1. Discuss the competitive forces in the dairy processing industry.

y. Identify the other industry that Bauhinia has entered and highlight the
key differences in the competitive forces between the two industries. Comment on their comparative attractiveness in Hong Kong.

Competitive forces of dairy processing industry Key differences between dairy processing industry and
specialty meats​ industry

Potential new entrants - High barriers Higher barriers

- Stricter regulations and laws on food safety - License for meat distribution is required (refer to Hong
Kong processed meat market industry review)
- Consumers rely on brand reputation and quality after 2008 Milk Scandal

- Capital intensive

High rivalry Lower rivalry

- Advances in technology, UHT technology has increased the shelf life of
some dairy products → increase the competition
- More foreign brands enter China market → as consumers in China are
more confident in dairy products that comes from USA or others foreign
brands other than New zealand and China
- Distribution firms can provide different kinds of speciality
meats. For example, Bauhinia sources antelope, ostrich and
kangaroo, which the product differentiation is difficult to be
fully replaced.
Higher rivalry

- Distribution firms can target different segments/strategic

- Oligoploy-three dominant firms: Nestle, Kowloon, Trappist dairy
groups by the quality of specialty meats which enable more
flexible competitions.

High threat of substitute products Lower threat of substitute products

- consumers may replace milk products with other alternatives, such as - Consumers can replace type of meats, but it will affect the
soya milk, almond milk, coconut milk… quality of the food, which is unfavorable for high-end
restaurants

Moderate bargaining power of customers Lower bargaining power of customers

- Low switching costs: low product differentiation, consumers can easily
find other substitutes to replace as the price of products is low
- Demand for imported milk products is high after 2008 Milk Scandal
- Dairy product cannot easily backward integrate - or begin to produce the
product themselves → the bargaining power of customers is low
- Higher switching costs on consumers: high product
differentiation, consumers may unable to buy similar meats
from the others
- Number of local suppliers who have plenty of speciality
meat is smaller

Moderate bargaining power of suppliers Higher bargaining power of suppliers

- Raw milk is irreplaceable ingredient - Higher switching costs on buyers: They need to rely on
specific suppliers for buying rare meats
- Milk is perishable
- Suppliers are able and have potential to integrate
- the switching cost of suppliers is low as they can only rely on company forward(sell online instead of selling to food distribution
that is high quality, reliable, and concern about food safety companies)
Dairy processing industry has a higher market size as consumers including citizens in Hong Kong provide higher opportunities for selling
those milk products to them, thus increase the potential profitability. However, due to the existence of strong competition in rivalry and
product standardization, companies may focus on price competition and the profitability is limited. For specialty food industry, since the
differentiation and high price of the rare meats can increase the profit margin, the profitability is more optimistic. However, it earns revenue
by high-end restaurants and hotels, so the market size is smaller and potential profitability is limited excluding the opportunities from other
countries.

Dairy processing industry has a low growth rate and stable for the sources since the development of dairy products is mature and the price
from the suppliers is stable, attracting market share is essential. While speciality food industry has a low to moderate growth rate by selling
more categories of meats and the sources instability exists by the frustrated demand from the customers and the price from the suppliers. It
should focus on long-term relationship from buyers and suppliers as consolidation of the market eliminates rivalry of small-size distribution
firms.

