Business Environment in China - Case Study Example

?Individual Report - Fast Food Case Context Table of Contents Introduction 3 Definition of Globalisation 4 SWOT Analysis 5 Hofstede Five Dimensional (5D) Model 6 Porter’s Five Forces Model 8 PESTLE Analysis 9 Marketing 11 Stakeholder Diagram 13 Conclusion 15 References 16 Introduction Globalisation of business operations has been intensified due to enhanced communication, as well as reduction in the barriers among different countries relating to financial, political, cultural and societal factors. Moreover, technological advancements have also contributed largely to globalisation of business operations. Technological progress has developed effective communication system among diverse nations (Scholte, 2005). According to our case, the company is located in the United Kingdom (UK) and has many fast-food restaurants in the UK, as well as in other countries. The company has planned to expand its business operations, as well as initiated plans in entering the business market of China. Therefore, the company is concerned with minimising its exposure to different sorts of risks, such as political, as well as economic risks among others, that are associated with the expansion of business activities in international market. (citation) This discussion will stress on the analysing of certain significant aspects that would be conducted by the company in order to ascertain, as well as to acquire valuable information. This information are required to be evaluated with the objective of determining valuable decisions that are required to be initiated for performing business operations of the fast food company in an appropriate manner. Moreover, the company is required to utilise varied strategic tools which include SWOT analysis, Porters five forces model as well as Hofstede five dimensional models among others for determining the suitability of the decisions for entering into the business market of China. (citation) Definition of Globalisation Globalisation signifies that an enlarged number of nations are incessantly partaking in world economy in order to attain significant benefits. In this regard, globalisation is fundamentally defined as a process of incorporation as well as interaction amid different people, organisations along with governments that facilitate smooth and improved flow of technologies, goods as well as services. It also enabled effective flow of investments in the international market due to enhanced deregulation as well as communication among dissimilar countries (European Commission, 2004). The fast food company in the UK is required to adopt globalisation procedure with the motive of expanding its business operations as well as sustain enhanced growth in the international business market. The company needs to perform business operations as a fast food company in the business market of China by providing quality products as well as complying with the requirements or the preferences of the customers particularly of China. All these major initiatives would certainly assist the company in acquiring better customer as well as brand loyalty especially in the market segment of China. For instance, McDonald’s has adopted the globalisation process in order to expand its business operations worldwide (Mujtaba & Patel, 2007). The different strategic tools that will assist the fast food company in determining the market conditions of China as well as in formulating helpful strategies for performing effectively in the business market of China have been framed hereunder. (citation) SWOT Analysis The company is required to perform a SWOT analysis before entering into the business market of China in order to determine its strengths, weaknesses, opportunities as well as threats (Ferrell & Hartine, 2010). Strengths One of the major strengths of the company is that it possesses several fast-food restaurants in the UK as well as in other nations that ultimately raises its profitability at large. The other strength of the company is that the management team of the company is quite expert as well as skilful that enables them to perform effective business operations. – (citation) Weaknesses One of the crucial weaknesses of the company is that the fast food company intends to enlarge its business operations in the business market of China but the company is inexperienced in conducting business activities in the international market. In this regard, it can be stated that the company is unaware of the market conditions as well as the preferences of customers and thus might face the issue regarding shortage of intermediaries for distributing products in Chinese business market. (Citation) Opportunities The expansion of business operations in the market of China will eventually facilitate the company in acquiring distribution channels or intermediaries for better distribution of products in the market segments of China. Moreover, the company with the strategy of entering into new market segments with new products will also assist it in expanding business operations in international market efficiently (IBISWorld, 2013). Threats Globalisation as well as advancement of technology has intensified competitions in global market. In this connection, it has been viewed that the economy of China is quite developing and the market competition are anticipated to rise due to the introduction of the policies relating to ‘Foreign Direct Investment’ (FDI). Moreover, there exist several fast food companies who perform their respective business operations particularly in the Chinese market such as McDonald’s as well as KFC among others that intensifies market competition and might act as a barrier for the entry of the new fast food company. Furthermore, changing government policies of China may also act as a threat for the new fast food company by a greater extent (Fox, 2012). Hofstede Five Dimensional (5D) Model The strategic tool of Hofstede 5D Models assists in identifying cultural differences of