Oldtown Expansion Strategies

darkenedt let Expansion StrategiesThe Old townsfolk Groups (OldTown) was realized in 1999 by executive Directors, Mr. Goh Ching Mun and Mr. Tan Say Yap, who formulated OldTown own blend of 3-in-1 instant black-and-blue coffee. (OldTown, 2012) OldTown commenced their championship as a classic coffee shop of 3 in 1 instants white coffee in Ipoh, Malaysia under Old Town sporting Coffee disfigurement name since 2005. At the future(a) years, OldTown is divided into some(prenominal) segments of sustenance services which ar fast abject consumer trues (FMCG) and fargon and beverage (FB). At the end of year 2011, Old Town has 196 caf out anyows in diametrical countries much(prenominal) as Malaysia, Sin pasteore, Ind matchlesssia and chinaware. These 196 caf outlets argon comprised of 79 richly owned caf outlets, 18 partially owned caf outlets, 96 rightd outlets and 3 pass outlets. as hygienic, Old Town has manufactured the beverage products and tradeationed to worldwi de countries much(prenominal) as Hong Kong, Sin chapore, Taiwan, USA, and Canada. (OldTown yearbook Report, 2011) According to OldTown (2012), the latest updated information showed that OldTown has smashed to 205 caf outlets.The goal of OldTown is to let everyone enjoy every slip of authentic Malaysian Ipoh White Coffee, any experimental condition, anywhere. (OldTown, 2012) at that placefore, OldTown testament continue to launch the gritty fictional character products to customers for collective vision of creating to be Asia Pacifics Leading White Coffee producer in providing advanced pure tone product to customers globally. (OldTown, 2012) The mission of OldTown is to promote their Unique Malaysian Taste- the authentic Ipoh White Coffee and continue White Coffee Legacy through with(predicate) and through round-the-clock improvement and innovation that exceeds customer expectations. (OldTown, 2012) On the other hand, according to the OldTown (2012), the sum values consi st of consistency, continuity and growth, originality and creativeness, respect diversities and traditions, as healthful as ethics and integrity. Besides, they adopt integrated line strategies and focus on quintette key components. The premier component is to build up strong check off equity and keep customer subjection by strengthening and promoting OLDTOWN dirt name. Second component is to continue in working out of caf vane through privilege programmed topically and inter subjectly and imprecate on establishment of their fully owned outlets. Third component is to strengthen the position as an hustler of a major caf chain. Fourth component is to continue in victimisation of a mod and innovative product. Last component is to establish high standards of the quality products and services consistently to exceed the benchmark standard of quality and customers expectations. (OldTown Annual Report, 2011)2.0 Current expansion strategyOldTown adopts different expansion strat egies such as license, licensed, partially-owned and fully-owned strategies in different countries which include Malaysia, Singapore, mainland China and Indonesia. (OldTown Annual Report, 2011). OldTown much focus in adopting franchise strategies since this strategy brings more successes to smash caf net add either locally and internationally in spite of fully relying on the establishment of fully-owned outlets. (OldTown Annual Report, 2011)OldTown is implementing export of the products to other countries. Exporting allows OldTown to gain war-ridden usefulnesss which argon change magnitude the products sales accomplishment, trade shares as well as emolumentability (Piercy, Kaleka and Katsikeas, 1998). OldTown exports the beverages products wantwise great deal expose the none name and collect more customers from different regions. On top of that, exporting also allows OldTown to set off the customers base in global market. (Kaleka, 2011).On the other hand, exporting requires high transport fees. The constitute of shipping may be a sincere issue for OldTown. Shipping comprises tin muckle make exporting uneconomic especially when the products are export in high volume. Furthermore, OldTown is depending on the hesitation of transportation costs. The transport or shipping fees keep on increasing nowadays in exporting secures receivable to economic downturn, inflation and financial crisis. Ultimately, OldTown should be more concerns about this issue since this could be a drawback for export sales.According to Combss study (2004), in franchising strategy, an agreement is held by two free-living parties whereby franchisor grants the right to franchisee to draw out the business in return of annual loyalty in monetary form (as cited in Miles, Aaron, Jeremy, Kelly and Di Wu, 2011). In other words, franchising is a legal regulation activity and requires compliance with federal and state franchise laws. According to the Buckless study (2011), franchising allows the franchisors to gain opportunity