Name : Corina Kwok De Los Santos
Programme : BSc(Hons) Business and Management Studies
Intake No. : Intake 39
Module : Global Business Environment
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Company background Tang Dynasty Hong Kong (Holdings) Limited (“Tang Dynasty”) is a well-known traditional Chinese dessert and sweets company with numbers of stores in HK and China. Tang Dynasty opened its first shop in Centre Street, Sheung Wan District in 1885, over 100 years of history. Tang Dynasty is recognized and renowned as traditional, home-style healthy desserts stores. Over the past few decades, Tang Dynasty has developed into renowned dessert chain stores, providing healthy homemade style Chinese herbs desserts to local customers as well as foreign tourists. All local customers, no matter elderly or youngster, fell in love with Tang Dynasty’s desserts. All desserts in Tang Dynasty are good to human health and made by secret recipes of the ancestor of Tangs. Each dessert addresses to different kind of functions and could help in improving human’s health in Traditional Chinese Medicine’s aspect as all desserts are made by Chinese herbs. After years of efforts and developments, Tang Dynasty has positioned them as a Leader of Traditional Chinese dessert and has won the respect and appreciation from the domestic customers and foreign tourists. Over the years, Tang Dynasty has insisted in providing fresh and top-quality desserts to its customer every day. All desserts are made daily in its own central food production workshops and to deliver to each store every morning by its logistics and transport teams. Tang Dynasty has been widely recognised as an “100 years old store” with a notable reputation in catering industry, but to continue in achieving sustainable competences, Tang Dynasty has been developing new products, seeking innovation and to explore new markets among the world.
Introduction:

Undoubtedly, international expansion is the key factor to business success. Tang Dynasty aims in expanding its chain stores to overseas market – London, UK. Whether or not the selected market (i.e. London) would be a good choice and when will be the best time to enter it, a company analysis and understanding of the selected market segments are very important. The report below provides an insightful detail regarding the external environmental factors of the selected market and a detailed analysis of Tang Dynasty in line with the expansion in international business operations.

PEST Analysis

Political (Legal) Factors

This is the important part of expanding business internationally as law and regulations will directly affect the viability of a company’s operations. Political risk assessment is an analysis of the political risks the company might face in its selected market. Tang Dynasty should acquire basic knowledge of the political structures of UK in order to control the company’s political risks (Ricky W. Griffin, International Business).

UK is a parliamentary democracy country with a very long history. There will not be any objection to say that UK is one of the attractive markets for businesses and/or investors. As its political and legal system are both healthy and it is a free market where government does not really hinder the foreign firm from entering into the United Kingdom. Also, Tang Dynasty is a Chinese desserts store and focusing in public market, as mentioned, UK is a free competition market; competitors from the domestic and foreign are great for sure, however, it is still optimistic as UK government might not favour the domestic sectors.

However, numbers of political risks that Tang Dynasty should be well aware of as these might cause a great loss. Everyone should know the tax in the UK is the highest among the top- countries in the world, whether or not to enter into this market, profit tax should be well considered as well as the relevant law and regulations of Minimum Wage adjusted every year due to the inflation of the country. Many people are of the view that London, UK should be a safe place for people to live, however, from the recent riots happened in the North London, the reality told us a complete different story. The riots in London lasted for 4 days and everyone in the world could see that London was totally out of control and with some disturbances around in other cities of the UK. The incident caused a big impact of the safety issues in London. In contrast, things were all settled in the mid- August, this also shows that the UK government is still quiet efficient and systematic.

Further, Tang Dynasty is a well-known Chinese desserts store with a base in HK. HK was the colony of the UK as we all know. Although HK has been returned to China for more than ten years, the Legal System of HK is still following the English Legal System – Common Law with only limited changes (such as Basic Law). Common Law is a legal system which has been widely used in many countries, such as USA, Canada…etc. Therefore, most of the Law in the UK, such as contract law, employment law, Intellectual Property Protection, product safety and liability are quite similar. As UK and HK are using the same legal systems, it would be easier for the management of Tang Dynasty to understand the legal environment of UK as well as when there would be any dispute between others within the designated territory.

