A Presence of Al Baik in Saudi Arabia - Essay Example

? Al Baik Analysis Contents Al Baik Analysis Contents 2 3 Introduction 4 Research Methodology 4 Business Strategies used by Al Baik 5 Few products can lead to profits 5 Market Penetration 6 Expansion Plans 8 Adopt the culture 10 Pricing Strategies 10 Competitors 12 Conclusion 14 Reflective Statement 15 Reference 17 Bibliography 17 Appendix 18 Abstract The project talks about the idea of going international or to remain in the home ground and act globally. The project talks about fast food chain of restaurant, Al Baik which is situated in Saudi Arabia. It has been one of the most popular fast food centers serving the localities as well as the people visiting the city. Over the years Al Baik has grown and has opened few outlets in Makkah, Yanbu and Taif but has not gone global. This paper aims to talk about situations where the companies do not tend to go global and the reason behind the decision. Al Baik is one such company which utilises the most of its home ground and feels that it should expand only when the company fits to all the requirements to go global and maintain its brand name at the same time. AL Baik has been the price leader and has applied the strategy of both cost leadership and differentiation through which it has been able to achieve competitive advantage and according to the CEO of AL Baik, Rami Abughazalah the company has been able to flourish in Saudi Arabia and has given a tough competition to its brands such as Mc Donald’s and KFC. A literature review has been provided where the fact of going global has been discussed and also why companies do not go global despite of the buzz globalization, what are the benefits of going global and the expansion mode in Saudi Arabia and their culture. The research has been conducted both in primary and secondary method in order to get into the details of the plans of expansion of AL Baik, the famous fast food restaurant. Thus it can be concluded that AL Baik has plans to expand in the future but only when the situation and the conditions are correct and according to the situations favouring AL Baik. Introduction The CEO of Al Baik, Rami Abughazalah has been the key leader in the development and working of AL Baik. As per the interview conducted, it has been founded that the restaurant was established by Shakkour Abughazalah. The restaurant was not franchised but it was an agency from the US from a company which sold fryers and secret mixers. The restaurant stood at Jeddah. But during the first year of its operation the company suffered a huge loss because people at that point of time did not understand the concept of fried chicken. Thus in order to create an awareness of the product Shakkour Abughazalah printed on every bag a statement that explained the meaning and concept of fried chicken. The company reached its first milestone when about 100 people visited Al Baik on a day and thus it continues to serve people in Jeddah and in nearby cities. Today Al Baik is one of the most famous fast food chains of restaurants operating in Jeddah and has opened few outlets in Makkah, Yanbu and Taif. In Jeddah the company has about 40 outlets and has been the market leader. Research Methodology The research methodology includes both primary as well as secondary research. On the basis of the research it has been analysed that Al Baik has made its plans for expansion but considering the conditions it would expand. In terms of primary research, interview was conducted with the CEO of AL Baik, Rami Abughazalah and secondary research was based on from the research made on the literature review. This has also helped to come in to conclusion as to why firms do not go global and also the reason for organisation going global. An analysis into the interview of the CEO has made it clear the strategies and the plans of the company to expand. Business Strategies used by Al Baik The business strategies adopted by AL Baik is based on the interview conducted with the CEO of Al Baik, Rami Abughazalah. Therefore assumptions are made on the strategies used by AL Baik to succeed. Few products can lead to profits Al Baik in its menu serves only chicken, shrimp and fish and this is because it does not want to have too many products as it tends to change the structure of the business. According to the CEO, the restaurants operation is the company’s volume. The business model of Al Baik is based on relatively small margins but on high volume of sales. The cost of paper and food is kept at minimum of two times food and paper of any other chain. Thus the operational cost is less and in order to succeed in such type of model, the menu has to stay in control. The CEO has compared itself with that of KFC and commented that for every one customer served at KFC, Al Baik serves ten customers. Thus it can be said that the company wanted to focus mainly on the core ingredients in its menu and because it wanted to reduce its operational cost, the menu had to be adjusted. Al Baik had experienced profit with its fewer products in the product portfolio and aims to serve in the future also. Al