International Journal of Retail & Distribution Management

Emerald Article: The impact of the changing marketing environment in the Pacific Rim: four case studies Sally Dibb

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To cite this document: Sally Dibb, (1996),"The impact of the changing marketing environment in the Pacific Rim: four case studies", International Journal of Retail & Distribution Management, Vol. 24 Iss: 11 pp. 16 - 29 Permanent link to this document: http://dx.doi.org/10.1108/09590559610131691 Downloaded on: 21-12-2012 References: This document contains references to 31 other documents Citations: This document has been cited by 2 other documents To copy this document: permissions@emeraldinsight.com This document has been downloaded 3311 times since 2005. *

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Sally Dibb, (1996),"The impact of the changing marketing environment in the Pacific Rim: four case studies", International Journal of Retail & Distribution Management, Vol. 24 Iss: 11 pp. 16 - 29 http://dx.doi.org/10.1108/09590559610131691 Sally Dibb, (1996),"The impact of the changing marketing environment in the Pacific Rim: four case studies", International Journal of Retail & Distribution Management, Vol. 24 Iss: 11 pp. 16 - 29 http://dx.doi.org/10.1108/09590559610131691 Sally Dibb, (1996),"The impact of the changing marketing environment in the Pacific Rim: four case studies", International Journal of Retail & Distribution Management, Vol. 24 Iss: 11 pp. 16 - 29 http://dx.doi.org/10.1108/09590559610131691

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The impact of the changing marketing environment in the Pacic Rim: four case studies
Sally Dibb

Introduction
The Asia Pacic Rim region offers bright prospects for retailers and manufacturers. The large population, sound economic growth, investment in infrastructure and rising incomes all contribute to a positive and improving trading environment. Even in China, where the accessibility of markets was traditionally limited by the political regime, the move towards a socialist market economy is under way. This has led to a host of new retailing opportunities. However, while the prospects for companies seeking to expand their horizons are encouraging, those seeking to capitalize on these Pacic Rim opportunities must respect the inherent diversity of the region. Economically powerful Japan with the regions highest gross domestic product (GDP) is, to the outside observer, an obvious contrast to Chinas relatively backward but fast-growing economy. The distinctions between the newly industrialized economies of Hong Kong, Singapore, South Korea and Taiwan which have established a powerful trading presence within the region may appear to be less extreme, but are nonetheless also important. The newly industrialized economies themselves contrast with Malaysia, Thailand, Indonesia and the Philippines, where investment in infrastructure and a move to the cities is fundamentally altering lifestyles. The particular characteristics, both large and small, of all these countries affect trading conditions and must be taken into consideration by businesses and retailers wishing to operate in the region. While the Pacic Rim is characterized by such contrasts, there are also some important trends which apply more generally to the region. The rst of these trends is a gradual improvement in the standard of living, with consumers having more purchasing power than before. As incomes rise, so do expectations, leading to increasing demand for a wide range of consumer items. The second trend relates to a change in family structure, with more women working, marrying later and having fewer children. Extended families, which previously may have shared a home, are increasingly splitting into more than one unit.
Thanks to Warwick Business School MBA students Melvin Lee and Harrison Ho who provided source material for this paper.

The author Sally Dibb is Senior Lecturer in Marketing & Strategic Management at Warwick Business School, University of Warwick, Coventry, UK. Abstract Suggests that with sound economic growth, a rising population and changing lifestyles, the Asia Pacic Rim offers an attractive trading environment for retailers and manufacturers. Reports that the trading environment in the region is somewhat diverse, so businesses wishing to take advantage of the opportunities on offer must have a exible marketing approach which allows them to adapt to local needs. Considers a range of wider marketing environment factors which are shaping the trading conditions in the region. Provides case studies of retailer Yaohan, Hongkong Bank, manufacturer and retailer Giordano and food manufacturer Ajinomoto (which distributes its products from a wide range of outlets). Uses these to illustrate the impact of economic, political, cultural and demographic trends and to show how companies in the region are responding to these factors.

International Journal of Retail & Distribution Management Volume 24 Number 11 1996 pp. 1629 MCB University Press ISSN 0959-0552

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The third trend is a move towards urbanization, accompanied by a change in the types of jobs which people do. Put together, these changes are resulting in massive infrastructure development. With this development come new jobs, better incomes and greater demands for housing, cars, consumer products, food and clothing. As families gear up for their new urban lifestyles, even the types of products that they need and want are changing. Political changes are also altering the characteristics of the marketplace. For example, the return of Hong Kong to China in 1997 and Chinas transition to a socialist market economy are likely to have far-reaching effects for retailers of all kinds Political changes are also altering the characteristics of the marketplace. For example, the return of Hong Kong to China in 1997 and Chinas transition to a socialist market economy are likely to have far-reaching effects for retailers of all kinds. In order to take advantage of the regions emerging opportunities, local retailers and manufacturers must keep a close view on the rapidly changing economic, political and social patterns in the region. This paper reviews the impact of these aspects of the wider marketing environment on retailing in the Asia Pacic Rim and uses a series of short case studies to illustrate the impact of the key economic, demographic, political and socio-cultural factors. Material for the case studies is sourced from a range of academic, business and statistical publications. (For the purposes of this paper, the Asia Pacic Rim region includes China, the newly industrialized economies (NIEs) of Singapore, Hong Kong, South Korea, Taiwan, Japan and the developing countries Indonesia, Malaysia, the Philippines and Thailand.)

that impact on the companys market and marketing practice. When the marketing environment changes, companies face uncertainty, threats and opportunities. Retailers wishing to capitalize on such opportunities must be ready to predict likely outcomes and act quickly. According to Dibb et al.[2], Marketing managers who fail to recognize changes in environmental forces leave their rms unprepared to capitalize on marketing opportunities or to cope with threats created by changes in the environment. Retailers involved with consumer goods need to be particularly vigilant as these products are particularly sensitive to environmental factors[3]. The marketing environment is sometimes broken down into two components: the micro- and macro-environment. The microenvironment concerns aspects which are close to the individual business and over which the business has some control. This paper is concerned with the macro-environment, sometimes also called the wider marketing environment, consisting of those elements which are external to the business and have a broader effect on it. These include economic, demographic, political, legal, technological, social and cultural factors.

