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					China
 MGMT 449, Fall 2008
   Barker, Rachel
     Cao, Nhan
     Dinh, Kim
     Ngo, Mike
    Nguyen, Anh
      Pai, Jay
Agenda
 • Brief History of China
 • Evaluate Target Market & Growth Potential
    o   Energy, Sleep, Pain, Weight Loss, Anti Aging, Anti
        Radiation
 • Pest Analysis
    o   Economical, Political-Legal, Socio-Cultural,
        Technological
 • Legal Requirements
 • Competition
 • Global Entry Strategies
    o   Agents/Distributers, Licensing, Alliances, Multi Level Marketing
 • Marketing Strategies
    o   Product, Price, Placement, Promotion
 • Management, Organization, and Operations
 • Estimated Financial Costs
    o   Legal, Promotion/Marketing, Shipping/Transportation
    o   Channel/Distribution, Management, Operations
 • Strategic Plan
    o   Vision, Mission, Goals, Objectives, Strategies
    o   Step-by-step Implementation
Map of China
Chinese
Linguistic
Groups
Recreations and Sports
                   The Economy

•   Rapid Growth
•   Under-Developed Government Regulations
•   Unemployment- 8-10%
•   Inflation- 7-8%




(Source: http://en.wikipedia.org)
                     Employment

• Average total wage in China in “2007 is
  around $12-14 per day.
• Family planning and one child provision
• Most people chose to go back to college
  rather than work in low paying jobs




(Source: http://en.wikipedia.org)
   China’s Top 5 Largest
         Regions

                   Guangzhou

Shanghai                                       Beijing




Shenzhen   (Source: http://en.wikipedia.org)   Hong Kong
 Health and Wellness Market
            Size
• Pharmaceutical
• Cosmetics
• Dietary
       Pharmaceutical Industry

• Pain, Energy, and Sleep
  o 10 billion dollars in 2007
  o annual growth rate of 16.72%




(Source: http://en.wikipedia.org)
            Cosmestic Industry

• Anti-Aging and Anti-Radiation
   o 5.84 billion dollars in 2002
   o 10% Annual growth rate
   o Expecting to reach 11.68 billion dollars by
     2010
   o 80% of the cosmetic industry is captured by
     foreign companies




(Source: http://en.wikipedia.org)
Dietary Supplements Industry

• Diet Patch
  o   3 billion in 1998 to 6 billion in 2001
  o   200% increase over a three year period
  o   66% (calculated) growth each year
  o   Expected to reach 10 billion in 2010




      (Source: http://en.wikipedia.org)
Analyzing The Target Market
   Target Market-Energy/Sleep

• Children, Adult and Elderly,
  o Male and Female
• 52 Million people will be target.
• Target market growth rate is 3.4 percent




(Source: United For Children)
             Target Market-Pain

• Mostly Elderly, 60 and above
• China's elderly population will increase by
  5.96 million each year
• 158 million Chinese is be above the age
  of 60 in 2005
• growth rate for elderly is 2.42%




(Source: Peopledaily)
             Target Market-Diet

• Children, Adult and Elderly,
  o Male and Female
• 52 Million people will be target.
• Target market growth rate is 3.4 percent




(Source: United For Children)
      Target Market-Anti Aging

• Target adults and the elderly
• Target market growth rate is 3.4
• Target market of 533 million




(Source: United For Children)
 Target Market-Anti-Radiation

• Cell phones Users
• 295 million Chinese in 2004
• The estimated cell phone user growth rate
  is 1-2 percent.




