Terms of Reference
The objective of the plan is to maximize the potential of current services on offer and to indicate the potential of the firm given its current budget constraints.
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The report realizes that Pearl Oriental Innovations Limited is faced with tough competition and tougher economic times and yet given its past tendency to incur losses due to high operational expenses the firm can turn its fate around by investing in cost-minimizing and restraint maximizing strategies that will enable its to be profitable in the longer run. The report finds that the company is greatly vulnerable to political forces and that it needs to segment its market not based on demography but based on other criteria such as urgency and improving existing client relationships.
Pearl Oriental Innovation is in the business of providing integrated logistics solutions to companies operating in mainland China and Hong Kong. The list of services that it provides currently includes transportation of haulage, warehouse management, and interprovincial distribution of goods.
Pearl Oriental Innovation aims to be a logistics service provider and an investor in logistics facilities. The services it desires to provide in the field are:
Integrated logistics and supply chain management services, ranging from bonded warehousing services, domestics logistics services, international freight forwarding, logistics management optimization, and supply chain management solutions, to logistics-related property investment. (Pearl Oriental)
External Marketing Audit
Economic: The economic conditions greatly impact the logistics industry as the bulk of trade freight determines the need for logistical services. The economic condition of China and Hong Kong are better equipped to face the global financial crisis vis-a-vis their western counterparts.
According to China’s National Bureau of Statistics: Economic growth in the third quarter of 2008 was 9% year-on-year. This is down from 10.1% in the previous quarter, which had also declined from the first quarter. This falling growth rate can be seen as the first evidence of the impact of the credit crisis on Asia and can be attributed to exports, investment, and consumption. (Datamonitor)
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Moreover, the cargo volume has increased as indicated by the China Logistics Industry Report, 2007-2008 which means that the economy is weathering the world economic recession better than other western countries. However, as the economic downturn has affected the demand in the western markets which are mainly the export destinations of companies in China and Hong Kong the cargo traffic has decreased resulting in slightly slower growth predictions in the market.
Technological: the technological environment that Pearl Oriental Innovation Ltd exists in indicates that the company should remain abreast of industry innovations and trends to provide competent logistical services. With competitors such as Oriental Logistics developing in-house inventory management software that enables customers to develop various customized reports and keep track of inventory and reordering levels along with product expiry and warehouse management systems (Oriental Logistics), Pearl Oriental needs to be sure to constantly invest in Research and Development. Furthermore, the company is more vulnerable than other service-providing companies to volatility in fuel prices which makes it necessary for Pearl Oriental Innovation to monitor the business environment of the industry.
Political/Legal: the political and legal conditions of the countries have a very strong impact on the company as it involves cross-border trade. With cross-border trade, export-import regulations are involved and these are greatly affected by political relations between two countries. Therefore the company needs to be abreast of all political happenings that affect trade and political relations between countries. Taking for instance that China signs a trade deal with Malaysia, which will increase the cargo traffic to Malaysia and will be an opportunity to be availed.
As far as the legal environment is concerned a ban on certain items to be traded too can affect the logistics business greatly. For example, if increased duties are stamped on the import of a raw material that P&G uses in its shampoos, the company might choose to procure the material locally rather than import it.
Ecological:the ecological constraints of a firm, especially in the logistics business are more pronounced than in other industries. This is because various modes of transportation are used in providing logistical services and these use fuels, which when they burn, cause pollution. Given that vehicles emit some of the most harmful pollutants and are one of the major sources of pollution that the logistics industry comes under harm.
The Market:An analysis of the market indicates that the market size of the Chinese logistics industry was CNY75.2282 trillion in 2007. This was a growth of 26.2% up from previous years and is expected to grow at an annual compounded rate of 16% for the next three years based on China’s booming economy.
Moreover, the added value of China’s logistics industry reached CNY1.7 trillion, which rose by 20.3% compared to the previous year.
With regards to the market share of the companies providing third party logistics services according to Dr. Fu Yuning:
Currently, No one accounts for more than 2% of the market share. (Yuning)
Given this insight by Dr. Fu Yuning, it is obvious that there are no dominant players in the market but a host of companies providing logistic services. Furthermore, this comment also indicates that there is potential for companies to service the underserved Chinese logistics market as some 10,000 to 15,000 is low in comparison to the trade volume of the country.
The customers for Pearl Oriental Innovation are companies operating in China and Hong Kong which include both national and transnational companies.
