Chinese Health Supplement In The UK Commerce Essay

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Since the 1990s, Chinese Traditional Medicine (TCM) has gained much popularity in the western market. Chinese herbs, supplements and associated products are being consumed by all segments of the market. From 2005 onward, prognosis of Chinese health maintenance methods have also become popular due to which TCM is now an established industry with output value of about €11 billion (Kaiser 2007). The potential of TCM rising is expected to be high as Western consumers turn towards Chinese herbal medicine for curing illnesses. Most of TCM are from China as it is the plantation hub of raw herbs and industries for processing tons of TCM exports. The following is a research on the potential of setting up an online business enterprise for exporting TCM from Hong Kong under the company titled Herbalist Ltd. Co., the Professional Chinese Herbal Supplement Online Store, to the United Kingdom. The researcher shall implement business analysis models like the SWOT with a Literature Review to evaluate the demand and viability of setting up an online TCM business. These analyses shall form the basis for developing strategies for launching and marketing of the business website. The legal implications and financial sustenance of a TCM website shall also be studied to gauge the feasibility of setting up such a business.

Herbalist shall be a company that sells raw Chinese herbal supplements online through its official website. It will incorporate with a professional Chinese herbal company in Hong Kong. The partner company shall act as a supplier for Herbalist and all the herbal products will be supplied by the partner company and sent to the UK customers directly from Hong Kong through a drop-shipping system.

1.1 Aims and Objectives

The study shall aim to achieve the following objectives:

- To undertake a SWOT analysis of the business.

- To review the literature of Chinese health supplement and e-business operation.

- To conduct a market research on the demand for Chinese health supplements in the U.K.

- To conduct a research on the sourcing of Chinese Health Supplement in Hong Kong.

- To produce a detailed financial report of the first four years of the business operation.

- To review the legal documents that is required for the Chinese Health Supplement business in the UK

- To produce a detailed promotional strategy and business plan for Herbalist.

1.2 Mission and Key Success Factors

1.2.1 Company Background

Herbalist is an online start-up firm that aims to provide information, develop interests and promote TCM. The rationale is that there is great potential for selling TCM to the Western consumers. There is a readymade market which needs to be tapped and explored through proper and credible channels. The Internet is a viable channel because of the informal nature of the medium to communicate to the consumers.

1.2.2 Mission

Herbalist's mission is to establish an online presence to promote the goodness of Chinese herbal health supplements to the Western market by educating them on the benefits of consuming TCM.

The company's philosophy is to encourage the Western market to live a healthier lifestyle by adding a bit of natural healthy elements to their diet. A market research indicates that there is a rising trend for naturally healthy lifestyle in the UK which complements with the philosophy of Herbalist. Furthermore, scientific reports have proven that Chinese herbal supplements are effective for many minor health issues without incurring side-effects because it is completely natural. The unique selling point for Herbalist is that it shall sell only dried raw Chinese herbal supplements online unlike competitors which are selling Chinese herbal supplements in capsule form. The benefits of dried raw herbs are that the healthy elements of the herbs are kept intact without any chemical processing and can be boiled and consumed immediately. The choice for online website is facilitate customers' ease of access to Chinese herbal supplements without much hassle.

1.2.3 Keys to Success

The key performance indicators shall be gauged by:

a. The number of visitors (traffic) to the web site. This shall denote that the market is responsive to the promotional strategies, and interested in TCM.

b. The response received from visitors and customers shall demonstrate their interests in TCM. Such information shall be used for deciding on the type of supplements to be sourced to offer to the consumers.

c. The number of items sold shall determine the profit margin to sustain the business in the long run.

d. The type of customer service provided to visitors regardless of whether they are buyers or merely wanting information on TCM.

2.0 SWOT Analysis

To what extent is it viable for Herbalist to start up an online business shall be gauged by a SWOT analysis. A SWOT analysis is a business tool for understanding the organisation's strengths and weaknesses to function in the face of its opportunities and threats. It is the first step of planning critical for scanning the organisation's business environment (Mehta 2000) (See Appendix 1).

2.1 Strengths:

Herbalist is an entrepreneur based enterprise. At the initial stages, the decision-maker shall be the owner. Team members shall provide support to the project in the areas of accounts, customer service and specialist information.

Most online TCM web sites are stockists and distributors with little knowledge of online marketing. Herbalist on the other hand shall focus on online marketing, and capitalise on SEO (search engine optimisation) to establish customer visibility as well as drive traffic to the website. Moreover, the company shall not stock inventory but concentrate on distribution by sourcing from the supplier in Hong Kong and shipping directly to the customer. This shall reduce cost of distribution, offer more time for marketing efforts, creating the value chain, and emphasizing on educating the consumers to convince them to use herbal supplements (Chaffey et al 2009). This shall counteract the industry's trend of direct-sale tactics.

Since Herbalist shall be a small start-up company, the start-up cost shall also be relatively small with minimal investment required for its launch and operation. However to ensure that the website is launched successfully, concentration on aesthetic design, user-friendly navigation, information for visitors to understand the value of TCM, detailed product information from suppliers and exceptional turnaround time for customer service. This would help establish credibility and trustworthiness (van der Geest 2001; Lynn 2007).

2.2 Weaknesses:

The problem with online business is that it is governed by grey areas of legality. Some of the aspects that the researcher foresees are the strict laws governing the health industry in the UK. This needs to be studied carefully in order to avoid any illegal aspects of the operation which may result in shutting down the web site. Similarly, since Herbalist plans to import TCM from Hong Kong, zonal laws that prohibit the imports of commodities might be applied at both the Hong Kong and UK ends. As a result, hindrances such as delay in shipping of product from supplier to customer may result in negative reputation of the company, thereby loss of customer base which is necessary for sustaining the business growth (Longenecker et al 2005).

