The Economic Environment of the Chinese Foodservices - Term Paper Example

? Feasibility Analysis: Market Expansion of Fish and Chips Restaurant in China BY YOU YOUR SCHOOL INFO HERE HERE Feasibility Analysis Introduction The Chinese market represents an ideal market expansion strategy, based on economic, political and cultural issues that are largely favourable for sustaining market growth in the country. Influence of a more progressive and capitalistic-minded government regime, consumer consumption behaviours that favour aquatic foods purchasing, and positive changes to the economic infrastructure in the country maintain characteristics that will support the business in most areas of operations and strategic development upon market entry. 2. The Economic Environment The Chinese Foodservices industry is currently valued at $366.9 billion USD and is expected to grow to nearly $500 billion USD by 2015 (New Zealand Trade & Enterprise 2012). Full service restaurants maintain approximately 75 percent market share in China, whilst fast food concepts maintain 25 percent market share in this industry. A recent study further revealed that approximately 50 percent of all Chinese consumers prefer eating in restaurant environments over that of home-cooked products, representing a potential market of a half billion consumers geographically dispersed throughout the country (Ganster 2006). This preference for external restaurant dining is fuelled by rising consumer incomes which have increased by nine percent in urban regions and 12 percent in rural areas (Censky 2012). There are ample market opportunities in China based largely on social trends of restaurant consumption that are favourable for launching a new fast food brand with sufficient incomes to consume under a moderately-priced business model. By 2020, it is estimated that total, national seafood consumption volumes in China will be at 35.9 kg/capita, fuelled by a strong consumer demand for seafood (Redfern Associates 2010). Market expansion into China will further require access to appropriate capital and credit to ensure adequate asset procurement and structuring of operations. In 2012, the country’s fiscal leadership injected nearly 58 billion USD into the economic system to stabilise currency exchange rates and fuel new corporate borrowing in the financial sector (Safe Trading 2013). This has opened avenues for support in foreign direct investment and improved the dynamics by which financial lenders evaluate loan generation to fuel economic growth through business development. However, there is a risk as it relates to the economic environment in China. As a product of the recession begun in 2008 that impacted international economies, China’s efforts to stabilise the exchange rate led to rapid inflation in the food sector that has raised pricing along the foods supply chain (Ho 2011). Though inflationary costs provide opportunities to increase revenues by nearly 17 percent in the foods industry by superimposing higher pricing models to offset procurement costs, rising costs in a very complicated foods supply chain pose risks in a country where consumers are notoriously price-sensitive (Vangpeng 2012). Price-sensitive buyers represent the ability of consumer target groups to impose pricing transparency and leverage pricing demands. 3. Political Considerations Fortunately for the fish and chips brand, progressive changes to a more capitalistic model of government are providing new support for both domestic and foreign business development. Influence of the World Trade Organization has opened new distribution channels with much less stringent regulations and imposition of import/export tariffs that promote better international trade (Areddy 2009). For the business desiring to establish a supply chain network utilising foreign seafood product farmers and distributors, rather than domestic suppliers, the government provides ample support in legislation to remove economic barriers that can complicate cost control. At the same time, the domestic supply chain for aquatic foods products is complicated and widely dispersed, but efficient in providing top quality seafood (Xian 2010). Therefore, it should be recognised that domestic and foreign-based suppliers are viable options for ensuring a well-coordinated supply methodology that recognises budgetary restrictions which has been supported by political interaction to improve the distribution infrastructure in this industry. Recent decentralisation of fiscal policy has also given new liberalisation to local Provincial governments to enact autonomous laws and regulations outside of the jurisdiction of the central government (Lawrence and Martin 2012). This has given local governmental authorities opportunities to expand their own regional economic growth and foster business development. This new flexibility to maintain autonomous governmental control over provincial governments maintains opportunities to remove layers of bureaucratic influence during the planning phase of new market entry without ongoing consultation with central government that is notoriously content with high levels of power distance between high-ranking government officials, local Provincial government and general citizenry. The political systems that drive supplier business models are also of relevant concern to the fish and chips restaurant. According to Copacino (1996), in order to find any significant efficiencies in supply chain methodology, a company must develop strategic alliances with vendor partners along the supply network. Some suppliers maintain rigid, top-down authoritarian hierarchies where decision-making is centralised. For instance, in the airline industry, Boeing and Airbus maintain such cultures, which generally forbid more liberal business practices emphasising cross-company relationship development and close interpersonal interaction with supply partners. 