Business Strategy in Hai Di Lao Hot Pot - Example

Business strategy in Hai Di Lao Hot Pot Introduction Hai Di Lao Hot Pot was established in 1994 in Sichuan, China and presently has 72 restaurants inBeijing, Shanghai, Zhengzhou, Nanjing, Xi’an, Shenzhen and Hangzhou. The catering chain is not only present in various provinces of China but has expanded to Singapore and Los Angeles. The president, Zhang Yong, aims at making spicy hot pot dish available internationally similar to Starbucks’ coffee or McDonald’s burgers. The company presently has more than 15500 employees working across various restaurants of the catering chain. The founder and president was highly innovative to integrate traditional Sichuan cuisine and contemporary dining patterns for developing hot spot culture across domestic as well as international catering market. In China, the company has gained fame and appreciation for its services and products in past 18 years (Hai Di Lao hot pot, 2014). The paper focuses on developing business strategy for the company after analysing its external and internal environment in context of China. For this purpose, techniques such as PESTLE, SWOT analysis and Porter’s five force models will be used followed by proposition of strategies and recommendations. External analysis The external environment of the company has been assessed using PESTLE analysis and Porter’s five force model. PESTLE Political environment: China is prone to certain political risks as a constant clash between central and provincial governments exists in the country. However, the Chinese citizens have great degree of freedom in context of travel, employment, education and access to information. It can be inferred that Hai Di Lao has the freedom to employ job rotation for its employee so that better organisational culture is developed. However, regional disturbance may have negative impact on the business (The heritage foundation, 2014). Economic environment: China is one of the rapidly emerging economies in the world that has so far attracted large amount of foreign direct investment in various business sectors. The economy is defined by large population, inexpensive labour force and high level of export. China exports almost everything ranging from manufactured goods, textiles to electronics. It is the second largest economy in terms of Gross Domestic Product and Purchasing Power Parity. The positive economic environment will not only contribute towards Hai Di Lao’s prosperity in the domestic market but will also help in global expansion of the business (The heritage foundation, 2014; Economy, 2014). Social environment: The socio cultural aspect is one of the interesting facets of the Chinese population. China has a population of 1.3 billion with a highly collectivistic culture where social linkages and family ties are emphasized upon. China scores high on Hofstede’s masculinity dimension suggesting that the individuals are highly ambitious and success oriented. Given the cultural aspect of China, it can be assumed that at Hai Di Lao, not only the management but also the employees work hard for organisational success (The Hofstede Centre, 2014; World Bank, 2014). Technological environment: The economic development and progress of China is highly related to technological progress in the country. China’s technological sector is gradually maturing and the same is reflected in its products and services. Hai Di Lao has so far not incorporated sufficient technologies in its promotional activities. Given the technological development of the country, the company can make good use of hard and soft technology for promoting their business (Yau, 2002). Legal environment: China has a weak judicial system that is vulnerable to corruption and political influence. Furthermore, the country has low level of fiscal and trade freedom. The overall legal system of China has often faced criticism regarding ill-defined laws, lack of transparency and weak enforcement system (Economy, 2014). The poor legal structure and low level of trade freedom may act as a source of hindrance for the company in terms of business expansion in rural areas of the country. Natural Environment: A number of discussions have highlighted the issue of overpopulation and extensive exploitation of natural resources in the country. China continues to combat various environmental issues such as deforestation, poor water conservation system, lack of waste management and pollution. The nation is considered as one of the largest contributors in biodiversity loss, ozone depletion and climatic disorder (The Economist, 2013). Being a reputed restaurant chain, the company can investment is sustainable consumption of resources so as to increase societal aspects of the business and set an example for other organisations. Porter’s five force model Bargaining power of suppliers: Most catering chains in China have committed supply chain system. China’s collectivist culture is reflected in business relationships. Consequently, bargaining power of suppliers ranges between moderate to low level. Bargaining power of consumers: The advent of globalisation has resulted in entry of foreign catering chains such as McDonald and KFC in country and thereby, has increased the bargaining power of consumers significantly. Consumers presently can switch between companies by paying zero or minimal switching cost. Rivalry among existing competitors: Significant level of rivalry exists among Chinese and foreign catering chains in the country. McDonald, KFC and Starbucks are considered as strong competitors for other catering chains. However, Hai Di Lao has secured strong competitive position among most of the Chinese catering chains. Threat of Substitutes: the threat of substitute for Hai Di Lao is substantially high, as greater proportion of urban population is developing taste for foreign fast food. However, traditional Chinese meals are still preferred by many people; this has resulted in establishment of a number of Chinese catering chains. Threat of new entrants: The food industry is one of the high growth sectors in China and is being promoted heavily by the government. Therefore, the scope of new entrant is quite high given the fierce level competition among domestic and multinational players and large consumer base of the country (CNN Money, 2014; Euro Monitor, 2014). Internal analysis The internal environment is generally assessed on the basis of resources, operational capabilities and corporate culture of an organisation. Resources: The