Fragrance Ambrosia: International Market Entry Report for China & USA

This report, authored by Liong Kai Jiunn, analyzes the potential for Fragrance Ambrosia, an Australian luxury perfumery, to enter the Chinese and United States markets. The report examines the fragrance market size, cultural environment, legal systems, economic factors like GDP, wages, and tax rates, and political landscapes of both countries. It suggests joint ventures for China and foreign manufacturing subsidiaries for the USA as suitable business forms, recommending a 'polycentric' staffing approach for China and a mix of 'polycentric' and 'ethnocentrism' for the USA. The analysis considers production costs, employee salaries, and consumer purchasing behavior, concluding with practical recommendations covering all necessary steps for market entry. The report uses government statistics, international business theories, and journal articles to support its findings and provide a comprehensive overview for the CEO.

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ASSIGNMENT 3
INDIVIDUA
L REPORT
(BRIEF CEO)
INB 10002
Authored by : Liong Kai Jiunn
SEM : 3
DATE : NOV 23
ID : 103698453

Abstract
The purpose of this report is to brief the CEO of an Australian owned luxury perfumery,
which intends to enter 2 host nations China and United state in the future 2-3 years. The
anaylsis of perfume markets in China and USA will be based on government statistic website,
global GDP rate, international business concept and theories from journal articles. Besides,
the evaluation of cultural, legal, political enviroment in frangaraces market for both host
countries has resulted a complicated relationship and connection due to certain differs of
structures and system. However, based on the analysis of economics enviroment in China and
USA such as annual wages rate, GDP and tax rate, it proven that the market entry are solid
and sustainable in the future 2-3 years. The report also indicates the most suitable business
forms for China and United State which is joint venture and a foreign manufacturing
subsidiary depending on consumer purchasing method, power, and style. In addition, the
estimation of total expenses in terms of production cost and employee’s salary will be the
concern of business forms decision. Consequently, it shows that ‘polycentric’ will be utilized
in staffing concept due to the needs of business forms for China nations. While United State
nations will be considering mix of ‘polycentric’ and ‘ethnocentrism’. Ultimately, the report
ends with a realistic and practicable recommendation based on the analysis, which covered
every step that have to be conducted.
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Table Of Contents
Abstract.................................................................................................................................................2
1.0 INTRODUCTION.....................................................................................................................4
2.0 Overview.........................................................................................................................................4
2.1 China Market Size of Fragrance (2014-2024)..............................................................................4
2.2 USA Market Size of Fragrance....................................................................................................5
...............................................................................................................................................................5
3.0 Cultural Environment & Relationship (China & USA)....................................................................6
4.0 Legal system & Contract (China)...................................................................................................6
4.1 Legal system & Contract (USA).....................................................................................................7
5.0 Economics & Politics (China & USA).............................................................................................7
5.1 GDP (China)...............................................................................................................................8
...........................................................................................................................................................8
5.2 Cost Related Factors...................................................................................................................8
5.2.1 Wages Rate...........................................................................................................................8
.......................................................................................................................................................8
5.2.2 Tax Rate................................................................................................................................8
5.3 GDP (USA)................................................................................................................................9
...........................................................................................................................................................9
5.4 Cost Related Factors................................................................................................................9
5.4.1 Wages Rate...........................................................................................................................9
5.4.2 Tax Rate..............................................................................................................................10
6.0 Business Forms & Staffing............................................................................................................11
6.1 China.........................................................................................................................................11
6.1 USA...........................................................................................................................................11
7.0 Marketing Strategy........................................................................................................................11
Conclusion...........................................................................................................................................12
Recommendation.................................................................................................................................13
Reference List......................................................................................................................................14
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1.0 INTRODUCTION
This report will examine the opportunities and limitations presented by a perfume
manufacturer, Fragrance Ambrosia, entering a foreign market in the year 2022/2023, the risk
factors, long-term viability, corporate structure, political and legal situations will all be
explored and clarified. According to research, the global perfume market was expected to
growth between the range of 53$ billion in the year of 2024 (Supermarketresearch 2021).
“Cision” web page (Cision 2021) has proven that the worldwide development of the COVID-
19 pandemic will have a beneficial impact on the luxury perfume market during the projected
period. Market growth in 2020 would be higher than in 2019 (Cision 2021). Perfume has
become a daily necessity in current decades, and consumer demand for perfume is increasing
day by day, both in terms of quality and brand (Supermarketresearch 2021). In addition, after
overviewing the perfume market industry in China and USA, several recommendations for
“Fragrance Ambrosia” accessing these foreign markets will be presented in the report's final
section.
2.0 Overview
2.1 China Market
Size of Fragrance
(2014-2024)
(Figure 1 : Statistic)
The statistic beside
illustrates the entire
market size of
fragrance
distribution in China
since 2014 to 2019
as well as estimation
for the next 5 to 6
years (Statista 2021).
It indicated that the amount of perfume manufacturer is increasing year after year (Statista
2021). To put it in another way, the barriers of entry for fragrance market in China are higher
each year (Statista 2021). However, in the year of 2019, the fragrance product distribution
industry in China generated 3.4 billion yuan in revenue (Statista 2021). Moreover, China was
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(Statista 2021)

