Guide to a Business Entry in China - Assignment Example

 Guide to a Business Entry in China Michael’s Patissiere is a specialty bakeshop based in Australia. It is a well developed business and has faithful customers almost addicted to its specialized sorties of baked products. Michael Chavarria, the owner of the bakeshop is contemplating on foreign sales with China as a target market. He is in a dilemma on how to start with the business and to find the necessary funding for his business. He looks forward to an Export Development Grant from the Australian Government and reviews a road map on how to start with the foreign business. He considers China as it has a big business potential, but this venture requires a through study as to the proper marketing strategies to use in its entry to China. There are also other options available for Michael including an on line marketing, joint venture or wholly owned company. Whichever option Michael takes, the market is open for the cake industry. Introduction Michael’s Patissiere is a well developed bakeshop in Australia and has a long experience in the business. The owner of the company is planning to expand the business to China. However, the company lacks the basic knowledge to guide the owner on the proper things to do for its entry to China. Moreover, the company needs additional resources to finance the export operations and is contemplating to apply for an export development grant from the government. This topic will provide a road map of resources or assistance to Michaels Patissiere in its decision to do international business. Getting ready for export The first thing to do is to assess the capability of the company to undertake foreign business. Generally, if a company is doing well in its own country, it can take a further step in foreign sales. The company must first learn the basic in exporting and should learn how the company can adapt to the international business environment. Develop a marketing strategy Upon having a basic understanding of the language of exporting, and you think that the company is ready, the next step is to develop a marketing strategy appropriate for the capital and structure of the business. An export strategy must be part of the business plan and everybody in the company should be aware of it. A well developed export strategy identifies the export aims that match the capital resources required. It helps the company focus on the market identified and to respond to the quality service/product needed (Austrade) For example, the marketing strategy may begin with assessing why Michael’s Patissiere should export and what are the steps needed to achieve these goals. Networking opportunities Now, you are about to be ready. The next thing is laying the ground work by establishing network of business contacts among export groups. You will have a lot to learn and other companies who will be eager to share their export experiences to a starting exporter as long as you are not a competitor. (“Opening a,,”) You can start with attending trade seminars, trade fairs and events sponsored by Austrade, State and Territory governments, the Department of Foreign Affairs and Trade, Business Associations, Chambers of Commerce, foreign Embassies and Consulates, Bilateral Business Councils and major service companies such as legal and accounting firms. (Austrade) Market Research Market Research is an important aspect of exporting, as you have no particular knowledge of the market. Depending on your market strategy, you will need to know the legal requirements for an entry to a foreign market. It is important that an exporter should know the import duties, regulations, freights and costs to help you determine cost structure of the product. Other factors such as competition, market size and growth and demographics are also important information to determine company’s positioning. Market research will also help you to have a “market feel” or how your product will compete in the present environment. For example, an internet search (Yao, 2008) shows “big business for moon cake in China”. There is a big demand for the product especially during festivals that even big bakeshops and hotels develop their own specialty of moon cake. Very often, the moon cake is used as networking tools and gifts. Presence of a new patisserie will not crowd out the market as there is a big demand for moon cake among the Chinese consumers. Yao reported that in 2006, Networking Tools had sold 250,000 tons of moon cakes in China that paid handsome revenue oft $1.42 billion for manufacturers, bakeshops and hotels. Report also cited the USDA mentioning moon cake as a golden opportunity for business such as selling the imported fillings of cheeses and cherries to China. The Starbucks, Hagen Dazz and Ocean