CONTENT page 1. Introduction……………………………………………………….. 2 2. Company Background…………………………………………... 2 3. Core Values………………………………………………………. 5 4. Financial Risk……………………………………………………. 10 5. Country risk…………………………………………………….... 12 6. Cross-cultural risk……………………………………………..... 15 7. Power Distance Index………………………………………….. 15 8. Individualism…………………………………………………….. 16 9. Masculinity………………………………………………………. 16 10. Uncertainty Avoidance Index ………………………………16 11. Long-Term Orientation………………………………………17 12.
Commercial risk……………………………………………... 17 13. Challenges Faced by OLDTOWN White Coffee………..... 19 14. Consumers’ Consumption of OLDTOWN White Coffee Products………………………………………………………….. 20 15. OLD TOWN WHITE COFFEE ENTRY MODES…………. 22 16. OLD TOWN WHITE COFFEE STRATEGIES ………….... 24 17. Growth Strategy…………………………………………….... 26 18. Multi-domestic Strategy …………………………………...... 27 19. Differentiation Strategy…………………………………….... 29 20. Conclusion……………………………………………………. 30 21. Reference…………………………………………………….. 30 Introduction Old Town White Coffee [pic] Founded |1958 | |Headquarters |Ipoh, Perak, Malaysia | |Area Served |Malaysia, Singapore | |Industry |Food and beverage | |Products |Kopitiam | |Website |http://www. oldtown. com. my | Company Background Our Group’s history can be traced back to the incorporation of White Cafe in 1999, with the intention to provide quality white coffee to Malaysian households and the food service industry, the co-founders and Executive Directors, Mr Goh Ching Mun and Mr Tan Say Yap formulated their own blend of 3-in-1 instant white coffee and commenced manufacturing in 1999. With more than 10 years of experience in the coffee beverage industry, both our co-founders were instrumental in the growth of the Oldtown Group of companies.
They are supported by Mr Lee Siew Heng, our Group Managing Director who played a significant role in implementing the overall vision, strategy and development of the Oldtown Group. In 1999, we successfully commercialized our instant 3-in-1 coffee mix under the ‘Oldtown’ brand name for the retail sector. As at 31 October 2009, our ‘Oldtown’ 3-in-1 instant coffee mix was sold in approximately 1,348 retail outlets nationwide in Malaysia, approximately 550 retail outlets in Singapore and approximately 2,100 retail outlets in Hong Kong. In 2000, we commenced our first export of the ‘Oldtown’ brand of 3-in-1 instant coffee mix to Singapore. In 2001, our subsidiary, White Cafe Marketing commenced operations as the marketing arm for our Group’s beverage products.
During the same year, we also expanded our product line to include different variations of our instant coffee mix and have also expanded our export markets to Hong Kong for our instant coffee mix. In year 2002, White Cafe obtained a HALAL certification from the Islamic Religious Department of Perak for the Group’s beverages. This is part of our Group’s intentions, which is to produce our beverages in accordance with the Islamic law. In the same year, we successfully expanded our nationwide retail distribution of our 3-in-1 instant coffee mix to cover East and West Malaysia through major hypermarkets and supermarkets. In 2003, we also successfully commercialized our own formulated blend of 3-in-1 instant milk tea for the retail market under the ‘OLDTOWN’ brand name.
In view of expanding our manufacturing activities, we incorporated Gongga Food in 2003 and commenced operations in 2004 manufacturing roasted coffee powder for the food services sector using the Group’s proprietary bean roasting process. We distributed our roasted coffee powder to traditional coffee shops in Ipoh and other states in Malaysia. In addition to the food services sector, our roasted coffee powder is also marketed to the retail sector under the ‘NANYANG’ brand. In 2004, we further penetrated the export markets for our 3-in-1 instant coffee to cover the United States, Canada and United Kingdom and subsequently in 2005, Taiwan and Indonesia.
In 2005, we expanded vertically into the food services sector by opening a chain of cafe outlets based on the traditional Ipoh coffee shop setting and ambience under the ‘OLDTOWN WHITE COFFEE’ brand name. This is part of the Group’s strategy of capitalizing and reinforcing on the ‘OLDTOWN WHITE COFFEE’ brand in the food services industry. In the same year, Kopitiam Asia Pacific commenced operations in the licensing, supply of food, beverages and other items, and provision of management services to ‘OLDTOWN WHITE COFFEE’ cafe outlets. Since the opening of our first ‘OLDTOWN WHITE COFFEE’ cafe outlet in Ipoh in 2005, our chain of cafe outlets have expanded to reach 137 cafe outlets in Malaysia and Singapore as at 31 October 2009. This includes fully and partially owned and franchised cafe outlets.
In 2005 and 2006, we established our subsidiaries namely Old Town Kopitiam, Old Town Kopitiam Butterworth, Old Town Kopitiam Kuala Lumpur, Old Town Kopitiam Cheras, Conneczone to focus on operating cafe outlets in different areas and states within Malaysia. To support our cafe outlet business operations, we established the following subsidiaries as central food processing centers between 2005 and 2007: -Emperor’s kitchen commenced operations in 2005; - Esquire Chef commenced operations in 2007; - Dynasty Confectionery commenced operations in 2007. In 2005, Gongga Food’s business activities also expanded to cater to the procurement of food items for ‘OLDTOWN WHITE COFFEE’ cafe outlets.
In the same year, Gongga Food also obtained a HALAL certification from the Islamic Religious Department of Perak for the production of its roasted coffee powder. In the same year, our subsidiary, White Cafe obtained a HACCP certification from BM TRADA Certification Ltd for the processing and manufacturing of beverage products. In 2006, we expanded our export markets to Canada, Japan and China. In the same year, we incorporated Dynasty Kitchen as a distribution centre, which commenced operations in 2007. During this year, we also incorporated Oldtown Berhad, which will focus on investment holding and provision of management services pursuant to its listing on the Main Market of Bursa Securities.
