Analysis of Mongolian lamb export to China

Introduction

Since its increase of Mongolian agriculture such as sheep, there is great

opportunity to export lamb to our neighbor countries.

Mongolian agriculture is greatly increasing last 5 years. It stated that number of

head 5 types of animal will reach 60 million end of this year. The most dominant

number of animal is the sheep that has been reaching 23.214.800 in 2014.

(infomongolia.com, 2014)

The target market of exporting will be to China. China has chosen it is

because of increase of potential customer and the closest area from Mongolia.

Start up lamb business to China has to deal with Food Standardization first.

If the companies interested in to export the food commerce and would like to export

any meat products in China they have to assemble the conditions of the Food Safety

Law of the P.R.C.

Their standards derived into The Standardization Administration of China

unites manage, direction and organization of the quality principles of the products

in China. Mutual agreements endorsed among China and the exporting company. It

included setting up the veterinary and health requirements for perishable goods to

export in P.R.C.

The registration conducts foreign manufacturer recording at the General

Administration of Quality Supervision Inspection and Quarantine all through the

Certification and Accreditation Administration of the P.R.C.

(center)

So these processes are vital for a company to consider at first for introducing their

product into Chinese market.

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Analysis of product and competitors

Mongolian sheep are quite different breed than other sheep such as New

Zealand and Australian. It has a fat tailed and it is feeding in Mongolian wild nature.

So the scale of product would the most organic export. Mongolian sheep standard

weight is around 20-25 kg.

There is not much difference between Inner Mongolia and Mongolia sheep.

Inner Mongolian lamb and mutton is Chinese local product but it couldn’t cover

enough this huge market.

In case of that the taste of Mongolian mutton will not make any difference to

the target customers.

As a competitors analysis there are several competitors still dominant in Chinese

market.

New Zealand lamb has been exporting to China since its agreement of free

trade between two countries in 2008. It has been significantly increasing through

these years of Chinese big economic growth. New Zealand has exported 31.686t of

sheep meat in China, which has worth 66.6 million US$. It gained to 158.174t that

calculated 595 million US$ in 2014. (Reed, 2015)

Due to Chinese economic scale and huge market potential all international

businesses interested in to penetrate Chinese market. Even Australian companies

are already competing against New Zealand exports. They have used cheap entry

method against New Zealand lamb. Australia is a top potential country for leading

with sales of meat export in the world.

The major issue in China has facing with pollution; Chinese are more

concerning on food safety rather than taste or quality. Australia is a well-

experienced country to meet safety food as an exporter. Their sales recorded 845

million USD in 2013. (Locke, 2014)

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It shows New Zealand sheep meat has acquired more than half of the market

that is 65% of market share and Australian others.

China has detained a gradually more vital duty in world lamb and mutton market

since its 2010. It has been an eventual market for exporters with diverse goods and

services it is because of big and fast increasing middle class population. On the other

hand Chinese lamb trade have been rising since 2010. Also it took in place of world’s

largest lamb buyer France in 2012.

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Market analysis

Expensive sheep meat and lack of providers are influenced the Chinese

government to prefer attraction of foreign investor for selling more sheep meat in

the local market to create competition. These processes grew local meat production.

Occasionally it also improved imports of sheep meat since 2010.

But the reduction of Chinese economic growth and to take controlling with over-

spending from the government was contributed to slow demand for imports meat in

China.

The decreased demand for sheep meat importing has effected to charge of

sheep meat starting to fall in the mid of 2014. It has still sustained in 2015.

According to the Chinese Ministry of Agriculture, the price of mutton dropped at

wholesale stores 56 Yuan(per kg) into to 49 Yuan in Jun 2015. It has declined 12%

per year.

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STP model

Segmenting

Segment 1 is determining the business customer that could lead wholesaling

organization with the company.

Segment 2 is final consumers of the company through retailing method.

Targeting

Aside from the market segmentation, company can be more effective with

choosing segment number 1. By Wholesaling in B2B method is the most effective

way to provide perishable products. However it has to consider with cheap pricing

but the amount of selling will get benefit to the organization.