4. Cultural Considerations In order to effectively compete against other fast food models that are gaining prominence and market acceptance all throughout China, it is necessary to gain valuable market-related knowledge to provide relevant and culturally-sensitive communications to the target consumer groups. China is a highly collectivist culture, a “we-conscious” culture that values opinion and sentiment from important peer reference groups associated with their preferred social systems (Cheung et al. 2008; Hofstede 2001). Consumption behaviour is often driven by making comparisons to those who are deemed credible and attractive social role models, thus influencing purchasing decisions based on these evaluations. This characteristic of Chinese culture maintains a distinct advantage for new market entry into this nation: There is less need than in other industries to establish customised services and communications to meet diverse consumer preferences. Instead, the fish and chips organisation can utilise collectivist-minded strategies and communications in promotion and advertising to gain market interest. Many consumers in China, additionally, have very positive beliefs and attitudes regarding the viability and importance of Western brands. There are currently over 65 million potential youth markets, as one example, between the ages of 20 and 39 who have very strong brand attachments to many Western products and services and who can be influenced effectively utilising advertising strategies (AT Kearney 2007). At the same time, social lifestyle changes and reductions in personal leisure time created by workplace demands have increased demand for fast food consumption (Ho 2011). This shift toward convenience eating created by social preference for Western food products and work-life dynamics have increased the total market value by 17 percent between 2010 and 2011 (Ho 2011). Thus, it should be recognised that so long as advertising content and promotions are aligned with consumer preferences and cultural values, which in this market are largely ethnocentric, risks of building a non-sustainable business model are largely minimised. There is also a growing trend in China for healthy eating and food safety, which is a significant consideration in the seafood industry. There are many potential target markets that believe in the integrity of healthy consumption and actively seek out products with proven safety records and those that can improve beauty and wellness (Zamchek 2008). Seafood maintains many important antioxidants and vitamins known to foster better health and well-being. This is relevant as many Chinese consumers are hedonistic, meaning that they will pursue maximisation of their own self-motivated utility; pursuit of the maximisation of pleasure and gratification (Lemos 2004). According to one cultural researcher, nice skin is one important characteristic that classifies a Chinese gentleman where “one often dreams of using men’s facial cream made out of pearls” (Wen 2007, p.107). The health properties of seafood products maintain opportunities to be utilised as a strategy that appeals to the hedonistic characteristics of Chinese consumers, therefore giving the business model more socially-relevant credibility to many important, potential target markets. Many consumers who seek health products are looking for those that can assist in providing good skin and improve their outward appearance (Zamcheck 2008), something supported by science as being relevant for seafood consumption. National awareness of the nutritional value of food and its transparency in safety records are driving growing market share for healthy consumption (Redfern Associates 2010). 5. Recommendations for market entry Because now there is a flood of direct foreign investment in China that continues to make Western brands preferred and appealing to many potential markets, the new business should be pursuing joint venture strategy for new market entry. It has been established that the majority of competitive success will hinge on the ability of the fish and chips restaurant to meet and satisfy the socially- and culturally-driven needs and attitudes of consumer markets. This particular company will be competing with major restaurants in the industry, including McDonald’s, Wendy’s and other profitable Western foods brands with very well-respected and trusted brand equities. This restaurant has no established identity in the Chinese market, therefore brand recognition must be established to gain market visibility and provide consumers with knowledge of the company’s products, services, mission and values. Joint ventures will allow the business to ally with local talent and business leadership, creating a co-branding methodology to give the business much more market exposure. Working with established