Yaohan Company Case Study

When Yaohan establishes its first store in Shanghai, there are more than 10 million customers come, the first day revenue is huge, then several more department stores set up right after, Yaohan becomes a very well known name for every citizen in Shanghai.

The economies scales were developed. Since all the stores were in Shanghai, it saved goods shipping costs, lowered down supplier' barging power, saved management transportation costs, lowered down finance transaction costs, etc, Yaohan was able to make a lot more profits at a time of economies scales in Shanghai, but when the finance crisis went into the picture, everything was changed to the opposite.

The larger, the more profits, this is a wrong business strategy.

It will be beneficial for some companies expend business scales for some certain degrees, when the average unit costs to fall as the scales of output is increased, the company produces higher revenues. Yaohan benefited from the early expansions, but there are another two big indicators of Yen raising and the 1997 Asian finance crisis lead to its bankrupt- die young.

Therefore, for a foreign company enters international market to expand the scales, it could make an economies scales as a whole, but also could lead to diseconomies of scales as a whole, the economic environment and the currency ratings are the most important indicators.

It is a Japanese company, was very famous in 1990s.Originally, it is famous for selling vegetables, it is a grocery store, but since 1990, the company widely expended its business scales, within one year, the grocery store turns to international department store, within one year, the company from zero profit becomes a published company, within 3 years, the company launched 100 restaurants.

I always remember this case.

Yaohan, was so desiring of expending its scales, so desiring of extensions in other countries, but ignored the currency ratings mattered an international company's life span.