Business Plan for A & W Company in China
The country that has been chosen as a potential location of expansion for A & W Company is the Republic of China. Further, the nation’s largest city, Shanghai, will serve as the primary location by which this analysis will be based. China boasts the highest population than any country in the world, which stood just over 1.2 billion in 2013. Further, Shanghai represents China’s largest city with a swelling population of over 24 million. The business landscape has changed significantly in the People’s Republic of China in recent decades, which has helped the country to grow into one of the most prominent emerging economies of the 21st century, and winning it a spot as a famous BRIC country. Much of China’s recent economic growth has been attributed to the country’s softening views on free trade and widespread industrialization. In particular, China’s government, which has been communist for 65 years, has recently opened its borders to international trade and adopted a free market. This new free market is in stark contrast to the communist ideology that has prevailed in China during the latter half of the 21th century. As a result, China has experienced an extraordinary metamorphosis into an industrialized society, and has become a formidable member of the international marketplace.
Rationale for Selecting Country
Shanghai China was chosen as a potential sight of expansion for A & W Company for a number of reasons, many of which being briefly discussed in the preceding paragraph. Particularly, China has become an increasingly attractive location for foreign direct investment in recent years as a result of its relaxed stance of free trade. In addition, China itself has achieved extraordinary economic growth and development over the past decade, which has enabled many early entrants into the Chinese market to see massive returns. As the nation’s largest city, Shanghai represents a prime target for business expansion. In particular, the size of the target market in a city the size of Shanghai would be immense, which would ultimately provide A & W Company with an optimal environment in which to grow and expand. Further, the availability of cheaper labor and raw materials in China would enable A & W Company to maintain minimal operational costs, and thusly, maximize profits.
Existing Trade Barriers
When seeking to enter a new market, particularly one in a foreign country where the company does not already have a presence. In China, the barriers to trade have been diminished in recent decades as the country’s communist government has come to embrace a free trade market. This is not to say that entrance into the Chinese market is easy. Rather, there are several major trade barriers that can significantly influence the overall success of an organization seeking to expand into China. For firms coming from economically developed nations, one prominent barrier that is faced when attempting to enter China is widespread governmental corruption. In particular, the payment of bribes to government officials is a common, and often expected part of doing business in China. Companies from developed economies are ethically bound to not participate in bribery or other corruption in order to facilitate the business process. This could put A & W Company at a competitive disadvantage as it seeks to establish its brand within China. Another major trade barrier that exists in China is the wide income disparity that exists among its population. Specifically, although China’s recent economic growth has led to tremendous growth of the nation’s middle class, there remains a large portion of the population that lives in relative poverty, unable to afford to spend $1 for shampoo at Walmart. The wide disparity in income among China’s population will diminish the firm’s target market, as fewer Chinese citizens would be able to afford A & W’s products.
Transportation and distribution of the raw materials and resources required to support A & W Company’s production represent a major challenge. First, China has an underdeveloped national infrastructure with limited roads and the like. This may not be as big a problem in Shanghai as it is in more rural areas, which further demonstrates the value behind the choice to enter the market in this city. In order to maintain low production costs, A & W should establish its transportation and distribution chain locally, by procuring the materials and resources it needs from China itself. The company could then use trucks, rail, or boats as a means of transporting and/or distributing raw materials. For materials and resources that cannot be procured in China, the company can utilize ship cargo vessels, which can come straight into Shanghai’s port to deliver ordered goods.
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