Answer To: I need to work out a 20,000 words MBA project for the premium coffee market in china. Specific...
Robert answered on Dec 22 2021
CHINESE MARKET FOR A PREMIUM COFFEE BRAND 1
The Growth of Brands in the Chinese Market, and the Potential Opportunity for a Premium
Coffee Brand
Jose Luis Munera
Manchester Business School
March. 2013
CHINESE MARKET FOR A PREMIUM COFFEE BRAND 2
Declaration
I hereby declare that this research paper entitled Chinese Market for a Premium Coffee
Brand for the degree of Masters of Business Administration at Manchester Business School
is my original work. I also declare that this paper has not been submitted by me or anyone
else for any degree at this or any other university. It is completely my own work and the
materials consulted have been properly acknowledged and quoted.
Jose Luis Munera
Date……
CHINESE MARKET FOR A PREMIUM COFFEE BRAND 3
Abstract
The growth rate of Chinese market has been phenomenal for past few year. The GDP growth
rate of the country had been 9.6 in 2008, 9.2 in 2009, 10.4 in 2010, and 9.3 in 2011. Having a
population of 1.3 billion people, China has been a lucrative market for all major global
brands and they strive to enter this market to capitalize upon the great potential it has.
However, the organizations should not be moved by the world‟s biggest population, but they
should focus upon their target market and target population. This paper‟s objective is to
discover which kinds of consumers belong to premium brand target group, how they tend to
develop a premium brand and what are the main characteristics of a premium brand are. This
paper also tends to observe the key obstacles and differences within Chinese market for the
foreign brands.
CHINESE MARKET FOR A PREMIUM COFFEE BRAND 4
Acknowledgement
To be prepared……
Jose Luis Munera
Date….
CHINESE MARKET FOR A PREMIUM COFFEE BRAND 5
Table of Contents
Title Page ................................................................................. Error! Bookmark not defined.
Declaration ................................................................................................................................. 2
Abstract ...................................................................................................................................... 3
Acknowledgement ..................................................................................................................... 4
1. Introduction ............................................................................................................................ 7
1.1. Literature Review............................................................................................................ 9
1.2. Company Background .................................................................................................. 11
1.3. Entry in Chinese Market ............................................................................................... 13
1.4. The 7 P's ........................................................................................................................ 15
2. Market Strength & Consumer Behaviour ............................................................................ 17
2.1. Purchasing Decisions .................................................................................................... 17
2.2. Attitude Regarding Modernization and Westernization ............................................... 18
2.3. Individualism and Collectivism .................................................................................... 19
2.4. SWOT Analysis ............................................................................................................ 21
2.5. PESTLE Analysis ......................................................................................................... 25
2.6. Supply Chain Management & Distribution Channel .................................................... 30
3. Market Segmentation ........................................................................................................... 31
3.1. Social............................................................................................................................. 31
3.2. Economic ...................................................................................................................... 37
3.3. Demographic ................................................................................................................. 39
3.4. Gender ........................................................................................................................... 41
4. Brand Building Criteria........................................................................................................ 41
4.1. Premium Brand ............................................................................................................. 43
4.1.1. Model of Brand Core Developments ..................................................................... 46
4.1.2. Brand Equity Approach ......................................................................................... 47
4.1.3. Model of Brand Nature .......................................................................................... 48
4.2. Legal Aspects ................................................................................................................ 49
5. Branding .............................................................................................................................. 50
5.1. Brand Naming ............................................................................................................... 51
5.2. Brand Name Translation ............................................................................................... 53
5.3. Brand Logo ................................................................................................................... 55
6. Methodology ........................................................................................................................ 57
6.1. Design / Proposed Method ............................................................................................ 57
6.2. Population / Sample ...................................................................................................... 57
CHINESE MARKET FOR A PREMIUM COFFEE BRAND 6
6.3. Data Collection ............................................................................................................. 58
6.4. Rigour and Trustworthiness of the Study ..................................................................... 58
6.5. Data Analysis ................................................................................................................ 59
Discussion ................................................................................................................................ 66
Conclusion ............................................................................................................................... 68
References ................................................................................................................................ 70
Appendices ............................................................................................................................... 73
CHINESE MARKET FOR A PREMIUM COFFEE BRAND 7
The Growth of Brands in the Chinese Market, and the Potential Opportunity for a
Premium Coffee Brand
1. Introduction
China is distinct from the rest of the developing markets in a number of important ways, all
of them find strong ramifications for the marketers planning to enter the market. To begin
with, the economy of China is way more diverse than any other markets and thus offers a
broader range of opportunities. The country possesses unique demographics which not only
presents huge opportunities but threats as well. The organizations that understand the
demographics and their target audience right can sustain their business for long, but those
who fail to understand may not last long. Consequently, China is considered as a complex yet
lucrative market which not only possesses a low-cost manufacturing base, but also a lucrative
market with receptive customers.
