Introduction

The purpose of this Report

The focus of this report is to analyze and recognize the emerging opportunities that MYDIN

Malaysia will acquire if they choose to expand their business overseas, and mostly putting

emphasis to, MYDIN Malaysia entering Chinese market (food sector). By using PESTEL

analysis and looking into the company’s core competencies, this report will determine the

best method for MYDIN to enter into China. Also this International business plan will assist

the company the mode of entry into the food sector market of China.

Company Profile

Mydin Mohamed Holdings Berhad had its humble establishments back in 1957 in the same

year that Malaysia got its independence. The founder, Mr. Mydin Mohamed was a profound

trader. Now with its economically-priced goods and low pricing tactics, Mydin has emerged

as one of the largest hypermarket midst Malaysia’s competitive hypermarket industry and has

managed to gain its trust among local customers. Its core business activities are mainly

wholesale and retail. Mydin sells a broad range of domestic goods and its stores

provides everything ranging from soft line which include textile, leather, sports wears

for both genders and all ages; hard line which comprises of products such as toys,

hardware, electrical, stationery, household items and food line. In addition to that, they

also stock up an assortment of daily supplies of Muslim goods to the selected consumers. By

embracing the Halal (permissible in accordance to the Islamic laws) concept, they dominate
over the Muslim market which comprises over 60% of the local population. Mydin is the

largest local wholesaler in Malaysia that serves all communities. It has 4,000 employees

across and Mydin websites reveal that by early 2013, Mydin has reportedly over 100

wholesale and retail outlets consisting of at least 12 hypermarkets and 18 emporiums

(M.Mukherjee, 2014).

Core Competencies

In order for Mydin to gain a competitive advantage in the Chinese economic climate,

research needs to be conducted about China in order to assess the strengths and weaknesses

in delivering value to the consumers of the Mydin. This will in turn lead to a better

understanding of the market as well reduce the risk of investment. In order to assess the core

competencies of Mydin, a S.W.O.T analysis will be conducted to determine the Strengths,

Weaknesses, Opportunities and Threats of Mydin entering the Chinese market.

Unique Selling Point (USP)

The unique selling point of Mydin can be attributed to its strictly Halal products that are

offered. As Malaysia is a Muslim dominant country, Halal foods are a necessity.

Mydin’s slogan reads, “Why pay more, buy at wholesale!”. (Mydin, 2014)This gives the

target audience the perception that Mydin’s products are cheaper than other hypermarkets. In

order to maintain their reputation in China, Mydin would need to implement the same style of

offering high quality products at low costs.

Strengths

Low Price Strategy

Mydin implements a low pricing strategy in order to compete with their competitors in

Malaysia. Hypermarkets such as Carrefour and TESCO provide foreign products at higher

prices than Mydin, although Mydin specialize in selling low cost products of decent quality.

Their aim is to target customers of lower to medium income levels. This allows Mydin to

retain customers that are satisfied with their cheap products and create a sense of brand

loyalty among its consumers. Keeping prices low also helps attract wholesalers who are

looking to buy products at a cheaper rate. This strategy can be successfully carried forward

into the Chinese market as well.

Weaknesses

Low Quality

Mydin’s strength can also be its weakness, as Mydin offers a wide range of food products at

cheap prices they may be prone to offering products that are of low quality. As prices get

lower so does the quality of products and in order to maintain their reputation of offering

cheap products Mydin occasionally sacrifice quality for cheaper prices. This might change

the perception of Mydin to a place where products are cheap and of low quality. In order to

maintain their reputation and target the middle class Mydin in China they would have provide

products that are of acceptable prices as well as affordable.

Market Analysis

Political Environment

Since the opening of China in 1978, China has been the biggest developing host country in the

world. China’s FDI inflow was recorded at US$119.6 billion in 2014 with a 1.7 percent hike

(MOFCOM, 2015). The stable FDI inflow depicts that the country is stilll an attractive

destination for foreign investments. However China’s highly decentralized FDI approval and
policy have caused a spike in corruption between local authorities and businesses (The World

Bank, 2010).

Business deals in China often relies on “GuanXi”, which is translated to relations or

connections. Leveraging on “GuanXi”, it would enable businesses to venture into China with

ease. In order to abolish such practices, President Xi Jinping made a high profile campaign

against corruption which has ceased more than 200,000 officials which has allegations of

bribery and corrupt practices (BBC News, 2016). This campaign would aid transpanrency and

fairness in China’s business practices, which in turn would improve China’s investment

climate.

