Export Pricing Decision and Export Costs:

Export Pricing Decision and Export Costs:

The Case of Ten Kate Vetten

By Fenghui Xiong

E-mail:s1823892@student.rug.nl Student number: s1823892

-September 2010-

Double Degree Msc International Financial Management

Faculty Supervisors:

Dr. B.J.W. Pennink, RijksUniversity Groningen

Prof. Dr. L. Karsten RijksUniversity Groningen

Abstract

This dissertation is about the export pricing decision, the case of Ten Kate Vetten. This dissertation is based on the theories of export pricing decision and combines the practical situation of Ten Kate. The factors influencing export pricing decision are examined in this dissertation. The market factors such as competitors and customers are discussed in detail and the company strategy, product factors are analyzed. Combining the export cost information, the export pricing decision is made and the optimum export price is calculated. In this paper, export pricing decision is discussed. Many researchers focus their studies on the export pricing decision and the factors effecting export pricing decision are widely discussed. But to my best knowledge, there are few studies to implement the theories into the practical case. Followed with the previous studies, the factors including export cost, company strategy, product factors and market factors which affect export pricing decision are discussed in my paper. And finally the export pricing decision is made.

Keywords: export pricing, export costs

Table of Contents

I. Introduction ... 1

1.1 Problem Indication ... 2

1.2 Research question ... 3

II. Literature review ... 5

III. Methodology ... 9

IV. Market factors ... 11

4.1 Overview of Chinese market for edible oil... 11

4.2 Overview of Chinese market for lard ... 13

4.3 Behavior of individual customers and business customers ... 18

4.4 Overview of international competitors and domestic competitors... 26

4.4.1 International competitors ... 26

4.4.2 Domestic competitors ... 28

4.5 Other findings ... 29

4.7 Conclusion ... 31

V. Company strategy and product factors ... 32

VI. Analysis of Export cost ... 34

6.1 Analysis of cost the Ten Kate ... 34

6.2 Analysis of price of competitors ... 38

6.3 Comparison of prices ... 40

6.4 Examine the optimum price ... 42

VII. Conclusion ... 46

VIII. Recommendation ... 48

IX. Limitation ... 49

References ... 51

Appendix I ... 55

Appendix II ... 60

I. Introduction

The globalization makes more firms realize that it is imperative to look for opportunities in foreign market and engage their operation into the international expansion. Exporting is considered as a safe international growth strategy for firms, especially for the SMEs (Freeman, Edwards, and Schroder, 2006; Brouthers, Nakos, Hadjimarcou and Brouthers, 2009). Many researchers focus their studies on the firms’ exporting behaviors, export performance, export decisions, etc. Export pricing is less paid attention by the researchers than other exporting issues (Forman and Hunt, 2004). Export pricing plays an important role in the performance of export, because price is the most flexible element of the marketing mix, and price decision can be implemented relatively quickly with a low cost, and creates revenue (Tzodkas, Hart, Argouslidis and Saren, 2000). But export pricing is always overlooked since the pricing process is complicated and influenced by a large amount of factors (Lancioni, 2005). Compared with domestic pricing process, exporting pricing is more complicated because additional context factors such as local policy, regulation and export cost, have to be considered.

There are many factors affecting the export pricing decision, such as company factors, market factors and product factors (Tzodkas, Hart, Argouslidis and Saren, 2000).

Additionally, export cost, a part of company factors, plays an important role in the process of making export decision. Export cost is not only related to the decision on export price and volume, but also is related to the profitability of export operation and the performance of a firm (Aulakh and Kotabe, 2000). In order to maximize the profit of export and improve the performance of export, it is necessary to investigate the relationship among price, cost and volume.

Ten Kate is one of the leading animal fats producers in Europe It is producing lard, fat

specialties, flavours and meat proteins destined for food, feed, petfood and the

oleochemical industry. The firm is exporting lard for food application to different

countries, like Hong-Kong, Spain, United Kingdom and Ireland. In their expansion

process, they got great interest into Chinese market for lards. Most of Chinese eat all parts of pigs, including lards. Although animal fats are viewed unhealthy and not suggested often, lard is still often used in cooking and baking and viewed irreplaceable in China because of its cheap price, special smell and function. Bakeries, animal feeds factories and restaurants in China have great demands of lards. Lards are used to cook Chinese traditional dishes, noodles, soups and traditional deserts. In Europe, the food habit is different from that of Chinese. However, the supply of lards and original materials in Europe is large. For lards producers in Europe, China is definitely a booming market. Ten Kate has exported their lards to Hongkong, and has gained great success in Hong Kong market. In order to expand internationally, Ten Kate will understand the Chinese market (mainland) and to make their development strategies.

In this paper, I will discuss how the export pricing decision is made and how price, cost and volume are related to each other in order to find the optimal export volume and price based on the calculation of export costs. This process will be certainly based on the analysis of lards market of China.

1.1 Problem Indication

As mentioned before, there are fewer researches on export pricing than those on other marketing issues. The previous researches on export pricing are more focused on the export behavior, export performance, determinants of export pricing and pricing theory.

To my best knowledge, there are few studies to discuss the export pricing issue based on a real case. In my study, I will discuss the export pricing policies, strategy and the factors which have influences on export pricing in a real case. I will address the relationship between export price, cost and volume and how these issues should be controlled to achieve the pricing objectives.

My study will be based on the case of Ten Kate Vetten. As mentioned before, Ten Kate

wishes to expand its export activity of lard for food applications to China. In this paper, I

will discuss how the export decision and export pricing decision are made and find out

the best export strategy for Ten Kate. Based on the market analysis of Chinese market for

lards and edible animal fats, I will examine how the export price, volume and cost are related to each other and then find the optimal export cost and volume which maximize the profitability and facilitate the improvement of export performance.

1.2 Research question

Based on the discussion above, the main research question is raised, What is the optimal export pricing decision for Ten Kate?

In the previous studies of export pricing decision, the factors influencing export pricing decision are studied but there are few literatures to study how the decision is made in the practical situation. In this paper, I will follow the theories of export pricing, combine the practical situation and then make the optimum export pricing for Ten Kate. To answer the research question can give an overview of how the theory is applied to practical case.

To answer the main research question, the sub-questions are developed as following, 1. How do the Chinese animal fat market and lard market operate?

