Red Rooster Entry into Indian Market - Case Study Example

ENTRY INTO INDIAN MARKET By Name Course Instructor Institution City/State Date Table of Contents ENTRY INTO INDIAN MARKET 1 Table of Contents 2 Red Rooster Entry into Indian Market 3 Executive Summary 3 1.0 Introduction 4 1.1 Brief background of Red Rooster 4 1.2 Reason for selecting Red Rooster 5 1.3 Rationale behind Red Rooster going into India 5 2.0 Analysis of India external environment 6 2.1 Political Factors 6 2.2 Economic Factors 7 2.3 Socio-cultural Factors 7 2.4 Technology Factors 8 2.5 Legal Factors 8 2.6 Environmental Factors 9 2.7 Infrastructure Analysis 9 3.0.0 Analysis of the industry 10 3.1.0 Porter’s five forces Analysis 10 3.1.1 Threat of New Entrants 10 3.1.2 Threat of Substitutions 11 3.1.3 Competitive Rivalry 11 3.1.4 Power of Buyers 11 3.1.5 Power of Suppliers 12 3.2.0 Consumer Characteristics and Behaviour 12 4.0 Resources and Capabilities of Red Rooster 13 5.0 India Entry Strategy 13 6.0 Post Entry Strategy 14 7.0 Organisation of Operation 15 Given that Red Rooster would experience more organisational challenges in the Indian market than those experienced in Australia, the company should maintain functional organisational units using the geographic structure. This structure is a commonly utilised by organisations expanding to foreign markets. Aside from the headquarters, Red Rooster’s semi-independent operations should be established in India. The geographic structure would enable the company to achieve flexibility and easily transfer responsibilities to the Indian Market. 15 Conclusion and Recommendation 15 References 16 Red Rooster Entry into Indian Market Executive Summary Started in 1972, Red Rooster is a fast food restaurant franchise born in Australia and valued by many people. While Australians are becoming increasingly mindful of healthy eating, Red Rooster has turned out to be a healthy and tasty choice. India is an ideal market for Red Rooster because it is the world’s second fastest growing economy and it is also the largest democracy. Besides that, India provides political stability which is crucial for foreign companies seeking to enter the Indian market. With a pro-business attitude, the Indian government agencies always work closely with foreign investors to facilitate the growth of the Indian economy. The best mode of entry for Red Rooster in India is franchising since the risks involves are minimal. The majority of fast-food businesses utilise franchising model because it brings organisational and structure unity by offering business opportunities’ platform for foreign companies in the emerging markets. Besides that, franchising would create opportunities for employment and personal growth for the Indians. Hiring local employees would enable Red Rooster to create a ‘local’ and friendly corporate image that would enable the company to be successful. For Red Rooster to become successful in Indian market, it should adopt the ‘penetration pricing strategy’, which involves setting selling the products at a lower price than the normal price to successfully infiltrate the market. This strategy would enable the company to attract a lot of customers and also increase its market share. 1.0 Introduction 1.1 Brief background of Red Rooster Red Rooster is considered to be the most successful fast food restaurant in Australia. This success is attributed mainly to the freshly prepared, high quality and great tasting food, which is often delivered through recognised systems. The company has served Australians for more than four decades and has almost 360 restaurants across Australia. Red Rooster is presently considered as the largest franchise that provides roast chicken in Australia. Red Rooster was found in 1972 and has since then been recognised as the largest home-grown quick service restaurant brand that specialises in Roast Chicken. With more than 40 years in the Australian Market, Red Rooster presence all through the Australian suburban landscape is not only familiar, but also nostalgic (Franchise Business, 2016). The company has continued maintaining the Australian traditional values but has also remained dynamic and forward thinking. Presently, the company is planning to improve its financial growth and diversify its offering by introducing loyalty program, home delivery services and open more restaurants across Australia. Given that the company future goals is to improve its financial growth, the company would achieve this by expanding their business to other countries; thus, allowing other people to taste their delicious roast chicken. 1.2 Reason for selecting Red Rooster The reason for choosing Red Rooster is attributed to the fact that despite operating in Australia for over four decades, the company has no global footing. At the local level, the company is competing with other established restaurants chains such as MacDonald’s and KFC; thus, the Australian fast food market is very competitive. Therefore, the survival of Red Rooster will depend on its ability to tap into the new markets, such as India and China. For Red Rooster to grow in the future and survive, the company should expand its operations to India. Given that the world economy is experiencing some problems because of the recent economic depression, the emerging economies such as India would present Red Rooster a perfect opportunity to expand globally and improve its market presence at the international market. India population and economy growth connotes that the purchasing power parity at the country is rapidly increasing. 