MGB340 - Business Plan - Final Assessment PDF

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Business Plan to internationalise Chemist Warehouse to China (Final Assignment)...

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INTERNATIONAL BUSINESS PLAN FOR CHEMIST WAREHOUSE NANCY XIAO 1

Table of Contents

1.0 EXECUTIVE SUMMARY ............................................................................................................................ 4 2.0 COMPANY SUMMARY ............................................................................................................................ 5 2.1 GENERAL BUSINESS OVERVIEW ............................................................................................................................. 5 2.2 COMPANY STRUCTURE ........................................................................................................................................ 5 2.3 LOCATION – SHANGHAI ....................................................................................................................................... 5 2.3.1 Demographics ......................................................................................................................................... 5 2.3.2 Freight Routes ......................................................................................................................................... 5 2.3.3 Cost of Retail Lease ................................................................................................................................. 6 2.3.4 Cost of Warehouse Rental ...................................................................................................................... 6 2.3.5 Cost of Utilities ........................................................................................................................................ 6 2.5 GOALS AND OBJECTIVES ....................................................................................................................................... 7 2.5.1 Short-Term Goals .................................................................................................................................... 7 2.5.2 Long-Term Goals ..................................................................................................................................... 8 2.6 STRENGTHS AND WEAKNESSES.............................................................................................................................. 9 2.6.1 SWOT Analysis of Chemist Warehouse................................................................................................... 9 2.7 MISSION AND VISION STATEMENTS ....................................................................................................................... 9 2.7.1 Mission Statement .................................................................................................................................. 9 2.7.2 Vision Statement..................................................................................................................................... 9 3.0 THE GRAND STRATEGY .........................................................................................................................10 3.1 STRATEGIES ..................................................................................................................................................... 10 3.1.1 Target a Growing Market – Infant Formula ......................................................................................... 10 3.1.2 Pricing Strategy..................................................................................................................................... 10 3.2 COMPETITIVE ADVANTAGES ............................................................................................................................... 10 3.3 MODE OF ENTRY .............................................................................................................................................. 10 3.4 RISK ASSESSMENT ............................................................................................................................................. 11 4.0 PRODUCT/SERVICE ............................................................................................................................... 12 4.1 PRODUCT/SERVICE DESCRIPTION ........................................................................................................................ 12 4.2 PRODUCT/SERVICE ADVANTAGES ........................................................................................................................ 12 4.3 FUTURE PROJECTIONS ....................................................................................................................................... 12 4.4 LEGAL CONCERNS ............................................................................................................................................. 12 5.0 MARKETING STRATEGY......................................................................................................................... 13

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5.1 MARKET RESEARCH........................................................................................................................................... 13 5.1.1 Gross Domestic Product (GDP) – Shanghai .......................................................................................... 13 5.1.2 Pharmaceutical Industry – China.......................................................................................................... 13 5.1.3 Growth in Retail Sales - Shanghai......................................................................................................... 13 5.1.4 Target Market and Demographic ......................................................................................................... 13 5.2 THE COMPETITION ............................................................................................................................................ 13 5.2.1 Leading Pharmaceutical Retailer – China Jo-Jo Drugs.......................................................................... 13 5.2.2 Other Pharmaceutical Companies ........................................................................................................ 14 5.3 MARKETING AND SALES STRATEGIES .................................................................................................................... 14 5.3.1 Social Media Advertising ...................................................................................................................... 14 5.3.2 Bulletin Board Sites and Blogging......................................................................................................... 14 5.3.3 Video Advertisement ............................................................................................................................ 14 5.4 DISTRIBUTION AND CATALOGUE SALES ................................................................................................................. 15 5.5 CATALOGUE SALES ............................................................................................................................................ 15 6.0 PERSONNEL .......................................................................................................................................... 16 6.1 FORM OF OWNERSHIP ....................................................................................................................................... 16 6.2 LINES OF AUTHORITY AND RESPONSIBILITY ............................................................................................................ 16 6.3 NUMBER OF EMPLOYEES AND EMPLOYEE TURNOVER ............................................................................................. 17 6.4 EMPLOYEE WAGES............................................................................................................................................ 17 7.0 OPERATIONAL INFORMATION...............................................................................................................18 7.1 OVERHEAD COSTS ............................................................................................................................................. 18 7.2 SUPPLIERS ....................................................................................................................................................... 18 7.2.1 DHL........................................................................................................................................................ 18 7.2.2 CWH Warehouse................................................................................................................................... 18 7.3 QUALITY CONTROL............................................................................................................................................ 18 7.3.1 Expiring Products .................................................................................................................................. 18 7.3.2 Medical Waste ...................................................................................................................................... 19 7.4 LICENSES AND PERMITS...................................................................................................................................... 19 7.5 ASSETS AND EQUIPMENT ................................................................................................................................... 19 7.6 ADVISORY BOARD ............................................................................................................................................. 19 8.0 FINANCIAL PLAN ................................................................................................................................... 20 8.1 PROJECTIONS OF INCOME AND EXPENSES, AND NET CASH FLOW FOR STORE IN SHANGHAI ($AUD)............................... 20 8.2 FINANCIAL STATEMENTS .................................................................................................................................... 21 12.0 APPENDICES ....................................................................................................................................... 26