In the process of making export decision, it is important to investigate the market. Before making the export decision, it is necessary to investigate the market demand, customers’

behavior and characteristics, competitors, to analyze the threats and opportunities in the market, to estimate the current price level in the market. Additionally, I will investigate which is the appropriate purchase partner and how the distribution and sales of purchase partner influence the export decision.

2. How is export price related to export volume? How export cost is related to export volume?

As well known, sales volume, price and cost are related to each other. But for each kind

of product, the relationship between volume, cost and price is different. In order to get the

optimal volume, price and cost, it is necessary to find out the relationship between these

issues.

3. What are the optimal export price, export volume and export cost?

The decision on price, volume and cost can be made in this step. Theoretically, the optimal decision on price, volume and cost can maximize the profitability. In addition, the best strategic approach will be also discussed in this part.

In the next chapter (chapter two), the previous studies in export pricing will be reviewed and the conceptual model will be developed. Methodology will be presented in Chapter three. In the chapter four, five and six, the data is presented and analyzed. In the chapter of conclusion, the export pricing decision is made. Here, the case analysis is done.

Chapter eight presents discussion and recommendation.

II. Literature review

There are many studies devoted to the researches of export price. Kistler (1984) suggests that export price is a highly complicated issue which is more than domestic price plus insurance and transportation costs because the domestic factors and new factors of export markets must be considered.

Figure 1: factors influencing export pricing decision

It is widely accepted that export pricing is affected by many factors (Kistler, 1984). In the literatures, pricing objectives and pricing methods are recognized as the most relative issues which are influenced pricing decision. Based on the internal and external factors (such as company factors, market factors and etc.), companies set their pricing objectives and choose their pricing methods. Export pricing decision can be made by using the appropriate pricing methods so as to achieve the pricing objectives.

As shown in the Figure one, internal and external factors influence pricing. These factors can be classified into three sub-groups, including company factors, market factors and product-related factors (Walters, 1989). Compared with other two factors, company factors are considered as the easiest to control and implemented (Walter, 1989 and Kistler 1985). According to Kistler(1984) company factors can be divided into strategy related factors and cost related factors. The former factors relate to the companies’ consideration

Export pricing decision Pricing methods

Pricing objectives

Internal and external factors influencing

pricing

objectives. Cost related factors relate to the issues of export cost involved. Market factors are defined as the issues which companies cannot exert influence (Tzokas, Hart, Argouslidis and Saren, 2000). According to Forman and Hunt (2004), market factors should be considered carefully since they have significant influence on export pricing.

Market factors cover the characteristics of customers, international export regulations, foreign market competitions and exchange rates fluctuations (Forman and Hunt, 2004, Tzokas, Hart, Argouslidis and Saren, 2000 and Yang, 1996). Finally, the product factors include uniqueness of the product, stage of the product in the product line cycle (PLC) and availability of substitutes (Tzokas, Hart, Argouslidis and Saren, 2000). These factors sometimes can be controlled by companies directly. All factors mentioned above can be guidelines of setting export prices. However, there are less literatures or evidence to discuss which factors are more important than others. Many researchers suggest that importance of each factor reflect the influence of different functional areas of companies on the pricing and the perceived importance of each factor to different companies can be different. Thus, different managerial pricing orientations (cost, sales, competition and strategic pricing orientation) are suggested (Smith, 1995).

Oxenfeldt(1987) suggest that pricing objectives are direction of actions, to provide what is expected and to measure how efficient the operation should be. According to Akintoye (1992) and Myers (1997), there are many pricing objectives for companies. These pricing objectives include target profit, target return on investment (ROI), target sales volume, target market share, sales stability, survival in the long-run, maximum current profit, maximum current revenue and etc. Besides, the pricing objectives of companies can be changing with the development and change of internal and external environment of companies. According to the studies of Myers(1997), companies may have more than one pricing objectives at a time, although some of pricing objectives may be not compatible with each other.

According to Tzokas et al.(2000), pricing methods are defined as explicit steps or

procedures by which companies can make the price decision. Generally, pricing methods

can be divided into cost based and market based pricing methods. Cost based pricing

methods include markup pricing cost-plus, marginal cost pricing and target return pricing.

The cost-plus method use the full cost per producer (fixed and variable costs) and adds a profit markup (fixed or flexible). Marginal cost pricing method only considers the variable cost in the calculation and is always used by the companies whose fixed cost occupy large part of total costs. Target return pricing method considers the full cost of product and target return of capital employed which is determined by managers in advance. Although many companies use cost based method to make pricing decisions since this method is the simple and safest, cost based method is criticized by researchers (Zaribaf, 2003, Forman and Hunt, 2004 and Shipley, 1993). They believe that cost based method only consider the supple condition and ignore the demand curve and competitors’

actions. The other category of pricing method is market based method which includes competitive pricing, perceived value pricing and value pricing. Competitive pricing methods consider competitors’ prices fully and firms’ cost is no longer the main factors.

And perceived value pricing is a trial pricing method. It investigates customers’ reaction to different price levels and then sets the final price. Finally, using value pricing method the companies charge a low price for a high quality in order to maximum of customers’

utilization and gain more customers.

Although many previous studies have discussed about the factors influencing export pricing, pricing methods and pricing objectives, there are few studies to indicate how the factors affect export pricing decision and how to use pricing methods to make export pricing decision in practical case. I will make a case study of Ten Kate and to show how the theory can be applied in practical situation.

The conceptual model for making export pricing decision is developed. The factors

which have effect on export pricing decision are divided into four groups, market factors,

the company factors, product factors, and export cost. Market factors include competition,

customers, regulation, and foreign exchange rate. Company factors include company

strategy, target market, company objectives and orientation. Product uniqueness and

differentiation are included in the product factors. Export cost factors include production

factors will be investigated. Based on the analysis of these factors, cost-based pricing method and market-based method will be used.

Figure 2：Conceptual Model

Product factors (uniqueness, differentiation, etc)

Company strategy (target market, firm’s objectives and orientations, etc)

Competition (number of competitors, power of competitors, substitutes, current of price)

Customers (location, needs, buy behavior)

Regulation (taxes, export permit, price control)

Foreign exchange rate

Market factors

Export Cost

Production cost, transport costs, export marketing costs, chosen system of distribution, storage costs, insurance costs, etc.

Export

Pricing

Decision

III. Methodology

As mentioned in the last chapter, contextual factors play important roles in making export pricing. According to the conceptual model developed in the last chapter, market factors company factors, product factors and export cost will be discussed.

Market factors include competition, customers, regulation, and foreign exchange rate.