Subsequently we also started exporting to Thailand and the Philippines. In view of our plans to expand our cafe outlet business operations to Singapore, we incorporated Oldtown Singapore in 2007 to provide management services, supply of food and beverage items to cafe outlets in Singapore. OTK Singapore commenced operations in 2008 with the launch of our first ‘OLDTOWN WHITE COFFEE’ cafe outlet in Singapore. In 2008, our subsidiaries, Dynasty Confectionery and Esquire Chef obtained HALAL certifications from the Islamic Religious Department of Perak for the processing of various foods. Our other food processing subsidiary, Emperor’s Kitchen obtained HALAL certification from the IFRC ASIA.
To further affirm our adherence to international food safety standards, our subsidiary, White Cafe achieved ISO 22000:2005 certification and ISO 9001: 2000 from BM TRADA Certification in 2008 in addition to GMP certification by the Department of Public Health, Ministry of Health Malaysia in the same year. Within 2008, we also expanded our product line to include 3-in-1 instant coffee mix with cane sugar. In 2009, Gongga Food obtained a HACCP certification from BM TRADA Certification Ltd for the production of roasted coffee powder. Core Values Our Goal To let everyone enjoy every sip of authentic Malaysian Ipoh White Coffee, anytime, anywhere! Vision & Mission
To be Asia Pacific’s Leading White Coffee Producer providing high quality products to customers globally. To promote our unique Malaysian Taste- the authentic Ipoh White Coffee and continue White Coffee Legacy through continuous improvement and innovation that exceeds customer expectations As a Market Leader, we take pride in distinguishing ourselves to be ahead of the pack. By setting precedence, we have made a standard that equals excellence, pushing other brands to do the same. In this vein, we embrace diversity, accept challenges, adopt international standards and good business practices and at the same time, hope to inspire the rest to follow suit.
We strive for continuous improvement, incorporate innovations and technology in our commitment to create customer value in our both products and services. Aligned with transparent policies and achievable targets, together with our core values, we are able to move forward as one responsive team and deliver our best. These continuing efforts maintain and reinforce our market leader status and move us forward to become a leading white coffee producer in Asia Pacific. Our Core Values Consistency, Continuity & Growth - To uphold the OLDTOWN’s Brand Reputation as “the earliest… and yet the best” by delivering our product – consistent in their performance and trusted for their quality so as to ensure continuity and growth. Originality & Creativity - To spearhead breakthroughs and set the recedence in the market by developing line extensions and create new products to cater to customers’ changing needs. Respect Diversities & Traditions - Coming from a country and corporate culture with diverse races, languages and traditions, we respect each others’ unique differences and embrace their individual qualities, their rich culture and heritage. Ethics & Integrity - We take pride in our work, and conduct our business with integrity. We embrace good business practices, adopt international standards and demonstrate professionalism so as to earn respect and trust. 2. 0 What is the product or service that you choose to introduce to the new international market? Explain the product’s advantage and disadvantage.
The service that we choose to introduce to the new international market is to let the customers can release and enjoy the coffee like at their Oldtown. Advantages: ? Coffee is actually one of the healthiest beverages billions of people consume regularly. Coffee containing with bitter orange, hydroxyl-citric acid, and chromium can encourage an increase up to 30% in metabolic rate. ? Coffee with exercise when taking 300mg averages a 20% increase in energy and fatigue while burning fat increased 107% greater than without caffeine. ? Caffeine in coffee keeps our brains alert and receptive of new information. ? Regular consumption of coffee decreases the risk of type II diabetes and many other health risks. Disadvantages: Coffee when consumed in excess can be addictive, stimulate, and a mood charger. ? A large amount of coffee or caffeine consumed all at once can have a negative effect on blood sugar levels that influences fat burning that could change into storing fat. ? Too much coffee over time can stain our teeth. 3. 0 Which country do you choose to enter and introduce your product? Explain the factors that you consider before deciding to select that country. We will choose to enter and introduce our service to population China. We decided to choose China to be our choice because of: 1. China remains one of the strongest economies in the world. China economy is strong.
For example, consider the industry of transportation. While you may not be able to invest in it, there are similar scenarios playing out around the country. China is an expansive country in terms of land size. The country has various difficult areas to navigate, though, with mountains making it difficult for individuals to move from one side of the country to the other. The government is working hard on the development of new roads to improve transportation and to connect this country. Today, a look at the roads in the country is sure to tell you that things are changing, as the sheer number of cars on the road (while still very low) is steadily increasing. So, what does this matter?
Once those roads are in place, the Chinese will overtake the US in the number of cars on the streets, leading to a boom in the industry 2. China remains awash in liquidity, with $1. 68 trillion in foreign reserves. And much of that excess capital is being focused on the upside, particularly when it comes to boosting disposable income and then building brand awareness for its own products. And now, that liquidity is allowing the country to go on a global shopping spree, enabling its companies and its state-run sovereign wealth funds to pick up such choice assets at bargain prices. One beneficiary of such outside capital: Companies such as MGM Mirage (MGM), which is being positioned as a high-profit, play on China. . China’s markets are quickly becoming much “narrower”. Money is being reallocated from highly risky ventures into more-predictable enterprises. That’s an important trend for investors to track, for history shows time and again that these more-predictable ventures fare the best during uncertain, volatility-laced markets. One advantage that these companies have, believe it or not, is that they don’t have to tap into the credit markets at a time when credit is costly, or not available at all. Weaker companies won’t be able to get financing, even if it is available. Consider such potential “New Dragon” companies as online media player SINA Corp. SINA) or fast-growing advertising play Focus Media Holding Ltd. (ADR: FMCN), for instance. As the economy becomes more “normalized,” consumers will increasingly need such products as insurance, so take a look at China Life Insurance Co. Ltd. (ADR: LFC). 4. China offers various benefits. The country is one of the oldest and the size of the population is immense. They are well known for their style of living, but what many do not realize is that China is fast becoming an industrialized country, with big and powerful companies within. Perhaps to consider why to invest in China, you need to look at what you can invest in there. 5. The Chinese Socio Cultural Environment
With the adoption of market-driven economic policies, more Western companies have been entering the Chinese market. U. S. food companies such as McDonald's, KFC, and Pizza Hut have been able to capture the Chinese customers' taste. The young generation of Chinese customers is the most susceptible to the Western trend. Because of rigid governmental legislation that allowed Chinese couples to have just one child, young couples have considerable purchasing power. They want to spend their money on leisure activities, such as going to American-style fast-food restaurants. Only a few decades ago, in a less open China, almost nobody had heard of American icons such as McDonald's.