Economic Factors Political and Economic are brothers. They will affect each others as the most important thing of a country should be “Economy” so all government will try its best to maintain its economy in a very good status. UK is a mixed economy, where the government and the private sector governed the country’s economy. The means of production are mainly under private ownership; that markets remain the dominant form of economic coordination; and that profit-seeking enterprises and the accumulation of capital would remain the fundamental driving force behind economic activity. Additionally, the government would wield considerable influence over the economy through fiscal and monetary policies designed to counteract economic downturns and capitalism's tendency toward financial crises and unemployment along with playing a role in social welfare interventions and some supporters view mixed economies as a compromise between planned socialism and laissez-faire capitalism (http://en.wilipedia.org/wiki/Mixed_economy). Although UK is a mixed economy, the impact from government is still extensive.

UK’s economy is stable and UK economic growth weakened for three years from 2009, inflation rates are high as well as the exchange rates. Entering into UK market is definitely expensive, a detailed budget control is highly recommended before commencing any business in London. Also, as Tang Dynasty is a Chinese Herbs dessert store, its products are mainly agriculture products. Agricultural products are, in fact, affecting the country’s economy as well as political aspects. Government will, most likely, control the allocation of its valuable agricultural products. A deep consideration of importing or buying such products will be another important issue for the management of Tang Dynasty when entering into London’s market.

Social Factors

Culture is a very important issue when considering entering a new market. It is very important for the management to operate its business in compliance with the systems and culture in order to gain good reputation and public image. From Hosfstede 1991, cultural aspects is equally essential, in order to understand the various needs of different individuals that belongs to different cultures.

The important area that we have to consider is about the working hours, paid holiday in the UK. British seldom work late and usually they have more paid holiday in the employment which is different from HK. Also, many of shops, stores in London close very early which may directly affect the profit of the company. In HK, you can see shops, restaurants open even at the midnight, however, it is really rare in the UK although London is a big city. Whether Chinese herbs could be widely recognised and accepted in the UK will be another issue as most of the westerners will believe in western medicine more than Chinese medicine. However, as we know, many Chinese are actually living in the UK, Tang Dynasty could, at least, have these people to be their customers.

Technological Factors

UK agricultural production and its technology is efficient and highly-automized and is one of the leading nations having product efficient and safe harvests. Quality of its products is guaranteed and received a notable reputation among the world. However, most of the Chinese herbs are excluded in the list of UK main agricultural outputs. Many Chinese herbs are abundant in Asia regions. Also, knowledge of Chinese traditional medicine and use of herbs is lack in most of the western countries as people rely on western medicine rather than Chinese traditional medicine. Further, the humidity weather in UK is not really suitable for planting the Chinese herbs. Undoubtedly, in view of a good technological advancement and efficiency in production, UK definitely prevails. However, skills and techniques of handling the Chinese herbs before consumption are complex and required particular knowledge. In this regard, export of Chinese herbs (raw & seeds) to UK for further possessing is highly recommended and encouraged.

Comparison of English desserts and Chinese desserts

Spotted Dick, Puddings, Old English Apple Hat and Butterscotch and Banana Trifle with Madeira are famous English desserts. But take a look at the ingredients, you will find sugar, custard, cream, butter …etc, these are all “FAT” and “UNHEALTHY” stuff. There is a proverb saying that “Unhealthy foods are the most delicious foods in the world”, it is no doubt that people love “unhealthy” foods. Foods or desserts with lots of cream, butter, sugar will definitely be the first preference than those boiled or steamed with no flavouring. Therefore, English desserts are always popular in the UK or even other places around the world.

However, you can hear more people saying in the supermarket or restaurant that I want to eat healthier and it is apparent that the health consciousness of consumers has been revived these days. People are more concerned with the foods that they consume for many purposes, such as losing weight, balance diet will result a good health. Tang Dynasty is a Chinese herbal desserts store, aim in providing healthy Chinese desserts with a function of curing sickness or strengthen metabolism …. etc. In many universities in UK, they offer subject of Chinese Medicine, it indicated that Chinese medicine has already been widely recognised and accepted in the UK. The functions of Chinese herbs are recognised as good way to strengthen the people’s health. One of the advantage or competitive advantage of Tang Dynasty is their desserts. Without adding any “UNHEALTHY” flavouring, most of the desserts could also bring the “sweet” taste to consumers. “Sweet” dessert with a function of curing sickness, strengthen people’s health could definitely attract many consumers in the new market, London.