Economic factors
Economic conditions in the Asia Pacic region are affected by a range of economic factors which have an impact on spending power and behaviour. In recent times the region has enjoyed considerable growth and has remained relatively unaffected by the 1990s global recession. The gures for 1993 indicate a total GDP of almost US$5.8 trillion, with a further 40 per cent growth expected by the end of the century. The full extent of this growth will be subject to factors such as the effects of Japanese recession (which is likely to have less of an impact in Asia than in the USA or Europe), the signicant increase in Chinas economy and a slight slowing of the economies in Hong Kong, Singapore and Taiwan. As shown in Table I, not all countries are likely to contribute equally to this growth. Of the countries reviewed in this paper, the highest growth is expected from Thailand and Malaysia. This is due to an inux of direct foreign investment as labour-intensive businesses migrate from Japan and the NIEs to 17

The marketing environment

The marketing environment is a set of forces which either directly or indirectly inuences a business acquisitions of inputs or generation of outputs. Kotler[1] denes the marketing environment as ...the actors and forces that affect the companys ability to develop and maintain successful transactions and relationships with its target customers. It comprises non-controllable actors and forces

Table I Gross domestic product trends (GDP) in US$m Annual average 1999 growth forecast (per cent) GDP 3.4 4.5 9.4 7.4 7.7 5,190,430 248,782 120,627 386,196 679,439 1,435,044

Country Japan NIEs Hong Kong Singapore Taiwan South Korea Sub-total South East Asia Malaysia Thailand Philippines Indonesia Subtotal China Total

1989 2,870,933 63,994 29, 151 146,857 212,970 452,972

1990 2,927,841 71,741 35,049 157,010 244,043 507,843

1991

1992

1993 4,220,830 111,248 52,277 215,989 319,298 698,812

3,339,222 3,659,222 82,803 40, 146 175,395 283,904 582,248 96,567 46,025 204,427 296,839 643,858

37,835 69,105 42,567 94,445 243,952 422,175

42,803 80,156 44,142 106,141 273,242 370,000

47,106 91,924 45,295 115,878 300,203 371,410

57,777 103,260 52,932 126,359 340,328 429,123

64,740 114,807 54,484 141,615 375,646 529,205 5,824,493

10.7 10.8 2.1 7.9 10.0

148,991 139,148 83,651 275,725 647,515 901,610 8,174,599

Note: GDP is in nominal terms (US $m) Source: [4] cheaper areas. For such businesses the attractions of Thailand and Malaysia are obvious: both countries enjoy relatively low levels of ination, cheap labour, and Malaysia is particularly rich in natural energy resources. As reforms take shape, China is also experiencing a rapid increase in its economy, with predictions suggesting that double gure growth rates will continue. In the run-up to the hand-over of power in Hong Kong, a three-way economic relationship between China, Hong Kong and Taiwan has been emerging. The size of the combined populations of these countries means that this relationship is bound to impact signicantly on other trading conditions in the region. These trends are illustrated by the GDP gures and trends shown in Table I. Meanwhile, the Japanese economy has suffered as a result of world recession. Since 1991, Japan has seen a decline in private investment accompanied by a fall in consumption and prots. However, despite these setbacks, Japan remains the second biggest global economy, with a GDP per capita of US$33,821 in 1993[4]. Here again, the diversity of economic outlook is starkly illustrated. Table II gives further details by summarizing some key economic factors currently affecting each country. 18 The economic characteristics of different countries in the region will inevitably affect the business prospects and marketing approach of retailers operating there. Taking an extreme case, consumers in Hong Kong and Singapore have relatively higher spending power than those in Indonesia and China. Not surprisingly, given the economic conditions in these countries, retailing is more sophisticated in Hong Kong and Singapore, where individuals spend a high proportion of their incomes on consumer items. This, in turn, affects the business attractiveness of these countries for retailers. For example, Hong Kong is an attractive retailing centre because it is highly urbanized and has a relatively large local and tourist population who spend large amounts of income on consumer items. However, these positive features are mediated by the high level of retailing competition which has been attracted to Hong Kong. China, on the other hand, has a much less well developed retailing system and the number of competing rms is relatively low. Despite low incomes and less urbanization, improving economic conditions make this an attractive market too. The case below, which describes the internationalization of Japanese department store group Yaohan, illustrates how one company

Table II Economic factors for key Pacic Rim nations Country Chief characteristic Positive economic factors Negative economic factors Strategic location Chinas economic reforms Highly developed infrastructure Development of South China Economic Zone High ination Brain drain Rising labour and land costs Possible communist inuence

Hong Kong The colony will return to China in 1997, will eventually become economically integrated with Southern China and the nancial and trading centre for overseas Chinese. New infrastructure projects, such as the building of a new airport, are planned Singapore This is the business centre for ASEAN (Association of South east Asian Nations Singapore, Malaysia, Indonesia, the Philippines, Thailand and Brunei). Singapore has many high-technology industries, is part of the growth triangle and the growth of local business groups has been encouraged

Political stability High-quality labour force Highly developed infrastructure ASEAN economic development Strategic location

Increasing labour and land costs Heavy dependence on foreign capital Rising labour and land costs Small domestic market

South Korea Characterized by some relations with North Korea and the liberalization and opening of capital markets. Upgrading of industry and infrastructure developments is under way Taiwan Is part of the South China Economic Zone and has established relations with China. Taiwan is currently undergoing nancial reform Undergoing economic development of private sector and development of supporting industries. Part of the Growth Triangle and enjoying growth of local business groups.

