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Research on Regional Cluster Marketing of SME* XIONG Kai Business School Jianghan University, P.R. China, 430056 [email protected] Abstract: SMEs (Small and Medium-sized Enterprise) play an essential role in the economy of all countries around the world. Compared with the large organizations, SMEs face marketing problems and need making decision for marketing. To overcome the disadvantages of SMEs in marketing, they should form enterprise cluster to participate market competition and regional marketing. Compared with a single small and medium-sized enterprise, the advantage of cluster marketing is obvious because regional cluster can make use of its integration effects of marketing resources based on satisfying the need of targeted market. The subjects of cluster marketing include the government of region, the industry associations established by enterprises of cluster, as well as many affiliated enterprises within cluster, and different subject plays a different role during the process of cluster marketing. From angle of marketing, the core of cluster marketing is co-opetition. Keywords: cluster marketing, SME, enterprise cluster, regional marketing 1 Introduction In western country, the first scholar to study on region marketing is Philip Kotler, a US marketing master, who really utilizes marketing theory into directing regional development practice. Kotler suggests regarding the region as an enterprise, the perspective of regional development as a product which could be operated, and by being introduced marketing theories and method of business, the region could be impelled to a way of healthy and sustainable developmental. In 1993, Kotler published the book Marketing Places [1], which discussed how US improves investing environment and tourist environment to attract more investor and visitors. In 1997, extending the idea and technique of regional marketing into the country level, Kotler, Somkid Jatusripitak and Suvit Maesincee printed the book The Marketing of Nations[2], in which they brings forward that a country should be treated and operated as a special enterprise, and may accumulate national wealth by way of strategic marketing management. In 1999, in the book Marketing Europe Place, Kotler discussed how European nations attract investment and enhance competence. In 2001, Kotler suggested marketing a country as a region or an entity or a product and seeking for strategic methods to create national wealth in his book Marketing Country. In 2001, Kotler published his book Marketing Asia Places again [3], in which he discussed issues about how Asian countries or areas carry through regional marketing all over the world to gain the market opportunities and competence advantage. According to the experience of many rapid developed areas, Kotler 2003 thought that every area need integrate all the resource by marketing measures and form a unique style and ideology in order to satisfy the needs and expectation of investors, new enterprises and visitors under the condition of economy globalization. From viewpoint of Kotler, “promoting regional development by marketing has already been a dominant economic activity.” In China, Wei Shouhua & Shao Dongtao (2002) defined the conception of regional cluster marketing, analyzed the necessary to develop cluster marketing, and put forward the ways to improve regional marketing mode[4]. Tao Jinguo (2003) studied on the regional marketing based on the cluster of SME, analyzed the relationship between the cluster of SME and regional marketing, and put forward that the key to implement regional cluster marketing is to build regional brand, as well as to form an integrated advantages of regional resources[5]. Lan Wenqiao (2006) deeply analyzed the motivation of regional marketing based on SME cluster, and put forward several marketing strategies from angel of 4Ps [6]. From angle of game theory, Hang Changxue & Li Shuling (2007) analyzed the mechanism and the ( ) * This paper was supported by a grant from the Research Program of Humanities and Social Sciences of Hubei Provincial Education Department (No. 2009b427). 495 strategic choices of SME to develop regional marketing [7]. Although most scholars studied on aspects of the conception, relationship, mechanism and advantages, few focus on the subjects and core problem of regional cluster marketing from marketing aspect, which is expounded in this paper. 