Challenges, constraints and opportunities

Challenges One of the greatest challenges in entering into London’s market would be the culture between Chinese and British. The lifestyle is totally different. British people are more “life-enjoyed” type and Chinese are more “money-earning” type. The average working hours in the UK is 35 hours per week in 2007 where the average working hours in Hong Kong is 49.6 hours per week in 2008 (55.2 hours per week in 2004). Also, the average annual leave is 19 days per annum in HK but up to 28 days per annum in the UK. The distances between the working hours and holiday would be a big challenge to Tang Dynasty as it gives an indication that budget for employing employees in the UK will be a lot bigger than in Hong Kong. Also, the opening hours of the shops and stores would be another challenge to Tang Dynasty. As we all know, European tend to be more “work-life balance”, restaurants and shops usually close early which is again a lot different from Hong Kong.

Further, Chinese herbs requires complex preparation before turning them into dessert, training needs to be provided to the local employees, workshops with particular equipment and machines are needed as well. Setting up and preparation costs will definitely increased.

Constraints High profit tax, minimum wages of employee, expensive rental are totally unavoidable in the UK. In order to maintain the steady income of the Government and for the benefit of its own citizens, the government has set a profits tax of %, which would be the highest in the world. Also, the minimum wages act passed in 1998 to protect employees should be taken into account. The new figure of minimum wages after 1st October 2011 will be £6.08, equivalent to HKD$85.12 which is almost 3 times higher than Hong Kong. Also, expensive rental in London should be not ignored.

Also, rules and regulations of importing Chinese herbs should be considered as well, there may be tariffs on these products as well as applying relevant certificate to guarantee safety and clean foods… etc.

Opportunities From 2001 UK‘s Census, the total population of UK is around 56Billion which is a very large market and the total population of Chinese in the UK is around 300,000. Due to the large amount of Chinese in the UK, the notable reputation of Tang Dynasty and most of the Chinese know about how good the Chinese herbs are to people’s health, Marketing by word of mouth could be successful in the UK as the Chinese in the UK will introduce and recommend to local consumers. Therefore, Tang Dynasty could probably success in London’s market.

Further and as mentioned, people are more concerned with their health nowadays. Chinese herbs could help with strengthen people’s metabolism and blood circulation …. Etc. Desserts for pregnant women, losing weight, skin whitening are Tang Dynasty’s popular desserts. Everyone knows, no matter wherever the woman comes from, they are concerned with their appearances. Tang Dynasty’s desserts would definitely win a battle here when comparing the traditional English desserts.

Finally, UK is a high income country, people are more willing to spend money on foods or maintain a good health.

Suggestions of entering London’s market

As operating a business overseas would be a great challenge to any organisation due to unfamiliarity of the new markets/ countries. To reduce risks, distributors, joint ventures, licensing, franchising will be a good choice to avoid unnecessary risks or problems. It is because local organisations are always familiar with its own country’s environments, such as political, legal, social, technological, culture and/or ethics. In this regard, instead of entering the London market by Tang Dynasty itself but to franchise and/ or license its business to local organisation could be a good choice, no matter in terms of financial view and strategic management view.

Conclusion

The PEST analysis above showed that if Tang Dynasty plans to enter into London markets, the most important thing is to consider Tang Dynasty could earn a profit as there would be a great burden in financial aspects, high tax, high salaries, high rents with less opening hours. Import of Chinese herbs, products marking should also be taken into account. However, on the contrary, since the health value in Chinese herbs would be one of the advantages as this will definitely defeat the UK-based products (unhealthy ones).

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References

BBC - http://www.bbc.co.uk/news/uk-scotland-scotland-business-15060005 - http://www.bbc.co.uk/news/business-15056311

Direct UK Government - http://www.direct.gov.uk/en/Governmentcitizensandrights/UKgovernment/Centralgovernmentandthemonarchy/DG_073438 - http://www.direct.gov.uk/en/Employment/Employees/TheNationalMinimumWage/DG_10027201

Fourth European Working Conditions Survey, 2007 (approximately 30,000 people questioned)

Legislation UK http://www.legislation.gov.uk/ukpga/1998/39/contents

Notes provided by The University of Bradford

Ricky W. Griffin Sixth Edition, International Business

The Association of Traditional Chinese Medicine (UK) http://www.atcm.co.uk/

The University of Hong Kong and CSR Asia http://www.ethicsworld.org/ethicsandemployees/PDF%20links/Hong%20Kong%20WLB.pdf