Moreover, since the organisation is also liable for taxes and licensing, care must be taken to register with the right authority in Hong Kong and in the UK to ensure the legal status and operation of the company.

2.3 Opportunities:

The TCM industry is going through standardisation and improvement in China. It is likely that the industry shall grow rapidly in the long run with opportunities for companies to compete on the basis for branding, promotions and technological innovations instead of focussing on traditional tactics of pricing. Elements like packaging, placement, and distribution shall be challenging to competitors in the Chinese local market as well as those online. This is a great opportunity for start-up companies like Herbalist which can capitalise on marketing strategies for differentiating from other players in the industry (Strauss, El-Ansary and Frost 2006). Especially in the online marketplace, most of TCM companies are distributors with emphasis on "selling" rather than marketing their products. This shall be Herbalist's unique selling point to establish itself as a marketing organisation of TCM rather than mere distributor of the products (China CCM 2008).

Apart from the above, trends indicate that the TCM market in the UK is gradually growing as people are turning towards alternative medicines. A literature review shall demonstrate that alternative medicines are preferable nowadays by Westerners because of they are less harmful in effect, inexpensive and effective in producing results. These elements are driving people to TCM shops, dealers and online web sites.

2.4 Threats:

The online business environment is highly competitive with no standard rule for participation or operation. Likewise, the online TCM industry is unregulated with small and large companies offering the same kinds of products and services. Products may range from TCM to acupuncture, herbal remedies, Taiji and/or Chinese massage. This means that it is difficult for online consumers to distinguish the authenticity of the web sites, contents, usefulness of the product, and its effects. It would be challenging for Herbalist to establish itself as a trustworthy online company for TCM among these online websites. The company would have to devise tactics and strategies to ensure that its visitors and consumers be able to distinguish Herbalist through quality resources from other competitors (Fan 2008).

Another aspect that the company should be concerned about is the changing legal environment for TCM. The UK law is tricky to deal with, especially in terms of laws relating to health and medicines. Since research indicates that TCM's (BBC 2001) side effects and toxicology are unverified, it is tricky for suppliers to identify products which are harmful in the long run and which are not. If, a case emerges in which a customer has bought a product, consumes it and turns drastically ill due to its side effects, then Herbalist would be liable for damages. Such elements will have to be distinguished on the web site. The owner shall also need to research carefully products which are being offered before putting them on the website for sale.

3.0 Literature Review of Chinese health supplement and e-business operation

3.1 Alternative Medicine

The UK National Health Service in 2005 costs 74 billion per year of which 10 billion is spent on drugs (Cumming, Simpson and Brown 2006). Additionally, consumers have to spend on purchase of medicines and access to private care. Surveys indicate that the UK population is no more willing to pay for these expenditures as the government. Complementary and alternative medicine (CAM) is the way out for many (20%).

The concept of alternative or holistic medicine stems from the common beliefs that healing is a spiritual process which combines the physical and chemical care necessary to bring the body back to its original status: Fulder (1998 quoted in Treweek 2006) believes in the following:

- "Self-healing is paramount

- Working with, not against symptoms

- Individuality

- Integration of human facets

- No fixed beginning or ending but a continuum of wellness/illness

- Conformity to universal principles on the patterns of relations between all living creatures and their environment" (Fulder 1998).

The first integrated traditional medicine centre can be traced to Dr. Heigel of International Committee for the Red Cross who has helped Cambodian refugees in Thailand through traditional and Western clinician practitioners. The dual system had proven to be effective and allowed the system of treatment to pass freely among traditional health care facilities (Bodeker and Burford 2007). Since then, CAM has been present in various settings.

CAM is a growing trend in the UK today which have promulgated 50% increased in herbal product sales from 1994 to 1998 and today the figure has gone up; although the UK is not as adapt to CAM as other countries including Germany, Canada, France, Australia, USA, Switzerland, Belgium and Sweden (Cumming, Simpson and Brown 2006).

According to Hill (2003) CAM has been a controversial issue in the health care industry but today when a third of the UK population is relying on CAM for cure, the government is considering otherwise. In a Committee Report in the House of Lords (2000) the government has come to the conclusions that CAM therapies should be included in the mainstream health care in collaboration with conventional medicines. Through promotion and education, CAM users can be educated on the dimensions in which CAM can be used on the responsibility of the individual (Hill 2003).

Indeed, Hill (2006) is of the view that professional interface between CAM and conventional medicine would determine future development in this field in training professionals, setting standards for practice and legal framework for organisations to promote acceptance among the masses. The increasing popularity of CAM will only improve the impression of CAM among the public and professionals (Hill 2006).

3.2 Traditional Chinese Medicine (TCM)

TCM has evolved from the philosophical principles that mankind is part of the whole universe represented by the Qi. To maintain the balance the material world and the living world, are the Yin and Yang. The bottom line is to maintain a healthy and balanced environment for the human community. Based on this TCM can be said to be cyclical in nature with components which can be subdivided into elements that are controllable, influential and transformational. When translated into the diagnosis and treatment of diseases, the Yin and Yang can help identify body parts which are interrelated and treated. TCM therapy and treatment are based on the production and control cycle of the natural elements like wood, water, fire, metal and earth (Holland 2000) (See Appendix 2).

These concepts have been in practice for thousands of years in China. Today Chinese medicine refers to the use of herbs, minerals and animal compounds to manufacture medicines, therapeutic practices, and spiritual treatments. Moreover, TCM has taken on new technologies and processing methods to develop a wide range of techniques that rival Western clinical medicines (Man 2005). Chinese medicines and remedies are sometimes more effective because they are gentler and safer to the body as they combine the treatment of the body, mind and spirit which biomedicines are blind to (Kaptchuk 2000).