The overview of market, customers and competition will be focused. Because Ten Kate chooses Euro as their transaction currency and the effect of foreign exchange rate is limited, the factor of foreign exchange rate will not be discussed. The factor of regulation will be not discussed in detail because in this industry there is few special regulation for price control, taxes etc. To analyze customers’ behaviors and competition, the data will be collected by personal interviews. The interviewees are the 51 wholesalers of lards, managers and chief cook of 27 restaurants and 37 bakeries, 2 salesmen of edible oil and fats, 51 individual customers, 4 managers of slaughtered houses and 5 government officials of related departments such as argricularal bureau, investment promotion bureau, industrial and commercial bureau, customs and commerce department. Another data source is the secondary documents such as statistic year-book of customs from 1998 to 2009, China statistical year-book from 1998 to 2009, price statistic of lards provided by agricultural bureau.

Based on the information of market factors, company factors and product factors will be considered. The company strategy and products information are collected from Ten Kate.

The company strategy, export objective, target market and orientation will be discussed with Ten Kate.

To make a pricing decision, the cost-based method and market-based method will be used

so that the condition of demand and supply can be considered. The export cost includes

production cost, transport cost, export and import tax, promotion and advertising cost etc.

price, sales volume and cost will be found. Then, the prices of competitors in the target market will be analyzed. The prices of competitors are collected from 47 wholesalers interviewed and Alibaba, the largest business to business service provider in China.

Considering the prices of competitors and target market of Ten Kate’s product, I will

address the possible price ranges and possible range of sales volume which is related to

the relevant price. The optimum price will be found by examining sales profits in

different level of price and sales volume.

IV. Market factors

4.1 Overview of Chinese market for edible oil

China is the largest economy in Asia, keeping the increase of 7%-10% in recent ten years and owning 1.3 billion people. According to the Government Work Report of Chinese government (2010), the local demand of all kinds of materials and food is expanding year by year and the financial crisis has little effect on China. In Cheng’s study, he concludes that the demand of edible oil in China has increased 8 times since 30 years ago. From 2002 to 2008, the consumption of edible oil rises by average 8% and increased to 25 million tons in 2008. He also forecasts that the consumption will keep the raise of 6% to 9% in the next decade and the annual per capital consumption of edible oil, which is 15.5kg in 2007, will increase to 25kg. Due to the shortage of raw material and limited production of edible oil, the great demand of edible oil in China takes opportunity for foreign producers. According to statistics of China Custom, the proportion of import edible oil is increasing rapidly for 5years, and is about 30% in 2009. It is predicted by researchers that the import edible oil tends to keep increasing in the next 3 years (Cheng, 2009; Wu, 2010)

Chart 1: consumption of edible oil from 2002 to 2009

Source: Statistics of Ministry of Commerce

According to Wu’s study (2010), bean oil, palm oil, colza oil and peanut oil are most used in China. He points out that the largest consumption is bean oil since 2000. Because of its cheaper price, palm oil becomes the second most used since 2006 instead of colza oil. Peanut oil keeps the forth position for ten years. In addition, blend oil is widely accepted in China. According to National Institution of Food Nutrition and Safety’s report (2009), blend oil, bean oil, colza oil and lard are successively consumed most by Chinese families compared with other edible oil.

As mentioned above, blend oil is widely accepted by Chinese families and restaurants. In China there is no blending standard for blend oil. The producers always mix bean oil, palm oil, colza oil, peanut oil, sunflower seed oil, rice bran oil, and wheat germ oil to make blend oil. According to the study of Ding (2009), the blend oil is the most popular oil in China, especially in the cities. Compared with the wide acceptance of blend oil in the cities, bean oil is used by restaurants as well because its price is much cheaper than other oil, which can save costs effectively. Almost all of the Chinese restaurants managers interviewed, who are in charge of purchasing, said that the comparatively low price of bean oil is good for cost control and bean oil is much easier to cook than other edible oil due to its smell and taste. According to the pricing monitoring report of National Development and Reform Commission in 2009 and 2010, the average price of bean oil is around 8 RMB per kilo, which is lower than other edible oil. The average price of blend oil, colza oil and peanut oil are around 9 RMB per kilo, 10 RMB per kilo and 18 RMB per kilo respectively. Due to the cheap price and its feasibility, bean oil is consumed most in the Chinese restaurants.

Although bean oil is widely accepted in China, many restaurants often use peanut oil, colza oil, lard, mutter and other edible oil since they have special requirements of their dishes. For example, hot pots restaurants use the mixed oil of butter and lard a lot.

Noodle restaurants prefer lard because of its special taste and smell. However, it requires

more experience for the cooks to use these kinds of oils to cook and fry. Huang, a cook of

a four-star hotel said that it is widely accepted that some edible oil, such as lard and colza

oil are comparatively expensive and have special taste and smell and thus it is difficult

for a less experienced cook to handle these oils. He said that the dishes using these kinds of oil would be tasty and delicious only if the oil is used in the right way. Based on the interviews of 43 cooks who work in different level restaurants, it can be concluded that only experienced cooks and high level restaurants use peanut oil, lard oil and colza oil.

4.2 Overview of Chinese market for lard

It is suggested by some Chinese researchers (Wu, 2010; Xiang, 2009) that output of live pigs and production volume of lard in China are the largest in the world. Chart 2 shows the trend of slaughtered fattened hogs and hogs of livestock on hand in the end of year during the period from 1999 to 2009. The output of fattened hogs increases from 527 millions to 680.98 millions during the period from 2001 to 2006. In 2007, the output decreases to 565.1 millions because of the mounting feed cost and declining price.

However, in the next 3 years the output keeps rising and the output reaches to 644.7 millions in 2009. According to the prediction of Agricultural Bureau (2010), the output of fattened hogs will continue to rise in 2010. It is unfortunate that the statics of domestic output volume of pig fat is absence because the production of pig fat in China is decentralized and even large amount of lard is produced by private workshops.

