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Business Economics

Business Economics Strategy of Xin Tiancheng


Module: Business Economics
Submitted by: Luan Zhi- qiang

Harper Adams ID:
2/11216500
2/11216800

Date of submission:

16 February, 2012

Word count:

















2216




Contents
Summary---------------- -------------------------------------------------- ------------------------3

1. Introduction -------------------------------------------------- ----------------------------------4

2. About Xin Tiancheng FOOD. LTD--------------------- ------------------------------------5

3. Por
ter’s five forces analysis
------------- -------------------------------------------------- --5








3.1 Bargaining power of suppliers------------- ------------------------------------------5


3.2 Bargaining power of customers-------- ---------------------------------------------5

3.3 Threat of new competition------------ -----------------------------------------------5





3.4 Threat of substitute products or services -------------------------------------------6





3.5 Intensity of competitive rivalry------------------------------- -----------------------6

3.6Market structure----------------------------------------- -------------------------------6

4. The advantages of small companies--------------------- -----------------------------------7

4.1 Small companies work more flexibility --------------------------------------------7





4.2 Innovative------------ -------------------------------------------------- ----------------7


5. Source of economies of scale to the company --------------------------------------------7





6.

The differences -------------------------------------------------- -----------------------------8

7. How to use the economies of scope------------------------ --------------------------------8

8. Specific assets of the chocolate companies -----------------------------------------------8


8.1 Site specificity---------------- -------------------------------------------------8

8.2
Human asset specificity---------- ---------------------------------------------9


8.3 Physical asset specificity----------- ------------------------------------------9


Conclusion------------------------------- -------------------------------------------------- ------10

Reference----------------------- -------------------------------------------------- ---------------11

2

Summary

Xin Tiancheng FOOD. LTD is a small business which mainly product chocolate. This
firm is located in Tianjin China; due to the firm has a short history, and lack of capital
to support the business, the chocolate brands which they product are known by few of
people.
According
to
the
Por
ter’s
five
forces

analysis
for
the
chocolate
industry,
nowadays,
most
of
the
China’
s
marketing
shares
are
hold
by
the
foreign
chocolate
brands. However, sometimes small businesses have advantages, such us they are more
agile and ground-breaking. The sources of economies of scale to the company are that
increase the efficiency; cut down the cost of production; employ more workers who
have the high degree. There are some differences between the economies of scale and
economies of scope. Take use of the economies of scale can help the firm cut down
the cost of production, and develop the efficiency. The chocolate companies have their
own
specific
assets,
what
should
a
small
chocolate
business
do?
Those
are
product
many kinds of products, and to do more advertisement to advertise their goods.

3

1. Introduction


This report is going to talk about a small business named Xin Tiancheng FOOD. LTD.
It is located in Tianjin China, these kinds of brands are known by few of customers,
and this report will introduce the small business in five parts. A first part of it is about
the background of the firm, and that include two points. It
’
s a small business which
mainly
produces
chocolate,
and
the
scale
of
it
is
small,
other
point
is
about
the
Porter
’
s five forces, the chocolate market is dominated by the foreign brands. Second
part is going to talk about the advantages of the small business;
it’s
more flexible and
innovative.
Third
point
if
the
report
is
of
the
Source
of
economies
of
scale
to
the
company,
it
include
increase
the
efficiency,
cut
down
the
cost
of
production,
and
employ
more
workers
who
have
the
high
degree.
Forth
part
’
s
main
content
is
the
difference between Economies of Scale and Economies of Scope and how to use the
economies of scope. The last point is talking about the Specific assets of the chocolate
companies,
the
chocolate
industry
always
include
Site
specificity,
Human
asset
specificity, and Physical asset specificity.





































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2. About Xin Tiancheng FOOD. LTD

Xin Tiancheng FOOD. LTD was founded in 1995; it is located in Tianjin, China. The
boss of this firm is Gao. According to a rule of China’s Profession Sta
ndard Division:
The
standard
of
minor
enterprises
can
be
achieved
the
sales
of
goods
less
than
50
million RMB, and have less than 500 staff in the firm (no name, 2005). The situation
of the Xin Tiancheng is that have 20 staff, and their
investment assets
is
about 20 million RMB (no name. no date).
It is
belonging to the private enterprise.
The
brand
of
their
product
named
“Ailics”
which
is
a
kind
of
chocolate.
As
a
chocolate firm, their scale is small, and their history is short.

