Potentiality of Danes Coffee in Doing Business in China
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This report discusses the potentiality of Danes Coffee in doing business in China, including the challenges and opportunities they may face. It also provides recommendations for long-term sustainability.
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Running head: GLOBAL MARKETING Global marketing Name of the student Name of the university Author note
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1GLOBAL MARKETING Executive summary The aim of this report is to discuss about the potentiality of Danes in doing business in China. In this report, the challenges and opportunities that to be faced by Danes in doing business in China are being identified and analyzed. It is identified that by operating in China, Danes will gain huge market opportunities by means of market size. On the other hand, they are about to face strict and unfavorable political environment in China. In addition, this report also discussed about the potential industrial competitiveness in China and it is identified that they will face higher level of competitiveness. Based on the identified factors, this report recommended a few steps and strategies that can help Danes in gaining the long term sustainability in China.
2GLOBAL MARKETING Table of Contents 1. Introduction..................................................................................................................................3 2. Identification of the host country.................................................................................................3 3. Determination of the external environment.................................................................................4 3.1 Political environment.............................................................................................................4 3.2 Economical factors................................................................................................................5 3.3 Social factors.........................................................................................................................7 3.4 Technological factors.............................................................................................................7 3.5 Environmental factors............................................................................................................8 3.6 Legal factors..........................................................................................................................8 4. Determination of the industrial competitiveness.........................................................................9 5. Recommendations......................................................................................................................10 6. Conclusion.................................................................................................................................11 7. Reference...................................................................................................................................13
3GLOBAL MARKETING 1. Introduction Inthecurrentbusinessscenario,itisnotenoughforthecontemporarybusiness organizations to operate within the national boundary. This is due to the reason that increase in the competition is posing challenges for the business organizations and reducing their viability in operating within the domestic circuit. In this case, business firms are opting for foreign market operations in order to increase their market size and business revenue (Coeurderoy & Murray, 2014). Moreover, the recent surge in the globalization is also contributing in pushing the concept of foreign market operations for the business firms. However, on the other hand, there are number of factors should also be considered by the investing firms in selecting the host country for operation. These factors will be influencing in the long term viability of business operation in the host country. Danes Coffee is one of leading boutique coffee manufacturersand brands in the Australian region. They are founded in 1994 by Paul Jackson in changing the way, coffee was tasted. Currently, they are having their operations across the country and offering good varieties of coffee both as wholesale and retailers. However, they are already well established in the Australian market and should now look out for new foreign locations in order to increase their presence. This will also help them to global identity, which will act as their competitive advantages in the long term (Clark, Li & Shepherd, 2018). This report will discuss about the potentiality of Danes Coffee in doing business in the foreign country. In addition, a potential foreign country will be selected for Danes Coffee as their host country and key external factors will also be discussed using the PESTEL framework. Porter five forces analysis will also be done to identify the competitive forces to be faced by Danes Coffee in operating in the host country. Based on the factors to be identified, a few recommended steps will be discussed. 2. Identification of the host country It is recommended that China will be the most potential country for Danes Coffee for their foreign business operations. This is due to the reason that China is the largest country in the world in terms of population, which poses huge opportunities for Danes Coffee. In addition, the cost of operation and manufacturing will also be low in China (Chow, 2017). This is due to the
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4GLOBAL MARKETING reasonthatChinaisknownforcheaphumanresources.Thus,DanesCoffeewillgain competitive advantages in terms of lower cost of operation. China being an Asian country is having the popular culture of tea and coffee consumption, which will also offer enough potentiality for Danes Coffee. Moreover, the strategic geographical location of China will also pose enough opportunities due to the reason that Danes Coffee will be able to tap the emerging South Asian countries (Ansar et al., 2016). Thus, it can be concluded that China will be most perfect choice for Danes Coffee in terms of their foreign market operations. The following section will discuss about the key external factors to be faced by Danes Coffee in doing business in China and the major positive and negative factors will also be identified. 3. Determination of the external environment 3.1 Political environment The major challenge for Danes Coffee in doing business in China will be due to their political factors. This is due to the reason that China is having communist government with high level of interference in the private business operations (Zhong, 2015). The more will be the interference of the government, the more complex will it become for Danes Coffee to operate in the country. The scenario of political stability also does not hold favorable condition due to the fact that their score of political stability as per the global economy is -0.25, which is leading towards the weak political stability. This will also pose challenge for Danes Coffee in doing their business.