Speciality food industry is more attractive on inventory management than dairy processing industry from degree of stability since the frozen
meats can be kept for a longer period(1 month to 12 months with lower than -18℃ refrigeration) than dairy products which will be expired
within a month.
2. Discuss the trends and/or developments in the general environment that are the most relevant to Bauhinia and its industry rivals.
Explain clearly how each trend and/or development represents an opportunity and/or threat.
Factors Trends & Development
Socio-Cultural Aging population in China:
- Improvement of health care and 36-year one-child policy
- Life expectancy in China was improved from 67
to 75 and fertility rate decreased from 2.8 to 1.7
in 2013. (refer to China Power)
Increasing demand for healthier foods in China:
- Demands for dairy product raise from 49 millions in 2013
to 69 millions in 2018. (refer to statista)
Increasing demand for foreign products:
- Public awareness of food safety in China increase
- Growing popularity of Western food
- Imported cheese product in 2013 is 3 times more
than that in 2008
- More Chinese are willing to pay higher price for
high quality foreign brands of dairy products
especially for infants and children.
Increasing concern about animal welfare and environment:
- Consumers believe that animals should be treated
humanely and slaughtered in the least painful way
- more consumers switching from dairy milk to
soy or almond milk. (refer to SPCA)
- Livestock sector is responsible for more greenhouse gases
than the world’s transport. (refer to Business Insider)
Technological Ultra-high-temperature technology
UHT technology is used to kill the spores in milk.
- the shelf life of some dairy products have increased.
Economic Increase in dairy industry revenues and milk consumption:
- The total revenue of the dairy industry in China in 2017 is
359.041 billion RMB, with an increase of 7.85%.
- China’s per capita milk consumption is about
36kg/person, which is less than 1/3 of the world average
and less than 1/10 of the developed countries. (refer to
USDA gain report)
Improvement of living standards in China
In 2018, disposable income per capita was 28,228 RMB, which
rose by 6.5%. (refer to reuters)
Political Hong Kong:
CEPA, a free trade agreement between Mainland and Hong Kong,
is imposed, so as to enjoy preferential access of China market.
China:
After widespread 2008 Melamine scandal, Chinese government has
adopted several reforms:
1. imposed new regulations to enhance the safety and quality
of domestic dairy products.
○ regulate dairy imports by “Formula Registration
of Infant Formula Milk Powder”. Formula
registration and certification must be obtained
before marketing in China. (refer to CIRS)
2. encouraged consolidation to remain only 10 large
enterprises to supply the whole China population.
Oppotunity/ Threat
Opportunity
Enter China market:
- Bauhinia is a local dairy processing firm
located in Hong Kong
- quality assurance for Chinese
- increase in demand for healthier food like
dairy product
Target adult and the elderly market:
- aging population
- providing dairy product for adult
and the elderly such as
high-calcium and low-fat milk.
Produce cheese products due to increasing demand:
- target teenagers and adults market.
- easy for them to set up new product line by
using the existing dairy resources.
- With various choices based on goat,
buffalo and yak milk.
Threat
Decreasing demand for dairy products:
- More people switch to non dairy products
due to animal welfare and environmental
issue, causing Bauhinia to earn less.
Threat
Easier transportation of imported dairy products:
- supply of dairy products increase
- fierce competition between Bauhinia and
giants, e.g. Nestle, Fonterra and Mengniu
in Hong Kong market and competitors
from different part of the world.
Opportunity
Profitable but unexplored dairy market in China:
- dairy industry market is still growing in
China with below-average consumption.
Better living standards cause growth in consumption
- increased purchasing power of the Chinese
may cause the increase of their demand.
Since they would like to spend more, so
Bauhinia can market their products in
China to increase their consumption.
Opportunity
CEPA fostered trade of goods:
- enjoy tariffs advantages to market products
in China if Bauhinia is qualified in CEPA.
Regain consumer confidence with certification:
- ensures quality assurance, and demand for
dairy products sold in China may rise.
Threat
Hinder Bauhinia from expanding its market:
- China government aims at boosting sales
of domestic dairy products
Domination of large enterprises due to consolidation
- difficult for Bauhinia, a Hong Kong local
firm, to compete in the China market.
3. Specify and justify mission and vision statements for Bauhinia. For each dimension of the balanced scorecard, specify a measurable
performance objective that reflects Bauhinia’s strategic priorities. Explain the overall relationship between the strategic objectives.

Mission: Vision:

For the purpose of customers’ health, maintain and
continuously improve product quality.
The vision of the Bauhinia is to produce highest
quality product for our customers’ daily uses,
through innovate product constantly and compliance
to make a dynamic and unite work environment that
can enlighten employees to ​achieve ​innovation.