The choice criteria that these companies use in selecting a logistics partner are the feasibility, reliability, and cost-effectiveness of the service in question. This is because logistics are an important consideration for any business that aims to fulfill its consumers’ needs aptly. Given some of the customers that Pearl Oriental Innovation serves, such as Procter and Gamble, which operates in the Fast Moving Consumer Goods (FMCG) industry, logistics and timely delivery of products, are important aspects of running the business successfully and maintaining market share.
Logistics being a derived demand, the market is segmented on several bases. In the case of the logistics industry, the market is currently segmented on several bases. This includes segmentation on the pretext of demography and within that based on geography i.e. the companies operating in mainland China and Hong Kong and is also based on the type of industry that the customer is in, e.g. FMCG in case of Pearl Oriental, or the wine and fashion industry in the case of Oriental Logistics Holdings.
Competition: the company’s competitors are large in number and there is no single emergent competitor in the market. The competitors include in-house logistics departments as well as cargo and shipping companies. The objectives and strategy of competitors in broad terms are that they aim to provide transportation services to consumers in the region. But while the strength of Pearl lies in its integrated solutions, not all its competitors are providing that. Which could well bode ill for Pearl as each company will be a specialist in their niche field. Moreover, there are entry barriers in the industry, and these include are high initial investment costs along with goodwill and trust needed to start a partnership, and initially, there might be a scarcity of both.
Internal Marketing Audit
The operating results of Pearl Oriental Innovations Ltd indicate revenue earnings of $65,344,000 with costs incurred amounting to $51,061,000 and gross profit reaching $14,283,000 down 17.36% from the previous year. However, the company incurred a net loss of $46,247,000 which is 40.5% lower than the previous year. The gross profit margin as compared to sales was 21.9 % which was not sufficient to cover the administrative and selling expenses among others and resulted in a net loss for the company.
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Although figures for the market share of the company are not available, the company is endeavoring to increase market share by investing in “a 60% equity interest of Pearl Oriental Logistics Sino Limited at a consideration of HK$22 million.” (Pearl Oriental Innovations Ltd)
Strategic Issues Analysis
The current marketing objectives of the firm are to increase market share and to expand into further business-related to logistics including providing bonded warehouses and investing in logistics facilities.
The current segmentation of the market is based on geography where companies in mainland China and Hong Kong are being served irrespective of size.
The competitive advantage of Pearl Oriental lies in the fact that where according to Dr. Fu Yuning, logistics companies are providing traditional supply chain solutions Pearl Oriental Innovations is aiming to be a one-stop-shop for its customers by providing integrated logistics solutions.
The core competencies of Pearl Innovations lie in the fact that the company is primarily focused on providing logistics solutions and has a strategic location.
Identifying the company positioning strategy in line with its product and service offerings, Pearl is viewed as a premier Logistics Company with advanced technological systems in place at its locations which are strategically placed in the main provinces of the country. The technology in use which includes barcode systems and online management systems that allow for staff queries and browser-based customer notification systems, also point to the fact that the customer is the focus of the company.
As far as the placement of these services is concerned Pearl’s services are available throughout the country with branches spread in all strategic locations.
Marketing MIX Effectiveness
The marketing mix includes the product, price, place, and promotion. In evaluating the company marketing mix effectiveness we can observe that the product is high quality, premium-priced. The distribution though does not involve any intermediaries and is based rather on a personal and geographical level. However, the placement of the services is such that the company is considered to be a distribution center for Hong Kong, and as China’s accession to the WTO has made Hong Kong a hub for logistics services provided to manufacturers as well as traders.
The promotion strategies of the firm, as it is b2b rely on the fact that each customer needs services that are suited to its needs. Although no advertisement has been aired about its products as such as it is not aiming to market to the mass consumer the company with its quality services has carved a market for itself in terms of being reliable and innovative.
Marketing Structure and Systems
The marketing structure and systems of the company are such that there is a separate department for marketing the products and services but it is mainly the service agents who communicate with the client and along with the top management indulge in the marketing planning strategies. According to company information, the company has invested in equity holding in another logistics company to garner more competencies in the market. Moreover, the company continually invests in new products and is expanding into new product markets to serve as an integrated logistics solution company.
The company has warehouses located all across China that are all certified and are in compliance with national safety and industrial standards. Each warehouse has logistics management systems, and value-added services such as powered and manual forklifts, high racking storage devices among others such as computerized warehouse management systems for the convenience of its consumers. This serves as the company’s strength as these systems and compliance with safety standards ensure customers that they are getting the best of services under one roof. The ease of data retrieval also aids the business in providing quality service to clients that are in the habit of using only the most innovative and advanced systems.