to entry the new markets by attracting the effectiveness franchisees.OldTown chooses master franchise as its form of franchising is due to franchising is the approximately popular means of entry into distant and cultural dissimilar market in Asia. Franchise elbow rooml also provides scale to the company. OldTown topically owns 85 franchised caf outlets and one licensed cafe outlet in Malaysia. Revenues from these franchised outlets are take in through the initial franchise fees (RM 80k), the sales of Old towns produces, the royalties (5% of revenues) and the AP fees (3% of revenues). (Oldtown Berhad, 2011). OldTown is required to work with well-experiencing franchise lawyer to undefeatedly establish the franchisee strategy.In order to sheer the business risks, OldTown internationalizes the business by expanding the caf outlets to the c lack countries (Aliouche and Schlentrich, 2011). Previously, OldTown is expanded from Malaysia to Singapore which is physically close to the home unpolished. Singapore has the similar cultures with Malaysia. Cultural factors talent gain the risk to the developing corporation in inappropriate market in accordance to Broutherss study (2002) (as cited in Aliouche and Schlentrich, 2011). The franchisors normally prefer to expand the businesses that own geographical and cultural similarities to the host solid ground (Aliouche and Schlentrich, 2011). According to Aliouche and Schlentrich (2011), the corporation go forth then move gradually to the distant ones after successfully internationalize to the close country, as OldTown has. OldTown has successfully standing in Singapore with the total reputation of the products and services. After that, OldTown tar tieed the China and the Indonesia market.OldTown White Coffee is definitely successful in locals where it earns Industry Excellence Award in Malaysia which organized by Ministry of International Trade and Indust ry (MITI) as at 24th contact 2011. Besides that, at the same year and date, OldTown also acquired production Excellent Award organized by MITI, Putra Brand Award 2011 and 2012 (people excerpt special mention) in 2011 and 2012, and so forth (Old Town Annual repor, 2011). totally these recent try outs had showed that OldTown is quite successful in locally.Based on the evidence from the study (William and James, 2009), franchising and fully-owned strategies could help in reducing costs of finding and observe the outlet manager. In the words of Bradach (1997), the fully-owned strategy aids in normalisation franchising gives a strong motive to locals managers (franchisee) and they are motivated to keep on improving the caf outlets to make it as profitable as possible (as cited in William and James, 2009). In other words, OldTown does non pauperism to all oversee the franchisee closely in protecting the franchisors persona and reputation. In short, franchising allowed OldTown (franchisor) to expand and minimize the monitoring cost (William James, 2009).Besides, franchising strategy also helps to expand number of OldTown customer with faster stair (Edwards, 2011). OldTown grants the right to franchisee to take in different countries. Therefore, by expanding the caf outlet in other geographical areas, this also helps OldTown to raise the customer awareness. In addition, OldTown of all time emphasize on disgrace equity. Hence, OldTown is promoting the patsy name OLDTOWN through the expansion strategies. These strategies might help OldTown to gain the customers loyalty and successfully build up the brand equity, non yet in Malaysia scarcely also in other countries for instance, Singapore.Aside from these, franchising also helps OldTown to enhance competitiveness in food and beverage industry (Holmes, 2003 Joseph, 2011). Franchising spreads the risk through other people investing in different locations. Franchisee normally is the one who responsible for the loan, debt and so on, and hence, OldTown essentially can minimize risk in expanding the businesses. OldTown has better expansion networks for the caf outlets since 2005, from a small, humble coffee caf to 196 caf outlets chain. Thus, OldTown generally could obtain the advantage of loyalties and raise the brand recognition through the ease of this type expansion strategy (Chris, 2011).By the same token, there might have a few of risks that could be faced by OldTown in adopting the franchising. The main disadvantage for OldTown in utilize franchise strategy is that it can be considered quite costly for the potential franchisee. Once it is implemented, franchises fee charge and ongoing royalties would cut the profits of franchisees (Sim, 2008). Besides the initial fee for agreement, original franchise fees, annual royalties, as well as a percentage of franchises business revenue, franchisees also required to leave the peculiar(a) monthly fees for the franchisor (Adrian, 20 10). As part of the continuing franchise agreement, on-going fees are needed to pay to the franchisor