IB Assignment - old town white coffee (OTWC)

Old Town White Coffee, India

1.0 Introduction

The history of Old Town White Coffee (OTWC) began in 1999, started as a classic

coffee shop of White Café in Ipoh, Malaysia. With the inspiration of vision and passion to

make and serve fine coffee to Malaysian household and food service industry, the founder and

executive director, Mr. Goh Ching Mun and Mr. Tan Say Yup created a secret of Old Town 3-

in-1 instant white coffee. After launching OLD TOWN Brand, the company strives to be

Malaysia’s Leading White Coffee producer with profitable growth through a combination of

organic growth coupled and strong aftermarket business. In 2005, the company expanded

vertically into food and beverage industry by opening retail chains of OLD TOWN F & B

Outlets. Within a short span of eight years, the Company’ globally reaches at 13 countries,

across the South East Asia, Hong Kong, Taiwan, China, Australia, Ireland, Canada, and USA.

By the end of 2009, Old Town White Coffee was franchised 1,348 retail outlets in Malaysia,

550 retail outlets in Singapore, and 2,100 retail outlets in Hong Kong (Old Town White

Coffee, 2011). So, what is the next step? OTWC India!

The probability of OTWC successfully introducing its coffee bar culture in India is

relatively high for many reasons. Firstly, India has a huge amount of population. India, which

is the seventh-largest country in the world and the second-most populous country with over

1.18 billion people (around 17.31% of the world’s population). India is also expected to have

population more than 1.6 billion by 2030 and might surpass the population of China (U.S.

Department of State, 2010). The following is a proposal to open new locations of OTWC in

India:- (1) Mumbai: 13,900,000 people and (2) New Delhi: 12,100,000 people (City Mayors

Statistics, 2010). These two locations were strategically picked to ensure success of the

business venture and will serve as test locations. If the new stores are highly profitable, OTWC

can expand to more than 200 locations in India.

Secondly, India is one of the largest coffee producer countries in the world. There are

over 170,000 coffee farms in India, cultivating nearly 900,000 acres of coffee trees, employing

about 600,000 Indian, and exporting over 500,000 pounds of coffee in each year. Most of the

coffee in India is grown in three states: Karnataka, Kerala, and Tamilnadu. These states

accounted for over 92% of India's coffee production in each year (Wikia, 2010). With

expanding business to India, OTWC could reduce the transportation and importing cost of

coffee beans. Besides that, OTWC could also integrate backward or form alliances with the

UBMB3013 International Business Page 1


local producer to produce its own healthy and unique aroma of organic coffee bean to serve

Indian households and to become low-cost leadership.

Thirdly, there is a new consumer culture emerging in India. Today, India’s young are

becoming world-class consumers. They have increasingly wealthy and are willing to spend on

everything. These changes can be attributed by many factors such as the Indian economy went

through a massive liberalization under the new minority government of P.V. Narasimha Rao in

1991. The revolution had opened the India’s economy to foreign investment and trade. The

new policies has dismantled important controls, lowered customs duties, devalued the

currency, abolished licensing controls on private investment, dropped tax rates, and broke

public sector monopolies (Schuman, 2003). This is the good news for both foreign and local

entrepreneurs.

Multinational companies such as Citibank, McDonald’s and Motorola have been taking

advantage of these new policies and finding a new home in India. These companies owe their

success to the rising young elite due to the mass outsourcing by foreign companies. According

to Thottam (2003) in the Time Magazine entitled “Where The Good Jobs are Going,” writes,

“U.S. companies are expected to send 3.3 million jobs overseas in the next 12 years, primarily

to India according to a study by Forrester Research.” Increasingly in job opportunities enables

Indian consumers to reinvest in the Indian economy. Time Magazine journalist, Michael

Schumann, asserts that with the changing Indian economy, Indian attitudes towards money are

also changing. The Indian consumers today, inspired by job opportunities, have switched to

spend more compare to previous. With the money, they are willing to pay anything and

everything. They even want to do what the rest of the world is doing, includes getting fast food

in McDonalds, wearing Levis Jeans, and etc, but what’s more is that they are willing to pay.

For it, Indian consumers will definitely welcome the internationally popular OTWC to

its country. The two proposed locations for OTWC shop are strategically picked because both

Mumbai and New Dehli are home to many call centers where these younger spenders work.