Today, the lives of Chinese people are full of foreign names. A girl wants a Barbie for her birthday gift. Couples celebrate their wedding anniversary in a Korean restaurant. Busy office workers order a pizza for lunch. The increasingly wealthy Chinese people are willing to pay more for new experiences and better-quality products and services. The change of culture influences many aspects of people's lives. For example, China has traditionally been a tea-drinking country. Most people started to recognize coffee in 1980s from Nestle’s slogan, "tastes great! " However, twenty years later, a new Chinese generation not only drinks coffee but requires that it be of high quality.
They want gourmet coffee instead of instant coffee, especially those in the wealthy classes. The typical consumers of the expensive foreign brands are a part of an expanding middle class comprising wealthy and educated young people who are enthusiastic about chasing "taste" and "fashion. " They use Gucci bags, Rolex watches, and Chanel perfume. They frequent bars, enjoy vintage wines, and travel abroad once a year. Spending money on expensive things helps these consumers establish themselves as part of their social group. Like many rapidly developing countries, the income distribution in China is unbalanced. The income of people in the cities is much greater than in the villages.
Also, in the cities and villages there is great disparity between the richest and poorest citizens. Finally, income levels in the rich provinces of Guangdong, Jiangxi and Zhejiang are significantly higher than in other provinces. 6. The Chinese Beverage Market Tea, the classic Chinese beverage, represents more than 40 percent of the total market volume for beverages. With more than twenty-five hundred tea-processing companies active in the country, production of loose tea in 1998 came to some 665,000 metric tons, of which approximately one-third was exported. It was estimated that per capita tea consumption in 1999 was 27. 5 liters (7. 25 gallons).
Tea bags, and diet and instant teas constitute only about 1 percent of the market, while packaged ready-to-drink tea is becoming more popular in China, with more than one hundred brands. There is only one competitive domestic coffee producer in China - Li Shen. Due primarily to weather patterns that are hostile to coffee growing, total domestic production per year is only one thousand tons, compared to more than 1. 5 million tons for Brazil, for example. Because it does not rely on domestic sources, Old Town White Coffee does not have problems supplying coffee beans to its Chinese outlets. One of the sources of competitive advantage for Old Town White Coffee is its ability to contract with coffee producers anywhere.
To sell a distinctive espresso coffee, for example, Old Town White Coffee buys the best coffee beans from Africa, South America, and Indonesia, regardless of price or transportation difficulties. Annual sales of coffee in the Chinese market in 1990 were only 25,537 standard bags (60kg/bag). This figure increased to 159,000 standard bags in 1995, and by 2000 it reached 318,000 standard bags. On a per capita basis, this amount (0. 01467 kg) is tiny compared to the annual coffee consumption in the U. S (4. 02 kg per person). Nevertheless, China is still considered to have high market potential because of the young generation of wealthy coffee drinkers. Financial Risk (currency risk) The government is working to improve China's financial markets. Still, the banking and broader capital markets are immature.
Foreign-invested Enterprises may borrow from foreign banks, and are gaining the right to issue shares on the Shanghai and Shenzhen stock markets. But it is not clear that many foreign companies would want to list in China. Manipulation of share prices is rampant and standards of corporate governance and auditing low and poorly enforced. The four main state-owned banks are weighed down by non-performing loans (NPL) that could amount to as much as 30% of all loans. They are kept afloat by the continued willingness of individuals to invest most of their savings in the form of bank deposits. This willingness is partly owing to the lack of alternatives.
But it is also because of the widespread belief--probably justified--that officials would not allow any big financial institution to fail. I) Assets valuation The Chinese government requires asset valuations whenever an organization holding state-owned property and other assets wishes to transfer an interest in those assets. This means that valuations are sought by state-owned enterprises (SOEs), government bodies, domestic joint ventures, Sino-foreign joint ventures (JVs) and other such entities holding state assets. Assets in this context include fixed, current and intangible assets. The foreign partner's contribution may be in the form of cash, plant, machinery, technology and know-how, trademarks and inventory and these may also be subject to a valuation.
The standard international valuation approaches consist of comparison with the prices paid for similar assets (market comparison), calculating the present value of earnings (the income approach) and depreciating the current replacement cost (the cost approach) which are all specifically proscribed in the relevant PRC procedures and are recognized by local assessors and the SAAB. ii) Taxation The income tax for enterprises with foreign investment and the income tax which shall be paid by foreign enterprises on the income of their establishments or places set up in China to engage in production or business operations shall be computed on taxable income at the rate of 30%; local income tax shall be computed an taxable income at the rate of 3%.
Any foreign enterprise which has no establishment or place in China but which derives profits, interest, rent, royalties or other income from sources in China, or which, though it has an establishment or place in China, derives such income and the income is not effectively connected with such establishment or place, shall pay a withholding tax of 20% on such income. FIEs of production natures and FIEs in coastal open cities, Special Economic Zones (SEZ) and Economic and Technological Development Zones may enjoy tax exemptions or reductions of income tax. |iii)Transfer Pricing | [pic] | |Transfer pricing regulations in China are rapidly developing as the Chinese authorities target transfer pricing adjustments as a| |major tax revenue earner in the years to come. China requires the annual reporting of transactions between associated | |enterprises and has been questioning situations where it perceives that arm's length prices have not been used. Under China's | |transfer pricing rules, it is easy for two companies to be considered "associated enterprises", while in many other | |jurisdictions the same parties would not be considered related. Since there are only limited levels of tax appeal in China, | |most taxpayers will want to avoid a tax dispute getting to the assessment stage.