Justification ● Recently three operating divisons are in HK,
Macau and Specialty foods.
● It distributes dairy products requiring special
care which became a local pioneer with
nutritious beverages as high-calcium and
low-fat milk.
● Produced only fresh milk and sold in limited
distribution channels to ensure the quality
● “must be the best at whatever we do Being
big or first is not important”
● Affort to establish an ISO quality assurance
system
● Utilized UHT technology and produced
powdered milk
● Few written policies,delegate decision
making also relies on verbal communication
like face-to-face meetings to create nice
work environment

Learning & Extending its business scope:

Growth ● Subsequently moved its primary operations to New Territories
Perspective: ● Diversification by sourcing frozen meats like antelope, ostrich and kangaroo from foreigns to resale to gourmet
retailers and higher-end restaurants
● Serving restaurants, hotels and spas on both sides of the Macau-Zhuhai border due to neighbouring markets have
become increasingly important

Internal Managerial decision is making process effectively:

Process ● Few written policy and documented standardized work process to establish ISO quality assurance system
Perspective: ● Limiting business activities and distribution channels to remain competitively compared to rivals and also
safeguarding the reputation of quality
Managerial team is making people not being efficiency:
● CEO of Bauhinia Victor who aggressively seeks out new ideas and timely infs but whom might discouraged
Bauhinia managers’ to be proactive and innovative because of his intimidating manners

Customer Increasing demands and willingness to pay premiums:

Perspective: ● For nutritional, sophisticated food items so that Bauhinia distributes dairy products requiring special care which
became a local pioneer with nutritious beverages as high-calcium and low-fat milk.
● Customer want safe and qualified milk to safeguard their life qualities especially for the parents concerns and
infants needs after the Melamine-in-milk scandal happened so they will choose brands which focus on producing
fresh milk --Bauhinia
● UHT technology has increased shelf life of dairy products, powdered milk take up less space and easier to
transport which preferred by parents for their infants which are Bauhinia products and utilizations

Financial It is consistently profitable since 1985 and the operating margins grown gradually by migrating higher-value products
Perspective: which makes its cash on hand and liquid assets exceed annual revenues

Bauhinia have different strategic objectives to make them financially succeed. First, Being the giant in local market and penetrating
neighbouring market to maintain the growth of profits. second, maintain a favorable work environment to ​employ talented managers and
employees.third, Search for the new ideas and timely information. In order to fulfill their strategic objectives, they make variety of action to
convert their mission to reality. Bauhinia distribute dairy products that require special care and was a local pioneer with nutritious beverage
for instance, high-calcium and low-fat milk. It was a new idea and innovative product in the market in order to meet the growing demand of
health product. As the economic development, the nutritional and exceptional product are favourable to the market. The release of the
product was meeting the timely trend. In order to getting those new ideas and seasonable information. Bauhinia managers are asked to deliver
the report frequently. Those talented managers were attracted by the nice work environment. They keep contributing their force, thus trying
to be proactive and innovative. Therefore, chief executive could using those result to formulate and implement different planning. The
strategy and planning of the company will keep renewing as so as the development of the company become sustainable.
Reference

1. Hong Kong Exchanges and Clearing Limited. (2017, June 30). Hong Kong processed meat market
industry review. Retrieved from
https://www1.hkexnews.hk/listedco/listconews/gem/2017/0630/a10310/ewinningtower-20170301-
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2. Foreign milk brands still seen as superior years after China milk scandal. (2018, July 3). Retrieved
from
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after-china-milk-scandal​.

3. Does China have an aging problem? (2017, August 11). Retrieved from
https://chinapower.csis.org/aging-problem/​.

4. China: estimated dairy demand 2018. (n.d.). Retrieved from

https://www.statista.com/statistics/745266/china-estimated-dairy-demand/​.

5. The Society for the Prevention of Cruelty to Animals. (n.d.). Farm Animal Welfare. Retrieved
from
https://www.spca.org.hk/en/animal-welfare/farm-animal-welfare​.

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he-price-of-milk-2016-5​.

7. Inouye, A., & Ward, M. (2018, May 15). China - Peoples Republic of Dairy and Products
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8. China consumers squeezed in 2018 as income gains slow, living costs rise. (2019, February 28).
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9. “CIRS Introduction.” CIRS. Retrieved from ​http://www.cirs-reach.com/about-us/cirs​.

10. Trade and Industry Department: CEPA. Retrieved from

https://www.tid.gov.hk/english/cepa/index.html​.