained by Král et al (2016) and De Pelsmacker et al (2018).

3. Research Methodology and Key Findings

In this last chapter, the research goals and objectives will be discussed once again and answered based on the theoretical contributions from the first chapter, and the case analysis of Porsche and the Chinese market, which were studied on the second chapter. It will also be explained the methodology used to collect the data from which this research was based, followed by an analysis of the results. As there were also some limitations on this research, as there was no direct contribution from the Porsche AG company itself, some aspects and information could not be discussed in detail, hence, the limitations will also be explained. In the end, there will be given some recommendations for entry modes in the automobile industry, based on the findings and analysis on this thesis and the Chinese market.

3.1 Methodology

The methodology used on the case study of this thesis was based on secondary sources. Nevertheless, the own company magazine, Christophorus Porsche Magazine, Porsche Newsroom and the Annual Reports were also primarily used, enriching the analysis of the Porsche entry in China, as it contributed bringing information from different interviews held between Porsche stakeholders involved on the Porsche expansion to mainland China and the Christophorus Magazine. There were also contributions from B2B oriented marketing companies such as B2B International and Hedley (2020), with information about business-to-business environment in China.

As the practical part to analyze the Porsche entry method to China, it was also analyzed the conditions on the Chinese market which were based on secondary sources such as Deloitte, PwC, and different News report such as from CNN and Financial Times (for the Porsche strategy of exporting) adding also quantitative data to the analysis as it happened with the statistical information on the brand shares of premium and luxury cars in China by the Euromonitor – Passport (from VSE e-sources) etc.

The methodology on this third chapter was by the observation of the outcomes from the two previous chapter, after making comparisons from the theory with the case

study, in order to summarize the research key findings and outcomes. In this diploma thesis, no surveys were conducted as it was not considered to be relevant on this descriptive research, and also as discussed with the supervisor on the first meetings.

3.2 Answering research goals and objectives

The goal of this thesis has been to identify the entry strategy selected by Porsche in mainland China and the niche arguments for the related method. This thesis aimed at bringing theoretical and case study contributions. The objectives enabling to answer the main goal was through the investigation and theoretical description of different entry modes, identifying their advantages and disadvantages. The objectives also included the case study where the context when Porsche first entered mainland China in 2001 was observed, primarily based on the Christophorus Porsche Magazine, to understand through the different interviews from the magazine where some of the stakeholders explained and detailed how that process occurred and the existent conditions. Furthermore, the objectives also focused on using more recent sources such as credible magazines and company annual reports, in order to identify why Porsche continues using the export strategy, instead of producing locally in China.

The guiding questions focused on understanding which entry mode Porsche decided to enter in mainland China and the niche arguments and factors that favored the implemented strategies and its continuation. Hence, the following interpretations can be made: it was identified that the way how Porsche entered mainland China was through the “indirect-export method” as also identified by Mosca & Re (2014) through the intermediary, which was the Jebsen & Co, with the dealership. The research indicated, together with the interview with Mr. Hans Michael Jebsen to the Porsche Magazine, Christophorus, that the prior presence in Hong Kong opened the way for entering mainland China, and moreover having the advantage that the partner, Jebsen & Co. already had the understanding about the market and local conditions (Coughlan, J., June 2011). Answering the second question in specific, the reasoning behind not introducing a manufacturing unit in China and maintaining that strategy, was to preserve the ‘Made in Germany’ prestige, as it was also summed by Stumpf, or his article (2021) and the Financial Times article (Miller, 2021). The Christophorus magazine brought many contributions to this thesis, as extracts from interviews with stakeholders from this Porsche presence in China could be obtained, as with Mr.

Jebsen, Mr. Broeker, Mr. Bishop and others presented on the second chapter. Based on their interviews and contributions, the key findings can be identified on the following table based on the market conditions criteria and brand experience and perception:

Table 17 Main findings from Mr. Jebsen, Mr. Broeker and Mr. Bishop Prior experience in Hong

Kong and entry to mainland China

The prior presence in Hong Kong and the market presence there, contributed to the entry process to mainland China, which was bringing the dealership to the mainland territory in Beijing, according to Mr.

Jebsen (Porsche (China) Motors Ltd, 2021, March 25).