In spite of increasing per capita income, growing upper and middle- class, and
increasing openness toward the western life- style, sales market in Beijing and Shanghai are
not big enough. The sales market in these cities are relatively small. However, the number of
people who can afford the consumption beyond their daily needs is expanding and people are
looking for premium brands. Such consumer behaviour was almost absent in the past. This
very consumer behaviour gives an opportunity for global premium brands to enter the Chines
market. According to a McKinsey report, China will emerge as the largest market for luxury
goods by 2015, with 18% annual increase to reach at $27 billion. Currently, it is on the fifth
position with $10 billion. In 2012, the sales were $432.2 million for Prada, $300 million for
Coach, and $42.51 million for L'Occitane.
CHINESE MARKET FOR A PREMIUM COFFEE BRAND 8
Fig.: Sales of Luxury Brands
The liberalisation policies of China introduced in 1980s encouraged foreign
companies to enter Chinese market and since then there are flooding number of foreign
companies entering the market. In 2012, the inbound FDI was $111.7 billion while outbound
FDI was $77.2 billion. Many big brands have invested big in the country such as Audi has
made an investment of $9 billion, Diageo $367.8, and Coca Cola $5 billion so far. China
adopted an open door policy in 1980s which enabled foreign companies to enter the market
uninterruptedly. It became a member of World Trade Organisation (WTO) in the year 2001
which worked as a catalyst for the foreign companies. However, many of the foreign
countries in China are still struggling to with their distribution and they are unable to
understand the complexity of the market. Nevertheless, the competition is intense and has
entered to the next level – competition between brands.
Brands have always been recognised as the most powerful marketing asset for a
company (Kunde, 2002). It takes a great deal of resources over a period of time to establish a
strong brand in a market. Café Monarca is an established premium brand in Columbian
market with a market share of 2%, but it does not enjoy a high brand awareness in the
CHINESE MARKET FOR A PREMIUM COFFEE BRAND 9
Chinese market. On the other hand, the domestic brands enjoy high brand awareness and they
are able to successfully capitalise upon consumer insight as they know the consumers well.
They are also successful to a great extent at using the marketing tools to win the minds and
hearts of the consumers.
Café Monarca is planning to enter the Chinese market with the help of International
Sino America Alliance (ISAA). ISAA is a consulting and strategic company based in Hong
Kong and Shanghai offering services to a wide range of companies such as Portland Cement,
Universal Machinery, and ECS to open new markets and export services from and to China.
Specifically in this project, ISAA is engaged in strategic review of Café Monarca from
Columbia to establish their business in China. The primary goal of the project is to discover
the consumers and target groups for premium brands and how they can develop premium
brand. The choice of marketing strategy is critical in the attempt to build relationship with the
domestic consumers and how a company adopts a successful communication strategy is the
key.
A new entrant will face numerous obstacles within the Chinese market, and it
becomes even more complex for a foreign brand as the consumer behavior of the market is
very different from Western markets. It is essential to know the regional consumption
differences, especially for a foreign company dealing with a premium brand in a very
complex market like China. The complexity lies in many aspects such as cultural, legal, and
distribution.
1.1. Literature Review
The Chinese market is a very attractive one for global brands due to the extraordinary
potential for growth, but the entry in the Chinese market may not be as easy as it may seem.
While American and European economy are emerging from recession, China has been able to
post an impressive growth rate over the years. The country is poised to overtake the United
CHINESE MARKET FOR A PREMIUM COFFEE BRAND 10
States as the biggest global economy by the year 2020 and remain driver for growth for the
next decade. The Chinese market is marked by rising incomes, changing demographics,
increasing consumer spending, and open business environment which make it one of the most
lucrative markets across the globe.
