International Business Project Barry A. Bunch LeTourneau University In partial fulfillment of the requirement for BUSI4703 International Business Environment Ph. D. Gianantonio “Jonathan” Michelon May 3, 2011 International Business Project Index I. Purpose II. Table of Contents III. Opening IV. Available resources (technology, transportation, personnel, energy, raw materials, etc. ) V. Sociological forces (language, culture, etc. ) VI. Financial forces (rates of exchange, tariffs, etc,) VII. Economic forces (inflation, etc. ) VIII. Physical and environmental forces IX. Legal forces X. Competitive and distributive forces

XI. Conclusion XII. References International Business Project I. Project The purpose of this project is to consider and evaluate the opportunity to open a corny dog franchise. The potential gains and the challenges that are faced when attempting to open a corny dog franchise in the city of Beijing China are being looked at. There are many issues that could arise and determining the potential roadblocks in advance can prevent them from becoming major problems and an explosive situation. II. Table of Contents The first appendix is about the exchange rates between the Chinese Yuan and the U. S. Dollar as of May 2, 2011.

This is a table that reflects the differing rates for the classification of souvenirs, food, and clothing. This category correlates to the industry that is being considered in this project. The second appendix is a table that shows information about well-known American fast food chains. The table will reflect items such as earnings per share, price to earnings ratio, and forecasted growth over the next three-to-five years. III. Opening It is necessary to look at all facets of the business venture that is being considered. Attempting to open a fast food franchise that is a truly American food can be daunting.

A very good way to attempt this and reduce the risk is to look at franchising. This is a way to open a restaurant with quality support. There is no guarantee that this type of fast food restaurant could be a success in the city of Beijing. It helps to begin to look at the resources that are available to the potential business. The next step would be to look at the potential language and culture barriers that would have to be overcome. Determining rates of exchange, what effects that tariffs may have on the product, and what some of the financial forces brought to bear would be necessary.

This would also include economic forces such as inflation and property values. The legal challenges and laws that must be overcome will also be evaluated. Finally it will be necessary to look at potential competition and any distribution challenges that might arise. IV. Available resources It has been determined that the best way to begin the process of opening the corny dog business in a foreign country is through the franchise process. Using a franchise reduces the chances of mistakes that new business start-ups commonly have to deal with when beginning a business venture.

After some evaluation it has been determined that the best company franchise to deal with is the Corn Dog Factory. The Corn Dog Factory uses an ideology that says that “TOGETHER, WE’RE BETTER! ” in their franchising paperwork. (“Corn dog factory,” 2011) They also are fond of the term “On your own, but never alone”. (“Corn dog factory,” 2011) They offer a parent company that is staffed by experienced restaurant operators that have years of hands-on experience in all facets of the business of opening and running a restaurant. This brings a franchise network that offers invaluable knowledge, strength, and support.

This expertise begins at the finance stage and includes everything from construction or leasing to training, marketing, and advertising assistance. They have training programs that are designed to get the staff up and ready for the grand opening. “All this coupled with state of the art electronic software helps assure you of success. You will be linked to the industry’s major food vendors and manufacturers which enables your bottom line to increase. Vendors treat us like family, so you will receive the best warehouse prices and selection. (“Corn dog factory,” 2011) The Corn Dog Factory is a quality franchiser that has been in business since 1980 and shows continued growth today. They have a reputation for quality fresh food that is served fast with a smile and this is something that is stressed to franchisees. The corn dogs are made to order in a freshly made corn batter and other menu items include dipped and fried cheeses, the Shish-ka-Dog, home-style fries, a hot scone dripping with honey butter, or an authentic Chicago Dogs. They offer a highly guarded lemonade recipe that can be designed to a person’s taste by adding cherry, strawberry, lime, or raspberry syrup.

The company’s vision is of success is to grow and expand by helping the franchisee to prosper. The mission is a two-fold mission. “First, to provide our franchisee’s with solid concepts, and a strong supporting franchise network. Second, to provide our guests with quality fresh food, at a low price, and excellent service. ” (“Corn dog factory,” 2011) The company provides information that will help with recipes, food preparation, management techniques, hiring, training guides, and customer care. Computer systems manage cash registers and provide real-time instant analysis of your operating data.