Spray, all U.S. companies, are manufacturers and exporters of moon cake to China for a decade now, source said. (Yao, 2008) Export Marketing Depending on the marketing strategy that you may wish to adopt in your business, it is important to create first impression. If you decide on IT e-commerce or on line marketing, an interesting website will make customers return to you to order. An example of a market entry is the case of Bangerang Cake and Pie Shop that sells to both local and international customers through their website. Customers reach them thru internet and delivery is done within 3 to 5 days upon order. (Bangerang) Other forms of export marketing may be “a distributor, sales agent, joint venture or a wholly owned foreign corporation” that may be allowed in China (Sy, Gregory) Sy stated China still restricts foreign investors to the categories stated. Establishing the company’s presence in China will need to set up a jointventure or wholly owned enterprise. Both processes have advantages and disadvantages but a joint venture is preferred by many foreign companies as it solves cultural problems and financing requirement. Whatever type of business structure you may decide, it is important that you present the company and the product well to customers. Generally, clients appreciate quick reply to their inquiries as it makes them feel important. An inquiry may lead to a future sale if customer is impressed. China is far different from Australia and it is equally important to learn their basic culture because there may be something said and done that could offend them Visiting the market Before entering into any agreement with a distributor, sales agent, or partners, you should plan an ocular inspection and visit to find for yourself the actual market environment. Talk to as many customers as possible, and to intermediaries to have a market feel and to help you make the important decision. Visitation may not be important if Michael decides to adopt on line markeing, as customers will rely on the website for product catalogs. Risk Management There are unavoidable risks in exporting business. These may not occur daily but it should be best that an exporter be able to manage the risks involved. These are political risks, legal risks, graft and corruption, credit financing risks and quarantine compliance. All these risks must be addressed to such as obtaining appropriate insurance for political risks, advice of payments from banks such as an irrevocable letter of credit and other government rules that pertains to exporting. Check quarantine rules about your products. Risks cannot be avoided, but proper management reduces it. Getting Financial Assistance. Financing matter is a vital part of the project. Michael should take the following steps in considering financial assistance. First, he should discuss the plan with the International Department of the bank who is in a much better position to assess the company’s financial position towards the foreign entry. He should get an advice for international methods of payment and costing methods for export and international terms for shipments; i.e. FOB shipment. He cannot do this alone, and should get help from an Accountant do the work and a financial consultant for advice. He should also get a broker who could make a costing of transport and freights, insurance and packaging. Government agencies extend assistance to exporters. An example is the Export Market Development Grants (EMDG) in Australia that has been providing assistance to small and medium sized exporters for over 30 years. The EMDG reimburses “50% of export promotion expenses of exporters above a $25,000 threshold” , ,(Austrade) Aside from EMDG there are other territory and government offices that offer assistance to trade exporters; the Export Finance and Insurance Corp. is an example. By knowing trade financing available from various sources, the company can prepare costs and financing projects that may be used in the business. Trade Agreements A trade agreement enhances trade benefits between countries. At present, Australia is working out a trade relations with China. It will benefit the company as taxes on export and imports will be relaxed and will lessen the cost of trading. (Cai, Stella, 2009) Trends and opportunities in China The industry report of Stella Cai, a Business Development Officer of Austrade explained that the Chinese consumers have shown keen interest in imports from Australia, particularly milk powder, UHT milk, cheese, butter and margarine. They also like sea foods (lobsters, oysters, abalone and king crabs0. Others are citrus fruits, wheat, barley and rice. Frozen red meats and processed foods are among their favorites. Other imports are wine, beer, baby foods, convenience and instant foods, confectionery