1.3 Rationale behind Red Rooster going into India Currently, India is the world’s second largest growing economy and its middle class population is rapidly increasing while. India’s Quick Service market has been experiencing a phenomenal growth rate, which is exceedingly higher as compared to other countries across the globe. India’s fast food market according to Xing and Ng (2015, p.131) has been growing at a rate between 30 and 35 per cent annually. The majority of established fast food brands such as KFC and MacDonald’s have successfully made inroads in the fast food market and their growth in the market has been substantial. The country’s population mainly consists of youth working for multinational companies or studying. Clearly, the Indian market provides Red Rooster an opportunity to penetrate using suitable strategy. Given that the fast food chains already present in India have trained the customers about the different tastes from Western countries, the resources that Red Rooster could have used to educate the customer in India regarding the fast food restaurants concept can be invested elsewhere. Still, the increased penetration of smartphones in India offers Red Rooster an opportunity to market its products through social media. 2.0 Analysis of India external environment 2.1 Political Factors India is a democratic nation with a strong political system, whereby different political parties are allowed to participate in active politics. The country’s political; environment consists of elements such as government policies, different political parties’ ideologies, politicians’ interest, and actions directed towards improving the people’s lives. India has a well-developed taxation system and people are required to pay sale tax, services tax, income tax, and property taxes (Sreenivas, 2006, p.302). Besides that, privatisation policy has been adopted with the objective of improving government’s productivity and efficiency. The country’s economic development is attributed to government stability¸ international trade regulations, deregulation policy, and government initiatives. In addition, the major reforms made in the country have successfully made India productive and economically strong. Political turmoil hardly happens in India because national election takes place after every five years. 2.2 Economic Factors According to Bertsch et al. (2013, p.4), the GDP growth rate of India was 8.4 per cent for years between 2003 and 2008. Despite being the second fastest growing economy, India’s government reluctance to improve the country’s infrastructure so as to facilitate the flow of resources has somewhat decelerated the rate of economic growth. This is further exacerbated by customs delays since the processes of customs clearance require India-based businesses to maintain bulky inventories. However, the India’s economic situation has remained strong, especially after the introduction of industrial reforms by the Indian government in 1991. The economy further improved after government created Foreign Investment Promotion Board (FIPB), reduced industrial licensing, and liberalised foreign capital. In 2013, India earned a GDP of $5.07 trillion and the GDP growth rate improved from 4.35 per cent in 2013 to 5 per cent in 2015 (Rosy, 2016, p.65). More importantly, government has introduced friendly business policies for foreign investment. 2.3 Socio-cultural Factors In India, social factors include different social changes and trends such as customs, festivals, belief, traditions, languages, and so forth. Most of the Indians are Hindu, Sikhs and Muslims. Even though are free to belong in any religion, a violent and aggressive environment has been created by the Hindu extremists opposing other religions. The Hindu extremists normally attack individuals from other religions and seemingly the government has failed to handle these atrocities; as a result, the extremists have successfully expanded to various regions. India’s reputation has been soiled by such activities; therefore, foreign investors have been hesitant to invest in the country. Besides that, the number of gang rape cases across India has increased recently and this exhibits the alarming situation in India (McCoy, 2014). The Indian culture promotes socialisation through snacking and eating; therefore, this has led to the growth of the fast food industry. 2.4 Technology Factors Technology advancement in India has been remarkable and has result in cost reduction, improved product quality and enhanced innovation. Clearly, the technological landscape of India has been the main force behind the country’s economic success. Still, the demands for R&D have outpaced the number of skilled employees. However, the strategic plan initiated by the government focuses on expanding R&D in institution of higher education and improving opportunities within the scientific study fields. Currently, India’s gross expenditure on R&D is below 1 per cent; therefore, the country is ranked last in the BRIC countries (Government of India, 2015). Still, strong support through reformist legislation and low costs has made India the most suitable country to invest in R&D. Additionally, more than 3 million scientific as well as technical professionals are located in India and the Indian universities produce approximately 360,000 engineering and 50,000 computer science graduates annually. 2.5 Legal Factors India’s judiciary system is considered to be non-partisan as well as independent since the appointment of judges is not based on political considerations (Kachwaha, 2003). The structure of the country’s judicial system is unified consisting of lower courts, the High Courts and the Supreme Court. The British Judicial System influences India’s judiciary system to a larger extent. English is the official language used in the Supreme Court and the High Courts. According to PWC (2012, p.16), India’s procedural law together with the corporate and commercial laws have been modelled on the English laws. The country normally refers to and relies on the English case law. Besides that, the country’s legal system is wide-ranging and foreign direct investment is encouraged by the taxation policies. By design, the judicial system in India is transparent, equitable, and fair. Still, inefficient processes and inadequate resources have resulted in cases backlog, which weakens the country’s credibility at the international level (Bertsch et al., 2013, p.6) 2.6 Environmental Factors Pollution in India has affected the living conditions and public health and is attributed mainly to waste disposal, planning permissions, and inability to control noise. Although the government has taken some actions to control the levels of pollution across the country, the existing policies for environmental protector have been inadequate to achieve the intended goals. The water resources have been depleting due to high population growth rate. Furthermore, the county’s reliance on coal for thermal energy has resulted in major problems such as acid rain as well as air pollution. The particulate levels in the majority of India’s major cities are considered unsafe (Bertsch et al., 2013, p.7). 