Baosteel Group Corporation Evaluation: Marketing Advantages and Disadvantages

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Table of Contents

Introduction
Pricing
Promotion
Advertising
Distribution
Product
Process
Positioning
Conclusion
References

Introduction

The purpose of this paper is to evaluate Baosteel Group Corporation by discussing the marketing advantages and disadvantages that its products are likely to face if they are exported to Australia. Baosteel is China’s largest iron and steel company (Baosteel 2014). Globally, Baosteel is the second-largest producer of iron and steel products. The company produces premium steel products for both domestic and overseas markets. Its main products include “carbon steel, stainless steel, and special steel” (Baosteel 2014). The company’s main customers include automobile companies, construction companies, manufacturers of household appliances, manufacturers of machinery, and petrochemical firms. Given the high level of competition and reduction in demand in the Chinese market, Baosteel expects to increase its profits and market share by entering overseas markets such as Australia. In this regard, the analysis of this paper will focus on the influence of the elements of the marketing mix on the competitiveness of the company’s products.

Pricing

Baosteel uses a cost-plus pricing strategy for its exports. This involves determining the prices of its products by adding the costs of exporting them, manufacturing expenses, and the expected profit. The advantage of this pricing strategy is that it enables the company to recover the costs of producing its products and to make a profit (Cant, Strydom & Jooste 2009, p. 78). However, its suitability for the export market depends on the level of competition in Australia. The competition in Australia’s steel industry is very high due to falling demand, the high cost of production, and a large number of competitors (Burrell 2012). In this regard, the cost-plus pricing strategy can reduce the competitiveness of Baosteel’s products if the company’s operating costs are significantly higher than those of its competitors are. Specifically, high costs of exporting to Australia will increase the prices of Baosteel’s products, thereby reducing their ability to penetrate the market. This challenge is exacerbated by the fact that Australian customers are price sensitive (Burrell 2012). Furthermore, the demand for steel products is declining in Australia. Thus, steel products with high prices can hardly penetrate the market.

However, industry research indicates that the Australian steel industry cannot compete with that of China based on price due to high labor costs and taxes (Burrell 2012). These factors increase the costs of manufacturing steel products in Australia, thereby increasing prices. Baosteel’s products are likely to be competitive in Australia because it benefits from government subsidies, low taxation in China, and low labor costs. Recently, the company laid off 30,000 employees by automating most of its production processes, thereby reducing its fixed costs significantly. In addition, the company enjoys economies of scale in production, which enables it to lower its prices (Baosteel 2014). Thus, Baosteel is capable of maintaining the competitiveness of its products by using the cost-plus pricing strategy in Australia.

Promotion

Promotion refers to the strategies used by a company to “communicate what it does and what it offers customers” (Hutt & Speh 2012, p. 91). Baosteel’s promotional activities include public relations, advertising, special offers, and personal selling. The special offers provided by the company include discounts on bulk purchases and after-sale services such as technical advice on repairs and maintenance. The advantage of this strategy is that it will enable the company to encourage bulk purchases and improve customer loyalty in Australia. However, huge discounts can be difficult to sustain since they negatively affect the company’s profit margins. Moreover, the high competition and low demand in Australia limit the possibility of sustaining huge discounts.

Baosteel’s selling strategy involves active key account management and customer visits (Baosteel 2014). The company has several key account managers who conduct regular visits to discuss the products and to identify customer needs. This will enable the company to understand the Australian market and to develop the most appropriate products. Public relations initiatives will help the company to create awareness about its products in Australia. In addition, the company has developed an e-commerce system that enables it to promote its product across a variety of platforms such as the internet and mobile phones (Baosteel 2014). In particular, the company’s customers can easily access the products’ information and special offers on their mobile phones and the company’s sales website. In this case, the company’s products will benefit from increased brand awareness in Australia.

Advertising

Baosteel uses a laissez-faire approach to advertising by allowing its subsidiaries in various countries to manage their advertising activities. The company’s adverts are adapted to the social, cultural, political, and economic needs of each market (Baosteel 2014). The advantages of using the laissez-faire approach in Australia include the following. First, it will enable the company to overcome language barriers that might compromise the quality of the messages conveyed by its adverts. For example, direct translations from Chinese to English (Australia’s main language) may lead to misunderstandings between the company and its customers. This can be avoided if the adverts are originally developed in English rather than Chinese. Second, the company will avoid the ‘not invented here’ syndrome, which can negatively affect the appeal of its products in Australia.

The disadvantage of adapting advertising is that the company will not benefit from the economies of scale that are associated with standardized adverts (Bose 2010, p. 112). The cost of developing new adverts for Australia might increase the price of the products, thereby reducing their competitiveness. Besides, advertising agencies in Australia might fail to understand the needs of the company. In this case, the Australian agencies will produce ineffective adverts. The resulting decline in brand awareness will negatively affect the sales of Baosteel’s products in Australia.