and snack food products. (Cai, Stella, 2009) The report said that Chinese consumers have developed sophisticated tastes of food because of growth of their economy. Cai stated Australian foods have established a competitive edge against other suppliers because the country has been recognized by the Chinese consumers as having a clean, environment friendly and good quality products China’s population is about 1.2 billion and is the second largest importer of food and beverages in Asia. In 2006-07, Australia’s exports to China amounted to $664 million as reported by the Australian Food Statistics. This only shows that China is a big market to tap for the product of Michael’s. Michael can develop processed goods, cakes and pastries in special packaging that could be sold in China. U.S. retail companies who took advantage of business opportunity in China are Walmart, Trust-mart, Makro, ParkNShop, Seven-Eleven, Tessco, Jusco and other large department store chains. Recommendations An entry to China, such as a joint venture or wholly owned foreign company needs a thorough analysis not covered by this study. Michael should get a Financial Consultant to run a feasibility study for the company. Michael has a limited capital, and because of this, another option is to continue with on line sales that will cover China. Other bake shops have done this, and with the speed of transportation, this can be a good starting point for Michael. Part 2. Attachments for application to Austrade financial assistance MICHAEL’S PATISSIERE PROFIT AND LOSS STATEMENT FOR THE PERIOD ENDED DECEMBER 31, 2006 INCOME Gross Sales 346,400.00 Less Returns and allowances 1,000.00 Net sales 345,400.00 Less Cost of goods sold Merchandise inventory, January 1 160,000.00 Purchases 90,000.00 Freight charges 2,000.000 Total Merchandise Handled 252,000.00 Less inventory, December 31 100,000.00 Cost of goods sold 152,000.00 Gross Profit 193,400.00 Interest income Total income 500.00 193,900.00 LESS ADMINISTRATIVE & SELLING EXPENSES Salaries 68,250.00 Utilities 5,800.00 Rent 23,000.00 Office supplies 2,250.00 Insurance 3,900.00 Advertising 8,650.00 Telephone 2,700.00 Travel and entertainment 2,550.00 Dues and subscriptions 1,100.00 Interest paid 2,140.00 Repairs and maintenance 1,250.00 Taxes and licenses 11,700.00 TOTAL EXPENSES 133,290.00 NET INCOME 60,110.00 MICHAEL’S PATISSIERE BALANCE SHEET STATEMENT FOR THE PERIOD ENDED DECEMBER 31, 2008 Assets CASH Checking Account 2,300.00 Savings Account 67,600.00 Petty Cash 100.00 Total CasH 70.066.00 OTHER ASSETS Vehicles 11,385.00 Buildings 50,483.25 Equipment 43,249.04 Furnishings 13,317.67 Stocks & Bonds 16,588.00 Total Other Assets   135,022.96 Total Assets   205,088.96 Liabilities Bank Line of Credit 35,000.00 Mortgages Due 45,554.00 Total Liabilities   80,554.00 Retained earnings and Equity Retained earnings 60,110.00 Owner’s equity 64,924.96 Total equity 124,534.96 Total Liabilities and Equity 205,088.96 Company profile Name of Company MICHAEL’S PATISSIERE ADDRESS No. 4 Bucharst Road, Fordham Wessex, WXZ 3B Australia Telephone No. 394-719-551 Website www.michael’s patissiere.com Name of owner Michael Chavarria Type of business Sole proprietor No. of employees 18 Year established January 2005 Capitalization $125,000.00 Products Line of products: Specialty cakes, cookies, bread, pastries, cookies in jar, and cakes in special cans Over the counter snacks, fast foods Monthly specials for events and occasions Marketing Strategy Order On line sales and delivery Local and international sales w.c. 2065 Export Market Development Grants Act 1997 2008-09 Application Form Austrade must receive the completed application, with relevant schedules and supporting documents, between 1 July 2009 and 30 November 2009. (See A Guide to Applying for EMDG for more details.) 1 Have you completed the EMDG eligibility checklist? No   You need to complete the checklist on pages 2 and 3 of A Guide to Applying for EMDG and contact Austrade if necessary to clarify your eligibility. Yes x  Go to next question 2 Name of applicant (See page 4, Q2 of A Guide to Applying for EMDG.) MICHAEL G. CHAVARRIA       Business or trading name (if applicable) MICHAEL’S PATISSIERE       3 Are you trustee for a trust estate? No x  Go to next question Yes   Provide the name of the trust. N/A             4 What is your ABN? If you do not have an ABN at the time you apply for an EMDG grant you will need to obtain one before a grant can be paid. 0410 What is your ACN? (only if a company) n/s 5 What date did your business operations commence? January 15, 2005    2001     2001 6 Your street address (not the consultant’s address) No. Bucharst Road KAMEL ACCOUNTANTS 18 Buckhurst Rofad Fordham Wessex, WX2, 3GB Fordham, Wessex 7 Your postal address (not the consultant’s