2.7 Infrastructure Analysis India's infrastructure has been experiencing numerous issues such as unclear regulations and land clearance issues. India’s infrastructure problems are associated with water, sewerage, business premises, bridges, roads, and so forth. Infrastructure has continually been cited as the main obstacle to business seeking to expand to India. According to Agarwal (2013, p.1), the rapid industrialisation experienced in India has strained the unreliable water and electricity networks. The overcrowded railway system has failed to meet the freight capacity demand. The Indian government should upgrade its infrastructure in major cities such as Bangalore, New Delhi, Mumbai, and Kolkata. The torrid urbanisation rate expected in the future signifies the need for the government to invest massively in infrastructure. 3.0.0 Analysis of the industry Many multinational fast food companies has have moved into the Indian market; thus, significantly influencing the Indian consumers’ taste buds. Fast food is slowly being accepted over traditional food because of Western countries’ influence as well as the increase of income and improved living standards. For that reason, Indian customers have started accepting the fast food menus. The Indian fast food industry is expected to expand rapidly because of the entry of global giants such as MacDonald’s, Domino's Pizza and KFC. 3.1.0 Porter’s five forces Analysis 3.1.1 Threat of New Entrants In the Indian market, the threat of new entrants is moderate since the industry is dominated by numerous fast-food chains, which includes KFC, Domino's Pizza, and MacDonald’s. These three brands boast a strong recognition and customer loyalty because of their consistent service and quality. Still, it is easy for Red Rooster to enter Indian market as long as it can earn and sustain profit due to the high competition (Bose & Singh, 2011). With its uniqueness, reputation, and brand name, Red rooster can easily capture the Indian market. 3.1.2 Threat of Substitutions The threat of substitutions is moderate because there are readily available substitutes in the Indian market. Indians can buy food from any location, through retail or foodservice. Still, threat of substitutes can be reduced by the convenience since many customers are busy with their day-to-day activities; thus, cooking at home cheaply, becomes less convenient. Although the Indian market has different competitors capable of substituting Red Rooster’s main product, the company can still offer different unique products. 3.1.3 Competitive Rivalry Competitive rivalry is very strong since Red Rooster will be competing against established and reputable companies like MacDonald’s, KFC, and others (The National, 2011). In the fast food industry, companies always invest in their service and production processes in order to weaken the competitors. Even though Red Rooster will be facing increased competition in the Indian Market, it will experience less because competition in its main product line, which is very different from competitors’ products. 3.1.4 Power of Buyers The buyers’ purchasing power is somewhat moderate because the competitiveness of the fast food market has forced the key players to provide product that caters for the whole demographic, instead of a particular segment. Therefore, fast food retailers are using differentiated products to improve their brand value, increase customer loyalty as well as reduce the bargaining power of the customers. Red Rooster would have to increase the customers’ bargaining power by offering many options in order to be successful in the Indian market. 3.1.5 Power of Suppliers The suppliers’ power is the fast food industry is limited. The number of suppliers in the industry is very high; thus, it is very difficult for them to gain power over the fast-food companies. Soft-drink is mainly supplied by Pepsi and Coca-Cola, but the emerging soft-drink companies such as Boost Juice reduce their power over the fast-food companies. 3.2.0 Consumer Characteristics and Behaviour According to Deivanai (2013, p.52), Indian customers are progressively substituting their home prepared food with fast foods, but they still believe that fast foods lack adequate nutritional value. Some years ago, eating at home was an attribute of the Indian culture, but nuclear families growth has led to increase per capita income and economic growth; therefore fast food culture has become prevalent. Prabhavathi et al. (2014, p.1) posit that the changing behaviour of the customers as well as favourable demographics has resulted in the growth of fast food industry in India. In their study, Goyal and Singh (2007, p.193) observed that most young consumers in India normally visit the fast food restaurants for change and fun, but not to replace their home food as the first choice. Indian consumers according to Goyal and Singh (2007) have high nutritional values (value for quality and taste) followed by hygiene and ambience. According to Kearney (2010) the choice of fast food outlets by Indian consumers is influenced largely by their socio demographic attributes like religion, family size, level of education and disposable income, age factor and cultural background. Still, Indians are progressively shifting from unprocessed and fresh food to processed, branded and packaged food (Aloia et al., 2013, p.2). 