Chilis strategic market entry plan - Essay Example

Chili’s strategic market entry plan Introduction Global marketing has assumed increased significance in today’s business world owing to the opening of international markets and the vast opportunities presented by these markets. There are various factors that lead a firm to decide on entering global markets and some of them are saturation of domestic markets, enhanced innovative capabilities and high costs involved in the development of new products. There are distinctive stages that the firm needs to consider while entering global markets. The initial step begins with identifying the foreign market that the firm wants to explore in. This decision is based on a number of strategic alternatives that underline the market opportunities and strategic orientation of the firm based on defined market needs. Once the decision of the foreign market is made, the next step involves identifying the market entry mode. This involves crucial decision on the firm’s choice of market entry mode and the decision is guided by several factors that require a deeper understanding of the country’s political and legislative environment. The report provides an insight into the market entry plans and strategic marketing alternatives that Chili’s will adopt in order to enter and establish its operations in London markets. The previous report analyzed the market environment and global marketing strategies that can help Chili’s strengthen its market position in London. This report explores the various market entry strategies that would be most appropriate for Chili’s and then identifies the marketing mix alternatives available to the company. The report also provides an insight into the suggested organization structure and a review the role of logistics and supply chain in the successful operations of the firm. The findings and recommendations of the report is supported by theoretical models and frameworks that help in explaining the decision making process and its viable impacts. Market entry strategies Selecting the mode of entry into the targeted foreign markets is a critical decision since the future success of operations and business viability depends on the choice of market entry. International market development strategies focus on improving the firm’s competitive advantages and providing the business with a strong framework for successful market presence and profitability. There are several aspects that need consideration while framing international market strategies. These involve financial, managerial and resource considerations. The firm needs to weigh these alternatives before deciding on the best market entry alternative (Johansson, 2006). A number of theoretical works have identified and analyzed the alternative strategies in market entry modes available to firms. The major market entry modes choices available to the firms include exporting, licensing or franchising, joint ventures and wholly owned subsidiaries. Firms adopt different types of strategies to identify new markets, explore various market entry options, and define its competitive advantages (Ndegwa and Otieno, 2008). The subsequent paragraphs will explore these options and suggest the best alternative available to Chili’s and its justification. Exporting is the market entry option that involves the selling of company goods and services to the target market. In this case, the firm contacts the buyers in the target country to sell their products. The products are thus manufactured in the home country and then exported to the foreign markets for sale either through sales agents or direct sales channels such as e-commerce (Johansson, 2006). Exporting offers the firm with the simplest mode of entry to foreign markets as the manufacturing base remains in the home country. The firm is responsible for establishing market contact, market research, physical distribution of goods, export documentation and pricing to facilitate sales in the target markets. While this form of market entry mode requires increased understanding of foreign markets and company resources in terms of developing suitable marketing mix, it provides the company with increased sales, better control over operations, and expertise in global marketing (Brouthers et al., 2009). Licensing is yet another alternative that enables the firm to enter foreign markets with limited risks. It requires the firm to license its proprietary technology and know-how to a foreign company in lieu of a percentage of fees and royalty on the sales. This is similar to the concept of franchising where the firm provides the technical expertise and operational training to the foreign firm and helps in managing the firm’s operations in the start-up phase (Tielmann, 2010). Licensing or franchising offers limited control over the licensee or franchisee due to lack of direct involvement and commitment to the firm’s operations. Mismanagement of such arrangements may lead to loss of market shares and reputation (Lambin, 2007). Joint ventures and alliances are the most common form of market entry mode in restrictive economies or countries where regulatory norms place a number of restrictions on the entry of foreign firms. Shared manufacturing, joint research and development, capital investments, new product development and distribution alliances are common forms of strategic alliances (Lymbersky, 2008). Joint ventures offer the firm with increased control over its operations abroad and help in achieving a deeper knowledge of local markets. It thus provides the firm with the facility to integrate its operations abroad and