address) (Relevant correspondence will be sent to both applicant and consultant.) No. 4 Bucharst Road, Fordham, Wessex WXZ, 3GB, Australia       EMDG 2008-09 Office Use Only SEQ Client No. ANZSIC / SAP CONS ID 8 Applicant’s contact person to whom we can direct enquiries Title Mr x Mrs  Ms  Miss  Other  Name Michael Chavarria Office or position Owner Telephone number Fax number 394-719-551 394-719551 Mobile phone number 0921-601181 Contact person’s email address (Austrade may use this email address to send you commercial-in-confidence information.) Michael@yahoo.com Business website address www.michael’s patissiere.com 9 Did a consultant prepare or assist in the preparation of this application? No x  Go to next question Yes   Give details Full name of consultant       Business name       Postal address of consultant                   Telephone number Fax number             Mobile phone number       Email address (Austrade may use this email address to send the consultant commercial-in-confidence information.)       10 Have you ever received an EMDG grant? (See page 4, Q.10 of A Guide to Applying for EMDG.) No x  Provide your 2007-08 and 2008-09 financial statements (profit and loss statement and balance sheet) and some information which explains your business and your product or service for grants entry requirements.  Now go to 12 Yes   How many grants have you received? If you have received 2 or more grants go to next question otherwise go to Q.12       11 If you have received 2 or more grants, which EMDG performance measure option have you chosen? You must choose one option. (See pages 5 and 6, Q.11 of A Guide to Applying for EMDG.) Option A   See page 5,Q.11 of A guide to Applying for EMDG. Option B   Provide the documents listed on pages 5 and 6 of A guide to Applying for EMDG. 12 What was the total income (i.e. your total turnover including sales) of your business for 2008-09? (See page 7, Q.12 of A Guide to Applying for EMDG.) $      13 Which one of the following categories applies to you? Tick One Box Only An individual who is a resident of Australia X  A body incorporated under the Corporations Act 2001  An association or co-operative incorporated under an Australian Law  A partnership regulated by an Australian Law  A body corporate established for a public purpose by or under an Australian Law  Approved Joint Venture  Approved Trading House  Approved Body  14 What was the total number of employees of your business at 30 June 2009? 15 15 Were you part of a group of related companies at 30 June 2009? (These include all holding companies and all subsidiaries in a corporate group.) (See page 7, Q.15 of A Guide to Applying for EMDG.) No x  Go to next question Yes   Complete schedule 10 in the Excel Schedules 16 Have you applied for, received, or will receive (e.g. by charging fees or billing for services rendered) financial assistance from any other State or Australian Government program or reimbursement from any source that relates to the expenses you are claiming under EMDG? Note: where promotional activities are assisted by other assistance programs or are reimbursed, the amount must be deducted from the expenses you claim. No x  Go to next question Yes  Who provided assistance and how much was or will be provided?       $            $      17 Which of the following categories best describes your core business activity. Tick One Box Only Primary producer  Manufacturer X  Wholesaler  Services  Intellectual property rights or know how  Events promoter  18 How would you describe your core business? (For example 'car parts manufacturer', 'software developer') Food manufacturer       19 If you are seeking to export goods, are they made in Australia? (See pages 8 and 9, Q.19 of A Guide to Applying for EMDG.) No   Attach a document providing the information requested on page 9 of A Guide to Applying for EMDG. Yes x  Go to next question 20 Has any part of your business previously been carried on by another person or been involved in a name change? No (See page 10, Q.20 of A Guide to Applying for EMDG.) No   Go to next question Yes   What was the date of change?      /     /      Please provide previous business name or name of previous person who carried on the business.                   21 Are you or your associate or (if the application is on behalf of a trust estate) a trust estate beneficiary or an associate of the beneficiary currently under insolvency administration? (See page 10, Q.21 of A Guide to Applying for EMDG.) No   Go to next question Yes   To receive a grant, the applicant must not be insolvent at the time that Austrade determines that it is otherwise entitled to receive a grant. 22 Do you or your associate have any disqualifying conviction outstanding? (See pages 10 and 11, Q.22 of A Guide to Applying for EMDG.) No   Go to next question Yes   You are not eligible to receive a grant. 