Successful International Companies within Fast Food Firms - Research Paper Example

Glion Institute of Higher Education Individual Business Report Opportunities and Threats for Chain Restaurants Globalization: Finding the Right Position on the Market Professor Mr. S. Tustain Author: Anatoly Lipskiy E76 Group Table of Contents Individual Business Report 1 Opportunities and Threats for Chain Restaurants Globalization: Finding the Right Position on the Market 1 Executive Summary 3 Introduction 4 Methodology 5 Results 7 Conclusion 12 Recommendations 14 Executive Summary The inherent report seeks to establish potential opportunities and threats that face internationalizing firms within restaurant and other fast food companies. Most importantly, the report aims at establishing the most effective method for international market entry by such firms (Suder, 2009). In exploring the fundamental theme, the research answers a business related question of what is the most effective internationalization method that would minimize threats while maximizing business opportunities. The report adopts qualitative study approach in establishing the most effective method of internationalization especially for firms in fast food in United States. The qualitative approach involved referring to literary texts and case studies of various successful fast-food firms within the international market. Such firms used in the study included McDonald, Burger King, Subway, and Starbuscks. After reviewing the inherent case studies of the aforementioned internationally successful firms, the report interpreted the results by making individualized comparison. Consequently, the report established that franchising remained as the most opportune and beneficial internationalization method amongst direct entry and value addition. However, the report indicated that several factors influenced internationalization of firms including government regulation, international laws, and competition (Liberman and Newburry, 2013). Within the factors influencing internationalization, external factors as aforementioned remained as the most detrimental. Consequently, the report recommends that franchising is the most authoritative method for internationalization process mainly due to associated benefits and ability to neutralize external factors. Introduction The foremost question of this report that seeks subsequent study relates to what would be the most effective internationalization method that would significantly minimize international market threats while maximizing opportunities. Consequently, the study reviews case studies of successful international companies within fast food firms in establishing the most effective method amongst franchising, direct entry, licensing, joint ventures, exporting, and wholly owned subsidiaries. A business venture can pursue several opportunities in the process of expanding its market share. Establishment of the most effective would be informative for firms aiming at venturing within international markets. It is vital to understand that a company may record success locally, though some profitable opportunities may remain available internationally. Such opportunities beyond borders make a business want to spread its wings outside its current economic borders. An entry strategy can act as either strength or an opportunity for an enterprise in its bid to go international. Each stage has to plan well as a pedestal for success. For instance, McDonald enjoys international market heavy investment income mainly due to its comprehensive analysis accomplished before establishing franchise stores. In the context of fast food business, internationalization strategy mainly deals with the entry method that a selected firm uses to capture the new market (Alon, Cliquet, and Perrigot, 2004). After a careful and proper analysis of a market, the choice of entry method can serve as strength to the firm, offer profitable opportunities, and minimize threats. However, without accuracy of inherent analysis or bias, the chosen strategy can acts as a threat to expansion of the firm (Mundim, Allessandro, and Stocchetti, 2000). Common strategies of internationalization employed by companies include franchising, mergers, ventures, licensing or just a direct introduction into a market (Hoy and Stanworth, 2014). Several literatures are available on the topic of internationalization that focuses on the effective strategies applicable to international market (Ruzzier, Hirsich and Antoncic, 2006). These include barriers and drivers to internationalization that focuses on branding as an opportunity for small market enterprises growth (OECD 2009). A potential gap in literature could be an observation on branding as a strength or weakness in the internationalization of an enterprise (Nurmi, 2011). The implication here is that there are many threats and opportunities resulting from different factors in a business environment. However, choosing the most appropriate market entry method is imperative in realization of improved opportunities and significant reduction of threats. Therefore, the report establishes franchising as the most effective market entry method for gaining more opportunity or and reducing threat during internationalization of a chain of restaurants business enterprises (Aliouche and Schlentrich, 2009). Franchising in essence resembles licensing except that it requires an organization to establish long-term objectives and commitments. During the process, the franchiser