2 Background of Regional Cluster Marketing and Its Advantages SMEs play an essential role in the economy of all countries around the world. According to the information supplied by OECD (Organization for Economic Cooperation and Development), SMEs in United States take up 98.3% of the total enterprises with employees taking up 70% of the total; in Japan, the proportion of SME is 99.5% while employees account for 79%. According to Interim Provisions on SME Standard, there are more than 3.6 million SMEs which have registered in China’s national industry and business administrative department in 2003, and 27.9 million private business units taking up 99.6% of national total enterprises. SMEs have become an important department which greatly influences the economic development of China. Compared with the large organizations, SMEs face marketing problems and need making decision for marketing. Many scholars have carried out researches on the unique features of SMEs which are greatly different from traditional marketing of large organizations. Such features usually attribute to the characteristic of SME. Gilmore et al. (2001) summarize marketing limitations of SME as follows: limited resources (such as financial, time and marketing knowledge), shortage of exclusive marketing techniques, and limitation in market influence. Besides that, managers’ operating mode determines the informality of SME’s marketing behavior. Most of their decisions are made by themselves, which are the response for present opportunities and circumstances. As a result, their marketing activities often show contingency and chaotic disorder (Scase and Goffee, 1980). Those limitations influence and even determine the marketing characteristics of SME, which is contingent, informal, loose, unorganized, spontaneous and react-patterned. Those marketing characteristics are disadvantageous to sustainable development of SMEs. To overcome such disadvantages, SME should form enterprise cluster to participate market competition and regional marketing, which is an ideal way to realize marketing aim. According to Williamson’s intermediate organization theory (Williamson, 1975, 1978), enterprise cluster is an intermediate organization pattern between enterprise and market, which overcomes various problems of large corporations, such as excessive organization structure, slow information delivery, overhigh management cost, slow response to market demand, thus enhances production efficiency and responsive ability of enterprises in the cluster. Because of the effect of cluster enterprise, advantages of low production cost, product diversity, regional marketing and competitiveness can be brought into full display. Once enterprise cluster has taken shape, it can enhance competition ability of whole region through promoting productivity, stimulating enterprise innovation, boosting growth of enterprise and building regional brand (Wei Houkai, 2003)[8]. With the development of enterprise cluster in region, how to conduct marketing activities targeting the whole cluster has become an urgent and realistic challenge. As a special industry phenomenon of region, the marketing activity of enterprise cluster is highly related to the whole marketing activity of region inevitably. Regional marketing refers to the process of pushing the region as a whole to market and participating competition based on the whole image of the region in order to realize the regional aim (Tao Jinguo, 2003). Although the marketing activities of enterprise cluster can not be separated from the overall regional marketing activities, as an industry economy unit, the marketing activities of cluster is different from the regional overall marketing activities. The cluster marketing of region is an effective method according to the limitation of the SME’ marketing, which refers to the process of cluster’s participating competition and marketing activity as a whole so as to realize the overall objective of the cluster not the one of each single enterprise. Compared with a single small and medium-sized enterprise, the advantage of cluster marketing is obvious because regional cluster can make use of its integration effects of marketing resources based on satisfying the need of targeted market. Tao Jinguo (2003) thought that the advantage of cluster marketing mainly reflects in four aspects: the first is the advantages of product and market. The internal mechanism of cluster enhances enterprise’s rapid-reaction capability for market, which reflects in aspects of innovation, improving product quality and building regional brand. The second is the price 496 advantage, which shows in aspects of resource sharing, cost sharing, lower transaction costs, increased specialization and improving the overall efficiency and maintenance of flexible production. The third is channel advantage. The enterprise within the cluster strengthens the market-to-end understanding and satisfaction of the market, which also leads to the prosperity of the market of related product and service. The last is promotion advantage. The development of cluster stimulates the development of public relation and advertisers, which make enterprises, government implement co-marketing activities to reduce the marketing costs, strengthen the communication between enterprise and market and expand the living space of the cluster. 