Burger King's Prospects for Entry into the Vietnamese Fast Food Market - Research Proposal Example

Executive Summary Burger King plans to expand in Asia and they are particularly looking at Vietnam. Competition is low as KFC is the only MNC existing in Vietnam with two other international food companies having a presence also. However, Burger King has its own strength of its global brand image and the demand in growing. With change in the country demographics, there is growing demand for quality fast food as the disposable income has gone up. An assessment was done based on the situation analysis, business strategy analysis, using tools such as SWOT and Porter’s Five Forces. The four dimensions of national culture as suggested by Geert Hofstede have also been considered in evaluating the marketing entry strategy that Burger King should follow. With certain changes in the menu, Burger King should adopt franchising as the market entry strategy which would be the safest and most beneficial for the company. Table of Contents 1. Introduction 1 2. Situation Analysis 2.1 SWOT 2 2.2 Analysis 3 3. Business level strategy - Porter’s Competitive Forces 3.1 Threat of new entrants 3 3.2 Threat of substitutes 4 3.3 Bargaining power of buyers 5 3.4 Bargaining power of suppliers 6 3.5 Existing Rivalry 7 4. Market entry strategy 4.1 Competitive strategy 8 4.2 Market Entry strategy 8 5. Hofstede’s cultural dimensions 9 6. Recommendation 11 7. Conclusions 12 Bibliography 13 1. Introduction Burger King, the fast-food giant, plans to have an international presence to the extent that in five years half of its revenues would come from outside of US (MarketWatch 2008). Burger King focused on opening most of its outlets in international markets. Asia has been particularly attractive to Burger King although it has struggled to establish a presence in the past in Asia. It had to pull out of Japan in the mid 1990s. Obesity crisis has been affecting sales in the west and this is another reason that the company wants to expand in to Asia. Burger King Corp. has been ranked among America’s 1000 largest corporations and has also been recognized by interbrands on its top “100 global brands” list in 2010 (News Blaze 2010). Burger King has adjusted its strategic plans to enter the developing economies during the global economic recession (Knack 2008). With its focus for expansion in the Asia-Pacific region, Burger King is already facing problems in India and China due to McDonald's having a considerable lead (Becker 2007). The challenge in entering the Asian markets is to adapt to local tastes. However, Burger King has identified international expansion as a strategic priority. It plans to enter Vietnam through franchising as it is the most cost-effective method of entering a country about which little is known. The strategy for development during uncertain times should be through franchising. 2. Situation Analysis 2.1 SWOT Analysis Strengths – Burger King operates more than 11,100 restaurants in more than 65 countries and US territories. Almost 90% of its restaurants are operated and owned by independent franchisees (Terry and Forrest 2008). Its brand image, which gives it the competitive advantage, is based on great flame broiled tasting burgers and its ‘Have It Your Way’ customization (Jones et al. 2002). Weakness – Burger King would have to change the food to adapt to local tastes because the consumers still prefer the typical taste. Burger King has a disadvantage compared to KFC because their core product is based on beef while chicken is the most preferred item on the menu (Becker 2007). Oppurtunities – Vietnam is an emerging market and has great potential in the fast food sector and the existing competitors are planning to penetrate deeper into the local market as McDonald's and Burger King plan to enter Vietnam. Vietnam is growing as a tourist destination and attracted 3.1 million foreign tourists in 2007 (Balmer 2009) and the tourism sector is growing at 30% per annum. Thirty-four percent of the population comprises of skilled and youthful workforce whose tastes for food has also changed. This demonstrates the huge potential that exists for fast food in the Vietnamese market. Threat – The only MNC in the fast food sector having a presence in Vietnam is KFC which has 68 outlets catering to the local tastes. The other two foreign companies are from Philippines and South Korea. KFC has been in Vietnam for over ten years. There is no threat from local competitors because they cannot match the food quality and the economies of operation that MNCs can offer. However, there are several international food and beverage companies planning to enter Vietnam. These include Popeye’s, Round Table Pizza, Melting Pot, Carl’s Jr from the US, and Bread Talk, Cavana and Koufu from Singapore (Smith 2009). Global franchises may encounter problems because the concept of fast-food is not new to Vietnam although these exist in the streets of Vietnam. 