In China today, the TCM industry has one of the most important positions in the production of traditional medicinal materials, processing and research for TCM. Although, TCM is renown across the world, the international market share is held by Japan and South Korea because China lacks the standard system for production, testing and research. This is why the Chinese government currently is aggressively driving the TCM industry towards standardisation to gain a competitive position in the world market (Guangzhou CCM Chemicals' Report 2006).

Patwardhan et al (2005) believe that traditional alternative medicines have been inconsistent in the production of composition of botanical medicines. If, on the other hand botanical preparations meet the standards and quality of procedures and markers, then it would have wider acceptance among Western clinicians (Patwardhan et al 2005). The fact that about 80 percent of the developing countries' population depend on traditional medicine for primary health care according to the World Health Organisation only means that the practice of traditional medicine is worldwide and require guidelines for standardisation and consumption before its widespread to other nations will be realised. Already, countries like the US, UK and Germany have set standards of practice among professionals even though the government and officials are still considering its inclusion in the mainstream health care scenario (Goldberg, Trivieri and Anderson 2002).

3.3 Online TCM

Owing to the wide popularity of natural healing, the Western population has become obsessed with information on the natural approach to treating ailments. For this purpose, they turn to the Internet for information on herbal medicines, CAM and alternative treatments and therapies. Choinski and Fuller (2000) are of the view that there are a wide variety of commercial and non-commercial websites on the Internet on herbal medicines designed to cater to all sorts of information seekers and users. The Internet, according to Fan (2008) is being used to share information, to sift through information for quality and accurate data on CAM. TCM websites have been set up and can easily be found online through a simple Google or Yahoo search to facilitate information relating to herbal medicines, therapies, acupuncture, and Qigong. However, Fan caution that a number of websites may or may not be reliable with many having redundant and inaccurate information. The consumer has no way of verifying such information except by the authority of the practice. In the US the verifying authority of CAM is done through The National Centre for Complementary and Alternative Medicine and the National Institutes of Health. In the UK, it is the Research Council for Complementary Medicine and Association of Traditional Chinese Medicine (UK).

The most important aspect of online TCM usage is how to evaluate the credibility of the websites. Fan recommends checking for credibility, accuracy, reasonableness and support for information provided on the website. Other aspects to consider include the supporting authority of the medical information; government or institutional associations; research foundations; and soundness of the medical information (Fan 2008).

Furthermore, information seekers need to understand that medical information is sensitive and require careful and safe use. Herbal remedies may seem harmless but in fact they have as much harmful effects as clinical medicines. Risks relating to pregnant women, breastfeeding mothers, children and elderly apply. It is for this very reason that the UK government is still considering its regulations and designing legal framework for monitoring and controlling the industry. TCM especially, according to Medicines and Healthcare products Regulatory Agency (MHRA) may pose health risks and after-effects due to poor quality. Check for licensing, and legality must be carried out before TCM information, advice or methods are adopted by the lay consumers (MHRA 2004).

At the same time, while authentication and credibility may be checked, users have no way to gauge the type of information provided on websites. One of the dangers is misinformation or incorrect use of medical information which can be harmful to a public who are still unaware of herbal traditional medicines. As Owen (2002) has noted, even the most credible web sites have problems of authentication of information such as background, authors, and web content. This forces one to question whether the Internet is a stable place to find out about TCM in the first place. According to Graham (2001), with the staggering number of websites, databases and portals on the Internet for medicines, it is difficult to judge the authenticity of the information provided and appropriate for the information seeker's need. What consumers can do is compare web sources with one another, re-evaluate the sources of information, and to double check with established medical institutions like the CAM NHS. When considering online consultancy however, services must be validated with licensing and training certification for practice (Graham 2001; Kiley 2003).

3.4 Drop-shipping Method

A drop-shipping process follows that after the customers place the orders online at the company's website, the company shall collect the orders and send them to the wholesaler for delivery. The product is then sent directly to the customer. The custom duties and delivery charges are then paid by the wholesaler or supplier. At the end of the month, the wholesaler shall issue an invoice to the retail company (Herbalist in this case) for claiming their delivery fee (See Appendix 3).

Drop-shipping delivery system is getting popular among online retailers today as well as physical stores due to the convenience they provide to the retailers. The retailer can save on cost of inventory, and do not require a physical storage facility. The customers on the other hand avail the product from an online catalogue list or information provided by the website. The order is immediately fulfilled because the customer is directly linked with the manufacturer/wholesaler (Klein 2009).

Drop-shipping method is used by a majority of online retailers such as Amazon.com and Overstock.com which require little or no initial investment in inventory. Moreover, there is no shipping involved yet the seller can engage in the wholesale and retail supply chain management activities. It also saves the company from engaging extra employees for sourcing and mailroom delivery. Instead, it helps free employees for other duties. The seller benefits from the difference in the cost of delivery and price of the product sold ("What is drop shipping?" 2009).

There are however some of the considerations for drop-shipping mode of delivery:

- Type of wholesalers

- Legitimacy of wholesalers

- Monthly fees clause

- Demand for product to niche market

- Drop-shipper's method of shipping such as FedEx, UPS or DHL which provide consignment tracking facility

- Distribution policy of defective or product returns ("What is drop shipping?" 2009)

4.0 Market Research for Demand for Chinese Health Supplements in the UK

4.1 Market Research

A market research is a systematic process of inquiry of specific target market with reference to the product that is being offered. The research is a step-by-step process and requires data gathering activities. Data can be from secondary or primary resources, but the objective the market research should be to aid management decision (Cooper and Schindler 2005):

There are various methods for carrying out market research including qualitative research which involves the use of secondary data from credible sources to aid decision makers while quantitative research involves the use of statistical information to gauge the market conditions (Dawson 2007). In this report, the researcher shall adopt a combination method of qualitative and quantitative to comprehensively understand the patterns of growth and demand of TCM online and within the UK. The literature review above forms the framework for understanding the nature of the product while the next sections shall study the trends and demand for TCM.

