Effective Distribution Strategies For Boosting Intel's Expansion In The Chinese Market

1) For Intel China, what distribution method(s) would be most effective at addressing the competitive threats and actualizing the opportunities in the short run (1-2 years) and in the long run (3-5+ years)? Relate your short run and long run choice(s) to Intel’s strengths and weaknesses. Why?

2) Explain how the distribution method(s) you recommended to John Antone relates to market share, revenue, and profit in China? Provide relevant qualitative and quantitative explanations and back up your answer with a financial analysis. This question will require you to make reasonable assumptions about data that are not present in the case.

3) After answering the specific questions above for John Antone, assume that you are going to be able to present an overview briefing to him. This briefing should incorporate lessons learned from the course texts, handout readings, simulation, lectures, and cases utilized in the course in order to advise John Antone about the Intel China business. Be sure to be explicit and specific about identifying and referencing the text readings, handouts, simulation aspects, lectures, and cases for each lesson learned and to link these directly to the Intel China situation. Yes, John, being a RSB MBA, wants to know the specifics.

Business to consumer techniques (B2C Services)

1). Effective distribution is the key factor behind demand generation and success in the Chinese markets. Establishing a healthy balance between the broad mix of distribution among local original equipment manufacturers, MNCs, and distributors are the main approaches that would enable Intel China boost its expansion in the market; failure to which would derail its growth and competitiveness (David, 2011). Distribution is among the leading challenges that Intel faces in its attempt to sell its products to Asia and other global economies. This part proposes the most appropriate distribution methods that would help Intel in addressing the competitive threats from AMD and actualizing the market opportunities in both short run and long run.

Business to consumer techniques (B2C Services): From the case, Intel’s channel of distribution consisted of approximately 30 sub-distributors based in China who sold the company’s products to the resellers who in turn sold the Intel PC Processors to the target customers. This is a great challenge and offers Intel the threat of losing reliable markets, prolonged processes of offering products as demanded by customers, and also possibility of loss of the products while in the hands of middlemen. The use of B2C services by Intel would help eliminate this prolonged process of offering the demanded product to the end users by eliminating all these intermediaries who contribute to increased distribution costs (Jiang, Jun, & Yang, 2016). B2C services would eliminate the reliance on sub-distributors network hence exploit all market opportunities and eliminate all related threats to the use of middlemen. As a result, both short run and long run goals of Intel would be achieved.

Online distribution channels: Today, technology has taken the lead in all sectors. There is no doubt that over 95 percent of the customers targeted by Intel are connected to and use the internet on a day to day basis (Tim Jackson, 1997). The fact that the company already uses internet to eliminate middlemen, not all customers have the access to the internet. In this regard, Intel China needs to introduce advanced techniques in demand planning, logistics networking, and inventory management in order to meet more markets in both short run and long run.

Mergers and acquisitions: Intel China is known to sell its own brands of PCs to the Chinese markets. Due to stiff competition from AMD and other companies in the Chinese market, Intel needs to merge and acquire more companies in the country in order to increase brand awareness across the market. For example, Lenovo’s acquisition of IBM’s PC division in 2004 contributed to 30 percent increase of the Chinese market. Intel China needs to copy Lenovo; by this doing the company would hence strengthen its distribution channels. The original brand sales would also increase in the market and thus increase Intel’s profitability which would help in meeting the long run objective of profit maximization.

Online distribution channels

2). The recommended distribution methods to Jon Antonne include:

1. Business to Consumer (B2C) services
2. Online distribution channels/ Internet

• Mergers and acquisitions (M&As)

These distribution methods relate to market share, revenue, and profit in China for Intel in various ways, these ways include:

Increase in sales revenues and profits: Business to customer (B2C) services would assist Intel in expanding its products reliability and availability to consumers/ end users disposal. The technique is internet aided and will help in the elimination of middlemen who increase distribution costs for Intel hence lowering sales revenues and profits. The customers in the market will get Intel PC products at lower prices and hence buy more of the company’s products. As a result, sales will increase and hence boost profits too.