Fig. 1: Promising Countries for Overseas Business
Apart from having the largest population, the land mass of China is larger than the US
and its sheer size and scale present huge opportunities. However, the Chinese market is
marked as having huge complexities. It is true that the Chinese market has a huge potential
for foreign manufactured goods and services, but they need to be carefully researched before
entering the market.
The foreign brands have to realise that the Chinese market is no way a homogenous
and uniform market. China may be unified in geo-political sense, but economically and
socially the scenario is very fragmented and disparate. It has uneven rates of economic
CHINESE MARKET FOR A PREMIUM COFFEE BRAND 11
growth in the different parts and the social and economic differences that have long existed
among different provinces have intensified in the recent past.
As we are discussing about a premium coffee brand, it is essential to understand what
does premium really mean? Premium brand is nothing but a relative idea. If we are used to a
certain brand, that is not a premium brand for us. A brand is considered to be premium which
consumers rarely experience the services of and they believe it to be worth the price. The
consumers are not willing to pay more for a product when there are others offering the same
product or service at a lower price.
A premium brand can be built upon some specific tangible and intangible attributes
that give it a sense of worth:
Sensual: It feels indulgent and arouses our senses. It is just an experience and we are
attracted to it and we want to enjoy it and touch it.
Mysterious: It reveals more as the time passes by and draws us in deeper. The consumers are
intrigued to learn more about it.
Rare: It is uncommon and it represents an intriguing and discerning choice. The price
charged for premium products or services is always higher and people pay for it as it is rare.
Authentic: A premium brand knows its true worth. The very authenticity of a premium brand
puts it higher in worth than the ordinary brands.
Quality: Quality is the key for a premium brand and it is always consistent. Attention to
detail is one of the most crucial characteristics of a premium brand.
1.2. Company Background
Café Monarca, based in Bogota, Colombia, is a premium coffee brand. Café Monarca was
established by Brightside which is relatively a small company owned by four partners. The
company has gained popularity as a premium brand in the local market. The company is on
an expansion spree and they want to capitalize upon the growing potential market. Café
CHINESE MARKET FOR A PREMIUM COFFEE BRAND 12
Monarca focuses on two kinds of coffee process presentations, toasted ground coffee and
toasted coffee beans. The presentations are quite balanced and strong for both the types, the
difference may lie in taste and intensity, which mainly attracts to coffee consumers.
Having an established coffee background, spanning for over three generations the
company is able to offer the best coffee beans to their clients. Columbian coffee is considered
to be the world‟s best coffee which brings unique flavour and characteristics. Café Monarca
has differentiated itself from many region in Columbia. The company promises to offer their
clients with Premium, high quality, and specialty (Q-grader certified) cup of coffee. The
company does not want to cater to masses but adopts a niche market, premium pricing
strategy. (Rosenthal, 2011)
The company has been delivering Premium roasted coffee to institutional clients,
especially hotels, restaurants, and corporate enterprises. Café Monarca provides four different
types of coffee, customized to their clients‟ needs:
1. Strong Whole Bean
2. Strong Ground
3. Balanced Whole Bean
4. Balanced Ground
Strong Whole Bean and Strong Ground are dark roast/fine grind which are ideal for espressos
as well as all espresso based beverages, lattes, cappuccinos, etc. While Balanced Whole Bean
and Balanced Ground are medium roast/medium grind which are ideal for the coffee
beverages that are prepared in the brewer machines. The individual coffee bags of the
company are meticulously conceived so that the freshness of coffee can be maintained. A
premium customer of coffee understands the significance of drinking not only freshly brewed
coffee but freshly roasted coffee.
CHINESE MARKET FOR A PREMIUM COFFEE BRAND 13
Apart from coffee bags, the company also offers a wide range of coffee equipment to
their clients. The company has partnered with Pallomaro Inc., Columbian leader in kitchen
appliances and industrial kitchenware. The equipment includes European espresso machines,
grinders, and brewers. Also, the company provides rented and leased equipment to their
clients through their partner Pallomaro Inc. The company provides full sales and technical
support to their clients.
