Developing KASITA Apartments

in China
Business Plan

Lyna Nguyen
Josh Hicks
Zachary Pape
Courtney Fulgham
Developing KASITA Homes in China

Executive Summary
At KASITA, our mission is to combine the word stylish with affordable. With
the young and emerging generation having a growing interest in urban
living, our apartments provide them with a compact, yet efficient and
affordable accommodation. Why choose our apartments? Not only are our
apartments stylish and unique, but our new innovation also provides our
consumers with movable and customizable units. Consumers that wish to
relocate their units to different areas are able to eliminate the hassle of
normal moving procedures, and simply move their whole unit with them to
any of our other existing KASITA locations with the help of our company.
Our Enterprise
Our units are about 200 square feet each and provide furnished necessities
to provide an efficient and comfortable living situation perfect for singles or
college students. We are located in Dallas, Texas but plan to penetrate the
highly populated Chinese market. With a population of 1.4 billion people, the
Chinese government has issued an urbanization plan to increase urban living
to 60% by 2020. Due to the plan, the housing market has grown
tremendously and currently many accommodations are being created, but
not affordable enough to fill the demand. Many college students are
struggling to find affordable housing around university areas and some
spend almost half their salary for a place to stay, and thats where KASITA
will provide a solution with our affordable units. To ensure success in our

business, we will also be forming a strategic alliance with the large Chinese
company Vanke to allow franchising of our businesses.

Urban living in china has skyrocketed with the attempts of achieving

the conversion from rural to urban areas. China, ranked number two behind
the United States with twelve trillion US dollars and a growing population
serves as an appealing market for foreign investors (Bergmann, Andy). The
housing industry in China has grown significantly throughout the years after
the announcement of urban development in the country, with an increase of
eighteen percent in less than a year from 2014 to 2015 (Fung, Esther). With
the high demand of affordable urban apartments, our development of
KASITAs high-rise mobile homes that are affordable, compact and are able to
be conveniently moved like your own luggage to different areas you habitat,
will surely charm individuals that dream of living in an urban area and are
perfect for single or college individuals.

Country Analysis
The country we chose to provide our housing services to is China.
China, a communist country with a dense population of 1.4 billion people and
not enough affordable places to live with the current urban dream, makes it
the optimal country to provide our affordable urban living compartments
(China). China is also in the process to transitioning to an increased urban
population and has implemented the National New-Type Urbanization Plan,
a plan that sets the goal to have sixty percent of its population living in
urban areas by 2020, which is an increase of fifty four percent from today
(Roberts, Dexter). Due to the urbanization plan, the housing market has
grown tremendously, and large numbers of urban arrangements are being

created, but many not affordable enough to fill the demand. China has seven
cities that are ranked in the top ten most expensive cities to own residential
dwellings, as reported by IMFs house price-to-wage ratio and a national
average of housing prices that has elevated from 2000 to 2010 by two
hundred and fifty percent. (Shephard, Wade). While our urban living
compartments are compact and provide only 200 square feet, they are
perfect for single or college students and affordable with a cost of about six
hundred dollars a month (Malouff, Dan). Majority of our properties will be
situated around public universities and areas with demographics of young
and single individuals to ensure the appeal of our services.
Globalization helps us to understand what we can do and not do to
make our integration to a foreign market better; there are certain forces of
globalization that we cannot control such as political, economic, and
competitive forces, while we can control cost, and the technology that we
use. While China has an open market appealing to foreign investors, they
have fiscal policies, industrial policies, and trade policies that are in place
that we cannot control. We can however control our costs by practicing
economies of scale to reduce costs and increase efficiency; and by doing so,
we are able to reduce developmental, production, and inventory costs.
Another way we can reduce costs is to purchase products from our value
chain at a different country for a lower price, such as the iron ore that is used
to make steel in the framework of an apartment. China does in fact though,
have a competitive advantage in producing iron ore and is the number one

ranked country, producing forty seven percent of the global output in

tonnage (Basov, Vladimir).