(Source: CNET)
PEST Analysis

    Rachel
 Pest Analysis-Political-Legal

Political Analysis
* People’s Republic of China (PRC)
* Republic of China (ROC)
    PEST Analysis-Economics
• Economics Analysis
  o Largest City in China: Beijing
  o Unemployment rate: 4%
  o Service industry rate: 40% of GDP
  o Major Exports: 40% of GDP
  o Major Imports: 32% of GDP
  o GDP: 3,280.05 in Billion
  o Real GDP growth: 1.9 annual %




(Source: World Bank Statistics)
PEST Analysis- Socio-Culture

• Socio-Culture Analysis
  o   Socio Cultural Analysis
  o   Avg. Household Income: lowest 10%: 1.6% highest
      10%: 34.9% (2004)
  o   Women: 645,793,082
  o   Men: 684,252,523
  o   Average age: Male: 33.1 & Female: 34.2 years
  o   Birth rate: 13.71 births/1,000 population
  o   Death rate: 7.03 deaths/1,000 population
  o   Population: 1,330,044,544
  o   China is known for their many festivals.


      (Source: cia.gov)
PEST Analysis-Technological

•   Technological Analysis
•   Competing Technology
•   Transportation:
•   *467 Airports
•   *1,930,544 km total roadways
•   * 124,000 km navigable waterways
    o   Consumer Buying
    o   253 million are internet users
    o   547.286 million are mobile phone users




        (Source: cia.gov)
     Overall PEST Analysis

• Advantages             • Disadvantages
• *want to advance in    • *2 different
  technology               governments
• *low cost-of-living    • *superstitious
  standards              • *labor shortage
• *Good communication
  lines between US and
  China
Legal Requirements

       Jay
Requirements to do Business in
China
•FDA Approval- Type One Medical Device, includes band aids, gauze,
adhesives
•Register With Ministry of Commerce in China- use PatchtoChina.com
for the registration process
•Tariffs- ad valorem tax average is 9.9%
•Import Taxes- 7- 13%
•Required Documents: Copy of Business License, Approval
Certificate,
  Articles of Association, Tax Registration, Bank Account Certificate,
Certificate
  of Proposed Agency Code, Registration form to apply for customs,
  Registration form for management for customs, import/ export
license,
• Exchange Rates
Requirements to do Business in
China Continues
Harmonization Codes
Energy Patch, sleep patch, pain patch and diet patch- 30059010
  Code is for and aids, gauze adhesives.
Anti Aging Patch, anti radiation patch- 30045000
  Code is for other products of medicaments containing vitamins and
other
  products.




(Source: www.PathtoChina.com)
(Source: www.apectariff.org/tdb.cgi/ff3235/apeccgi.cgi?CN)
Competition

    Jay
Competition: Energy Patch
       Domestic             Foreign
                         5 Hour Energy Drink
•Red Bull Energy Drink   •$2.99/ bottle
•$2.99/Drink
•                        •
•                        •
•Green Tea               •Spot on Energy Patch
•$58/5 Ounces            •$62.95 for 96 patches
                         •
Competition: Pain Patch
        Domestic                 Foreign
•Accupunture             •Icy Hot Pain Patch
•100 RMB(YUAN)           •$17.99/10 patches
•                        •
•Fire Cupping
•Hot Cups form Suction   •
                         •ThermaCare Heat Patch
                         •$24.99/9 patches
                         •
Competition: Anti-Aging Patch
Domestic Competitors             Foreign Competitors
•8 Immortal Adaptogenic Elixir   •Neutrogena Anti Wrinkle Cream
•2 ounces/$55                    •1 tube/$24.99



•Duanwood Reshi                  •Avon Anti Aging Elixir
•One bottle/$45                  •Two oz. container/$54
Competition: Diet Patch
Domestic Competitors   Foreign Competitors
•Green Tea             •Hoodaba- Hoodia
                       •3 month supply/$119

                       •Hydroxycut
                       •One bottle/$26.95
•Acupuncture
Competition: Sleep Patch
Domestic Competitors   Foreign Competitors
                       •Tylenol PM
•Sleep Teas            •$16.95/bottle of 225
•Herbs
•Suan zao ren
•Chuan xiong
•Gan cao               •Unisom
•$7.95/ Bottle         •$9.99/bottle of 32
Competition: Anti-Radiation Patch
Domestic Competitor            Foreign Competitor
•BioPro Anti Radiation Patch   •Aulterra Neautralizer Patch
•Nanotechnology                •$20/ for 3 pack
•$85/ patch                    •Neutralizes EMFs
Entry And Marketing
     Strategies
        Anh
       Global Entry Strategies
              Overview
•   Agents/Distributers
•   Licensing
•   Strategic Alliances/Partnerships
•   Network Marketing
    Option 1: Agents/Distributers
"Many agents in China will promise much and deliver little." - Dr Anatole Bogatski,
Director Student Services