One of the company’s strengths is also that the main subsidiary is located in Shenzhen Futian Bonded Trade Zone which is a free trade zone in China. This ensures lesser tax payments and proximity to clients which is an advantage in terms of cost savings as many industries prefer to locate in these free trade zones which also saves on selling and marketing expenses made by the company.
It is a distribution center for Hong Kong and has invested HK$135 million in a bonded warehouse which ensures its strength as s hub. Ever since China acceded the WTO, Hong Kong has been a through fare for transportation and has become a hub of logistics service providers and this distribution center serves the same purpose.
Diversifying into the energy sector which is not its core business is a weakness of the company as it could divulge from its core competency and end up diversifying beyond management’s potential.
Another weakness that is apparent in the company is that for two years it has been unable to cover its operational expenses and this could pose problems not only for cash flows but also for the marketing expenses that will be in line with the expanding product portfolio.
The company is located in the Chinese market faces many opportunities that when realized to its full potential will be able to help the company succeed faster.
Foremost is the fact that the logistics industry in China is growing despite a fall in demand by western consumers and even though industries worldwide are facing an economic downturn. The company thus is facing a burgeoning demand for logistics-related property and facilities.
Manufacturers and trading companies are faced with increased competition to reduce costs which will mean that companies might find it expensive to have an in-house logistics department and may outsource it to experts leaving room for companies like Pearl Oriental to market their services more effectively.
Even though western consumer demand has decreased, the Asia Pacific region where the company is located has been facing relatively higher demand and thus the logistics companies located in this region will not be as badly affected. ( Special report: NPC, CPPCC Annual Sessions 2009 )
Some threats that the company faces in times of a credit crunch are the slowing growth rate of the economy.
Although companies will be looking to outsource their logistics needs, the service providers will be faced by clients pushing to get favorable terms of trade and better deals with the companies, and the more influence a client has the lower the profits will be.
Another threat that looms ahead is that as the world is aware of Asia as the market to be in, in times of global crisis, the region will attract many foreign competitors who have expertise and repute worldwide and will prove to be tough competition.
The strategic thrust of the company in line with its current objective should be that it does market penetration and expansion rather than entering new markets and introducing new products. This is because the world’s falling demand indicates a lower need for new products but a need for cheaper existing services that will allow it to weather the current storm.
Therefore the objectives that follow the thrust are to harvest the benefits and hold the existing product line as the losses also indicate. Divesting the services would be futile as the enables the company to earn the gross margin but building strategies would mean higher spending that the company can ill afford at the moment.
The company should aim to target clients not only based on demography but also on the criteria of the nature of existing relationships with clients where more products can be promoted to clients with whom there is a healthy relationship. Moreover, situational factors such as the urgency of delivery can be made as a separate consumer segment to focus upon where more can be charged for urgent deliveries.
The case in logistics companies in China is that there are no few strong companies and therefore all providers become competition. Thus rather than targeting competitors, the company should endeavor to position itself in the niche market of providing expedient delivery of goods.
The competitive edge of the company, in this case, will be that it provides fast and urgent reliable services and consumers can count on the company in case there is a delivery deadline and in this manner, the company can garner a niche for itself.
Moreover case of promoting existing products to existing clients will also be an advantage in making the trade partnerships stronger.
Marketing Mix Decisions
The company should have different brand names for each service so that customers can distinguish easily between services they opt for and each service becomes an entity on its own.
Public relations and advertising on mass consumer channels are not good options. Instead, the company should advertise in trade magazines and journals so that clients are aware of the company’s existence. Sales promotions offer should be made to clients and can be referred through via word of mouth to other companies as this is the most cost-efficient and effective form of promotion.
Pricing should be premium with higher charges for urgent deliveries and relatively fewer charges for normal ones. Moreover, credit terms and packages should be extended to customers to increase their satisfaction and their business with the company. The packages could include various combinations of services provided as concessional costs to clients with varying needs.
As it is a service-oriented company the staff at the warehouses and the servicing staff should be professionally attired and impeccable in speech with a sales team assigned to each A-category client to make the experience more attractive and less tedious.
A complaint center can be developed where consumer queries can be answered. The sales teams mentioned above should have a team leader or a contact point that the client can contact at any hour to pacify and satisfy his needs.
The human resources department should hire people who have excellent soft communication skills and are capable of providing customer-friendly services which should be the focal point of the organization.
