Old Town Embark in Australia
Old Town Embark in Australia
1.0 Introduction of business in Malaysia Old Town White Coffee business is chosen for implementing its subsidiaries in other country through globalization. The store itself as a restaurant selling food and beverages are focused, but not their products of instant coffee (although the product will be sold in Australia in the store too, but the store is what we should focus on). Old Town White Coffee is established and incorporated in 1999 but opened its first chain of outlets in 2005. The business is always in leading position after its success and in 2012 it is still proudly the biggest “kopitiam” restaurant in Malaysia (Old Town, 2013). “Kopitiam” can be defiend as a coffee shop which the word kopi is a Malay word that has the meaning of coffee while the word tiam is the Hokkien dialect word for a shop.
The outlets of Old Town White Coffee are based on the traditional Ipoh coffee shop setting. The business expanded rapidly in the years and its outlets are available in nationwide Malaysia including all the states. Each state has lots of outlet and mainly the most of them is Penang, followed by Selangor and Kuala Lumpur. Later it expands to the stores in both Singapore and Indonesia. In 2009, there are around 1348 over retail outlets available in Malaysia, 550 in Singapore and 2100 in Hong Kong (Old Town, 2013).
Old Town White Coffee operates mainly in selling coffee such as Nayang Kopi O and Nayang Kopi C and most importantly its signature drinks Ipoh White Coffee, but the business is also available in other beverages that are common in Malaysia such as Old Town White Milk Tea, Old Town Cham and Old Town Enriched Chocolate. Other than the beverages, there are some classic dishes like Old Town Nasi Lemak Special, Mee Java, Old Town Mee Hoon, Dry Curry Mee, Old Town Assam Laksa, Old Town Lum Mee, Old Town Ipoh Chicken Hor Fun and etc (Old Town, 2013). There are some local favorites and sweet delight such as Kaya and Butter toast and Old Town Signature Ice Cream. These food and beverages are all local food and beverages that are popular among the Malaysians.
Old Town White Coffee can be said as successful as it grow from a small business to a large corporation nowadays, and it is well known in Malaysia. Since the market in Malaysia is matured it should have try to expand its business in the other countries and it is proved in both Singapore and Indonesia by its revenue and time they survived. Old Town White Coffee is well prepared to access to the world through globalization and try to dominate the market available to them.
2.0 PESTLE factors of country selected Pestle factors is a framework of macro-environmental factors which to be used in strategic management environmental scanning component. Political factor, economic factor, social factor, technological factor, environmental factor is included in Pestle (Byars, 1991).
2.1 Political factor
The factor includes understanding about the political system, and some key figures that are relevant to government indicators and the business in the country (Jan, 2002). Trading policies in Australia with its neighbor countries is good and in favorable condition. Pressure groups in Australia will let new business to consider and practice Corporate Social Responsibility and Ethics. Australia political environment can be consider as sound as it does not involve in any form of war inside or outside the country. Besides, the government of Australia is work in the policy that encourage international businesses to invest in. Political environment in Australia is sound, as there are voting elections held in every 3 years (Australia profile, 2007). However when new government is formed there might be revising the regulations of business.
2.2 Economic factor
The factor provides understanding about the economic story of the country that gives significant macro-economic issues a balanced assessment (Jan, 2002). In Australia the economy is facing a recession, with 2-3% inflation rate and approximately 6% unemployment rate. Sales tax, progressive income tax, corporate tax rate and etc are implied on Australia. It is very competitive for the corporate tax rate in Australia comparing to some major economies. The climate in Australia is pleasant and favorable for businesses. Other than that, Australia trade focused more in Asia and some pacific countries. The interest rate in Australia is approximately 3% and is favorable for investors as the business can be finance in a lower cost.
2.3 Social factor
The factor deals with customer demographics involves income distribution, healthcare, educational scenario, rural-urban segmentation and centers of affluence (Jan, 2002). The media in Australia has a great impact on the people’s life.99% of the population in Australia is educated. Quality goods are more favorable among them as they are all highly educated. Religious are pretty diversified in Australia and there is a small percentage of them do not take beef, and small percentage of them is vegetarians. Other than that there is also Muslim that does not take pork. Furthermore, the Australian has high buying power which is good for trading over there (Australia profile, 2007).
2.4 Technological factor
The factor enables understanding of strategic information on technological laws and policies, patents, technology and telecom, technological gaps and opportunity sectors in the country (Jan, 2002). There is a number exceeding $30 million of current value of intellectual property in Australia (Australia profile, 2007). The transportation infrastructure of Australia is well formed in the country and the business can serve their customer in a best way through transportation.