3 The Subjects of SME’s Cluster Marketing The subjects of cluster marketing include the government of region, the industry associations established by enterprises of cluster, as well as many affiliated enterprises within cluster (see table 1). Speaking totally, the marketing activities of regional cluster are not separated from participation of public and private sectors, among which the government plays an important role during the cluster marketing. Many industry clusters of the world and the region are all not separated from governments’ help, especially the support of local government. The main reason is that the characteristics of nonrivalrous and nonexcludability of public goods make the supply of public goods from private market often inadequate (Pindyck, R, Rubinfeld, D.L., 2000). For private organization, the marketing of public goods has the externality; such case also exists for the regional cluster marketing. A good regional cluster image can attract investment and market, which makes related enterprises and individuals benefited. Thus, as the subject of the market competition, the enterprise often cares more for its marketing income, and do not focus its efforts to build regional image and other large numbers of public activities, which is called “free-rider” phenomenon. From the regional overall interests, local government organizations generally take on the responsibility to organize and coordinate marketing clusters, which reflects in many aspects such as the provision of infrastructure supporting cluster, guiding and promoting cluster to hold common marketing activities, for example, building professional market, developing public relationship, holding a variety of trade fairs and so on, especially in aspect of building brand and image of regional cluster. However, more attention should be paid to the government's role change from direct participation to indirect participation because on one hand the over-involvement of government probably has a negative impact on free competition in the market. On the other hand, the government’s marketing knowledge and marketing capabilities often restrict the effectiveness of marketing activities. Therefore, the roles of non-profit organizations, such as the industry association within cluster, should also be emphasized in the same time during the activities of cluster marketing. The non-profit organizations often play a role of filling the “blank” of government function, which reflects in participation of public goods’ supply, supporting and supplementing regional marketing function of government, and promoting the realization of total aim of cluster marketing. In addition, cluster marketing also is not separated from the single enterprise of cluster because enterprise is the subject of market. In one hand, single enterprise is the main beneficiary during the marketing activities of regional cluster; on the other hand, cluster marketing is not separated from the response and cooperation among enterprises. 497 4 The Core of Regional Cluster Marketing Co-opetition, also called as cooperation and competition or com-operation, is a phenomenon of competitive cooperation or cooperative competition among corporations, which is the result of the interaction between the company's survival developing process and market improvement. With the development of the market, competition among corporations may gradually change from confrontational competition to tolerant one, and at last, to cooperative one (Wang Tao, 2002) [9]. Cooperation in co-opetition refers to transforming seeking coexistence of differentiation into looking for the possibility of cooperation among competitors and establishing some kind of partnership with them when corporations look at and deal with competitive relations. While in co-opetition, competition is a form of higher level and more efficiency, not covered by cooperation. In order to seize resources or customers, corporations still will carry out competitions. Co-opetition emphasizes promoting competitive ability through cooperation, and increasing cooperative efficiency through competition. Between enterprises, whether to cooperate is a problem of strategy and decision, while whether to compete is a problem of the companies' survival and development. So, competition and cooperation are both the ways to win more business and obtain competitive advantages. Generally speaking, competition is regarded as the ability of winning the market share at the cost of competitors. Through intense competition, corporations win customers and profits from their competitors, and also market advantages. This is a rat-race, taking itself as a closed entity, and it is always regarded as an obstacle for the establishment of a more effective business relation within areas, which is a way for the outstanding and strong organizations of large size to obtain more profit or even monopolize the supplies or need of some kind of production or service by controlling the action of other SMEs .This competition seriously affects the economic development of the whole area. Some scholars use arms race motivation system model, which has something to do with the growth and decline of ability among different countries or regions, to analyze the result caused by the pure completion or cooperation among our domestic products with same quality. They found that pure competition may result in serious economic depression in some areas, and pure cooperation may also lead to regional economic stagnation or slow development. While adopting cooperative completion can achieve a win-win result (Long Yong etc, 2003).Practice has proved that co-opetition can realize a win-win situation among competitive mains. It is the best strategy for regional economic development. 