The marketing budget of the company in line with the current losses and the current turnover projected to the recent years should be as mentioned in the appendix.
The budget will not show a profit or a loss which is better than the recent situation where losses are being incurred. Although the marketing spends at this time is low it is viable as no new products or new marketing campaigns have been proposed and these can be kept constrained as the budget indicates.
Organization and Implementation
The organization needs to be restructured where the sales team also doubles as the marketers, selling propositions to existing clients and segmenting their markets on a newer basis.
While making the marketing plan, I came across several aspects of marketing that can only be apparent in the practical world.
Foremost is the budget constraint where a marketer finds funds difficult to get by. Especially so in a company such as Pearl Oriental Innovation, where the organization was incurring losses, it would be very difficult for a marketer to propose and nevertheless implement a new campaign with a lack of financing. In the real world, the finance department would be adamant about postponing the plan as additional funds would be difficult if not impossible to procure.
Secondly, the sources of finance would be minimal as credit terms from banks and other lending institutions too would not be easily accomplished. The company would have to either issue equity capital, which would be expensive in the long run, or issue debentures which again would be costly and could give decision-making power in the hands of those who might consider the plan inappropriate.
Moving away from the sources of finance and funding, the marketing plan is generally seen as the first stage in a marketing campaign and it has to be very detailed in viewing all considerations, but then some factors cannot be controlled and are unpredictable. While a company can hope for the best while planning the marketing plan is at most a good draft and a set of directions pointing the way but not guiding the company at each step as it needs revision for each development in the environment and the organization.
More specific to the company at hand and the report, while searching for information about the company and the logistics industry in China, it was difficult to find data in terms of the sales figures and the market share. This is diagonally opposite to experiences with companies operating in the developed world and western countries as market information is generally easily available from various sources. One reason could lie in the culture of these countries as eastern countries, are more oriented towards confidentiality of information while their western counterparts are not. Moreover, the logistics industry in China does not have a formal platform where participants can voice their opinions and share critical industry information that is critical and easily available in market planning for western marketers.
My experience in writing this plan was that competitor information and market data were scarce. However the applicability of the principles learned in the marketing course was there, but being a logistics service provider and hence a b2b firm, the company’s segmentation strategies differed from consumer market segmentation strategies which are devoid of information about specific clients versus b2b companies which serve few clients and have a host of information available to develop differentiated marketing strategies for each.
Therefore the plan writing process was insightful as it highlighted many of the issues marketers face in the world of today. While marketing has traditionally been viewed as a subjective field where professionals rely on intuitions more than market data, the marketing plan made me realize, as a student of the field that what seems as intuitive decisions are well-informed decisions based on data gathered after thorough research.
|Budget for the Marketing Plan|
|Turnover (16% increase based on market analysis)||75799.04|
|Cost of Sales ( 77.5% of Turnover as per past trends average)||(58769.5)|
|Less: Operating Expenses|
|Selling and distribution expenses||(2500)|
|Advertising in Magazines and Trade Journal||(1000)|
|Total Marketing Expenses||(4000)|
|General and administrative expenses||13029|
|Net Profit (loss)||0|
Special report: NPC, CPPCC Annual Sessions 2009. China’s logistics industry posts 15.4% growth in added value. Web.
Coleman, Lee. ‘Can do’ attitude: Warehousing company Logistics One positioning itself for future growth. 2009. Web.
Datamonitor. Asia’s Contract Logistics Market Will Continue to Register Strong Growth. 2008. Web.
HKTDC. Hong Kong well positioned to widen China’s logistics bottleneck says TDC report. 2002. Web.
Kotler, Philip and Gary Armstrong. Principles of Marketing. Prentice Hall, 2005.
Logistics World 2008 – The Largest Logistics Event in East China with International Concurrent Events. Web.
NYK Logistics (Hong Kong). NYK Logistics (Hong Kong). 2009.
Oriental Logistics. Oriental Logistics – Inventory Management. 2009. Web.
Pearl Oriental Innovations Ltd. “Pearl Oriental Innovations Ltd Annual Report 2007.” Pearl Oriental Innovations Ltd Website.
Pearl Oriental. Pearl Oriental Innovation Limited. 2006. Web.
Research in China. China Logistics Industry Report, 2007-2008. Industry Analysis. Beijing: Research in China.
Yuning, Dr Fu. “The Logistics Industry in China: From Dawn to Sunrise.” 2003. The American Chamber of Commerce Website.