In this connection, the companies should | |therefore assess their risks and document their transfer pricing policies in their China operations. | | | | | | | | | | | Country risk (political risk) After the Reform and Open Policy in 1978, China becomes the world second highest recipient of foreign investment.
Because of the accession of the World Trade Organization (WTO) in 2001, China would fully open its market in 2005 operating under the international rules. Before responding this opportunity, foreign investors have to assess the risk. The total risk profile consists of project risk and country risk. Before responding this opportunity, foreign investors have to assess the risk. The total risk profile consists of project risk and country risk. Among a number of risk assessment institutions, the Economist Intelligence Unit (EIU) is chosen for analysis because of its quarterly structured report with an overall risk score and ratings in political, economic policy, economic structure and liquidity risks enabling comparisons both over time and among different countries.
China has been less risky since 2000 while the four comparing newly industrialized economies Hong Kong, Singapore, South Korea and Taiwan have been becoming more risky since 1997. That means, the differences of the country risk of China between these economies are narrowing. The trend of the political risk of China goes at a different direction of its overall risk. It is first examined by understanding its history, then its politics followed by foreign relations and domestic issues. The baggage of history motivates the Chinese to re-build their nation. The public administration and legal system are being built. China has good relations with foreign countries, especially the western world.
However, across the Strait, the Taiwan separatists always embarrass the Beijing government. The domestic issues are the greatest concern. The EIU always reports that there are a number of small-scale demonstrations due to social discontents. Concentration of foreign investments along the coastal region results in income disparity. Accession of WTO needs restructuring the State Owned Enterprises ; opening the agricultural products market and eventually results more unemployment. Under the current circumstances, increasing business activities means more corruption incentives. The performance of the macroeconomic aspect is good. The economic policy risk shifted downwards in 2000 because of the accession of the WTO.
The economic structure risk maintains very low because the real economy develops strongly with the reform moving China towards a market economy. i) Political Stability Risk The Chinese Communist Party (CCP) will remain in power for the foreseeable future, with officials continuing to stamp out all forms of organized opposition. However, the next five years will be a difficult period for the CCP. Popular discontent has been on the rise in recent years, fuelled by low rural incomes, high urban unemployment and widespread corruption. Nevertheless, fourth-generation leaders are gaining in authority following their assumption of key positions in the party and the state in 2002-04.
The appointment in September 2004 of China's president, Hu Jin Tao, as chairman of the CCP's Central Military Commission indicates that Mr Hu is comfortably in control, but factional divisions within the ruling party will emerge from time to time. ii) Government Effectiveness Risk Despite several bouts of far-reaching structural reform in recent years, China still lacks a skilled, efficient and honest civil service. The effectiveness of the bureaucracy is further limited by a lack of transparency, and poorly defined centre-locality relations. These deficiencies were highlighted by the outbreak in 2003 of Severe Acute Respiratory Syndrome (SARS), in which the government at first refused to acknowledge the extent of the outbreak (duplicity made possible largely by the lack of a free press).
When the government finally came clean, the effectiveness of its response was hampered by the eagerness of localities to impose their own solutions, such as the barring of shipments of goods from affected areas. Still, although the government is not a totalitarian force, it does enjoy authoritarian powers, meaning that when focused on a particular issue--such as the prevention of the spread of SARS--officials in China can achieve much. iii) Legal & Regulatory Risk The authorities in China have made great efforts since 1978 to institutionalize the political and legal systems. But much remains to be done. At a broad level, China's legal and political systems are no longer based on the traditional concept of "rule by man". The leap to implement "rule of law" has, however, not been made.
China's authorities instead seem to be aiming for an intermediate "rule by law", which will preserve the privileged position of the CCP. Courts remain beholden to political leaders and are unable on a consistent basis to take independent decisions based on objective consideration of laws and facts. At the local level, judges are very unlikely to rule against local dignitaries, such as government and party officials and managers of state-owned enterprises. Foreign-invested enterprises tend to avoid taking disputes to domestic courts if they can go to international arbitration instead. Greater constitutional safeguards for private enterprise have been introduced, but cannot be relied upon. Iv) Macro-economic Risk
Economic growth in China has accelerated since 2001, driven by a surge in bank lending and investment spending. The currency system was reformed in July 2005 taking it to a managed float system, but the government is likely to limit appreciation of the Renminbi in the short term, and an abrupt slowing of growth seems unlikely. Less certain is what will drive growth in the future once the government's attempts to slow runaway investment growth have taken effect. Officials have been encouraging private consumption growth, but consumer sentiment in China as a whole remains relatively weak. v) Foreign Trade ; Payments Risk Foreign trade and payments risk is moderate.
At the end of 2004 China had foreign-exchange reserves of US$615bn, but estimated external debt of just US$232. 7bn (13. 8% of GDP). The merchandise trade surplus rose to US$59bn (balance-of-payments basis) in 2004 from the US$44. 7bn recorded in 2003 as exports grew rapidly. Exports are still growing rapidly, but export growth will moderate in 2005 as a whole as the US economy slows. The government will continue to lower trade barriers in accordance with World Trade Organization (WTO) entry terms, but the process will not be a smooth one. The current account will remain in surplus during the next two years, although the surplus will shrink as a proportion of GDP in 2006. vii) Infrastructure Risk
Infrastructure has been constantly upgraded in recent years, not least because it has provided a method of stimulating domestic demand so that GDP could continue to grow. The chronic power shortages of the 1980s and early 1990s initially subsided following the construction of new generating capacity, but have re-emerged since 2002. The shortages have affected the whole country, including the export powerhouses of Shanghai, Zhejiang and Fujian provinces, and some factories have been forced to work at night as a consequence. New motorways link major cities, but the national road network--like the rail network--is woefully inadequate to carry the growing volume of goods traffic.