Since it’s a huge population with big land that could arise difficulty to control all

organization in China. For the company these issues will reduce by using B2B

method.

B2B is a common method in China after Alibaba.com’s implementation.

In other words it will save more money and time.

There are several advantages to use the B2B method in the organization.

Instant sales, they be able to keep in touch with the company to seek to do a

business deal with, intentions of a business deals, fast communication,

transaction process will done by e-mails, next product ordering, sales

segment 1

RestaurantsSupermarketsWholesalersLocal shopsLocal markets

segment 2

Direct online consumersHouseholdsEmployeesIndividuals

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information. These are the clue of the company will do repeated purchases

instantly.

Closer business relationship, B2B method is a good option for to make close

relationship with companies. When you buy instantly means create stronger

relationship.

Cost decline right through long term relationship

Positioning

Online selling sheep meat is quite new in Chinese market. The major

competitors Australia and New Zealand sales conduct with an export that targeted

in mass market. Our differentiation is only targeting business customers that can get

instant selling in China.

On the other hand our offering product has got the fastest delivery process

when it fresh. According to delivery process we could catch the most potential users

in China.

Marketing mix

Product

The sheep will slaughter in the home industry and will ship with labeled

boxes.

We offer four different types of products in case of target customer

1. Mongolian Mutton with bones

2. Mutton without bones

3. Small chopped mutton package

4. Small chopped mutton rib package

According to culture of Chinese mutton usage the boned mutton is well used for

their foods. Especially they use it in the soup and fried rib cuisines.

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In-terms of Chinese customer new needs, the requirements of high level of

product usage we offer them the most organic grazed sheep meat with quick

delivery, which called fresh. All delivery will be held under FOB method.

Price

Meat is a perishable product that requires high effort. The freezing is

important situation during the delivery process. So we have another differentiation

for our product. Delivering process will be the closest than other competitors. Our

cost can be built much cheaper.

Price calculation:Main price of a meat + cost of labor + cost of delivery + 20% profit as it possible.

Seasonal pricing method is the best accurate price for agricultural products.

1. Mongolian Mutton with bones – 3 - 4$ per kg (depending on season)

2. Mutton without bones – 5 - 6$ per kg (depending on season)

3. Small chopped mutton package – 7$ per package (500gr)

4. Small chopped mutton rib package – 7$ (500gr)

Place

As a perishable product provider using online service method is effective

way to meet customer needs.

Distribution channel will be held under online service through Alibaba.com.

Alibaba is Chinese biggest e-commerce company that has covered 80% of online

sales. It is a great opportunity for company to use Alibaba as a middleman.

Alibaba offers all commercial transactions in their service, B2B, B2C, and C2C. It is

another opportunity for company to meet with target customer.

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Promotion

Advertising goes with Alibaba as a banner, pop ups and video. The massage

will include the company core value of wholesaling method, fast and fresh products.

Also it has to be attracting business customers to the closest exporter to china.

Analysis of country variables

Legal environment

The regulation of any meat import from foreign supplier is one main concern

of the Chinese Government since 2008.

The new food safety law of China has implemented since 2009. It was incidentally

required after sequence of food scandals such as Bird Flu. These have weakened

Chinese confidence on the import foods.

This law is similar with Western countries regulation system. It determines

regulatory party duty for detailing and executing national food protection

standards. But enforcement of law still has dealing with some challenges it is

because of food market inefficiencies in the population.

This law identifies a new outcome at food safety in China through presenting

a legal structure for manufacturer and commerce of foods. All businesses are

arranging the food production and whose would like to export meats to China has to

gather the conditions of Food Safety Law of China.

Cultural environment

Dining cultureChinese culture of dining and cuisines are diverse it is because of different

nations are living in big scope of country.

First they are family oriented people rather than Westerns. Chinese dinner always

conduct with big amount of people like whole family or all friends, all co-workers.

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People tend to dine at restaurants rather than at home it is because amount

of customers. As a lamb exporter it is an advantage to fulfill this demand.