Let us assume that currently the company spends $111500 per year on distribution costs (for intermediaries)

The average price per Intel product is $210

Company sells approximately 1M products per years

Total sales; $210*1M= $210 Million

Let us assume all other costs amount to $2,440,000

So; total costs will be $(244,000+11500) = $ 2,551,500

Annual revenue/ Profit will be;

Annual sales 210M

Less; Annual costs 2.5515M

Profit before tax 207.4485M

On the other hand, with the elimination of middlemen and by the adoption of B2C services, the company operates as follows;

We assume distribution costs for intermediaries are eliminated to $0 per annum

Then average price per Intel product reduces from $210 to $200

We assume, due to price reduction; the company increases its sales from IM to 1.5 Million per annum

Total sales will be $200*1.5= 300 Million

Let us assume all other costs amount to $2.3 Million

So; total costs will be 3 M

Annual revenue/ Profit will be;

Annual sales 300M

Less; Annual costs 2.3

Profit before tax 297.7M

From the assumption and analysis, Intel Company will boost its profit and sales revenues from 207.4485M to $297.7M ($90.2515) within one year.

Increase in market share: The adoption of efficient mergers and acquisitions with other Chinese firms in different industries like the way Lenovo did would contribute to increased market share and size for Intel. Acquisitions have the capacity to boost market size to larger scales. Also, the use of online distribution channels such as credit cards has the capability to boost more sales within the Chinese markets (Kennedy & Kennedy, 2009). This is because, products will be delivered in a fast, more affordable, and reliable manner to both Intel and the customers. To Intel, sales revenues and market share will increase and to the China markets, products will be readily accessible to them at any time they require them. The current market size will increase by approximately 20 percent in the next 2 years and cumulatively increase by 60 percent in the next five years.

Mergers and acquisitions

3). In brief, there are high chances that John Antone will drive Intel China business to high scales of success. Intel offers high quality products. In reference to 2003/04 financial period, Microprocessors, chipsets, and boards sold by Intel accounted to 85 percent of the overall revenue for the company (Li et al., 2013). While these profits were realized, the company was not using the right distribution methods and still faced stiff competition from AMD and other strong players in the market. Other companies such as Ali, NVIDIA, VIA Technologies, and SiS also are strong in the market and sell the same products that are sold by Intel. Therefore, John Antone should come to the industry with new technological strategies of marketing and distributing Intel’s products in the market (Sigala, 2010).

Intel China business requires extensive brand marketing campaigns for the company’s PC and Microprocessors in order to boost brand positioning in the market. While marketing Intel products, John Antone needs to understand the segmentation, targeting, and positioning of both the market and company in the China market. Segmentation refers to the demography, geographies, and economic levels of the targeted market (Hassan & Craft, 2012). Targeting is the target market/ customers or end users of the product that is made and manufactures by Intel. Positioning is understanding the brand positioning of Intel in the Chinese market in order to determine the right marketing and promotional tools to increase the company’s brand positioning in the market.

Also important to understand about China business is that distribution of products remains a top challenge to most companies in the industry. The marketing mix for China business entails the product, price, promotion, and place (distribution) which are critical to business success in the market (Schmidt, 2015). In the past, Intel emphasized more on the product improvement, pricing, and promotion in the market; but failed to give proper concern to the place and distribution of its products in the market (Kumar & Reinartz, 2018). As a result, the company has been losing its competitive advantage to the other players in the industry such as AMD. John Antone needs to understand that the establishment of better channels of distribution creates balance in business, and this boosts performance and convenience in the market place.

Finally, every manager operates using his own strategies, approaches, perspectives, and business policies. These strategies and policies must be aligned to the overall goal and objective of a company. Most businesses in China, with Intel included exist to make profits and offer high quality products and services to customers in a more reliable and convenient manner (Kim et al., 2012). For Intel to regain its competitiveness and growth in the China market, John Antonne will need to adopt different strategies and approaches of marketing, distribution, and management of resources within the company so as to meet both short run and long run goals as designed in the company’s strategic plan.

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