The fixed-line telephone system caters for a minority of the population, but is starting to become ubiquitous in richer urban areas. Mobile telecommunications are widespread and internet penetration is accelerating rapidly. Cross-cultural risk Geert Hofstede analysis for China has Long-term Orientation (LTO) the highest-ranking factor (118), which is true for all Asian cultures. This Dimension indicates a society's time perspective and an attitude of persevering; that is, overcoming obstacles with time, if not with will and strength. Power Distance Index (PDI) that is the extent to which the less powerful members of organizations and institutions (like the family) accept and expect that power is distributed unequally.
This represents inequality (more versus less), but defined from below, not from above. It suggests that a society's level of inequality is endorsed by the followers as much as by the leaders. Power and inequality, of course, are extremely fundamental facts of any society and anybody with some international experience will be aware that 'all societies are unequal, but some are more unequal than others'. Individualism (IDV) on the one side versus its opposite, collectivism, that is the degree to which individuals are integrated into groups. On the individualist side we find societies in which the ties between individuals are loose: everyone is expected to look after him/herself and his/her immediate family.
On the collectivist side, we find societies in which people from birth onwards are integrated into strong, cohesive in-groups, often extended families (with uncles, aunts and grandparents) which continue protecting them in exchange for unquestioning loyalty. The word 'collectivism' in this sense has no political meaning: it refers to the group, not to the state. Again, the issue addressed by this dimension is an extremely fundamental one, regarding all societies in the world. Masculinity (MAS) versus its opposite, femininity refers to the distribution of roles between the genders which is another fundamental issue for any society to which a range of solutions are found.
The IBM studies revealed that (a) women's values differ less among societies than men's values; (b) men's values from one country to another contain a dimension from very assertive and competitive and maximally different from women's values on the one side, to modest and caring and similar to women's values on the other. The assertive pole has been called 'masculine' and the modest, caring pole 'feminine'. The women in feminine countries have the same modest, caring values as the men; in the masculine countries they are somewhat assertive and competitive, but not as much as the men, so that these countries show a gap between men's values and women's values.
Uncertainty Avoidance Index (UAI) deals with a society's tolerance for uncertainty and ambiguity; it ultimately refers to man's search for Truth. It indicates to what extent a culture programs its members to feel either uncomfortable or comfortable in unstructured situations. Unstructured situations are novel, unknown, surprising, and different from usual. Uncertainty avoiding cultures try to minimize the possibility of such situations by strict laws and rules, safety and security measures, and on the philosophical and religious level by a belief in absolute Truth; 'there can only be one Truth and we have it'. People in uncertainty avoiding countries are also more emotional, and motivated by inner nervous energy.
The opposite type, uncertainty accepting cultures, are more tolerant of opinions different from what they are used to; they try to have as few rules as possible, and on the philosophical and religious level they are relativist and allow many currents to flow side by side. People within these cultures are more phlegmatic and contemplative, and not expected by their environment to express emotions. Long-Term Orientation (LTO) versus short-term orientation: this fifth dimension was found in a study among students in 23 countries around the world, using a questionnaire designed by Chinese scholars It can be said to deal with Virtue regardless of Truth. Values associated with Long Term Orientation are thrift and perseverance; values associated with Short Term Orientation are respect for tradition, fulfilling social obligations, and protecting one's 'face'.
Both the positively and the negatively rated values of this dimension are found in the teachings of Confucius, the most influential Chinese philosopher who lived around 500 B. C. ; however, the dimension also applies to countries without a Confucian heritage. Commercial risk The importance of managing commercial risk in China has increased greatly as that country's economy has experienced difficulties. For decades, China conducted the majority of its commercial transactions with carefully planned, allocated funds and physical goods. Prior to 1978, the growth of China's money supply was low, steady and planned. However, with the onset of economic development, demand for money and credit increased dramatically, resulting in inflation; prices increased approximately 26 percent from 1987 to 1988.
As a result, the Chinese government instituted an adjustment period, and the People's Bank of China announced its intention to trim the money supply by 20 to 30 percent and cut credit growth by 10 percent, thus reducing available credit and funds allocated to state enterprises. Consequently, China's credit squeeze in 1989 reportedly led to widespread delayed payments, especially among state enterprises. Several joint venture managers in Beijing who were interviewed in the fall of 1989 reported that their accounts receivable were running at record high levels due to the contraction in the money supply. In response, many companies are recognizing the need to focus on managing commercial risk. i) Credit Policies
A firm's credit policy determines whether credit should be extended to a customer, and if so, how much. The establishment of a textbook credit policy has three basic steps: establishing credit standards (the minimum criteria for the extension of credit to a customer), developing procedures for credit analysis (the evaluation of credit applications), and obtaining and evaluating credit information on the firm's creditworthiness. For domestic sales, information on buyers may be acquired from numerous sources: Dun and Bradstreet and Standard ; Poor's are examples. However, when engaging in international trade, such information may be hard to obtain.
Despite the existence of the Foreign Credit Interchange Bureau (FCIB) and other agencies, exporters may not be able to ascertain the credit standing, integrity and reputation of their international trade partner due to the high cost of agency reports and the length of time it takes to receive them. In China, as in many developing countries, the problem with obtaining information may be exacerbated by the country's status as a relative neophyte in contemporary international trade. Such status has several effects, including a dearth of organized information on potential customers, lack of knowledge of appropriate credit standards for a target country's companies and the inability to apply home country credit analysis.