Internet usage

In order to make an online production Internet usage culture is a vital consideration

for company. China has special regulations at the Internet usage. But looking at

alibaba.com success, it is the highest rated website in China. Alibaba has three main

parts as a shareowner,

1. Taobao is a China’s major shopping website;

2. Tmall, which concentrates on online sales of branded products and concerns

on China’s fast-growing middle class

3. Alibaba.com that connects Chinese exporters and importers with foreign

businesses anywhere in the world.

Alibaba is world’s biggest online commerce company not only in China. It is done

with 248 billion $ online shopping transaction in 2013. There are 80% of China’s

online shopping completed by Alibaba. It gives more and more opportunities to

investors that could find their valuable correspondent. As an exporter by using this

website to enter in market is reduces lack of experience risk.

(Wright, 2014)

Economic, finance

The Chinese economy performed greatly growth in last years that has noted

the country to rank the world's second major economy.

Since the beginning of the economic reorganization in early 1980s, China has turned

into the world’s industrialized center that place secondary area stood for the biggest

portion of GDP.

In 2008, year of world crises, China gathered better that most other countries

with decreased economic growth percent. It counted GDP has decreased 2 digit

numbers into above 9 % growth. Their GDP reached 7574 USD per capita last year.

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Economic growth has been slightly decreasing since 2008 but it was 7.4 %

increase in 2014.

The trading balance has only two-time deficit during last 20 years. It explained that

economic is still stable with growth.

As an exporter there are three certain subjects getting an attention for external

environment

1. Potential population increase in terms of economic growth

2. Economic stability

3. Neighbor country which is closest area

These are core value for company will get in beneficial organization.

Imports to China

Due to supply industries and maintain China’s fast growth, intermediary

goods and a large choice of commodities, including oil, iron ore, copper and cereals,

commonly leads their imports. China’s high demand at raw materials has driven

world commodity charge went up in recent years, thus increasing the funds of many

developing counties and commodity-exporting businesses.

Asian countries are mostly a seller to China’s supply of imports. It is with a

share of about 50% of sum of imports.

Imports from Europe and North America are about 17and 10 percent. As a main

worldwide purchaser of commodities, trading from Australia, Africa, south America

and from middle east have gained strongly in last few decades to account a share of

about 23%.

(focus-economics.com, 2015)

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Analysis of Market entry strategies

The rapid growth of international activities is one of the most considerable

developments in business. Exporting, strategic alliances, foreign direct investment

play important roles in internationalization process (Bradley, 1998). Exporting is

one of the simplest and quickest ways to enter foreign markets, which might be the

first stage when the companies into internationalization (Bradley, 1998)

Choosing the appropriate market entry strategy for a firm, who want to

export to China must consider these factors: 1) view of international company

entering the Chinese market 2) request for its goods 3) the forthcoming

development of its product; 4) the sources of the company; and engagement to get

in this industry and 5) the period of time to get in

As mentioned earlier, bringing products/goods to Mainland China usually

include licensed for import/export companies following Chinese laws. These are

registered companies in China. Therefore, the term “importer” in Chinese trade

terminology usually refers to the registered company in China possessing an

“import/export license”. In the general sense, a company like this is possible to be a

buyer and so importer, although usually it is only a service provider/ intermediary

helping with import (bringing the goods across the border and facilitating

international payment).

Direct exporting advantages:

Process with already established e-commerce

Online promotion makes this cost-effective

Can choose which orders to accept

Relationship with direct customer established

Entire profit margin remains with the business

Can choose basis of payment- e. g terms, currency, delivery options etc.

Greater potential profit

Greater control over all aspects of the business

Disadvantages of direct exporting:

Conceivably legislative

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Danger of not gaining a benefit

There are 3 basic, already experienced ways of entry to China:

- Market entry via agent settled in Hong Kong

- Arrangement of joint venture

- Market entry by using direct channel

These three options have its pros and cons.

Entering into market via Hong Kong distributor is not a difficult way for a

company, who wants to be international. Thus it is the least desirable in case

of market penetration.

Market entry by using direct funnels in Mainland China is apparently more

challenging plus sluggish than entry via a Hong Kong distributor, thus

actually may be fortunate for a company’s general infiltration.