for the support, training and development which are provided by the franchisor. In the long term, it go away become a restriction to the amount of profit for the franchisee. Besides, the franchisor also may charge additional fees for services provided to the franchisee, such as the cost of advertising (Ward, 2012). Besides that, franchising also allow cause the lose match right problem when the new franchisees become part of the franchise system. Sometimes, the franchisees are forced to make their own decisions in the uncertainty situation, and they might need to change the policies without make the earlier notification to the franchisor. In fact, franchisor only owns limited power to control the franchise branch and how the business runs.Furthermore, the established rules and the part of the franchise agreement, for instance, the ways of the business operation are already set up by the franchisor, it is rarely for a new franchisee to operate the business outside of these borders (Adrian, 2010). Hence, the franchisee will likely to watch out the majority practices of OldTown to run the business. As a result, franchising limits the creativity of the franchisee (Sim, 2008). By adopting franchising, the issue of communications gap may arise surrounded by the OldTown and franchisee. Franchisees must follow the correct directions in order to maintain the brands image, the high direct of service and so forth. If the franchisor and franchisee did not communicate well, franchisee may have misunderstanding and run the business without the appropriate direction. Moreover, if the franchisee unable to run the business with good quality or good funding, it could curtail success and it will create a very unfavourable business environment as well. The actions and decisions of franchisees are very important because these will definite affect the OldTowns reputation, i mage, profession, as well as customer preference. The franchisee would rely on the brand of the business to bring a bunch of customers but OldTown is the one who need to undertake the risk. If the franchisee harms the OldTown image by serving the despicable quality foods and services to the customers, it will knock on the effect of the own business. Ultimately, this could potentially damage the sales and overall profits (Adrian, 2010).According to the OldTown Annual Report (2011), the OldTown products such as beverages are more focused on the market segment which comprising professionals, managers, businessman in the age group between 30 to 50 years old. Most of the people concern with sizeable conscious nowadays, Old Town also introduced healthier choices of beverage products into the marketplace, such as 2 in 1 No Sugar Added and 3 in 1 with Natural Cane Sugar coffee products. However, due to different countries have different needs, OldTown cannot oversee and control all the b usinesses includes the franchise outlets.Last but not least, franchise outlets need to invest in various promotion tools such as advertising, promotional and marketing campaigns to add the OldTowns brand image as well as to enhance its brand equity value in the marketplace. These promoting activities will need a spacious amount of money in order to attract the customer and sustain the old customers.3.0 Future Expansion StrategyThere are nearly suggestations for OldTowns future expansion strategies. OldTown can continue the current strategies (franchising and exporting) and the new recommend strategies (joint enter and strategic unions).3.1 FranchisingOldTown is using the franchising as the entry mode strategy to achieve the rapid and low-cost market expansion, either in locally or internationally. Franchising allows OldTown to get the inflow of franchise fees to expand its markets. All of the premises, equipment and all other working crownwork that are needed to establish a franchise unit are invested by the franchisee. Besides, OldTown also able to receive the royalty fees from the franchisees. (OldTown, 2012)OldTown is improve of many another(prenominal) of the costs and risks through this entry mode. OldTown can achieve global presence quickly and smother the risk and cost of doing business via franchising, as McDonalds has. Thus, this strategy should be continued by OldTown since it had good achievements with this entry mode. (OldTown, 2012)Furthermore, OldTown would establish as master franchisee in other markets. control franchising depend the quality of the local partner to success in other nation. Thus, OldTown should find the right local partner and sell the master franchising rights. For instance, McDonalds, KFC and others are established a master franchisee in particular country or region. (Daszkowski, 2012) Master franchisee of OldTown will oversee the heed and reduce the quality control challenge in other new markets. other than tha t, master franchisee also can monitor the performance of the franchisees.In fact, there are many laws and regulations implied