Chart 2: slaughtered fattened hogs and hogs of livestock on hand in the end of year from 1999 to 2009

Source: Statistics of National Bureau of Statistics (2000- 2010)

The outputs of pig in different provinces are different greatly. Sichuan, which locates in the southwest of China, outputs the largest amount of pigs since 1999, and the outputs booms to 90.23 millions in 2008. The outputs of pigs in Sichuan is much larger than other provinces for decades, which makes related industries, such as meat processing factories much more developed in Sichuan. Hunan and Henan, locating in the central of China, respectively produce the second and third largest amount of pigs for decades. Shandong is in the east of China, which produce the forth biggest amount of pigs. The output of the four provinces mentioned above occupies over 30% of the total volume for at least 10 years. In these provinces, there are many companies and factories engaged themselves into the related industries, such as pig feeding, feed processing, butchery trade, meat- packing and fat processing. Most of the largest meat packing companies, pig fat processing factories and butchery trade factories build their facilities and subsidiaries in these provinces. As the prediction of He (2010), these provinces produce large amount of pig fat. Different from the other provinces, Xinjiang, Qinghai, Tibet and Ningxia, which occupies large proportion of China, output much less pigs than other provinces.

People in most of areas in China eat lard. Especially in the south, lard is used to cook, fry

vegetables, make soups and noodles and bake deserts. Even cracking is used as a kind of

dressing of noodles and is also cooked with vegetables. Due to the popularities and small

production of cracking, cracking for food application is expensive. But in the west of

China, Xinjiang, Tibet, Qinghai and Ningxia, the production and consumption of lard are

less. The natural condition in these areas is not suitable for pig feeding. They prefer to

feed flocks and herds. In addition, there are many Muslim living in Xinjiang, Qinghai and

Ningxia.

Graph 1: slaughtered fattened hogs of provinces from 1999 to 2009

Source: statistic year book of provinces (2000-2010)

In Chinese food habit, lard is less consumed than blend oil, bean oil and colza oil, but it

plays an important role. According to Institution of Food Nutrition and Safety’s report

(2009), the daily consumption per person of lard is 8g in Shanghai and Beijing. In the

south area of China and countryside, the consumption is larger. Chinese have long history

to use lard in cooking and baking. Lard is widely used in the bakeries to make Chinese

traditional deserts because it has special smell and taste and makes the desert crispy. In

some areas, especially south of China, lard is widely used in the dishes as well.

Export and import of lard in China

Although the production volume of lard is viewed the largest in the world, the export volume of China is very small. As shown in the graph below, the export volume fluctuates during these years. In 2005 and 2006, Hongkong was the biggest importer of China’s lard and the export volume to Hongkong occupied about 90% of the total export volume. However, Hongkong stopped importing China’s lard since 2007. Japan import lard from China since 2001, but the volume is very small. Compared with the large import volume of China, export volume is small, although China is viewed as the biggest producers of lard by Chinese researchers. Zhang, a researcher of National development and reform commission, thought that the productivity level of China’s lard is comparatively lower than that of Canada, Taiwan and some European countries and the quality of China’ lard cannot satisfy the demand of customers in foreign markets. Even some bakeries in China, which have higher requirements for lard, prefer imported lard. In my survey, about 80% of 54 cooks of bakeries who are interviewed said that imported lard has higher quality which can bring high quality for their product, and the stability of its quality makes their operation more easily.

Graph 2: China’s lard of export to all countries from 1999 to 2009

Source: China Customs Statics Yearbook (1999-2010)

The graph below shows the import volume of lard during the period between 1999 and March of 2010. Compared with export volume, import volume is greatly larger. The import volume fluctuates during this period. The import volume dropped from 30687049 in 2000 to 517995kg in 2004 and mounts to 12540127kg in 2008 again. According to the graph below, Canada, Taiwan and Hongkong are the main importers for several years.

Australia was also importer of lard, but since 2006 it stopped importing. Holland exports lard to China until 2008, but the volume is smaller. Sweden is thought as an active importer of lard. It should be mentioned that some exporters choose Hongkong as a good port to export lard, instead of export to China directly. Pan, a wholesaler in Fujian, suggested that the production volume of lard in Hongkong is very limited, but Hongkong is a convenient port for importing. Some wholesalers choose to import lard from Hongkong and then sell to customers in mainland.

Graph 3: China’s lard of import from all countries from 1999 to March of 2010

Source: China Customs Statics Yearbook (1999-2010)

4.3 Behavior of individual customers and business customers

Consumer markets

Chinese are viewed as the people who eat all parts of pig, even the skin, head and internal organs of pig which are not eaten in other cultures. Lard is used in many dishes and desert for thousands of years. In the past, most of lard is refined by housewives and cooks in their kitchen or by private workshops. They use the most original method, heating and filtering, to refine lard. Since 20 years ago, facilities refining edible pig fats began to develop, and are built in the provinces such as Guangdong, Sichuan, Henan and Hunan, which have large output of raw material and consume large volume of pig fat. But even now, in the south of China, some housewives refined pig fat by themselves and private workshops are still popular. They buy pigs’ leaf fat and fat under skin from the markets and use the original method to refine. They believe that the pig fat refined by using original method has better quality and the small amount is more convenient.

Pig fat played an important role in the Chinese diet, but more and more people in China

decrease the consumption of pig fat and prefer vegetable oil due to the concerns about

saturated fats. According to the National Institution of Nutrition and safety (2009), the

proportion of consuming pig fat for an adult in the cities decreases from 29% in 1998 to

19% in 2008. All of the housewives interviewed and even the owners of private refining

workshop agreed that pig fat can make some cuisines more delicious and good tasty, but

it is unhealthy and should not be eaten very often. However, pig fat still plays a crucial

role in Chinese countryside, according to the researches of Li (2002), Ma (2007) and

Kong (2007). Because of the low income of families in countryside and their cooking

culture, the proportion of consumed pig fat is higher than that in cities. In poor families,

they add lard to noodles and rice. It is believed in China, especially in South of China,

that the smell of pig fat can improve the taste of noodles and rice. Some housewives in

poor families who are interviewed also said that poor families choose lard to cook in

order to decrease the consumption of meat which is more expensive than pig fat and this

habit is still very popular in poor families.

Families prefer small package of pig fat since the consumption amount of pig fat is small and small package is more convenient to be preserved in refrigerators. Most of small packages of pig fat are produced by private workshops and available in traditional grocery markets. Only very few oil-processing facilities produce small packages of pig fats and sell them in small supermarkets. In big cities such as Shanghai, Beijing, Nanjing and Guangzhou, there is no pig fat in supermarkets. In the interviews of purchasing managers of Wal-Mart, Carrefour and Metro in Chengdu and Shanghai, they said that their customers prefer vegetable oil and it is hard to find the reliable suppliers of small package of pig fat. In some small supermarkets in backward cities, customers can find small packages of pig fat (500g) which is still very rare and belongs to infamous brand.

