Global Expansion Plan

LETTER OF TRANSMITTAL 22 November 2012 Datuk Steven Sim Chief executive police officer and managing director riddle pattern Cakes and Cafe Sdn Bhd Malaysia Dear Sir, FINAL describe SUBMISSION EXPANSION PLAN TO VIETNAM MARKET Please find habituated the narrativeed requested by the wag. This report reveals an insight into the Vietnamese viands market and explains why this is a potential cardinal to authorise in. We hope that the training nominated is useful in the decision-making with regard to further formulatement of sneaking(a) convention in the future.If you need any farther clarification on the report, recreate do not hesitate to contact me, the team leader, at an netmail address emailprotected nottingham. edu. my Yours sincerely, Nguyen Huynh Bao Ngoc On behalf of the world(a) Strategy Team Table of limit 1. Executive summary3 2. Introduction4 3. Methodology5 4. Findings and Discussion6 4. 1. Motives of internationalization6 4. 2. Justification of entering in to Vietnam6 5. Conclusion13 6. Recommendations14 6. 1. Most appropriate dodging14 6. 2. entrance mode14 6. 3.Appropriate musical arrangement structure15 7. References16 1. Executive summary This report critic solelyy examines the possibility of Vietnam to be the next stop in arcanum chemical formulas political platformetary expansion plan. Initi totallyy, the report highlights the current gravid achievements that incomprehensible chemical formula has been attaining from its really first internationalized activity. Employing the proper strategy and organism favored by consumers all guarantee an auspicious future for the chain. Taking all of these merits, the come with consecutively looks for crude marketplaces with new resources.Simultaneously, findings have shown that Vietnam is an appealing market because of its potentials in a fast-growing economy and long-term profitability, as well as overflowing resources. Then, the country chance synopsis and the country market and persistence opportunities analysis were introduced to evaluate Vietnams welfares and drawbacks. The result is that there atomic number 18 rooms for some(prenominal) of them. Therefore, so as to be successful, recommendations on appropriate entry mode, strategy and organization structure atomic number 18 specified.To be more detailed, the most fitted entry mode is master franchising via a joint venture because it brings just well-nigh the confirmingly high certainty in operating(a). As for strategy, it is an international angiotensin-converting enzyme to ensure consistency in the carte and invention by winning control over the core competencies and leaving another(prenominal) decisions to extraneous subsidiaries. Besides, the ecumenical battlefield Structure is vital in basis of managing the companys global expansion as it enables topical anaesthetic responsiveness and decentralized authority, which both matter for future growth.Finally, the main conclusion is t hat Vietnam is the right solution for the Boards decision to broaden overseas. N unitarythe slight, the counsel should cautiously take into look the recommendations so that reclusive Recipe whoremaster win. 2. Introduction incomprehensible Recipe has gained its popularity not only in Malaysia but besides across the region. The great succeed stemmed from the ambience brought to customers and the high-quality victuals served at reasonable prices. The tally of immaterial outlets is like a shot exceeding 40 and is expecting to increase. tally to Welch and Luostarinen (1988), internationalization poop be described as a process by which the level of involvement in overseas activities of a firm rises. Indeed, adding the number of overseas outlets up to 100 was part of the ambitious global expansion plan. Recently, the company has played out RM60 million to invest in 2 more new markets which are India and Cambodia (TheSundaily. com, 2011). Evange listinga (1994) argues that the readiness to fund international activities proves that firms desires to move further.In the historic 3 years, the company has witnessed an annual growth rate of 30% (Articlebase. com, 2011). Taking advantage of both the reputation and the growth pace, it is the right epoch to put one mensuration further and seize the opportunities available in a new market to grow even larger. The Global Strategy Team, subsequently doing research on several potential markets within the Asian area, strongly recommends Vietnam. In this report, the motives of internationalization of Secret Recipe will be dis closelyd, as well as the motives of choosing Vietnam as a new international market will also be revealed.And as for a smooth penetrating process, recommendations relating to the strategy to be implemented, to the entry mode to be executed, and to the organization structure to be form will be offered. 3. Methodology The in governing body and info given were calm from many government and organ ization websites, namely Datamonitor, Trading Economics, General Statistics smirch of Vietnam, etc. Besides, a proportion of them were also taken from reliable online newspapers such(prenominal) as TheSundaily. com.In addition, knowledge from outside(a) Business books and journals was also introduced to help provide a better taking into custody. Nevertheless, due to the unavailability of official information about Secret Recipe movement, the analysis had to rely entirely on online newspapers and the chief executive officers reported interviews. In addition, the focus of the report is largely on the victuals sector, not the franchising one. It is due to the well-structured characteristic of the franchising that it promotes a simple style to interpret and analyze.By contrast, viands is a subjective topic as it relates to individualized opinion, thus there are limits on suggestions. 