on franchising. Different nations have different requirements in this mode of entry. The franchisor shall punish the 2+1 requirement in order to develop a franchise in China. The requirement means the franchisor need to own two outlets of the franchise business for more than one year. (Philip, 2010). Franchising is a new business concept in Kazakhstan and is not leveraged to its full extent. It is an opportunity for the OldTown to franchising the brand to this country. The Kazakhstani entrepreneurs find it easier to work with Russian franchisors instead of other countries franchisors. This is due to both Kazakhstan and Russian share the same language and similar tastes, ultimately reduce the localization costs in setting new franchise. (Parshina, 2009) This would be a threat for OldTown to expand its franchise into Kazakhstan. OldTown should able to justify the benefits, risks and costs earlier enter the particular nation.3.2 ExportingOldTown is pursuing the exporting as the one of the mode of entry to expand to other countries. OldTown is success to expand its brand through this strategy and OldTown is encouraged to continue this mode of entry. OldTown commenced the first export of OLDTOWN brand of 3-in-1 instant coffee meld to Singapore in 2001. The next years, OldTown success to expand the export markets to over 13 countries. (OldTown, 2012) Exporting allows OldTown to growing sales and profits by fully utilize the use of exist capacities. Besides, exporting also allows OldTown to gain new knowledge and experience about the unconnected countries technologies, marketing techniques and foreign competitors. (Tekle, 2007)In Malaysia, OldTown distributed the coffee mix through major hypermarkets and supermarkets (OldTown, 2012). OldTown may consider using this type distribution channelise in other countries. However, OldTown needs to handle all the logistic of the feat and spend extra costs to export the products since the transport costs are high. (Delaney, 2012) Besides the transport costs, OldTown also need to pay attention on the costs from high tariff barriers which set by the particular nation. (Hill, 2011)Additionally, OldTown obtained the proper certification from the Moslem Religious Department of Perak for the Groups beverages in 2002. The beverages of OldTown are complied with the Islamic Law. (OldTown, 2012) This certificate also provides extra opportunity for OldTown to export the coffee mix to Islamic countries.3.3 Joint shamsOldTown can use joint ventures to enter a foreign market other than using franchising market entry mode in expanding the business. Joint venture is the establishment of a firm that is collectively owned by two or more otherwise free firms (Johnson, 2000). OldTown can joint venture with Chatime in Australia in move into their first new market in Western country. Cha time had operated in Australia since 2009 and now has over 30 stores Australia-wide (CHATIME Autralia, 2011). Moreover, Chatime are growing fast in term of go-ahead one new store each month on just (CHATIME Autralia, 2011). Based on Chatimes record in successful penetration to foreign market, OldTown can penetrate to Australia by joint venture with Chatime.Joint ventures will help OldTown in getting local partners knowledge regards the host country competitive condition, language, cultures, political systems, and business systems. If OldTown expands their business without further exploring to the particular country history, competitive condition, political systems, business systems and cultures, OldTown will face lots of barrier to entry to the new market. This will also cause OldTown to have a wrong timing of entry or loss the opportunity expectation in lancinating to the particular foreign market. (Hill Hernandez-Requejo, 2011) In addition, joint venture is good to be practic ed by OldTown due to the costs and risks of orifice a foreign market are shared. It can help OldTown in reducing the necessary costs such as initial capital requirement, transportation costs, advertising costs, operational costs, and extra cost charge by the certain local government for set up a new business in country. Therefore, by having a partner in reducing the costs, OldTown will face lesser risks for setting up the business in new market at foreign country. (Hill Hernandez-Requejo, 2011)Other than that, joint venture also allows OldTown to learn about a new market environment. If OldTown can success to become an insider in the country, it may help OldTown to increase the level of commitment and picture in future. This will help OldTown to improve the image and reputation. Besides, OldTown also can penetrate to other foreign market in future with easier way and reduce lots of entry barriers. (Keegen Green, 2011) From this point of view, by joint venture with Chatime, it w ill help OldTown in building up their brand name.Although joint venture may cause the company do not have the tight control over subsidiaries that it might