An Analysis of a Successful Fast Food Restaurants Business Strategy: Al Baik - Literature review Example

? An Analysis of a Successful Fast Food Restaurants Business Strategy: "Al Baik" Contents Contents 2 Literature Review on Why Companies Go Global 3 Reference 13 14 Literature Review on Why Companies Go Global Introduction Globalization has affected almost every industry and also individuals in some way or the other throughout the world. Marketers who take the firm international do so because they already have a strong and reliable domestic market share. The other reason might be that the target market has become saturated to offer any kind of substantial growth. Sometimes by way of evaluating the key indicators of the marketing environment, the marketers have the chance to move towards globalization at an appropriate time. For example the German footwear Adidas had jumped into the global market after a successful promotional ad campaign which says “Impossible is Nothing”. The company believe that the timing were appropriate for them to enter the global market and also win the global game. Most of the large caps and mid caps firms have already participated in the global commerce and most of the domestic marketer whether large or small have recognised the need to investigate the need whether to market the product of the company overseas. Thus to go global is not an easy step, careful evaluation and implementation of strategy is required. Some of the most common reasons that the marketers cite before going global is globalization of the potential customers, emerging of new customers in the global environment, competitor’s globalization with reduced trade barriers, technological development and enhanced response from the customers (Boone & Kurtz, 2011, p.219). Why Companies Go Global Going global, over the period has become an important way of conducting business for most of the firms while the rest of the firms have been operating in the domestic market. One of the most relevant and important question which is most often asked by managers is whether the firm should expand beyond the domestic market and go global. Is the issue of going global an important factor for all the firms or in particular for some firms? In the recent years, entries into the foreign markets have been made easy with the economic development worldwide and the domestic markets have opened up the doors for the foreign firms. As more companies are going global, there has been a gradual change in the dynamics of business environment. Thus going global is similar to a new adventure which involves a strong and bold mission (Pearl, 2011). But it is not yet clear whether globalization has been regarded as an external issue for the business environment which generally causes organisation to react also a strategic issue which motivates the organisation to initiate respective actions. Most of the times it is the combination of reactive and proactive approach which forces companies to go global and the remaining firms does so because of the pressure which is brought in by the companies which have already gone global. To a very large extent, it depends on the understanding of individual firm and the capabilities in which globalization is expected or assumed and influence the competitive position of the firm (Ungson & Wong, 2008, p.28). Firms competing in the overseas market provide ample opportunities for companies in earning returns in a way that would exploit the core competencies and at the same time allowing growth opportunity for the firm in the future with the help of local learning. For a majority of the firm, going international becomes critical with respect to long term success. Some of the firms believe that going global is inevitable only if the firm is able to compete against the domestic rivals but with global mind set and international experience companies are going global. Most of the big brands such as FedEx, Wal-Mart, Nike and Starbucks have realised that the greatest potential for growth lies in the overseas market. Even for online companies, going global is essential for growth. The environment has become very complex for the organisation and is highly competitive. The less developed countries are challenging the developed countries in various aspect and different industries (Daft & Marcic, 2010, p. 78). Increases Profitability and Growth through Expansion By going global, companies are enabled to increase the profitability and grow the profits more rapidly. At the entry level the expansion or going international helps firms to increase the market size in which the company is addressing and therefore boosting profits for the firm. Global expansion also helps in reducing the cost of the firm and also adds value through differentiation which helps in profitability of the firm. A company has the opportunity to increase the growth of its firm by taking the goods and the services which are developed at the domestic market and finally selling those products in the international market. Almost all multinational companies apply this strategy while selling products overseas. It is also important to take into consideration that the success of the multinational does not only depends only on goods and services which they sell international markets but also the unique skills that underlie the marketing of the goods and services. Companies such as P&G, Toyota has gained much success from international expansion. Global expansion is therefore a way to generate higher returns from its competency in marketing. Since distinctive competencies are essential and is regarded as the most valuable aspect of a business model for the organisation, thus the successful global expansion by the companies was based on the firm’s ability to transfer and apply the business model into the international market. In addition to growing more profits the firm is able to save cost from economies of scale which thereby helps in profitability. Therefore going global tends to realize cost savings and helps in growth of the firm in the international market. A firm operating in the international market can utilise the production facilities intensively leading to higher profits, lower cost and improved productivity. Also when the sale of the company’s product increase in the global market the bargaining power of the firm is higher than the supplier allowing the firm to bargain the cost and boost profitability (Hill & Jones, 2008, p.270). Deciding on the Market Any company before deciding on going global should define the international marketing objectives and the policies related to the firm. It should decide on the amount of volume of sales the organisation wants and how much in reality can be achieved. Most of the