Business Plan: Whether is it Feasible for BMG to Expand its Presence in the Increasing Affluent Chinese Market via Joint Venture (JV) with a Local Chinese and if it is Feasible in the Chinese Milk Market with a Local Partner.
Executive Summary
The purpose of this business plan is to come up with information in relation to the Chinese milk industry. Furthermore, this business plan seeks to determine whether the Chinese milk industry can be a lucrative platform to invest. Just the same way, this study is meant to analyze the possibility of BMG Company forming a joint venture with a local Chinese company, besides, it should explore some of the benefits the company will accrue as a result of getting into the agreement. This information will be used by the proprietor of BMG Company to determine whether he should undertake the investment or not.
This plan is composed of six major sections, the executive summary, the introduction, the industry analysis, the industry dynamics, the conclusion and the recommendations. All these sections will strive to answer or give directions with regards to the plans, or major questions, that is, whether BMG Company should expand its presence into the Chinese milk industry via a joint venture with a local Chinese and if the venture will be feasible. All the information on this paper is based of scientific research.
Introduction
As a growth strategy, BMG Company is seeking to get into a joint with a local Chinese company. Through the joint venture, the company aims to expand its market niche in china and beyond. However, there are several issues that the company wants to review before signing up the deal, nonetheless, if the company hurriedly signs up the deal, it can end up making huge losses that can negatively affect its operations. BMG company supplies milk, therefore, it intends to carry out a feasibility study to unearth several factors underlying the Chinese milk market. However, the milk industry in china is significantly stable, to be precise, there are no major shortages evident. But the Chinese massive population is something that is quite promising; it would be very difficult for the company to realize serious losses. Moreover, the company’s plan is quite logical, if it had ventured into the market as a sole proprietor, then penetrating into the milk market would be much difficult (Roos, Khanna, Varma, Lang, Dolya, Nath & Hammoud, 2012).
China is a country that believes in itself. The idea of BMG Company to form a joint venture with another company that perhaps had a given percentage of the Chinese milk market would be the most appropriate platform. A joint venture is a type of business agreement where the proprietors agree to develop as a single unit for a specified period of time (Roos, Khanna, Varma, Lang, Dolya, Nath & Hammoud, 2012). It is assumed that a joint venture can only be formed when a new business entity decides to join an already existing company. In this new business partnership, the new company contributes to the general unit by providing assets and equity. Basically, business proprietors decide to form joint ventures for four major reasons. The most basic reason is market entry; it is believed that joint ventures allow proprietors to gain quick insights into a new market. Other reasons include a desire to increase the volume of production, market efficiencies and coverage. The final reason is gaining strong ties with the distributors.
Industry Analysis
The Chinese milk industry is a lucrative business sector to invest in especially when the right strategies are used (James, David & David, 2014). The massive Chinese population forms a ready market for the dairy products. Furthermore, the Chinese people are great lovers of milk and associated products. Statistics reveal that China is a great consumer of milk products. To be precise, statistical estimates made in the year 2006 revealed that between 2006 and 2016. China would have consumed dairy products amounting to 14.1 billion U.S. dollars. This figure forms a greener platform for investment in the milk industry.
Even though the milk market is relatively big, it is so due to the high population. Studies made before the year 2006 revealed that the people’s republic of China had one of the lowest levels of milk consumption, that is, the per capita milk consumption. In 2003 alone, statistics showed that the per capita milk consumption in China was approximately 5.61 kilograms per year (Dong, Fengxia & Allen, 2010). However, the analysis also revealed that the consumption trend was relative. It was purely based on the level of income, the region and location from towns and cities. The study provided conclusive evidence that in the mid 1980’s and the early 90’s, milk consumption in urban China was relatively stagnant at approximately 4.81 kilograms per person. During the same period, those living in rural areas were consuming the least volume of milk of approximately 0.61 kilograms per year, a figure that was among the least not only in Asia but globally (Huang, 2014).
Although the late 80’s and early 90’s were periods marred with lower milk consumptions, the consumption trend begun to rise steadily. In the late 90’s, urban consumption started to grow by a pleasing index of approximately 25% annually, by the year 2002, the urban milk consumption was standing at an average of 15.7 kilograms per person. From then, there was rapid growth of milk consumption; people began to consume large quantities of fluid milk, ice cream, yoghurt, cheese and milk powder (Youfa & Shiru, 2011). The huge consumption of dairy products has seen to massive investment of the western-style milk restaurant by western citizens. In a nutshell, milk consumption in China is something which is rapidly growing. The trend is quite alarming and needs a well-thought out plan to counter the high demands, failure of which will lead to a massive shortage.