2.2 Analysis Burger Kings success so far has been because their ability to anticipate trends and adapt to the consumer tastes and changing situations in every region. If structured correctly, overseas expansion oppurtunities could reap rich dividends for the company. This is because in emerging economies the middle-class has higher disposable income and with the growth of global tourism the oppurtunities are intensified. Burger King has its own strengths of its global presence and brand image and the oppurtunities presented by the Vietnamese market is huge. There is not much of threat from competitors and hence it is likely that Burger King would be able to make a break through in Vietnam by modifying its product mix. 3. Business level strategy - Porter’s Competitive Forces 3.1 Threat of new entrants 3.1.1 Economies of scale With its lifting of the barriers to entry, many MNCs such as McDonald's and also food companies from China and Australia are expected to enter the market (Balmer 2009). Starbucks also has experience in entering new markets. Besides, now Vietnam is encouraging FDI (foreign direct investment) after its accession into the WTO and consequent reduction of tariff barriers. However, since the demand is high, and the labour cost low in Vietnam, it would be possible to achieve the economies of scale. 3.1.2 Brand loyalty Burger King enjoys global brand image and its image is identified with two images – “the Whopper” and “flame grilled” (Jones et al. 2002). The brand has a very clear recognition and people globally are aware of what the brand stands for. The brand is also identified for active commitment to community at the global level. 3.1.3 Capital requirement Establishing in Vietnam requires capital, facilities and experience which the local companies lack (VietNamNet 2009). Hence Burger King would only have the foreign players as competitors and not the local players. 3.1.4 Analysis Burger King carries a good brand image and has a good identity. It is one of the most recognizable brands globally. It can achieve economies of scale in Vietnam because of the scale of demand and operations that would be required. Burger King is capital intensive and would be able to enter and sustain the local Vietnamese market. Market is still fragmented and hence immense oppurtunity lies for new entrants. 3.2 Threat of substitutes Western style food outlets are restricted to KFC in Vietnam but McDonald's and Starbucks are also in the foray to enter the market. There is little fear from the local food retailers because of the quality and the scale of operations. 3.2.1 Switching costs In the fast food industry, the switching cost for buyers is low. Hence, to attract buyers in Vietnam to Burger King Outlets would not be a problem. 3.2.2 Buyer loyalty The eating pattern and the food habits and tastes in Vietnam are undergoing a change (Thomas 2004). As of now they have not developed brand loyalty. Food joints have become social places for cultural interaction and hence such outlets would serve to enhance this mechanism. 3.2.3 Analysis There is no threat from substitutes – neither from the domestic suppliers nor from the MNCs. Since there is practically no switching cost in the industry, because of its brand image, when Burger King enters Vietnam, it would have no problem in drawing customers. 3.3 Bargaining power of buyers 3.3.1 Number of customers in the market The number of customers is growing in Vietnam due to rising incomes and busier lifestyles. The demand for convenience food has increased and people have become quality conscious. There is a growing demand for dairy products, confectionery and demand for western-style cafeteria, bakeries and coffee shops is increasing (NZTE 2009). 3.3.2 Availability of substitute buyers The demand as of now is being met by hawkers and street vendors but people prefer western style of ambience and food choices because of rising disposable incomes and education levels (NZTE 2009). People now branded products after some concerns of food safety have been raised (Masan Group 2009). 3.3.3 Analysis The bargaining power of buyers is low because the quality food and beverage providers are few. In fact, because competition is low, the bargaining power of buyers is constrained. Even though the demand is increasing as of now the buyers have low bargaining power and hence the right time for Burger King to enter Vietnam. 3.4 Bargaining power of suppliers 3.4.1 Degree of supplier concentration The food supply chain in Asian countries including Vietnam is at risk due to water scarcity and climate change (The Asia Water Project 2010). The food and beverage sector has been cautioned to investigate and assess the situation before investing in countries such as Vietnam because this could have an impact on sub sectors such as beverages, confectionary, dairy/poultry, edible oils, starches, and sugar. The agricultural commodity prices could go up because of water scarcity and climate change. 