companies start with a small amount of inventory when they decide to go global and expand slowly. Whereas some companies prefer staying small keeping the international market and the sales derived as a small part for their business. And other companies does exactly the opposite, they tend to have bigger plans and values international marketing as important as the domestic business. Companies deciding to go international should also decide on the number of countries in which it wants to expand. The companies are advised not to spend much at an initial period or to even expand beyond the capabilities by way of expanding into different countries. Next important thing is to decide on the types of countries the firm’s plans to enter. Global markets should be ranked on various criteria such as market size, growth, competitive advantage, the risk level and also the cost of doing business (Kotler, 2008, p.514). Process of Internationalization Many companies have started operating into their domestic market before expanding into the foreign markets. As companies began to become more international as a result they move from being sporadic exporters to frequent exporters and finally start manufacturing their products outside. With an increase in the global economy there happens to be in existence a new theory which states that companies are destined to go international bypassing the various stage of internationalization. Some companies do not feel the need of a business model before going international because they believe that they are global right from birth, which means they are born global. The companies which believe that they are born global are able to leverage mix of strategies and orientation in order to succeed in the international market. Whereas companies which are small tend to face number of constraints such as lack of financial resources, knowledge, economies of scale. But it is still possible for the companies to go international and achieve the growth with the help of alliance such as distributors, suppliers, and the joint venture partners (Jones, 2009, p.75). Benefits of Going Global International marketing tends to affect consumers in many different ways but the importance of internationalisation has been never understood neither appreciated. Companies go for international expansion mainly for growth and survival. In order to survive in the competitive market, the companies need to grow and stay ahead of its competitors. For example, most of the companies are not fortunate like US with respect to market size, opportunities and resources. They need to trade with other continent to survive. Most of the European nation are small and are in need of foreign markets in order to achieve the economies of scale so as to compete with the US market. As per Friedman, the globe has flattered because of the global expansion in the field of technology which has interconnected the world (Onkvisit & Shaw, 2008, p.20). Saudi Arabia has also grown into the international market but according to reports and surveys the Middle East and North Africa still lags behind many parts of the world with respect to globalization (Kamrava, 2011, p.285). International expansion tends to increase profits and sales as the foreign market often constitute a fairly large amount of the business which has cultivated the markets on international basis. The case of KFC emphasise the importance of global expansion as it can be seen that the market in China had operated a profit amounting to about 26% whereas in USA it amounted to only 1%. In Middle East, the growth of fast food chains has been growing at a steady rate. In Middle East, Mc Donald’s which had only about 11 outlets in 1991 expanded to about 546 outlets by 2001. When KFC had opened its outlet in Mecca it raised its profit to about $200,000 during the first week (Smith, 2011, p.306). The benefit of international expansion is also diversification. Demands for most of the products are usually affected by factors such as recession and also climatic factors. The consequences of such factors lead to fluctuation in sales which causes layoff in the industry. Therefore an effective way to diversify the risk which is faced by the company is to consider the foreign markets. International markets tend to provide outlets which help in production capacity. The benefits of international expansion are self evident; with exporting the products and at the same time imports are also beneficial for a country because they tend to constitute a reserve capacity for the domestic market. Without imports the domestic firm cannot moderate the prices. With a lack of imported products often forces consumers to pay a higher price which results in inflation and high profits for the local companies (Onkvisit & Shaw, 2008, p. 25). Although the benefits of conducting business in the overseas ground are great but there are also various numbers of drawbacks which are keenly associated with international expansion. A country experiencing an unstable political climate may leave the multinational with low profits and low growth. For example in Russia, Saudi Arabia the government has encouraged international expansion but due to political as well as economic uncertainty many business have regarded the countries as highly risky and are not very keen on operating on these countries. MNC’s which were operating in Kuwait had lost their investment in the Gulf War and also in Saudi Arabia and other Middle Eastern countries who were affected by the Gulf war (Shong, 2008, p. 57). Therefore the planning approach which is taken by the international firm usually affects the degree of internationalisation. These types of commitments affects the international strategies made by the firm and the decision making process. The management needs to decide whether the firm is prepared to make the required level of commitment which is required for successful international operations, in terms of money matters and other such important factors which are considered essential for international expansion. A company which is uncertain of its prospects are more likely to enter the foreign market timidly and without the appropriate marketing strategies and even distribution channels. Sometimes casual market entries are successful but long term success requires long term commitment (Cateora, 2008, p.385). Companies need to consider few alternatives before deciding to go global. Important question arises as, should the company go international on its own ability or through collaboration with the international firms and if the company decides to go global on its own should it perform through internal organic growth or through mergers and acquisition or even through strategic alliance (Onkvisit & Shaw, 