nations. Moreover, this model is utilised by companies in order to comprehend as well as determining cultural prospects of nation where a company has planned to conduct its business operations (Fang, 2010). The five dimensions of the model have been depicted hereunder. Power Distance Power distance signifies that people of a country are not treated in an equal manner. China scores 80 in this dimension which means that people of China have accepted inequalities whereas, UK scores 35 which means that people of UK believes in equality (Geert-hofstede, 2013). Individualism Individualism signifies that the people are self relied as well as conscious about personal interest. China scores 20 in this dimension which signifies that the people of China are not concerned about personal interest. People of China follow a collective culture. Whereas, UK scores 89 which shows that people of UK are interested with personal growth as well as follows individualistic culture (Geert-hofstede, 2013). Masculinity/Femininity The Masculinity or Femininity dimension signifies the amount of competitiveness as well as wealth acquired by masculine individuals in comparison with feminine members. China scores 66 in this particular dimension which denotes that the society of China is determined by extreme competitions. Conversely, UK also scores same as compared to China. It shows that both the society of China and UK are competitive (Geert-hofstede, 2013). Uncertainty Avoidance Uncertainty avoidance means the extent of tolerance in relation to uncertainty as well as ambiguity that prevails in a particular society. In this dimension, China scores 30 which signify that the Chinese people are adequate to diversity as well as adaptable or acceptable to change. On the other hand, UK scores 35 in this aspect which represents that people of the UK are also acceptable to uncertainty or change (Geert-hofstede, 2013). Long Term Orientation (LTO) LTO dimension determines the extent towards which traditional values of a society are adopted. China scores 118 in this field, which signifies that people of the Chinese societies are quite well structured. Whereas, UK scores only 25 in this arena which mean that people of the UK do not follow long-term traditional values and are unstructured (Geert-hofstede, 2013). Porter’s Five Forces Model This model will assist the company in determining the competitive environment of the business market of China where it planned to expand its business operations. A detailed description of the different facets of this model has been portrayed hereunder (Ahlstrom & Bruton, 2009). Bargaining Power of Buyers The economy of China has been identified to be quite developing that has drastically changed the buying pattern of the people of China. The Chinese people are more attracted towards acquiring quality products and can be stated that the Chinese people possess better bargaining power (Ting & et al., 2009). Bargaining Power of Suppliers The suppliers’ bargaining power with regard to fast-food companies in China are relatively quite low due to minimum differentiation in requirement of material as well as the companies can switch to other suppliers with ease (Ting & et al., 2009). Threat of New Entrants The different fast-food companies in China perform their respective business operations with lower capital requirements and in a profitable manner. This particular factor may create threat for existing companies due to lower profitability (Ting & et al., 2009). Threat of Substitutes There is minimum extent of substitution of fast food products in China as fast food products are differentiated in minimum margin. The people of China prefer quality products and change brands in accordance with their preferences ignoring fashion trends (Ting & et al., 2009). Competitions There lies the presence of several renowned fast food companies in the business market of China that include McDonald’s and KFC among others and perform their effective business functions in China. The presence of these renowned companies has ultimately intensified market competition in China by a significant level (Ting & et al., 2009). PESTLE Analysis The PESTLE analysis of China will aid the fast food company of the UK to determine varied situations of the country. The different factors or situations are as follows: Political The political system of China is based on socialist state. The Government of China has implemented favourable policies relating to FDI in order to improve its economic conditions by a greater extent. Moreover, the political conditions of China have been recognised to be quite stable. It has also been noted that there pertains a healthy as well as a positive association between China and the UK (Embassy of the People's Republic of China in the United Kingdom of Great Britain and Northern Ireland, 2010). There are several political risks that can be considered which encompass confiscation as well as currency inconvertibility among others. The fast food company, in order to reduce the aforementioned political risks is required to enter in joint venture or licensing method for minimising those risks (Fogel, 2010). Economic The economy of China is incessantly developing due to globalisation factors as well as for FDI. It has been apparently observed that the ‘Gross Domestic Product’ (GDP) growth of China in the year 2012 has been accounted to 9.2 percent (CIA, 2012). Moreover, it has been viewed that the market size of China has considerably improved due to the aforesaid factors and the spending power of the people has drastically changed concentrating upon acquiring quality products (The American Chamber of Commerce in Shanghai, 2012). Social The Chinese people have adopted western culture as well as lifestyle. In this connection, it has been apparently observed that the Chinese culture is quite well structured and socially developed. The culture of China is based on collective nature (Murray, n.d.). Technological China has adopted advanced technologies in a