Industry-Based Considerations
Rivalry
In China, competitive rivalry is quite high. Different organizations such as Starbucks, Costa Coffee, Whitbread Plc’s, and McCafe contain a good market share and brand image in the competitive landscape. Firms are competing regarding quality, differentiation, price, and distribution in the Chinese coffee market (Baertlein & Jourdan, 2017).
Entry Barriers
The entry barrier for new arrivals is moderate due to flexible business regulations. Easy formation, high brand image, and sustainability of coffee giants make the threat of entry barrier moderate. Business formation is easy, but sustaining the firm due to customer loyalty and satisfaction is tough.
Bargaining power of Suppliers
The bargaining power of suppliers is high in China because firms are focusing on concentrated suppliers to derive high-quality organic ingredients. Organic coffee ingredient supply is challenging for suppliers.
Bargaining power of Buyers
Coffee-Tim Hortons may face higher bargaining power of buyers in China. Due to low switching cost and availability of coffee substitutes, rivals may convert customers.
Substitute Products
The threat of substitutes is high due to availability. Different companies, including local and international, are intending to differentiate products from each other. In China, every coffee business wants to come up with the best alternative. Making several customer segments is an excellent approach to streamline the visibility of substitutes (Baertlein & Jourdan, 2017).
Resource-Based Considerations
Product differentiation, menu expansion, high quality, business expansion, and sound financial condition are vital resources and capabilities of Tim Hortons.
Value of Firm-Specific Resources and Capabilities
The firm contains a high value of resources and capabilities. The customer perceives the high quality of coffee products differentiated menus positively. It increases sales and revenues. The most important thing for the company is to shape the customer preference through creating the value, and Tim Hortons intended to do it in China.
The Rarity of Firm-Specific Assets
Continuous menu expansion seems rare in the market. Customers may convert or prefer other alternatives to have a consistent taste. However, still people are well engaged, and it looks rare.
Transaction Costs
The firm intends to keep the transaction cost low due to some critical low-cost measures. If the firm wants to depict low prices for different coffee products, it has to reduce the transaction cost. It can increase the profit margin and sales in the competitive market.
Methods of Organizing Firm-Specific Resources and Capabilities
The firm may organize its resources and capabilities through better resource management practice. Tim Hortons will realize resource management as an ongoing process, and it will work effectively. With time, the firm may eliminate or develop resources and capabilities. Depending on the needs of the firm in the market, better resource management can help to gain a competitive advantage (Baertlein & Jourdan, 2017).
Institution-Based Considerations
Regulatory Risks: Obsolescing Bargain
Protecting the intellectual property rights in China is quite sturdy. Many firms are struggling due to commercial losses. Controversial IP enforcement in China is a significant risk for both new and existing businesses (Asialinkbusiness.com.au, 2018).
Trade Barriers:
Tariff Barriers
Export quotas, licenses, and duties are several barriers. China is increasing taxes on imports to strengthen domestic firms or industries. It seems the biggest obstacle for international firms to start and sustain the business.
Nontariff barriers
China has depicted some restrictions regarding the quality, entry mode, and safety inspection. In the coffee business, these poor regulatory restrictions are applied slightly to regulate the process.
Currency risks
The currency fluctuation in China is in the limelight. However, China is trying to come up with the influential pricing benchmark. The purpose is to secure the business process, developments, and expansions. Hedging may hit the firm, as future contracts may restrain the firm from operating in the firm (Bloomberg Intelligence, 2018).
Synthesis
Different considerations may pull the foreign entrant in different directions. For Instance, China can create a favorable business environment to develop domestic firms, especially in the coffee industry. Interestingly, this practical consideration can help new entrants to acquire local firms or demonstrate strategic alliances to make the entry successful and increase the market share and profitability immediately.
References
Asialinkbusiness.com.au. (2018, January 1). Risks of doing business in China. https://asialinkbusiness.com.au/china/
conducting-business-in-china/risks-of-doing-business-in-china?doNothing=1
Baertlein, L., & Jourdan, A. (2017, December 5). China’s budding coffee culture propels Starbucks, attracts rivals. https://www.reuters.com/article/us-starbucks-china/chinas-budding-coffee-culture-propels-starbucks-attracts-rivals-idUSKBN1DZ0TO
Bloomberg Intelligence. (2018, July 4). What to expect from China’s futures market opening up. https://www.bloomberg.com/professional/
blog/expect-chinas-futures-market-opening/
+447462439809