Human Costs Are Built Into an iPad - Case Study Example

Business Launch in the China Table of Contents introduction 3 1. Restaurant Industry 3 2. Key Statistics of Worldwide Restaurant Industry 3 3. Restaurant Industry in China 4 1.4. Scope of Research 4 2. MARKET ASSESSMENT 6 2.1. PESTLE ANALYSIS 6 2.1.1. Political 6 2.1.2. Economic 7 2.1.3. Social 10 2.1.4. Technological 13 2.1.5. Environmental 14 2.1.6. Legal 15 3. KEY SUCCESS FACTORS 16 4. STRATEGIES RECOMMENDATION 19 5. CONCLUSION 20 list of references 21 1. introduction 1.1. Restaurant Industry Restaurant industry’s carries unique characteristic of serving combination of product and service. For the purpose, restaurant industry is being considered a significant component of the hospitality in industry (Chew, Cheng, and Petrovic-Lazarevic, 2006). GIA report in the recent past points to the steady growth of restaurant industry in the coming years with estimate to reach $992 billion in 2014 only in food service section of restaurant (Report Linker, 2013). This growth can be attributed to large number of factors with various strategic moves by bars, cafés and fast food chains to exploit the opportunities in untapped market by mode of franchise, joint ventures, sole ownership outlets etc. Furthermore, changing lifestyle of young generations have also played considerable role in the growth of the industry (Report Linker, 2013). 1.2. Key Statistics of Worldwide Restaurant Industry Worldwide in restaurant industry’s forecast has been very healthy despite the slow economic growth worldwide (Report Linker, 2013): The growth in restaurant industry has been at the rate of 18% since last five years. Industry is expected to grow revenue at the rate of 3% with forecasted $1.8 trillion revenue by the end of 2015. Fast food segment alone is forecasted to generate $240 billion in 2014; an increase of 19% in last five years. Asia-Pacific region holds almost 43% market share of the world foodservice industry. Industry growth is characterised by following dominant factors of increasing urbanisation; increasing number of working parents leading to reduced cooking time at home; and changing lifestyle. Mobile foods stalls and fast food service providers are expected to grow with fastest pace mainly due to time and price benefit. Mobile food service is forecasted to outdo $2.5 billion by 2017. 1.3. Restaurant Industry in China Attraction of China to world requires no emphasis. Most recently World Bank has raised the economic growth forecast for the year 2013 to 8.4% as compare to forecast growth of 8.1% issued in Oct 2012 (China Daily, 2012a). Though restaurant industry is not only dominated by the economic growth but the fact remains that growth is highly dependent on the economic as disposable income constituting the main driving factor. China’s full service restaurant industry (expectedly) generated 61.0% or $287.8 billion of the total $471.8 billion of catering subsector in 2012. The restaurant industry reported 16.5% of steady growth in revenue in last five years. Opportunity in Chinese restaurant industry can also be gauged from high fragmented characteristic with 2.8 million above restaurants in this industry in the year 2012. Further, four major players only accounted for 0.7% of total industry revenue while chain and franchising operations accounted only 3.0% of revenue in 2012 (IBIS World. (2012). 1.4. Scope of Research With above statistics giving highly attractive picture of global growth as well as regional hot cake China in restaurant industry; the underlying report develops assessment of Chinese external environment for restaurant launching. The assessment is aimed to prepare homework grounds for the fast food restaurant to launch in China. The fast food restaurant having established footings in the UK as restaurants and takeaways segment along with standing in other countries is planning to reap the benefits from growing China with its special and distinctive fish and chip. For the stated purpose, the report covers following sections: Section I: Section I developed brief outlook of the current and future condition of restaurant industry worldwide as well as in China. Section II: Market assessment exploring Political, Economic, Social (Societal and Cultural), Technological, Environmental and legal environment to launch business. Section III- Key Success factors for successful business in China with respect to restaurant industry. Section IV- Strategy related recommendation. Section V- Conclusion 2. MARKET ASSESSMENT Overall current and future expectation for restaurant has been presented in section I. Based on the green outlook, given below is market assessment of external factors affecting business with reference to China. 1.0- 2.1. PESTLE ANALYSIS PESTLE Analysis is among most widely used tool to assess the market attractiveness. It provides detailed review of the factors of the market having dominant impact on business environment. 2.1.1. Political Politically, China is driven by mix recipe of capitalism as well as socialism models (The Economists, 2012). Political leadership of democratic system of China has been more adaptable to the growing challenges worldwide (Li, 2011). China is a conservative country with some moderation after strict authoritarian communist rule. Further, China had political problem with Taiwan to get united China again; however, now has moved to the more cooperative formats since 2008. Despite modernism, the country’s and world’s biggest political party still has monopolistic control and any wave of tension is being dealt with iron-hands (BBC News, 2012a). The leadership unveiled by the end of 2012 next to take charge is also driven public power dominated thoughts along with economic growth (BBC News, 2012b). However, the forceful control cannot undermine the growing disturbance with respect to Corruption, income inequality and party governance (Feldstein, 2012). UK-China political relationships are on road to progress and special events in the same regard happened in year 2012. In 2010, Chinese government signed trade agreement with China for $100 billion along with more than 250 projects to be complete by 2015. Further, 18% increase in UK exports to China has been witnessed in year 2012 (15). Further, UK government considers strategic relationship with China as priority along with economic as well commercial relationship (18). Hence, political environment in China as well as bilateral relations are extremely sound to undertake benefit of growing opportunity. 