business leaders through alliance development will provide internal business talent and leadership with valuable knowledge about trends in Chinese consumer culture, identifying mistakes that have hindered previous business successes or fuelled higher market interest. This is valuable information that surpasses theoretical models of business by providing real-time consumer sentiment to include benchmarks of best practice in marketing and remove potential failures in attempting to establish a trusted brand personality that have been proven in the allied partner business model. Joint venture strategies will allow the business to conduct preliminary advertising heralding the launch of the new fish and chips restaurant, utilising a variety of integrated communications to promote a singular brand conception. There are cost savings benefits under this strategy as well, as such strategies can open opportunities to utilise a piggybacking distribution strategy using existing transportation and warehousing, thus preventing the need for significant capital expenditure in facility development and maintenance. Joint ventures maintain the potential to remove some cost risks and risks of producing integrated marketing messages that could potentially conflict with important social and cultural connotations in important revenue-building target markets. The business should also be coordinating a healthy eating campaign as part of the market entry strategy, illustrating the tangible benefits of seafood consumption to fuel more market interest. Such promotions should include newspaper and television advertisements in relevant local language, using Chinese actors, applauding the scientifically-founded value of seafood consumption. With such dramatic reliance on aspirational reference groups to fuel consumption decision-making and with powerful hedonistic values for self-gratification, the fish and chips organisation is well-positioned with a relevant product offering that services the convenience buyer and the health-inspired consumer markets. Prior to launching the business model, promotional literature describing how the restaurant can enhance personal position in society maintains opportunities to remove some risks of brand defection that is common in a saturated and rapidly-maturing market environment. The business must also conduct considerable market research in the form of qualitative and quantitative research methods to gain real-time sentiment from consumer markets about what drives consumption behaviour as it relates to the fast food industry. Notoriously price-sensitive buyers impose risks to establishing a competitive or premium pricing model, which is sometimes crucial in the fast food industry for gaining market attention and loyalty. Market research, to include also competitor analyses, will determine how similar competitive products are positioned on the market and the pricing strategies utilised to gain or sustain market share in the industry. This market research approach focusing on consumer attitude and sentiment about existing or potential food brands and pricing expectations can be translated into more effective price structures and operational strategy. Coupled with knowledge of what serves as the foundation for hedonistic and ethnocentric values will assist in creating more culturally-relevant advertising and promotion that is known to influence consumption behaviour in many Chinese markets. Because there are some risks of food cost inflation, as well as a dispersed supply chain infrastructure for seafood procurement, the business should be establishing cooperative alliances with important supplier partners prior to launch of the Chinese SBU. Synergies achieved through such alliances include faster response time for supply needs or even leveraging volume-based discounting agreements. Because the Chinese culture is highly collectivist, theoretical evidence would suggest that such supply chain alliances established during the planning phase of the restaurant model would be supportive of culturally-sensitive needs that build trust in the brand and its leadership competencies. By identifying key partners in supply methodology that have strong emphasis on establishment of mutually-rewarding partnerships, it can inject many efficiencies in the procurement strategy that also include cost controls and distribution effectiveness. Chinese citizens maintain a very stringent belief in saving face as a cultural dimension borne of Confucian-era values (Cheung et al. 2008). Business leaders in this country value, first and foremost, establishment of trust and relationship in the business-to-business environment in order to gain commitment and cooperation. This restaurant model believes that such partnerships will be vital to sustaining cost advantages and competitive advantage in the long-term. 6. Conclusion In order to be able to effectively compete and remove potential risks from new market entry strategies, the business should be adopting culturally-relevant models of promotion and marketing. Emphasis on ethnocentric values common in collectivist China and health-eating benefits will attract two important markets with the resources and demand capable of supporting a sustainable business model within a maturing market with saturated, Western foods competition. 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