High ination Weak technology base Inadequate infrastructure North Koreas political instability Inefcient industrial organization Strong domestic demand Uncertainty over political Economic exchange and links relationship with China with China Labour shortages Abundant funds Inadequate infrastructure High education levels Sluggish private investment Political stability Proximity to Singapore Liberal policy on foreign investment Improving ties with other ASEAN countries Labour shortages Weak infrastructure Heavy dependence on foreign capital Underdeveloped supporting industry Economic disparity between ethnic groups

Rising income levels and growing domestic demand Economic exchange with China and North Korea Superior bureaucracy High education levels

Malaysia

Philippines Here state-owned companies are being privatized, some progress in land reform has been made and former US military bases are being developed. Thailand This country is undergoing political democratization. Domestic markets are expanding, nancial markets are being internationalized and developments in infrastructure are under way.

High-quality, cheap labour Political instability Good international relations Inconsistent government Weakening Communist policies inuence Inadequate infrastructure Heavy debt repayment burden Poverty in countryside Rising income levels Expanding exports of industrial manufactured goods Rising economic exchange with Indo-china Plentiful natural resources and labour 19 Skilled labour shortages Overcrowding in Bangkok Worsening environment Underdeveloped supporting industry Income disparity

(Continued )

Table II Economic factors for key Pacic Rim nations Country Indonesia Chief characteristic Positive economic factors Negative economic factors Inadequate infrastructure Heavy debt burden Economic disparity between ethnic groups

Part of the Growth Triangle Relatively politically stable and now enjoying post-Suharto Plentiful natural resources leadership. Major developments and labour in infrastucture are under way. Financial support from industrial countries Large domestic market Undergoing transition into a socialist market economy. State-owned enterprises are being reformed. Hong Kong is soon to be returned and there are developments in the infrastructure Acceleration of reforms Vast domestic market Replacement of central planning with market mechanism Improving investment environment Rise in foreign direct investment

China

Low productivity in state-owned enterprises Fiscal decits Ination Population problem Income disparities between coastal and inland regions

Source:[5] has handled these kinds of economic contrasts in the marketing strategy which has been pursued. Yaohan group Although Yaohan Groups head ofce is located in Hong Kong, this department store business is Japanese in origin. The company moved to Hong Kong in 1990, following successful attempts to establish a retailing joint venture agreement with the Chinese government. This move was part of Yaohans internationalization strategy which is seeing the company develop a presence in what it describes as Greater China: Hong Kong, China and Macau. Despite Yaohans Japanese origins, the company does not have a signicant presence in its home market. With relatively few outlets in Japan, Yaohan has chosen instead to focus on internationalization[6]. The drive for international recognition began in South-east Asia during the 1970s. In 1984 the company opened its rst Hong Kong department store and today has nine outlets serving Hong Kong and Macau. So far the 1990s has been a successful decade for the company, with turnover doubling between 1991 and 1993[7]. Although retailing remains the primary focus for Yaohan, the companys success has allowed it to diversify into catering, family entertainment, real estate and food processing. Yaohans underlying marketing approach is to provide one-stop shopping for all of the family. Its department stores sell everything from food to fashion and include restaurants, fast food outlets and family entertainment centres. Yaohans store location strategy is more novel, with outlets sited 20 close to major residential conurbations and away from the city centre. These locations t with the companys marketing strategy which is to target lower and low-to-medium income bands[8]. The Hong Kong retailing business has obvious attractions for companies like Yaohan. First, there is a large population which spends a high proportion of its disposable income on shopping. The large number of tourists, totalling around ve million each year, supplement the indigenous populations purchases. Hong Kong is also well established as a major nancial centre and is particularly attractive from a taxation viewpoint. As competition increases, companies like Yaohan will inevitably feel the effects, yet the colony continues to attract high levels of overseas investment. A question mark remains over the impact of sovereignty changes in 1997, but Yaohan management remains clearly committed to developing its business further in Hong Kong, Macau and China[6]. In addition to its Hong Kong and Macau interests, Yaohan has clear ambitions for its business in mainland China. With 1.2 billion consumers, China has the largest concentration of potential buyers in the world and has recently enjoyed a much improved economic performance. With annual economic growth gures of 13 per cent, some estimates suggest that annual retail sales will reach US$600 billion by the millennium[9]. Also on the positive side, the Chinese consumer is already enjoying the better choice, higher quality, branded items and luxury goods available in western-type department stores and, as expectations increase, is likely to demand more of the same in the future[10]. However, trading in China is not without its difculties.

Despite encouraging economic growth gures, poor exchange rates have decreased prot margins for overseas businesses. Retailers must also deal with competition from local rms while struggling with high marketing costs and the problems of poorly developed infrastructure. There are clear and signicant differences between the Hong Kong and Chinese retailing markets. While the Hong Kong market is well-established and closely fought by a large number of competitors, Chinese retailing is at a much earlier stage of development. Foreign investment opportunities only really opened up in 1992. These differences are reected in the marketing approach which Yaohan is adopting in each country. The economic situation in China results in an uneven wealth distribution which only makes certain regions attractive to the company. As the rst foreign retailer to gain a licence to operate in China, Yaohan was in a relatively strong position to establish an early presence. This has been achieved by opening stores in the more afuent areas of Beijing and Shanghai. As in Hong Kong, Yaohan is also aiming at the mass market, with prices lower than other foreign department stores such as Wing On, but slightly higher than local stores[9]. Yaohans approach to differential advantage in Hong Kong and China reects the economic contrasts between the two locations. In Hong Kong, the emphasis in on convenient, locally sited, one-stop shopping while in China, prime sites are sought and the Yaohan brand is stressed. Although current economic considerations would appear to support this approach, the company may need to reconsider its position when Hong Kong sovereignty reverts to China. The contrasting economic characteristics of China and Hong Kong are self-evident. However, despite striking differences between the two markets, each has a number of positive and negative features which affect how retailers such as Yaohan develop their marketing effort. Investment in the vibrant Hong Kong retailing scene has allowed Yaohan to build turnover and develop a strong brand. The combination of the brand and companys nancial security is allowing Yaohan now to explore quite different options in China. However, the difference in consumer prosperity in each country means that Yaohan has needed to modify its location strategy in China to ensure that the most afuent Chinese are reached. 21