4.2 Secondary Research of Demand for TCM

According to a consultancy report on TCM, China's medical industry is rapidly developing since the 1990s. The total value output in 2005 amounts to €11 billion with the majority of the exports 240,000 comprising of herbal medicinal raw materials or packaged medicines (Kaiser 2007). These figures are complemented by the use of traditional medicine by consumers in developed countries.

Traditional medicine is used widely in developing countries for various causes of illnesses. According to a World Health Organisation's report (2002), CAM consumers in Western countries are rapidly increasing. Statistics indicate that in developed countries nowadays consumers are increasing too with 46 percent in Australia, 49 in France and 70 percent in Canada. In Switzerland, 46 percent use CAM for homeopathy and acupuncture treatment while in the UK 40 percent of allopathic practitioners refer consumers to CAM for treatment (WHO 2002).

The global market growth rate of TCM is estimated to be over 12 percent per year and approximately € 42 billion in value in 2003 while the market is expected to increase to € 79.5 billion in 2010. The major usage and treatment include lifestyle maintenance, health and ageing improvement, treatment of mental illness and preserving health condition. Moreover, statistics show that one in every five British people use TCM for treatment (Kaiser 2007). Outside Asia, UK is the biggest market for TCM with an annual growth rate of 20 percent a year and sales amounting to £150 million (Business China 2005).

The traditional health supplements market can be segmented into dietary supplements and vitamins. The largest markets for TCM are US, Europe, Japan and Latin America especially the dietary supplement sales increase gradually with nutritional supplements including vitamins, carotenoids, and additives. The highest consuming supplement is Chinese vitamin C which although have a large competitive market but is being consumed by various consumers around the world. Second to this category is infant formula for paediatric nutrition which account for three quarters of the industry's sales. Similarly sports supplements, fitness medicines and health enhancing supplements are widely used across the globe. The primary consumers for sports medicine are teenagers which account for 30 percent of growth in 2008 (A&M Mindpower 2009).

The general trend is that the global supplements market is growing stronger which will be the cause for driving sales of the industry according to A&M Mindpower (2009). By geographical division, North America is the highest consumer of nutritional supplements which account for 8.4 percent growth rate while Latin America is growing in demand for vitamins. Europe is the largest segment for dietary supplements while Australia is the largest market for nutritional supplements and complementary healthcare products. South East Asia is considered to be the consistently growing market with expected growth of 10 percent each year with concentration of consumers in Malaysia, Indonesia, Thailand, Vietnam, the Philippines, Brunei, Cambodia, Laos, Burma and Singapore (A&M Mindpower 2009).

Although thousands of consumers take Chinese herbal supplements and medicines, people are still cautious of its purchase and consumption. One of the reasons is that it is different than Western medicine with differences in labelling, packaging, and nutritional contents. In particular health supplements are difficult to read because one needs to understand the principles upon which the Chinese health supplements work - by creating a balance of the body between yin and yang, qi and blood. These elements are considered to be integrated in the five yin organs, six yang organs and twelve meridian systems, and balance between the body and environment. These principles are confusing for Western medicine consumers who are more used to labels prescribed by the authority and health practitioners. For example TCM ingredients are classified according to the herb groups, namely monarch, minister, assistant and guide. These groups determine whether they can be used together for synergistic effect or individually. As a result, precautions are often listed on the drugs of potential adverse reaction. However, the principles upon which TCM work are confusing for the readers, and cannot interpret why manufacturers caution the consumers so (Chung 2009).

Nevertheless, TCM have historic culture of cure and remedies which outperform clinical medicines as they do not only cure symptoms but also long and chronic illnesses to prolong the survival period of users. But perhaps the most important aspect that attracts consumers is that TCMs are less expensive than Western medicines produced for underdeveloped regions and poor populations of the world. When offered in the Western market, TCM demonstrate attractive options for consumers who cannot afford clinical medicines (Chung 2009).

With the number of registered practitioners exceeding 1000 for both traditional Chinese and Western medicines, and over 3000 clinics in the UK, consumers are convinced that herbal remedies are more effective and as trustworthy as Western remedies. The only reservations which are hindering the progress and integration of TCM into the mainstream health care facilities are the concerns for toxic herbs and quality control in TCM production. However, with EU directives and the UK's legal framework TCM is expected to even surpass these obstacles (Business China 2005).

4.3 Primary Research of Consumer Profile

To study consumer profile, the researcher has devised a survey questionnaire (See Appendix 4). The researcher has discovered that the TCM consumers fall under the age groups of 35-40, 41-50, and 51- 60 who have high income and are health conscious. The majority of the population is female who have passed their middle-age and tend to suffer from different kinds of health issues such as menopause bald head and weak sexual function. The offer for an alternative mode of health care is attractive as 79% of the interviewees said they would try the Chinese Herbal Supplements and among those 76% interviewees, 75% are female and are aged from 35 - 60. Out of the total, 70% of the interviewees have some minor health issues such as menstrual period pain, headache, bald head, dry cough and skin problems for which they are willing to use Chinese herbal supplements. Most (60%) would prefer capsule form of herbal supplements while the rest 40% are willing to try the natural herbs in their raw form. When questioned about their preference for shopping online for Chinese health supplements, the majority of the female 70% prefer to shop online due to its convenience, ease of access, and time saving. However, some 30% demonstrate reservations for online shopping because of the risks involved in it. They explained the threats of credit card frauds, illegal medicinal distribution and lack of guarantee for products on sale make them hesitant in purchasing TCM online. If, these elements are absent, then they are willing to try TCM.