Wang, the researcher of agricultural bureau of Sichuan province, said that the market of pig fat for families and individual customers is limited. Customers prefer to refine pig fat by themselves or buy from the private workshops with good reputation. The marketing cost of small package for refined facilities is comparatively and the profit is lower.

It is worth to mentioning that crackings, the crispy fat left after refining pig fat, is popular in south of China. The crackings is viewed as a dish and a kind of dressing to be used to cook with vegetables and noodles. The price of crackings using in dishes is from 100RMB per kilo to 40RMB per kilo.

The graph below is the market segment of consumer market. The table is based on the report of National Institution of Nutrition and safety (2009) and the interviews with individual customers in cities, sales and purchasing managers of supermarkets and owners of groceries. The individual consumer market can be divided into four segments.

The first and second segments are the peasants in the countries. Due to their low income

and food habit, animal edible oil occupies half of their total oil consumption. When

purchasing oil, price is the primary consideration. Segment three and four are the citizens

in cities. They have higher income and have more concerns about the unhealthy effect of

animal fat. Plant oil and blend oil are most used. Different from the people living in

countryside, consumers of segment three and four concerned the quality of oil more than

prices. They are more loyal to certain brands than people in countryside. Big brands such as Shuanghui and Yurun and imported brands are more easily given trust by them.

The difference between these two segments is that the consumers in segment four

consume more pig fat than those in segment three. Pig fat is more used by the families in

south cities because pig fat is viewed indispensable in their food habit. It should be

mentioned that the individual consumers prefer small package of pig fat, about 500g or

1000g.

Graph 4: the market segment of consumer markets

Business customers

The main business customers of pig fats in China are the kitchens and bakeries, and they make pig fat in different use. For example, pig fat not only can be used in frying, but also used in hot pot (火锅), noodles and soups. Pig fat plays an important role in baking some Chinese traditional deserts, because lard can make crispy effect which is hard to make by using other edible oils.

Same as the consumption of pig fat in families, the proportion of consumptions in restaurants decreases greatly. All of the 21 chief cooks interviewed who work in different types of restaurants (including Sichuan style restaurants, hot pots restaurants, fast-food restaurants and western restaurants) agreed that the proportion of pig fats using decrease from 20% in 2000 to 2% even 0% in 2009. In present, they prefer blend oil, bean oil and peanut oil. There are many reasons that they choose other edible oils. First, the price of pig fat is higher than other edible oil, such as bean oil. The average price of pig fats with good quality and from reliable suppliers is over 10 RMB per kilo which is 2 to 3 RMB higher than the price of bean oil. Then, customers’ concern with health is another reason.

It becomes the common sense in China especially in cities that animal oils contain saturated fats which is unhealthy and probably leads cardiovascular diseases. Customers prefer the restaurants which cook by using vegetable oils. To satisfy the demand of customers, some restaurants even use peanut oil, olive oil and other expensive oil to cook.

The third reason is that pig fat is not easy to cook. Although it is widely accepted that pig fat can make dishes more delicious, 16 of 21 chief cooks said that pig fat is hard to handle especially for new cooks because of its smell and melting point.

But some certain types of restaurants such as noodle restaurants and hot pot restaurants.

Noodle restaurants use lard to cook soup and hot pot restaurants mix lard and butter to

cook soup. In the interviews with cooks of 2 noodle restaurants and 2 hot pot restaurants,

they choose pig fats supplied by domestic producers because they don’t have so much

quality requirement for the pig fats as the bakeries.

Bakeries are the large business customers. Lard is less consumed only than butter in Chinese bakeries. They use lard to bake Chinese traditional deserts, such as almond cake and wife cake. Lard is easily to make the crispy effect. Different levels of bakeries have different requirements on the lard. Foreign-capital bakeries and top grade bakeries which have over 30 chain bakeries in different cities such as bread talk and Christian, tend to use imported pig fat. The prices of their products are higher than those of other bakeries.

Their pastry cooks agreed that imported pig fats, such as blue maples have better reputation and are more stable and reliable. The after-service of these imported brands is considerate. If they have any problems on the quality of pig fat such as the melting point and crispy effect, the wholesalers and suppliers provide consultancy. The bakeries with lower level, which have less chain bakeries and whose products are cheaper, use the domestic brands such as Shuanghui which are produced by large domestic facilities. With the same consideration of quality as foreign-capital bakeries and top grade bakeries, the bakeries at this level believed that the famous domestic brands are cheaper and comparatively reliable. These bakeries mentioned above agreed that the quality of pig fats produced by the small facilities is not reliable. The stability of pig fats such as melting point, hygienic standard and crispy effect would affect the quality of their products and thus it probably leads to more cost.

The table below shows the market segment of business market. It is based on the

interviews with supervisors of related governmental department, pastry cooks of bakeries,

cooks of restaurants, wholesalers and pig fat producers. The market can be divided into

seven segments. The restaurants in segment one are cheaper and small scale. Because of

the low price of their products, the customers in this segment have lower budget and need

to control the cost more strictly. The customers of these restaurants pay more attention to

the price and have less concern about the quality and hygiene standards. The prices of

raw materials are their primary consideration. The customers in segment two use pig fat

only when cooking specific dishes. The consumption of pig fat occupies very small

amount of total consumption. They bought pig fat from reliable wholesalers or refined

pig fat by themselves. The reliabilities and quality are their first concern. Big brands,

processing producers, are their most used. The segment three is similar to the segment

one. They are in the small scales and have low budget for their production. Thus, they use

cheaper pig fat produced by small refining facilities. Bakeries in segment five and six

whose customers have higher income and pay more attention on the quality of desserts

are more concerned about the quality and reliability of pig fat. Domestic brands are most

used. Some of them choose imported brands, such as Zhengyi and Maple. The last

segment is the foreign bakeries and large scale bakeries. They have good reputation and

brand image and their product are expensive. Most of them choose imported brands and

require consultancy service from the producers or wholesalers.

Graph 5: market segment of business market

In addition, many producers illegally steal brands from Maple and Zhengyi to produce fake products. It is difficult for the customers to tell the differences between fake and real products. These fake products are made in China actually. It is another reason that bakeries with lower level choose domestic brands. It is hard for the customers to find the reliable wholesalers of imported pig fats.

4.4 Overview of international competitors and domestic competitors

China output the largest amount of pigs and pig fats. However, due to the quality and reputation, the pig fat produced by Chinese facilities cannot satisfy the booming demand of pig fat with good qualities in Chinese market. Many opportunities are provided in Chinese market for both of the foreign and domestic producers. In this part, the competitors in Chinese market will be analyzed.