After a firm has developed a credit policy, it must focus on its credit terms, which specify the repayment terms required of all the firm's credit customers. There are four major types of credit terms used in international trade: cash in advance, open account, documentary collections and letters of credit. ii) Cash in Advance As the name indicates, the cash in advance method involves payment for the goods by the importer before the exporter makes shipment. Typically, payment is made by certified check. Companies that export goods to foreign countries prefer this payment option because it eliminates any risks involved in the international transaction, such as commercial, political or foreign exchange risks.
However, a drawback to the exporter using the cash in advance method is that potential importers often look for flexible payment terms when buying goods from another country, and may reject a transaction that requires payment in advance. It should be noted, however, that cash in advance can be used as a marketing tool because the exporter assumes no risks and therefore can offer discounts to customers if payment is made in advance, thereby increasing the probability of escalating sales. In addition, paying in advance benefits both the importer and the exporter by decreasing the amount of paperwork and thus the cost of the transaction. Challenges Faced by OLDTOWN White Coffee
OLDTOWN White Coffee entered China with two specific strikes against them: first, consultants told OLDTOWN White Coffee that smoking was rampant throughout Asia, and the no-smoking policy would be detrimental; second, consultants said that no Chinese would ever lose face by drinking from a cup in the street since the Chinese preferred not to eat or drink in public. OLDTOWN White Coffee’ no-smoking policy came out of its desire for nothing – cologne, perfume, nor tobacco smoke – to interfere with the smell of their dark-roasted beans. Upon entering Asia, OLDTOWN White Coffee stuck with its no-smoking policy, which according to interviews turns out to be a welcomed policy. Even the smokers claimed not to have a problem with smoking outside. [pic] Figure 1. How Do You Feel About OLDTOWN White Coffee’ No-Smoking Policy?
According to the respondents, a large majority (85%) prefers to stay at OLDTOWN White Coffee to enjoy their coffee, yet one still sees many people on the streets with a OLDTOWN White Coffee cup in their hands with the logo pointed out as proud customers show that they keep up with the latest trends. Although Chinese dislike drinking in public, the high awareness of the brand and the Chinese market being so brand-driven counters this habit. Furthermore, the Chinese consumers perceived the high prices as conveying quality and sophistication. Retailers keep this in mind as they charge more for public consumption, as customers go to OLDTOWN White Coffee not for the coffee, but to present themselves as modern Chinese in a public setting. [pic] Figure 2. Do You Stay Or Leave? Consumers’ Consumption of OLDTOWN White Coffee Products
To the upper class who can afford OLDTOWN White Coffee, OLDTOWN White Coffee has successfully made itself a home away from home in Shanghai. Most people enjoy OLDTOWN White Coffee not only for the coffee, but also for the relaxing atmosphere it guarantees (62%). As one customer replied, he came to OLDTOWN White Coffee after work in order to “relax, and think about the day. ” [pic] Figure 3. Why Do You Come To OLDTOWN White Coffee? Once a customer has a regular drink somewhere, he or she is more likely to come on a regular basis, which the results illustrate. The customers who only visit OLDTOWN White Coffee once or twice a week do not have a regular drink, while those who frequent OLDTOWN White Coffee two to three times a week, or even daily, all have a regular drink.
OLDTOWN White Coffee relies on regular customers, as is the case in Shanghai as employees at both OLDTOWN White Coffee locations recognize the majority of customers, seeing only few new faces. [pic] Figure 4. How Often Do You Come? Do You Have A Regular Drink? Challenging Tea Tea is a central part of Chinese culture; however OLDTOWN White Coffee is now successfully competing against China’s tea culture. As results show, most people prefer to drink coffee, as opposed to tea, when buying at OLDTOWN White Coffee. Of all the people surveyed, very few of the customers who have regular drinks at OLDTOWN White Coffee s would try a new ‘Chinese drink,’ while others said they probably would not try it.
As this demonstrates, OLDTOWN White Coffee was able to successfully combat their greatest challenge: battling the long-established tea culture – and emerging victorious. [pic] Figure 5. Would You Try A ‘Chinese Drink’? OLD TOWN WHITE COFFEE ENTRY MODES When a firm seeks to enter a foreign market, the company must choose the most appropriate entry mode for that specific market. The decision of entry mode strategy is the most critical decision in international expansion. According to Root (1994), an international market entry mode is to create the possibility by arranging company’s products, technology, human skills, management or other resources to enter into a foreign country.
According to him, entry modes help companies to determine goals, resources and policy in order to channel their international activities toward a sustainable international expansion. Before going into a country, Old Town White Coffee should conduct extensive research and conduct focus groups and quantitative research to find out about the country market and if there are able to make profit by entering into the market as it has to be benefitting to Old Town White Coffee before investing. Not only that, they will partner up with local business partners who shares the same vision as part of their growth strategy. The entry mode selected is franchising. By the payment of a royalty fee, the franchisee will obtain the major business know-how via an agreement with the franchiser.
The know-how refers to intangible properties such as patens, inventions, formulas, processes, designs, copyrights and trademarks and so on. For shop lot, the consideration will be "Corner Lots" with a minimum build up of 2500 square feet. For commercial building the minimum built up will be 1000 square feet. Franchisee must attend and successfully complete the Old Town White Coffee unique Business Management Training Program. The Training Fee includes the cost of lodging and meals. Besides that, the franchisee must obey certain rules given by franchiser. Franchising is most commonly used in service industries, such as McDonald’s to cite an example. Franchise can be a primary stage for Old Town White Coffee which plans to enter a foreign market.
Due to the uncertainty of the foreign market, the political or economic situation, this instability will arouse the firm to consider developing an agreement. This agreement can help the firm to make their expansion in a more steady way. In this manner, the franchisor firm can collect a royalty fee from the franchisee. Franchising industry in China experienced a period of disordered development in the early days. In the poor legal environment, some franchisers conducted substandard business or even defrauded franchisees of money. In some cases, franchisees delayed payments to the franchisers or infringed on their intellectual property rights. Franchising first emerged in China in the late 1980s. In 1987, KFC’s first Chinese outlet was opened in Beijing, the capital city of China.