The marketing environment: demographic factors

The demographic make-up of a region concerns the size, age pattern, population density, birth/death rates and lifestyle trends of the population. Over half of the worlds 5.5 billion people live in Asia, with a massive 1.7 billion in the Asia Pacic region[11]. As shown in Table III, the country-by-country variation is striking: China accounts for around 65 per cent of this number, while the 2.8 million in Singapore make up less than 1 per cent. Despite a considerable slowing in population growth, by the end of the century the region will be home to some 157 million extra people. In a marketing sense, this makes the region particularly attractive. Furthermore, the relatively high urban population offers relatively good accessibility to the vast majority of potential consumers. The effects of the regions falling birth rate are being seen in the population age distribution, with relatively fewer children than previously and a relatively high proportion in their 30s and 40s. Estimates suggest that by the end of the century almost one third of the population will fall into the 30-50 high-earning, high-spending category. This will increase the demand for many types of housing, cars, household items, nancial services and so on. The number of elderly is also set to rise, leading to opportunities for a different set of products and services, while the demand for toys and childrens clothing will decline. The employment patterns in the region are gradually changing, with a general move away from agriculture towards city life. Even the Table III Demographic characteristics in the Pacic Rim Urban Projected Population population Population population (M) (%) growth (%) (1999) 124.8 5.9 2.8 20.9 44.1 19.0 59.0 65.8 189.1 1,181.0 77.5 94.5 100.0 84.8 74.3 44.7 23.5 43.9 32.3 26.8 0.36 1.07 1.54 1.06 1.11 2.49 1.95 1.73 1.81 1.52 127.2 6.3 3.0 22.1 46.6 21.8 65.7 75.4 210.5 1,291.0

Country Japan Hong Kong Singapore Taiwan South Korea Malaysia Thailand Philippines Indonesia China

Sources: [4,12]

large populations of China and Indonesia are giving up their rural life in increasing numbers. This urbanization, which is leading to an increase in service-oriented businesses, will inevitably have an impact on the demand for goods and services and other patterns of employment. For example, extra accommodation, public transport, leisure facilities and amenities will be required. This will result in a rise in construction and related employment opportunities. The types of goods which consumers want to buy will also change, with an increase in the demand for appropriate city clothing and all the usual trappings of city life. Congestion, already a serious problem in many major cities, creates time pressures and thus increases the demand for compact, labour saving items. As consumers spend more time than ever travelling to and from work, this aspect of the Pacic Rim lifestyle looks set to worsen. The number of elderly is also set to rise, leading to opportunities for a different set of products and services, while the demand for toys and childrens clothing will decline Families in the region are being affected in a number of important ways. Traditionally, the family has occupied a particularly important place in society. Much importance is attached to family celebrations which usually take place at home. Against this backdrop fewer women are staying at home, opting instead to extend their education or pursue careers of their own. Many are leaving it later to get married and having fewer children. Even once the children are born a signicant proportion elect to stay at work. This trend is changing families eating, leisure and spending patterns[13]. The clothing manufacturer Giordano Holdings Limited is one of many which has taken advantage of the large, rising population in the Pacic Rim. While consumers in Hong Kong, Singapore and Taiwan traditionally spend a high proportion of their income on clothing, increasing urbanization coupled with the size of the population in China and Indonesia is creating opportunities in traditionally less attractive markets. Not surprisingly, clothing manufacturers and retailers like Giordano, described in the case study below, are looking for ways to enter and 22

become established in such markets. Building a presence in these new markets is, however, fraught with difculty. Giordanos experiences in China illustrate the difculties which can arise, even though this is a company whose value-for-money oriented positioning and widely dened target market seems broadly appropriate. The case study also illustrates the competitive problems which can arise for companies attempting to balance the attractions of new opportunities with the security of established markets. Establishing the Giordano brand Giordano Holdings Limited is a Hong Kong clothing manufacturer and retailer with operations in nine Pacic Rim countries. The company sells mainly casual wear through more than 700 retail outlets in countries such as Hong Kong, Singapore, Malaysia, Japan, the Philippines, Taiwan, China and New Zealand. Giordano has built its brand on the back of a relatively small range of casual clothes such as Tshirts, polo shirts, sweaters and jeans. The clothes are conventional, colourful and good quality, but not particularly fashionable in design. Giordano is unusual in Hong Kong because although the country is well known as a major clothing exporter, traditionally it has few famous brands of its own. Founded in 1980, Giordano enjoyed rapid growth to an annual turnover which today approaches US$300 million (in the region of HK$2,300 million). The company was started by Jimmy Lai, a penniless school dropout from the Guangdong province in China. In 1983, the company entered Taiwan and began trading internationally. This was quickly followed with a move into the Singaporean market. During 1992 a subsidiary company, Tiger Enterprises, was launched to tackle the Chinese market. This was followed swiftly by the rst shop in New Zealand and plans to attack South Korea and Australia. Overall, the 1990s have been a particularly protable period for the group, with 1993 prots rising by around 40 per cent on the previous year. Despite Giordanos obvious ambition, the initial concept to sell premium priced clothing was not particularly successful. In 1986 Giordano took action to alter its strategy. The companys new strategy was based on ideas borrowed from other successful retailers. Better computerization and tighter range control were adopted and the company altered its pricing strategy to become a discounter, selling a fairly limited range of lines to a broad customer base. The stated marketing objective for Giordano was to pursue a value for money positioning based on a combination of keen prices and customer satisfaction from quality products. By targeting people from all