Market entry by settling up a joint venture of some kind may be more

difficult and time-consuming than the other two export strategies written

above, thus apparently yields the best overall penetration of China’s market.

Making use of this plan, these two parties (the foreign firms and the Chinese

party) could get the most benefit.

Market entry by using agent from Hong Kong

A company could transport their goods to Hong Kong afterwards, by making

use of a Hong Kong agent that is active in China, export /import and possible final

users and agents ,that are in China can be recognized by the Hong Kong agent .

Intermediary offices in China , that are owned by Hong Kong agents, support with

service, sustenance and assistance with fixing.. A well-established Hong Kong

distributor will have familiarity with doing business in China, Especially involving

currency concern, transporting knowledge and language proficiency Hong Kong

agents do have advantages in doing business with China.

Entry by using direct channel

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Selling straightly to an approved overseas commerce firm or final-user group

settled in China is an alternate option to do business in china through Hong Kong

agent. Growth of an array of direct access for an overseas company are the result of

renovating and disintegration.

Using direct channel in marketing possibly, would be the most suitable for

the firm. Directly approaching potential end user customers is the most direct way

to sell products and to get good market evaluation. Enormous mass of end

consumers do not have a permission to do a business with an overseas firms, also

absence of responsibility to decide whether to buy or not and also absence of know-

how of foreign trade. Only a few of the final buyers are accredited and do have an

experience of a trading internationally. Nowadays, having cooperation from ITCs,

FTCs or approved autonomous commerce companies is the only way end-users can

do to process with foreign purchase according to the law. There is an expected hope

that, in the near future there will be a chance that end-users will not need

cooperation of intermediaries to trade with an overseas firms. Furthermore in

wanting to regularly make direct sales calls on a number of end-user customers, in

the future firm would be considering to build own sales force with representative

offices in China.

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Recommendation

Importantly firm must consider following recommendations in process of

exporting to Mainland China:

Every province of china is unlike to each other and china is not a one

market

A rapidly growing middle class and rising disposable incomes are spreading

wealth across China

Rising wages are making China less competitive as a location for

manufacturing

Increasingly strong competitors

China’s industries are heavily regulated

Management group first of all should focus on the culture uniqueness of the

China and how it affects to the purchasing process. There are many different

regions in China at various levels of sophistication. Similarly, just as there is not only

one market entry strategy in China, there is more than one type of buyer in China.

Experienced and successful companies know that China is not one market, and they

have learned to analyze and segment the various areas. To be successful, firm must

accomplish its market entry at a proficient level.

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Conclusion

China is country that attracting international investors in terms of increase of

potential customers and huge market opportunity in the world. Only challenge for

them is a difference of political issue. Even society has differentiated with its

communist system. Banning and prohibitions are common in China, especially at

online system. So as an investor we need to be consider these regulations and laws

at the first.

But the condition of other environment such as economic and cultural or

business organizations is well performed to the world. Chinese demand is changing;

improving it is because of increase of income level. People require more valuable

than cheap or fake ones.

So getting these opportunities into value is our core goal. Another advantage

for us is China neighbor country for us.

Entry plans to Chinese market , that are written in this report have its own

pros and cons. A particular strategy, chosen by a company will represent them in

what way the Chinese see the overseas company’s coming onto their market,

company’s product request in China, product demand’s rate of growth, a company’s

sources to enter the marketplace, and the time horizon to enter. As long as China is a

relevant destination without any doubt for most fifth quarter products , which don’t

have domestic market, with the developing demographic of the population, chance

in the high-end market is also possible, with products that are guaranteed with the

quality.

Food and Agriculture Organization (FAO) figures show that in the 50 years

from 1961 to 2011, Chinese meat use increased from under 4kg per capita per year

to over 57kg. This has been reflected in a huge increase in imports, specifically in

current years. Figures have grown from less than 60,000 tones in 2010 to 254,400

tones of lamb and mutton in 2013.

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Exporting to the China lamb products would be a huge potential benefit for

our home country. Gaining access to Chinese market for lamb produced in Mongolia

would be a game-changer for industry.

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