placed second in the worldwide fragrance market during the year of 2017 (GMA 2021). This
proven that Chinese perfume market is flourishing due to certain reason such as the increase
of disposal revenue (China, C 2021).
2.2 USA Market Size of Fragrance
(Figure 2 :
Statistic)
The graph above indicates the estimated market size of fragrance distribution in the United
States from 2015 to 2025, which includes "Deodorants," "Perfumes," and other products
(Statista 2021). The number of perfume and deodorant manufacturers is expanding year after
year, according to the report (Statista 2021). To put it another way, the difficulties of
entering USA fragrance industry are getting tougher every year (Statista 2021). However, the
fragrance market in the United States generated more than $9 billion in 2018. (Statista 2021).
In the following 4 to 5 years, it is expected to attain the milestone of 11.4 to 11.7 billion
USD. Study proven that more than 40% of Americans utilize fragrance product daily after the
age of 18 and approximately 28% utilize few times weekly. This mean that the amount of
fragrance consumers in United State are huge (O, H 2020).
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(Statista 2021)

3.0 Cultural Environment & Relationship (China & USA)
According to (Lee, CS 2021), China is a country more towards low-context culture, as same
goes to USA and Australia as well (Australia 2021). This mean that China, Australian and
USA are using the same cultural way to conduct a business or communication, for instance; a
gentleman's agreement based on implied terms carries less weight than a contract and the
essence of corporate business negotiation is speed. Nevertheless, as China is Australia's third
largest trade partner, the two countries traditionally had an economic relationship focused on
exporting and trading, but there is now a conflict between these two countries in terms of
politics, equality, and economic progress. However, the "rule of law" is now preserving the
China-Australia commercial partnership (Gabriel, A 2007). Besides, United States considers
Australia to be an important ally, as both of these nation own a strong connection based on
shared democratic ideals, mutual interests, and cultural affinity (United States Department of
State 2020)
4.0 Legal system & Contract (China)
The legal system of China is difference with Australia, as Australia are using the common
law as their legal system (Lawaspect 2021). Instead, China is mainly using civil law system
(Chinajusticeobsever 2021). Additional info: according to (Limmer, Jocelyn E. H. 2013)
there might be new common law being added in next few years. On top of that, the case law
in China is not included in the definition of the law(Chinajusticeobsever 2021). In other
words, only regulations defined by the legislative, federal government, and judiciary are
considered laws (Chinajusticeobsever 2021). Nevertheless, the terms and condition concept
between China and Australia are most likely similar when it comes to international contracts.
In China, a company cannot offer a solution without first applying the law to the problem
(Betancourt, Nathan; Krug, Barbara 2009). The ambiguity of law facilitates its application,
and the application of law facilitates the structuring of the legal environment by organizations
(Betancourt, Nathan; Krug, Barbara 2009). For instance, if a case of default happened such as
natural disaster, contract law may stipulate that in the event of a breach, the breaching party
shall pay a fine, thereby resolving a problem (Betancourt, Nathan; Krug, Barbara 2009). In
Australia, whenever there is liquidated damage, the agreement must be based on a sincere
attempt to evaluate the financial harm (Acc 2015).
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4.1 Legal system & Contract (USA)
Moreover, US legal system are combination of common and federal law system (Wilcox, M
2019). The legal system of breaching a contract is similar with Australia as well, as a result, it
is necessary to offer security for the promised payment; otherwise, the contract breach is less
likely to be substantial (Attorney, R 2021).
5.0 Economics & Politics (China & USA)
Formerly, China political system are mainly towards communist (Yu, H 2019). Accordingly,
a communist country is almost certainly running a socialist economic, hence as a
manufacturer in China it is crucial be aware of the production, distribution and pricing since
this decision are made based on the community requirements (Lee, CS 2021). However,
according to (Harris, J 2018), China is gradually integrating into the capitalist system, as a
result, China's economic system may evolve into hybrid. One downside of a socialist
structure is that the government may intervene in the production demand of manufacturers.
On the other hand, as accordance to (Kaufman, Robert R; Haggard, Stephan. 2019) USA are
operating democratic system in politics with the economic structure of Capitalism (Martin,
Edward J; Martin, Ariana C. 2011). This mean that the barrier to entry might be high due to
the number of competitors, since firms only generate items and services that are lucrative,
and it cased lot of encouragement for manufactures (Lee, CS 2021).
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5.1 GDP (China)
(Figure 2 : Statistic)
The statistic beside indicates China
(GDP) since 1985. In 2020, China
GDP has strike to approximately
14.87$ trillion and placed second in
global GDP ranking. Consequently,
it determined that the average
income and demography are
adequate for luxury goods producers
to operate.
5.2 Cost Related Factors
(Figure 3 : Rate)
5.2.1 Wages Rate
Comparing the annual wages rate of Australia and China with UDS.
The average wages rate of Australia is roughly 50,000$ and China are
55,000$, it indicates that there are 5,000$ differences of average
wages (Jobted 2021). Thus, the marginal cost might be slightly
higher compared to Australia (Salaryexplore 2021).
(Figure 4 : Rate)
5.2.2 Tax Rate
The table specify several basic taxation rates in China,
the statutory rates are based on different activities
(Associates, R 2021). On top of that, the taxes are
considered ordinary when compared to nations like as
Japan, Australia, and Cambodia. Alternatively, China
corporate tax rate are 25%, which are moderately
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(Salaryexplore 2021)
(Peter Starmer GCGI(LM), I 2021)
(Statista 2021)