Advantages for Agents
 • the principal has greater control over terms of sale and marketing
 • direct contract between manufacturer and customer
 • the manufacturer able to retain risk of stock .
Disadvantages for Agents
 • agents have the right to lump sum compensation upon termination
 • maintaining stock inventory can be costly
Advantages of Distributers
 • the supplier can pass a greater degree of risk to the distributor
 • greater incentive for the distributor to sell the product
 • no compensation payable on termination.
Disadvantages of Distributers
 • loss of control over activities of the distributor
 • distribution agreements will be regulated by competition law


(Source:   British law firm, Penningtons)
                Option 2-Licensing
Advantages
 • Provides additional profitability with little initial investment
 • Provides method of circumventing tariffs, quotas, and other export barriers
 • Attractive ROI
 • Low costs to implement
 • Market too small to justify presence
 • Minimum risks
 • Foster fast growth

Disadvantages
 • Limited participation
 • Returns may be lost
 • Lack of control
 • Licensee may become competitor
 • Licensee may exploit company resources
 • Limited royalty fee
 • Possible damage of image

(Source: www.clt.astate.edu)
     Option 3-Alliances/Partnerships
Advantages
 • Allows for sharing of risk (both financial and political)
 • Provides opportunity to learn new environment
 • Provides opportunity to achieve synergy by combining strengths of partners
 • May be the only way to enter market given barriers to entry
 • Share risks
 • Bring in local knowledge
 • Share resource

Disadvantages
 • Requires more investment than a licensing agreement
 • Must share rewards as well as risks
 • Requires strong coordination
 • Potential for conflict among partners
 • Partner may become a competitor



(Source: www.clt.astate.edu)
    Option 4-Network Marketing
Advantages
• Low startup cost/financial risk
• Residual income
• You are your own boss and you get to set your own
  working hours
• Potential for time/financial freedom
• Established infrastructure/plan.

Disadvantages
• Frustration for new recruits
• China outlawed since
   1998
• People not trusting the company

(Source: http://www.work-at-home.com)
Chosen Global Entry Strategy

• Network Marketing!!

• Why?
 Marketing Strategy-Product

Successfully introduce the Nanotech
patches to the Chinese Market
  o   The Energy Patch
  o   The Pain Patch
  o   The Sleep Patch
  o   The Anti-Aging Patch
  o   The Diet Patch
  o   The Anti-Radiation Patch
      Marketing Strategy-Price

Pricing to the Chinese Market
• Price Tactic #1: Price Nanotech patches

  o   The Energy Patch: $40 or 273.84 RMB
  o   The Pain Patch: $40 or 273.84 RMB
  o   The Sleep Patch: $20 or 136.92 RMB
  o   The Anti-Aging Patch: $20 or 136.92 RMB
  o   The Diet Patch: $30 or 205.38 RMB
  o   The Anti-Radiation Patch: $10 or 68.46 RMB
Marketing Strategy-Placement
Target areas of high potential and high traffic areas
 • Placement Tactic #1: Target major corporations,
   businesses, and airports
    o High traffic of business people and major
      demographics
    o Greater risk for stress, insomnia, and fatigue due to
      the demands of their work
 • Placement Tactic #2: Target parks, schools, and
   clinics
    o Track locals, friends, and families
    o Business professionals are not the only people who
      suffer but everyone you encounter
Marketing Strategy-Promotion

Build Nanotech Brand Name in the Chinese
Market
• Promotion Tactic #1: Devise Media Plan and Test
  Vehicles
   o Television-Chinese Central Television
   o Print-Newspapers and Magazines
   o Internet
• Promotion Tactic #2: Word of Mouth (91% Literate)
   o Door-to-door
• Promotion Tactic #3: Develop Sales Materials
Management, Organizational,
   Operational Structure
            Mike
Organizational Structure
              Manage and Run
  o   Kellen Company, Inc.

