Dr. JAMES GLENN
Summarize the business that you have chosen, and provide a two to three (2-3) paragraph justification as to why China would be a viable market for the selected business.
Rent-A-Center is the largest rent-to-own operator in the United States with roughly 32% market share based on store count as of June 30, 2014 and employs more than 18,990 people. Rent-A-Center, Inc. which is based in Plano, Texas was conceived in 1986 and in 1995 went public on the NASDAQ stock market under the symbol "RCII." The company has seen a modest growth both locally and internationally and as of July 21, 2014, the company owned and operated approximately 3,025 stores in the United States, Mexico, Canada, and Puerto Rico; and approximately 1,360 Acceptance Now kiosk locations in the United States and Puerto Rico, as well as franchised approximately 180 rent-to-own stores under the Rent-A-Center, ColorTyme, and RimTyme trade names.
Rent-A-Center, Inc., and its affiliates, leases household durable goods to customers on a rent-to-own basis. The company operates in four segments: Core U.S., Acceptance Now, International, and Franchising. It offers durable products, such as consumer electronics, appliances, computers, furniture, and accessories under rental purchase agreements. The company also provides merchandise on an installment sales basis; and offers the rent-to-own transaction to patrons who do not normally qualify for financing from the traditional retailer through kiosks within retailers locations.
China is the second largest economy in the world with a population of over 1.37 billion. According to Earnest and Young, China has around 150 million people earning at least US$100 dollars a day and as the country continue to make the necessary economic reforms the number will continue to grow. EY further predicts that by 2030 around one billion people in China could become middle class and Rent-A-Center business model would easily suit the environment. Furthermore, doing business China is becoming easier and many of its regions are boosting foreign investment through tax incentives and the removal of previous legal restrictions. Labor costs are also relatively low which could really open more opportunities for the company not only as a market but relative cheaper merchandise.
Examine the exchange rate of the U.S. dollar and the Chinese Yuan for the last 24 months. Explain the major overall changes that have occurred and speculate on the key economic variables that most likely have influenced the exchange rate movements. Provide a rationale for your response.
This is the US Dollar (USD) to Chinese Yuan (CNY) exchange rate history for the past 24 months from September 2012. As at the close of day August 19, 2014 US $1.00 was being exchanged for 6.14 Chinese Yuan. From the graph, it will be safe to say that the Chinese Yuan is a very volatile currency. It is therefore very important that when contemplating an FDI in China management carefully analyze the exchange rate. Ideally, it would be to the company’s financial advantage to invest when the U.S. currency is at its pick.
In-spite of economy slow down for the past couple of years, the Chinese economy has been growing at a modest rate growing by 7.5% in 2013. The new government has decided to introduce new reforms that will stabilize growth and promote consumption and a more competent economy. The Chinese central government is advocating for a more progressively economic growth driven by private consumption instead of fixed asset investment. This dynamic shift in strategy will give rise to a more stable economy powered by the market and consumerism. Ernest & Young predicts a significant rise in income and more than 70% of the Chinese population entering the middle class 15 years from now.
This is the right time to invest in China and establish strong community links to be able to fully enjoy the benefits