lower than Australia (Tradingeconomics 2021). Ultimately, manufacturers won’t have many
chances coming across significant tax burdens (Associates, R 2021).
5.3 GDP (USA)
(Figure 5 : Statistic)
The statistic beside indicates USA
(GDP) since 1986. In 2020, USA
GDP has risen to approximately
20.93$. And it estimated to exceed
27$ trillion in next 4 years.
Accordingly, the average income and
demographics are sufficient for
fragrance industry to function,
according to the report.
5.4 Cost Related Factors
(Figure 6 : Rate)
5.4.1 Wages Rate
The annual wages rate of USA is around 30,000 to
88,000 USD. Therefore, the marginal cost might be
twice higher compared to Australia (Statista 2021).
As a result, it resulted in a significant decrease in
income and profit, and in the worst-case scenario,
the firm may suffer a loss (Statista 2021).
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(Statista 2021)
(Statista 2021)

(Figure 7 : Rate)
5.4.2 Tax Rate
According to the table
of business taxation rate
beside provided by
(Tradingeconomics
2021). The corporate tax
rate is approximately
9% lower compared to
Australia (Activpayroll 2021). Furthermore, other taxation such as manufacturing and
industrial production are average compared to other nation (Tradingeconomics 2021).
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6.0 Business Forms & Staffing
6.1 China
While China still remaining as a strong nationalism country, consequently this country is
more towards localization which consumers in China often prefer purchasing local products
(Zhong, Y & Hwang, W 2019). Therefore, a joint venture is inevitable in order to mitigate the
drawbacks of conducting business in a highly nationalistic country, as it may help localize
and modify the products to fit the domestic market (Lee, CS 2021). In the case of a joint
venture, orientating ‘polycentric’ on staffing will be appropriate, since hiring "HCNs" as
senior managers will bring advantages in terms of localizing goods and avoiding language
barriers (Lee, CS 2021). According to (Gabriel, A 2007), Australia and China have certain
conflict, therefore recruiting staff from the host country would avoids political concerns and
government interferences (Gabriel, A 2007).
6.1 USA
With regard to the issue of wage rates in the United States (Statista 2021), it is critical to
establish a foreign manufacturing subsidiary in order to maximize revenue and profit, since
the home company retains 100% ownership (Lee, CS 2021). It may encounter risk in terms of
failed to localize product and quality control, for that reason it is important to hire local
nations staff as manager to monitor the whole process (Lee, CS 2021). Nonetheless, it is vital
to recruit (PCN) as well because it is simpler to communicate and control, reducing risks such
as host employee theft and pilfering of critical intellectual property (Lee, CS 2021).
7.0 Marketing Strategy
On the whole, “Fragrance Amborsia” is a luxury product that produced with high cost raw
materials. Accordingly, boosting the value of this products such as after sales service and
unique features is one of the strategies to survive in foreign markets. On the other words,
‘Niches Strategy’ is when competing in the market, businesses rely on resource-based
advantages, high-quality products, and personal ties (Toften, Kjell, Hammervoll, Trond
2009). Moreover, according to above analysis of GDP in China and USA (Statista 2021).
Majority of consumers in both countries are capable to afford expensive goods, this mean that
having low productivity advantage, but high value advantage will be suitable in this market
as well (Statista 2021).
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Conclusion
Overall, the overview research showed that both China and the United States would have a
solid market entrance in the next few years, due to the market size and GDP statistic
achieving an ideal level (Statista 2021). despite the fact that the home nation and both of the
host countries have similar cultural styles when it comes to conducting businesses, these three
countries have different relationships in terms of collaboration, trading partners, and political
ties (Gabriel, A 2007). Moreover, the legal system of the home country is nearly identical to
those from the United States, but it significantly differs from China, which focuses primarily
on civil law rather than common law (Chinajusticeobsever 2021). The same cases with the
political system, while China leaning toward communism while the United States and
Australia lean toward democracy (Yu, H 2019). Furthermore, the business form used for
USA and China are differs, with the consideration of consumers purchasing style and wages
rate (Zhong, Y & Hwang, W 2019). However, the international orientation could be virtually
similar as due to the advantages of hiring (HCNs) will be greater (Lee, CS 2021).
Additionally, based on the cost of producing and consumers purchasing powers in both of the
host nations, ‘Niches Strategy’ would be the optimal marketing plan to suit “Fragrance
Amborsia” entering both of the foreign markets (Statista 2021).
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