5GLOBAL MARKETING Figure 1: political stability of China Source:(theglobaleconomy.com 2019) However, on the other hand, there are few opportunities also be faced by Danes in doing business in the Chinese market. One of the major opportunities will be the gradual rise of China in the corruption index. It is showing that China is witnessing continuous growth in the corruption index since 2014. This is denoting that Danes will face lower intensity of corruption in doing business in China. The recent pro business approach being taken by the Chinese government will also help Danes to get necessary support and resources for their business (Cheung, Chung & Lin, 2016). However, it should also be noted that Danes will face more political issues in trading from their facilities of China because China is having diplomatic issues with many countries and not having good ties with them. Thus, Danes may face the restrictions of exporting from China. Figure: 2 corruption index ranking of China Source:(theglobaleconomy.com 2019) 3.2 Economical factors Economical factors are also important to determine due to the reason that economical factors will determine the monetary viability for Danes. It is reported that China is the leading
6GLOBAL MARKETING country in the world in terms of the growth of national economy. Thus, the huge growth being witnessed by China will be beneficial for Danes to increase their sales volumes and revenue. The rate of inflation is also reducing in the Chinese region, which denotes that Danes can have their products in most competitive prices (Cao & Birchenall, 2013). It is reported by the global economy that the rate of inflation In China is constantly falling since 2010 and it will help Danes to have the favorable purchasing condition from the side of the customers. Figure 3: fluctuations in the inflation rate of China Source:(theglobaleconomy.com 2019) It should be noted that above graphic is showing inflation rate in China and it is identified that fluctuations are evident. In this case, the major challenge for Danes will be to forecast the rate of inflation in the coming years considering the fluctuation based strategy. The internal market competitiveness is also high and will also pose challenges for Danes. This is due to the reason that the intensity of the competition is more in China than in Australia and thus Danes will face difficulty in gaining the market share (Findlay & Watson, 2013). According to the economic forecast of the international monetary fund, the economic growth rate of China will get slower in the coming years. Thus, reduction in the economic potentiality and growth will pose challenge for Danes in managing their business viability.
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7GLOBAL MARKETING 3.3 Social factors It is reported that coffee is set to take over tea as the most popular drink of choice. Thus, Danes is having huge market opportunities in the coming years. Considering the huge population in the country and coffee being the most popular drink will make Danes a profitable venture in China. It is also reported that the consumption rate of coffee in China is increasing by 20 percent, which is 2 percent higher as compared to the global rate. In terms of the globalization, the score of social globalization in China is rapidly increasing, which will enable Danes to offer their standardized products in China. Figure 4: Growth of social globalization in China Source:(theglobaleconomy.com 2019) However, on the other hand, it should be noted that China and Australia are poles apart in terms of cultural factors. Thus, cross cultural factors should be adhered by Danes in their Chinese business operation. For instance, the advertisements should be in accordance to the local cultural trends in China. In addition, Danes may face the challenge of different taste pattern of the customers and the Chinese customers might not like the taste of Danes. Thus, it is a challenge for Danes to design their products according to the Chinese social preferences. 3.4 Technological factors
8GLOBAL MARKETING Technology is a major determinant in influencing the operational efficiency and thus it is important Danes to have the access to latest technologies in doing business in China. According to the reports, China is rapidly growing in terms of innovation index and showing steep growth since 2013. This is denotes that Danes will have the access to innovative ideas and factors, which will further reduce their operational cost and increase the service efficiency. Danes will also have the advantage of selling their latest coffee products such as grinder and brewing machines in the country. However, on the other hand, it should also be noted that cost is involved in the development of the technologies and it is important for Danes to reduce the cost of development of technologies. China is a cost conscious country and hence, the initiated technologies should be cost effective and value for money for the customers. In this case, the existing higher end technologies being possessed by Danes in their Australian operation might not be successful in China. 3.5 Environmental factors Danes will not have direct environmental impact from their business operation but their sourcing policy should be sustainable enough. This is due to the reason that currently Danes is sourcingtheircoffeebeansfromcountriesanditisimportantforthemtoensurethe sustainability in their supply chain. The coffee cultivation is having environmental impact and Danes should ensure the proper management it. China is having number of environmental standards and regulations that should be adhered by Danes (Zhang & Barr, 2013). This includes carbon neutrality in the business operations. However, the major challenge for Danes will be the regulation of cost involved in initiating the environmental standards. 3.6 Legal factors There will a few challenges to be faced by Danes in terms of legal factors as well in China. It is reported that the regulatory quality in China is towards the weak section and this is due to the reason that government is the supreme power in the country. Private business entities are having limited access to regulatory assistances in their operation. Moreover, China is also known for number of stringent laws, which may be difficult for Danes to adhere.