catering chain is spread across different provinces of china and has about 72 restaurants in total. It employs around 15,500 efficient employees so that consumer demands are readily met. The company has strong brand value in the domestic market and presently it is making attempts to enter the global market (Hai Di Lao hot pot, 2014). Capabilities: Innovation is the key to the company’s success as it has effectively blended contemporary taste of consumers with traditional Sichuan cuisine. The company ensure that international quality standards are maintained in its products. Alongside, the supply chain system of Hai Di Lao is highly matured that helps in large scale purchase, modernised distribution and standardised warehousing (Hai Di Lao hot pot, 2014). Corporate culture: The corporate culture of Hai Di Lao emphasises on enhancing value of employees by providing them an environment of equality. The management follows a humanistic approach and participative style so that employee empowerment is initiated in the organisation. Overall, employees are considered as one of the important assets of the company (Hai Di Lao hot pot, 2014). SWOT analysis Strength: The strengths of the company include strong brand equity in the domestic industry, committed supply chain management system, mass production and high level of consumer satisfaction. Weakness: Limited variety of food offerings comprising traditional Chinese cuisine and limited promotional activities. Opportunities: Government initiatives regarding development of domestic food industry of China, global expansion through Singapore and Los Angeles and large consumer base in domestic and international market. Threats: Stiff competition from global brands such as KFC, Starbucks and McDonalds and consumer preference towards global cuisines (CNN Money, 2014; Euro Monitor, 2014). Strategic choices Strategy 1 Considering the condition of domestic and global market, an essential strategy that is suitable for business expansion of Hai Di Lao is product differentiation. According to Porter (2008), product differentiation ensures that, offerings of a particular organisation are different from that of others. This generic strategy is particularly helpful when an industry comprises large number of organisation. Hai Di Lao can deliver differentiation by adding extra value to its products and services. Product differentiation not only attracts greater number of consumers but also create consumer loyalty. Alongside, product differentiation minimises consumers’ sensitivity towards price and creates entry barrier for substitutes. Product differentiation can take different forms in context of Hai Di Lao because catering industry presents numerous innovative opportunities in terms of diversity in food products, addition of new offerings in the menu, integration of new promotional tools, innovative presentation style and service offerings (Porter, 2008; Barney, 1991). Strategy 2 Another strategy that can be proposed regarding business growth of Hai Di Lao is franchising and licensing. Franchising and licensing are two importance international expansion methods implemented by a number of global brands for entering different nations worldwide. Franchising is a leasing practice where a firm’s business model or brand is used for specific period of time for earning profit and a certain part of the same is shared with the franchiser. The primary advantage of franchising is that Hai Di Lao will have to make zero investment in the foreign country in physical resources apart from training and development. In Licensing, the licensor gives permission to use the organisation’s trade secrets for earning profit to the licensee in exchange of royalty. In licensing, the licensor may not be able to exercise sufficient control on the licensee (Brouthers and McNicol, 2009; Chadwell and Rhodes, 1967). Recommendation Under strategic choices, two strategies have been proposed for business expansion of Hai Di Lao in the international catering industry, namely, product differentiation and franchising and licensing. Between these two strategies, the most suitable one in context of the company is product differentiation. Franchising and licensing are appropriate entry strategies for those organisations which are already established in the global front. Additionally, a number of legal compliances are associated with these strategies and may lead to failure of the venture due to lack of sufficient experience. Product differentiation was proposed because the company has a reputation regarding its innovative capabilities and it is expected that it will be able to accommodate new changes in the business. The global food industry is viewed as a melting pot of various cultures. Consumers when purchase a particular cuisine, they not only buy the food but also a fragment of the culture and the way the culture is presented depends heavily on the organisation’s marketing strategy. In terms of Product differentiation, Hai Di Lao can implement new promotional tools for promoting the restaurant chain; alongside, they can add variety in the food menu so that consumers from different culture get attracted towards the restaurant. Conclusion Hai Di Lao is one of the upcoming catering chains of Sichuan province in China that has gained significant market share in various provinces of China in past 18 years. The business was conceived as an innovative concept where the founder aimed at blending Sichuan traditional cuisine with contemporary tastes of the domestic consumers. The analysis in the paper suggest that the company is facing stiff competition in the domestic market because of entry of different foreign brands, but, it has occupied a strong market position due to its high quality services to consumers. Hai Di Lao is planning for global expansion, but, the current strategy may not result in complete success of the venture. Therefore, in this paper between two prospective strategies, one has been proposed so that business growth at domestic as well as international market can be achieved successfully. Reference list Barney, J., 1991. Firm resources and sustained competitive advantage. Journal of management, 17(1), pp. 99-120. Brouthers, L. E. and McNicol, J. P., 2009. International franchising and licensing. The SAGE handbook of international marketing, pp. 183-197. Chadwell, J. 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Overseas Distribution, Franchising, and Licensing-Comparison with Domestic Techniques. Antitrust Bulletin, 13, pp. 20- 193. Read More