4.0 Resources and Capabilities of Red Rooster The oven-roasted chicken, has made Red Rooster popular all over Australia and the company’s excellence is attributed mainly its recipes’ innovation and their revolutionary menu that meets different customers’ tastes. Since its establishment in 1972, the company has been developing and providing franchisees using its well-developed support and business systems. Currently, Red Rooster has over 360 stores and more than 5000 employees. Aside from its main products (Chips and roasted chicken), the retailer also sells healthy salads and baguettes in addition to delicious wraps and burgers. The company continues to add value to its business model and has created its systems that are different from those used by MacDonald’s and KFC since they are modified in a way that suits the Australia conditions. The company boast vast infrastructure and its experience in the franchisee business model. The company has adequate resources and capabilities needed to penetrate the Indian market. 5.0 India Entry Strategy Firms expanding to foreign market according to Chung and Enderwick (2001) normally face critical decision in selecting the best mode of entering the market. Franchising is the most suitable entry mode for Red Rooster since it is involved more directly in the creating and controlling the marketing programme. Franchising is a system through which franchisees (semi-independent business) royalties as well as pay fees to franchiser (the parent company) for using its trademark and business system and format to sell its products and services. In this case, the franchisor provides a wide package of resources and rights that normally consists of; site approval, initial trainings equipment, operation manual, systems of management, and other needed support in order for the franchisee to effectively run the business like the franchisor. Franchising will be beneficial to Red Rooster because of the associated low cost, low political risk, and facilitates business expansion to other parts of the world (Twarowska & Kąkol, 2013, p.1008). 6.0 Post Entry Strategy To be successful in Indian market, Red Rooster should use penetration pricing strategy. As opined by Musonera and Ndagijimana (2008, p.195), pricing strategy plays a crucial role in consumer decision-making process and purchasing behaviour. Using the penetration pricing strategy will help Red Rooster to grab the Indian fast food market share quickly and also generate a broad customer base. Furthermore the penetration pricing strategy would offer the Indian customers a high-value for their money. Therefore, setting a low price than other competitors would enable Red Rooster to effectively penetrate the Indian market as well as gain a substantial market share. After penetrating the Indian market, Red Rooster should adopt a continuous improvement strategy in order to continually improve product quality, costs, and development of new products. By differentiating itself from other competitors, Red Rooster would successfully maintain its competitive advantage. This can also be achieved through quality improvements and innovation (Yannopoulos, 2011, p.3). To market its products successfully in the new market, Red Rooster should use mainstream advertising, public relations, sales promotion, and social media. Using social media to market its products would enable Red Rooster to build conversions and networks with the and also create brand identity. To effectively manage the employees and the organisation, Red Rooster would have to align its strategic goals to the global approach in order to respect the local differences and comply with the different legal requirements. In addition, the company would have to improve its HR policies, talent management capabilities as well as leadership development. 7.0 Organisation of Operation Given that Red Rooster would experience more organisational challenges in the Indian market than those experienced in Australia, the company should maintain functional organisational units using the geographic structure. This structure is a commonly utilised by organisations expanding to foreign markets. Aside from the headquarters, Red Rooster’s semi-independent operations should be established in India. The geographic structure would enable the company to achieve flexibility and easily transfer responsibilities to the Indian Market. Conclusion and Recommendation In conclusion, it is clear that Indian market would provide Red Rooster abundant opportunities. The stability of political and economic system and robust legal framework makes India a suitable market for Red Rooster. Red Rooster can gain from the India’s bilateral free trade agreements and its regional trade network. More importantly, India’s tax regime is very competitive and also has a wide-ranging Tax Treaties’ network. India’s financial system has been effectively regulated and provides diverse services. Still, the company should be prepared beforehand since the Indian market changes continuously and is very volatile. Still, Red Rooster should focus on consumer impact by delivering a consistent and high quality product. In order to meet the customers’ high expectations, Red Rooster’s everyday activities as well as operations should be streamlined in a way that fulfils the customer demands. As mentioned suggested in the essay, penetration pricing strategy would help the company to gain Indian market share fast and would also generate a broad customer base. References Agarwal, M., 2013. The opportunity and challenge of India’s infrastructure. Mumbai: PWC. Aloia, C.R. et al., 2013. Differences in perceptions and fast food eating behaviours between Indians living in high- and low-income neighbourhoods of Chandigarh, India. Nutrition Journal, vol. 12, no. 4, pp.1-8. Bertsch, A. et al., 2013. Business Environment in India: An International Perspective. In Dhaka Conference. Minot, ND, 2013. Bose, N. & Singh, N., 2011. Western chains flock to India as fast-food craving grows. [Online] Available at: http://in.reuters.com/article/idINIndia-56619120110428 [Accessed 26 October 2016]. 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