2.1.2. Economic Economically strengthened position of China has mesmerised the globe and globally strengthened firms are considering success in China as parameter to their success. For instance, Wal-Mart, Starbuck, Air France KLM, and Daimler, Siemens all have in line to exploit the opportunities from the China (China Daily, 2012b). Economic growth rate forecast for China by World Bank presented 8.1% in Oct 2012 but has recently presented a revision with 8.4% (China Daily, 2012a). Growth momentum escalation has also led predictors to state China will overtake US economy by 2035. World Bank further estimates that about $80 billion is invested in the China on an annual basis. This investment results in approximately 15 million new job creations (Economy Watch, 2010). Measure that hits investment and consumer buying is inflation and full year inflation forecast for China has been 2.9% as compare to 3.3% in 2012 ending quarter. Current account surplus is also expected to fall to 1.7% referring to incremental rise in imports. Ease to the banking sector to lend would keep the economic wheel running at its pace (Reuters, 2012). According to World Bank statistics, China reduced poverty rate from 65% to less than 10% and lifted nearly 500 million people above poverty line (World Bank, 2012). Disposable income also increased at a rate faster than GDP in 2012 (Yangpeng and Xiao, 2012): (Yangpeng and Xiao, 2012) Chinese’ economic growth forecast assuming current status continuum is as follow: (World Bank, 2012) The effective model of supporting the original state owned enterprise while liberalisation of other sectors along with Chinese aggressive investment and saving make it an outlier among other countries: (World Bank, 2012) Further, there has been massive urbanisation in China since last decade. From less than one-fifth in 1978, urban population increased to almost half of Chinese population. Further, it is expected to take it two-third of the population share by 2030 (World Bank, 2012). Therefore, expansion in cities of China has been expanding at following rate (World Bank, 2012): (World Bank, 2012) Along with benefits of economic growth that Chin has reaped, it has landed in trap of some issues that are growing at faster pace with passage of time such as corruption, income parity, increasing cost of living, middle income trap etc. Moreover, government attempts to combat such menaces have been considered too slow as compare to pace required (Economy Watch, 2012; World Bank, 2012). Challenges to China and Future Strategy For 2030 With growth in economic development, challenge to Chinese economy has been increasing. Future strategy, hence, requires taking measures that ensure the following actions to mitigate negative impact of economic development (World Bank, 2012): Clear demarcation of government role in different sector; reduction of burden of government-owned enterprise. Plans to continue innovation. Seizing the go-green opportunity to meet environmental challenges Realigning development to social security especially the growing income parity. Maintaining strength of fiscal system to safeguard from US like collapse. Relationship on mutual benefit. Improving educational attainment Therefore, economic growth of China for coming decade, at least, is highly attractive for the restaurant business. 2.1.3. Social Social structure of China has also changed with economic momentum. With economic growth and urbanisation, income structure of Chinese people has also improved. Two facet impact of society includes huge consumer market that magnets imports and FDI (for taking benefit of cheap labour force) (Williams, 2012). Further, there is consistent rise in main stream consumer as follows: (Atsmon, Magni, Li, and Liao, 2012) Further, income level is also following the given below direction: (Atsmon, Magni, Li, and Liao, 2012) Further income class, variation is having given below parity across cities based on pace of development: (Atsmon, Magni, Li, and Liao, 2012) With change in income, the Chinese consumer is undergoing change in discretionary spending with given below trend being witnessed and expected to grow: (Atsmon, Magni, Li, and Liao, 2012) Moreover, social setup of Chinese people is also undergoing change. Atsmon, Magni, Li, and Liao (2012) refers develops the aging population, delayed lifestyle such as delayed marriages and family expansion plans (one child policy resulting 13 million more men of 25-34 age group than women by 2020) and increasing working and independent women (expected to be 50% of women population by 2020) is also among dominant characteristics of society. Further demographics indicate of 126.5 million more people of 65+ ages by 2020 (Atsmon, Magni, Li, and Liao, 2012). This changing model is leading to aspiration led buying trend to gain momentum in former demographics while latter ones are less inclined to discretionary spending. Further higher education is also among the growing trends. Hence, following behavioural patterns are emerging in the China (Atsmon, Magni, Li, and Liao, 2012): Pragmatic spending so fear stuck in middle income trap (28% attracted to impulse buying as compare to 49% in UK). Product with sense of individuality has greater appeal and developing brand loyalty. Very specific cultural impact of China traces guidance from Confucianism- a social and political guideline that is witnessed in life of Chinese; and despite every modernism it constitutes major impact of culture (Murray, 2011; Okoro, 2012; Fang, 2010). Furthermore, in Chinese restaurants fish cooked shall be served in whole and over turning fish is considered as unforeseen consequences (Baldwin, 2011). Hence, Chinese are hugely driven by myths and all such factors must be accounted for before starting a business (Boontanaplbul, 2010). 