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1.0 Executive Summary This document contains a full business outline for Chemist Warehouse’s internationalisation into Shanghai, China. Main components of the report outline the key marketing and management strategies required that make this internationalisation endeavour viable. Methods of analysis include company description, marketing, personnel and product strategies, as well as review of the management and financial plans for the business as of current.

Assessment of these variables reveal a viable market in Shanghai for Chemist Warehouse. Chinese consumers have developed a taste for quality and trusted products, specifically products such as infant formula and health supplements. Further, a large portion of Chemist Warehouse’s sales are made through retail products, with a smaller portion of sales coming through the dispensary. These factors, in addition to the retail pharmacy’s discounted prices mean a strong competitive advantage to enter the Chinese market.

The report finds the prospects of the company internationalising to Shanghai, China has a positive outlook. A growing trend toward quality products at an affordable price will see the successful internationalisation of Chemist Warehouse into the Chinese market.

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2.0 Company Summary 2.1 General Business Overview Founded in 2000, Chemist Warehouse is currently at the forefront of internet pharmacy in Australia and has become the country’s largest pharmacy retailer (News Pty Limited, 2018; Chemist Warehouse, 2019a). The company offers discounted prices for pharmaceutical goods and is accredited for Internet and distance dispensing, as well as retail pharmacy, selling health products, supplements, perfume, personal care, baby products, weight loss, and cosmetics (Chemist Warehouse, 2019b). The great savings on these products is attributed to aggressive pricing and larger volumes of trade, and a price match policy (Chemist Warehouse, 2019b). The company headquarters and main warehouse is located in Melbourne, Victoria.

2.2 Company Structure The company’s structure allows for control over 300 pharmacies across Australia, which makes up about 20 percent of the market share (Roy Morgan, 2013). Shareholders include pharmacists (i.e. managing partners) and two families who control the group and run the business as a web of partnerships (Financial Review, 2016). The business model used by Chemist Warehouse involves minimum equity investment by individual pharmacists (i.e. managing partners) who agree to the trading terms enforced across the group (Roy Morgan, 2013).

2.3 Location – Shanghai Shanghai is the commercial centre of China and is home to many of the country’s largest companies and most successful business people, topping Forbes Chinas’ ranking of best cities for business (Flannery, 2017). It is classified as a Tier-1 city in China, meaning a larger and wealthier city, offering more opportunities for foreign investors (China-Briefing, 2019). 2.3.1 Demographics Shanghai is China’s most populous city, with an estimated population of over 24 million people (Flannery, 2017, World Population Review, 2019). 89.3 percent of the population reside in urban areas, and 10.7 percent remain in rural areas (World Population Review, 2019). 2.3.2 Freight Routes Shipping from Melbourne, Victoria to Shanghai by air will take 1 to 3 days, and 14 to 19 days by sea (MoveHub, 2019). 5

2.3.3 Cost of Retail Lease Ground floor retail rents in Shanghai increased slightly by 0.9% to RMB55.5 per square metre (sqm) per day (Knight Frank, 2017). The average rent of ground-floor retail premises reached RMB60-90 per sqm per day in core shopping areas and RMB20-30 per sqm per day in non-core shopping areas (Knight Frank, 2017). 2.3.4 Cost of Warehouse Rental Average costs of warehouse rental space in China (not city central) range from as little as USD1.1 up to USD 95 per sqm per day, depending on the size and type of warehouse (Alibaba, 2019). A minimum order of space is required for many warehouses, for example a minimum order of 1000 sqm for larger warehouses (Alibaba, 2019). 2.3.5 Cost of Utilities A standardised connection for electricity is available through Shanghai Municipal Electric Power Company, for 14 U.S. cents per kWh (World Bank, 2019).

