Gordon Ramsay Holdings with regards to an Australian Entry Mode - Research Paper Example

Gordon Ramsay Holdings with regards to an Australian Entry Mode Executive Summary This project has tried to analyse the different options that Gordon Ramsey Holdings has while it considers an entry into the Australian market. The report aims to explain the theoretical understanding on which further developments have been made, the viability of two different options – joint venture and international franchising, and the reasons for which one of the above has been justified. The report contains a detailed cost – benefit breakup that the options put across, along with the advantages and disadvantages of the options. It has been kept in mind that, unlike typical manufacturing organizations, Gordon Ramsey Holdings will have to focus more on service quality as because of the intangible nature of its business. It will be understood in the project that among the final two options considered- joint venture and franchising, a company faces a trade off between profit earned and liability undertaken. This report should be supplemented with a detailed analysis about the taste and preference patterns in Australia. For this it would be necessary to do a primary research on the same topic and the findings should be able to justify the choice of the chosen route of entry – that is, whether Sydney is to be the final location or not, and the chosen partner would fulfill the criteria. It might to beneficial to do a secondary research so as to get a listing of all probable partners in Australia, through correspondence with the Australian embassy. Table of Content Literature Review 3 Problem Identification 5 Evaluation of Alternatives 7 Recommendations 9 References 11 Literature Review The initial material that was used for the preparation of the report was collected from secondary sources like the internet. It was necessary to understand the viability of the business in the market, its demographics and the current utlook of the organisation. Market Investigation is one of the most important parameters for companies to consider when they sit and ponder over the growth of the organization. This shows on the strategy that the firm has set for itself, on the Corporate, Business and functional levels. The fact that a chain of reputed restaurants is trying to search for newer pastures in Australia shows that it is going in with a change in its marketing and Operation decision synergy. A decision to operate in a new territory will have cost implications – so the company will have to have proper analysis of the market and the socio-economic forces. Australia is faced with an issue of an ageing population; by 2051 the percentage of the population aged over 64 years is slated to double (from 13% at present to 27%) (AUSTRALIA: Demographic trends will play into politics, 2007). This has led to the government of the country to tackle the issue on a war footing, creating avenues for employment and building up an atmosphere conducive to development. This would mean, for an upcoming and reputed chain of restaurant, Australia offers the right political and demographic environment for business operations. Next, it became necessary to understannd the present scenarios in the market in consideration,Australia, which facilitate entry of a company - FDI norms in the country, the trade and industrial policies and the levels of commitment the government of that nation displays towards the industry as a whole. It was therefore relevant to study the FDI regulations in Australia, as compared to other alternatives. The results were as expected – Australia is very aggressive when it comes to pursuing FDI. “Between 2003 and 2007, Australian annual FDI inflows are projected to be around US$ 9.1 billion (1.0% of global FDI inflows), making Australia the twentieth largest FDI recipient in the world.”(Faeth I, 2005). Another possible method of selecting a country is going through elaborate data sets available about the attractiveness of the country – on several parameters like stability, financial and other relevant parameters. Secondary research was done from the internet to develop this understanding. The main theoretical backbone was utilised when a choice of options was to be made about the mode of entry into Australia. OLI (Ownership, localization and internationalization) are prime considerations for the firm. The nature of business of the company often decides the choice of the mode and scale of entry – a company like Gordon Ramsay Holdings would require a degree of control over the operations of the venture in Australia, and so would want to operate one or few closely monitored units rather than several loosely monitored units. It was thus imperative to gather full understanding from available literature so as to decide which will be the chosen mode for the company. Problem Identification Gordon Ramsey Holdings wants a possible entry route into the Australian market. The viability of a project can be analysed with an exclusive financial perspective. The company management has to look into different currencies, inflation rates and interest rates. A niche market operator, however, has one more thing to ponder upon, the brand image of the organisation. This translates into the consideration of several factors like the taste and preference in the new environment, political stability, viability of the projects financing through external means, etc (Keasler T. R. & Denning K. C., 2009). Gordon Ramsey Holdings’ entry down under should therefore have to be justified under several grounds. One, the company should be able to answer questions on the marketing of intangibles, that are associated with the hospitality industry. With the world becoming a global village, the tastes and preferences are becoming homogenous across boundaries. The more important question however, is the requirement of developing the product according to the needs in the new market. Answers to this query are based on the path that a company chooses for its entry