areas of life, irrespective of age, background and culture, the company was aiming for volume sales using the chain store concept. Although the precise details of the companys segmentation strategy are not clear, the Giordano brand seems to appeal particularly to the 20 to 35 years age group. Giordano is able to sustain its value pricing by manufacturing most of its products in China, where labour and factory costs are low. In addition, the companys fairly limited range of designs allows it considerable scale economies. Although Giordano has a presence throughout the Pacic Rim, its major markets of Hong Kong, Taiwan and Singapore account for around 90 per cent of turnover. The companys domestic market, Hong Kong, is the second richest region in the Asia Pacic. Not surprisingly this has proved to be a particularly attractive market for Giordano. The spending power of the Hong Kong consumer is reported to be among the highest in the region and well-known brands are particularly popular[14]. In addition, individuals spend almost 25 per cent of their income on clothing. The aggressive competitive environment means that Giordano is not having things all its own way. In particular, the company is having to defend competitive position against the likes of Bossini, G2000 and U2, all of which offer high quality and keenly priced clothing. The more afuent parts of the Pacic Rim are attracting new competition from US discount retailers including The Gap, The Limited and Wal-Mart. UK retailer Marks & Spencer provides a further source of competition for Giordano. Taiwanese customers rst encountered the Giordano brand during 1983, when the company began wholesaling its products through existing Taiwan outlets. By 1993 the company had 174 outlets, accounting for almost 135,000 square feet of retail space. For the rst time sales in Taiwan exceeded those in Hong Kong, but here too Giordano now faces heavy competition. Chain store Hang Ten has been particularly aggressive, choosing deliberately to open outlets close to Giordano shops. Like many other retailers in the Pacic Rim, Giordano has been attracted by the potentially enormous Chinese market. However, despite the size of the population, the practicalities of dealing in this relatively backward market are proving difcult to handle. Giordanos subsidiary, Tiger enterprises, with ten outlets by 1993, has had to deal with problematic government bureaucracy, frequent power cuts and poor labour productivity. The company has therefore decided to adopt a wholesaling and franchising approach to future expansion in this area. 23

The growing Asia Pacific Rim market has obvious attractions for clothing manufacturer Giordano as it seeks to expand its business. However, although population size, family trends and increasing urbanization give grounds for some optimism, there are also problems to overcome in entering new markets. In China, Giordano has already encountered a host of practical difficulties to which it must respond. At the same time, the business must not lose sight of increasing competitiveness in its core markets of Hong Kong, Singapore and Taiwan. In the coming years success will depend on the company balancing the demands of serving markets at different stages of development, and in so doing must be ready to vary its marketing strategy accordingly.

The marketing environment: political factors

Political stability is an important determinant of business success and impacts on the long-term marketing strategies which organizations adopt. With a high proportion of dictatorships, territory disputes and ethnic problems, the political status of Pacific Rim countries has complicated trading conditions in the region. The result of this political uncertainty is that organizations wishing to invest may be reluctant to make long-term commitments. Almost all countries in the Pacific Rim are experiencing some kind of political turbulence. In some circumstances this uncertainty is because of leadership concerns. China, Indonesia and Singapore have all been ruled by strong leaders and companies are inevitably anxious about the effects of power changeovers. Perhaps the greatest political threat comes from China, the worlds largest Communist regime. Although the old central planning approach has been superseded by the market mechanism, there is considerable uncertainty about what will happen when leader Deng Xiaoping dies. In some places political instability is exacerbated by territorial or ethnic difculties. Taiwans problematic relationship with mainland China is a case in point. As political factions continue to push for Taiwans independence, China is steadfastly determined that the country will remain one of its

provinces. Although both parties are currently enjoying the economic benets of a reasonably stable relationship, China still insists that it will counter any move by Taiwan towards independence[15]. Disputes over territory are also creating rifts in the South China Sea, where Brunei, China, Malaysia, the Philippines, Taiwan and Vietnam are laying claim to the oil rich Spartly Islands[16]. Meanwhile Malaysia faces problems handling its multi-racial population. Here the Malays (half of the population), have much poorer lifestyles than the Chinese (one-third of the population). This is leading to unrest, a situation which is mirrored in other Asia Pacic countries, such as the Philippines. It seems that nowhere is entirely free from the problems of political uncertainty. Even Japan, which has enjoyed reasonable political stability in recent years, seems to be going through a period of change as competition between political parties intensies. The power of political change is such that the wellbeing of even the most established retailers and businesses can be radically altered by periods of instability. The case below illustrates the situation faced by Hongkong Bank in the run-up to the 1997 handover of power to the Chinese. This retail bank has enjoyed considerable local and global success and has become recognized as a traditional sign of colonial Hong Kong. Now the bank must deal with the uncertainties which political change is bringing. As the banks managers prepare for the changes to come, they must try to secure the business competitive position in the face of heavy competition. The competitive threat from the Bank of China, likely to be the preferred bank of the Chinese government, requires particular attention. Hongkong Bank Hongkong Bank, the largest commercial bank in Hong Kong, was founded in 1865 to nance merchant trade in the South China Sea. As the main member of Hongkong & Shanghai Banking Corporation Group, Hongkong Banks Hong Kong business accounts for around one-third of the groups assets and three-quarters of its prots[17]. Today, while the banks domestic operation remains in Hong Kong, its subsidiary operations provide a network of more than 3,000 ofces worldwide. Key milestones in the banks history include the acquisition of Hang Seng Bank in 1965; the establishing of Hongkong Bank of 24