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2.5 Goals and Objectives To establish a leading retail pharmacy in Shanghai, providing unrivalled prices on all products. Also, to provide high quality products, including many Australian brands at affordable prices. 2.5.1 Short-Term Goals Short-term goals using SMART framework: Specific Measurable

Achievable

•

To successfully establish a strong presence entering Shanghai.

•

By gauging customer perceptions of the company on entrance into Shanghai.

•

This will be achieved by through a team conducting thorough research on the market.

•

Implement effective marketing tools to engage the consumers of Shanghai.

Realistic •

Focus on the needs and wants of Chinese consumers – considering the cultural differences.

•

To establish a strong presence upon first six months of entering the country.

Timely •

Entry date to be determined after consideration of business plan.

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2.5.2 Long-Term Goals Long-term goals using SMART framework: •

To become a leading retail pharmacy within Shanghai, and the ability to establish four more stores in major city centrals

Specific

in China.

Measurable

Achievable

•

Measured through sales and profit margins.

•

Comparisons with other leading pharmacy retailers in China.

•

Foot traffic at the store.

•

This will be achieved by a strong internationalisation team, including experts from China.

•

A strong marketing team can implement strong and effective tools to engage and capture the attention of Chinese

Realistic

consumers. •

To become a leading retail pharmacy within 18 months of first store opening.

Timely •

To establish four more stores after 18 months.

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2.6 Strengths and Weaknesses 2.6.1 SWOT Analysis of Chemist Warehouse Strengths Currently does huge volumes of trade, which allows for unrivalled prices. • Has an established leading presence in Australia. • Offers a wider range of products including weight loss, fragrance, and cosmetics. • A wide range of target consumers, from babies, adults, to the elderly.

Weaknesses

•

•

The “cheap warehouse” look that Australian stores currently opt for may not suit the more luxurious Chinese taste.

•

Will need a strong team to focus on cultural differences in taste and marketing techniques.

Opportunities There is a large market for Australianmade vitamins and supplements. • There is also a very large market for guaranteed quality on products such as baby formula and milk powder.

•

Threats •

There is a leading retail pharmacy in China which offers their product online and in-store, as well as offering wholesale distribution.

2.7 Mission and Vision Statements 2.7.1 Mission Statement To inspire healthier communities through providing quality and affordability to the customers. 2.7.2 Vision Statement To provide easier and cheaper access for all to better health, beauty and wellbeing, now and for future generations.

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3.0 The Grand Strategy 3.1 Strategies There are two main strategies CWH will undertake. 3.1.1 Target a Growing Market – Infant Formula After the 2008 scandal of tainted infant milk powder in China resulted in the deaths of six children, Chinese parents have lost trust in local companies (OzScientific, 2019). Foreign milk labels (all of which are sold at CWH) such as A2 Milk Co., Bellamy’s Organic Formula, and Karicare are therefore viewed by Chinese consumers as safer, higher-quality and a mark of affluence (News Pty Limited, 2015). Due to this, one component of the grand strategy involves capitalising on the Chinese consumers’ desire for trusted infant formula, with 18 different brands of milk formula currently available through CWH (Chemist Warehouse, 2019c). 3.1.2 Pricing Strategy An aggressive pricing, larger volumes of trade, and a price match policy has allowed CWH to lead the retail pharmacy industry in Australia (Chemist Warehouse, 2019b). Although profit margins will be low, the business is able to sell bulk quantities of products to gain profit. These prices are unrivalled by competitors in Australia (Chemist Warehouse, 2019b), therefore keeping prices low to attract more customers in Shanghai is the second component of the grand strategy.

3.2 Competitive Advantages Capitalising on CWH’s competitive advantages is what gave impetus to the grand strategy. These core advantages include a trusted and established leading presence in Australia, the ability to offer the lowest prices due to larger volumes of trade, and a variety of trusted Australian-made products, especially infant formula, that is available through the store.

3.3 Mode of Entry CWH will undertake a greenfield venture, utilising the market entry strategy of establishment of a new wholly owned subsidiary (WOS) in a foreign country by constructing facilities from the ground up. This is the most beneficial mode of entry for CWH as there is no current international presence, and there is projected success without the need to partner with a local company.

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3.4 Risk Assessment Table containing possible risks which may occur in the internationalisation process: Risk

Risk Category

Likelihood

That the “cheap

Mitigating Options •