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I have study the subject of business in context 4. I learned about the globalization. Globalization means the people, companies and governments are interaction and integration in different countries, a process driven by trade and investment and aided by information technology. The increasing of the international trade, financial transfers, and foreign direct investment, so that the economy is increasingly internationally interconnected. Everyday have about $3million in foreign exchange transactions happened in the world. Malaysia total trade in 2012 was valued at RM1.310 trillion, an increase of 8.7% from RM1.271 trillion in 2011. This was contributed by exports of RM702.19 billion and import of RM607.36 billion. Export expanded by 0.6% while import rose 8.6% compared with 2011.
China has emerged as the fourth largest trading partner of Malaysia since 2001. Malaysia's trade with China has grown tremendously, to account for 8.8% of total trade in 2005. Malaysia and china trade grew average annual rare of 16.8 percent significantly from 1974-2008. It showed that less than $100 million to $40 billion (Li, 2006). Coffee business is a huge economic, social and environmental significance in Malaysia. It represents an important part of Malaysia’s tax income and gross domestic product. The old town white coffee is the largest restaurant chain in Malaysia. The headquarters is in Ipoh, Perak, Malaysia it is a franchise company ( Nalina, 2013).
Thus, Malaysia old town white coffee are continue to expand its operation to the international market. Now the question is how Malaysia old town white coffee can expand to different global markets such as China. China have over 1.3 billion population which is a huge market if possible to get in. Recently there is a growing coffee demand in China. This is one of the best opportunities to notice. For this reason, this report will focuses on analyzing of Chinese potential market for Malaysia old town white coffee.
Malaysia old town white coffee become the form of the retail chain of cafe outlets which has expanded into the food and beverage business.( old town company, 2011 ) in my opinion, i choose shenzhen, china to be my first target market. The reason why i choose shenzhen is shenzhen is a huge potential and positive market.
China as the third largest country in the world which the regional economic geography include east to west and south to north. Along the South China sea, the East China sea, the Yellow Sea, and the Bo Sea, east China has approximately 14,500 km coastline, with ports and harbors for sea transportation to many developed western economies. There are over 160 cities in China with a population over one million. Such as shenzhen. Shenzhen is located on a southern tip of the Chinese mainland and on the eastern bank of the Pearl River. An it is belong a part of guangdong province and just north of hong kong. Shenzhen has occupying 199164 square kilometers, and have 10.47 million permanent residents in 2011.
In 2014, Chinese’s population is 1,392,472,656.So; almost half of all Chinese live in urban areas today. there are 90 cities in China which define the urban area , with a population of more than 1 million people. (World population review online, 2014) Such as shenzhen, By the end of 2011, the permanent resident population reached 10.47 million. Today, China is considered a middle-income nation by Western standards. And they are 56 different ethnic groups ain China, 91.51% of Chinese are Han Chinese. Most of people who are living shenzhen is Han Chinese. (World population review online, 2014)
Tea is an old traditional beverage in china which has been an important part of lifestyle. It has developed a unique culture in the nation. As old traditional drinks, tea was first grown in China and spread to other countries and has always popular in the world. Even though nowadays has increasing many kind of beverage such as coffee, soft drinks and wine, but tea has never decreased its popularity. Particularly in recent years, modern people realize the importance of organic foods and drinks, tea is being considered one of the most natural and healthy drinks which is promoted by more and more people around the world.
Hofstede's cultural dimensions
According the Hofstede’s cross cultural model to understand the Chinese culture profile. Power distance stated that the power inequality in the society. It will affect hierarchy and dependence relationships in the family and organizational contexts. In individualistic societies, people are look after themselves and their direct family only. High individualism societies allow a large degree of freedom and display loose integration. Low IDV societies show tight integration. Dominant values in masculine countries are achievement and success and in feminine countries are caring for others and quality of life. Uncertainty avoidance means that people feel threatened by uncertainty and ambiguity and try to avoid these situations.
It is necessary to compare the different cultural of Malaysia and china when old town white coffee want into the china marketing. It wills east they to make the marketing strategies. Thus, the compare the different dimensions of Malaysia and china in order to make the distinction between these two cultures which will be following.