Canada in 1981 and Hongkong Bank of Australia in 1986; the acquisition of 15 per cent equity interest in Midland Bank in 1987; the 1991 reorganization of Hongkong Bank under HSBC Holding plc, with shares listed on the London and Hong Kong stock exchange and the 1992 HSBC acquisition of Midland Bank[1820]. These political factors can be considered in relation to the economic environment in which Hongkong Bank is trading. Like many other Asia Pacic countries, Hong Kong has emerged relatively unscathed from the effects of global recession. Businesses have beneted from healthy domestic growth, increasing exports and heavy infrastructure investment. The colony has also capitalized on the strong economic growth in China. An increase in economic activity in the south China region, which impacts directly on Hong Kongs economic health, has been especially benecial. Despite the recent prosperity of the bank, concerns remain about the likely effects of the 1997 power handover. In practice, it is difcult to judge the full impact of the political changes which will accompany the handing back of the colony to China. Many industry analysts believe that sovereignty changes are likely radically to alter the banks competitive situation. Despite assurances from the Chinese government that Hongkong Bank will be allowed to trade as before, the regime is certain to show some preference for Bank of China. This will have repercussions for Hongkong Banks dominant position in its domestic market. For its part, the Bank of China is acting to strengthen its position in the Chinese and Hong Kong domestic retail markets by becoming involved in the Hongkong Association of Banks and, in 1994, becoming a note-issuing institution. The competitive threat which Hongkong Bank faces means it must be ready to capitalize on potential sources of competitive advantage over its rivals. These advantages are likely to be built on three strengths: the Hongkong Bank brand; its technological expertise; and global network. The Hongkong Bank brand. The brand has beneted from the signicant role which the bank has played in Hong Kong. As the major issuer of bank notes in Hong Kong, with a good understanding of local customers needs and a good retail presence, the bank has built local customer condence in its operation. Technological expertise. Hongkong bank has a guiding belief that customers must be provided with a Fast decision. Worldwide[21]. The underlying rationale is that customer access to a full range of services must be carefully co-ordinated.

Putting this philosophy into action has involved heavy investment, with considerable technological development and the provision of new computer systems. Providing Hongkong Banks customers with access to an international network of more than 160,000 automatic teller machines (ATMs) is one outcome of this investment. International network. Hongkong Bank is a dedicated global operator, creating a presence in the US, Canadian and Australian markets in just ten years. With the acquisition of the UKs Midland Bank, it is impossible to deny the companys obvious ambitions for Europe[17]. The result of this international orientation is that Hongkong Banks customers can now access their funds in more than 65 countries worldwide[22]. Hongkong Banks situation epitomizes the uncertainty which can accompany political change. The banks success and reputation may not be enough to guarantee its future position in the changing times ahead. However, the Hongkong Banks reputation as a global player will certainly help strengthen its position. At this time the banks management is working hard to ensure that its competitive advantage is rmly established, believing that this will also act as insurance in the post-1997 period. Unfortunately, like many other businesses, the bank will have to wait until after the handover of power to appreciate the full effects of the political changes.

The marketing environment: cultural factors

The impact which cultural factors have on purchasing behaviour is well established[23]. Culture is a complex concept which is difcult to dene closely. An early and well-known denition by Tylor in 1871 describes culture as that complex whole which includes knowledge, belief, art, morals, customs, and any other capabilities and habits acquired by man as a member of society (see [24]). Consumer behaviour expert Assael[25, p. 319] goes further, describing the effect which culture can have: Culture is the values, norms, and customs that an individual learns from society and that leads to common patterns of behaviour within that society. Today marketers generally agree that culture has an important impact on behaviour and, for example, plays an important role in determining buying patterns. 25

In exploring culture, there are various areas to consider, including family links, religion and language. In general, the Asia Pacic region is characterized by a strong work ethic, close family ties and a solid commitment to education. The work ethic is a major consideration for families, especially as the pressure for occupational success is often considerable. One effect of this pressure is seen in the strong demand for labour saving devices[26]. Away from work, a keen sense of family responsibility is the norm, with relatively large families, close relationships and an emphasis on the home. Although religion is arguably a less signicant factor than in certain other parts of the world, its role in determining personal values and morals and the effect which it has on consumers attitudes towards particular products and services is important. For example, Muslims reject the consumption of alcohol, an important consideration for those trading in Indonesia and Malaysia. Other religious groups have particular eating restrictions, or may have codes of conduct relating to the purchase and consumption of other types of goods. Table IV summarizes the considerable variety of religious and language trends seen in the region. Language is often regarded as the biggest potential barrier to the marketing of goods and services in the region. Marketers must take into consideration the wide range of adopted languages and dialects (see Table IV). For example, it is estimated that there are more than 100 different dialects spoken in China alone. Fortunately for organizations operating in the region, many consumers are multilingual, and the acceptance of English as a second language is fairly widespread. However, it is important to be aware that:
In reaching out to the consumers, the marketers need to understand that the use of English by itself as a communication medium is not sufcient and may not be appealing. Even in countries where English is used in commerce, Mandarin, Malay, Tamil and dialects are mainly still spoken outside the work hours. There are also a great number of people (especially the older generations) who do not know English at all[16, pp. 2-16].

As a result, retailers must take care to reflect the language requirements of locals in any advertising, promotion and packaging. Culture does not begin and end with the family, religion and language. In addition to

these signicant considerations, retailers must be aware of many other cultural variations and nuances. For example, for Malaysians the colour green is associated with illness, while the Chinese, Koreans and Japanese avoid everyday clothing which is entirely white or black, as these colours are reserved for mourning and/or weddings. The complex cultural factors at play must be carefully monitored and considered by all businesses involved in distributing products and services. In this respect, the actions of retailers are partly shaped by the behaviour of the organizations which supply them. For example, the way in which food manufacturers respond to the regional cultural diversity will affect the product offerings available on supermarket shelves and at restaurants and other eating establishments. Japanese food manufacturer Ajinomoto, like many others, must be proactive in dealing with the vagaries which result from the regions cultural variety. The following case study shows how the company varies its marketing, distribution and packaging to reect these important differences and illustrates the repercussions for the retailers. Ajinomoto and MSG With sales approaching US$6 billion[29] the Japanese company Ajinomoto, one of Japans biggest food manufacturers, is also the worlds largest producer of monosodium glutamate (MSG). Although the companys interests include pharmaceuticals, chemicals,