Country Risk
While China is notable for their trade freedom, they have many
government policies and regulations that must be followed to ensure success
in their market. Many of their industries are still tediously monitored and
some are even restricted from foreign investments. To help foreign investors
understand what is allowed, they have released a catalogue having effect
from 2012 and renewed every three years listing what is encouraged,
restricted, and prohibited. The housing industry is not listed in any of the
categories but instead in the category permitted where sectors that are not
listed in the other three categories are placed (Kaja, Ashwim). Even with
many restrictions lifted from the catalogue, the primary structures of
regulations in China remain complex. Many of the licensing requirements can
sometimes be so costly that they are reported to be triple the level of
average annual income. The government however did declare a program
that would have subsidies and tax breaks with the goal of generating jobs
and advocating entrepreneurship (China). The average tariff rate in china
is 3.6 percent, but there are many non-tariff barriers that may make trading
difficult. The government in China also owns many of the vast financial
institutions, therefore making loaning money under the priorities and decree
of the government (China).

Mission and Vision

Current college students and college graduates in China are facing the
problems of finding decent living accommodations with low wages. While the
best college can be found in Beijing, the steep price for housing resides there
as well. According to International Business Times, it is common for renters
in Beijing to spend half of their salary on rent (IBT.). It is well known that
college graduates go to the city to find jobs in their field of study, shown
through the fact that the Chinese government is encouraging the move from
rural cities, but there is simply not enough housing and not enough
affordable housing for them. With the current population at 1.4 billion people
and many of them looking for jobs in the city, the only solution is to make
affordable housing in these large college cities.
We are KASITA, a company focused on minimalist living in the city. With
KASITA, we want to create college towns and cities where college students
can live with each other and not the general public. This way those that have
taken that extra step to continue their education are able to be surrounded
with other like minded people. KASITA will have more affordable housing
options than Beijing currently has. Not only then will college students be able
to move out of cramped, expensive living arrangements, but the Chinese
population as a whole will have more living options once they move out.
KASITA homes are small living spaces that come furnished with the
larger necessities. This way each space will have a uniform square footage
and the amount of additional products to purchase will be kept to a
minimum. The Chinese government is pushing for more college graduates

and therefore subsidizing some of the costs, but these costs most likely do
not and will not cover basic household commodities. Students seeking a
higher education spend a majority of their time with internships and studying
for their rigorous course load. Such a strenuous schedule leaves little to no
time to find an outside source of money making it impossible to live on.
KASITAs minimalist vision is what is needed to accommodate the needs of
the next leading generation, by having more of the focus on school rather
than focusing on living conditions will in the end benefit Chinese college
students more.

Demographics
The population of China fluctuated between 37 and 60 million people
for thousands of years. After 1950 however, like most countries around the
world, the population grew exponentially. In the course of half a century, the
population went from 600 million to over 1 billion people. With the growth of
the human population, there was also growth in technology and education. In
1986, China enforced a new law called the Compulsory Education Law of the
Peoples Republic of China, which requires every Chinese child to attend a
minimum of 9 years in school. With a 99% attendance rate for primary
schools, there is no doubt that a majority of these students continue on to
higher education where the demographics become more shocking (China
Mike).
In the late 1990s, less than 10% of Chinese students ages 18-22 were
enrolled in higher education, where now it has increased to 27%, 30 million

students, and with a projected population of 40% by 2020 (Sarah

Butrymowicz). This sends such a strong message to younger students that
pursuing an education past primary and middle school are a social norm and
basically expected to fit into society. In 1997, 1 million students were
enrolled in degree courses where now it has risen to well over 15 million
students (China Mike). According to the New York Times, China is making a
$250 billion-a-year investment on education. Some economists call this
human capital, but the Chinese government issues large subsidies as an
incentive for education to millions of young people to move from their farm
hometowns to college cities (New York Times).
To expand and enhance the educational experience, China is creating
its own version of the Ivy League by singling out nine of its top universities.
With the stigma of being a stereotypical math and science powerhouse,
China is using this to their advantage by strengthening their curriculum. The
current college population is more educated than any other generation that
has become before them. The generations that have come before them are
continuously pushing them to grow and strengthen their country. This puts
an incredibly heavy amount of pressure on these college students to do well
in these schools that are created in large cities where housing is already an
issue for current residents.