establish a strong foothold in foreign market environment. Direct investments or wholly owned subsidiaries involve direct capital investment in the foreign markets. The firm commits its resources to developing its manufacturing capabilities in the foreign markets and organizes its management facilities to focus on developing its marketing and logistics networks (Doole and Lowe, 2008). In wholly owned subsidiaries the firm’s commitment is 100 percent and it can achieve this either through direct acquisition or merger in the target market or develop its own infrastructure (Evans, 2002). Chili’s plans to enter the London market require a deeper focus on planning its market entry strategy and understand the implications of the chosen market entry alternatives. Research findings on the preferred mode of market entry of service firms have revealed that the guiding factors applicable to manufacturing firm are also applicable to firms in the service industry (Albers et al., 2009). However, this view has been contradicted to indicate that the guiding factors must be adapted to suit the goals and objectives of the service firms (Evans, 2002). According to them the foreign market entry behaviour of service firms vary in context to the type of services and the international marketing experience of the service firms. The marketers need to consider the unique aspects defining the service scope and these are intangibility, perishability, heterogeneity, and inseparability (Brouthers and Brouthers, 2001). Martin Wolf (2005) in his works on the market entry choice for service firms observed that “intangibility is one of the most important factors that is responsible for distinguishing entry behaviour in the service sectors” (p1). A closer look at the market entry options available before Chili’s reveals that each of the market entry options discussed above provide the company with varying degree of control and resource allocation alternatives and risk. Market entry choice – decisive factors Taylor et al. (2000) observed that the decision of how to enter new markets is complex and firms should consider its resource sustainability and identify its constraints before making the final decision. They also claimed that deciding on the mode of market entry is deeply influenced by the level of control the firm intends to have over its operations. The firm’s level of control over its operations increase as it moves from licensing or franchising to joint ventures and wholly owned subsidiaries. However, this also indicates an increase in the firm’s level of investment (Evans, 2002). The level of control and risk in exporting depends on the export agreement and relationships between the firm and the distributors. Moreover, exporting does not involve the production of goods in the host country. Hence, the other market entry alternatives are chosen only when the firm believes that the host country provides some benefit in establishing production facilities there (Taylor et al., 2000). There are number of factors that influence the market entry choice decision. These include firm specific factors comprising of firm advantages, experience, and strategy and environmental factors such as market demand, competition, socio-cultural considerations, political and economic conditions. According to Driscoll (1995) firm advantages and environmental factors define the extent to which firms’ can assume risks, deploy resources, and assume control over its operations in the foreign markets. The market entry mode decision is influenced by these factors in addition to government policies, corporate policies and the firm size. The figure below illustrates this framework for market entry mode decision – Fig 1 – Market entry mode choice framework (Driscoll, 1995) Chung and Enderwick (2001) highlighted that in the service goods sector it is difficult to separate production from consumption and hence, the mode of entry for firms range from franchising to joint ventures and wholly owned subsidiaries. “The delivery of soft services by hospitals, hotels, restaurants, and health care facilities requires physical proximity between provider and consumer” (Ekeledo and Sivakumar, 1998, p280). Chili’s market entry mode Based on the observations in the previous section, franchising is the best market entry alternative available to Chili’s. The choice of franchising option is based on the fact that out of the four market entry alternatives discussed above, this mode will enable the company to expand its business on a larger scale in the London market. Franchising allows the company to open number of outlets across strategic locations within the city and improve its market presence. The choice is also based on the fact that Chili’s has adopted the franchisee model with success in other markets of Europe, Asia and America (Chili’s website, 2013). Exporting cannot be considered as a viable market entry mode for Chili’s in London since the food and restaurant services does not match the export requirements. Joint ventures and wholly owned subsidiary are other alternatives that could be pursued by Chili’s but these will involve high capital investments and managerial expertise. It also presents the business with high risk assumption. Franchising is a popular market entry alternative in the hospitality sector due to its role in bringing two distinctive types of resources to the franchising firm – intellectual capital and financial capital (Enz, 2010). Transfer of skills and capital are viewed as the key aspects defining the effectiveness of the franchisee model. Moreover, in a franchising relationship, “both the franchisor