seasonings and oils and fats, the food manufacturing side of Ajinomoto accounts for over half its business. While Ajinomoto is not itself a retailer, as a manufacturer of a widely-used foodstuff it has to gear up to the different distribution systems in which it operates. In the Asia Pacic region the avour enhancer ajino-moto (otherwise known as monosodium glutamate MSG) is a household name. Invented in 1908, MSG is manufactured using a process of fermentation of sugar cane and tapioca our. Today, with world demand estimates for MSG of around 400,000 tons, the avour enhancer is widely used in food production and in the home. Ajinomoto secured its excellent distribution system by tying into the Chinese rice wholesalers. In the Pacic Rim, rice is a basic foodstuff, which had already established access to all of Ajinomotos key markets. Using an existing distribution channel considerably lessened the companys set-up and running costs. The company has geared its distribution and marketing approach to the differing requirements of the wholesale and retail markets in a number of important ways. Packaging size is a particularly signicant consideration, with the company repackaging MSG for the consumer market into small low-cost packets. Although the company sells direct to all of its customers, the margins offered to different channel members vary. For retailers the margin is 3 per cent on large packages and 20 per cent on small packets, while wholesalers receive 2 per cent and 3 per cent respectively. A bonus scheme aimed at channel members, linked to sales volume and co-operation, helps push the MSG

Table IV Contrasts in language and religion in the Pacic Rim Country Japan Hong Kong Singapore Taiwan South Korea Malaysia Languages Japanese Cantonese, English, Mandarin Mandarin, English, Cantonese, Teochew, Hokkien, Malay, Tamil Mandarin, Hokkien Korean Bahasa Malaysia (Malay), English, Islam, Muslim, Buddhism, Chinese and Mandarin dialects, Tamil Christianity Thai Filipino, English, Spanish, Cebuano English, Bahasa Indonesia, many other local languages Mandarin, Cantonese, Hakka, Amoy, Foocho and many other dialects Religions Shintoism, Buddhism, Christianity Buddhism, Christianity Buddhism, Taoism, Christianity Buddhism, Taoism, Christianity None Islam, Muslim, Buddhism, Christianity Mainly Buddhist, Muslim and others Christianity, Muslim and others Mainly Muslim, Christianity, Hinduism, Buddhism Mainly Buddhist

Thailand Philippines Indonesia China Sources: [27,28]

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through the distribution system, leaving the company to concentrate its promotion on consumers and retail outlets. Ajinomotos promotional programme must reect the cultural and environmental characteristics of the region[30]. The companys relatively small promotional budget has also limited the types of activity which can be undertaken. Radio advertising, which gives good-value access to a wide range of consumers, has been widely used. The format chosen uses a musical jingle with an alliterative phrase to help consumers recall the product. The phrase used varies for different countries: for example, in Indonesia Chup Chup is used, while in the Philippines the phrase is Tak Tak. As television ownership has risen, Ajinomoto has also undertaken some television advertising, linking in with cookery programmes. Newspaper and magazine advertising have tended to emphasize information provision about the companys products. Ajinomoto has made a deliberate decision to avoid the relatively low-cost options of traditionally sited billboard advertising. This is because the dirty, untidy areas which are usually associated with these sites give the wrong messages about the high quality white product which the company is marketing. In general, outside advertising has been geared to the characteristics of different markets. For instance, in Indonesia bus-stop advertising is an effective approach, while in the Philippines replicas of the bottle used to sell MSG have proved popular. Changing work patterns in the region are altering eating trends. With more women working full-time, there is a move away from home cooking to readyprepared meals and dining out. These changes are likely to affect the pattern of demand for MSG. More direct targeting of the food manufacturers may be appropriate as the demand for small packets of MSG lessens. The potentially lower prot margins which may accompany this change makes this a worrying time for the company. In addition, Ajinomoto must adjust to changing trends in distribution as the number of supermarkets and convenience stores increases. Such changes may allow the company to build on its other areas of expertise. For example, in its domestic market Ajinomoto is a leading supplier of frozen foods. The changing work patterns in the Pacic Rim may now offer the business an opportunity to expand this expertise into new markets. Any activities of this kind would certainly be supported by the rising number of retailing outlets through which such products could be sold. Retailers are not alone in having to gear their marketing to the cultural needs and 27

expectations of the countries in which they trade. Manufacturers which supply the retail market must also respect and respond to variations in culture. As has been shown in the case study, the nature of their response will inevitably have repercussions for the retailers supplied. For example, one of Ajinomotos responses to differing cultural requirements was to vary basic features such as package size. This then affected the size of the margin which the retailers received. Culture is a complex, multi-faced concept and it is difcult to illustrate its scope and depth using one simple case study. However, the Ajinomoto example does show how retailers and their suppliers each play an important role in preparing culturally acceptable product and service offerings.