2.1.4. Technological Technological advancement is China has hit heights and future has still higher prospects (The Economists, 2012). The technological advancement is also gaining considerable support from government and the country has fastened belts to take-off and take-up the near-by position with technological leaders such U.S. (Ditz, 2011). Factor having no direct impact on the business domain ABC planning to enter; however, growth in this sector will increase economic prosperity and hence market for the business will be widened. 2.1.5. Environmental Earlier China was forced to combat the air pollution only, but intensified water pollution issue has hit China in recent past. About one-third of hazardous waste water is discharged in rivers and lakes without treatment. Report in summer 2011 stated 43% of polluted to extend of being dangerous for human contact (Hays, 2012). Total amount of water available to China and its sources had following change over years: (KPMG, 2012) Though huge investments are being made to retreat water (KPMG, 2012); still China is under immense pressure to strike the balance between ecological and economical growth (Brubaker, 2012). This issue is very critical to business understudy as healthy and tasty fish totally dependent on nature source of fresh water. 2.1.6. Legal Legal conditions for doing business in China are moderate. Authority fight between federal and provincial government poses risks to business especially for business case to launch in multiple cities (China Risk Management, n.d). Legal matter related to labour law issues and their easy settlement; for instance, in case of Apple and Rio Tinto etc, reflects the not very difficult situation (Duhigg and Barboza, 2012). Government is investing to strike balance for restaurant industry growth by eliminating the regulation but at the same time making efforts to increase the food safety regulation (Xinhua, 2012; Rentz and Xu, 2010). Accounting various legal aspects, China ranks on 91st position on the doing business with following parameters: (IFC, 2012) 3. KEY SUCCESS FACTORS Success of business in an environment is dependent on addressing key success factors of business as well environment. Key success factor for doing business in China in comparison with factors ranking in western countries is as follows: (Huang, Bruzga, and Wang, 2011) Key success factor for the hospitality industry is as follows: (Melia, 2009) Therefore, success of restaurant in China has to address these factors. Critical impact from human resource management adheres to the importance of people’s impact. Moreover, adoption the taste buds of the Chinese people with product innovation and adaption has been main factor. Success stories of McDonald developing brand loyalty as well as Starbuck (premium leader) with psychological position of aspiration buy; integrated in the model the element of innovation as well as adaptability (Bahaudin, Mujtaba, & Patel, 2007; Wang, 2012). In case of missing on these elements, businesses are prone to fail despite all competencies. 4. STRATEGIES RECOMMENDATION For going global businesses are open with following three options: Franchising Joint Venture Sole Owner outlets To maintain the premium taste and product quality, businesses shall enter in the joint venture in China. Franchising will rest the entire production as well as management in the hands of Chinese and business fear losing its value added flavour of distinction of UK whereas sole owner format will make it difficult to incorporate the local expertise in managing business. Joint venture will enable business to develop adaptable model for success in Chinese market. Some of the benefits that will be reaped from the joint venture are as follows (Ojiako, Maguire, & Guo, 2009): Innovation in product; branding; pricing etc to appeal the target market Locals enjoy expertise to deal with legal matters of business. Employing locals, company can position itself as corporate responsible citizen. Meeting challenges of market, competitor, industry, cultural, operational, project and reputational risk. However, there remains challenging task to select the partner that intends to benefit mutually. Mistake on this critical front can have devastating impact especially on reputational factor of the business. 5. CONCLUSION Irrespective of expertise business holds, launching business in other environment is critical and hence, requires assessment in detail. The assessment of China for business launch developed in the report provide green signal. Moreover, the report has also highlighted key success factors with respect to hospitality industry as well as Chinese business environment to ensure success. Upon assessment of the broad environment using PESTLE and key factors using Key Success Factors analysis, the report suggests business to enter China with Joint Venture format. The suggestion been supported by benefits of joint venture as well as the reasoning behind suggestion of not adopting the other two possible modes. 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