into a foreign market – joint ventures, acquisitions or franchisees. A joint venture will look like an additive – it will give some fillip to an already existing setup, franchisees will involve the delegation of control while acquisitions more often that not pose a challenge to the balance sheet. A proper SLEPT (Social, Legal, Economical, Political and Technological) analysis is required so as to arrive at the suitable mode of functioning (SLEPT analysis, n.d.). For Gordon Ramsey Holdings the main issues are – the market place in Australia in comparison to its prime domain of operation – United states, its foreign exposure – its undertakings in similar developed nations like Ireland and France, the present socio – political scenario and finally, the feasibility of setting up such an enterprise on Australian soil which will not erode the brand value and uphold the brand image of the Gordon Ramsey Holdings entity. An Australian partner opens up newer avenues of managerial concerns for Gordon Ramsey Holdings – the company must evaluate the motivation levels for this partner for profit purposes and the relevant tax structure. In case of high taxes, the partner may be inclined to operate at minimal or negative profits, with a single minded approach towards growth only, making the repatriation of viable funds difficult in a time frame (Anncchino M. A., 2003). Synergy is another area of concern for Gordon Ramsey Holdings, the possibilities for a non functional relationship always stays put. Thus the management has to decide on the most viable method of operating in Australia, apart from considering the generic strategies for the survival of the company - cost leadership, differentiation, or focus. Evaluation of Alternatives A company can resort to several methods for its entry into a foreign country. The most popular ways include International Licensing, International Franchising, Joint Ventures, Collaborations and setting up of Turnkey projects (Daniels, J.D., Radebaugh, L.H. & Sullivan, D.P., 2004). In my opinion, the most suitable entry options for Gordon Ramsey Holdings are – First, a joint venture between an Australian company of repute, and secondly, franchising the operations of the company. A joint venture is a strategic alliance – it is an agreement between two or more independent firms, in and/or out of a country, to cooperate in order to achieve specific commercial objectives. The new business entity would be jointly owned and controlled by the firms, who would be maintaining their individual identity. For Gordon Ramsey Holdings, the joint venture route may involve several approaches – getting associated with business organisations which specialise in choosing and matching applicant companies according to their venture requirements, or choosing a trade route by doing secondary research on the web so as to locate potential partners. A commercial attaché in the Australian Embassy can also be encouraged to look into the requirements of Gordon Ramsey Holdings. The second option is International Franchising – an approach based on the fact that being a service oriented enterprise, Gordon Ramsey Holdings, may find interested parties who might be interested in cashing in on the goodwill and brand value of the company. International Franchising, in many cases, involves the provision of raw materials along with the brand name. This is is seen in several beverage companies, like Pepsi and Coke, where the company provides local franchisees in countries apart from the United States of America with the raw syrup base, or companies like McDonalds, where the franchisees are provided with detailed recipes. Both the options have several pros and cons about them. While the joint venture will ensure that Gordon Ramsey Holdings will have an almost immediate access to local Australian resources, it will also have to bear a fixed liability in the form of costs – both involving the setting up of operations and also operating expenses. One hand the company, or would be partner of Gordon Ramsey Holdings, might enjoy extraordinary goodwill in the Australian market, it may also result a situation of conflict due to the difference in the styles of operation of both the organisations. A service oriented enterprise, like Gordon Ramsey Holdings, will have nothing to vouch for if it fails to meet the standards it has set for itself in the United States through the joint venture operation in Australia. While on the franchisee front, the company faces a trade off between a possible lack of control over managerial decisions over the low entry costs which the company will have to bear. Though Gordon Ramsey Holdings will not have to bear the direct operating expenses it will have to be satisfied with a limited source of income- through the limited loyalties it hopes to receive. There is a possibility of the dilution of the Gordon Ramsey Holdings brand name as compared to the benefit of the company enjoys low resource commitments, it can concentrate on other activities across other centers of operation. Moreover licensing is subject to fewer political regulations than foreign investments. Recommendations The success rate of a new venture depends on the value proposition of the company – the positioning, distinct competence, and the sustainable decisions on competitive advantage that the company takes over a period of time (Lodish L. M., 2007). In case of Gordon Ramsey Holdings the very probability of success is based on the route of entry it chooses for its Australian entry, the mode of operation will decide the amount of distinctness that the company can hope to achieve. This is an important consideration that the company needs to keep in its mind when it is doing a selection among the possible avenues. It will be viable, however to look into the financial perspective before recommending a particular option. For this an exercise would suffice – to try and chart the possible cost and revenue structuring of the two chosen alternative. First let us consider the joint venture mode – considering it to be a 50 – 50 joint venture, Gordon Ramsey Holdings is expected to share 50% of the liabilities, as in the fixed and operating expenses. It is also expected to be able to claim 50% of the proceedings from profits that the joint venture is expected to earn. Expecting the venture to run at 10% pre tax profit, the venture may possibly get a turn over of £4million/year. (Restaurant and catering Australia, 2009) which is inline of the estimation of a revenues of £80m in 2009 from existing operations. (Gordon Ramsay Holdings revenue to hit £100m by 2010, 2009) On the other hand a franchisee route entry will ensure a pretax profit of 10% without the cost of the outlay expenditure. With the same assumptions of a turn over of £4million/year, the Australian arm of Gordon Ramsey Holdings is expected to get a profit inflow of £40,000 per annum. In my opinion Gordon Ramsay Holdings should adopt franchising as the preferred route of entry into Australia. A successful partnership arises with a proven system of business practices, which Gordon Ramsay Holdings has in place (Duckett B., 2008). International franchisor-franchisee relationships require that the later is given the onus of developing the entire country, here Australia, or at least a region of the country. The onus should shift to maintaining standards - the company can concentrate on maintain stringent quality parameters and service specifications. Reflective Appendix The assignment required me to do voluminous research on the net – to follow Gordon Ramsey Holdings operations from close quarters and suggest an option to the company about the possible means of entry in to a new territory – operations. The schema of things required me to think on the terms of the management and decide on certain pattern of things. The first was to decide on the company’s strategy in pursuing the Australian market – a one time hit as against a steady of pursuit. The initial roadblock that I faced was regarding an assumption about the number of restaurants that Gordon Ramsey Holdings would like to operate in Australia. My first approach was to decide on a multi city approach- a chain of restaurants, to be precise. However, it became evident soon enough that a niche market operator like Gordon Ramsey Holdings would never start in a new market with such a strategy; it would rather choose the most viable location and concentrate on initial goodwill building. The entire approach had to be changed. The most important learning that I had from this exercise that it is always necessary to undertake a thorough and routine background check – to understand the basic mode of operations of a company and the clientele it caters to. Next I tried to find out the reasons so as why I thought this venture would be successful. The demographic analyses that I had to do – both of the United Kingdom and later of Australia, helped me refine the art of dissecting a market according to their specific attributes. One of the startling observations that I made was in spite of their overall similarities, there are basic points of difference between the hospitality scene in the United Kingdom and Australia. The change in weather implies for a change in palate, Gordon Ramsey Holdings would enjoy the option of going into previously untouched territories with their culinary expertise! I also had to take recourse to the study material so as to understand the basic and subtle differences between the various forms of strategic alliances that a company can be a part of. It was interesting too note that partnerships between smaller, yet reputed global concerns leads to significant amounts of market power. I could now relate to the viability of different entry routes that a company could adopt so as to choose the best alternative for themselves. I could see the tradeoff that the companies adopted with regards to the levels of commitment to the foreign operations with the profit component, and the span of control that the company wished to enjoy in a new country. References Anncchino M. A., 2003, New Product Development – From Initial Idea To Product Management, Elsevier, ISBN 0750677325 AUSTRALIA: Demographic trends will play into politics, Jan 03, 2007, [Online] Available: http://proquest.umi.com/pqdweb?index=1&did=1688025391&SrchMode=1&sid=1&Fmt=3&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1242301075&clientId=78175, [14th May, 2009] Daniels, J.D., Radebaugh, L.H. & Sullivan, D.P., 2004, International Business: Environments and operations, 10th ed. Prentice Hall, London, ISBN 0131461060, 9780131461062 Duckett B., 2008, Business format franchising: a strategic option for business growth - at home and abroad, [Online] Available: http://proquest.umi.com/pqdweb?index=7&did=1440852941&SrchMode=1&sid=1&Fmt=3&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1242286220&clientId=78175, [14th May, 2009] Faeth I, 2005, FOREIGN DIRECT INVESTMENT IN AUSTRALIA: DETERMINANTS AND CONSEQUENCES, [Online] Available: http://dtl.unimelb.edu.au/view/action/singleViewer.do?dvs=1242303320208~5&locale=en_US&search_terms=000032450&application=DIGITOOL-3&frameId=1&usePid1=true&usePid2=true, [14th May, 2009] Gordon Ramsay Holdings revenue to hit £100m by 2010, 2009, [online] Available at http://www.chefs-jobs.co.uk/content/gordon-ramsay-holdings-revenue-hit-%C2%A3100m-2010, [14th May, 2009] Keasler T. R. & Denning K. C.,2009, A Re-examination of Corporate Strategic Alliances: New Market Responses, Quarterly Journal of Finance and Accounting, [Online] Available: Http://proquest.umi.com/pqdweb?index=19&did=1705193551&SrchMode=1&sid=1&Fmt=3&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1242294320&clientId=78175, [14th May, 2009] Lodish L. M., 2007, Marketing That Works, Wharton School Publishing, ISBN 0132390752, 978-0132390750 Restaurant and Catering Australia, 2009, [online] Available at http://www.restaurantcater.asn.au/rc/content.aspx?id=11, [14th May, 2009] SLEPT analysis, No Date, [Online] Available: http://www.thetimes100.co.uk/theory/theory--slept-analysis--235.php, [14th May, 2009] Read More