2008, p. 25). Global Expansion in Saudi Arabia Saudi Arabia has been experiencing global expansion in the recent past few years. The expansion of the leading local retailers and also the entry of the international companies like Carrefour have transformed the Arabian market. The international brands are planning to open up more foreign restaurants throughout Saudi Arabia. Hot Brands International which is based in Dubai has announced to open up more chains in Saudi Arabia and plans to open up 50 new outlets across Middle East within a year and a half. Saudi Arabia has been regarded as a massive market and it would profitable for firms to enter the market as it in the growing stage. US chain of restaurant Ruby Tuesday had announced that it will be opening 25 outlets across Middle East which also includes Saudi Arabia. The reason what makes Saudi Arabia attractive for the retailers is its economies of scale. Companies which have however entered the market suggested that it is important to form partnership as it would prove to be difficult to operate alone in the Middle East market. Saudi Arabia is one of the largest markets in Middle East and the size of the population with large number of younger generation and available disposable income has led it to become one of the fastest growing markets (Oxford Business Group, 2008, p. 170). Saudi Arabia has experienced scarcity of local suppliers which has forced the purchasing director to utilise a team of global suppliers. Studies on global market have revealed that in terms of quick service restaurants McDonald ranks number one and has acquired the market share. But however other fast food chain of restaurants is expanding their mode of operation internationally. Al Baik has been operating in Saudi Arabia and has expanded into some areas of Middle East such as in Mecca, Jeddah, Yanbu and Taif. All together it has about 40 outlets all over Middle East and is planning to expand more in the international market and also domestically. Al Baik is the market leader in Saudi Arabia and one of the most popular chicken and fast food restaurant serving customers in Saudi Arabia (Yu, 1999, p.52). Conclusion In order to prosper in the competitive world which is surrounded by abrupt changes, unseen influence from the international market, firms need to make themselves competitive and response to the changes. Therefore a firm needs to reinvent new plans and strategies to overcome the competition and survive in the emerging global market. The growth of global business activities across the globe has provided and increased the rate of opportunities. International activities which are performed by the companies can be crucial for the survival and growth of the firms planning to shift abroad. The firm can gain from the knowledge and can strengthen its competitive advantage. Companies which depend on production can expand their activities into the international market and can benefit from supplying their products to other customers. Companies can avoid saturation by rejuvenating the product life cycle of the company’s product. The company can shift the plants from one country to another and thus suppliers are available in each and every continent. Researches have found out that multinational companies tend to face low risk of insolvency and they do not need to pay a higher wages as in the domestic market. International marketing enables consumers to find a greater variety of products at a lower price and hence improve lifestyles and comfort. Global expansion requires a careful exploration of the market in which the company decides to expand. Thus with global awareness and with an understanding of global exposure and with the development of the firm capability to adjust according to change firms can enter the global market with majority of chances of being successful. Companies should adapt to the international market if they want to succeed. Therefore it is important for firms to understand the need of adaptation to the desired environment and mainly the potential market. Firms believe that international customers are just like those customers which are dealt at the domestic market but customers varies according to nation, taste and preference and it’s here that most of the firms make mistake which leads to inefficiency, customer are often not satisfied and even leads to failure for the firm. It is necessary for firms to cope up with the difficulties which are encountered during international expansion and it has been founded that most of the difficulties arise from the marketing aspect. Most of the firms do not go global or participate actively in the global market. Managers believe that global expansion should be carried out by the big multinationals. And the fact is quite true as there are many big players from different countries who are active in the global market. But the fact cannot be ruled out that smaller firms are the major players in the international grounds. Thus it is important for firms to participate in the global market as in the competitive market, isolation is just impossible. The firms are becoming part of global marketing willingly and also unwillingly. The companies are affected but the global economic political conditions which drive them to conduct their operation international (Czinkota & Ronkainen, 2007, p.10). Reference Boone, L. E. & Kurtz, D. L. (2011). Contemporary Marketing. Cengage Learning. Cateora, P. R. (2008). International Marketing 13E(Sie). Tata McGraw-Hill Education. Czinkota, M. R. & Ronkainen, I. A. (2007). International marketing. Cengage Learning. Daft, R. L. & Marcic, D. (2010). Understanding Management. Cengage Learning. Hills, C. W. L. & Jones, G. R. (2008). Strategic Management An Integrated Approach, 2009 Ed. Dreamtech Press. Jones, M. (2009). Internationalization, entrepreneurship and the smaller firm: evidence from around the world. Edward Elgar Publishing. Kamrava, M. (2011). The Modern Middle East: A Political History Since the First World War. University of California Press. Kotler, P. (2008). Principles of Marketing, 12/e. Pearson Education India. Onkvisit, S. & Shaw, J. J. (2008). International marketing: strategy and theory. Taylor & Francis. Oxford Business Group. (2008). The Report: Saudi Arabia 2008. Oxford Business Group. Pearl, M. (2011). Grow Globally: Opportunities for Your Middle-Market Company Around the World. John Wiley & Sons. Shong, J. L. C. (2008). International Management. Lulu.com. Smith, A. F. (2011). Fast Food and Junk Food: An Encyclopedia of What We Love to Eat. ABC-CLIO. Ungson, G. R. & Wong, Y. Y. (2008). Global strategic management. M.E. Sharpe. Yu, L. (1999). The international hospitality business: management and operations. Routledge. Read More