The company provides ongoing support and visits from qualified operations personnel and staff who will consult with the franchisee. How Much Does it Cost to Open a Restaurant? Franchise Fee – First Location: $20,000 Franchise Fee – Additional Locations: $ 8,000 Royalty – Payable Weekly: 5% of Gross Sales Advertising Fee – Payable Weekly: 0. 05% of Gross Sales Capital Requirements (Suggested): $50,000 Liquid Assets Net Worth (Suggested): $200,000 Estimated Construction and Equipment Cost: $87,000 – 150,000 (“Corn dog factory,” 2011) For this franchise opportunity some of the numbers will be very different.

The parent company has never opened a franchise in a foreign country. They are excited at the prospect and are willing to waive some of the fees and even assist in the start–up costs. The franchiser has agreed to cover half of the cost of construction. They have agreed to do this as part of a negotiation. The negotiation included reducing the franchise fee to $10,000 from $20,000. It also included increasing the weekly royalty from 5% of gross sales to 7. 5% of gross sales to help them recover some of the construction costs. The advertising fee would increase from a weekly fee of 0. 05% of gross sales to 0. % of gross sales. These increases would be for a period of 15 years and by basing the increases on gross sales there is an incentive to keep costs down for the franchisee and an incentive to increase sales for the franchiser. The capital requirements and net worth requirements will be met by using savings and retirement funds provided by myself and my spouse. This will get close to the financial requirements and the remainder will be acquired through a small group of investors. The remainder of the building costs and start-up costs would be covered by a joint venture with the China Food Services Corporation or CFSC.

This is a “Go To Market Methodology” according to CFSC. “CFSC is a food and beverage importer, distributor, authorized representative and marketing agent for international food and beverage manufacturers in China. At CFSC, we implement a multi-step process when we are evaluating a new product and then introducing the product to the market place. ” (“Import & export,” 2010) CFSC normally operates with manufacturers but in an effort to diversify they are interested in this joint-venture. The multi-step process includes six steps. The first is uniqueness where they evaluate the uniqueness of the product for the Chinese market.

Step two is evaluating the taste. The company states that they “will never sell any food that we do not like to eat ourselves. ” (“Import & export,” 2010) In a sampling of the product they are pleased with the taste of the food. The third step is partnership. They know and understand the Chinese market and are committed to the venture under consideration. Step number four is consumer feedback. CFSC would handle the taste evaluations and brand testing in the market as part of the venture. The fifth step is the actual “go to market” step.

CSFC, along with the parent company franchiser, begin a promotional and advertising campaign since they are familiar with the Chinese market and the customs. The sixth step is to evaluate and re-adjust. After the first 6 months the joint-venture will evaluate the market and re-adjust for any market changes or new trends. After the first year, a continuation of the sales and marketing plan will be evaluated. The joint venture will be a partnership where the franchisee, Bunch Enterprises, LLC, will carry a 65% share and CFSC will carry a 35% share. V. Sociological forces (language, culture, etc. )

The language is a challenge that must be overcome. China is a destination for tourism and trade from western nations. This is the reason that many big cities, especially urban cities like Beijing, will have a fair amount of English woven into the everyday happenings. Many of the signs that are for public convenience have text in both Chinese and English. Public workers in Beijing have a large English vocabulary. It is possible that all the cab drivers are required to have some knowledge of English. If you appear to be a Westerner most people will speak with you in English as their first choice. “How well and,” 2008) The subject being evaluated is not a ticket to an event or a bargain price. It is s chance to test your English and maybe be embarrassed over one’s stumbling attempts to speak a foreign tongue in front of 2000 other people. (McDonald, 2003) This is a Sunday morning lecture begun by Beijing authorities. It is a coveted seat with the opportunity to listen to one of China’s English-language gurus. In 2001 the Ministry of Education announced that schools would start formal English lessons in grade 1 instead of grade 3. (McDonald, 2003) Government and private employers have begun to encouraging staff to learn English.