Individualism 26 20
Power distance 100 80
Uncertainty avoidance 30 30
masculinity 50 66
Table 1: Cultural differences between malaysia and China (www.geert-hofstede.com)
Hofstedeâ€Ÿs model has a scale from 0 to 100, and is based on quantitative research (Hofstede, 1994). According this table, we can get Malaysia and china don't have very big different culture. Malaysia and china both of them are highly collectivist culture. China are more collectivist than Malaysia that is means people have a high sense of identity to the traditional food and drink. Malaysian and Chinese they are accept the Power Inequality. The relationship between the subordinate and superior is polarized. The formal authority and sanctions will affect the individual. People do not have the desire to exceed their social rank. Therefore, many people in China consider the relationship between the prices of consumer places and the personal appearance seriously. Malaysia and China has a low score on uncertainty avoidance. Both of countries are comfortable with ambiguity and they are adaptable and entrepreneurial. China and malaysia both are masculine society which are success oriented and driven. Because of the influence of traditional ideological in the ancient chinese, so the china are more masculine.
Entry of model
I chose the best mode of entry that is franchising. Franchising is the perfect way to start a business. Firstly, It through payment of franchise fees to operating the business with years of support and prove success of a well-known brand. That the franchiser enjoys are reduced operating, distribution and advertising costs. Besides that, the procedures of franchising are uniformity. And which showed a consistency, increase productivity levels and good quality. The franchisee is often invested much time and money in the business, so that it will bring better organizational and monetary results, which is shown more customers satisfaction and increase sales. Moreover, Franchising is through other people investment by multiplying the number of locations to spreading the risks. That means it focus on changing market needs so that it also reduce the competitor. Finally,
Old town has keep a leader in the industry and have suitable tools for success as equipment. And it keep with franchisees to develop a successful plan which is customer base and increase profits. Old town franchisees partner can get a well- known brand which people know before and trust, receive good training and support.
Businessman who has developed a successful business often chose the mode of franchise to expand their operations. It is no doubt that franchising is one of the popular business expansion systems in the world. I have been check how the franchises are effectively using the business and how successful other franchises. Because of the Franchises offer national advertising campaigns that are included in your franchise fee, so that i benefit to reduce the advertising fees and i also benefit from any advertising by the owner. And the most important thing is i get the support tanning from the franchise. Franchise Head Quarters will train me in everything from the technology involved, to the accounting, to standing behind the counter and taking money. So that it makes the business may be easier (Daszkowski, 2014)
Unlike the foreign direct investment mode need high cost route, and more exposure to economic and political risks problems of managing the subsidiary at a distance¼ˆTim, 2014). Unlike joint venture have the risk of losing control over its technology to its venture partner.
It's a lot harder to innovate with franchising than if you own your own outlets. With franchising, if you come up with a new idea, you have to negotiate with your franchisees to get them to accept the new product or whatever innovation you want to introduce, instead of just putting the new idea in place on your own.
Franchising also has some drawbacks. It is difficult to innovate with franchising. For example, if i have some idea for my outlets, i have to negotiate with my franchisees to get them to accept the new idea or service. It will reduce the passion for to do the innovation on product and service (Shane, 2013). Sometimes, name recognition also will become a barrier for the business. Especially if other franchises has receiving bad press or suffering from poor public perception. That will causes my business get trouble.
I use the PESTEL mode to analysis the business environment in shenzhen to understand the business expansion.
Politicalthe corporate tax of foreign companies are decrease.
EconomicGDP, fiscal revenue, foreign trade are increase.
Socialdiverse mix culture
TechnologyHigh-Tech park in Shenzhen
EnvironmentalIncrease coffee consumption
LegalFee trade zone bring many benefit.
Shenzhen government encourages foreign investment which they want more foreign companies to enter the Shenzhen market, and encourage more foreign funds to invest in various fields. The corporate income tax for the foreign invested company is decreased from the original 30% down to the present 15%. At the same time, the local income tax levied at the rate of 3% is exempted. Shenzhen have regulated new tax law which is The foreign invested company have 2 years of corporate income tax exemption and half reduction for the ensuing 3 years. (Shenzhen government online, 2012). Therefore, this policy will help us to reduce our cost which can increase the benefits.
