Kellogg’s Expansion into China

In the 21st century, the emergence of globalization has presented companies with wider market options that enhance profit margins while diluting the intensified competition that companies encounter in their respective domestic market. Since its inception in 1906, Kellogg’s has registered significant growth, which is denoted by the notable market share that the company enjoys in the American food industry. As Kellogg’s continues to diversify its revenue streams, the company is considering expansion into lucrative global markets. This paper provides a report on the potential expansion of the company into China, one of the emerging economies of the world.

Owing to the free market principle that is identifiable with the American economy, the cereal market is flooded with options, perhaps a clear indication of the competition that Kellogg’s cereal company encounters in its domestic market. Unlike the American industry, which has been fully exploited and saturated, the Chinese cereal market is in its growth phase, one in which companies are jostling for market share. As proof, market reports provided by Daxue Consulting suggest that over the past few years, the general sales of the cereal markets have increased significantly, with 2015 alone generating sales worth $407 million. The rapidly growing Chinese population, coupled with the prospects of continued growth of the Chinese cereal market, positions China as a prime destination for Kellogg’s expansion strategy.

In 2008, Kellogg’s failed in its initial attempt to expand into China largely due to a wrong foreign market entry strategy that was adopted by the company. In their study, Watson et al. (p. 32) hypothesized that though foreign markets provide wider options for competitive diversification, these markets are characteristically unique depending on the economic, social, cultural and political identities of the host nations. It is for this reason that Watson et al. (p. 34) underscored the need for a proper audit of the target foreign market prior to entry to determine the most appropriate method of entering, establishing, surviving and succeeding in these markets. When entering China, it is imperative to acknowledge the cultural and political factors that shape the market.

Unlike in the U.S. where the free market is reflective of zero government interference in the market, Niu and Deng (p. 1488) observe that the Chinese government has significant influence over the market. When selecting an entry mode for the Chinese cereal market, Kellogg’s must acknowledge the government regulations that require foreign companies to employ local Chinese workers and share their technology with competing Chinese firms in the market. These factors have prompted many foreign companies to consider joint ventures, acquisitions and mergers with the local Chinese companies. To expand into China, Kellogg’s should adopt the acquisition strategy, which envisages purchasing a firm that already operates in this market. After analyzing its readiness to enter the Chinese market, Kellogg’s should establish its goals for acquisition based on the strategic rationale for selecting a particular brand for acquisition.

With the acquisition strategy being the most viable to circumvent the sociocultural and political factors influencing the entry of foreign companies into China, Kellogg’s should consider acquiring Calbee. This Japanese cereal brand entered the Chinese market in 2015 (Yu). As a brand that has been integral in enhancing the growth trends of the cereal markets in China, the acquisition of this brand would enable Kellogg’s to reduce the market research and personnel costs that are required to determine the tastes and preferences in the Chinese cereals market. Using its large financial resource pool, Kellogg’s would use the dominance of the Calbee brand to accelerate its organic growth in China. To realize more growth, Kellogg’s should dedicate more resources to facilitate the supply of the cereal in supermarkets and hypermarkets where the cereal is unavailable. In conclusion, the acquisition of Japanese cereal brand Calbee promises to improve the branding and positioning of Kellogg’s in the rapidly growing Chinese cereal market.

Works Cited

Daxue Consulting. "Cereals Market In China: A Rising Trend For Western Breakfast." Daxue Consulting. N.p., 2020.

Niu, Y., and F. Deng. "Market Entry Barriers In China’s Industrial Markets." Proceedings Of The Seventh International Conference On Management Science And Engineering Management. J. Xu et al. 7th ed. Berlin, Heidelberg: Springer, 2014. p. 1487-1497.

Watson, George F. et al. "International Market Entry Strategies: Relational, Digital, And Hybrid Approaches." Journal of International Marketing 26.1 (2018): p. 30-60.

Yu, Jason. "The Next Breakfast Icon In China: Cereal?." Kantar World Panel. N.p., 2016.