Brand perception Porsche cultivated the same brand values as in other regions in the world, hence, not having different perception according to Mr. Jebsen (Coughlan & Michael Jebsen, 2011)

Sophisticated mainland market

Mr. Jebsen also affirms the mainland market could be compared with Hong Kong and even worldwide in terms of sophistication in a record period of time (Coughlan & Michael Jebsen, 2011)

Special car editions Appreciated strategy by the Chinese market, according to Mr. Broeker (Holland & Broeker, 2011) China’s 2001 WTO

accession

Increased the market development, bringing better market conditions (Holland & Broeker, 2011) Porsche Customers Younger but still with similar characteristics to their

“counterparts” around the world, such as with good education, entrepreneurs, and well-traveled (Holland, Bishop & Petersen, 2011)

Note: Author’s illustration, based on Porsche (China) Motors Ltd. (2021), Coughlan & Michael Jebsen (2011), Holland & Broeker (2011), Holland, Bishop & Petersen (2011).

Besides bringing the table above, this thesis also brought case studies contributions by observing how the Porsche entry process in mainland China occurred. It also contributed on the existing research about the Chinese market with correlations between the recent past in China to some of the recent changes the country has done

to open its market. As the second chapter investigated, for instance the micro and macro environment conditions on the Chinese market, that adds to the existing research about this specific market. The key findings related to these two environments are:

- China removing the ownership cap to which foreign car companies were limited when entering the country – aiming to fully eliminate the ownership cap by 2023 for the car industries (Deloitte, 2020)

- The Belt and Road initiative, providing alternatives to the global supply chain (Wagener, Aritua & Tong Zhu, 2020)

- 30% of world’s cars consumed by China until 2017, showing to be an attractive market for the car industry (Lin & Liu, 2018)

- Culture aspects dating back to thousands of years (HSBC, 2020) - Trend of increase in electric cars in China (Deloitte, 2020)

- Roughly 30% of Chinese consumers opting for German cars on their first-time purchase, with the percentage going even higher when it is the second-time purchase, preferring the German cars, as of 2017 (Lin & Liu, 2018)

- Competition for Porsche with other German brands such as Mercedes-Benz, Audi and BMW (Euromonitor International, 2021)

Through the Porsche case in China, it was also possible to identify aspects related to the instruments of the marketing mix, as shown by De Pelsmacker et al (p. 2, 2018).

From the research conducted it was possible to observe together with the marketing mix analysis the following aspects on the table:

Table 18: Marketing mix and Porsche China

Product - The German characteristics of design and quality were kept, as the product was being imported from Germany (Coughlan, 2011)

Price - It is recommended to use carefully the price strategy, for the customers to perceive the brand as the company plans to, as explained by Bastien & Kapferer (2013). However, when elaborating current price strategies, Porsche China can also

take into account the removal on import duties over import cars to China and still charge prices that correspond to the brand image - CNN report (Shane, 2018)

Place - It could also be identified through the Christophorus Porsche Magazine’s data, dealerships such as from the Jebsen group were part of the distribution channel in China. (Holland, Bishop

& Petersen, 2011)

- The license for the showroom in the Chang An club in Beijing was obtained by the Jebsen group early in 2001, as explained by Mr. Jebsen (Porsche (China) Motors Ltd., 2021). According to the same source, the Chang An club in Beijing could be considered as a club with prestige, Mr. Jebsen said.

Promotion - Driving events were realized, displaying cars in front of restaurants and getting feedback. The product promotion, especially when considering the beginning of the operations in mainland China, had for instance, the team working on creating publicity and driving events with the support of Mr. Petersen as well (Holland, Bishop & Petersen, 2011).

- It can also be recommended to explore other channels to promote the car such as other types of advertising, exploring exhibitions where possible clients can get to know more about the cars and using other suitable promotion tools as part of the explanation by De Pelsmacker et al (2018)

Note: Author’s own illustration based on De Pelsmacker et al (2018), Holland, Bishop & Petersen (2011), Shane (2018), Coughlan (2011), Bastien & Kapferer (2013), Porsche (China) Motors Ltd., (2021).

Furthermore, it was identified some characteristics of the Chinese market, such as the strategies to open to foreign companies and allowing incentives for the electric vehicle companies. It was also identified the changes happening in the country regarding foreign ownership removal as observed on the graph provided by Deloitte (2020a, p. 25). The analysis on the customers also indicated some characteristics of the Chinese people, e.g., their car brand preferences, how they care about their image and social status, based on sources such as PwC (Understanding Chinese Customers – PwC, n.d.). Part of understanding the customers enables the company to work on

the best strategies so they can reach and offer a product that will be welcomed by the target audience.

3.3 Result analysis

The selected entry mode selected by the company covered on the case study, could

The selected entry mode selected by the company covered on the case study, could

In document Hlavní práce73248_soub05.pdf, 1.3 MB Stáhnout (Stránka 54-0)