Another key factor that highly attracts foreign investors would be China’s low tax regime. The

regime set forth a 5 years tax collection reduction or exemption depending on the type of

business (Deloitte, 2015). For an example, advance manufacturing businesses are able to

prolong the low tax regime to 8 years. On the other hand, import tariffs and duty exemptions

are inclined in aiding foreign investment. Foreign firms that are importing for investment items

are able to be exempted from duties and taxes if it is encouraged by the state government

(Deloitte, 2015).

Economical Environment

The exponential growth of China’s emerging middle class has brought huge economical

changes. According to Zheng (2015), the rising upper-middle class and higher income

households have increased the private consumption in China to a figure of US$6.5 trillion

dollars. This is because consumption

China’s economy has surpassed the United States as one of the world largest economy when

measured by Purchasing Power Parity (PPP) or “Big Mac” index (Schiavenze, 2014).

PPP accounts for the national differences in the cost of living, hence China’s consumption

power is on par with developed nations. As for China’s Gross Domestic Profit (GDP), it has
grew at 6.7 percent over the years (Letts, 2016). This statistics establishes that China’s current

market would continue to increase not only in size, but with a shift of demographics and

psychographics in consumption, Chinese consumers are shifting their consumption patterns to

attune to their current lifestyle change.

Social-Cultural Environment

In recent years, there has been an escalation of food scandals happening in China. These

scandals have cause mistrust among customers which led food safety as one of the key concerns

of Chinese consumers (Duggan, 2015). Due to the aftermath of these scandals, many Chinese

are now opting for safer options such as supermarkets and hypermarkets as opposed to

traditional “wet” markets (Duggan, 2015). Besides the growing concern of food safety, China’s

halal food and product industry is growing and underserved market as it only accounts for 0.1%

of the global halal market (Ma, 2014). According to Khaleej Times (2016), Chinese muslims

are now demanding for the recognition of their religion and hope to raise the importance of

islamic among local halal restaurant in Xi’an. This further indicates that halal food and product

industry would be a niche that could be profitable as China’s muslim population is recorded at

about 23 million (The Guardian, 2011).

Market Opportunities

Balance of Halal and Non- Halal Products

Mydin follows the Halal concept of selling which is an Islamic concept which promotes

purity of products as well as honesty and sincerity in their selling process. Muslims are

obligated to eat foods and beverages that are only Halal.

In Malaysia where Mydin is based there is a Muslim population of 18 million which makes

up 60% of the total population, this is a large demographic of people that Mydin caters to in

Malaysia. (Muslim Population, 2014) This success can be transferrable to China, although

China only has a 10% Muslim population, the number is much greater due to its large

population, therefore the actual population of Muslims in China is approximately 150

million. (Muslim Population, 2014) This number of Muslims is much greater than that of

Malaysia, which allows Mydin to tap into a large market.

Slowing Economy

It is reported that in 2015 China’s growth was its lowest ever recorded at 6.9% growth

compared to the previous years growth of 7.3%. (BBC, 2016) This comes despite a show of

confidence by the International Monetary Fund claiming that China would continue to grow

at 8% per year till 2017. (The Economist, 2015)

This turn in the economy could prove beneficial to Mydin as Chinese consumers become

more conscious of their spending and would therefore look for cheaper options. As this is

what Mydin is known for it could prove to be a huge opportunity if they continue to price

their products cheaper than it’s competitors.

Market Threats

Foreign Retailers Struggle

Since the gates of the Chinese market have been open to foreign direct investment, large

multinational companies have tried to claim a stake in China’s untapped market. The same

can be said for large hypermarket chains such as Carrefour, Tesco and Wal-Mart. Wal-Mart

drew a crowd of 80,000 on their opening day in China in 1996 although this life cycle of
Wal-Mart and other foreign hypermarket chains had reached their decline as soon as 2012.

(Kaiser, 2012) Hypermarkets such as Tesco have started pulling back their FDI as Hong

Kong hypermarket Sun Art Retail Group Ltd takes over as the leading hypermarket in China.

(Kaiser, 2012)

Most failures of foreign companies have been credited to the lack of understanding of the

Chinese culture. Choosing to implement their own techniques to tap into the market rather

than taking into account that the people of China have different customs and traditions that do

not align with foreign ideas.

Mode of Entry

Mode of entry is defined as institutional arrangement that selected by the firm to gain access

to a foreign market (Hill, C.W., 2013). The most crucial decision for a firm such as Mydin

seeking to enter a foreign market like China is on which mode of entry to use. There are

several option of entry modes which are exporting, licensing and foreign direct

investment/wholly-owned subsidiary, joint venture, merger and acquisition. However, the

two most suitable modes that Mydin should use to enter China as a stepping stone towards

their internationalization is by using either join venture or acquisition.