498 As for SMEs, the core problem of implementing cluster marketing within region is the co-opetitional strategy among cluster corporations. From the view of marketing, this co-opetitional strategy emphasizes that cluster enterprises should implement effective cooperative marketing strategy as well as highlight marketing competition among enterprises. In the course of cluster marketing, SMEs realize allied forces through cooperation, meanwhile, share information and attend joint actions by common work to get more business. Therefore, through cooperative marketing, SMEs can bring the advantages into full play, such as products integration which an individual company may lack, regional brands, market share, joint channels, and the lowest cost, etc. However, when carrying out it, there are also some problems, mainly manifested in the following aspects. Firstly, successful cooperative marketing requires a long-term common promise, which is to put private and individual interest aside. This is not easy for the SMEs in the clusters. Secondly, each member of the regional cluster will have a say in the overall management of marketing system, which will make the decision-making process of marketing slow and complicated. Thirdly, each member of the cluster has its different marketing plan, even the conflictive one, which increases the difficulty to implement marketing plan. Lastly, each enterprise within cluster has its aim that can realize through cooperation, while the aim probably deviates the overall aim of cluster marketing (Dieke, 2000). Therefore, to succeed in regional cluster marketing, cluster should determine specific overall aim according to the common expectation of each enterprise, make each member of the cluster ensure that it will get profit through marketing cooperation, and make the activity of each cluster member consistent with the overall aim of regional cluster (Okoroafo, 1989). However, although cluster marketing of region emphasizes cooperative marketing, it also does not negate marketing competition among enterprise. Actually, as for SME of the region, the competition of co-opetition manifests in two forms. One is an external competition among clusters. As for the region, cluster changes competition form of SME, that is to say, each SME involves in external competition through the overall form of cluster. The other is an internal one among enterprises within the cluster. Though each SME of the cluster has dependence on the overall cluster marketing, each member’s caring about its own benefit and the geographical proximity make the understanding of competition among member of the cluster more direct and profound. It is obvious that the competition of the cluster always exists in two forms, and the healthy competition among enterprise can prompt enterprise to innovate continuously and improve its marketing ability, which makes the overall competitive ability of cluster increase. 5 Conclusion SMEs play an essential role in the economy of all countries around the world. However, compared with the large enterprises, SMEs face marketing problems and need making decision for marketing. Practices prove that only through forming enterprise cluster, can SMEs avoid their disadvantages and bring their advantages into play. Compared with a single small and medium-sized enterprise, the advantage of cluster marketing is obvious because regional cluster can make use of its integration effects of marketing resources based on satisfying the need of targeted market. The subjects of SMEs’ cluster marketing include the government of region, the industry associations established by enterprises of cluster, as well as many affiliated enterprises within cluster. Speaking totally, the marketing activities of regional cluster are not separated from the participation of public and private sectors, among which the government plays an important role during the cluster marketing. The non-profit organizations often play a role of filling the “blank” of government function, while single enterprise of SME cluster plays a market subject role during cluster marketing. From the essence of marketing, the core of regional cluster marketing is the co-opetition. 499 References [1]. Kotler, P., Haider, D.H. and Rein, l., Marketing Places: Attracting Investment, Industry and Tourism to Cities, States and Nations [M]. Free Press, New York, 1993 [2]. Kotler, Somkid Jatusripitak and Suvit Maesincee, the Marketing of Nations [M], The Free Press, 1997. [3]. Philip Kotler, Kotler’s perspective of China and Asia [M], Hainan Press, 2001 (In Chinese). Audrey Gilmore, David Carson, Ken Grant, SME Marketing in Practice [J], Marketing Intelligence & Planning, Bradford: Vol.19, Iss: 1, 2001. p6. [4]. WEI Shouhua & Shao Dongtao, Study on Regional Marketing of SME Cluster [J], Commercial Research, 2002(9) (In Chinese). [5]. TAO Jinguo, Study on Regional Marketing Based on SME Cluster [J], Journal of Nanjing University of Finance and Economics, 2003(3) (In Chinese). [6]. LAN Wenqiao, Regional Marketing of Enterprise Cluster: Motivation and Path Selection [J], Journal of Beijing Institute of Finance and Commerce Management, 2006(6) (In Chinese). [7]. 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