3. Por
ter’s five
forces analysis of chocolate industry



3.1 Bargaining power of suppliers

According to the consume psychology, people prefer the goods which are well known
and
reliable.
The
firm
such
us
the
Xin
Tiancheng

is
not
popular
by
customers,
the
people
usually
difficult
to
find
the
nameless
chocolate
brands
in
the
super markets or in the shopping mall. So the share of the market is low; the firm is at
the passive situation. Form this point of view; it is a weak point for the Xin Tiancheng
.
However,
the
chocolate
market
is
dominated
by
the
foreign
brands
(Phybie,
2012),
many
famous
brands
like
Dove
and
Ferrero
usually
be
sold
in
supermarket,
they
usually
have
expand
market
share,
so
for
these
companies,
the
bargaining power of suppliers are strong.












3.2 Bargaining power of customers

The chocolate has many brands in the chocolate market, so the customers have a lot of
chooses. In other side, the chocolate are not the necessaries of life for the customers.
For the poor people, they prefer to purchase more necessaries of life than the snacks.
Although the chocolate are popular by lots of children, however, most of times, the
chocolate
are
bad
for
the
children’s

teeth
which
is
the
reason
that
parents
are
not
allowed
their
kids
eat
more
sweet
.
What’s

more,
the
chocolate
are
not
the
Chinese
most favorite snacks (Liu 2010). Form this side; the customers have strong bargaining
power.





3.3 Threat of new competition


Since the reform and open of China, most of the countries have the trade relationship
with china. As a populous country, China has a wide trade market, due to this reason
，
there are lots of transnational corporations have a cooperate with Chinese people, and
build their branch office in China. So many new brands come to the China’s
market,
for the chocolate companies, it is also a competitive market. In the other side, recent
years,
the
network
has
become
more
and
more
popular,
shopping
on
line
is
also

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become
a
new
way
to
have
a
business.
Some
of
the
little
company
has
not
the
business on line that means, they lose a way to advertise them, and it is a new way to
competition.




3.4 Threat of substitute products or services



According
to
the
chocolate
market
competition,
there
are
lots
of
product
brands.
Chocolate also have a lot of categories, such us chocolate cream, nut chocolate, white
chocolate,
and
so
on.
That
means,
they
are
each
of
the
substitute
goods.
At
the
situation of the more brands and more categories, all the chocolate companies face the
serious conditions of the threat of substitute products.







3.5 Intensity of competitive rivalry


Many of the small business are also involved in a fierce competition, although they
have the low market share. In addition, the small chocolate firm like Xin Tiancheng
not only has competition with the firm which is in the same level they
stand,
but
also
should
attack
the
international
companies.
In
2008,
the
foreign
chocolate brands sales was approaching to $$1 billion (
Lawrence L. Allen. 2010
), and
these years, all of the top 20 chocolate companies form around world had had their
own brand offices in china (Phybie, 2012). What
’
s more, the china
’
s chocolate brands
only hold the low-end market (no name 2009). It is a big challenge for them, if things
go on like this
，
the firm will lose more target market, and the consumer demand of the
nameless
chocolate
brands
will
decreased
gradually,
especially
when
the
famous
chocolate brands like Dove take some measures to
do the price-off promotions,
the
low-end product will have not any advantages to competition.




3.6Market structure

According to the types of market structure, it is consists four factors, that is Monopoly,
Oligopoly, Monopolistic competition, and Pure competition (
Geoff Riley
, 2006). To
the sum up of the porter’s five forces analysis, the China’s chocolate market belongs
to the monopolistic competition. The foreign chocolate brands sun us Dove, Cadbury
have
the
70%
market
share
in
China
(Phybie,
2012),
in
other
side,
China
’
s
local
chocolate brands like Golden Monkey holds 2.94% market share while the Shenfeng
has
1.58%
market
share(no
name
2004).
The
local
chocolate
brand
face
serious
problems, most of the homemade brands can not cash up with the foreign brands.





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