Acquisitions

Acquisition is one way where Mydin can grow and expand its business by buying another

business from China. Mydin will be able to capitalise on the benefits of an established market

presence as well as be able to take advantage of China’s market size, cheaper rates for

labourers and so on. The main idea is to increase the revenue of the company by acquiring a

functioning company that will contribute to the income and market share of Mydin. However,

acquisitions can present some difficulties and actually put you at a disadvantage.
The prime advantages of acquisitions is that it is the most time-efficient growth strategy. It

promptly provides Mydin the opportunity to acquire the resources and core competencies not

currently owned or held by them. They will be able to make use of the existing client base

which will tremendously assist Mydin so that they don’t have to search for new clientele. In

addition, the costs and risks for a new product development will decrease through acquisition

as there is a smaller need for marketing and sales efforts compared to a wholly-owned

subsidiary.

Acquisition can also avoid delays that could occur in the startup phase of greenfield

investment. Next, the acquisition aids to build the market presence for Mydin, thus

increasing the market share of the company while reducing the competition’s stronghold,

which is the main aim for any company as it will promote the elevation of product

effectiveness and efficiency.

Mydin will include the two types of acquisitions which is horizontal acquisition and vertical

acquisitions. This is shown as Mydin takes over the industry with as a firm with the similar

products in the same industry, takes over the firm's suppliers and distributors. This will help

to ease the costs and time for Mydin to search for market research and potential distributors.

Another advantage of acquisition is that it helps the company overcome entry barriers, as it is

able to take over the company and reduce taxes and costs to build a new company or start

from scratch. According to (Hill, C.W., 2013) the higher the barrier to entry the more likely a

takeover will happen. The other benefit of acquisition if that the cost of new product

development will reduce as Mydin may take over the existing products of the past company

rather than develop and create its own products thus reducing the cost of R&D which is one

of the highest cost to be incurred by any firms starting their business.

However there are several disadvantages for acquisitions such as culture clashes. Every

company has different prospects on how it conducts its business and if Mydin were to do
things that contrast with the working culture of China causing a friction. Also if Mydin were

to enter China’s market even after doing its market research, they may still not be able to

capitalise the Chinese customers’ taste, fashion, preferences and lifestyle. In addition, Mydin

may face hefty costs in acquiring the other company such as taxes, hostile takeover bids,

loans or debts and if Mydin were to fail their project and acquisition process without any

signs of profits or revenues, they will have to sustain all the costs as losses.

Joint Venture

Joint venture can be one of the most important means of growth for Mydin. A joint venture is

the formation of a firm that is jointly owned by two or more otherwise independent firms (Hill,

C.W., 2013). The firms utilizes the combination of strengths of each other and also share the

profit, losses and risks. A joint venture is usually formed to promote the product differentiation

or a new product development, run production facilities in another country and share resources

and technologies of the other companies.

Joint venture by Mydin with another local firm in China can help them overcome cultural and

language barriers. The local firm will help Mydin to acquire its valuable resources and labours’

and can help to promote the working style that Mydin prefers, thus aiding Mydin in achieving

success and profit in the internationalization.

Location is also another key tool in joint venture as it has direct influence on sales for any

product. In this scenario, the firm in China which Mydin chooses to joint venture with will help

them to seek for labours’ with lower wages as stated by the (The End of Cheap China,2012)

whereby labour rates in China is not as cheap as it used to be, thus saving costs for Mydin and

time in doing market research. The firm will also be able to draw attention to the products sold

by Mydin as they are a local firm, hence understanding the local consumer needs, hence gaining

market presence in China. In addition, the costs and risks of opening its stores in a foreign
market will be shared with the partner thus reducing Mydin’s burden in the cost sector and time

and if the venture was to fail, the financial losses would not be as great as it was solely owned.

Lastly, shared ownership can lead to conflicts and arguments if the goals and ideas on

running the business were to differ or change over time (Hill, C.W., 2013). This will cause

Mydin to lose its trust it has over its local firm which may even be the cause of them in

exiting China. Another issue would be the inability to control over subsidiaries. This will

affect Mydin by losing its key clientele and customers trusts, causing a decline in sales and

might even force them into exiting the market.

Conclusion

After analysing the PESTEL factors in China, conducting SWOT analysis on Mydin, and

based on the company’s core competencies, it can be concluded that the most appropriate

mode of entry is by doing joint venture with China’s local company. This eases Mydin in

understanding the food and grocery shopping industry in China. Mydin will only have to do

little research and save time and costs as the partnered firm will help them to draw attention

to the Halal and Non-Halal foods being sold at cheap prices thereby assisting Mydin by

increasing their customer base in China.

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