Executive Summary
Bamboo Packaging Company (BPC) is a for-profit company that aims to reduce the plastic waste problem. In order to achieve this goal, BPC is supplying reusable and easily recyclable take out boxes made out of bamboo to its target markets. BPC’s target market is the take out industry and will combat traditional plastic and styrofoam take out boxes with BamBoxes. The BamBox is a reusable take out box which is eco-friendly and lightweight. BPC’s overall goal is to reduce, and in the future replace, unsustainable take out boxes with the BamBox.
Initially, BPC will operate out of China. BPC chose this country due to the close location to ports and resources and because of the high amount of take out orders every day. BPC will eventually expand globally by building assembly plants in France and Germany. BPC will be successful in these countries, because of the consumer preferences in each country. China has a large population with the majority of them being increasingly educated workers who can afford to pay for take out, along with the fact that China’s take out industry is worth $32 billion. The BamBox will be successful in Germany because of their large and developed consumer market who can afford take out and prefer quality made products. France will provide BPC with a successful market because of their large base of consumers who are able to buy take out on a regular basis and also seek quality products.
In order to be successful in China, Germany, and France, BPC has to follow each country’s different rules and regulations. In China, BPC has to obtain many different licenses and certifications, like the Chinese Compulsory Certification and the Industrial Product Manufacturing License. In Germany, BPC has to comply with the German Corporate Governance Code, which is written and periodically reviewed by a commission that is appointed by the Federal Ministry of Justice. BPC will also have to comply with the rules and regulations of Germany’s local governments. Since there are no administrative restrictions on foreign investment in France, the only restrictions BPC will face are the mandatory declarations or permits that have to be filed.
The costs BPC will face are relatively low except for the one-time costs of machinery and land. BPC has to pay a $1 million investment in a Bamboo farm in China. BPC also has to pay $987,000 to HGHY Pulp Molding Pack Co. for the cost of manufacturing equipment. BPC will have to pay an estimated $300,000 per year for washing equipment in each of the 3 countries combined. BPC also has to pay for the cost of shipping at $5,000 per ton of Bamboo. The costs of each individual BamBox is $0.13 and BPC will be selling them for a profit at $0.75 per unit. BPC will break even in China after about 2.5 million units are sold, which will take less than 2 months given we sell target amounts and in less than 6 months for Germany and France.
Introduction
Mission Statement:
BPC seeks to reduce, and in the future, replace the plastic waste problem. BPC will achieve this goal by supplying easily recyclable takeout boxes made out of bamboo.
Vision:
BPC’s vision is to replace plastic boxes with an eco-friendly and sustainable alternative to plastic and styrofoam boxes to reduce plastic pollution. Through future expansions, BPC hopes to play a role in completely eliminating plastic pollution.
Organization Structure:
BPC will have a matrix business structure to promote innovation and development as well as collaboration development. A few of the teams in BPC will include environmental compliance and permitting team, government relations team, and product development.
Market Analysis
Product Concept:
The BamBox is a take out food container that is reusable, eco-friendly, and lightweight. Since plastic takes hundreds of years to break down and cardboard boxes often cannot be recycled due to oil contamination. BamBox is able to mitigate this problem by reducing plastic use and cardboard waste since it is recyclable, reusable, and biodegradable. Not only is this box better for the environment, but it is a cheaper alternative to plastic use.
Consumer Profile of China:
BPC’s first target country is China. China has a population of 1,417,282,175 which means it has an incredibly large consumer market (China: Urban and rural population 2017). The age distribution for China is: 0-14 years: 17.15%, 15-24 years: 12.78%, 25-54 years: 48.51%, 55-64 years: 10.75%, and 65+ years: 10.81% (China: Urban and rural population 2017). With the majority of the population between the ages of 25-54 years old, they would most likely be the top consumers for BPC. 60% of the population are high school graduates and attend university making them increasingly skilled workers and allowing them to rise in socioeconomic class and thus are able to afford more things such as takeout. China’s geography consists of 14,500 km of coastline allowing for ample port access, lowering the costs of transportation. In addition to this, China is 57% urban and 43% rural due to their efforts to increasing urbanization. China’s exchange rate is 6.91 yuan to 1 US dollar, GDP per capita is $8,826.99 since there are so many people and a GDP growth rate of 6.9% and have a GNP of $23.24 trillion as well, making this in an economically growing country. In addition to this, 40% of China’s GDP is in manufacturing. Online food ordering is a $32 billion industry in China, with over 60% of delivery service customers ordering at least twice a week. The number of users has reached over 300 million, a 40% increase from 2016 (Fitzsimmons 2018).
