Compensation Management Business 4340 - an Examination of the Factors That Have Contributed to the Increase of Coffee Consumption in China

Beijing Union University

College of international Education

International Business Major

ECO3600018G

Spring 2016

 An examination of the factors that have contributed to the increase of coffee consumption in China, a spring 2016 study.

Author:                                                                Supervisor:

Emmad Abdella                                                         Thomas Karlsson        

Table of Content

1. Introduction                                                                                                                    3
2. Purpose                                                                                                                           4
3. Literature Review                                                                                                             5
4.  Methodology                                                                                                                   12

A. Survey                                                                                                                                                      12

B. Interview                                                                                                                                                 13

C. Ethical Consideration                                                                                                                            13

VII. Timetable of Research Project: Gantt  Chart                                                                 14                                                                                        

1. Introduction

About 30 years ago Deng Xiao Ping implemented economic reforms and as result China opened to the world. Today, China is one of the world’s major economies, by overtaking Japan as the world second’s largest economy.  This market is now composed of a vast and complex population that is middle class. The Chinese middle class is defined by the Organization for Economic Cooperation and Development as “those with the means to make spending decisions beyond just subsistence.”  Throughout the 80s and mainly the 90s, the middle class consumers were less than 20% of the total population (Asian Development Bank,2015) . According to the Chinese Academy of Social Sciences (CASS), in 2012 the middle class represented 25% of the population and it is expected that in 2030 it will account for more than half of the Chinese population (Asian Development Bank,2015).

 This new and growing part of the population is now looking for different things, they are   well educated, their salary will keep rising and they are highly influenced by the Western culture. This phenomenon explains why China is facing an explosion in demand for luxury goods and services (Guo Rongxing ,2011).

 Similar to Japan, China has for many centuries been a traditional tea drinking country but now coffee demand in China has increased dramatically, although volumes are still small compared to the market size potential. Despite being known as the nation of tea, China’s population will become one of the largest importers of coffee in the world (Hope Lee., 2009)

New coffee companies would not be entering into an unknown coffee market in China since large, internationally well-known coffee brands such as Nestle, Starbucks and Costa have already set up multiple brands there. They have also experienced a lot popularity among the Chinese public and are making good economic gains.  What’s even more, these companies can serve as a good example for new up and coming coffee companies as they have attempted to integrate important local Chinese traditional values, customs and tastes into their products. To a decent success, they have managed to gain grown in a country that is highly attached to its historical traditions and ways of life by offering products that are relevantly new and foreign while still making their clients feel that they are somewhat still staying true to their culture (Guo Rongxing ,2011). Some companies such as Starbucks have also prudently arranged for the coffee to be produced within the Chinese lands partially within the Yunnan province, which not only makes it cheaper than importing coffee from other countries but is also economically benefits the country by employing, training local Chinese workers. Additionally, it encourages for a stronger coffee production locally.  

There is high completion and public popularity for instant coffee selling brands such as Nesle, Starbucks, Costa coffee. With a fairly recent coffee culture, the country is more comfortable with consuming light, flavored instant coffee rather than freshly made strong tasting coffee (Hope Lee., 2009)

The economic reform policies adopted by the Chinese government, most importantly opening up the economy and encouraging economic as well as social relationships with foreign countries; of which the West has created a rapid cultural influence in Chinese lifestyle: people have adopted a more extravagant, luxurious lifestyle; a taste and appreciation for international products and cultures (like coffee consumption); coffee, which is believed to be the most consumed beverage after water as far as the entire world.

The increase in the population belonging to the ‘Middle Class’ and their recent ability to leave their birth place and explore the world and its various traditions, cultures, ways of life have also contributed to China’s growing demand for coffee.

While the coffee market is still young and in its early developing phase when compared to the rest of the world, especially major coffee consuming regions such as Africa, South America, parts of Europe, when we look at the relative growth inside China over a period of time, the results seem encouraging with 15% growth per year. In addition to this, the economic gains made thus far from the sector are also encouraging with an estimated 1000 billion Yuan revenue in only 10 years (Asian Development Bank, 2015).