Stakeholder Analysis
While performing a stakeholder analysis, we know that our mission is
to create a community around the upcoming generation and to help college

students with accommodations, by providing more benefits with fewer costs.

The units are flexible and can feel like home no matter where it is built or
moved to. Our stakeholders understand that we want to help the community
while being cost efficient. Our stakeholders are people from around the entire
community and real estate aspects of business. They agree completely with
what we are trying to do with expanding our products to China and are
completely behind us on this decision. Our stakeholders have the same
beliefs as KASITA in that we want to find ways to help others. By proving to
them that KASITAs minimalistic lifestyle is the optimal choice for our target
market, we are able to provide a solution to many consumers that are
looking for a place that is affordable and efficient. Our idea is very feasible
and our target audience is perfect for what we are trying to achieve. With our
stakeholders behind us we believe as a whole we can take a stronghold on
the Chinese real estate industry and put our face on international business.

Strategy
As mentioned above, our target market is going to be primarily college
students, as well as singles or couples without children. This is due to the
small space provided which is not ideal for families with children, or
generally more than two people. Our corporate strategy is to create a
strategic alliance with China Vanke to allow us to franchise in China, as well
as an alliance with FSE Engineering to allow us to domestically manufacture
our mobile apartments in the most cost efficient manner possible. This goes
hand in hand with our mission of providing affordable housing for students

and small families, and partnering with the largest real estate developer in
China helps brings us closer to our vision of being a powerful name in
Chinese real estate.
To evaluate and analyze the Chinese market, we went through the
SWOT analysis. This discusses our organizations strengths, weaknesses,
opportunities, and threats. The first of which, being our strengths comes
from our strong product differentiation. We have a very modern image that is
attractive to the younger generation who is our target market. Along with our
novel idea of portable housing, we are very modestly priced, with an easily
customized layout. Our weaknesses are that we are very dependent on these
domestic companies to get us started. This could spell disaster if there was
to be conflict between us. However, there is great opportunity in our market,
being that so many people are wanting to move to cities and cant afford the
high price of housing there. The largest initial threat we face is finding
franchisees and land to build the frames for our mobile apartments. The next
obstacle we face is dealing with a foreign market, and learning to adapt to
that, which brings us to the next section.

Market Screening
While performing the initial screening, there seems to be a need for
KASITA because of how over populated China as a country is, but we would
only be able to work with two people per building. There are no competitors
in China for our exact same building concept since our business is very
specific on what we do and build, making the transition into the market

straightforward as we know exactly who our target audience is. We will be

producing all our products in China because the cost to produce each
building and all the movable parts are overall cheaper there, while keeping
our headquarters in the United States to conduct our business domestically
also.
For the second screening, which focuses more on the financial and
economic forces, we have realized that the Chinese culture is very frugal
with spending their money, but to luckily have a place to live is something
we all look for and need. Older consumers may value price over quality, but
the younger generations are willing to pay premiums for higher-end
products. We have to make sure we have all the issues fixed with our product
before we release it to the public because China is known for not buying
products after safety mistakes. For example, in March the media report
revealed that Clenbuterol, a drug that accelerates growth, was found in pork
from the Shuanghiu Group, a local leading pork manufacturer. The following
month, Shuanghuis retail sales dropped 45 percent, and many consumers
interviewed would not buy its products. (Nelson). Our plan to have a
strategic alliance with China Vanke is an excellent option due to their large
base of brand loyal consumers in China. The Chinese people really favor
brand names and a face to a company and by giving small discounts to new
customers on an occasional basis, will bring in more consumers due to the
fact that Chinese consumers wish to save as much as possible.