Source: http://www.card.iastate.edu/iowa_ag_review/summer_04/article5.aspx
The bar graph above demonstrates the rapid growth of consumption of milk product in the People’s Republic of China. From the table, the continuous growth can be seen conspicuously. In the year 1993, the per capita consumption of milk per person was averaging at 3.8 kilograms for individuals living in urban areas and 0.4 kilograms for the rural counterparts. In 2002, the consumption index for the rural dwellers slightly changes to an average of 0.6 kilograms while the urban dwellers had a great increase of 15.7 kilograms (Huang, Jia, Luan, Rozelle & Swinnen, 2012). The market will be very suitable for a new investor like BMG Company.
Industry Dynamics
Contrary to the long held misconception of dairy products, China is one of the Asian countries that have the longest history in relations to milk products. History has it that China is one of the Asian countries that started to use milk products as early as in the 19th century. However, during that time, milk and milk products were only limited to those who lived along the Chinese coastal cities (Changbai & Klein 2010). Today, Chinese medical experts recommend the use of dairy products as they have a high notorious value than any other meal, as a matter of fact; a glass of milk contains a whole meal. Perhaps the major rise in dairy products consumption in China is as a result of change of attitude. Dairy products come along with an array of health benefits. The recent increase in milk consumption can also be contributed to technological advancement. The bar chart below demonstrates regional consumption of milk in China from the 19th century (Allaboutfeed, 2013).
Source: http://www.card.iastate.edu/iowa_ag_review/summer_04/article5.aspx
In the recent past, milk was only stored the traditional methods, this led to difficulty in transporting milk to rural and remote areas. The recent innovation in refrigeration systems allows retailers to store milk and other milk products in their stores as long as they wish (Lina, 2013). Moreover, special vehicles mounted with thermos and refrigeration systems can be used to transport milk products all over China. Besides the technological developments, there is yet another emerging trend among the Chinese daily products manufacturers, that is, home delivery. It’s very appropriate for any upcoming business like BMG Company to adopt to these trends in order to realize successful gains, without which, massive losses are eminent (Paul, 2013).
A recent survey conducted in China’s three major cities, that is, Beijing, Shanghai and Guangzhou clearly revealed the consumption trends among the town dwellers. To everyone’s surprise, nearly all the households had refrigerators. Moreover, a whooping figure of up to 90% percent of all the households in the three cities purchased dairy products (Shanshan, 2013). From the statistics, the major dairy products consumed in these three major cities were solid milk, yoghurt, ice cream and milk powder. The survey further revealed that Chinese households in these three major cities either purchased dairy products three or four times per week. The survey also noted that these purchases were done in bulk. However, analysis of this survey revealed that they were certain issues that affected milk consumption in these cities. Specific issues that affected dairy consumption were the level of education, regional factors and beliefs, level of income, location of purchase, all these apart from the regional factors and believes had a positive impact on milk consumption (Feng, Lyubov, Catherine & Philip, 2014).
Conclusion
As per the SWOT analysis, the major strength BMG Company had it that China has a ready market for dairy products. This is a surety that the business venture won’t fail whatsoever. Moreover, statistical surveys clearly reveal that milk consumption is on the increase in China, there are great expectations for the future. Several forecasts made show that the future of Chinese milk industry would be lucrative (Matthey, Jacinto & Frank, 2013). The only weakness the company would face is how to venture into the market, once again, that would be solved through the joint venture. There are two major opportunities for BMG Company, that is, the expected future growth and supply to rural settlements. Nonetheless, the major challenge the company would face will come from stiff competition from other proprietors.
Joint venture is a business strategy that effectively works for proprietors seeking to venture into foreign markets. If the proprietor of BMG Company had approached the foreign market as a sole proprietor, perhaps he could have failed terribly. The most basic strategy of a business should be how to venture into a market and obtain a market niche. Once done, the business can concentrate on sustainability issues and ways which it can use to grow and expand. The study was successful as BMG Company can be a potential investment into the lucrative and ever growing Chinese milk industry (Dim, 2013).
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