Baik is an example which shows that fewer products can lead to success and profits. If BCG matrix is followed then most of the products of Al Baik would fall in the category of cash cow where the market share is high and the business has already entered the maturity phase of the business so no further investment is required. In addition to its main core products, other products such as sandwiches, hummus, fries and corn (Jeddah Food, 2012) becomes star which has a high growth rate and high market share. Al Baik with its fewer products has been able to compete with big brands such as KFC and others. Market Penetration Al Baik has not opted for a global expansion despite of the huge success that the restaurant has experienced over the years. The CEO has addressed to the issue saying that the restaurant is blessed where it is situated. Jeddah is a business city and it is an area in the world where all the Muslims come over. The tourist visiting the place directly heads Al Baik because of the rush. So the company has not expanded in the global atmosphere. Though the product fried chicken is a global meal, fried chicken is always fried chicken. The restaurant has been thinking about expanding its operation in few years or so. The goal and vision of Al Baik is to help customer generate an experience every time they visit Al Baik and everywhere. The vision is to become a global company. But in the process of going global a company must have world class management and to support them should have world class themes. Thus the CEO thinks that to expand the company needs to have better people and better system and is focusing on its long term goal and not short term. Thus it can be said that Al Baik has adopted the strategy of market penetration. It deals in the existing market with existing products. Figure 1: Ansoff Matrix (Source: Stone, 2011, p.51) Al Baik has not off lately expanded into any global countries and the company has not further decided on the expansion process. According to the CEO, the restaurant is located in Jeddah where most of the Muslims are and being a tourist spot, it is able o attract the visitors also. Thus the restaurant has adopted the market penetration strategy. Al Baik has increased its share in the existing market in order to facilitate future growth. The company decided to work on the strength before it goes global. For example when Mc Donald’s first opened its restaurant in Jeddah its product cost 23 Saudi Riyals whereas Al Baik offered at 10 Saudi Riyals and thus Mc Donald’s had to drop the price. However the long term vision of the company is to become a global company which means the restaurant have plans to expand in the future. The restaurant can go for market extension, taking the existing product into the new market. The restaurant can go for franchisee and since it has been getting expansion calls from Japan, Brazil it can expand in any one of the countries initially and then go for further expansion into other countries. But major weakness lies with the Saudi food industry is the slow expansion. The county is conservative when it comes to expansion and does not tend to take any risk. The industry tries to perform better than what is required and thus it had itself hindered the expansion process. The reason behind slow expansion is because about 95% of the countries in the Saudi Arab region do not have the franchise law. They follow the agency law which differs from that of franchisee law. Expansion Plans With regard to the expansion plan, Al Baik has not decided upon the country to expand in the near future. The CEO of the restaurant believes that the brand name of AL Baik has reached a certain level and any mistake made by the company would bring down the brand name of Al Baik. Also during the process of expansion strength is one of the core factors and it comes from the logistics which ultimately affect the price of the products. AL Baik strength lies in Saudi Arabia and so the company has adopted the strategy of expanding in circles, favourable situation for the restaurants. The main idea is to start with surrounding countries and then expand into the outer regions. This would strengthen the logistic and helps in value creation. But when it comes to expanding into Arab countries the problem lies with the political conditions and operations. One of the important factors while expanding is the political factors. If the country’s political factors are in favour, any business would succeed but with unfavourable political conditions it is not possible to expand and especially in the Arab countries. Thus Al Baik is waiting for the right opportunity to expand its business in the regions of Saudi Arabia. An analysis into the political, economical, and social factors would conclude the reason as to why the company wants to stay committed to its own land. Political Factors: The country has traditionally enjoyed a stable government, and has not experienced coups which have traditionally plagued neighbouring countries like Iran, Iraq and Egypt. However, the surrounding MENA (Middle East and North Africa) region has witnessed a