The third screening deals with mode of entry and legislation. We have
considered all required legislation since we are going to have a strategic
alliance with Vanke. According to the statistics, we have a better chance of
succeeding in China with our innovative product and is less risky compared
to other products currently trying to enter China.
In the fourth screening, we had to view our competitive forces. Luckily,
since we will have a strategic alliance with China Vanke, it will help us to
build a brand name in China due to their large consumer base and
reputation. Their stock has skyrocketed since December and their
competitors numbers have been decreasing since then. (Wall Street Journal).
COFCO Property Co. Ltd.s stock has dropped significantly since August 2015,
foreshadowing a decrease in their stocks providing benefits to us. After
completing these market screenings, we believe KASITA will perform well in
the Chinese market and that we should start manufacturing and advertising
our product there. After doing our screening we realize that China will be
better off with our products, we could help many people with their living
habits and also we could help their environment because currently they have
a lot of air pollution.

Mode of Entry
In order to obtain traction in the Chinese market, we will be franchising
distributors to use our business. The U.S. Commerce Department estimated
95% success rate among franchises versus the 25-35% success rate among
independent businesses. This is because franchising allows us a generally a

low cost market entry, and allows for greater control by the franchising
company (Guzman). We will also be at an advantage by franchising our
business since local companies will be able to understand the market much
more thoroughly than we would be able to. The greater control allowed by
franchising is more beneficial for us entering a foreign economy than
licensing our product would be.
There are some disadvantages however; searching for a good
candidate for a franchisee could prove difficult. Especially being that were
entering an economy that were not familiar with, and from their perspective
were a company coming from another country with no known credibility. To
add to that, recent legislation was passed in China stating that franchises are
not permitted to franchise directly from another country to china. Rather,
they are required to form strategic alliances with Chinese partners (Zwisler).
Although these issues can be seen as a problem or reason not to enter
China, we saw this as a benefit to us. In order to get past the strict Chinese
legislation, we have decided to create a strategic alliance with China Vanke
(Statista). This company is currently the largest real estate company in China
and also the most well-known. Although the legislation is tricky, it allows for
a strategic alliance to franchise the foreign company, being us (Kasita). The
reason that this is seen as a benefit by us is because partnering with the
largest real estate company in China will give us great visibility and brand
recognition. This will give us a solid footing in the Chinese economy without

having to invest in our own market research, as well as providing access to

China Vankes expertise on their own country.
The final part of our Mode of entry is the manufacturing of our mobile
apartments. Although manufacturing in the U.S. could be cheaper, exporting
poses a large issue for us and ultimately becomes less cost effective. This
has lead us to our idea of manufacturing in China. This poses the second
problem, which is building a factory and warehouse able to support our
operation overseas. To solve this, we will be creating a strategic alliance with
FSE Engineering. This will give us access to their manufacturing division in
order to build our mobile apartments domestically in China. In addition to the
manufacturing, this partnership will allow us access to their distribution
channels, which will allow us to start up in China much faster than we would
be able to on our own.

Marketing Considerations
To have a good understanding of the Chinese market, we looked at the
four Ps of marketing which are product, place, price, and promotion. What
the customer would want from the product is for it to be affordable and
portable, which is the base of our mission and vision. This answers the price
question, being that it will be very moderately priced. The place and
promotion go hand in hand, since buyers will be looking for our service in
large cities. Because of that we will be promoting our product through T.V.,
radio, and billboard advertisement within large cities. This should give us
plenty of exposure, and along with the brand recognition gained from our

strong domestic partners; we should have no problem planting our flag in the
Chinese economy.

Conclusion
Looking at the demographics of China, it is clear that there is a
crowding issue and a lack of housing issue. Through our research we believe
that KASITA will be an extremely beneficial addition to the Chinese
community, especially since we are partnering up with Vanke to form a
strategic alliance. KASITA will bring affordable, modern housing to young
adults and help aide the residential issue for future generations. With us
focusing on such a populous city, we hope that other cities around the world
will see this as a solution to urban living.

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