• C.E.O’s mentality :

  o   Serve as facilitators and group
  o   Primary responsibility set objective
  o   Work styles will be participatory and interactive
  o   Task orientated
      Transportation/ Shipping

• Freight and Shipping, Inc.

  o   J.I.T Inventory System

• Qinhuangdao Port, Funding County
              Rent Vs. Own
If we renovate…              If we buy…

• Low introductory offer*    •   Ability to customize
  and affordable monthly     •   High up front cost
  rate                       •   Government takes over
• No maintenance or repair   •   Constant cost:
  costs                          maintenance, tax,
• No long-term contract          insurance etc.
  required
• Opportunity to upgrade
  renovate more space
Operation Flow Chart
Financial Analysis

       Kim
        Starting Costs in China
Description                    Once Per Year

Incorporation                   $ 140,000
Register - Energy Patch            $ 8,000
Register - Pain Patch             $ 8,000
Register - Sleep Patch            $ 8,000
Register - Diet Patch              $ 8,000
Register - Anti Aging Patch       $ 8,000
Register - Anti Radiation Patch   $ 8,000

Trial - Energy Patch             $ 40,000
Trial - Pain Patch              $ 40,000
Trial - Sleep Patch             $ 40,000
Trial - Diet Patch               $ 40,000
Business License                 $ 72,800
TOTAL                           $ 420,800

(Source: www.devicelink.com)
              Costs of Taxes
20% Income Taxes

1. Income from sale of goods
2. Income from provision of labor services
3. Income from transfer of property
4. Income from equity investment such as dividend and
bonus
5. Interest income
6. Rental income
7. Income from royalties
8. Income from donations
9. Other income
            Duties in China

For a 40’ container to be shipped within China, the
cost varies dramatically between 5% to 20% of
inventory value.
Average cost is $750.00 within China per shipment.
      Salary for Management

Executive Director $ 100,000 to $ 110,000

Director of Finance $ 85,000 to $ 90,000

Director of R & D $ 80,000 to $ 85,000

Director of $ 70,000 to $ 75,000
Communications
          Salary for Staff

Executive Staff $ 60,000
Finance Staff $ 60,000
R&D / Logistics $ 60,000
Communications Staff $ 60,000
Total $240,000
 Promotion / Marketing Costs

Promotional Costs 10% of inventory cost

Magazines $ 6,000
Internet 20,000
Brochures –
1 million at 5¢ each 50,000
TOTAL $ 76,000/ annually
    Transportation/Shipping
            Costs
Shipping from Long Beach, CA to Coastland
China
     40-foot Container will cost roughly
                  $7,000
    Warehouse & Office Space
   Average cost of having both is about $10,000 a month




(Source: www.wiki.answers.com)
Implementation

     Jay
                  Vision


 To be the #1 company that offers consumers
high quality nanotechnology patches to improve
           health and wellness China.
                Mission
       We strive to be the providers of
  nanotechnology patches that improve the
health and wellness of our customers through
   state of the art technology, innovation,
        leadership and partnerships.
         Implementation: Goals

1.To build a successful selling organization that promotes and
sells Nanotech Patches thru word of mouth advertising. The
structure of the company will be a network marketing
company. Recruiting new sales people is Just as important as
selling the product itself.

2.To increase revenue and market share by breaking into the
Chinese market.

3.To increase and build product awareness in China of
Nanotech patches. Product awareness will help our sales
people sell products by creating demand for the different
product lines.
     Implementation: Objectives
1.Have 500 independent representatives promoting Nanotech patches
one year after introducing the product into China.

2.Have each representative increase their repeat customer base by 5
customers, and by recruiting at least one new independent
representative each month within one year. Generate over $1 Million in
revenues from the sale of products over the course of one
year. Additionally, the company aims to generate another $1 Million
from licensing fees generated off new representatives.