Distribution

Baosteel has established a global distribution network to reach its customers in various parts of the world. The company’s products are mainly distributed by its sales offices and subsidiaries such as Baosteel Italia Distribution Center (Baosteel 2014). Thus, the company’s international distribution strategy is to sell directly to its customers. The main advantage of this strategy is that it will enable the company to have full control over its products in Australia (Bose 2010, p. 153). This will allow the company to develop close relationships with its customers, thereby increasing the sales of its products.

However, selling directly to customers in Australia can have a serious cost implication. In particular, the company will have to incur costs associated with the sales force’s remuneration, advertising, warehousing, and transportation. The fluctuation of oil prices and exchange rates are also likely to increase the costs of transportation from China to Australia and within Australia. Undoubtedly, these expenses will increase the company’s operating costs. Consequently, the prices of its products are likely to increase, thereby reducing their demand in Australia (Hutt & Speh 2012, p. 142). In addition, the company’s product visibility will be negatively affected if it is not able to establish a distribution system that covers the entire country.

Product

Baosteel uses product adaptation strategy to manufacture steel products for its overseas markets. Product adaptation involves modifying existing products to suit the specific needs of each market. In this regard, Baosteel has partnered with its major customers to conduct joint research and development. For instance, the company has established joint research and development laboratories with petrochemical and automobile companies in Australia, Europe, and the Middle East (Baosteel 2014). Joint research and development enable the company to develop products that satisfy the specific needs of each customer. Thus, Baosteel’s products are likely to be competitive in Australia because they are tailor-made for the market. The company also focuses on the differentiation of its products to gain market share. It focuses on producing high-end steel products at low costs in order to attract and retain new customers. This strategy will boost the sales of Baosteel’s products in Australia since the customers use steel products for different purposes.

The risk of customizing the products according to each customer’s needs is that the products may lose their differentiation from local brands (Cant, Strydom & Jooste 2009, p. 89). The products will lose their competitiveness if they are not properly differentiated because there are numerous steel products in the market. In particular, customers are likely to opt for the products of Baosteel’s competitors if they are properly differentiated in terms of quality and price. Moreover, the company is likely to lose economies of scale in production as it produces small quantities of steel products for each customer (Bose 2010, p. 213). This is likely to reduce the competitiveness of the products by increasing the cost of production.

Process

The process is the element of the extended marketing mix that encompasses the activities and behaviors of the people involved in producing and delivering goods and services to customers (Bose 2010, p. 167). Baosteel improves the process of delivering products to its customers through horizontal and vertical integration. The company’s horizontal integration strategy entails merging with or acquiring its competitors in China and overseas markets to increase production capacity. Consequently, the company’s manufacturing cycle time has reduced significantly. This will improve the company’s ability to fulfill customers’ orders in time in Australia. The resulting improvement in customer loyalty will boost the sale of the company’s products.

Baosteel’s vertical integration initiatives include establishing joint ventures with suppliers of key feedstock such as coal and services such as transportation in China and overseas markets (Baosteel 2014). These initiatives enable the company to have control over the quality of its raw materials. Furthermore, the joint ventures enable the company to obtain its supplies at favorable prices. The resulting cost savings will enable the company to boost the competitiveness of its products in Australia by selling them at low prices. The disadvantage of this strategy is that Baosteel’s competitors are also capable of achieving cost advantage and high production capacity through vertical and horizontal integration respectively. This will lower the competitiveness of its products in Australia.

Positioning

Positioning is the process of creating a distinct perception among customers concerning a particular brand. Baosteel positions itself as a “first class supplier of steel products, technologies, and services in the world” (Baosteel 2014). It focuses on developing superior solutions to market needs through research and development. In Europe, Africa, and the Middle East, Baosteel is known for producing high-quality steel products. Similarly, it can create the same perception among its Australian customers by using its marketing communication initiatives to highlight the qualities and benefits of its products. The company’s ability to defend its market share is likely to improve if it positions its steel as a superior product in Australia. However, this strategy will only be effective if the company is able to deliver the promises associated with its brand. For instance, the customers are likely to switch to other brands if Baosteel’s products fail to meet the quality standards associated with them.

Conclusion

Baosteel can increase its profits and market share by entering the Australian market. However, exporting its products to Australia has both advantages and disadvantages. The company is likely to improve the competitiveness of its products in Australia through promotion, cost-plus pricing, differentiation, and using an effective distribution system. The cost-plus pricing strategy enables the company to operate profitably. Thus, it has the resources to maintain the competitiveness of its products by keeping its brand promise. Promotional activities such as advertising and special offers are also likely to improve the products’ competitiveness in Australia. However, selling directly to customers in Australia can negatively affect the competitiveness of the products due to high operating costs. Besides, the visibility of the company’s products will be limited if it cannot establish a national distribution network.

References

Baosteel 2014, About us: Company Profile, Web.

Bose, C 2010, Modern Marketing: Principles and Practice, PHI Learning, New Delhi.

Burrell, A 2012, Steel Industry Cannot Compete with China, Web.

Cant, M, Strydom, J & Jooste, C 2009, Marketing Management, Palgrave, London.

Hutt, M & Speh, J 2012, Business Marketing Management, McGraw-Hill, New York.

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