gives intangible property to franchisee at a cost and subsequently assists the later in establishing formed business rules. The franchiser may also help the franchisee in operating and managing the business. Royalty payments remains submitted to the franchiser before establishing a business. In most instances, service industries including fast food firms such as McDonald and Burger King prefers franchising as the most effective method. McDonald for instance, has dominated fast-food business through international operations that mostly focuses on franchising of its stores. Unlike joint ventures used by Sturbacks, franchising remains imperative in neutralizing external international market. Methodology The research employs qualitative research in establishing the most appropriate market entry strategy. The choice of a qualitative approach relies on nature of the literature used in the study that requires comprehensive approach. According to (Suryani 2008), it is essential to grasp the theoretical background of the research methodology before application. Information obtained by the individual informs the choice of methodology. The foremost business question the report seeks to explore as aforementioned relates to establishing the most effective market entry strategy that a restaurant firm can employ during internationalization. In answering the inherent business question, the research uses qualitative study approach in collecting relevant information within international market and inherent restaurant industry. Qualitative approach as a study design excellently applies to the research due to several reasons. The foremost rationale relates to the inherent need of generating a broader explanation of the inherent phenomenon or business question. Such suitability relies on the fact that the approach allows for an in-depth analysis of a small range of data in different perspectives Implementation of qualitative approach in this study remained accomplished through relevant case studies of successful fast-food firms within the international market. It is essential to note that a case study offers deeper observation of a given unit or phenomenon. Moreover, it makes relation to another similar instance of the unit or phenomenon in another setting. As such, case studies are authoritative in providing insights into a situation that is of the same nature and orientation to the case being studied (Kohlbacher, 2008). The importance of a case study is because it is economical as a single individual can successfully carryout a complex research. Moreover, the use of a case study can offer a multifaceted investigation into a unit that yields a variety of explanations on the subject of the discussion. In agreement with this position, Klenke (2008) further explains that the use of a case study could even take many forms such as exploratory, explanatory or intrinsic analysis of a unit. For this business research, the case study was conducted in three phases. The initial phase involved data and evidence collection followed by an analysis of the evidence and then a reporting on the evidence generated in the end. Yin (2003) identifies the methods of collecting information or evidence in a case study as direct observation, participant-observation, archival records, documents, interviews and physical artifacts. It further commends the use of case studies as a method that has a high ability to generate a variety of evidence. In this study, the method used to gather information was mainly secondary sources. The study used empirical research conducted previously and information from other literary sources including books and journals. Most of the data applied in the inherent research refers to internationalization of significant restaurant firms. Through use of the information, the study links on the strategies employed by these companies like franchising to the strengths, opportunities, and threats for chain restaurants in the global market (Alon, Ni, and Wang, 2012). It also reviews trends in the restaurant related businesses in franchising and gives the data available on the same. Results As aforementioned, the study reviewed fast-food companies in United States including McDonald, Burger King, Starbucks and Subway. Case studies reveal that the companies embrace different strategies in expanding their firms within the international market. For instance, Starbucks uses three imperative market entry strategies including licenses, wholly owned subsidiaries, and joint venture. Burger King, McDonald, and Subway exclusively use embraces franchising as the most effective method of international market entry. For example, McDonald, a renowned restaurant chain company in United States have embraced franchising and established its reputation within the international market. The table and graph below indicates McDonald’s operation margins developed after embracing franchising strategy in internationalization of its branches. The graph and table shows an increasing trend as McDonald increasingly employs franchising as an effective international market entry strategy in both franchise units and operation margins (Nielson, 2015) (Johnson, 2015) It is crucial to note that franchising strategy has enabled McDonald to expand its operations and dominance throughout Europe and Asia. Expansion within international market has raised comparative revenue income. For instance, McDonald international revenues records 65 percent more than local income as reported by Wikiinvest (2015). Geographic Region Percent of Total Revenues United States 35% Germany, France, UK 21% Other parts of Europe 14% China, Japan, Australia 8% Other parts of Africa, Middle East, and Asia 8% (Wikiinvest 2015) Besides McDonald, Burger King embraces franchising, has excelled in hamburger sale, and established its reputation as the second largest company according to Wiki invest reports (2015). The company operates more than 11,000 franchised restaurants in nearly 70 nations worldwide. Despite inherent external challenges relating to international competition, Burger King have endured and established its ever-expanding international market returns. Starbucks on the contrary has built its reputation as a coffee shop with various licensed stores, partnered, and retail shops globally. Though the company has enjoyed success within international market, stiff completion from cheaper alternatives including McDonald coupled with constant economic recession have stalled its continuous growth and international revenues. Analysis of the aforementioned companies indicates several approaches to international market entry and subsequent outcomes. All the companies used a different approach towards gaining an international market segment. The most notable of the approaches identified in this study are joint ventures, franchising, licensing, and direct entry. Comparison of individual firm exports and stock turnover indicates the inherent maximization of opportunities and reduction of threats. The percentage of stock sold in the international market is important in determining the efficiency of the business model or the brand image within the selected markets. It also shows the reception of the strategies and the reception of the brand at international levels. A major franchise destination identified by these companies is the United States economy. This choice points out to the fact that there is a huge potential of small businesses collaborating and succeeding in doing business within this economy. Dant (2008), points out that there are about 1500 franchising chain in the American economy. This represents 760,000 franchisees that operate within this economy with a substantially huge workforce. Interpretation of Results The results from this research explain various opportunities and threats associated with specific methods of internationalization of companies. These companies employ different tactics and strategies in their entry to the markets selected. While the bulk of their sales remain within the local market, they export a substantial amount to the foreign markets. The percentage of exports per company varies with the turnover and the method used in entering the foreign market. Considering McDonald, the level of turnover is high as compared to the rest of the companies that are used in this study. This implies that despite a small percentage of export, the market share that it commands is considerably higher than rivals. The charts below shows McDonald and Burger King dominance in market share mainly due to establishment of franchising as the most effective market entry strategy. (Wiki Invest, 2015) (Wiki Invest, 2015) The above chart shows inherent dominance of McDonald within international market as compared to other fast food companies. The company has embraced franchising with thousands of franchised shops worldwide. As noted, a franchise has several advantages. The advantages include the preopening impetus that the franchisor gives to the new branch and the post opening advantages. Before opening of a fast food firm or any other type of franchise, the advantages of the trademark are transferrable to it. It acts as pre-market entry advertising method to the new branch. For strong, reputable brand names, the advantage of the marketing is very high (Blair & Lafontaine, 2005). The franchisor is also required to offer training assistance to the new enterprise to enable it cope with the franchisors standards. This eliminates the need for the franchisee to offer training to employees (Welch, Benito & Petersen, 2007). As such, the benefits of the franchise can be seen as numerous, and it is a deserving business strategy. However, failure can also occur within the same arrangement. The failure can arise from the bad will of the brand image transferred from the franchisor to the franchisee. It can also result from the engagement between the franchisor and franchisee in their terms and conditions. Consequently, the predominant method or form of international market in fast food business is no doubt franchising. The graph below affirms inherent dominance of franchising in internationalization of the aforementioned firms especially restaurant and hotel organizations Graph: a comparison of the form of business in major international restaurants Trends in fast food business are attributable to many factors. These include reduction of risk to the franchisor, availability of capital and the high survival rate of the franchises. For investors, franchise arrangement is imperative in covering the risk of loss. In the event of failure, the franchisee covers all losses, and the franchisor remains similarly protected. Culture and norms of different populations is also a factor in the establishment of these franchises. A franchisee is in the best position to understand the local culture and norms of the population around it. Food and culture are closely linked items. A franchise, therefore, is best suited in delivering great outcome to business