3.4.2 Availability of substitute suppliers As of now there are three foreign fast food companies in Vietnam – Jollibee (Philippines), Yum Brands (USA) which operates KFC and Pizza Hutt and Lotteria (South Korea) (NZTE 2009). There is low level of development of supply chain structure and there is lack of locally produced ingredients (Smith 2009). 3.4.3 Analysis The bargaining power of raw material suppliers is expected to increase because of the scarcity of water and climate change. As far as quality products are concerned, three international brands exist in Vietnam and all of which source their products locally. Hence the bargaining power of suppliers would be high. 3.5 Existing Rivalry 3.5.1 Industry growth rate The WTO accession has brought about many changes in the country. Prices have reduced and a wide range of consumer goods are available. It is now a new destination for tourist, business and foreign investments (NZTE 2009). This will increase the demand for high quality imported food and beverages. The Ministry of Trade & Industry estimated in 2009 that the total revenue from the fast food sector in 2009 would reach VND500 billion which is an increase of 35-40% over the previous year (VietNamNet 2009). 3.5.2 Demand for product Including the local suppliers, Vietnam had 169,000 outlets in 2006 many of which were hawkers and street stalls (NZTE 2009). However, the Vietnamese customer is now discerning and seeks quality products and services. Fifty four percent of the people are below the age of 30 and this is leading to a growing demand for food and beverages. Approximately 20% growth rate per annum has been estimated in the food and beverage sector (Masan Group 2009). Even though only 8% of Vietnamese eat at a foreign fast food restaurant and that too one to three times a month, with a population comprising of 65% below the age of 25, it still remains a profitable proposition for the foreign investor in the sector (Asia Briefing 2009). 3.5.3 Analysis Rivalry is low because of the existence of very few companies of international repute. The industry is growing and the demand is high and hence there is place for new entrants to enter and grow. Current target market is the young teenagers although they have also targeted the white collar workers. Fast-food business is thriving in Vietnam despite the global economic crisis. 4. Market entry strategy 4.1 Competitive strategy To enter Vietnam it is best to develop a relationship with existing and established food trading companies. There are just a few such established companies so the selection may not take long. Foreigners are not permitted to import or distribute food in Vietnam. They must have a local importer who can handle such issues. Besides, to take care of the internal government regulatory and employment issues, it is best to have some local representative to handle them. The Vietnamese have entrepreneurial culture and some have even experimented with franchising. 4.2 Market Entry strategy Franchising is the most common and popular form of market entry adopted by the fast food companies. However, franchisors must evaluate the options as a part of their strategic development plan. They must have the financial and operational resources to successfully expand as per their plan. They must also take into account the economic and political factors that influence the success in new markets. Franchising is a contractual vertical marketing relationship between a franchisor and one or more franchisees (Grunhagen and Dorsch 2003). In exchange for fee, the franchisor provides the method of operation, support and advice in setting up a system (Inma 2005). This method of market entry is very common and most widely accepted in the fast food industry as 70% of McDonald's restaurants are also owned and operated by independent franchisees. Franchising has distinct advantages for the franchisor because it helps to raise capital and gain knowledge of the local markets. It helps to reduce the managerial constraints and transfer part of the risk to the franchisee. The franchisees, being local people have knowledge of the local markets, tastes and trends. However, the franchisee is bound by strict regulations which ensure quality monitoring and control (Clarkin and Peter 2005). It is basically a partnership conducted as a form of relational exchange. 5. Hofstede’s cultural dimensions The national cultures are based on the demography, genetic factors, geographical location and technological development (Tosi and Greckhamer 2004). The national cultures have a major impact on human behaviour, food habits and consumption patterns. The cultural imprints are deep-rooted and help people to make a sense of the world around them (Rapaille 1999). Based on the value systems of the major groups Hofstede has classified the national cultures into four major groups which influence the decision making and the social structures (Shore and Cross 2005). Vietnam has a deep cultural heritage and the people are hospitable and industrious (Quang and Vuong 2002). 5.1 Power distance Vietnam is a high power distance society which means power is unequally shared by the members of the society. The children have to obey the parents and title, status and formality characterize the society (Quang and Vuong 2002). 