Alyze the Feasible Alternative Entry Modes and Make Your Recommends on Entry Strategy to Further Expand the Company’s China Business?

After a New Zealand dairy company disclosed that a type of bacteria that could cause botulism was tested positive in infant formula, China has halted imports of all milk powders from New Zealand and Australia for safety concerns, this threatened its $9.4bn annual dairy trade. (Gulf Times, 2013)

However, in the long term, it is still believed that there is potential for Chinese market as China would still have heavy rely on foreign baby food and a sustainable market potential. For instance, after six babies were killed by the contaminated milk powder in China’s 2008 scandal, Chinese people are more willing to offer very high prices for infant formula from foreign exporters like New Zealand where dairy products there has a clean and healthy reputation. Though the import halt struck the dairy industry of New Zealand where 95% of the milk product are exported to other countries, economists said a prolonged ban could lead to a shortage of dairy products in China, including foreign-branded infant formula, as nearly 90% of China’s milk powder imports was originated in New Zealand. (Gulf Times, 2013)

Despite the fact that China has temporally halted import of all milk powder from New Zealand, a foreign baby food company that has experience on exporting to China still believes in the long term potential of the Chinese market. This paper will analyze the feasible alternative entry modes: Equity joint venture and wholly foreign-owned enterprise and give recommendation on entry strategy to further expand the company’s China business.

To entre or expand in a market, there are various common entry modes available as follows:

1) Direct Export / Trading-related contractual arrangements

2) Joint venture (Cooperative / Equity)

3) Wholly foreign-owned enterprise

4) Licensing / Franchising

The above modes involve resource commitments (albeit at varying levels), where firms' initial choices of a particular mode are difficult to change without considerable loss of time and money. (Agarwal, 1992)

In China, 79% of the ownership patterns of the foreign direct investment is wholly foreign-owned enterprises whereas 18% is contractual joint ventures, these two kinds of company have been the mainstream of ownership patterns.

There are two kinds of joint venture, they are cooperative joint venture and equity joint venture. In the case for the Australian baby food company, the former one more suitable due to the following reasons.

First, there is no supplies import restrictions. Under cooperative joint venture, company does not have to put Chinese resources before importing from abroad. Chinese people are desperate to purchase foreign brand because they believe it could provide