23 Please complete a schedule for each expense category you are claiming before you complete this question. Copy the total from each expense schedule to the table below. Attach each completed schedule to the 2008-09 application form. You must be able to substantiate all expenses. Note: The GST component of expenses cannot be claimed under the EMDG scheme. If you have not previously received an EMDG grant, you may claim expenses for both 2007-08 and 2008-09. A second column has been provided for this purpose. (See page 11, Q.23 of A Guide to Applying for EMDG.) Expenses total A$ WHOLE DOLLARS ONLY Schedules summary 2007-08 First-time applicants only 2008-09 All Applicants TOTAL 1A – Overseas representation This category is capped at A$200,000. But you should claim all eligible expenses. 3,000.00       3,000.00 1B – Marketing consultants This category is capped at A$50,000. But you should claim all eligible expenses.. 1,000.00       1.000.00 2 – Marketing visits 1,500.00       1,500.00 3 – Communications - You can choose either to claim actual expenses, or not to claim any expenses and have your assessed grant automatically increased by 3%. Note: Austrade will calculate this 3% increase. 200.00       200.00 4 – Free samples 1,000.00       1.000.00 5 – Trade fairs and promotional events 1,000.00       1.000.00 6 – Promotional literature and advertising 1,500.00       1.500.00       7 – Overseas buyers This category is capped at A$45,000. But you should claim all eligible expenses. 500.00       500.00 8 – IP registration and related insurance 300.00 300.00 Total expenses/allowances 10,000.00       10.000.00       The total of this column should be at least A$10,000 24 Apportion, as best you can, the total expenses you are claiming (Q. 23 above), among the main country export markets to which the expenditure related. Follow the steps below: 1. In column 1, list the top six countries to which the expenses you are claiming related. 2. In column 2, state how much you spent on export promotion to each country. 3. In column 3, state the total dollar amount of export earnings received from each country. If there were no export earnings, write ‘N/a’. (See page 12, Q24 of A Guide to Applying for EMDG for further help on how to complete this table.) WHOLE DOLLARS ONLY 1 Top six countries 2 Expenses A$ (per country) 3 Export earnings A$ 2008-09 only (per country) 1 GUANGZHOU, CHINA 10.000.00       60,110.00 0000      2 n/a             3 n/a             4 n/a             5 n/a             6 n/a             All others             Total             You also need to attach the relevant completed Schedules 9A to 9E: Export Earnings to the 2008-09 application form Note: Expenses relating to the Iran market that were incurred on or after 15 November 2008 are not eligible. The total of this column should be the same as the total of the total expenses/allowances in Q.23 above The total of this column should equal the TOTAL of all your completed Export Earnings Schedules (9A to 9E) 25 Please read this before answering the question The information provided below by the applicant is an authority and direction to Austrade as to how the grant payment is to be made.  The applicant acknowledges that a payment made in accordance with that direction will discharge Austrade's obligations in respect of payment to the applicant and releases Austrade from any liability arising therefrom.  If the applicant wishes to change its direction to Austrade, it must do so in writing to Austrade before the grant payment is made. How do you want to receive the grant payment? Collection of information 26 Information provided on this form will be used by Austrade for the purposes of the Export Market Development Grants Act 1997. We may make certain basic details of grant recipients – name, address, industry and amount of grant received – available to other Austrade staff and to public enquirers. Austrade, however, would like your permission to pass the information you provided at Q.8 (your contact details), Q.18 (your product information) and Q.24 of this form (regarding markets, exports) to our colleagues in other parts of Austrade and our ally program, TradeStart. This may mean that an adviser will contact you to discuss export opportunities. Do you agree to this? Yes X  I agree. No   I don’t agree. Please note that choosing ‘No’ will not affect the outcome of your application. Requests for further information 27 Applicants may be asked to provide specific additional information so that their grant application can be processed. If the applicant is a body corporate which is part of a related company group Austrade may seek information from any body corporate in the group. Austrade may also request the