Café Monarca has set a high standard for their high-quality Premium Coffee, and they
strictly follow quality control throughout entire production process. Premium Coffee is the
key to their business and they try their every bit to make that as good as possible. Based on
their clients‟ needs, they are able to provide different equipment through flexible
arrangements. The company is confident enough to bring the best selection of hand-picked
coffee beans with unique flavours to the cups of their clients. The company has 2% of the
Colombian premium coffee market, it does not focus on volume but on quality. The company
only sells in places such as 5 star hotels, offices, luxury restaurants, and gourmet
supermarkets.
1.3. Entry in Chinese Market
Café Monarca is planning to enter the Chinese market with the help of International Sino
America Alliance (ISAA). Indeed China has evolved as the most cherished destination for
investment, production, and trade for the recent past years. Many people have termed it as
„world‟s factory‟ where a large number of companies are entering to expand their businesses
further. With the rapid growth of China, many foreign companies are benefitting as well. The
country has been able to attract the most number of foreign investors in comparison of any
other developing countries. In 1979, only 100 foreign owned enterprises were present in
China which increased to 280,000 by 1998. In 2010, 300,000 foreign companies had invested
in China and the US companies were the biggest investors(Facts & Details, 2011).
CHINESE MARKET FOR A PREMIUM COFFEE BRAND 14
China offers a great opportunity for the organizations to embark on while trying to
expand their business across the globe. However, the Chinese market is very complex and a
new foreign entrant has to be diligent while entering the market. The organizations need to
understand the social and cultural values of China to successfully deal with them. To enter
the Chinese market, only great product or great service would not suffice, but the
organizations have to make their well-thought out strategies based on consumer behaviour.
China is a market where a large variety of consumers can be found and it becomes very
crucial for a premium brand like Café Monarca to identify their target customers and target
groups and then make their marketing communication accordingly (Nigel, 2008).
According to an estimate by the research company Euromonitor International, the
total turnover of coffee shops was approximately 3.5 billion yuan or $558 million in 2011. It
estimates that the total turnover will touch 10 billion yuan by 2016. The consumption of
coffee was 25000 tons in the same year. Chinese people consume only 200-400,000 bags of
coffee annually. There are approximately 200 million potential consumers of coffee in China.
Chinese market presents immense promise for coffee consumption. The per capita coffee
consumption of China is 0.8 kg, which is more than world‟s average i.e. 0.7 kg. Thus, having
200 million potential customers means it has a potential for sales of 160,000,000 kgs coffee
(Nigel, 2008).
Coffee consumption is estimated to be growing 30% annually in China while global
growth rate is just about 2%. China has all the potential to become a coffee consuming
country in the coming future. Per capita coffee consumption is about 5 cups on an average
annually, but it is about 20 cups per capita in metropolitan areas like Beijing, Guangzhou.
And Shanghai. So, the Chinese market is kind of untapped market and it has enormous
growth potential. Starbucks Coffee International is world‟s largest coffee chains and it has
CHINESE MARKET FOR A PREMIUM COFFEE BRAND 15
plans to triple its cafes, from 450 to 1500 by 2015 in China. The sales of the company jumped
28% to $214.1 million in 2011, which is about 40% of the total market (Nigel, 2008).
1.4. The 7 P's
Product
As discussed above, Café Monarca offers four different types of coffee viz. Strong Whole
Bean, Strong Ground, Balanced Whole Bean, and Balanced Ground and wide range of coffee
equipment. The company needs to ask a critical question to itself whether its mix of product
and service offering is suitable and appropriate in the Chinese market. With the rising per
capita income and inclination of Chinese to western culture, premium international coffee
brand can be a success story provided the consumers are targeted correctly.
Price
Café Monarca is a premium coffee brand and it charges premium price from the customers. It
does not target the masses but instead it targets the upper class which has the buying capacity
and willingness to pay for a premium brand. However, the Chinese market is price sensitive
and the company needs to lower down its prices a little in comparison to its other markets. By
raising higher prices, the company might ignore a great percentage of people, but the
remaining percentage will generate enough profit on every sale. Sometimes, the company
should combine their product and services for special promotion and special offers. This
strategy works as a catalyst to boost the sales of a company and it is quite effective in the
Chinese market.
Promotion
The way Café Monarca will promote and sell their product will lead to a dramatic change in
the results. Even a very small change in the advertisement can lead to higher sales. Café
Monarca has to focus their marketing communication to the premium class. They will have to
create a marketing mix that focuses on the upper class. Whatever the methods of promotion,
CHINESE MARKET FOR A PREMIUM COFFEE BRAND 16
marketing, and sales the company adopts, it will stop working sooner or later and the
company has to keep changing them with the course of time. The company should always
seek to develop new marketing, sales, and promotion approaches, strategies and offerings.
