Mad Science and the potential markets
The Mad Science is a children’s education franchise which has offered a wide range of hands-on, science-related programmers and activities targeted specifically to children (Mad Science, 2009). It has successful business around the globe. Now it wants to expand its operations into the new markets. This report is mainly to address and analyze the issues facing the Mad Science as it embarks on expansion. In the first part, this report analyzes the Mad Science’s external micro-environment factors and discuses the most suitable market. In the second part, it discusses the external macro-environment factors and competitive factors of the Chinese market based on the PEST analysis and Porter’s Five Forces. In the last part, it gives a competitive strategy for recommendations.
Based on the SWOT analysis (see Appendix 1), it identifies that the opportunities and threats of the developing country and developed country. The potential markets will be chose the developed countries like Germany, France, Japan which have high per capital GDP, or the developing country like China which has favorable demographics. Compared the GDP of these four potential markets(see Appendix 2). In 2000, China’s accounted for only 7.1% of the world’s total GDP(in PPP terms). In 2010, that figure increased to 13.3%(Euromonitor International,
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The data of the average income and spending for children ( see Appendix 3 ) highlighted that even though Chinese people do not have much income, they are saving most of it to spend for children. As discussed above, China will be a good decision Mad Science to expand the business. Boos et al. (2003, p4) pointed out that “China is like a huge high potential company that has to invest in all fields of core business in order to become more successful.”
In order to attract more foreign investment come to China, China implements a low-tax policy and offers preferential for FDI(Chinagate, 2004). For Mad Science, it not only can bypass the tariff and non-tariff barriers into this huge Chinese market, but also can enjoys cheap labor and preferential taxation policy. China’s accession to the WTO has promoted a free flow of foreign trades by removing all barriers encouraging western companies (Straits Times, 2010), including Mad Science, to make way into the world’s most profitable market encompassing over 1.3 billion people. The “A Nine-year Compulsory Education” in China, it leads to more demands in this early education market. The parents think that their children can not fall behind others. It indicates there are so many potential customers for Mad Science.
China is the second largest country in the world after the United States, with a nominal GDP of $6.983 trillion in 2010, the country’s per capita GDP (PPP) was $7,544 in 2010 (Wikipedia, 2010). As people living standards have improved, they will have higher achievement, they are tending to education investment. Especially in the cities, parents are more pay attention on their children development, they do not want their children are falling behind others. China as a cheap manufacturing base, a growing market gives the investor so many opportunities. That is the reason why so many investor want to enter this market. This market has a high investment returns and investment in a fastest-growing economic country will be the strength(Kew & Stredwich, 2008).
For the Social-Cultural perspective, with a population over 1.3 billion, there are more than 264.78million people under 14 years in 2010( Baike Baidu, 2010). There are hundreds of billion potential market scales. The Chinese education market(2009) reports that there are more than 300 billion potential market scales. It appears that market prospect is wide in Chinese children’s education franchise.
Xiaohuan (2002) has pointed out since the one-child policy, a lot of families just have a child, parents have been paying ever greater attention to the early education of their children. No matter whether their family rich or not, they all never stingy to investment on children’s education. They hope their children have more competitiveness in the future. The children’s education franchise was grown up at 1990s in China, at present, this market still in the development stage. Most of Chinese companies are introducing from foreign advanced education ideas and combining the domestic market situation to develop competitive courses.
On the one hand, Mad science are the different and novelty programs so that it is popular around the children. However, a lot of Chinese franchises are just focus on the basic books’ knowledges and less to develop their practice skills. Mad Science provides a good chance for children to develop their innovation, and improve the useful skills for future development. On the other hand, Mad Science provides a convenience service that children can learn on the internet, it is enriching teaching and learning methods. The largest network users in China and its sustained growth will be advantages for Mad Science to attract more and more customers(Alon and Mclntyre, 2005).
This section identified the competitive factors based on the Porter’s Five forces. 1. The intensity of competitive is extremely high. There are two different parts of rivalry. One is well-known brands, such as EF group, Longingsun group and New Oriental, these have large awareness and market share in the market. The others are some local brands, which are having a low price and high customers loyalty.
2. The threat of new entrants will be high. This business has a wide develop prospect because it is a profitable market, and the technical barriers and capital barriers is low. It not needs very high investment on start-up capital. The low technical barriers and capital barriers lead to a large influx of competitors into this market(Perelman, 1957). Therefore, new entrants can produce something at an exceptionally low price and high quality to establish their market value.
3. The threat of substitute will be low. In fact, it will no substitute services. The substitute will just be other education organizations, like language courses, art courses, and all kinds of subject, the advantages will be low prices and local popularity. However, a number of these companies teach are also using the traditional methods, they are rigidity and no imaginative. Mad Science has the creative programmes, it not only teaches knowledges from the books, but also it provides a creative courses that will give children more useful skills for future development.
4. The bargaining power of customers will low, the Chinese parents are willing to spend much money on their children’s education. However, faced the so many all kinds of different children’s education franchise, customers will be chose the high quality, high brand awareness and afforded price. These will be influence on increasing the bargaining power of customers. 5. The bargaining power of suppliers will be fairly low. China is the large manufacture country, it supplies all kinds of raw materials with a low price (Reuvid and Li, 2003 ). Mad Science can has a long relationship with the suppliers, then it can gets a lower price.
On the basis of analysis about the threats of Mad Science into the Chinese market, this report has the recommendation that differentiation strategy would be appropriate for it to enter to the Chinese market. Porter(1985) has pointed out that choosing the differentiation strategy it is more favourable to win the customer loyalty when it faced the intensity of competitive. It can develop service differentiation to get the differentiation effects, a lot of Chinese company are focusing on the children exam-oriented education, but Mad Science is developing the children’s innovation and practical ability. Considering the costs and risk, Mad Science can find a cooperative partner to make the strategic alliances with them. It can cooperates with some local primary schools which will reduce the cost and risk, it helps Mad Science to introduce its brand into the market.
In addition, the business can start in some urban areas, such as Beijing, Shanghai, Guangdong. It will have more opportunities in these cities. The prices can be flexibility depend on the standards of consumption in this city. There people can afford the price of the service and accept the new things quickly In the light of the above external analysis and entry strategy for Mad Science, it will be concluded that China is a large potential market because of the increasing per capital income, high return on education, favorable demographics, government support and Chinese education system. Mad Science will has more opportunities to expand the business. Furthermore, this report has identified that strong competitive in the Chinese children’ s education market. The threats from the new entrants and the intensity of competitive will be high. Finally, the report recommended a differentiation strategy will be suitable to deal with the threats.
Alon, L. and J. R. Mclntyre(2005) Business Management Education in China, River Edge: World Scientific Publishing Co. Boos, C. and E. Boos, Sieren F. (2003) The China Management Handbook : A comprehensive question and answer guide to the world’s most important emerging market, New York: Palgrave Macmillan.