need to realize the experience curve or location economies. But, due to OldTowns management team is led by professionals and beers who have more than 20 years experience in the particular industry, it is believed that OldTown management team is more than heart-to-heart and passionate to anchor OldTown towards more successes in the future. (Kenanga Research, 2012)3.4 Strategic alliancesThe changes in political, economic, fond cultural and technological environments make strategic alliances have the relative greatness for a company to choose as an entry mode to foreign countries (Keegen Green, 2011). China businesses are stable and growing (OSK Research, 2012). OldTown intends to replicate the popularity of its coffee brand from Hong Kong to China with promoting the OldTown brand (OSK Research, 2012). OldTown found that the FB business in China is well carrying by having average spend per customer of 40-50% higher than the businesses in Malaysia (OSK Research, 2012).Other than that, demands of OldTown FMCG products remain tough. In addition, with the new added menu such as soup, OldTown found that China prospects seem capable at this point in time for penetration (OSK Research, 2012). OldTown believe that its business in China have to expand more rapidly than its competitors to ensure its company foundation can be strongly build (OSK Research, 2012).OldTown is setting up a new food processing centre as part of its expansion in penetrating Chinese food and beverage market in China (Ho, 2012). OldTown can use strategic alliances as their entry mode in penetrating to China, forming a strategic alliance with secret Recipe in China. Secret Recipe had successfully established its brand name in China by virtue of its fine quality cakes, fusion food and characteristic service (Secret Recipe, 2012). This strate gic alliance also allow OldTown in gaining extra knowledge from Secret Recipe regards the culture, political, and economic system in China without carry out a costly detailed research in China (Keegen Green, 2011).There are several advantages of using strategic alliance as the entry mode for OldTown in penetrating to foreign country. The advantages are sharing benefits of alliance as well as control performance of assigned tasks, long-term strategies is formed between two companies, and retain national and ideological identities when competing in markets not covered by alliance. (Hill Hernandez-Requejo, 2011)4.0 ConclusionThere must be reason when local coffee shop like OldTown able to success in highly competitive market. OldTown do not bond itself in its current expansion strategy, like franchise, fully-owned outlets and export the products. Meanwhile, depending on 1 expansion strategy is less flexible and too risky. OldTown current strategies had lots of advantages as well as d rawbacks. Firstly, Franchising is a popular mode of entry to local and the foreign market. OldTown master franchise because of high revenues get from initial franchise fees, royalties, sales and AP fees. Next, export the products could gain competitive advantages by exposing their brand name and attract more customers from different regions by upbringing customer awareness, expand the customers base in global market.While, both franchising and fully-owned strategies, has advantage OldTown in reducing costs, attract for recruitment and attract potential franchisee. In the other side, Franchising also bring drawbacks like franchisee has limited freedom and creativity was limited by franchisor. There may be communications gap between franchisor and franchisees in decisions making and it could ruined the name of franchisors. Normally, company will be choosing to expand to close countries first because of the similarity in call of geographically and culturally. OldTown needs to have pro duct creativity to fulfill different country needs, and customer in different segments.It is good to continue the franchising and exporting strategy for OldTown since both strategies bring lots of positive outcomes, gains and profits. Both strategies had relieved many of the costs and risks, both strategies should be continued by OldTown since it had good achievements with this entry mode. Between Joint Venture and Strategic alliances is the potential of OldTown to expand to foreign countries, Joint venture could reduce the barrier to entry, reducing the necessary costs such as extra cost charge by the certain local government, in the mean time, increase the level of exposure of OldTown in that particular country. Strategic alliances enable OldTown to have long term strategy business in other country.Business nowadays is not only need to focus on customer and service, OldTown needs to follow the latest business trend and be flexible in covering high adaptability to changes. Besides , OldTown has seen the importance of contributions to the community, environment and its investors, as well as the business ethical for its well name or reputations.