Besides, many colleges and Universities are also located here which will allow OTWC to

target the young generations. Furthermore, these two cities are also major hot spots for tourists,

who recognize a multinational brand such as OTWC. Of course, the OTWC menu in India

must cater to the Indian taste, mixing traditional menu items with those that a customized for

the Indian tastes.



2.0 Contents

2.1 India’s Political Perspectives

Political environment is an important issue to every business transactions. A company

with a better understanding of political environment will lead to greater networking ability and

adaptation.

2.1.1 Political System

India is a Sovereign, Secular, Democratic Republic with a Parliamentary form of

Government. Besides that, India is also the world's largest democracy country. India’s

government was formed in 1947 after the country gained its independence from the Imperial

Britain. Nevertheless, India is governed under the Constitution of India 1950, which it was

modeled after the United States constitution. Under this constitution, India is a federal republic,

meaning it is a representative democracy with power divided between the state and federal

government. There are three branches which are stated in constitution of India, including a

bicameral legislature, executive branch, and judicial branch (Trade Chakra, 2008).

Unlike America, the head of state and the head of government in India are different.

The head of state is the President who serves more as a symbolic ceremonial figure, and has

little power except when in emergency situations. The real executive power is held by the

Prime Minister and the Council of Ministers which is stated in Article 74(1) Constitution of

India 1949. The current Indian president is Smt. Pratibha Devisingh Patil. The prime minister

of India is the head of government, head of the Council of Ministers and the leader of the

majority party in parliament. The prime minister leads the executive branch of government in a

parliamentary system. The current prime minister of India is the Dr. Manmohan Singh. The

current government of India is in favor of long-term foreign investment.

“ There shall be a Council of Ministers with the Prime Minister at the head to aid

and advise the President who shall, in the exercise of his functions, act in accordance

with such advice: Provided that the President may require the council of Ministers to

reconsider. ”

- Article 74(1) in the constitution of India 1949 -



In 1999, the prime minister called for a “Second generation reforms” to include

improving the investment climate, cutting red tape, a comprehensive WTO strategy, reform in

agriculture and small scale industry, and better corporate governance. India's time tested

institutions offer foreign investors a transparent environment that guarantees the security of

their long-term investments. These include a free and vibrant press, a judiciary that can and

does overrule the government, a sophisticated legal and accounting system and a user-friendly

intellectual infrastructure. (Ravindran, 2000)

2.1.2 Law

Though liberalization, economic policies for International business still have many

restrictions. The Companies Act 1956 of India is an Indian law that sets down rules for the

establishment of both public and private companies. As stated in Companies Act 1956, the

most commonly business organization used by foreign investors in India is the locally

incorporated company because other forms such as sole proprietorships and partnerships are

essentially impossible under the Indian law. The most common companies can be public or

private but the common public is not allowed to buy shares of the company and there can only

be up to 50 shareholders. Import duties are applied to almost all goods entering India. The

tariff system is based on the Harmonized System (HS) and tariffs are in the 40% to 60% range

for basic raw materials, 60% to 100% for semi-processed goods, and 100% and above on

finished and consumer goods. Shipments to India require a commercial invoice, a packing list

and bill of lading. A certificate of origin is not required on imports originating from other

countries. The following are the foreign investment policies of India:-

a) All foreign investment projects, not considered a priority industry eligible for automatic

clearance by the Reserve Bank of India, require approval by the Foreign Investment

Promotion Board or a newly created committee for review of smaller investment

projects.

b) The government permits foreign firms to hold up to 51% equity in Indian venture on a

case-by-case basis.

c) Automatic approval is granted to foreign investments of up to 51% equity in 34 high-

priority industrial sectors.



d) Foreign companies are permitted to acquire land and own buildings as long as

permission is obtained from the Reserve Bank of India.

e) No specific tax incentives exist to attract foreign investment.

(The Companies Act, 1956)

2.1.3 Political Risks and Causes

Sovereign Risk

India is a parliamentary democracy since India independence from British. India does

not face any real threat of serious revolutionary movement which might lead to the collapse of

state machinery. Sovereign Risk in India is therefore zero for both foreign direct investment

and foreign portfolio investment. However, many industrial and business are trying to restrain

themselves from investing in the north-eastern parts of India because of terrorist threats. (India

One Stop, 2009)

Commercial Risk

In India, not each and every product or service can be readily sold. It is necessary to

study the demand and supply situation for a particular product or service before making any

major investment. For examples, there are 4/5 households in rural area do not have electrical

product such as refrigerator, radio, etc due to poor infrastructure condition. As it is,

advertisement through radio might not reach to certain citizens in rural area. Thus, entering

into India’s consumer market involves some kind of gamble and hence involves commercial

risk. (India One Stop, 2009)

Political Risk

India suffered political instability for few years due to the failure of any party to win an

absolute majority in Parliament and hence it led to the formation of coalition governments.