The economic of shenzhen is maintained a healthy momentum of development in 2012. GDP grew by 10 percent to 1.295 trillion yuan. The consumption of retail sales increasing from 16.5 percent to 400.88 billion yuan totally. The volume of foreign trade increased 12.8 percent to 466.8$ billion. The volume of export has maintained stayed at the top of china. In 2012, shenzhen government has reported the fiacal revenue is 148.6 billion yuan, up to 10.6 percent from 2011( shenzhen government online , 2012). shenzhen is ranking fourth on the Chinese mainland which have strong economic power. And shenzhen is one of the cities that has produced the biggest economic efficiency. The economy is great strong in Shenzhen. Shenzhen people’s incomes also are very high. They have strong purchasing power and consuming ability. It makes my business become easy.
Shenzhen is modern city which filled of people from all over the world. Shenzhen culture is not home grown and traditional. It is a diverse mix and a refreshing change compared to many cities worldwide. Such as coffee is popular in shenzhen. Coffee culture in shenzhen is more a symbol of lifestyle. It represents the consumption of the young, hip, emerging middle class. Most coffee drinkers are all open-minded and thinking , they think coffee is a Western culture , and through the coffee to justify their acceptance of Western culture. In other words, tea is for the traditional and coffee is for the connoisseur.
Half October 2008, the expansion of the current High-Tech park in Shenzhen officially started. The 3 billion yuan (US$439 million) software base, which covers 150,000 square meters and will be funded by the Shenzhen government, will be put into operation in 2010. Shenzhen built a software park in the high-tech park 10 year ago. It is home to more than 400 companies with 40,000 employees. The output of the city’s software industry reached 86 billion yuan in 2007, accounting for 15 percent of the country’s total. Software exports reached US$4.5 billion last year. (Shenzhen government online, 2012).
According to International Coffee Organization, it is estimated that China's coffee consumption will grow by about 15 percent per year, far above the global average of 2 percent. However, most of this growth is based on China's unique coffee culture, representing a fashionable symbol rather than habitual usage. Nowadays, There are many white-collar workers in Shenzhen, Coffee has already been the young people and white- collar workers’ the essential thing in their life. So, we will be able to be successful in the background of Shenzhen.
shenzhen have established a free trade free zone which the economice areas of shenzhen futian ,shatoujiao and yantian port bonded areas with Perfect infrastructure and become a mature investment environment (Shenzhen Government Online, 2012). Goods transported from outside the boundary into the free trade zone or transported from the fee trade zone outside the boundary are free of customs duties and licenses, and it will carries out the archiving system management by the customs and to be as special policies apply. In the free zone, they are allow the business to manufacturing, processing, warehousing, and exhibition. Because of that, we can thought the free trade zone to import raw materials, it can reduce cost and get more benefits.
I use the swot model to analysis the old town white coffee situation.
Offers other productInnovation is slowly
Difficult to diversify their product.
Expand to global market
The old town white coffee get high profit in Malaysia. And it no only sell coffee but also they are offer others food. It have a lots branches in Malaysia.
The old town white coffee always depends on the coffee so that it cause them difficult to diversity their product and innovation product is slowly.
The old town white coffees are ready to expand market to global market and they are able to re-brands to attract new consumer.
There are many competitors which are Starbucks, the coffee bean and so on.
Because of the materials cost are increase so that the product price also increase.it will cause lost some consumer.
The old town white coffee should be does the product innovation to remain the old consumer and attract new consumer. And they need to focus on new regions going forward to address market saturation concerns.
To sum up, the old town white coffee company is large chain restaurant in malaysia. I chose the od town white coffee with the best entry mode of franchising to expand to shenzhen (China). I apply the cross-culture models of Hofstede to describe shenzhen(CHINA)’s cultural profile. And i analysis what is the factor will influence my business when i start my business in shenzhen. Which include political, economic, social, technology, environmental and legal. According to my findings, i have explained why the business expand to shenzhen is suitable. Shenzhen is very positive and potential market. With the developed of economic, people have strong purchasing power and consuming ability. I have confidence to face the challenger and solve the problem to get success.