They even give time off work and pay for tuition. On a cultural note fast food’s popularity in China is no secret. There are countless signs for KFC, McDonald’s, and Pizza Hut and they are sometimes no more than 150 feet from each other. This is not just a big city issue. “As of 2010, there are fast food restaurants in over 650 cities throughout China. In this day and age, consuming junk food on a daily basis is becoming the norm, not the exception. ” (Steiner, 2005) According to online newspaper The Independent, the fast food industry in China grew 13%, compared to just 2. 9% in the U.

S. The only industry to grow within the food sector was fast food. This is largely due to China’s rapidly increasing consumption. As of earlier this year, there were over 560 Pizza Hut’s, 1,200 McDonald’s, and 3,000 KFC’s throughout the country. (Steiner, 2005) This information shows that a fast food corny dog restaurant is a good idea for Beijing at this time. Company | Recent Price | 2006 Estimated EPS* | 2006 Estimate P/E** | Long-Term EPS Growth*** | 2006 Est. Vs. 2005 Est. Sales Increase | Market Value ($mil) | CKE Restaurants (nyse: CKR – news – people ) | $17. 03 | $1. 1 | 15 | 15% | 8% | $1,005 | Domino’s Pizza (nyse: DPZ – news – people ) | 21. 67 | 1. 50 | 14 | 10 | 4 | 1,403 | Jack in the Box (nyse: JBX – news – people ) | 40. 12 | 2. 54 | 16 | 10 | 8 | 1,465 | McDonald’s (nyse: MCD – news – people ) | 30. 97 | 2. 13 | 15 | 8 | 5 | 39,254 | Sonic (nasdaq: SONC – news – people ) | 32. 51 | 1. 43 | 23 | 17 | 12 | 1,962 | Starbucks (nasdaq: SBUX – news – people ) | 55. 08 | 1. 45 | 38 | 22 | 19 | 21,470 | Wendy’s Intl (nyse: WEN – news – people ) | 44. 32 | 2. 56 | 17 | 12 | 7 | 5,021 | Yum! Brands (nyse: YUM – news – people ) | 50. 41 | 2. 0 | 17 | 11 | 5 | 14,606 | Prices as of May 19. *EPS: Earnings per share. **P/E: Price-to-earnings ratio. ***Annualized; Forecasted over the next three-to-five years. Source: FT Interactive Data, Reuters Fundamentals and Thomson First Call via FactSet Research Systems| It obvious that plain old curiosity played heavily into the popularization of fast food restaurants in China. That curiosity has probably almost entirely turned into habit. There’s not many better ways to get people in the doors of your brand new restaurant than to have something different that everyone’s curious to try.

There is also the general idea held by many in China that things from the West are better, or if something is good enough for Western people it is good enough for Chinese people. That fact lends itself to the idea for a Western style corny dog restaurant in China. There appears to be a need for appetizing food at decent prices in a clean, inviting atmosphere. (Hongfenghangyuan, 2011) VI. Financial forces Dollar to RMB | RMB to Dollar | $00. 00 x 6. 8 | ? 00. 00 x . 1462 | Souvenirs, Food, Clothing| US Dollar | RMB |  | RMB | US Dollar | $1. 00  | ? 6. 8 |  | ? 1 | $0. 14 | 5. 00 | ? 34 |  | ? 10 | $1. 46 | $10. 00 | ? 68 |  | ? 50 | $7. 31 | $20. 00 | ? 136 |  | ? 80 | $11. 70 | $30. 00 | ? 204 |  | ? 100 | $14. 62 | $40. 00 | ? 272 |  | ? 120 | $17. 54 | $50. 00 | ? 340 |  | ? 160 | $23. 39 | $60. 00 | ? 408 |  | ? 180 | $26. 32 | $70. 00 | ? 476 |  | ? 200 | $29. 24 | $80. 00 | ? 544 |  | ? 250 | $36. 55 | $90. 00 | ? 612 |  | ? 300 | $43. 86 | $100. 00 | ? 680 |  | ? 400 | $58. | Chinese RMB and US Dollar Conversion http://hua. umf. maine. edu/Chinese/faq/conver. html As of May 2, 2011 the conversion rate from the Chinese Yuan to the U. S. ollar was 65 Yuan equaled $10. This fact, along with the chart above, can give a good idea of the rate of exchange. Statistics released on March 18, 2010 show w that for every $1 that the United States bought from China in 2009, the Chinese government only let its people buy 28? of American products. Although the Chinese economy was growing by 8. 7%, the Chinese government managed to shrink Chinese imports of American goods and services. Statistics released on March 18, 2010 show that for every $1 that the United States bought from China in 2009, the Chinese government only let its people buy 28? f American products. Although the Chinese economy was growing by 8. 7%, the Chinese government managed to shrink Chinese imports of American goods and services. (Richman, 2010) A report released on March 31, 2010 explains how the Chinese government kept out American products. The report ignored China’s currency manipulations. It still found plenty to talk about. Manipulating the exchange rate for its currency is not the only way that China discourages American products. The report focused upon the Chinese government’s expert use of tariff and non-tariff barriers. Richman, 2010) The Chinese government imposes high tariffs upon many American products. “China still maintains high duties on some products that compete with sensitive domestic industries. For example, the tariff on large motorcycles is 30 percent. Likewise, most video, digital video, and audio recorders and players still face duties of approximately 30 percent. Raisins face duties of 35 percent. ” (Richman, 2010) These tariffs and duties are most often found on manufactured products or consumer goods. They seem to be more accepting of the food service industry. VII.