4.4.1 International competitors

The most two famous brand of pig fat in China is Maple Leaf, which is from Canada and and Zhengyi (正义), which is originated from Taiwan. These two brands are accepted widely by bakeries in China. They are thought as the pig fats with the best quality in the market. Australian pig fat was popular in China. But since 2006, Australia stopped exporting pig fat to China. Other importing countries are Sweden and Holland. However, due to the small amount importing from these two countries only very rare wholesalers sell the pig fats from Sweden and Holland.

Maple Leaf

Maple Leaf is the brand of pig fat. This brand, originated from Canada has two sub-

brands, Blue Maple and Red Maple. In the beginning of 1990s, Maple Leaf entered China

and won the popularities quickly in the cooking and baking industry. Their products

include refined lard, ghee and butter. Maple Leaf is viewed as the first foreign brand

entering Chinese market and gains success in Chinese market. According to the

interviews with the pastry cooks of bakeries in different levels in different cities, Maple

Leaf is viewed as the brand with the best pig fat. However, since 2004 the sales volume in China decreases sharply due to the business restructuring of the company. During this period, illegal manufacturing began to produce the fake products of Maple Leaf, which damage the reputation and image of Maple Leaf. At the same time, other brands such as Zhengyi, from Taiwan, began to enter Chinese market in a large scale and occupied the market quickly. In 2008, Maple Leaf authorized a Hongkong company to supervise their business in mainland China. However, the sales volume of Maple Leaf in present is much less than before 2004. Meanwhile the price of pig fat changed greatly during the decades.

According to Alibaba, the largest business to business trading platform, the average price of Blue Maple and Red Maple increased by 195% from 2004 to 2010. The current price ranges from 160RMB/15kg to 175RMB/15kg.

Zhengyi

Zhengyi is originated from Taiwan. It entered Chinese market later than the Maple Leaf.

Their products include the refined lard, ghee, emulsifying oil, and etc. Before 2004, the sale volume of Zhengyi is smaller than that of Maple Leaf. However, during the period when Maple Leaf restructured their business, Zhengyi occupied the market quickly and gains trust and build good reputation in the market. Different from the Maple Leaf, Zhengyi doesn’t build office or authorizes any company to supervise their business in mainland China. They export their products to wholesalers and then wholesalers sell products to the wholesalers at lower level.

The sales volumes of Zhengyi increased greatly and Zhengyi becomes substitute goods of

Maple Leaf for the bakeries, but pastry cooks in bakeries interviewed still believe that

Maple Leaf is better than Zhengyi not only because the image of Maple Leaf is extremely

impressive when entering Chinese market, but also because the price of Zhengyi is higher

than Maple Leaf. The current average price of Zhengyi is from 210RMB/15kg to

230RMB/15kg. And the average price also increases by 171% during the period between

2005 and 2010.

4.4.2 Domestic competitors

Although China is viewed as the largest producers of pig fat in the world, there are few manufacturers like Maple Leaf or Zhengyi which have so much influence in the cooking and baking industry. The dispersion of production of pigs and backward development of edible animal oil manufacturing lead most of Chinese pig fat manufacturers running in a comparatively small scale. Their production volume and sale volume is far less than Maple Leaf or Zhengyi and their image of brands is not impressive. Some products even have no name and no label. Among these brands, Shuanghui is famous. Sichuan, Hunan, Henan and Guangdong output the most fattened hogs every year and many refining facilities are built in these areas. Shuanghui has facilities in Hunan, Henan and Sichuan provinces.

Shuanghui

Shuanghui Group is one of the largest meat processing companies in China. Shuanghui pig fat is produced by the constitute company of Shuanghui Group. The company builds subsidiaries and refining facilities in Hunan, Henan and Sichuan. Their products include ghee and refined lard. Attaching with Shuanghui Group, Shuanghui pig fats have good reputation and gain trust of customers easily. There are two types of package of Shuanghui pig fat. The small one sold in some supermarkets is only 1kg weighted.

Depending on the product distribution channel of Shuanghui Group, Shuanghui pig fat can be sold in supermarket and Shuanghui chain stores more easily and save marketing and sales cost. And the current price of small package is around 10RMB. There are several size packages for the business customers, 15kg and 46kg. The current price of 15kg package is 165RMB/15kg to 170RMB/15kg.

Same as the Maple Leaf and Zhengyi, Shuanghui provide after-service for customers.

They provide after-service consultancy. If the customers have any problems in the baking

or cooking process, Shuanghui provides consultancy service which is helpful for

customers.

It should be mentioned that Shuanghui expands their scale of pig fat production and make international operation with foreign meat-processing company. Since 2003, Shuanghui has built facilities in Hunan province. A Dutch company, St.Ford, which is a subsidiary locating in Holland of the Italian St.Ford company, holding 25% of shares, is the third shareholder in the new companies.

4.5 Other findings

In this part, I will analyze some complexity in Chinese market, which may make exporting risky.

Fake products

As mentioned above, the problem of fake products is serious for foreign brands. In the interviews with cooks and pastry cooks, all of them expressed their anger with fake products and their concerns with product qualities. Zhou, responsible for the quality monitoring in industrial and commercial administration of Sichuan Province, said that the proportion of fake Maple Leaf and Zhengyi in the market is considerable. These foreign brands have great influence and good image in the market, but have less power to fight with their fake products, because their headquarters are in overseas and the wholesalers have no such concern with the reputations. The huge profitability attracts the illegal manufacturers to thief foreign brands and to make fake products.

In the 1990s, Maple Leaf becomes popular and gain wide trust from customers. With the

success of Maple Leaf, more and more fake Maple Leaf are manufactured by local

facilities. The reputation and profitability of Maple Leaf are damaged. According to an

ex-employer of Maple Leaf, the problem of faking products is one of the reasons that

Maple Leaf adjusted their strategy and restructured their business. And since 2008, Maple

Leaf chose to authorize a Hongkong company to supervise the business in mainland

China, but not to sell products to wholesalers directly like before. Even now, in the

wholes markets and Internet wholes markets, there are many fake Maple Leaf and

Zhengyi, which have different packages. Some fake Maple Leaf and Zhengyi even are labeled as made in China.