major wave of uprisings in the last year. Neighbouring countries like Libya and Egypt has seen decade old dictatorships being overturned and being replaced by makeshift governing structures. Saudi Arabia has traditionally offered very limited representation and suffrage to women and citizens of minorities groups. While women have been only recently allowed to vote in municipality elections, there is a lot of oppression towards women. Despite considerable international pressure the government has done little precious towards giving more autonomy to women and other underrepresented sections of the society. This has resulted in a strained society and may lead to disruptions later (US Department of State, 2011). Economical Factors: The country also ranks favourably in a lot of other business/financial parameters. The Kingdom of Saudi Arabia has been ranked among the top 10 rewarding tax systems in the world and also on ease of paying taxes (SAGIA, “Why Saudi Arabia”). The high GDP and disposable income level of the citizens of Saudi Arabia makes it a lucrative destination for Al Baik in Saudi Arabia. Social Factors: According to the census of 2007, the population of Saudi Arabia is about 24 million and the per capita GDP was about USD 13,500. The population is growing at a steady rate of 2.3% and as much as 70% of this population is aged at less than 30 years. This represents a growing, vibrant and a young society that is open to accepting new food and with western cultures influencing the Saudis nationals thereby making the society more amenable to new products. The young and vibrant Saudi consumer is also increasingly becoming more aware about healthy living and hence is willing to consume products that are natural and healthy (Mousa, “Saudi Diet Food Market”). Strategies for expansion Adopt the culture For every business to expand it is necessary to adopt the culture of the country where it plans to enter. Adopting the culture can mark a great impression on the minds of the customers in the international grounds. Al Baik would also have to adapt to the required cultural changes when it expands into other countries. Thus it decides to change its menu based on the taste and preference of the customers but enforces that the basic would remain the same but additions on its product portfolio will be made depending on the country they chose to enter. Depending on the culture and the country, change would be made. According to Rami Abughazalah, CEO of Al Baik, change is a way of life and is not about culture. Saudi Arabia follows a law of agency which is very different from that of franchising law. As cited an example by the CEO which says that a business establishes itself to another city and makes the franchisee a success. A customer visiting the city of Saudi Arabia sees an opportunity of adding something to the menu which according to the law in Saudi Arabia is a deal breaker and the company is liable to take the person to the court and as a result it takes almost two years to solve the issue which marks an end to the business. The Saudi culture does not accept the franchising system and this is one of the reasons as to why business including Al Baik does not expand through franchise. This might affect the business because franchisee system is the most widely used as mode of expansions. The difference in culture might affect both the companies operating in Saudi Arabia and looking for a chance to expand globally and other set which want to expand in Saudi Arabia. Pricing Strategies Al Baik pricing strategies was based on the customers taste and preference and their willingness to spend on the food. The CEO stated that the company prices its product keeping their customer in mind. They did not follow the competitors pricing strategy instead adopted their own pricing strategy. When Mc Donald’s had first opened its outlet in Saudi Arabia its products were highly costly as compared to Al Baik, seeing the price of Al Baik and its popularity Mc Donald’s had to reduce its price. The situation of Al Baik can be related to Porters Five Force where the bargaining power of Al Baik in terms of its customers is high and also with respect to its suppliers. The threat of substitute is also high, as customers getting more health conscious and adopting to consume healthy and organic foods. Rivalry is also high among the competitors, such as KFC and Mc Donald’s. The company focus on the people and not on profit making. Al Baik policy can be related to the debate of shareholders vs. the stakeholders. Al Baik emphasis over the stakeholders value perspectives which values responsibilities over profitability and do not follow the shareholders perspective of valuing profitability over responsibility. According to the stakeholders value organisations success should be measured with the satisfaction among the stakeholders and value them both as their end and means. Al Baik follows the stakeholder’s perspective as it values its customers much higher than profits. But in a business profits are as essential as customers, the ultimate aim of business is to earn profits and as per the