Economic forces Inflation is an issue that many Chinese people are learning to live with and expect in their everyday lives. Chinese consumers are feeling the pinch of rising food, energy and housing prices because inflation in China has been out of control lately. The consumer price index in China rose 4. 9% in January, up slightly from 4. 6% growth in December. This is according to data released by the Chinese government in February of 2011. “China’s rate far outpaces inflation in developed nations. Consumer prices rose a mere 1. 5% in the United States in December. (Censky, 2011) There has been an increase in China’s food prices of 10. 3% which is up from a 9. 6% pace in December. This makes food that is low in cost, high in quality and easily accessible something that the Chinese people will clamor for. VIII. Physical and environmental forces Property values in the Beijing taken a downturn recently. The price of commercial residential properties in Beijing fell “1,790 Yuan per square meter or 9. 6 percent week-on-week to 16,898 Yuan per square meter,” (Fernando, 2010). This is based on statistics released by Beijing Real Estate Information Network.

At one point the price of the same type of property in Beijing plunged 31. 43 percent to 7,744 Yuan per square meter. This has resulted in a large amount of affordable real estate in both commercial residential property and non-residential commercial properties. It makes a venture to acquire or lease a commercial property is financially feasible at this time. IX. Legal forces China is an attractive market for many businesses. They have a population of about 1. 3 billion people. There are many aspects that need to be considered before attempting to import goods into China.

It is considered a good idea to get a local intellectual property agent or attorney to do any filing for you. “China laws require foreigners with no permanent address in China to engage a State-approved agent if they want to register a trademark in China. Even if you have a permanent address in China, it is advisable to get an agent to do it. ” (“Import & export,” 2010) For the purposes of this project it will be covered by the joint-venture between Bunch Enterprises, LLC and China Food Services Corporation. There are many new laws in China that relate to food and food additives.

Any food additives that are not in the approved government catalog must not be used. Nothing can be sold inspection-free and consumers can file a claim equal to ten times the value of the food. The majority of these laws apply to food manufacturers and not to food service establishments but they are being molded to fit into the food service category by food inspectors. It is therefore imperative that the legal issues be covered under the joint-venture agreement. X. Competitive and distributive forces There is no discernable competition in the Chinese market.

There are no corny dog restaurants that can be found in Beijing or in any location in China. The corny dog is a completely different type of food product than the people of China have ever experienced. They show a desire to experience the Western lifestyle. XI. Conclusion There is a huge potential in the Chinese market for Western style foods and restaurants. Many American fast food restaurants are experiencing some substantial growth in the area of China and specifically in Beijing. Through creative financing and a joint-venture it is safer and more likely that the business will have a chance for success.