In 1997, the Ministry of Internal Trade established the first Chinese franchise law, the Regulation on Commercial Franchise Business, which included guidelines on such issues as trademarks, copyrights, and intellectual property protection. A lack of specific provisions in the 1997 version governing foreign direct franchising allowed relatively few major international companies to have significant franchise businesses in China. Although many of these international brands such as 7-Eleven, McDonald’s, KFC and Pierre Cardin, normally do business through franchising. In China foreign franchising was still a grey area before the new rule was published.
Because franchising typically does not involve investing in equities, the Chinese Government used to put less focus on such business. But the government came to find that franchises are a good business model for China to help solve its job problems and its scattered private capital. China’s capital markets are underdeveloped and franchising is one method that allows the assembly and concentration of capital from a wide capital base through investment in franchises. China has a great number of qualified potential Chinese franchisees with strong sources of funding. Franchising makes up for the commercial inexperience of the Chinese franchisers by linking their investments to completed training within a well-tested operating system.
The new Regulation on Commercial Franchise, announced by the Ministry of Commerce on December 30th 2004 and which took effect on February 1, will stimulate business in terms of its scale and standardization. The new regulation for franchises, to replace the 1997 measures concerning administration of commercial franchising, defines more clearly the way foreign brands operate franchise businesses in China. The new rule helps build a sound legal environment and invite additional foreign franchisers into doing the local business. The franchising model, which allows people with limited capital to enter an established business, is well suited to a developing economy. China’s infant franchising industry is set to enter a rapid but orderly development stage after the new Regulation of Commercial Franchise takes effect.
The primary advantage of franchising is that the firm doesn’t have to bear the development costs and risks associated with entering a new foreign new market. By the low costs and risks, the firm could explore the market in an efficient way. Moreover, the country barriers make it difficult for the firm to participate in a foreign market, which makes franchise a more suitable entry mode to explore a new market. China currently has 1,900 franchise systems, with 82,000 outlets, growing 49% annually. Nearly 60 industries have applied for franchise operations, including traditional sectors of catering, retailing and individual services, as well as some newly developed fields of education, commercial services, family services and automotive care.
Nearly half of the top 100 restaurant companies are utilizing franchise business models, and their business earnings significantly surpass those of independently operated companies. Though China has the most franchise systems in the world, the scale of their operations is relatively small. Each system in China has an average of 43 outlets, compared to more than 540 in the United States. There is a great deal of potential for further growth, but now the franchising business only accounts for 3 percent of China’s total retail sales, starkly behind the 30 percent in the United States. Although not big in scale, the franchise sector has witnessed rocketing success in China.
Its sales growth hit 40% on average in the last several years, far more than the 10% annual growth of national consumer goods. This are reasons choose franchising as a entry mode in China. OLD TOWN WHITE COFFEE STRATEGIES Strategy is a plan of action that channels an organization’s sources so that it can effectively differentiate itself from competitors and accomplish unique and viable goals. Managers develop strategies based on their examination of the organization’s strengths and weaknesses relative to its competition and the opportunities it faces. Managers decide which customers to target, what product lines to offer, and with which firms to compete.
Old Town White Coffee strategy is by purchasing premium high quality coffee beans and selling them into quality coffee also. They can sell the high quality beans as a special product in their stores in order to achieve respect and recognition for their coffee globally. Strategic planning by making strategic key initiates such as investing in the instant coffee market with the launch of the of Old Town White Coffee via ready brew instant coffee, they are also investing in growing their consumer products, licensed stores and foodservice channels which will help reach to more consumers and also investing in key market for global store expansion.
With the increasing number of other corporation serving high quality coffee such as Starbucks, Old Town White Coffee has to must constantly innovate their company with new products to stay ahead of their competitors. They need to be alert and know what is the newest news in the coffee industry and what the rest of the competitors are doing in order to be ahead of them. Old Town White Coffee do research on many factors such as coffee science, new technology, equipment technology coffee quality development and more, hence this is a major competitive marketing strategy that they have which other coffee chain does not which makes them more valuable.
Old Town White Coffee' strategy for expanding its specialty operations is to reach customers in locations close to where they work, travel, shop, and dine so as to help establish relationships with important consumers who share the same values and commitment to quality. Old Town White Coffee can carry out their strategy by moving distribution into grocery stores, convenience stores, department stores, movie theatres, businesses, airports, schools, and even in homes. They can focus on quality and experience, rather than price. The main marketing strategy for Old Town White Coffee is for customers to consider it as their place after home and work; this will guarantee customers visiting the shops several times.
People come to Old Town White Coffee not only for the coffee but also for the atmosphere, socialize or just take a rest while drinking their coffee, also for the excellent customer service that they provide to their customer to make the customer feel relax. That’s why the Old Town White Coffee slogan is “take your time”. The atmosphere at Old Town White Coffee let people leisurely pace. Knowing this, Coffee shops try to make their stores unique in some way or another that will create a similar atmosphere. Old Town White Coffee has less of a different setting for their locations, they focus on having a comfortable and relaxing atmosphere so that people feel welcome to stay longer and forget the rushing life.
Old Town White Coffee also should ensure that their position as a brand is sustain by having their logo patented, by having numerous copyrights for their merchandises such as their packaging and ensures that their domain name and internet sites are registered and copyright so that they are able to secure and protect their company position globally and prevent any duplication to arise. Growth Strategy Old Town White Coffee has demonstrated all dimensions of a growth strategy: Internationalization in expanding into new countries and the global market. It has shown concentration in being creative and relying on it has core competency of making high quality coffee and coffee equipment to develop new products and markets. Horizontal Integration can be evident in the strategic franchise.