9GLOBAL MARKETING 4. Determination of the industrial competitiveness Apart from the determination of external factors, it is also important for Danes to analyze the industrial competitiveness. This is due to the reason that the more will be the competitiveness in the industry, the more will be the challenges for Danes in getting foothold in the foreign country. Porter five forces analysis will be used in the following sections to determine the industry competitiveness. Bargaining power of the buyersï‚·Bargaining power of the buyers is high in the Chinese market. ï‚·Therearenumberofoptionsavailableforthe customers in the coffee sector. ï‚·However, point of differences is more in this sector and thusDanescaninitiatedistinctivenessbyoffering different value proposition (Tingchi Liu et al., 2013). ï‚·Product differentiation can help Danes in reducing the bargaining power of the customers. Bargainingpowerofthe suppliers ï‚·Bargainingpowerofthesuppliersismoderatefor Danes. ï‚·ExistingsuppliersfromtheSouthAmericanand African countries will be sued for sourcing (Gaudin, 2017). ï‚·Price of the materials will determine the end price of the products. ï‚·Probability of leveraging on the Chinese suppliers is low (Heese, 2015). Threat of new entrantsï‚·Threat of new entrants is moderate for Danes. ï‚·It is difficult for the new entrants to start the business in countrywide scale and match the operational expertise of Danes (Kasemset et al., 2014). ï‚·However, there are number of global brands or foreign brands same as Danes are willing to enter the Chinese
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10GLOBAL MARKETING market. ï‚·Entering in the market in small scale is easier and is having higher probability. Threat of substitutesï‚·Threat of substitutes is high for Danes in the Chinese market. ï‚·There are number of similar competitors operating in the market and offering similar value proposition. ï‚·However,customerloyaltyandbrandrecallvalue determines the threat of substitutes (Schwenger, Straub & Borzillo, 2014). ï‚·Switching cost is low for the customers and thus Danes shouldinitiatebrandingactivitiesinretainingthe customers. Competitive rivalryï‚·Competitive rivalry is more in this sector in China. ï‚·Eachofthebrandsistryingtogainthemarket leadership position. ï‚·They are trying to provide premium experience to the customers in lower cost (Converse & Reinhard, 2016). ï‚·Seasonal offers and benefits are being initiated by the brands to attract customers. Thus it can be concluded that industrial competitiveness will be more for Danes in doing business in China. However, it should be noted that each of the emerging countries currently is having higher industrial competitiveness but the huge market size of China will provide enough potentiality for all the players in gaining profits. Thus, the challenges to be faced by Danes in doing business in China can be adjusted by having the huge sales volumes in the country. 5. Recommendations ï‚·It is recommended that Danes should initiate direct exporting entry mode in entering the Chinese market in the initial stage. This will involve lower cost and risks for them. However, in the later stage, if the market potentiality is identified as favorable, then
11GLOBAL MARKETING Danes can also initiate direct investment in the country. Thus, the gradual process in entering in the Chinese market will be beneficial for Danes to regulate the risks involvement. ï‚·Itisalsorecommendedthattheyshouldpositiontheirproductsonthebasisof characteristics in the Chinese market. This is due to the reason that positioning on the basis of product characteristics will help Danes in aware the customers about the different taste of their coffee. This will enable Danes to initiate the differentiation strategy in doing business in China. ï‚·Market adaptable approach should be initiated by Danes in operating in the Chinese market. The promotional activities to be done in China should be in line to the local social preferences of the market. This will help Danes to get the further reach in the market and have deep market penetration. Brand recall value among the potential customers will also get increased. ï‚·They should initiate intensive distribution approach in selling their products in China. This will help in getting the products available in all the leading stores and hypermarkets in China and gaining more reach among the customers. Initiation of the intensive distribution strategy will help Danes to maintain the brand level by not getting available in any brick and mortar stores as well as getting more market exposure compared to the exclusive distribution. 6. Conclusion This report concludes that China is the most potential country available for Danes in terms of their foreign business operation. There are number of challenges and opportunities to be faced by Danes in doing business in China are being identified using the PESTEL and Porter five forces analysis. It is identified that economic growth and huge population size of China will be biggest benefits for Danes. The potential market opportunities in China will be beneficial for dames in fending off the other challenges. This report recommends that Danes should initiate direct exporting strategy in the initial stage and investment in the later stage. This will reduce their involvement of risks in operating in the foreign market. In addition, it is also recommended that Danes should have market adaptable approach to gain the maximum market penetration in China.