Appendix 1 Chinese RMB and US Dollar Conversion http://hua. umf. maine. edu/Chinese/faq/conver. html Dollar to RMB | RMB to Dollar | $00. 00 x 6. 8 | ? 00. 00 x . 1462 | Souvenirs, Food, Clothing| US Dollar | RMB |  | RMB | US Dollar | $1. 00  | ? 6. 8 |  | ? 1 | $0. 14 | $5. 00 | ? 34 |  | ? 10 | $1. 46 | $10. 00 | ? 68 |  | ? 50 | $7. 31 | $20. 00 | ? 136 |  | ? 80 | $11. 70 | $30. 00 | ? 204 |  | ? 100 | $14. 62 | $40. 00 | ? 272 |  | ? 120 | $17. 54 | $50. 00 | ? 340 |  | ? 160 | $23. 39 | $60. 00 | ? 408 |  | ? 180 | $26. 32 | $70. 00 | ? 76 |  | ? 200 | $29. 24 | $80. 00 | ? 544 |  | ? 250 | $36. 55 | $90. 00 | ? 612 |  | ? 300 | $43. 86 | $100. 00 | ? 680 |  | ? 400 | $58. | Appendix 2 Company | Recent Price | 2006 Estimated EPS* | 2006 Estimate P/E** | Long-Term EPS Growth*** | 2006 Est. Vs. 2005 Est. Sales Increase | Market Value ($mil) | CKE Restaurants (nyse: CKR – news – people ) | $17. 03 | $1. 11 | 15 | 15% | 8% | $1,005 | Domino’s Pizza (nyse: DPZ – news – people ) | 21. 67 | 1. 50 | 14 | 10 | 4 | 1,403 | Jack in the Box (nyse: JBX – news – people ) | 40. 12 | 2. 4 | 16 | 10 | 8 | 1,465 | McDonald’s (nyse: MCD – news – people ) | 30. 97 | 2. 13 | 15 | 8 | 5 | 39,254 | Sonic (nasdaq: SONC – news – people ) | 32. 51 | 1. 43 | 23 | 17 | 12 | 1,962 | Starbucks (nasdaq: SBUX – news – people ) | 55. 08 | 1. 45 | 38 | 22 | 19 | 21,470 | Wendy’s Intl (nyse: WEN – news – people ) | 44. 32 | 2. 56 | 17 | 12 | 7 | 5,021 | Yum! Brands (nyse: YUM – news – people ) | 50. 41 | 2. 90 | 17 | 11 | 5 | 14,606 | Prices as of May 19. *EPS: Earnings per share. **P/E: Price-to-earnings ratio. ***Annualized; Forecasted over the next three-to-five years.

Source: FT Interactive Data, Reuters Fundamentals and Thomson First Call via FactSet Research Systems| References Censky, A. (2011, February 15). Chinese consumers squeezed by rising prices. CNNMoney. com , Retrieved 05/02/2011 from http://money. cnn. com/2011/02/14/news/international/china_inflation_cpi/index. htm Corn dog factory . (2011, April 30 ). Retrieved 05-02-2011 from http://www. franchisegenius. com/Corn-Dog-Factory-Franchise/ Fernando, V. (2010, May 12). Beijing property prices collapse. Business Insider , Retrieved 05/02/2011 from http://www. businessinsider. om/beijing-property-prices-collapse-shanghai-youre-next-2010-5 How well and widely is English spoken in beijing? (2008 , January 23). [Online Forum Comment]. Retrieved 05-02-2011 from http://answers. yahoo. com/question/index? qid=20070628134527AAi7Clc Hongfenghangyuan , W. . (2011). American junk food: why so popular in china?. Administration for Industry and Commerce , 420100000140189(68544721-8), Retrieved 05-01-2011 from http://www. esljob. com. cn/faq_view. asp? id=50 Import & export information; trademark registration. china food services corp. (2010, April 15). Retrieved from http://chinafoodservices. com/wordpress/import-export/ McDonald, H. (2003). Forget keeping fit, learning english is the latest craze. SMH. com, 01-11- 2003. Retrieved from http://www. smh. com. au/articles/2003/01/10/1041990096582. html Richman, H. (2010). China’s multiple barriers to american products. 2-1-2010. Retrieved 05/02/2011 from http://www. idealtaxes. com/post3097. shtml Steiner, C. (2005, May 20). Fast feeding china’s masses . Forbes. com, Retrieved 05-02-2011 from http://www. forbes. com/2005/05/20/cz_cs_0520sf. html