Overall, your team will study the case study provided and then
conduct additional research on the country of China in order to get
information to address the following questions:
How big is the Chinese market? What is the real GDP adjusted
for Purchasing Power Parity?
What is the current state of the economy that you have chosen?
Collect the latest available data on nominal GDP, real GDP, per
capita real GDP, unemployment rate, inflation rate, interest rates,
exchange rate(s), and any other important macroeconomic data.
How is this economy doing? What is the growth rate of the real
GDP? What is the trend in this variable?
How fast is the per capita real GDP growing? This is an
indication of the buying power.
Is the country experiencing an inflationary or a recessionary
gap?
What kind of macroeconomic policy should this country
follow?
Can you find the relevant data for the last couple of years or
more?
At what stage of the Business Cycle is this country presently
in? Is there an inflationary or recessionary gap?
What kind of fiscal and monetary policies is this country
presently following? Expansionary or contractionary?
What is the price elasticity of demand for fast food in China?
Is it elastic or inelastic?
How are the Western fast food companies doing in China?
McDonald’s, Starbucks, and KFC are here. Can Tim Hortons learn
something from the experiences of these companies in China?
What is the Income Elasticity of demand for coffee and fast
foods in Canada? Can we assume that in China the elasticities will
be somewhat similar?
What other issues with regards to the social, political,
labour, or environmental practices in China should be taken into
consideration by THI?
Is it going to be easy to find skilled persons to work at
THI?
Your ultimate goal is two-fold:
to provide the best evidence to support your recommendations
to Tim Hortons company; and
to do so in the most compelling, informative, and creative way
you can.
CASE STUDY: Should Tim Hortons Expand into the Chinese
Market?
Tim Hortons Inc. (THI)
Tim Hortons, arguably, is the best known Canadian brand. Its
restaurants provide premium coffee, espresso-based hot and cold
specialty drinks, cappuccinos and espresso shots, fruit smoothies,
home-style soups, fresh baked goods, grilled Panini and classic
sandwiches, wraps, soups, prepared foods, and other food
products.
THI was founded in 1964 in Hamilton, Ontario, by Canadian
hockey player Tim Horton. Tim Hortons franchises spread rapidly and
eventually overtook McDonald's as Canada's largest food service
operator. The company opened twice as many Canadian outlets as
McDonald's and system-wide sales also surpassed those of McDonald's
Canadian operations as of 2002. Tim Hortons commands 76% of the
Canadian market for baked goods (based on the number of customers
served) and holds 62% of the Canadian coffee market (compared to
Starbucks, in the number two position, at 7%).
As of December 30, 2012, the company had 4,264 restaurants,
including 3,436 in Canada, 804 in the United States, and 24 in the
UAE and Oman. Tim Hortons’ international expansion strategy has
been categorized as careful and slow. In comparison, Starbucks, a
U.S. based competitor, has been very aggressive in international
markets for several years, and has already expanded into
China.
However Tim Hortons' international presence has some
interesting features. To provide moral support to the Canadian
soldiers in Afganistan, it opened a restaurant on a military base
outside Kandahar, Afghanistan. Two more outlets are located in
military bases at Fort Knox, Kentucky, and Naval Station Norfolk,
Virginia. Tim Hortons' other international expansions include a
small outlet at the Dublin Zoo. Tim Hortons also made a deal with
the Spar convenience store chain in the UK and Ireland, resulting
in Tim Hortons coffee and donuts being sold at small self-service
counters in many Spar stores.
Its busiest branch is located in Fort McMurray, Alberta; its
location in Iqaluit is the northernmost store.
In November 2010, Tim Hortons extended Interac debit payment
system acceptance to most of its stores. The company previously
began accepting Interac in its stores in Western Canada in 2003
and, later, MasterCard and MasterCard Pay Pass across most of its
stores in 2007. The company often indicated the delay of broader or
wider electronic payment acceptance was to "ensure speed of
service." In 2012, Tim Hortons began accepting Visa cards.
Twenty years ago, Tim Hortons used to sell mainly donuts and
coffee but today it offers breakfast and lunch menus. Product lines
have been diversified and the stores are getting better furniture
and free Wi Fi. Investors in THI stocks have been rewarded very
well.
China
Since initiating market reforms in 1978, China has shifted
from a centrally planned to a market based economy and experienced
rapid economic and social development. GDP growth averaging about
10% a year has lifted more than 600 million people out of
poverty.
With a population of 1.3 billion, China recently became the
second largest economy and is increasingly playing an important and
influential role in the global economy.
Yet China remains a developing country and its market reforms
are incomplete. In 2011, China’s gross national income per capita
of $4,940 ranked 114th in the world; over 170 million people still
live below the $1.25-a-day international poverty line. With the
second largest number of poor in the world after India, poverty
reduction remains a fundamental challenge.
Rapid economic ascendance has brought on many challenges as
well including high inequality, rapid urbanization, challenges to
environmental sustainability, and external imbalances. China also
faces demographic pressures related to an aging population and the
internal migration of labor.
Significant policy adjustments are required in order for
China’s growth to be sustainable. Experience shows that
transitioning from middle-income to high-income status can be more
difficult than moving up from low to middle income.
China’s 12th Five-Year Plan (2011-2015) forcefully addresses
these issues. It highlights the development of services and
measures to address environmental and social imbalances setting
targets to reduce pollution, to increase energy efficiency, to
improve access to education and healthcare, and to expand social
protection. Its annual growth target of 7% signals the intention to
focus on quality of life rather than pace of growth.
To that end, your group will need to produce a package
consisting of the following:
A 6-7 page research essay (use same criteria as in the
Individual Research Essay) in which all your information about THI
and the Chinese market will be presented.
An accompanying media presentation of your findings. This can
take any form your group has the skills to produce, remember it is
where your package will really distinguish itself from the
others.
This is not to be a live presentation, but the creation of
some sort of digitally submittable file that will help support and
sell your findings to your client. (If you need motivation, imagine
that your client will only pay for the most interesting and
engaging package submitted – your reputations are at stake!)
Your additional file may take the form of a PowerPoint
presentation, an annotated photo collage, an audio or video
recording – anything goes. Just be sure that you have permission to
use any copyrighted materials (photos, audio, or video) because
these packages will be shown to the class online, and in our online
world, unlike the brick and mortar classroom, that constitutes
“republishing” which is a copyright infringement unless you have
permission.