Place
As Café Monarca deals with the premium brand, it has to choose strategic locations to do
their business. They should choose the locations where their target customers visit in great
numbers. They should sell through trade shows, retail establishments, and joint ventures. In
each case, it is essential to make right decision about the location so that the target consumers
can access the product and buying information.
Packaging
Packaging is the fifth element of a marketing mix which is very crucial. Café Monarca should
look at the every visual element of packaging. Also, they should be careful with the messages
written on it. The messages should be bilingual; English and Chinese. The packaging makes
a huge difference in buying decision and it is the first impression for the consumers and they
tend to make their purchasing decision within 30 seconds of seeing the some element of the
company.
Positioning
Being a foreign brand, Café Monarca should strive hard to position their product in hearts and
minds of the consumers. When a company is dealing in a competitive marketplace, how
consumers see and think about a brand makes a big difference in the success of a company.
According to attribution theory (Harvey, & Weary, 1985), the customers tend to think of a
brand in terms of single attribute i.e. positive and negative. So, the organizations have no
choice but to make a positive impact on the minds of the customers.
People
CHINESE MARKET FOR A PREMIUM COFFEE BRAND 17
The external and internal people of an organization are key to success of a company. Café
Monarca should choose right people for their business responsible for sales and marketing
activities. Your ability to select, hire, recruit, and retain proper people, with the abilities and
skills to do the job that need to have been done. The company should hire bilingual (English
& Chinese speaking) employees. They should partner with the entities that deal with
premium customers.
2. Market Strength & Consumer Behaviour
2.1. Purchasing Decisions
The purchasing decision of Chinese people largely depend upon the type of products or
services in consideration. The purchasing decision of premium coffee brand will largely be
influenced by adults and matured earning family members compared to others. However,
adolescents have a great role to play in the purchasing decision as well. Social media has
evolved as one of the most influencing factors for premium coffee brands. There are about
597 million active users of social media sites. The most popular social networking sites are
QZone, Tencent Weibo, and Sina Weibo. A large pie of the Chinese population use social
media and they are highly influenced by the promotions and advertisements shown there.
According to an estimate, 66% of the Chinese social media users follow brands. On an
average, they follow 8 brands. Chinese consumers are more likely to consider buying
something if that is mentioned on the social media or a friend recommends it (Ma, 2012).
The role of females in decision making has increased currently but it largely depends
upon the marriage duration. The longer marriage duration, the more influence in purchasing
decisions. Foreign companies should understand the very importance of the family structure
of their target market. Advertising, product designs, packaging, promotions, and even sales
persons should be attentive to the member of a family having more influence in decision
making. Being a foreign company, Café Monarca should understand the family structure of
CHINESE MARKET FOR A PREMIUM COFFEE BRAND 18
the upper class and they should also focus upon the family members who play the most
significant role in decision making (Ma, 2012).
2.2. Attitude Regarding Modernization and Westernization
Looking closely at the Chinese history reveals that they have a century log tradition of
adopting useful new ideas as well as foreign influences rather than trying to be assimilated by
others. Specifically, the metropolitan cities like Shanghai has high influence of foreign
culture and life style. Shanghai is called as Mecca for foreign life style and influences and it
is a good example of being influenced but not assimilated. This gives the possibility to
modern Chinese to adopt foreign concepts and values as they wish, while preserving their
traditional values at the same time (Thomas, 2009).
The importance of individual and individuality can be seen to increasing among
young well-educated urban Chinese. The Chinese society is going through a social
stratification and hence further individualization can be seen in metropolitan cities. The self-
concept of an individual is mainly determined on the basis of his or her social identity, which
is derived from social group membership. This greatly influences consumer behavior for
Chinese consumers, especially in terms of brand consumption. They tend to choose and recall
brands so that they can express similarity to others, rather than individuality and uniqueness.
China began attempting to modernize after the Revolution of 1911 and end of Qing
Dynasty. Prior to this, the attempts of reforms took place from 1902 to 1908 mainly in
transportation, infrastructure, and government. Western models were evident in these reforms
and it also included elements of democracy which was never seen before. These were a good
sign of the modernization in the country and since then it has never looked back. The
Revolution of 1911 was followed by the May 4
th
Movement of 1919 that advocated
modernization and iconoclasm (Thomas, 2009).