With strong and healthy coalition governments emerging, political instability in India has

changed better since the previous general elections in 1999. By the way, the political instability

did not change India's economic because it delayed certain decisions relating to the economy.

Economic liberalization which mostly interested foreign investors has been accepted as

essential by all political parties including the Communist Party of India (Marxist) which is



dead against a free economic world. Nonetheless, political instability has posed no investment

risk to foreign investors as no policy framed by a past government has been upturned by any

successive government so far. Being a strong democratic nation the chances of an army coup

or foreign dictatorship are minimal. Hence, political risk in India is practically absent. (India

One Stop, 2009)

Risk Due To Terrorism

In the past, India has suffered several terrorist attacks on its territory which could have

a negative impact on investor confidence. However, some of the financial experts believe that

the negative impact of terrorist attacks would be only in a short term phenomenon. In the long-

run, India would continue to be a favorable investment destination. (India One Stop, 2009)



2.2 India’s Culture Perspectives

According to the Griffin, R. W. (2010), Culture is the collection of values, beliefs,

behaviors, customs, and attitudes that distinguish one society to another. The elements that

used to measure a society’s culture are religion, language, aesthetics, education, manners and

customs, values and attitudes, and social structure.

2.2.1 Religions

India is one of the most religiously diverse nations in the world, with some of the most

deeply religious societies and cultures. In India, religion still plays a central and definitive role

in the life of many of its people. There are 80% of the people in India are Hinduism. Islam is

practiced by around 13%. Sikhism, Jainism, and Buddhism are influential not only in India but

across the world. Christianity, Zoroastrianism, Judaism and the Bahai Faith are also influential

but their numbers are smaller. In Hinduism, the cow is regarded as a symbol of ahimsa (non-

violence), mother goddess and bringer of good fortune and wealth. For this reason, cows are

revered in Hindu culture and feeding a cow is seen as an act of worship. India, being a multi-

religious society, celebrates holidays and festivals of various religions. There are three majors

national holidays that are celebrated with zeal and enthusiasm across India are the

Independence Day, the Republic Day, and the Gandhi Jayanti.

The traditional of Indian culture is defined by relatively strict social hierarchy. Children

from an early age are reminded of their roles and places in society. This is reinforced by the

fact that many believe gods and spirits have an integral and functional role in determining their

life. However, a far more powerful division is the traditional Hindu bifurcation into non-

polluting and polluting occupations. Strict social taboos have governed these groups for

thousands of years. In recent years, particularly in cities, some of these lines have blurred or

even disappeared. In rural areas, it is common that three or four generations of the family live

under the same roof. The patriarch often resolves family issues.

2.2.2 Languages

On average 50% of Indians are literate. The national language is Hindi and about 83%

of the population speaks it. Other than that, India has 18 official languages primarily associated

with the different states, as well as over 700 different dialects. Though English enjoys associate



status, it is the most important language for national, political, and commercial communication.

India has been influenced by many cultures including the English, the Iranians, Central Asians,

Arabians and Afghanistan. Therefore, India itself has a very diverse culture and history. The

caste system though no longer sanctioned by the government still exists to a certain extent, yet

it is slowly fading away.



3.0 Strategies

3.1 Entry Modes

OTWC will start-up its businesses in Mumbai and New Dehli by using Foreign Direct

investment (FDI) mode. This strategy was practically used by Starbulks at year 2010 and was

successfully entered into India’s coffee market. In New Dehli, a small scale Roasting Plant will

be set up where the teams have the responsibility in the daily production and distribution

operations. The production team will produce the coffee and the distribution team will manage

the inventory and distribution of products and equipment to the retail locations. The below

chart is showing the OTWC separated branches in India.

