Business Strategy in Chinese Restaurant - Case Study Example

Company: Din Tai Fung Country: China ID: Table of Contents Introduction 3 External Analysis 4 PESTEL Analysis 4 Porter’s Five Forces 5 Internal Analysis 6 Resources 6 Capabilities 7 Corporate Culture 7 SWOT Analysis 7 Strategic Options 9 Recommended Strategy 10 Conclusion 10 Reference List 11 Introduction The report aims at exploring the major problems encountered by a Chinese restaurant, Din Tai Fung, and it also explains the impact of external factors on the operation of the restaurant. The SWOT analysis of the restaurant is highlighted in order to understand its present status in the Chinese market. PESTLE and Porter’s Five Forces are elaborated in order to get a clearer picture of the Chinese restaurant industry. After identifying the main issues in the Chinese industry, strategic options are necessary for the individual restaurants in order to overcome the situation. Hence, strategic recommendations regarding development of Din Tai Fung are provided, which incorporates functional, financial and business strategies. Dai Tin Fung is a Chinese restaurant, which has originated in Taiwan, Republic of China. It specialises in xiaolongbao (soup dumplings). It is also famous for its seaweed, bean sprouts, chicken soup and mung bean noodle. The restaurant was founded in 1927 and was a humble stall in Taipei (Din Tai Fung Restaurant Inc, 2014; Din Tai Fung Restaurant Inc., 2012a). However, presently, the restaurants have expanded to a number of countries such as Japan, Indonesia, Malaysia, United States, Korea, Australia, Hong Kong and Singapore (Dai Tin Fung., 2014; Din Tai Fung Restaurant Inc., 2012). The restaurant offers the world’s tastiest dumplings to its customers, where every dumpling is dedicatedly prepared by the chefs. Din Tai Fung was rated “as one of the top 10 gourmet restaurants in the world by the New York Times in 1993 and has branches in many countries” (The Taipei Times, 2008). External Analysis PESTEL Analysis Political: The political system in China is characterised by communist dictatorship. The party have contributed to great extent towards the national stability (Allens, 1994). However, the restaurant industry in China has to follow several political conditions. The central government have devised a number of strategies and policies in order to maintain a stable economy and remain competitive in the world market. The government follows a liberalization policy, which encourages the restaurant industry to expand. The government has already banned all unlicensed food suppliers. This implies that the restaurants in China have to follow strict procurement policies to obtain raw materials from the suppliers. The restaurant industry has to follow strict tax policies in order to develop its business (Law, To and Goh, 2008). Economic: China is identified as second largest economy in the world with respect to export. The Gross Domestic Product (GDP) of China has room for improvement as it ranks 93rd globally. The per capita output of China has increased by 32% to match with the present global average (Conerly, 2014; World Bank, 2014). The rising disposable income of individuals in China has lead to the rise in home price. The consumers in China are concerned regarding the quality of the products they are buying after the contaminated scandal in 2008 (Conerly, 2014). With the rise in wage of the individuals in China, the demand for the restaurant products is expected to rise by 6% and reach a sales value of CNY 960.4 billion by 2018 (Euromonitor International, 2014). Thus, Din Tai Fung should take into account these factors to operate a successful business in China. Social: On the basis of the social taste and preference of the Chinese individuals, the consumption of food is expected to rise and style towards western diet and the consumption of higher value of foods (Yu et al., 2014). Consumers in China have preferred dumplings, as a result, the demand for this items have increased over the years, which have encouraged Din Tai Fung. Technological: The advancement of technology has been a severe challenge for every sector in China. It increases the cost of the company; however, if advanced technologies are implemented, it can reduce the cost of production. For restaurants, the use of advanced kitchen equipments makes the process of manufacturing food easier and cheaper. However, social media can be used for advertising and online delivery of the food products (Barney, 1991). Environmental: The dumpling industry in China has encountered huge growth due to the taste and preference of the consumers. However, it is observed that dumplings cause harm to the environment through global warming (Twilley, 2014) Legal: The food safety law is very important in China as the consumer rights are protected through health and safety regulations. The legislations are developed in order to make sure that the restaurant industry is offering harmless food items to the consumers. Porter’s Five Forces Threat of New entrants: Threat of new entrants in the Chinese restaurant industry is considerably high as with the rise in population of the country the demand for Chinese food is also increasing (Allens, 1994). The Chinese government has always encouraged investment in developing new restaurant. Additionally, the cost and legal barriers for establishing a new restaurant in China is comparatively low than the other countries. Threat of Substitutes: Threat of substitutes for restaurants in China is very high as demand for fast food has increased among the younger population. Thus, fast food items are direct substitutes of restaurants in China. Bargaining power of suppliers: The Chinese restaurants industry has access to large scale of suppliers and logistic networks (Cherunilam, 2010). Thus, the bargaining power of the suppliers is low as the restaurants can obtain their raw materials from a number of sources. Hence, it can be portrayed that threat of the suppliers are relatively low. Bargaining power of buyers: The bargaining power of buyers’ plays an important role in the restaurant industry, and can be analysed with the help of three parameters: buyer behaviour, switching cost and concentration of buyers. The concentration of buyers is high in China because of the population (Porter, 2008). This is one of the main advantages for the restaurants in China. The switching cost is low as there are many restaurants, which serves same kind of food. Thus, the bargaining power of the buyers is examined to be high. Threat of competitive rivalry: The competitive rivalry is dependent on the cost of the products, density of buyers and sellers (Porter, 