Even the wholesalers authorized by general agent sales could sell fake products. In the interviews with the general agents of Maple and Zhengyi, they both said that the wholesalers for each provinces authorized by them are not reliable. The general agent of Maple said, since 1992 some of wholesalers authorized by them in many provinces such as Sichuan, Guizhou and Henan, mix pig fat from ambiguous producers with the real products in order to increase profits. The image and reputation of Maple is effected greatly.

Illegal pig fat

In the beginning of 2010, illegal pig fat focuses people’s attention on. According to the

news of Nanfang weekend and China quality inspection report (2010), at least over 10

tons of illegal pig fat is produced in Hunan and Henan per moths. According to the report

of China Youth Daily in 2010, He, the leader of China edible Oil Society, evaluates that

over 2 million tons illegal oil is provided in the market every year. The illegal producers

collect pig lands, pig skins and other organs which are should be abandoned from the

market or collect swill from the restaurants. They refined the pig fats and oil by using the

internal organs of pigs or swill. And then they add defoamers and other chemical

materials to keep the pig fat look nice. These pig fats are sold to restaurants, cafeterias of

colleges and other grocery markets. One of the wholesalers interviewed in Guangzhou,

said that the cost of refining illegal pig fat is about 300RMB per ton and the price is only

about 3RMB per kg.

4.7 Conclusion

The market of lard in China is booming. The demand of lard is increasing although the individual customers intend to consume plant oil and blend oil. As the largest consumer of lard, bakeries have developed well in China and their demand of lard increases largely in recent years. Not only the local producers, also the international producers got great interests into the market of lard in China.

China is viewed as the largest producer of pig fat considering the largest output of pigs in the world. Many local meat processing facilities and slaughtering houses have cooperation with refining facilities and large amount of pig fat for food and industrial applications are produced every year. Despite of the large amount of pig fat for food application, there are few producers of pig fat which have great influence on the Chinese market. Only a few local brands such as Shuanghui and Yurun have effect on the market.

Foreign brands such as Maple and Zhengyi have better brand image and larger effect on

the market than domestic brands. It is widely accepted that Maple and Zhengyi have

better quality and good reputation and they are viewed as the best lard in the market

although their price is higher. High class bakeries and foreign invested bakeries use

imported lard instead of domestic brands. Considering the cost and the lack of reliable

suppliers, middle class bakeries and restaurants choose domestic brands. It should be

mentioned that the demand of lard with good quality is large and not satisfied. Many

bakeries tend to use imported lard, but the imported lard is always in shortage and the

suppliers provide product to larger consumers first. On the other hand, it is hard to find

reliable suppliers and there is much fake imported lard in the market in present. Thus,

many bakeries which intended to use imported lard have to choose domestic brands

which are less qualified and unstable. Overall, the demand of lard with good quality and

reputation as Maple and Zhengyi is large. Chinese market provides a good opportunity

for the high-end lard producers.

V. Company strategy and product factors

In this chapter, the company factors and product factors will be taken into account. Ten Kate has experience of exporting to Hongkong and they have got success in the market of Hongkong. In Hongkong, Ten Kate has cooperation with local wholesaler, Wah Cheong at present. Wah Cheong is subcompany of Kerry Logistic, one of the largest logistic service providers in China. Most of Ten Kate’s products are sold to local customers through the local distribution network of Wah Cheong and very small amount of the products are sold to mainland China by the partners of Wah Cheong. Since 2006, Ten Kate has already exported 4705.4 tons lard to Hongkong. And the export volume increases gradually during these years. The price of their product is higher than the average price and the prices of main competitors such as Canadian lard and Taiwanese lard. Their main customers are bakeries and restaurants. Bakery is the largest consumer of lard.

Ten Kate produces high quality lard and exports their products to overseas for decades. In China, the demand of high quality lard is large. Although there are many pig fat producers at present, only a few producers (such as Zhengyi and Maple) produce high quality lard and have good reputation in the market. Ten Kate should take advantage of this opportunity in China. Ten Kate will export their products to China in the short run and then consider cooperating with the local lard facilities.

Ten Kate produce high quality lard and have great interest into the high quality lard market of China. At present, Ten Kate produces refined pig fat which has no smell, unrefined pig fat which has strong smell of pig and lard which is liquid and transparent.

Refined pig fat and unrefined pig fat have been sold to Hongkong and other countries for over ten years. Lard is a new product and is not on the market yet.

According to the market segment in the last part, Ten Kate should aim to enter into

segment 6. In this market segment, these bakeries produce high quality deserts and have

chain stores and facilities in different cities. Their sales volumes are large and their pastry

cooks have qualified skill to use good quality pig fat. The bakeries in this segment are the

main customers of imported lard.

VI. Analysis of Export cost

6.1 Analysis of cost the Ten Kate

In this part, the cost-volume-profit (CVP) analysis will be made. The objective of CPV analysis is to examine what will happen to the financial result if production and sales volume fluctuates. Output and production volume is an important element to the management because its fluctuation influences the total sale revenue, total costs and profits (Kinney and Raiborn, 2008). For this reason, output is given special attention. To examine the relationship of output and revenue can help management team to identify the critical output levels. CVP analysis is based on the relationship between volume and sales revenue, costs and profit in the short run. In short run, the output of a firm is restricted because of inputs and operating capacity. The supplies of materials and unskilled labor can be obtained in short run, but the machinery and plant cannot be expanded in short run.

It also takes time to reduce the capacity of machinery. Thus, in short run the output of a firm is limited by capacity of plants and a firm must operate on a relatively constant stock of resources. In the CVP analysis, cost and price of products have been determined and sales volume is uncertain. CVP analysis examines the effect of the change in sales volume on profitability. In this case, but price and sales volume are unknown the production cost has been determined. However, export cost is different from production cost since transport cost, export insurance cost, tariff, overseas marketing cost and etc should be considered when calculating export cost.

According to Forman and Hunt (2004), the price decision must be based on the cost

information. The export cost includes production cost, packaging costs, transportation

costs, insurance costs, storage costs, costs of capital, financial management costs, import

and export taxes, costs of commissions and intermediation margin. Ten Kate plans to

export two products called refined pig fat and pure pig fat which are packed in 15kg

bucket and 17kg tin respectively. The export cost will be analyzed as followed.

Production cost can be divided into fixed cost and variable cost. Variable cost is unit- level costs and varies with the change of production volume. In the contrast to variable cost, fixed costs do not change with fluctuation of production volume in relevant range.