The primary target market for OTWC shop in India is the youngsters, both male and

female from the ages of 16-38. This target group is being selected because they are well

educated and normally comes from middle to upper middle income group. Besides, the

locations of OTWC shops are being selected because both locations are home to the call

centers, thus might be a lot of well educated and highly paid consumers stay at the particular

locations. With superb marketing strategies, OTWC can easily gain the brand loyalty. The

secondary target markets are the tourists in the areas. Tourists will recognize OTWC, as it is a

multinational company. They will normally choose a familiar and well-known brand rather

than the unknown brands



3.2 Marketing Strategies

Product Strategy

Product mean the goods and service or idea with tangible or intangible attributes

combination the company offers to the target market that create value for a buyer or user.

(Kotler & Armstrong, 2010). According to Kotler (2010), the product is a centre focus of the

marketing mix. If it fail to satisfy the needs of consumer, no amount of promotion, price

cutting or distribution will pursuade people to buy.

OTWC India will customize their menu to meet the tastes of their new target market.

This includes the addition of more tea items taking in accordance that Indians are known to be

more a “tea-drinking” population, as well as adding some new flavors in their coffee selection.

OTWC shop will sell a variety of coffee and tea beverages along with different types of snacks

such as pastry, confection, and baked goods, coffee-related accessories, and etc. A new menu

will be formulated after several months of research and development. There are some common

tastes and preferences of the Indians are known already. For example, Indians tend to take

more cream in their coffee. Also, the skim milk option will not be offered in India because

dieting is not a commonly accepted practice in the country. Indians will feel that they are being

cheated out of their money if skim milk is put in their beverages. Some of the facilities should

also be provided. For examples, the wireless internet is necessary important and must be

provided in each stores, so that customers can bring their laptop to continue their work or

might spend more time in the stores. The environment of OTWC shop should not be neglected

too because the design of the shop will provide customers with a pleasant place to come and

relax, study, work, or have business meetings.

Besides that, Indians also like spices in their tea and coffee, especially ginger and black

clove. One of India’s favorite fruit flavors in mango, and in fact the mango is India’s national

fruit. Packaging is also needed to take into consideration because it helps to attract customers.

For packaging in India, green, yellow and brown will be chosen as the product packaging color

because all those colors reflect the distinctive and rich culture and colorful spirit of the people

of India. For branding, the brand logo in India will be remained as same as in Malaysia outlet.



The raw material such as coffee beans and tea will be bought from local Indian farmers

in order to support the local agricultural economy, save money in transportation and tariffs, and

gain tax benefits. Of course, an inspection of the crops is very important in which this process

will ensure that the high quality coffee beans to be selected and used in the daily operation and

further generate better brand image. These coffee beans will then be transported to the OTWC

roasting plant located near the New Dehli location and then transported to Mumbai through a

vast and efficient railway system. The equipment and other necessary supplies will be shipped

from Malaysia keeping in mind there is a tariff on all these items. The inventory policy is to

keep the stores stocked but not overstocked to ensure freshness of products. Thus, better

gauges of the numerical figures in the inventory policies should be made after observing

consumer trends.

Pricing Strategy

Price is the amount of the money customers have to pay to obtain the product. The

value that received from the product must be highest than the value that customers pay for

exchange its goods and services. Pricing strategies usually change as the product passes

through its life cycle (Kotler & Armstrong, 2006). For a each stage of the life cycle, the price

strategy might be different. Skimming pricing will be taken place in the early stages at the

early stage of product life cycle in order to gain necessary cash flow. Later on, competitive

pricing will be implemented for the success of the venture in order to gain competitive

advantages and market shares. Of course, promotional pricing strategy, meaning temporary

price reduction will be given in certain festivals or events to build patronage and store traffic.

Used effectively, it can also stimulate consumer demand.

The costs of production must also take into consideration because it involve the start-up

capital, transportation cost, and imported goods. Thus, the star-up price will be set at about

RM 3.70 per drink using the concept of zone pricing to make the coffee affordable to the target

audience. Exchanges will be done in rupees so that would be about Rs 55. With using the

promotional pricing strategy, OTWC prices will be 20% lower than those existing local

competitors such as Barrista Coffee Company. The use of these pricing will ease the

company’s slide into the market place. Although, it is possible to get a cup of coffee for merely

Rs 5 at small stalls on the street. However, with a popular multinational brand, plus the superb



marketing strategies and reasonable prices, OTWC is going to prove that the it is worth enough

to pay at higher price for getting a better quality of product, service, and environment. For it,

the success of the Barista Coffee Company is a good example.