drastic manner. Moreover, for the fast food industry, technology in not regarded to be a significant factor to acquire competitiveness. However, it may be required for storage as well as in production among others. It has been viewed that the Chinese people are more adapted to execute varied internet services, as well as mobile technologies by a significant level (Ojiako & et al., 2008). Legal The legal system of China has been developed with due considerations of factors relating to political, economic, social as well as cultural changes. A socialist legal system has been developed in order to conduct legal operations effectively. The legal system of China has been segregated into different parts that include civil, criminal as well as commercial law among others (GNS CHINA, 2012). Ethical The societies of China are traditionally structured as well as based on cultural values. Moreover, the government of China identifies five chief religions that include Buddhism, Taoism, Protestantism, Islam and Catholicism as official religions. Furthermore, these religious groups are regulated by the Chinese government. The different business activities of China are conducted with fair practices by a considerable level (Fogel, 2010). Marketing The fast food company of the UK is required to conduct a market analysis of China through establishing trial stall in famous locations in China as well as conducting trade fairs. These practices would certainly facilitate the company in determining consumer preferences as well as market conditions. Developing economy as well as changes in the preferences of consumers has increased significant demand for fast food. Therefore, the company of UK is required to develop a fast-food restaurant in the market of China (IBISWorld, 2013). The fast-food company of the UK in order to perform business operations successfully in the market of China are required to offer quality products as well as in accordance with the preferences of customers. Moreover, the company should enter into the business market of China with ‘penetrating pricing policy’. This policy signifies that the products will be provided at low price in comparison with others. Moreover, apart from executing the strategy of penetrating pricing, the company should also promote its varied products through different promotional techniques such as televisions, radio, magazines as well as hoardings among others. These promotional techniques will eventually facilitate the company in providing better awareness regarding its different products amid the Chinese people. In relation to marketing strategy, the restaurants of the company is required to be established in any famous location as well as in a place where it can perform business operations in an effective manner and most importantly attract the customers (TravelChinaGuide, 2013). These are the varied marketing strategies that are required to be adopted by the company in order to perform successfully in the business market segments of China. Stakeholder Diagram Stakeholders Diagram The stakeholders of the fast food company may comprise employees, government officials, business partners, shareholders as well as board of directors. All these people are required to perform business operations in accordance with the principles and standards of the company. Moreover, the company is also required to identify its business partners so that it can effectively conduct its varied business functions by a greater extent. In this regard, it can be stated that the purpose, as well as the mission, of the company is required to be determined for conducting business operations in accordance with the pre-determined objectives. These are the varied factors that are required to be analysed by the company in order to formulate elaborated strategies and expand its business operations in the business market of China (Ipsos MORI, 2009). Conclusion The fast food company of the UK has planned to enter into the business market of China. The company is required to conduct an analysis of market conditions and identify varied risks while entering into the business market of China. Moreover, the company is also required to utilise certain strategic tools like SWOT analysis, Hofstede 5D Models, Porter’s Five Forces model, PESTLE analysis, marketing strategies and involve stakeholders of the company. These strategic tools will also assist the company in determining valuable factors in order to perform in the business market of China in an effective manner. The information which is to be acquired from these analytical tools will be presented to the board of directors of the company so that to perform business operations abroad accordingly. This valuable information will ultimately assist the fast food company in determining appropriateness of strategies that are formulated for making entry in the Chinese business market. References Ahlstrom, D. Bruton, G. D., 2009. 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Business Environment in China: Economic, Political, and Cultural Factors. MBAA Proceedings 2010 - Papers, pp. 12-29. Ferrell, O. C. & Hartine, M. D., 2010. Marketing Strategy. Cengage Learning. GNS CHINA, 2012. The Chinese Legal System. Uploads. IBISWorld, 2012. Fast-Food Restaurants in China: Market Research Report. China. [Online] Available at: http://www.ibisworld.com/industry/china/fast-food-restaurants-in-china.html [Accessed January 07, 2013]. Geert-hofstede, 2013. The Hofstede Centre. National Culture. [Online] Available at: http://geert-hofstede.com/china.html [Accessed January 07, 2013]. Ipsos MORI, 2009. Why Is Stakeholder Management Important? Understanding Your Stakeholders. [Online] Available at: http://www.ipsos.com/public-affairs/sites/www.ipsos.com.public-affairs/files/documents/understanding-stakeholders.pdf [Accessed January 11, 2013]. Mujtaba, B. G., & Patel, B., 2007. McDonald’s Success Strategy and Global Expansion through Customer and Brand Loyalty. 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