CHINESE MARKET FOR A PREMIUM COFFEE BRAND 19
Mao Zedong of communist party came in to power in 1949 and he used the Soviet
Unions as model for the modernization in the country. The goal of Mao was to establish a
modern communist society though collectivization and industrialization. However, his efforts
were not so much successful in the country, but it definitely laid the foundation for
modernization in the country. This was a real start of modernization in the country and it was
taken forward by Deng Xiaoping. The economic reforms successfully took place in his
tenure. He mainly focused on four sectors for modernization: agriculture, national defense,
industry, and science and technology. He use the West as a model for these modernizations,
but he relied on Chinese for management. The modernization has turned out to be very
beneficial for China as it has raised it as a global power in 21
st
century.
2.3. Individualism and Collectivism
China has long been referred as a family-run country. Primarily, it was a rural nation. In
1953, the rural population was 505,340,000 compared to 77,260,000 urban population. There
was a yawning gap between rural and urban population. However, the gap has reduced over
the years and in 2010 the rural population was 674,149,546 compared to 665,575,306.
Earlier, the family and the farm were at the core of China. Both these institutions, rural
environment and family, are collectivist in nature. When Mao Ze Dong was in power, he
focused upon the collectivist view by eliminating individualists and landowners. Looking
closely at the history of China, it can be said that China has been more collectivist in its
approach than individualistic in ancient history (Nigel, 2008).
However, the modern society of China is moving towards individualistic mindset.
Due to drastic increase in population, the government and the people are striving to opt for
“one-child-policy”, especially in metropolitan cities. The younger citizens brought up this
way have been raised to believe that they have special place in the world. This kind of
upbringing in China has led to individualism instead of collectivism (Gallo, 2009).
CHINESE MARKET FOR A PREMIUM COFFEE BRAND 20
The individualism finds less scope in a business scenarios. For instance, Chinese and
American partners at Lenovo started working together. Generally, the Chinese were looking
the team behind the success of the company. While, the American partners were identifying
high individual performance behind the success. However, it was early in the case but later
on they also started looking team for the success. In is generally seen that the approach is
different for different cultures at the starting point, but once they get along they adopt a
similar approach (Gallo, 2009).
With Westerners coming in China in great numbers, they are influencing it to become
collectivist rather than individualist. Whatever they try in the West, gets hammered down in
China as well. China still has numerous signs of collectivism which cannot be seen in the
West. Given the vast size of Chinese population, it requires to adopt a collectivist mentality
to get along. For instance, the people having individualistic mindset cannot travel in the buses
in Beijing and crowded cars in Shanghai the way they have been doing. However, Chinese
people are found to be complaining about those things which is nothing but individualistic
approach, but they tolerate the things the way they are.
When you enter a restaurant in China where musical entertainment is offered after
dinner, you would find that people dance in groups on tables. Unlike in the West, even if the
Chinese do not have apparent dance partners, they dance. Everyone dances being the part of
the group and gets involved in and this very phenomenon shows the collective mentality of
the Chinese. So, even though China is moving towards individualistic mindset, the
collectivist mindset is strongly present in people‟s attitudes in certain circumstances. In
business leadership, it has great implications.
The foreign companies entering in China must be extra-cautious in managing people
based on individualistic and collectivist mindset. They should not only focus on the team, but
at the same time they should also focus on specific individuals. Also, these companies
CHINESE MARKET FOR A PREMIUM COFFEE BRAND 21
should not give all credits to themselves, but to the team. Being a leader in China, one can
only get support and cooperation from people if he presents himself as humble and part of the
team. In the West, leaders are considered to be supreme and following this typical mentality
can turn out to be disastrous. Jun Tung, who served as President of Microsoft China March
2002 to January 2004, said that, “as a leader in China, if you present yourself humbly, as part
of the team, you establish the type of support you need to get the job done. If you follow a
typical Western approach, where the leader is supreme, you are more likely to fail.”