Entry Strategies for China:
Since BPC is new to the Chinese market and must go through a trial period before getting an Industrial Product Manufacturing License (IPML), it is going to enter the market through a partnership with XingLi Bamboo Products Company who already has their IPML.
Regulations for China:
BPC needs an Industrial Product Manufacturing License. This is a long process as it requires BPC to have a safe production license and undertake a one-year trial production period in the market before it can formally apply for the license (Fitzsimmons 2018). As a result, BPC will be required to produce and store products for more than one year before BPC is authorized to bring the product to market. In addition to this, BPC must obtain a Chinese Compulsory Certification, and Safe Production License before it can start producing (Fitzsimmons 2018).
SWOT Analysis for China:
China has several appealing aspects of their market. These include high GDP growth, over a billion consumers creating a large market, a recent telecommunication boom bringing more people online, and cheap labor (Bhasin 2018). However, China is still a developing country, there are a lot of unemployed people, and the government imposes heavy restrictions on foreign countries especially ones trying to establish in China (Bhasin 2018). Currently, in China there is a large opportunity in the service sector. The government is focusing on urbanization and the service sector due to neglecting these areas for so long to improve agriculture and manufacturing (Bhasin 2018). While China is a very promising market to enter, it does have some drawbacks. This includes China not really upholding copyright laws and how quickly people can turn around and produce a product. In addition to this, there are East China Sea disputes that can hinder trade and commerce as well as the Chinese government being in a trade war with the US (Bhasin 2018).
Consumer Profile Germany:
BPC’s second target country is Germany. Germany has a population of 80,457,737 which means it is a large and developed consumer market (World Factbook 2018). The age distribution for Germany is: 0-14 years: 12.83%, 15-24 years: 9.98%, 25-54 years: 39.87%, 55-64 years: 14.96%, and 65+ years: 22.36% (World Factbook 2018). With the majority of the population between the ages of 25-54 years old, they would most likely be the top consumers for BPC. 95% of the population are expected high school graduates and 86% attended higher education making them educated consumers who are able to get higher paying jobs and afford more things such as takeout (The World Factbook 2018). Germany’s geography consists of 2,389 km of coastline allowing for some port access but would have to go through the English Channel and pass by France, the third target market, lowering the costs of transportation (The World Factbook 2018). Germany is also part of the Schengen Zone, allowing for ease of travel and is part of the European Union (EU), allowing for easier trade. In addition to this, Germany is 77.3% urban and 22.7% rural allowing more area for people to settle, increasing its consumer market (The World Factbook 2018). Germany’s exchange rate is 0.88 Euros to 1 US dollar, GDP per capita is $50,800 and a GDP growth rate of -0.17% and have a GNP of $1,039,838.98 as well, making this a fairly economically stable country (The World Factbook 2018). In addition to this, 30.7% of Germany’s GDP is in manufacturing.
Entry Strategies for Germany:
Entry strategies for Germany are to appeal to the German culture of wanting high-quality products such as the BPC BamBoxes.
Regulations for Germany:
Regulations in Germany include all of the regulations asserted by the EU such as the Single Administrative Document and Summary Declaration, as well as tariff import restrictions of about 19% added value tax (Germany's import and export and Market Research Reports 2017). One of the main requirements is that the management boards of public companies have to comply with the German Corporate Governance Code. This code is written and periodically reviewed by a commission that is appointed by the Federal Ministry of Justice. Also, each company conducting business or trading in Germany has to register with the local registry court at its principal place of business. Each company operating in Germany has to be registered with the local Trade Supervisory Board.
SWOT Analysis for Germany:
Germany has several appealing aspects of their market such as increasing consumer consumption, educated workers, large economy, and culturally seeking high-quality products (DeNike 2011). Despite these appealing aspects, Germany does have high taxes, slow negotiations, labor shortages, lots of political and economic regulations of the EU to conform to, and as a result has relatively high barriers to entry. Promising opportunities of Germany include the location within the EU, introduction to the EU market, and some tax incentives. However, there are some threats such as competition, Brexit, and potential ideas of moving away from the EU.