shareholders value, the first and foremost purpose of the organisation is to maximise the shareholders value. The Arab world needs hope, they need to think that there are companies in Arab which can beat the international companies. Al Baik has adopted the strategy of price leadership and has priced its products depending on its customers and their values. The products are much reasonable as compared to other brands and this is one of the most valid reasons for the success of Al Baik in Saudi Arabia. Fast food restaurants tend to follow the pricing strategy of Al Baik making it the market leader in terms of price. Thus Al Baik instead of operating in its home ground has been able to become the most desirable brand with reasonable price and world class quality. Al Baik has adopted the cost and differentiation strategy as means to attain competitive advantage. According to Porters generic model, a firm need to adapt to one of the strategy in order to achieve its competitive advantage. It has been regarded as the price leader in its home ground and has let other fast food chain to follow its pricing strategy with a pinch of differentiation on it. Competitors Al Baik believes that the home ground is much stronger and reliable for their business than establishing abroad. When asked about other local Saudi fast food restaurants which have expanded, such as Kudu and Al Tazaj, Rami Abughazalah mentioned that part of the company's values is to never talk about their competitors. Al Baik concentrates on its own resources and this can be further linked with resource based view and believes that the resources which are rare, valuable and difficult to imitate are the real sources of the competitive advantage of the firms (Dunning & Lundan, 2008, p.120). And AlBaik resources lies within its country which makes it one of the reason for not going global and the ability of the company not just to possess but also to grow and acquire more of assets which are similar in nature and afford it as sustainable competitive advantage. AL Baik has opened few numbers of outlets in Saudi Arabia and aims to achieve competitive advantage even through these criteria. However, in order for expansion to take place, companies must have a solid system and it depends on people and not on the process. As a company, Al Baik prefers to stay small and everybody raves about the brand and experience, rather than expands too quickly and ruins the brand name. Building a brand name takes a much longer time than ruining the name. Competition is huge because there are other brands competing with Al Baik in its home ground which includes both the local restaurants as well as the foreign brands. Some of the international brands like McDonald’s and KFC have opened their franchisee in Saudi Arabia and are competing with the local brands. According to Porters Diamond, which suggest that there are reasons for which nations are more competitive than others and why some of the industries are much more competitive than other industries. Al Baik due to its demand condition in its home ground decided to serve the local people and not expand internationally. The conditions of its home demand have provided Al Baik with the basis upon characteristic of advantage which has shaped the fast food retail firm. Figure 2: Porters Diamond Strategy (Source: Johnson, 2008, p.72) Thus to stay ahead of its competitors Al Baik has adopted the hybrid strategy, a combination of both differentiation strategy and cost leadership strategy (Griffin, 2010, p.244). This has also proved to be Al Baik competitive advantage. Conclusion Therefore it can be concluded that Al Baik has marked a presence in the states of Saudi Arabia and wants to maintain the place that it has achieved over the years. Al Baik is satisfied with its performance and profits operating from its service in Jeddah and some parts of Saudi Arabia where it has opened its outlets. As plans for its expansion into foreign countries Al Baik is not yet ready for taking out its business outside and believes that a stronger system and theme is required for global operations which Al Baik is preparing for. Al Baik values its customers, members, stakeholders and the society in general. The prices charged for its products are very reasonable as compared to other fast food restaurants along with quality service and food. Thus it has helped Al Baik to remain competitive in the home ground since its incorporation. It can be said that Al Baik’s vision is to become a global company but it plans to expand and move into international countries at the right time and when the company thinks that they are fit to survive in the foreign grounds irrespective of any situation and bring value to their brand name. Again with respect to Porters Diamond strategy, which was created to support, companies like AL Baik which generally believes to operate in home grounds and expand only if the necessity arises and when the conditions are right for the company to expand. One of the main criteria of Al Baik is to take care of the brand and the company do not want any bad experience to be related with AL Baik