The responses from the participants indicate there is a ready market for TCM who are individuals busy with work, and do not have time to go out for shopping for it in the brick and mortar establishments. Instead, they turn to online resources for accessing alternative health options. Herbalist shall be a good option for this type of consumers who want to save time, efforts and health.

5.0 Sourcing of Chinese Health Supplement in Hong Kong

5.1 Hong Kong as the Supplier

China is a rapidly developing country with government making efforts to open its markets to the world and meeting surging global demands for its products and services. Even in the healthcare industry, the Chinese government is making efforts to standardise and levy control measures on its medicine and pharmaceutical industries which previously have been lacking. With market liberalisation, Chinese companies are realising the importance of going with the flow to compete with global companies. Hong Kong as part of the People's Republic of China is a commercial and scientific hub and channel of distribution for China to the Asia Pacific region and elsewhere (Chinacir 2009).

As the TCM industry in China expands, the national industrial policy is expected to encourage the TCM industry towards hi-tech products through investments. According to a Chinacir report (2009) the years 2009 to 2012 are critical for the TCM industry in China as it is undergoing its 12th Five Year Plan to battle the global financial crisis as well as re-evaluation of positioning the industry. The strategy is to expand and promote the demand for TCM in the global market to increase demand and support economic growth. To do this, TCM industry in China will have to be developed to meet consumer requirements and demands (Chinacir 2009).

One of the most important developments that have taken place is the modernisation and integration of TCM in Hong Kong. China has established Hong Kong as its TCM export zone as well as processing of its products. In Hong Kong the clinical practice of traditional Chinese principles is prevalent and complementary to Western medicine for a long time. For this reason Hong Kong has sustained leadership position in scientific and evidence-based research of modern TCM, integrative health promotion and treatment, products based on clinical experience and advancement in pharmaceutical preparations and formulations of TCM (Chinese Medicine Council of Hong Kong 2001).

As Asia's most popular city for business and international offices, Hong Kong is considered autonomous than other Chinese cities with proper legal and business frameworks. This is why Hong Kong has proven to be ideal for medical and technological research centres with universities specialising in Chinese medicines and world class medical and bio-engineering facilities. Moreover, Hong Kong has been operating in a global environment for a long time with regulatory framework that ensures safety, quality and efficacy of TCM products according to the professional standards practiced in Western countries. Issues of intellectual properties, as well as quality standards for production and outsourcing are followed. Unlike China, Hong Kong companies are well-versed in global business practices like brand-building, marketing and logistics (2010 Index of Economic Freedom 2010).

5.2 Drop-shipping method

For Chinese health supplements www.eresources.co.uk is a good source for checking out drop-shippers who offer retailers this facility. Based on their framework, the researcher shall then establish his/her own drop-shipping relationship with the Hong Kong supplier for distribution in the UK. This resource shall be valuable for the researcher as it shall provide the basis for online business framework for operating Herbalist website.

6.0 Review of Legal Issues

6.1 Medicinal Law

TCM is still considered to be unsafe by UK medical standards. According to Medicines Control Agency, Chinese medicines have toxic ingredients such as mercury, arsenic, carcinogen, steroids and herb toxicity which can harm body organs when ingested on a regular basis for a long period of time. The MCA has therefore compiled a longer list of banned ingredients in Chinese medicines in an attempt to curb health hazards (BBC 2001).

Despite this fact, the MCA does not discourage the use of Chinese medicines. Instead, in its guidance the MCA claims it "work closely with trade and practitioner associations... [to promote] improved standards of safety and quality in the ethnic medicines sector." (MCA 2001). Sellers however have to consider Guidance Note 8 of the MCA on how to label, package, and acquire licensing for legitimately selling products in the market. The product should comply with Section 12 of the 1968 Medicines Act as well as European laws pertaining to sale of medicines. The remedies according to the law should not contain non-herbal active ingredients; must be accompanied by recommendations for use in the absence of a consultant; and must specify under what process it has gone through. Furthermore, the language of the instruction should be clear and in English for the general consumer to understand (MCA 2001).

The restriction of certain herbs made available only through medical practitioners such as Digitalis, Nux Vomica, Aconite, Croton Seed and Rauwolfa should be considered before offering to the public as herbal remedies. There is a list of restricted herbs which should be considered by sellers (MCA 2001).

On the other hand, the researcher shall also have to be careful about the Hong Kong medicinal law which is implemented by the Hong Kong Government. The Preparatory Committee on Chinese Medicine in 1995 has been formalised to recommend to the government the appropriate promotion, development and regulation of Chinese medicines produced and exported from Hong Kong. The Preparatory Committee adopts regulatory control of Chinese medicines through accreditation, regulation, registration and examination of Chinese medicine in Hong Kong for the protection of public health as well as to regulate practice, trading, and practice (Chinese Medicine Council of Hong Kong 2001).

Moreover, the Preparatory Committee operates on the government's policy on Chinese medicine under Article 138 of the Basic Law of Hong Kong Special Administrative Region. To implement the Chinese Medicine Ordinance, a Chinese Medicine Council of Hong Kong has been established to regulate the practice of Chinese medicine practitioners, members of trade, academics, lay persons and government officials. The Council, established since 1999, has been a positive force for the Hong Kong government and population to streamline its Chinese medicine sector (CMCHK 2001).

6.2 Company Law

The company shall have to obey and comply with the UK company regulations called Electronic Commerce (EC Directive) Regulations 2002 which has implemented the EU's E-commerce Directive into the UK law. This law covers most of the e-commerce mandates to clarify the rules of online business, and to assure consumer confidence. The regulations will help guide the researcher to define the services provided, the application of the law to country of origin, and consumer contracts. The EC Directive however does not cover dispute resolutions which are tricky for web based organisations (Outlaw.com 2008). For this reason the researcher has established terms and conditions for Herbalist for dispute resolutions

Secondly, the researcher needs to integrate a programme for Public Liability Insurance for covering any cost payable due to accident, body harms and illness caused to the employees on their jobs.