Consumer Profile for France:
BPC’s third target country is France. France has a population of 62,814,233 which means it is a large and developed consumer market (World Factbook 2018). The age distribution for France is: 0-14 years: 18.48%, 15-24 years: 11.8%, 25-54 years: 37.48%, 55-64 years: 12.42%, and 65+ years: 19.82% (World Factbook 2018). With the majority of the population between the ages of 25-54 years old, they would most likely be the top consumers for BPC. 34% of the population attended higher education (The World Factbook 2018). Since France is a developed country, the consumer market will be able to afford more things such as takeout. France’s geography consists of 4,853 km of coastline allowing for port access to lowering the costs of transportation (The World Factbook 2018). France is also part of the Schengen Zone, allowing for ease of travel and is part of the European Union, allowing for easier trade. In addition to this, France is 80.4% urban and 19.6% rural allowing more area for people to settle, increasing its consumer market (The World Factbook 2018). France’s exchange rate is 0.88 Euros to 1 US dollar, GDP per capita is $44,100 and a GDP growth rate of 0.37% and have a GNP of $2,647,767.71 as well, making this a fairly economically stable country. In addition to this, 78.7% of Germany’s GDP is in services (The World Factbook 2018).
Entry Strategies for France:
Entry strategies for France are to get everything done quickly with the Business Formality Centre and appeal to French culture through their high tastes for quality products (Doing Business in Germany 2018).
Regulations for France:
Regulations in France include all of the regulations asserted by the EU such as the Single Administrative Document and Summary Declaration, registering with the Trade and Companies Registrar, and meeting reporting requirements (DeNike 2011 and Practical Law).
SWOT Analysis for France:
France has several appealing aspects of their market such as increasing consumer consumption, educated workers, large economy, and culturally seeking high-quality products (DeNike 2011). Despite these appealing aspects, France does have high taxes, slow negotiations, lots of political and economic regulations of the EU that they conform to and interpret more strictly than other countries, and worker inefficiency (France 2018). Promising opportunities of France include the location within the EU, introduction to the EU market, and some tax incentives. However, there are some threats such as competition, constant protests, political instability, other culture rejection, and potential ideas of moving away from them.
Financial Analysis
Break Even Analysis:
BPC aims to expand their operation to France and Germany by the year 2022. Expanding further away from the natural supply of bamboo in China will cause a slight increase in the per unit price of each BamBox. However, as mentioned in the consumer profile of France and Germany, their increased concern for the environment will assuredly result in a greater willingness to pay. The breakeven point states that BamBoxes will break even in China after 2,553,191.49 are sold (Fg.1). France and Germany have break-even points that are below China’s because they are bearing about 50% of a fixed cost (Fg. 4). This is because half the farm’s cost was added to China’s fixed cost and a quarter was added to both Germany and France’s fixed costs (Fg. 2).
Funding:
The BPC is seeking a $1 million grant from the EU Eco-innovation program in order to help finance manufacturing costs in Germany and France. This program has recently accepted applications for lighter food trays that produced less crude oil and eco-friendly paper bottles. Considering the significant reduction in plastic waste Bamboxes will have in France and Germany, Bamboxes seems more than eligible for this grant. From 2008- 2013 the program granted $239 million to companies similar to the BPC. Funding for the additional $1.5 million needed for BPC’s expansion into France and Germany will be sourced from profits at the Chinese location. Profits will reach $1.5 million after approximately 6 million Bamboxes are sold. It will take 7.5 days of production to reach this profit based on the factories production capabilities. Additional funding will be provided through investors who share the same vision as BPC.
Projections:
BPC projects that current production will increase to 2,000,000 units per month in China, 500,000 units per month in Germany and 416,666 units per month in France. Based on these projections total revenue will exceed $7,550,000 and profits will be an estimated $3,665,000. In the second half of the year, the washing facilities will open and BPC will be selling new and reused Bamboxes in the three target countries with a $0.20 reduction in price. With the washing facilities in full operation, production will triple and unit costs will be cut in half in both Germany and France. This will yield a 167% increase in profits as BPC is estimated to reach $6,120,000 in profits at the conclusion of the second 6 month period.