and franchisee possess and control resources that are useful to the other party” (Fraser et al., 2007, p1041). Franchising agreements identify several aspects of power and control. These are rewards, coercive, expert, referent and legal power. Franchisors have the power to improve franchisor performance through rewards and coercive power that involves fines and penalties on inadequate performance. Expert power relates to the skills or knowledge held by the franchisor in terms of managing the business and predicting market trends. It is important to note that franchisor power as experts may diminish over time if it does not allocate some time and resources towards research and development. Referent power refers to the brand name and position that the franchisee business provides the franchisor. Brand power is the driving source for business success for franchisors. This is exemplified by chain operators like Pizza Hut and McDonalds. Legitimate power relates to the contracting terms and legislative policies that guide the franchising relationship (Ziyan, 2007). Marketing mix The previous section identified franchising as the chosen market entry mode for Chili’s in London. This section will focus on the marketing mix that should be adopted by Chili’s in London for enhanced market shares and increasing revenues. Global marketing relates to the “marketing activities coordinated and integrated across multiple country markets” (Johansson, 2006, p11). The integration and coordination aspect of marketing relates to standardization of goods and services in terms of consistent product packaging, standard brand names, synchronized product launches, and uniform marketing communications across all countries. This is also referred to as standardization. The present economic environment exposes the consumers to a wide range of brands and multinational products that portray similar attributes. The consumers in the global market are defined by similar needs and expectations from the range of products or services that they buy. Global marketing concepts thus focus on establishing a uniform brand image and position their products and services in similar market niche (Agnihotri and Santhanam, 2002). However, business models and generalised marketing strategies in a global environment may not provide the desired results in all cases. This is especially true in cases of market diversity in terms of competition, technology, government policies and customer trends that define market behaviour. Moreover, as pointed out by Johansson (2006) not all marketing mix elements are feasible for global market operations owing to the wide diversity in culture, social customs, religious beliefs and other barriers that define market characteristics. This produces the need for customization of products and services. This refers to localization or adaptation strategy of firms that “takes into account the inherent diversity that exists in the international marketing arena and treats individuals as cultural beings, whose values and behaviours are shaped by the unique culture in which they live and grow” (globalization executive.com, 2007, p1). The primary focus of this strategy is on understanding the local consumer preferences and adapting the marketing mix elements – product, price, promotion, and place – to meet and satisfy consumer needs and expectations. In today’s world, hotel industry or a restaurant is one of the most lucrative and revenue generating business. The results obtained from various studies have revealed some of the important and essential aspects of a successful independent restaurant (Holaday, 2007). There are certain elements which are imperative for the smooth functioning of the restaurants. Location, pricing of the food, quality in terms of hygiene, the type of material used , proper marketing techniques and last but not the least maintaining sound customer relationship are some of the factors which are followed and adhered to, by any successful restaurant business owners (Bradley, 2007). Deciding location for the onset of any restaurant is considered as the most important of all. Choosing an appropriate location often decides the fate of the restaurant. In any retail or service industry, location carries the maximum importance. This is also related to its sustainability. An appropriate location for any restaurant can be either a residential or a commercial area. Pricing is also an important factor for an independent restaurant. Customers feel at home if the price of the foods offered in any restaurant is at par with the market or with other restaurants. This reflects that the ownership of the restaurant is in right hands. Pricing of the items displayed on the menu card should be in tandem with the market price and the quality of the food offered (Gallagher and Alex, 2011). Marketing and promotion assumes different dimensions in the service sector. Personal experience and word of mouth communications hold vital significance in relaying positive service interactions (Lam et al., 2009). An independent restaurant should use their own websites for creating awareness about their restaurant among the customers. This would be an effective mode of communicating and interacting with the customers. This will help not only as a promotional tactics but will also get to understand the feedback of the people about the food and their prices which the restaurant is offering. The traditional methods of advertising like television, radio and banner advertisings are much expensive for an independent restaurant owner. Other forms of advertising like newspaper, coupons, and food or