In the collectivist society, an organization is like a family. The employees of the
company will become loyal to it, but they will expect the same in return. Most of the Chinese
consider a job to a mutually beneficial life time event. However, this kind of thinking is not
as evident as it was earlier, but it is still there. The foreign companies and their leaders must
understand the collectivist mentality in employer-employee relationship. Even if they
overplay this idea, they cannot go wrong.
2.4. SWOT Analysis
Strengths
China is definitely a promising country for foreign investment where a lot of opportunities lie
and if targeted correctly, it can yield the best outcomes. The economic growth has been
accelerating in terms of GDP, GNP, comprehensive national strength, and export growth. The
GNP of the country is increasing an average of 9% annually which places it third in the
world. In 2010, export growth was 25% and imports growth was 15%. Per capita income is
comparatively low, but it has been increasing rapidly and people have more purchasing
power. Also, per capita consumption is very low, but the large population presents incredible
opportunity for both high-end and low-end products. The contribution of consumption to the
growth is expected to be the highest in the coming future(Hedley, 2011).
CHINESE MARKET FOR A PREMIUM COFFEE BRAND 22
Fig.2: Contribution of Consumption to Growth
Only the growth factor is not a good reason enough to put their investment in a
country. How the country can be easily integrated into a Global economy does matter for the
foreign companies. China has all the potential to become a Global economy and they are
inching towards that as the time passes by. China is a country where natural resources with
exception of oil are found in abundance and these play a bigger role in the economic
development of a country. When it comes to infrastructure, China is way too developed in
comparison of other growing markets and it is a good sign for the foreign companies aspiring
to enter the country (Hedley, 2011).
Not to mention that the world‟s largest population creates an incredible future buying
potential. The people from all the classes can be found in abundance. The number of upper
class people has been increasing drastically with the economic growth of the country. While
the wealthy people (300,000 RMB, or above) are just above 1 percent of the total population,
the upper middle class (incomes between 100,000 and 200,000 RMB) of 13 million
households present a huge opportunity. The number is expected to rise to 76 million by 2015.
Cost cutting is the key for foreign companies entering the foreign market and labor normally
CHINESE MARKET FOR A PREMIUM COFFEE BRAND 23
contributes the most to the overall cost. China has the largest and the cheapest pool of labor
in the world. The Chinese has a very strong materialistic outlook which is good for the
foreign companies. The market leads to a very high investment, especially very attractive to
FDI. However, FDI of $111.7 billion was a little lower in 2012 in comparison of 2011‟s
record $116 billion. The country still has retained its spot among the top destinations for
corporate expansion. As of 2012, China ranks first as FDI destination while US is the leading
investing country (Hedley, 2011).
Weaknesses
China is one of the most unpredictable and complex markets around the world. While
enormous opportunities lie, but the misjudging the complex nature can turn out to be
hazardous for the corporations, especially foreign companies coming to China. Secondly, the
financial sector of the country is very disordered and it is nowhere close to international
standards. Financial sector plays a very crucial role in economic development of a country
and the absence of a good financial sector will definitely affect the business as whole.
The transportation network of the country is not that developed and it becomes quite
difficult for the organizations to carry out their logistics and supply chain activities. They
have to put lot of cost, time, and effort for these activities. The inequality is increasingly high
in the country as the income distribution is uneven. The surplus of labor is leading to more
unemployment in the country. The country relies mostly on imported components. The level
of education has just reached at the middle level and the government has a lot to do and
invest to lift up education standard in the country.
Opportunities
China has planned and financed a number of infrastructure projects and thus, the
infrastructure can be expected at the next level in the coming future. Infrastructure plays a
crucial role in the overall economic development of a country and the corporations working
CHINESE MARKET FOR A PREMIUM COFFEE BRAND 24
in the country will be equally benefitted. The competition has increased drastically in every
field of business and the organizations need to cut their cost of production so they can
maximize their profits. Cheap Chinese labour and resources help organization reduce the cost
of production very low. Even if a premium brand sells their products at higher prices, but
after reducing the cost of production they will have freedom to cut down the prices or they
can maximize their profits (Hedley, 2011).
China has already become the largest market of the world for cars and other consumer
products, including luxury ones. The rising incomes of people is a good positive sign for
premium brands and about 260 million people are expected to move to cities in the coming 5
years. This will increase the demand of all types of services and products. Considering
service sector uses minimum capital and natural resources, the government will support the
sector. The Chinese people are getting more prosperous day by day and it...