2.5 Legal factor
The factor enables study of legal structure, laws to start a business, corporate laws and the tax regime (Jan, 2002). Australia Law system is not binding but influential to each other. Law is passed by the Parliaments and both common law and equity, and constitutional and statute law are used. There are Australia copyright law and Australian contract law which governed the businesses trading in Australia.
2.6 Environmental factor
The factor is considering the country’s performance on environmental policies and indicators (Jan, 2002). Australia is a country that supports environmental protection. When the business is operated in Australia, there should be assumption of no negative impact on the environmental issues and Australia campaign regarding environmental issues should be supported.
3.0 Benefits, Cost and Risks in the business endeavor
To invest a business, there are always benefits the business can earn and there are also costs whether high or low the business has to pay off. When there is an investment of business there are always risks associated with.
The benefits of implementing Old Town stores in Australia involves providing food and beverages that are local, Malaysian style to those students who are studying in Australia, or some Malaysian that has immigrated to Australia. Instead of Malaysian, Singaporean, Indonesian and Bruneian are also widely available in Australia. They always seek Chinese foods that are unavailable in Australia but in the only street, Chinatown. Opening stores in Australia will definitely have a pleased welcome of them. Other than that, through this the culture in Malaysia, the local delights of Malaysia can be spread to Australia through this method. As there are the needs from those students and immigrated Malaysian, Singaporean, Indonesian and Bruneian, opening Old Town stores in Australia will make profit.
However, the costs of opening stores of Old Town White Coffee in Australia is not cheap as there are a need of large capacity for the resources including raw materials, labor forces, and etc. Moreover, the raw materials and labor forces in Australia is not cheap therefore the costs is highly expensive. Other than that, Old Town White Coffee has exported its 3 in one instant Old Town White Coffee worldwide therefore in this time they have to implement their store which is the restaurant selling food. This made them cannot have it to be done exporting but the other form of method of entry. This made the costs higher.
When there are higher costs there are always associated with higher risks. However, a higher risk always gives a higher return. Investments are like gambling all the time. There should have appropriate strategic management assessing all the risks and see whether it is worth it to invest. It is definitely worth it to invest when there are already customer sources. However, the people are distributed in various places, to cut cost there have to be less opening of stores and this will make the people cannot access to the stores and therefore less customers. Other than that, the Australian might not like Old Town food and beverages due to different tastes.
4.0 Proposed Method of Entry The proposed mode of entry is the types of entry modes that to enter into foreign market which is spilt up to two major types of entry modes which are equity and non-equity mode. Equity modes involve joint venture and wholly owned subsidiaries while non-equity modes involve export and contractual agreements. The entry methods are not similar and differ in degree of risk they present, the resource commitment and control they required and the investment return they promise (Agarwal & Ramaswami, 1992). The decision on what method chosen to enter a foreign will have a significant impact on the results therefore it should be careful when doing the selections.
As it is a restaurant and café based store it is impossible for Old Town White Coffee to enter the Australia market through exporting. There should be a try of contractual agreements like licensing and franchising, joint venture or direct investment which wholly owned the subsidiaries. In our view, as the costs are very high to invest in Australia and high risks associated in it, contractual agreement should be chosen as this method has provided the least of risks and costs other than exporting among all the choices of methods of entry.
The advantages of licensing and franchising include minimizes risk and investment, having the ability of circumventing trade barriers, speed of entry, and high return on investment. Furthermore, there are low political risks, low costs and simultaneous expansion is allowed across the world. In an opposite way, the disadvantages of licensing and franchising involve lack of control of assets use, and the licenses or franchises might become a competitor later, the knowledge of the business is spillovers and the time period of license and franchise is limited. There might be wrong candidate of franchiser or licensor that ruin the business name or reputation (Agarwal & Ramaswami, 1992).
Overall, there should have a use in licensing and franchising when there are import and investment barriers that are high but it is not appropriate in Australia as it is low in Australia. Other than that, there is no possible protection of legal in Australia environment which made licensing and franchising further not appropriate. However, there are large cultural distance and low potential of sales in Australia that estimated therefore using licensing and franchising is appropriated. Other than that is has to be assured that the licensee and franchisee has less ability to turn up to be a competitor. Old Town White Coffee should try joint ventures and direct investment but for cost and risk minimizing, they will have to choose licensing and franchising.
University/College: University of Chicago
Type of paper: Thesis/Dissertation Chapter
Date: 30 November 2016
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