Expenses:
BPC will have expenditures including a $1 million investment in a bamboo farm in the Anhui province of China. Additionally, manufacturing equipment will be purchased from the HGHY Pulp Molding Pack Co. at a total of $987,000 in order to equip each country with the necessary equipment to meet the demand of consumers. Washing equipment will be rented from a particular warehouse within each country with an estimated expense of $200,000 a year in France and Germany and $100,000 a year in China. Shipping will be through the Newport Shipping CO. L.L.C. and will cost $5,000 per 1 ton of bamboo, which equates to $0.01 in variable cost per BamBox. Germany will have double these shipping costs as a landlocked country. BPC decided to import raw bamboo and have BamBoxes assembled in each country in order to avoid the 19% EU duty that’s placed on improved goods.
Supply Chain
BPC will be producing bamboo for the BamBox at a farm in China. This decreases its shipping costs since BPC does not have to pay for international shipping for its bamboo. BPC will be introducing a manufacturing plant in China to take advantage of the low cost of labor and the lower cost of shipping. After its 3-year partnership has ended with its Chinese business partner, BPC hopes to expand its market reach into Europe. BPC plans to have a farm in China that grows the bamboo for the BamBox. BPC will process the bamboo and ship the raw materials to France and Germany. BPC will then manufacture BamBox in each individual country in order to decrease the risk of losing BamBoxes to shipping errors and breakage during transport.
Future Goals
BPC will start by building a bamboo manufacturing plant in China so it can manufacture and package product. From there, BPC plans to market the product to Shanghai specifically and hopes to start a trend to reduce plastic pollution. After BPC becomes more well known, BPC will gain support through advertisements showing the world’s plastic waste problem to help shift public opinion and gain support. BPC will then build a assembly plant in both Germany and France to help spread the company globally. BPC looks to eventually completely replace plastic containers and then expand to producing other products such as plastic wrap and single use plastics replacements significantly reduce the plastic production in the world. As BPC gets bigger, it hopes to get involved in clean up opportunities and invest in other companies that are initiating clean up projects as well as developing more sustainable ways of production and usage of goods.
Limitations
There are many limitations surrounding the start of a business in China. BPC needs an Industrial Product Manufacturing License. This is a long process as it requires BPC to have a safe production license and undertake a one-year trial production period in the market before it can formally apply for the license (Fitzsimmons 2018). As a result, BPC will be required to produce and store products for more than one year before BPC is authorized to bring the product to market. BPC also needs to keep up with constant license renewals (Fitzsimmons 2018). This can be difficult because the renewal processes create uncertainty, as they can be almost as challenging as the original process of applying for the original licenses. In addition to this, China has time limitations on registering patents. If BPC “registered [its] patents outside China more than 12 months previously [BPC is] usually unable to register [its] patents locally in China” (Hedley).
In order for BPC to avoid uncertainty and have a smooth entrance into China, BPC will need to take the following steps. BPC will have to divide its licensing work between a government relations team and an environmental compliance and permitting team. The government relations team will be responsible for interfacing with relevant government agencies to smooth the licensing process, and the environmental compliance and permitting team will be responsible for handling technical issues. BPC will also need to maintain an internal license-tracking database in order to stay abreast of license renewal schedules and to issue reminders to local managers. BPC will also need to have regulators to amend the rules to increase flexibility and improve the ease of doing business in China. Specific suggestions include allowing manufacturers to continue business with established suppliers and distributors with a proven safety record while the manufacturer awaits approval for its industrial product manufacturing licenses from China. BPC will also have to have its government relations team work out the patents to ensure BPC is protected in China.
Some of the limitations of BPC entering Germany is that they are an aging society resulting in labor shortages. Also, “hierarchy is valued in Germany and there is often a plethora of procedures and policies which can slow things down” (Top 10 Challenges of Doing Business in Germany).
In order for BPC to do well in Germany, it will have to be aware of potential labor shortages and possibly seek employment from other nearby countries and have a culturally literate manager of the business in Germany.
Since there are no administrative restrictions on foreign investment in France, the only restrictions are the mandatory declarations or permits that have to be filed by BPC. In order to reduce the majority of these permits, BPC can open a liaison office in France. As a result, the main limitation of BPC entering into the economy of France is the political instability throughout the country, since the people of France have a reputation of holding multiple protests which can slow down or stop production.
In order to avoid the protests, BPC needs to be cautious to not make the workers or the people of France upset over any of BPC’s actions or inactions. BPC will have to have some type of system for people to air grievances.