Thirdly, the company needs to operate according to the Food Safety Act as the company is selling consumption products. The company needs to register with the Cardiff City Council at least 28 days before the start of the business with no charges.

7.0 Promotional Strategy (Business Plan)

7.1 Online Business

The UK electronic business environment is considered to be one of competitiveness and knowledge-driven. According to Al-Qarim (2006), the government has laid targets for progressing UK businesses online through a comprehensive legal, regulatory and fiscal framework. Especially, the government has emphasised on encouraging small to medium enterprises to participate in the programme for setting up e-business through cost, security and fair transaction environment (Al-Qarim 2006).

This has a positive implication for online TCM businesses which are small enterprises relying on cost-effective supply chain to achieve profitability. Unlike full fledge organisations, SMEs rely on the infrastructure provided, services that has to be offered, physical storage, processing of transactions and business intelligence for facilitating critical information for support and operations (Chaffey 2003). These aspects provide good opportunities for Herbalist to set up an online business. The following business plan reflects these aspects and the research carried out in the previous sections:

7.2 Business Plan

Name of business: Herbalist Ltd. Co., the Professional Chinese Herbal Supplement Online Store

Business Address

Home address

Postcode

Telephone number

Date business to commence

Legal status

Principal activities: Selling Chinese pure herbal supplements online to UK consumers through drop-shipping method.

7.2.1 Short-term objectives

To set up and operate an online business website which offers traditional Chinese health supplements to UK online consumers through drop-shipping method, and gain profitability therein.

7.2.2 Medium-term objectives

To promote and sustain the reputation of Herbalist among consumers as the brand of trust for Chinese herbal supplements by sourcing quality raw materials from the manufacturers in Hong Kong to UK consumers. In the beginning the aim is to target consumers within the UK with room for expansion in the future.

7.2.3 Long -term objectives

To promote the goodness of traditional Chinese herbal supplements among Western consumers in the UK.

To locate suitable new sites and operate a moderate expansion programme, opening one purpose built site per year.

To establish Herbalist as a brand synonymous with trust and assurance for consumers in the Western markets.

7.3 Key Personnel

Herbalist shall be a limited company with mainly online based operation. The total number of workers in the company shall be 7 including the owner. The researcher/owner shall be managing the operation himself/herself with the intention of recruiting additional staffs for support. The researcher shall be responsible for the planning, coordinating, delegating, monitoring and promotional activities of the website. Two website technicians shall be employed for managing the website. A full time Chinese herbal practitioner shall be engaged to work with the owner and supplier in providing advice and recommendations for remedies.

Three part-time helpers shall work on shift basis to provide 24 hours customer service support. The technicians shall first be briefed in herbal medicines, its usage and remedies by the practitioner so that they can provide accurate information on the website. They shall telecommute to work and get their job duties through instructions from the owner on a regular basis. Requirements for Outlook and functions of the company's website shall be their chief duties delegated in the oral and written form. Support staffs shall not require training as they will only be handling email queries, the information of which shall be provided through briefings on a daily basis.

The website technicians shall be employed through the government recruitment centre as this is the cheapest recruitment method, while the Chinese practitioner is a friend of the owner. The three part-time helpers will be recruited through email circulation to all university students enrolled at UWIC, the list of which shall be acquired from the tutor of different courses.

7.3.1 Salary/Drawings

As the owner and the Chinese practitioner shall be the main players in the company, each shall have the following drawings for the year:

Owner: £4,000 per month

Chinese practitioner: £3,000 per month

Staff salaries shall be as follows:

2 x full time technicians £6 per hour x 7 x 5 days = £ 210 per week

3 x part time support staffs £5 per hour x 8 x 7 days = £ 280 per week

The company shall pay its staffs weekly while the owner and the Chinese practitioner shall draw their salaries on a monthly basis.

7.3.2 Contingency Plans for Key Personnel Shortage

In case of shortage of staffs, then the owner shall replace the absentee employee. The owner shall also be getting some training on website maintenance through an online course so that in case of technical staff shortage, he/she can take over and resolve minor issues. The owner shall therefore act as a temporary all-rounder employee. Since Herbalist shall be an online based company, operation is expected to be relatively easy in navigation even during emergency shortage of staffs.

7.4 Business premises

Although the company is holistically an online based operation, it shall maintain a small functional office for the staffs to gather and work. At the beginning when the number of staffs is small, the researcher has established a free room in the house as the office area. This shall minimise the cost of rent as well as the necessity of licensing for the premises. There is no requirement for choosing a location of the place either because the operation can be carried out at any locality. However, with time when the business expands, the researcher hopes to expand the enterprise to a formal office with proper equipments and facilities for the staffs to carry out their duties effectively.

7.4.1 Competitive advantage of home based business

This form of location shall be beneficial for the owner because it provides the owner with the opportunity to work in a safe environment yet enjoy the full freedom of operating a business without constraints of physical presence. This shall minimize the start up cost of building which usually forms the bulk of the investment expense in most fledgling organisations.

7.5 Products and Services

7.5.1 Products

Herbalist is an online business which offers web-based services along with its herbal products. The products shall be listed in catalogue form of raw herbs for menopausal problems, headaches, sexual function, flu, and energy. The products will be listed with prices, details of ingredients and whether they have been processed or not shall be included. Details of remedies, advice on use and caution shall also be included so that the consumer can determine which product to purchase. Apart from these, the owner also shall put up a disclaimer on the health consequences, side effects, and results of misuse on the website so that the consumers are aware of their choices. Information on shipping, courier services, and timeframe for delivery, where it is sourced (Hong Kong) shall also be included on the website. This would be helpful for consumers to estimate the time for receiving the product, and minimise complaints. Mode of payments, terms of refunds policy and returns shall also be listed with easy to navigate links to clarify any situation that might create confusion.