drink samplings can also be used by an independent restaurant. Standardization or localization – choice for Chili’s The food industry has witnessed widespread changes in terms of consumer tastes, choice of foods eaten, and the range of culinary delights available to the consumers. Competitive forces and global market influences have worked towards a dramatic change in the consumer tastes and preferences in the food sector (Prakash and Singh, 2011). Firms going global in this sector are exposed to two fundamental strategies for marketing their products and services – globalization or localization strategies. Thus, the firm entering a foreign market can either choose to adopt a standard marketing mix across all markets or customize its marketing elements to adapt to specific cultural and social requirements of the region. The growing competitive markets and evolving customer trends need an in-depth understanding and assessment of various factors that drive consumer behaviour and sales of goods and services. Companies re-engineer strategic moves to adapt to distinctive challenges presented by new markets and consumer expectations. The difficulties faced by managers in framing effective strategies to meet the evolving needs of the operating market environment. Cultural differences, economic conditions, political systems, legal frameworks and social practices shape the market trends and consumer behaviour across different geographic regions. So, how can companies overcome these challenges while marketing their products overseas and what are the measures that can be taken for effective promotion of brands in diverse market regions. Marketing communication is concerned with engaging consumers by a business through planned, integrated and interactive messages aimed at key target consumers. Marketing communications is mainly focused on conveying information to potential customers about the product attributes, persuading them to buy the product and continue buying it over a period of time. Marketing communications needs to be integrated into the branding strategies of the company (Barlett & Ghoshal, 2002). This is because an important function of marketing communication is to promote the product and service offerings in such a way so as to make them unique brands in the minds of consumers. Integrated Marketing Communication Strategy combines all the elements of communications from the brand to the customer (Schultz & Schultz, 2004). This strategy focuses on informing potential customers about products and its attributes and creating positive attitudes towards the product. It is mainly aimed at influencing consumer buying decisions. Global brands portray a distinctive set of attributes and features that are easily recognized by the customers worldwide. Firms need to identify these differences and adapt their products and services to meet the existing market trends. Brand promotion and positioning strategies are adapted to distinctive local operating environmental challenges presented by different market regions. Strategic effectiveness involves an in-depth analysis and understanding of these challenges that drive market forces within any foreign markets (Schroeder & Salzer-Morling, 2006). The subsequent section provides an insight into the nature of these challenges and strategic alternatives available to organizations in meeting these challenges. The global market environment is a dynamic force influencing the business performance, brand values, market shares, and consumer behaviour (Bennett & Blythe, 2005). The global economic, political, social, and legal environment presents different challenges to companies in different market regions. No two market regions are similar in nature or perspectives. Hence the business enterprises must conduct an in-depth assessment and evaluation of existing conditions, predicted future behaviour of markets and market potential in the forthcoming years. Screening the operating environment in a foreign market enables the organizations to understand the political environment, legal framework, economic condition, social environment and cultural practices that drive market forces (Kotabe & Helsen, 2009). Chili’s will adapt its menu to accommodate local flavours, tastes and culture. However, the franchisees will retain a standardized look that defines its brand presence. This will help customers in relating easily to the quality of food they can expect, the ambience and experience of dining at any of the Chili’s outlets. Organization structure It is generally accepted that those organizations which work towards the success of their franchisee support function will in turn will flourish more. They should work cohesively and in tandem with the support functions to derive great benefits. There is a strong and sound relationship between the whole structure and working of the franchisee's organizational support function to the performance of the company (Fraser et al., 2007). Various researches and study of the franchising companies depicts that an organization to be successful should understand the importance of time, the resources available and the expertise to enhance the franchisee support functions (Ziyan, 2007). An organization is able to flourish properly if the franchisee support functions works is high in quality and commitment. It is relatively difficult to define what a best organizational structure should be made up of. The most commonly found elements in a franchisee support services would be the common positions of field support representatives, human resource personals or the help desk people. People from the accounting