3.Build product awareness of 50% of the population(in target markets)
in one year. Promote the health benefits of the patches at trade shows
and to health and wellness professionals. Market product thru celebrity
and athelete endorsements.
     Implementation: Strategies

1.Develop training program, and marketing material to help
reps obtain their goals. Start by recruiting successful network
marketing/ and or salespeople to unleash recruiting and training
efforts. They can be management for sales organizations.
Reps can be recruited from business schools, other sales
organizations, health professionals and entrepreneurs. Have
conference calls every week to train, manage, and track
productivity of reps. Have seminars in sales training and
relationship building to help promote the business opportunity
and the products.
     Implementation: Strategies

2.The company will offer services directly to consumers, with
the help of independent representatives, eliminating the high
costs of the “traditional” marketing methods. The result is
quality services with more value for the consumer. This will
help reps gain customers. Have bi- weekly meetings to recruit
new reps. Reps will get a bonus for sponsoring new reps,
however they will only get the bonus after helping the new rep
acquire a least 5 new customers. Additionally, this method will
help not only to build a solid downline, but also to generate
residual income from the sale of products.
     Implementation: Strategies

3.Attend trade shows and conferences that focus on technology
and the health and wellness sectors. This will help target
product distributors and build overall brand recognition. Hand
out free samples and literature citing clinical studies of the
benefits of the patches. Attend conferences such as the Dutch
Academic China Meeting(ACO) which focuses on Chinese
Traditions and Western Perceptions in not only business but
health care and globalization.
Additionally promote the product at sporting events(Olympics)
and other types of networking oppurtunites to build brand
recognition.
    Implementation: Time Frame

1st-6th Months
Obtain licenses and import articles of association, Importers
insurance. Use PAthtoCHina.com as the agent to accomplish
the primary steps before can import product.
Set up meetings with vendors, business contacts, salespeople,
leasing agents and other organizations for trip to china. This is
to start building an organization of sales reps and management
in China. Use internet to gather contact information and make
cold calls in order to set the meetings.
    Implementation: Time Frame

7th-8th Months
Travel- visit china find office/warehouse space. Attend
strategic meeting that were set up prior to arrival. Finalize
paperwork for importing and direct selling. Recruit and sign up
first reps/ sales managers. Train top level producers to sell
product, and recruit other reps. Provide marketing materials
and training manuals for reference.

In addition, on the 7-8 Month
Import container of product out of Long Beach port into Beijing.
Have products shipped to warehouse. Use hired staff
managers to oversee product delivery.
   Implementation: Time Frame

9th -12th Month –
Start as soon as possible
Start recruiting more reps and having seminars to find new
reps. Each new rep will pay a sign up fee of 795. Each rep will
get a sponsorship bonus of $150 for every new rep recruited
into program. Additional residuals will also be generated for
helping downline expand. The sponsorship fee will not be paid
until the new rep recruits 5 new customers to buy product.
   Implementation: Time Frame

Long Term Continuation Plan: 2nd Year
Start attending trade shows and conferences in the technology
and health and wellness sectors to promote product and recruit
new reps. Health professionals can be a great target market
not only to sell the product as a distributor, but also join the
sales organization. (time frame- whole year)

Ongoing in perpetuity
Have weekly sales calls, conference calls and live meeting to
continue growth of organization.
    Implementation: Time Frame

Long Term Continuation Plan: 2nd Year
Start looking for celebrity sponsorships, or athletes to promote
product. Already have a lot of press after Olympics and
Michael phelps, and David Beckham, who where the patch
without any sponsorship deal. Play off of this momentum to
gain popularity.

Year 3
Reevaluate. Improve supply chain management. Keep
recruiting new sales people and start the use of an e commerce
site to aid in sales. Reps can get credit for the sale by
providing a identification number for anyone referred to the
site. Poossibly look into expanding office/warehouse space
based on volume and amount of reps in the organization.
        The End

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