applicant’s written consent to conduct criminal record checks in order to confirm that provisions of the Act concerning disqualifying convictions are complied with. (See pages 10 and 11 of A Guide to applying for EMDG.) These requests by Austrade will be made in writing and will specify the information required. Austrade may refuse to consider an application when requested information is not provided. You should inform third parties, such as employees and service providers, either in writing or verbally, that Austrade may collect and record their personal information relating to an EMDG application. This personal information may be used to verify payments you make to those third parties, as required under the Export Market Development Grants Act 1997. Declaration by applicant (this must be completed) 28 I am the: Tick One Box Only Managing director x Registered company secretary  Chief executive officer  Applicant (sole trader, partner)  Other authorised officer   Title:       I declare that: • I have made all relevant enquiries necessary to ensure that claimed expenses satisfy eligibility requirements • all the information declared in this application, including the information on the completed Schedules, can be substantiated and is not false or misleading • all documents that may be relevant to the application will be made available to Austrade upon request. I have attached: • the completed schedules and all other required documents as per page 1 of A Guide to Applying for EMDG I understand that: • eligible expenses disclosed to Austrade after lodgement of the application and before determination will be excluded if such expenses exceed 10 percent of the amount of eligible expenses disclosed in the application • Giving false or misleading information is a serious offence. It is a criminal offence to attempt to obtain, or to obtain, a grant or increased amount of grant through deceit, false or misleading representation or other unlawful means. Full name of Declarant (i.e. the Managing Director or Chief Executive Officer or Registered Company Secretary or the Applicant – Sole Trader or Partner) MICHAEL CHAVARRIA Signature of Declarant (i.e. the Managing Director or Chief Executive Officer or Registered Company Secretary or the Applicant – Sole Trader or Partner) Date    /    /    Consultant declaration (if applicable) 29 I am the consultant of the applicant. I declare that: • I have prepared or assisted in the preparation of the Application Form and Schedules • I am not disqualified from preparing applications. I understand that: • giving false or misleading information is a serious offence. It is a criminal offence to attempt to obtain, or to obtain, a grant or increased amount of grant through deceit, false or misleading representation or other unlawful means. Full name of Consultant ANDRE’ GARCIA Signature of Consultant Date October 10, 2009 10 / 10   / 2009 TABLE OF CONTENTS Page No. Executive Summary 2 Introduction ……………………………………………………….. 3 Part A Getting ready for export……………………………………………… 3 Develop a marketing strategy…………………………………… 3 Networking opportunities…………………………………………….. 4 Market research………………………………………………………... 4 Export Marketing……………………………………………………… 5 Visiting the market……………………………………………………. 6 Risks management……………………………………………………….. 6 Getting financial assistance……………………………………………... 6 Trade Agreements……………………………………………………… 7 Trends and Opportunities……………………………………………….. 7 Recommendation…………………………………………………………. Part 2 Attachments to application a. Profit and Loss Statement…………………………………………. 9 b. Balance Sheet Statement…………………………………………… 10 c. Company Profile……………………………………………………….. 11 d. EMDG Application form……………………………………………… 12 References………………………………………………………………. 21 References Austrade About Exporting. Australian Government. http://www.austrade.gov.au/How-to-export/default.aspx> 10 October, 2009. Austrade. Export Market Development Grants.. Australian Government http://www.austrade.gov.au/default.aspx?FolderID=1356> 10 October, 2009 Bangerang Bake shop. http://www.bangerangbakeshop.com/terms/> 10 October 2009 Cai, Stella. 2009. Food and Beverages to China. Austrade – Australian Government http://www.austrade.gov.au/Food-and-beverage-to-China/default.aspx> 10 October, 2009 “Opening a Pie and Cake Shop” 2009. For Entrepreneurs – How to open a business. Resources for Entrepreneurs. http://www.gaebler.com/Opening-a-Cake-and-Pie-Shop.htm> 11 October 2009 Sy, Gregory M. Doing Business in China Guide. Grandall Legal Group H.G. Org. Worldwide Legal Directories. http://www.hg.org/article.asp?id=5116> 10 October, 2009 Yao, Joanne, 2008 “Moon Cakes are big business in China” Entrepreneur.com. Washington Post. http://www.washingtonpost.com/wp-dyn/content/article/2008/09/22/AR2008092200928.html> 10 October, 2009 w.c. 2003 Read More