2008). The rivalry in the restaurant industry is relatively high if the food offerings are taken into account. Internal Analysis Resources The main resources of the restaurants are its employees (chefs, attendants and managers). Extensive in-house training is given to the attendants and managers so that they can serve the customers efficiently and fulfil their needs (Upadhyay, Singh and Sharma, 2009). They are even trained to manage the complaints of the customers and have to put the need of the customers’ first. The raw materials of Din Tai Fung are acquired from the best suppliers in the country so as to maintain consistency in the food quality. They follow a standard in measuring the production process of the food items and the ingredients are tested before usage. They even seek for improvements in food items and as a result, product development section is introduced with the restaurant (Din Tai Fung Restaurant Inc., 2012b; Orcullo, 2008). Capabilities Din Tai Fung is unique in many ways as it has a separate Department of Quality control, which ascertains the hygiene and capabilities of the employees. Salinity test is executed as it helps in determining the salinity of the cuisines and uses light reflection to measure the same. Water quality test helps in examining the quantity of chlorine in water that is served to the customers. The staffs in the Quality Control department examine the food and raw materials in the refrigerators in order to know its expiration time. All this examinations not only enhances the capability of the restaurants, but also helps to protect the trust of the customers, who believes in the quality of its food items. Corporate Culture Din Tai Fung is a famous restaurant that has its branches worldwide. It has created this global presence through its exceptional services that are provided by the staffs. The staffs are always compassionate while taking orders and serving the food. They are never ignorant to take any complaints and solve it till the customers are satisfied; that is the main culture of the restaurant (Customer is the main priority). SWOT Analysis Strength Din Tai Fung is rated as one of the top 10 gourmet restaurant in the world. High quality food specialized in offering dumpling. Din Tai Fung expects highest standard in production process. The food does not reach the customer table if it fails to the standard. Ensures that each dumpling has specifically 18 folds; which are quite unique. Weakness Prices are high; thus the target market is only middle to high income group. The customers have to queue outside to wait for a seat. Does not promote their products extensively; needs to improve it so as to cater the needs of higher base of customers. Opportunity Government initiative for encouraging establishment of new restaurant business. Dumplings are preferred by Chinese consumers. The increasing population is an opportunity for the restaurant to cater the needs of a bigger market (Ahlstrom and Bruton, 2009). Din Tai Fung has achieved one Michelin Star, which implies restaurant is very good in its category (preparation, quality and price). Threat The dining area of the restaurant is not appropriate enough to accommodate a number of customers, this is the main disadvantage of the restaurants and also a severe threat as the customers will look for other options. The changing taste and preference of the Chinese population towards the fast food is a sever threat to the restaurant. Strategic Options Strategy: Differentiation Differentiation of products can be recommended as one of the best strategy for serving increased number of customers in China (Onkvisit and Shaw, 2004). The diversified tastes of different parts of China are an opportunity for Din Tai Fung to attract to more customers. The restaurant specialises in preparing dumplings, which are unique in China. It can bring variations in its preparation and can change the ingredients to make it spicy and delicious (Adler, 2010; Kara, Kaynak and Kucukemiroglu, 1995). Apart from that, the restaurant can also concentrate in specialising other items, which are preferred by the population. For understanding their preference, the management of the restaurant has to perform extensive market research. Strategy: Market development strategy In order to capture a larger market share in the global restaurant industry, Din Tai Fung can plan for entering more new markets (Campbell, 2009; Paul, 2008; Pride and Ferrell, 2004). This new market can be India, where the population prefers to consume the best food that is served globally. Indians likes to consume Chinese food and there are few restaurants in India, which offers authentic Chinese food to the customers, with the real ingredients of China. Thus, this is a good opportunity for Din Tai Fung to penetrate a new market with higher probability of success. India has vast population and dinning culture is such that the Indians prefer to spend time with their loved ones over delicious food. They have the desire to taste authentic Chinese food items, which will encourage Din Tai Fung to open a store there so as to fulfil their desire (Rugman, 2009). Recommended Strategy From the above two strategies, the best one is the differentiation of products. It will help the restaurant to build a new brand image and the customers will be delighted to consume there delicious items other than specialised dumplings. It will also assist the restaurant to combat against the growing competition in the Chinese market. Conclusion Din Tai Fug is a well-known restaurant in China and in many parts of the world; despite its brand image, the restaurant has few weaknesses, which can affect their business. One of which is the inappropriate dinning area. Apart from the recommended strategies, the restaurant should also concentrate in expanding its dining area so that it is not clumsy, and the customers are satisfied with the environment. Ambience is one of the main factors that influence a customer to visit again and if the restaurant fail to provide it, then it is hard for the customers to make a dinning decision. Reference List Adler, M., 2010. A study of marketing and online marketing tools which  improve online success. Munich: GRIN Verlag. Ahlstrom, D. and Bruton, G. D., 2009. International management: strategy and culture in the emerging world. Connecticut: Cengage Learning. Allens, M., 1994. Analysing the organisational environment. New York: Select Knowledge limited. Barney, J., 1991. 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Yu, P., Brian, S., Syed, F. and Gunning, G., 2014. What China wants? Department of Agricultural Fisheries and Forestry, 14(3), pp. 2-36. Read More