7.5.2 Purchase Process

The process of purchase shall entail the customer visiting the website. There shall be a list of products with identification code for reference. Clickable "buttons" shall be graphically integrated to facilitate user to immediately click on product details. Once the customer has chosen the product, he/she will be taken to the payment page, which is a linked page to the e-commerce merchant customised page, where the customer shall provide payment details and product reference. Once this is completed, a receipt shall be sent to the given email address by the customer. The customer has to confirm through this email before the order is considered genuine. The customer shall further be notified to the delivery time, mode of communication in case of non-delivery, and consignment number. This information is also sent to our drop-shipper who is sourced in Hong Kong who shall note the order to make it ready for delivery. The order is then ready for delivery.

7.5.3 Customer Service

In case the customer wants to have more information on the product, then the services of the Chinese practitioner shall be offered with certain consultation fee depending on the nature of the query. The queries shall first be filtered through the customer service representatives and then forward to the Chinese doctor. This way general query can be screened and answered immediately to the customer.

If the customer is having problems of receiving the product, damaged package, or wrong delivery, then the 24 hour customer support shall be present for clarification and speed up the process. The ultimate aim of the customer service support is to ensure that the customer is happy whenever they visit the website regardless of the fact whether they purchase a product or not.

7.6 The Market

As identified in the market research section, Herbalist's market comprise of females falling in the age group of 35 to 60 years who have high income and are health conscious. The majority of these females tend to suffer from health issues related to menopause baldness, weak sexual function, skin problems, menstrual pains, and lethargy etc. Chinese herbal supplements prove to be an attractive way of remedying these problems as it does not involve a lot of time and health consultancy. Moreover, these individuals are keen on getting the products delivered to their homes because they are not bothered about shopping from the local markets.

Although, the majority of the participants surveyed are females, males are also interested in TCM for which they can opt for Chinese herbal supplement for remedying sexual libido, skin problems and so on.

Furthermore, the market surveyed includes Western customers living in the areas near Bristol but the website shall cater to consumers who may reside in other geographical areas in the UK and in other parts of Europe.

7.6.1 Unique Selling Point

As established earlier, Herbalist is unlike traditional online distributors and wholesalers who merely list their products for retailing. Instead, Herbalist shall focus on raw herbs which can be bought and consumed directly without any chemical processing. The advantage of selling raw herbs is that there are no ramifications of chemical after effects which cannot be said of the powder or capsule form of TCM.

Although the majority of Herbalist's products shall be for female consumers, it shall also cater to the male population. Nevertheless, the marketing strategies and promotional activities shall be focussed on female consumers between the age brackets of 35 and 60 years. This will make it easier for the company to concentrate on the message it wants to convey to the audience (customers) during promotions.

7.6.2 Potential Customers

Herbalist shall concentrate its promotional activities on online consumers who may from any place in England. It shall engage in physical promotions at Bristol mainly as well as online. This is because according to its neighbourhood profile, the Bristol population's family profile is quite attractive with high education level and income level that would be willing to spend on alternative medicines. Most of the population demographics are well educated with developed or developing careers and managerial jobs. They lead busy lifestyles, and are more Internet-savvy as well as have stable financial status to shop freely for things of their choice. They engage in sports and exercise activities, and therefore more health conscious. This population profile is highly lucrative for Herbalist's consumer profile and promotional strategy (Up My Street 2010).

A definite estimate of the number of Bristol TCM consumers cannot be gauged but the owner expects to have a ready-made online market. Bristol has a rising population trend from natural growth as well as increased in residents through migration. This rate of change reflects positively on the potential of Herbalist's consumers. Even if 1% of the 15,000 female population of Bristol are attracted to the marketing strategies adopted by Herbalist, it will make a ready consumer base of 150 people. This is the population which comprise of middle age to old age women who are working individuals with high income with health ailments easily cured by Chinese herbal supplements. This is a conservative figure for Bristol only which the researcher has estimated. The owner expects a higher figure when including male individuals, and females from other areas of England (See Appendix 5).

7.7 Promotional Activities

To promote Herbalist's products, the owner shall engage in the following promotional activities:

7.7.1 Physical location promotional activities

The researcher shall install free-stand stalls around the UK's major malls with provision for free face-to-face consultation with a Chinese herbal doctor. This way the consumers will have direct interaction with a certified member of the company. This will help increase the credibility of Herbalist.

Free face-to-face consultation shall be provided to visitors for a limited time only for each area or mall that the company establishes. The sessions can take place in mobile consultation room inside a van which will provide privacy and encourage customers to experience TCM through methods other than consumption.

At these stalls, leaflets about the benefits of Chinese herbal supplements, the philosophy of Herbalist and promotional discount codes to be used in the company's website shall also be distributed.

To create awareness, the researcher shall invite famous magazine editors such as Elle, Marie Claire and Cosmopolitan to interview the owner and the Chinese herbal doctor to write about the company's products and benefits of Chinese herbal supplements.

7.7.2 Web promotional activities

For its online web promotion, the researcher shall establish chat rooms, forums and email consultation services to customers at the initial stages. This is an interactive form of communication between customers and the company especially for scoping potential customers who are web users. Through communication, the company can get the most updated information of the needs and wants of its customers as well as build repute with the potential customers. This is a good way of profiling and forming a consumer base for Herbalist.

By using social network websites such as Facebook, blogs, LinkedIn, and Orkut etc., the company shall establish awareness of its presence, the benefits of TCM, and thereby create a fan-following for its products. On a regular basis email questionnaires to email users from databases shall be sent out. Prizes shall also be allocated to the fulfilment of questionnaires to encourage online users to try out Chinese herbal products for free. This shall accomplish the dual purpose of creating awareness and try to encourage them to use the product at no price paid.