Vertical Integration is a another key success factor as Old Town White Coffee integrate backwards in opening coffee roasting plants, and forwards in controlling the distribution of its many products. This growth has taken it from a single store to a worldwide company. Old Town White Coffee has the potential for finding a new type of growth strategy once the International growth strategy is no longer beneficial. We believe that in this case Old Town White Coffee will need to concentrate on its core competency, high quality coffee products, and use a Concentration growth strategy. Old Town White Coffee will stay in the same industry, so the two main sub-strategies would be Product Development and Product-Market Diversification.
It is important to understand this in the Product Development phase they would need to focus solely on making their existing products better. The company could demonstrate Product Market Diversification through research and development, and creativity. The company could be extra sensitive to changes in customer tastes, and the external environment. Thus, Old Town White Coffee could quickly react to environmental changes and make sure to entice as many people as possible into their stores. For example, Old Town White Coffee can start a line is family set breakfast which would help bring families into the store eating breakfast together. Multi-domestic Strategy
According to distinct strategies emerging from the integration-responsiveness framework, it presents four distinct strategies for internationalizing firms. Figure below illustrates these strategies: In general, multi-domestic industries favor home replication and multi-domestic strategies, while global industries favor global and transnational strategies. Thus, we think that Old Town White Coffee is using multi-domestic strategy because Old Town White Coffee is a company in the food and drink industry. Principally, it may often resort to a country-by-country approach to marketing to specific needs and tastes, laws, and regulations. Industry in which competition takes places on a country-by-country basis is known as multi-domestic industry.
Multi-domestic strategy (sometimes called multifocal strategy) is a second approach, where an internationalizing firm delegates considerable autonomy to each country manager, allowing him/her to operate independently and pursue local responsiveness. With this strategy, managers can recognize and emphasize differences between national markets. As a result, the internationalizing firm should allow its subsidiaries to vary product and management practices by country. Country managers tend to be highly independent entrepreneurs, often nationals of the host country. Besides, they should function independently and have little incentive to knowledge and experience with managers in other countries. Thus, products and services are carefully adapted to suit the unique needs of each country.
Consumers in addition to high quality coffee want to be able to taste many types of coffee variations. It is vitally important that those more popular coffee products are available to consumers while other variations are introduced on an occasional basis. Within in this, it is necessary to make sure that the coffees are made of high quality beans and meet the requirements of consumers. These requirements include thick, uniform cream at the top of Espressos, strong flavor that is maintained and that the freshness of the beverage stays longer while undesirable flavors are minimized. Basically, the less these requirements are met, the less appealing coffee will be to consumers.
Old Town White Coffee should meets these requirements through providing many variations of coffee in order to satisfy as many people as possible. Besides that, through the selling of coffee-related products such as Old Town White Coffee 3-in-1 blends, ready to drink product and so on, many consumers can enjoy high quality coffee at home rather than traveling out of their way. This is another example of how Old Town White Coffee is meeting the needs of current customers as well as increasing its attractiveness to potential customers. In addition to meeting those beverage needs of consumers, sometimes there is the need to have a breakfast and lunch which can enjoy eating at Old Town White Coffee.
Old Town White Coffee can specialty operations strive to develop the Old Town White Coffee brand outside the Company-operated retail store environment though a number of channels. By establishing relationships with well-known third parties that share their values and commitment to quality, Old Town White Coffee is able to reach customers where they work, shop, and travel. These relationships take various forms, including grocery channel licensing agreements, warehouse club accounts, international retail store licensing agreements, direct-to-consumer market channel and more. Next, we believed that high quality product able to promote global brand recognition and give rise to consumer preference and efficient international marketing programs.
Old Town White Coffee has offered the high quality coffee and foods to provide the unique Old Town White Coffee to customers. Therefore, Old Town White Coffee marketing strategy can focused on advertising, give a relaxing environmental to customer and letting the high quality of their products. Differentiation Strategy In a differentiation strategy, organizations attempt to distinguish their products or services from others in the country. This strategy can reduce rivalry with competitors and fight off the threat of substitute products because customers are loyal to the company’s brand. However, companies must remember that successful differentiation strategies require a number of costly activities, such as product research and design and extensive advertising.
Companies that pursue a differentiation strategy need strong marketing abilities and creative employees who are given the time and resources to seek innovations. Old Town White Coffee can pursue a strategy of growth based on promoting its uniqueness and the environmental. Today, more than ever before, the company isn’t just selling coffee but “take your time,” a phrase that is routinely used in the company’s promotional materials. Old Town White Coffee should has goals to tap into all sorts of new markets, new customers, and new products and services. For example, company can expand the food service by selling the dairy meal or add more stores over the world for achieving the goal. Conclusion As a conclusion, we choose China as the country that we enter because of its unique and distinctive market.
China is the fastest-growing major economy in the world, and has had the fastest growing major economy for the past 30 years with an average annual GDP growth rate over 10%. I think we can get many benefits or earn a lot of money if we expand our business over there by Franchise method as China is having the stable economic in the world. OLDTOWN White Coffee is recognized as a High Quality Malaysian Product. It bears unique product characteristics at Malaysia and can pursue a strategy of growth based on marketing. Therefore, I think it will be the good chance if we try to do the franchise in China. Reference 1. International Business: The Challenges of Globalization 5 edition, Pearson/ Prentice hall, 2009 2.
International Business Strategy Management & the New Realities, Cavusgil, Knight and Riesenberger 3. http://www. contrarianprofits. com/articles/6-reasons-to-invest-in-china-and-5-china-profit-plays/4821 4. http://www. investmentchina. net/investment-china-why-invest-in-china. html 5. http://www. entrepreneur. com/tradejournals/article/132354507_2. html 6. http://www. oldtown. com. my 7. http://www. geert-hofstede. com 8. http://www. worldbank. org 9. www. cia. gov 10. http://www. doc88. com/p-4990229318. html ----------------------- Global Strategy Transnational Strategy Multi-domestic Strategy Home Replication Strategy Weak Strong Weak Strong Pressures for local responsiveness Pressures for global integration