5.2 Uncertainty avoidance The people in Vietnam prefer to avoid uncertainties and people from such cultures are also more emotional and motivated by inner nervous energy (Hofstede 2005). The Vietnamese feel threatened by ambiguous situations and hence they make efforts to avoid such situations (Quang and Vuong 2002). They establish formal rules and reject deviant behaviour. To save face they even indulge in indirect speech. 5.3 Collectivism Vs individualism Vietnam is a collectivist or a closely knit society. In collectivist societies “people from birth onwards are integrated into strong, cohesive in-groups, often extended families” (Hofstede 2005). Vietnam has tight social frameworks and self-functioning communities (Quang and Vuong 2002). They expect their in-groups to look after their members to protect them. They would try to resolve the issues at a personal level instated of going to the court. 5.4 Masculinity VS Femininity Vietnam is a masculine society where the gender roles are clearly defined. 5.5 Time orientations This is related to the choice of people’s efforts. Vietnamese have perseverance and hence prefer long-term orientation. Those with short-term orientation are merely fulfilling social obligations (Hofstede 2009). They have long-term orientation and long-term orientation is based on the Confucian philosophy followed in Vietnam. Besides, in cultures that have high power distance and high uncertainty avoidance, long-term orientation is a natural phenomenon. 5.6 Analysis The cultural analysis suggests that the Vietnamese would be very careful in doing business with foreigners. They feel that Americans are materialistic and will trick them (Kohl 2007). It would take time to build relationships in Vietnam to conduct business. If under joint venture, decision would also take long to be taken since this is a collectivist society. They would always refer to other members of the group and this could mean delays in execution. Because of the cultural differences communication problems could also arise and hence franchising is the best option under the circumstances. 6. Recommendation The analysis of the different situations prior to market entry suggests that the time is just right for Burger King to enter into Vietnam. The SWOT analysis finds that the company should adapt to local tastes and change its core product from beef to chicken to penetrate into the Vietnamese market. The products and services have to be continuously developed to sustain competition. The fast food companies have to include rice as the main dish because most diners are Vietnamese and the most popular dish is rice. The fast food segmented is still fragmented in Vietnam and hence Burger King can use this as an oppurtunity to enter the market. The demand for the product and the potential for the sector is very high as has been found by several studies and statistics presented above. However, they would need to ensure regular supplies of the agricultural produce and hence an arrangement in advance with existing and established food companies is advisable. Burger King should consider entering through the most preferred method of appointing franchisees in the country in different cities. Based on the cultural analysis, it is better to allow the Vietnamese to work as independent franchisees rather than enter into joint venture. They would always be wary of the partners and trust would not be developed. 7. Conclusions This report has evaluated the possibilities, the oppurtunities and the constraints that Burger King should be aware of in entering Vietnam. Asia presents phenomenal oppurtunities for growth for the fast food sector as there is saturation in the western markets. Besides, the markets have been affected due to the current global meltdown. Burger King has a global brand image and brand identity which is easily recognizable in most parts of the world. Moreover, Vietnam presents an immense oppurtunity because as of now there is just one MNC and two international fast food companies. The demand has arise due to higher disposable incomes and change in consumer tastes. Base on SWOT analysis of the company and the business environment analysis based on Porter’s Five Forces, along with the considerations based on Hofstede’s cultural dimensions, the most suitable mode of entry would be by appointing franchisees in Vietnam. Franchising would reduce the risks, help to raise capital and maintain control over the outlets, the products and services. However, Burger King would have to adapt to local tastes and also ensure uninterrupted supply of raw materials. The prospects are very bright as competitive rivalry is low and so is the bargaining power of the buyers. The local street hawkers do not present a challenge because food safety has become an issue and consumers are willing to pay a little higher price in exchange for quality products. Bibliography Bibliography Asia Briefing. (2009). 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