Promotion Strategy

Promotion has been defined as the coordination of all seller-initiated effort to set up

channels of information and persuasion in order to sell goods and services or promote an idea

(Belch & Belch, 2008). Basicly, the promotion strategy is set up to attract the customer

intention toward product and persuade a quick purchase of the product in order to gain a short

term profit or encourage the brand switching for the customers. According to Belch & Belch,

(2009), promotion was a coordination of all seller-initiated effort to set up channels of

information and persuasion in order to sell goods and services or promote an idea. In the other

word, promotion is used by the firm to communicate their product or services with the public.

The types and availability of media for marketing purposes in India are very similar to

Malaysia, which include newspaper advertising, television ads, and etc. Since, this is a test

venture and there are only two locations of OTWC shop being opened, the promotion for the

store must be very focused on the target markets. For examples, billboard advertising should be

located at the highly traffic areas to increase customers awareness and further leading Indian

consumers to the store locations. The indicative advertisement rates per month for general

formats are given below:-

a.) Horizontal: (i) 728 x 90 leader board = around Rs 3176 (RM 214) /month per ad

(ii) 468 x 60 banner = around Rs 2270 (RM 153) /month per ad

b.) Vertical: (i) 160 x 600 wide skyscraper = around Rs 3176 (RM 214) /month per ad

(ii) 120 x 600 skyscraper = around Rs 2270 (RM 153) /month per ad

c.) Square: 300 x 250 medium rectangle = around Rs 1362 (RM 92) /per month ad

(Cultupropedia.com, 2011)



Besides that, the OTWC brochures and promotional coupons will also be sent from one

area to anthers and from house to house. Furthermore, the company website, e-mail address,

and hotline of OTWC in India should also be provided and might need to print together with

the above advertising and promotional strategies in order to make convenience for the target

customers in getting further information. Moreover, OTWC is also committed to giving back to

the communities. Thus, OTWC India should sponsor scholarship for the local students because

this will give OTWC positive publicity.

As everyone knows, India has produced a largest number of films in each year. Based

on the report, there are about 15 million people see films in India everyday

(Cultupropedia.com, 2011) and therefore product placement or movie theater advertising are

good ways that can be used to increase reach and exposure among India’s citizens if OTWC

can appear in the script or program setting. Given the limitation of product placement,

consumer may not see it because it just appears on screen in few seconds only. (Belch & Belch,

2008)

Distribution strategy

Place includes company activities that make the product available to target consumers.

According to Kotler (2010), the distribution decisions are often interdependent with the other

marketing mix variable. An organisation distribution strategy is determined by two major

factors, including coverage and control. This mean that the coverage of the selling areas must

be largest enough in term of population, demand or purchasing power of customers.

Both proposed locations of OTWC shops will be at the highly urban locations in

Mumbai and New Delhi because the purchasing power of Indian consumers in urban areas is

relatively higher than rural areas (Knowledge Wharton, 2007). Besides, both locations are

home to many call center locations, technology companies, major tourist hot spots, colleges

and universities, and shopping centers. The OTWC in Mumbai will be located at Nariman

Point near Churchgate and Gateway to India, which is a major tourist spot. In close proximity

to Nariman Point are many technology companies and call centers. Nariman Point and the

nearby area of Colaba are home to the higher-class affluent society. The Architecture around



the area is very modern and developed. The roads are in good condition to maintain easy

access to the location. (A map of the location can be seen at pages [iii] in Appendix)

The OTWC in New Delhi will be located in Connaught Place, which is a large

commercial shopping area in New Dehli. Most of the call centers and big companies are also in

the Connaught Circle. New Dehli is the nearest big city to the world famous Taj Mahal,

therefore also being the popular place for tourists from all over the world. The OTWC Zone

Office will be located in this OTWC store. (A map of the location can be seen at pages [iv] in

Appendix)

3.3 Staffing policy

Staffing policy is defined as the customary means by which a company staffs its offices

(Wild, Wild, & Han, 2010). Staffing policy is concerned with the selection of employees for

particular jobs. This involves selecting individuals who have the skills required to do particular

jobs at one level (Schein, 1985). Research has identified three types of staffing policies in

international businesses which are the ethnocentric approach, polycentric approach, and

geocentric approach. (Ondrack, 1985)


Documents

IB Assignment - old town white coffee (OTWC)