terms, compliance staffs or the administrative people are also an integral part of the franchisee support services (Cunill, 2006). Many franchisee companies consists of the marketing personals and information technology (IT) department whose aim to enhance the sales and to maintain the brand name. There is no specified role of a franchisee company. They take care of the internal and external communication system, various website updating and last but not the least improving the company’s websites for sales and marketing reasons. They work with the organization to increase the customer satisfaction and to maintain their profit statement and brand equity. A sound and an effective development patterns and effort are needed by a franchisee organization to maintain their quality of work with the necessary resources (Hollensen, 2004). Logistics and supply chain mechanism In any retail, manufacturing or hospitality industry, logistics and supply chain management play a vital role. A new and independent restaurant can benefit immensely by adopting the strategies and practices of the logistic and the supply chain management. The methods can be used to deliver a continuous and high quality service at good prices. The restaurants can improve their services, optimize costs through streamlined operations and thus offer food at a reduced price. This provides them with competitive advantage in the hotel industry (USAID, 2011). The restaurants should have the required technology, skill-sets and infrastructure to be able to achieve these methods. The need of the hour is that the restaurants learn to adopt the methods wisely and skilfully to get the desired benefit. It is generally accepted that those organizations which work towards the success of their franchisee support function will in turn will flourish more. They should work cohesively and in tandem with the support functions to derive great benefits. There is a strong and sound relationship between the whole structure and working of the franchisee's organizational support function to the performance of the company (Odoom, 2012). In a hotel industry logistics and supply chain activities are divided into some steps which are short term in duration, some strategic and other operational levels. This helps to create a more strategic and rational approach to the overall functioning of the restaurant. In the earlier or the tactical stage of implementation there should be a proper strategy in place. This will help the employees and other managers to accomplish their work. There should be proper communication between the employees and the management so that the purpose of using the logistic and supply chain management can be fully understood and adhered to. The company's business strategy should be the highest priority for the usage and implementation of these management techniques (Terry, 2007). The logistics and supply chain management works and focuses on the decisions that are interrelated to make the tactic approach work for a short while. The results are first tested and implemented for the short term goal and tenure. The usage of the logistics and the supply chain strategies emphasizes the importance of reducing costs and for increasing efficiency. With the help of these techniques the restaurants can stay ahead in the market place. It is important for the restaurants management to gauge the products which have a short life cycle or can be used at a short term. The hotels have to buy many products which can be used only at a short term. The restaurants should have suppliers and distributors who have a very good relationship with each other. Such measures will help the management at Chili’s to reduce the operational cost. Chili’s can adopt these methods of logistic and supply chain management by dividing them into small steps. There are many strategic and structural frameworks which are to be followed and maintained to reach the aim. They should start practicing the methods at a higher level and gradually should streamline to the lower level. The management should work cohesively with the employees towards this. Right people should be deployed at the right level. A thorough and a detailed education regarding the usage of these logistics and supply management should be taught to all the employees. There should be a constant support, guidance and observation by the managers to understand the loopholes, if any and to provide feedback for the same (USAID, 2011). In the whole journey of the logistics and supply chain management, chain management plays an important part. The issues like which vendor to choose or where to buy the raw materials from is also taken care of. It is important for the managers to act and react in accordance with the time. The restaurants have to try to increase their efficiency and reducing costs. They should constantly strive to have a competitive advantage in the market. Chili’s can practice the cost saving techniques and other logistic and supply chain management techniques to stay ahead of others. They should focus their attention on the changing demands of the customers. There should be proper teaching and guidance so as to derive the benefits from the supply and logistic chain management strategies. References Agnihotri, P. and Santhanam, H. (2002), International marketing strategies for global competitiveness, Research paper, Jamnalal Bajaj Institute of Management Studies, India. Bradley, B. (2007). Independent vs. chains, [online] available from http://www.restaurantreport.com/greatdebates/independents.html (accessed 5 April 2013). 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