in the fast food service industry. Apart from the food aspect of culture, the business norms in the country of franchisee remain only best understood by the franchisee. This aspect will make the ability of the franchisor to benefit from keeping up with the norms be higher comparative to a direct entry. Conclusion In conclusion, establishing a new firm within international markets requires comprehensive analysis of inherent trends and application of effective internationalization method. Most successful companies embrace comprehensive market research and analysis before investing or introducing products to new customers. Consequently, effective market entry entails making an informed choice of the most appropriate internationalization method. Choice of the most effective market entry strategy would significantly minimize threats and maximize opportunities within international market. Analysis of various fast food industries indicates that franchising offers excellent opportunities for a firm while minimizing potential threats. Exclusive practice of franchising increases exports for a company and overall sales turn over. Moreover, it is essential to note that through internationalization, a business enterprise increases its market presence though it comes with additional requirement of capital (Ubreziová, Bujnakova, Kapsdorferova, & Majorova, 2009). In the case of failure to make an impact, the result is a great loss to the parent business. This means that a company going international faces the task of raising a huge capital and a potentially high risk of failure. To mitigate these difficulties, franchising can be a method employed by a company or an investor as they seek to expand internationally. Franchising is an opportunity for the investor in the chain restaurants industry for many reasons. In order for an investor to establish a chain of restaurants, a large amount of capital has to be raised. The capital requirement for location labor and production equipment for a chain of restaurants would be too much for a single investor to generate. As a result, the investor can go into franchise agreements that last for specific periods. Near end of the time, the investor can buy back the franchise with the profits accrued during the period or extend the contract (Paterson 2001) (Brickley 2002). Besides, such aforementioned kind of business arrangement significantly reduces risk on the side of the franchisor. If the capital remains wholly raised by the franchisee, the risk of failure the entrepreneur bears ultimate uncertainties. As such, all the investor and not the franchisor cover the losses (Welsh, Alon, & Falbe, 2006). Political and cultural risks also mitigated in the same way within this kind of arrangement. Since the franchisee is well aware of the culture and norms within which the franchise, the possibility of norm clash between the franchise and locals is limited. A similar case witnessed in the likelihood of political interference to the franchise. As compared to direct investment then the use of a franchise minimizes the risks of doing business (Samii, Aliouche, and Wright, 2015). Abel (2013) suggests that franchising can lead to value creation. The value created is a result of the choice of growth through franchising. Through franchising, as with the case of United States restaurant chains, market value and economic value are more likely to be created (Abel 2013). Franchising can also result on threats to establishing a new business even within the restaurants industry. The costs escalate over time, and a franchisee has to pay royalties that would otherwise not be payable if ne stated a new and independent businesses altogether (Kotabe & Helsen 2009). Flexibility in the business model is another threat that could limit the efficiency of operating a franchise (Mendelsohn 2004). Inflexibility results from the fact that in order to maintain similar quality as the franchisor in the restaurant business, the franchisee has to operate the business within the same models as the parent company. Therefore, the most effective method of internalization and establishment of firms within international markets require use of franchising strategy. Recommendations Effective establishment of firms within international markets should employ franchising as the most amicable entry strategy. Selection of this alternative presents several opportunities to the firm while minimizing threats. Internationalization requires heavy capital investment and an investor risks losing too much even if they had the resources to finance operations. Essentially, the franchisor enjoys reduction in risks, availability of capital creation of value that are the major opportunities that the model of franchising comes with. Other benefits relates to political and social business environments. The model of franchising provides the investor with limited interference on the business by the political leadership of the country. The likelihood of the cultural norms clash between the franchise and the local host community is also highly unlikely. These opportunities offered by franchising makes the method a better strategy to implement an international expansion. References Abell, M. (2013). The law and regulation of franchising in the EU. Cheltenham, UK: Edward Elgar. Aliouche, E. H., & Schlentrich, U. (2009). Does Franchising Create Value? An Analysis of the Financial Performance of US Public Restaurant Firms. 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