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13GLOBAL MARKETING 7. Reference Ansar, A., Flyvbjerg, B., Budzier, A., & Lunn, D. (2016). Does infrastructure investment lead to economicgrowthoreconomicfragility?EvidencefromChina.OxfordReviewof Economic Policy,32(3), 360-390. Cao, K. H., & Birchenall, J. A. (2013). Agricultural productivity, structural change, and economic growth in post-reform China.Journal of Development Economics,104, 165- 180. Cheung, P. T., Chung, J. H., & Lin, Z. (2016).Provincial Strategies of Economic Reform in Post-Mao China: Leadership, Politics, and Implementation: Leadership, Politics, and Implementation. Routledge. Chow, G. C. (2017).Capital formation and economic growth in China(pp. 1186-1221). BRILL. Clark, D. R., Li, D., & Shepherd, D. A. (2018). Country familiarity in the initial stage of foreign market selection.Journal of International Business Studies,49(4), 442-472. Coeurderoy, R., & Murray, G. (2014). Regulatory environments and the location decision: Evidencefromtheearlyforeignmarketentriesofnew-technology-basedfirms. InLocationofInternationalBusinessActivities(pp.226-260).PalgraveMacmillan, London. Converse, B. A., & Reinhard, D. A. (2016). On rivalry and goal pursuit: Shared competitive history,legacyconcerns,andstrategyselection.Journalofpersonalityandsocial psychology,110(2), 191. Findlay, C., & Watson, A. (2013). Economic growth and trade dependency in China. InChina Rising(pp. 119-145). Routledge. Gaudin, G. (2017). Vertical bargaining and retail competition: What drives countervailing power?.The Economic Journal,128(614), 2380-2413. Heese,H.S.(2015).Singleversusmultiplesourcingandtheevolutionofbargaining positions.Omega,54, 125-133.
14GLOBAL MARKETING Kasemset, C., Wannagoat, J., Wattanutchariya, W., & Tippayawong, K. Y. (2014). A risk managementframeworkfornewproductdevelopment:acasestudy.Industrial Engineering and Management Systems,13(2), 203-209. Schwenger, D., Straub, T., & Borzillo, S. (2014). Non-governmental organizations: strategic management for a competitive world.Journal of Business Strategy,35(4), 11-19. theglobaleconomy.com. (2019). Compare countries | TheGlobalEconomy.com. Retrieved from https://www.theglobaleconomy.com/compare-countries/ Tingchi Liu, M., Brock, J. L., Cheng Shi, G., Chu, R., & Tseng, T. H. (2013). Perceived benefits, perceived risk, and trust: Influences on consumers' group buying behaviour.Asia Pacific Journal of Marketing and Logistics,25(2), 225-248. Zhang, J. Y., & Barr, M. (2013).Green politics in China: Environmental governance and state- society relations. Pluto Press. Zhong, Y. (2015).Local Government and Politics in China: Challenges from below: Challenges from below. Routledge.