and its brand name. Reflective Statement In the process of conducting the project, it has helped me to learn the concept and strategies of internationalization. The information gathered has helped me to know more about the company Al Baik. AL Baik is one of the most popular fast food chains in Saudi Arabia and has been operating in the local market. I could understand the fact that all companies do not go global in spite of the reason that they are performing well and has been the market leader in its own country. Al Baik is one such example. It has been the market leader in Saudi Arabia and during the interview process the CEO of AL Baik has said that due to the pricing strategy of AL Baik, Mc Donald’s had to reduce its price as more customers were attracted towards Al Baik because of their low cost but at the same time high quality of food. In assessing the literature review many points came into notice which I have cited in the literature review. I was clear about the strategic theory which was stated by Porters and termed as generic strategy where the firm has the option to carry out one strategy to make it competitive. After analysing the strategies, I understood that AL Baik has also adopted the generic strategy and it has opted for hybrid strategy which comprises of both cost leadership strategy and the differentiation strategy. The reason as to why organisations go global is also one of the important topics which I have mentioned in the literature review and through which I have understood the fact that all well known companies do not go global. Despite of their performance and a market value all business does not have the intentions of going international. They are happy and want to utilise every resources available to them in their home grounds. According to them the best competitive advantage one can achieve is through strengthen the competitive advantage which could also be achieved through investing in the local market and stay competitive. Apart from the secondary research conducted which has helped to known about the theories and the strategies of going global or else to stay and perform in the local market, the primary research was of great help. The interview was conducted and the CEO of Al Baik was made to answer the questions. Firstly the experience gathered was wonderful and the information which he provided has also helped to a very large extent in analysing and concluding the actions of Al Baik and their future plans. It was through the interview that I got to gather all the effective information about AL Baik which has helped me to complete the project. Therefore analysing the interview which has been explained in details in the project report it can be concluded that Al Baik has set a standard for itself which the company do not want to break or fall short off when it operates globally. So it has planned to wait unless the conditions are right for the company to expand. And due to the difference in culture and mode of expansion, it becomes a matter of concern for AL Baik to succeed internationally. Therefore from the entire project report I have learned that going global is not always the perfect option available to a business it can thus make itself strong even in the home grounds and achieve competitive advantage. Reference Dunning, J. H., & Lundan, S. M., 2008. Multinational enterprises and the global economy. Edward Elgar Publishing Griffin, R. W., 2010. Management. USA: Cengage Learning. Jeddah Food, 2012. Albaik. [Online]. Available at: http://www.jeddahfood.com/?p=649. [Accessed March 29, 2012]. Johnson, G., 2008. Exploring Corporate Strategy: Text & Cases, 7/E. UK: Pearson Education India. Mousa, H., 2009. Saudi Diet Food Market. [Online]. Available at: [Accessed 5 April, 2012]. SAGIA, 2012. Why Saudi Arabia. [Online]. Available at: [Accessed 5 April 2012]. Stone, P., 2001. Make marketing work for you: boost your profits with proven marketing techniques. How to Books Ltd. US Department of State, 2011. 2010 Human Rights Report: Saudi Arabia. [Online]. Available at: [Accessed 5 April, 2012]. Bibliography The Economist, 2010. Shareholders v stakeholders. [Online]. Available at: [Accessed 5 April 2012]. Appendix Questionnaire 1. Why only chicken and shrimp and fish? 2. Every successful company has marked its presence in the global market except Al Baik. Why is that so? 3. How do you envision the future of Al Baik in the Middle East and overseas? 4. In regards to expansion plans, where's the next country we will find Al Baik in, and when? 5. Will you start with Arab countries and see how it goes, then move out abroad? 6. Will the menu change according to the countries' religion, cultures, and traditions? 7. How much impact does a difference in cultures between countries have on your expansion plans? 8. As a major part of the Saudi food industry, what do you think is your weakness? 9. And what strategies do you adopt in order to overcome these weaknesses? 10. How did you price your products? Was it based on competition? 11. Competition? (Saudi fast food restaurants that have opened abroad, such as Al Tazaj and Kudu) Read More