Break-Even point (BEP) is the point at which cost and revenue are equal and there is no net gain and loss. BEP is used to calculate the contribution of sales volume. If the company operates below BEP, the sales revenue cannot compensate for fixed cost and variable cost. In short run, the capacity of facility and machineries cannot expand and the fixed cost is unchanged. When company operates above BEP and fixed cost, unit variable cost and unit price of product will be unchanged in short run, to increase production volume can raise sales revenue and profit. In this case, Ten Kate is operating above BEP and gain profits from their sales in Hongkong, England and their other market.

Meanwhile, Ten Kate has enough production capacity to produce more products. The facility and machinery of Ten Kate is designed with the availability of raw materials. In short run, the additional production volume does not lead to the increase of fixed cost and only raise the variable cost.

Transportation cost is especially considered in the export decision. China’s large trade

surplus leads to the increase of transportation cost from China to Europe, but makes

transportation cost from Europe to China cheaper, because most cargo ships returning to

China are unfilled. The consideration of transportation cost is also one of reasons that Ten

Kate plans to export to China. Because of the different packages of pure lard and refined

lard, the transportation costs of these two products are different. Pure lard and refined

lard are packed in 17kg-tin and 15kg-bucket respectively. 17kg-tin pure lard is always

contained in 20 feet container. The maximum capacity of 45feet container is 1296 17kg

tins. According the logistics service provider of Ten Kate, the transportation cost per

container is around 960 euro.

Chart 3: Transport cost (including insurance) for pure lard (17kg/tin)

Source: Ten Kate

Chart 4 shows the function of transportation cost for 15kg-bucket refined lard. 20 feet container is used to transport 15kg-bucket and the function of transportation cost is shown in the chart below. A 20feet container can contain 1040 buckets. The transportation cost can be estimated as around 600euro per 20 feet container.

Chart 4: Transport cost (including insurance) for refined lard (15kg/bucket)

Source: Ten Kate

Although the trade barriers have disappeared with the liberalization of international trade, the import and export taxes still exist in many countries. Both Netherlands and China are the members of World Trade Organization (WTO). According to the Customs Import and Export Tariff of China (2010), Ten Kate, as a Dutch company, exporting lard to China, can enjoy the preferential tax rate of 10%.

Financial management cost, which is not often taken into account, also constitutes an important cost in the export process. In this case, the financial management costs related to payment method and fluctuation of exchange rate are the main consideration. In the exporting experience of Ten Kate, euro is always their transaction currency and thus the exchange rate risk can be avoided in the largest extent. The financial management cost related to fluctuation of exchange rate is less and will not be considered in the calculation.

The financial management cost related to payment method should be considered. In the interviews with wholesalers in China, most of them tend to pay exporters in installments in the early stage of importing. It is widely accepted to pay 70% of payment in advance or less of the total payment and then to pay the left within 90 days. The interest rate applied to calculate financial management rate is 3.69% (OECD, 2010).

There are other costs relating to exporting activities such as storage cost, promotion and advertisement cost, cost of applying export permission etc. Some of costs such as storage cost are taken by wholesalers in China and some of them such as promotion cost are taken by both Ten Kate and local wholesalers. Without the exporting experience to China, it is difficult to evaluate these other costs. At present, it is thought that production cost, transport cost, financial management cost and custom tax mainly constitute the export cost.

Based on the cost information above, the export cost, sales revenue and sales profit can

be estimated by the following equations:

Total export cost = production cost + transport cost + custom tax

+ financial management cost

= production cost + transport cost

+ sales volume*price*10%

+ sales volume*price*30%*3.69% *(90days/360days)

Sales revenue = sales volume*price

Sales profit = Sales revenue - Total export cost

= sales volume*price – (production cost + transport cost + sales volume*price*10%

+ sales volume*price*30%*3.69% *(90days/360days))

According to the equations above, sales volume and export price are unknown and also essential for calculating sales profit. The relationship between sales profit, sales volume and price will be examined in order to estimate the optimum export price and sales volume. In the next part, export price will be estimated based on the price comparison of competitors.

6.2 Analysis of price of competitors

In this part, the prices of competitors in target market will be compared and analyzed.

There are two competitors, Maple and Zhengyi in this segment market. Both of them

authorize trade companies in Hongkong to supervise the wholesalers’ operation in

mainland China. And then their partners in Hongkong assign one or two reliable

wholesalers as regional agents or general agent. In the past, Maple and Zhengyi export

their products to mainland China through their Hongkong partners. The general agent and

regional agent sell products directly to customers and meanwhile sell to wholesalers in

lower level. But at present, Maple and Zhengyi export their products to their wholesalers

in mainland China directly and the Hongkong partners are responsible for supervising and providing other support for the wholesalers.

Due to multilevel of wholesaler network and wide geographic differentials, the price of the same products is different. And the price also rises and falls with the fluctuation of supply and demand. The price information is collected from 47 wholesalers in Guangzhou, Hangzhou, Wuhan, Shanghai, Chengdu, Fuzhou, Guiyang, and Beijing. And the price summaries are shown below. Some of them are from the regional agencies. The monthly average prices of Zhengyi, Blue Maple and Red Maple are summarized below.

Chart 5: The monthly average price of Zhengyi (from 2008 January to 2010 March)

Source: 11 wholesalers’ sales records

Chart 6: The monthly average price of Red Maple (from 2008 January to 2010 March)

Source: 37 wholesalers’ sales records

Chart 7: The monthly average price of Blue Maple (from 2008 January to 2010 March)

Source: 35 wholesalers’ sales records

As shown in the charts, the prices of three brands increase gradually. Zhengyi is more expensive than Maple. The prices fluctuate during one year. In end, beginning and middle of the year, which are festivals in China, the prices are higher because the demand of desert is large and it leads to the great demand of lard. The wholesalers provide commerce discount and commerce credit for customers.

Overall, price of Zhengyi is higher than Maple. The main reason is that Zhengyi is produced and packed in Taiwan and Maple is produced in Canada and packed in China.

According to the estimation of wholesalers of Zhengyi and Maple, the sales volume of Zhengyi is larger than Maple. Customers believe that Zhengyi which is produced and packed in Taiwan has better quality and is more reliable than Maple.

6.3 Comparison of prices

In the previous parts, the target market of Ten Kate in short run is set as the high grade

market including foreign invested bakeries and high graded bakeries. The main

competitors for Ten Kate are Maple originated from Canada and Zhengyi originated from

Taiwan. Zhengyi is more expensive than Maple because customers believe that Zhengyi

is fully imported and thus the quality is more reliable.