Conclusions
With a population of 1.7 billion, GDP of US$5.8 trillion, heavy investment in infrastructure and increasing urbanization, the Asia Pacic Rim is attracting strong interest from expanding local and international businesses. The future of retailing in the region looks secure. Population increases are accompanied by general improvements in the standard of living. The traditionally strongly consumer-oriented societies of Japan, Hong Kong and Singapore are being joined by an upsurge in demand from the likes of Malaysia and Indonesia. Even China, currently enjoying economic reform, is forging new types of trading relationships, which are changing the shape of retailing in the region. The challenge for businesses wishing to share in the emerging opportunities is to develop their understanding of the regions marketing environment and the changes occurring within it. In many respects, this understanding acts as a kind of passport, which will allow the businesses to tailor their offerings and marketing activities to suit local tastes and needs. The marketing environment describes a range of forces which have an impact on business opportunities and threats, including economic factors, such as GDP, economic growth and ination; political factors, such as the 1997 handover of Hong Kong to China; cultural aspects, like religion, the role of the family and language; and demographic factors, such as population changes. Companies seeking to capitalize on the attractions of the Asia Pacic Rim must combine their understanding of

these marketing environment issues with proactively developing appropriate products, services and marketing programmes. The case studies described in this paper have illustrated the potential impact of environment factors on trading conditions and have shown some of the resulting marketing initiatives. Japanese department store retailer Yaohan, with its ambitious expansion plans for the region, must be ready to modify its plans to cater for the differing economic potential of different countries in the region. China is seen as a particularly attractive target, yet the company has needed to tailor its offering to reect the characteristics of a relatively new retailing market. With sales through more than 700 outlets, Giordano clothing manufacturer and retailer is used to dealing with cultural and economic diversity. The company has been able to capitalize on the increasing population size and urbanization which has resulted in individual spending one-quarter of their income on clothing. Not surprisingly, the market in China is seen as particularly attractive, although the company is still facing practical difculties establishing its trading presence there. Japanese department store retailer Yaohan, with its ambitious expansion plans for the region, must be ready to modify its plans to cater for the differing economic potential of different countries in the region In Hong Kong, the changing political stage is a particular cause of concern for Hongkong Bank, which fears its traditional stronghold will be threatened after 1997 by a preference for the Bank of China. The bank is attempting to minimize the impact of the political handover by capitalizing on its three main strengths: the Hongkong Bank brand, technological expertise and the global network. Although not a retailer, Ajinomoto must keep a careful eye on marketing environment factors affecting its distribution structure. Cultural changes in eating and working patterns, particularly in relation to women and work, are changing the pattern of demand for the companys products. This has had ramications for package size and design, as well as for the proportions sold through different outlet types. In turn, this affects the products 28

which are available to the retail outlets and eating establishments. All of the Asia Pacic companies described in this paper are having carefully to monitor and respond to different aspects of the marketing environment in the region. Although the balance of economic, political, cultural and demographic factors which is important differs for each company, the exibility which is required to respond to these factors is common to all. This exibility has played an important role in the success which these companies have so far enjoyed and future performance seems reliant on a similar approach.

References
1 Kotler, P., Marketing Management, Prentice-Hall, Englewood Cliffs, NJ, 1991, p. 129. 2 Dibb, S., Simkin, L., Pride, W. and Ferrell, O.C., Marketing: Concepts and Strategies, Houghton Mifin, Boston, MA, 1994. 3 Keegan, W., Global Marketing Management, PrenticeHall, Englewood Cliffs, NJ, 1989. 4 Country Data Forecast, World Information Services, Bank of America, 1994. 5 Kwan, C.H., The Asian Economies in the 1990s, Economic Interdependence in the Asia Pacic Region, Routledge, London, 1993. 6 Yumiko, O., Surging market: a Japanese retailer nds Southeast Asia is the place to grow; facing barriers in Japan, Yaohan is going abroad in an unusual maneuver, most US rms stay home, Wall Street Journal, September 1992, p. 1. 7 Yaohan, Annual Report of Yaohan International Holdings Limited, 1994. 8 McGoldrick, P.J. and Ho, J.W.K., International positioning: Japanese department stores in Hong Kong, European Journal of Marketing, Vol. 8, 1992, p. 62. 9 Stine, S., Where are those Chinese prots?, Asia Inc., October 1993, p. 50. 10 Marsteller, B., Reading Chinas new consumer, China-Britain Trade Review, June 1994, p. 50. 11 Beamish, P.W., International Management Text and Cases, Irwin, Homewood, IL, 1994. 12 The World Tables, The World Bank, 1994. 13 World, M., The Far East isnt so far any more, Progressive Grocer, Vol. 70, June 1991, pp. 35-8. 14 Cowley, A., Survey of Asias emerging economies: threats abroad, opportunities at home, The Economist, No. 321, 16 November 1991. 15 Asia Inc., Todays Taiwan, young democracy prepares for the future, Asia Inc., May 1994, pp. 21-5. 16 Lee, K.H.M., A review of the marketing strategy of (i) foreign companies in the Asia Pacic Rim and (ii) The successful companies of the Asia Pacic Rim, MBA dissertation, Warwick Business School, Warwick, 1994.

17 Business Week, Global banker, Business Week, 24 May 1993. 18 HSBC, Annual Report of HSBC, 1992. 19 HSBC, Annual Report of HSBC, 1993. 20 Alexander, J. and Jones, C., Global gamble, The Banker, 8 February 1992, p. 12. 21 HSBC, The History of HSBC Group 1865-1992, 1993. 22 Mark, C., Touch an ATM for the money, Far Eastern Economic Review, 24 September 1992. 23 Engel, J.F., Blackwell, R.D. and Miniard, P.W., Consumer Behavior, The Dryden Press, Fort Worth, TX, 1995. 24 Kroeber, A.L. and Kluckhohn, C., Culture: A Critical Review of Concepts and Denitions, Random House, New York, NY, 1963. 25 Assael, H., Consumer Behavior and Marketing Action, PWS-Kent, Boston, MA, 1992.

26 Bow, J. and Ford, M., The retail of two cities, Indonesia and China, Asian Business, Vol. 29 No. 10, 1993, pp. 12-14. 27 Hoovers Handbook of World Business, 1993. 28 International Marketing Data Statistics , Euromonitor, 1994. 29 Giles, M., Survey of the food industry (6), The Economist, 4 December 1993. 30 Koseki, K., Marketing strategies as adopted by Ajinomoto in Southeast Asia, Journal of Advertising Research, Vol. 30 No. 2, 1990, pp. 31-4.

Further reading
Ho, J.W.K., Marketing environment of the Asia Pacic region, MBA dissertation, Warwick Business School, Warwick, 1994.

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