7.7.3 Print Promotion

To reach to the individual market population, the company shall use classified advertisements in newspapers and magazines to introduce the product. After this "launch" the other promotional activities shall be adopted to help boost the website's presence.

7.7.4 Other promotional activities

Marketing strategy with a larger cost of promotion will be used at the beginning of the business; this will make sure that the products are positively known to the public.

Also, to encourage the public to try the products, each customer is entitled to a 15% discount for their first purchase on the website.

To encourage customer loyalty the company shall maintain a database with full history of what the customers have purchased each time, and allow them discounts on repurchase through a check of their purchase records on their next visit. This method does not cost anything but it helps to increase customer loyalty.

The company also aims to constantly introduce new products on the website and make sure they are products that the customers want. This strategy only involves time investment in studying consumer profile and preferences but not in inventory.

7.8 Suppliers and Credit terms

Herbalist shall adopt the drop-shipping method which shall connect the consumer directly to the supplier in Hong Kong. At the moment the company is working on the choice of supplier which Herbalist shall choose from www.eresources.co.uk. It shall maintain relationship with only one key supplier at the beginning and gradually expand to other credible Hong Kong suppliers. The reason that the researcher has chosen to affiliate with a Hong Kong supplier because Hong Kong, according to the above research, is one of the most stable economies in the world with the potential to grow even further. It has a solid infrastructure with proper legal framework. It is expected that Hong Kong shall complement the UK infrastructure and provide an easy to understand business environment for operation.

Moreover, by maintaining one supplier with limited credit terms, Herbalist would be able to establish credibility with the supplier as well as with the consumers in the beginning. The easy to understand terms shall form the basis for operation but more importantly to ensure that the owner follows up with the supplier's terms easily when dealing with customer support and tracking orders. In the future, the owner expects to renegotiate the terms to extend credit terms and discounts, which will reflect positively on the profit margins.

7.8.1 Return and Refund Policy

At the beginning the owner shall rely on the return and refund policy established by the supplier which is also the drop-shipper. This shall be made available for the customers on the website. The terms are as follows:

Delivery time

Due to the international nature of the operation, the delivery time shall be long - 15 days -which is normal for parcels delivered to customers through normal delivery to international destinations. If the customer wants to speed up the process, he/she can opt for faster courier service through DHL e-shipping service which offers package delivery to various destinations around the world. This will be costly for the customer but effective and on time (DHL 2010).

Returns

The company allows 30 days turnaround time for return for damaged packages or wrong orders, which shall take another 15 days for delivery again. The customer however has to notify through the website to the owner immediately of the return so that they will not be charged for delay due to retention of the product at the customer's end. The company shall deliver the package free of cost to the customer and a discount of 10% if the company has proven to be at fault in delivering the wrong package. If the package is on the other hand damaged due to mishandling during freight, then the insurance shall cover the cost for the damage which the company shall offer to the customer by way of compensation and discount.

Refund

When the customer is not satisfied with the product for example the herbal supplements prove to be non-effective to provide the stated remedies, then the customer has the full right to a full refund. However, this shall have to be proven by the Chinese doctor who will first establish that the customer has followed the instructions as stated in the label and according to the advice of the practitioner. Any dispute arising out of this type of refund can also be resolved by the assignment of a Chinese practitioner at the customer's end to ensure that both parties are cognisant of the rightful usage of the herbal supplement.

7.9 Basis for Pricing

Since Herbalist is adopting a drop-shipping method, there is not much margin in it for the owner to negotiate except on high turnovers. What the owner shall rely on is the delivery charges and the wholesale price of the supplier. This shall not be difficult to determine because wholesale prices for Chinese herbal supplements are cheap. However, consideration for VAT and custom duties shall also be levied on the product pricing. For example:

Wholesale price of herb A: £ 5

VAT 17.5%: £ 0.875

Delivery charges per unit: £ 12

Total selling price of herb A: £17.87

8.0 Financial Forecast

8.1 Star-up cost

The estimated start-up cost for Herbalist is £50,800

8.2 Owner's contribution

The owner shall contribute towards the business by including two used laptops and packages of mobile wireless broadband with dongles, and some amount from the owner's inheritance money:

2 Used Laptops worth: £1,000

Wireless Broadband: £ 60

Inheritance money: £ 5000

Total owner's contribution: £ 6,060

8.3 Loans

The company shall be raising a business loan from Hong Kong Shanghai Bank for the rest of the funding for the business. The finance raised is expected to contribute to the salaries of the employees for the first three months of the business and the purchase of the mobile van. It shall also be used to the purchase of office equipment and website maintenance fees.

8.4 Financial Projections

Projected Income Statement for Herbalist Co. Ltd.

£ 2010

£ 2011

£ 2012

Receipts/Cash in:

Projected Sales[1]

36,000

39,600

39,960

Owner's Investment

6060

6000

6000

Loan

30000

0

0

TOTAL INCOME

72060

45,600

45,960

Payments/Operating Costs:

To Suppliers

9000

9900

10890

Wages

25480

25480

25480

Telephone

60

60

60

Insurance

300

300

300

Motor Expenses

500

500

500

Bank Loan Repayments

1500

1500

1500

Bank Charges

100

100

100

Advertising

1500

0

0

VAT 17.5%

6300

6930

7623

TOTAL PAYMENTS

44740

44770

46453

NET CASH OUTFLOW/ INFLOW

27320

830

(493)

OPENING BANK BALANCE

0

27320

28150

CLOSING BANK BALANCE

27320

28150

27657

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Balance Sheet for Herbalist Co. Ltd. as at December 2010

Fixed Assets

Historic

Accumulated