4. Findings and Discussion 4. 1. Motives of internationalization Secret Recipe is now among the fastest-growing restaurant chains both domestically and regionally. For the abide 5 years, the growth rate has been an amazing double-digit figure (TheSundaily, 2011), accompanied by a rapid increase in the number of outlets. Currently, its outlets present in 8 Asian countries including China, Australia and Pakistan.In any market, there is always a positive reaction from the consumers. A proven fact is that Secret Recipe has been awarded with many titles such as Best Cheesecake award, Malaysias vanquish local anesthetic restaurant chain, Indonesians Best Restaurant Award, Singapores Excellent solid food Award, Best Restaurant Award Philippines Talter, etc. This is to say, Secret Recipe, after securing its stance in Malaysia, is continuously gaining customer awareness and fame throughout the region. As a result, Secret Recipes movement could be stovepipe explained using Eclectic paradigm (Dunning, 1980, 1981).Among the 3 advantage factors recognized by the Eclectic paradigm, the Ownership advantage appears to be most relevant to the scene of Secret Recipe. As stated above, the company now possesses a rich intangible asset which is good brand awareness. Besides, stated in the theory, one of the reasons behind the internationalization of a multinational firm is market seek investment. In this particular case, Secret Recipe is to exploit new market (i. e. Vietnam) because of its prospects of market size and market growth (Dunning and Lundan, 2008) 4. 2. Justification of entering into Vietnam Vietnam risk analysisPolitical risks Vietnam is famous for its political stability. This diminishes the insecurity and uncertainty of foreign investors deciding to invest in Vietnam. According to gentlemans gentlemanwide Governance Indicators (2011), the Vietnamese political environment remains almost steady in the past 15 years. Figure 1 Source Worldwide Governance Indicators (2011) business concern line Percentile ranks indicate the percentage of countries worl dwide that rank lower than the indicated country, so that higher values indicate better governance scores. The line graphs intromit margins of error shown as dashed lines, corresponding to 90% confidence intervals.Competitive risks putrefaction level in Vietnam is reported to be one of the highest in the world. According to Transparency foreign, 2011s score was 2. 9, which increased 0. 2 points compared to the year before. Indeed, in comparison to other countries in Southeast Asia such as Malaysia and Thailand, Vietnams freedom from corruption index remains low (refer to figure 2). However, the formation of the Vietnam Anti-Corruption Initiative Program 2011 (VACI) supported by World Bank in some way take overs the situation. Figure 2. Vietnams freedom from Corruption in comparison with Malaysia, Thailand and the World AverageSource Heritage (2012) Operational risks Suppliers play an important role in deciding the quality. In any market, suppliers are abundant but not all of th em can provide what Secret Recipe desires for a good computer menu. Therefore, an insightful search should be carried out before entering the market. Economic risks The swelling rate of Vietnam fluctuates wildly (refer to figure 3). This issue somehow imposes a concern, as the less wealthy class will be more advised with eat-out whenever the rate is high, which eventually will negatively impact the foodservice sales. Figure 3 Source TradingEconomis. om General Statistics Office of Vietnam Vietnam market and industry opportunities Market In the World Banks 2011 Annual Report, Vietnam is comprehend to reach a middle-income level country soon enough. The Vietnamese foodservice industry grew at a CAGR of 6% from 2005 to 2009. It is estimated that the growth rate would be at a CAGR of 4. 5% from 2010 to 2014 (Datamonitor, 2011). In recent years, the country has also witnessed a steady urbanization, with a rate of 3. 1% in 2010 (ReportLinker, 2012) accompanied by a abrupt rise in pop ulation, implying an increasing demand for food.The rationale behind this is that as people move to big cities to work, they will have little time to prepare their own meals. Thus, eating out becomes an optimal choice. Also, according to that report by ReportLinker, there has been a surge in the number of households in Vietnamese economy. Two types of households that contribute the most the industry are exclusive member households and working couples as it fits into their fast-paced lifestyle. Furthermore, Vietnamese population is massive (87. 84 million in 2011) and young. Specifically, in 2010, the group 15-29 (i. e. argeting customer of Secret Recipe) appeared to be significantly larger than others. It is predicted that the group will be expanding in the next ten years, indicating a long-term growth for Secret Recipe in Vietnam food industry. Figure 4. Vietnam population by age and finish up in 2010 Figure 5. Vietnam population by age and sex in 2020 Resources Labor Secret Rec ipe can be beneficial from a low-cost and huge workforce. According to General Statistics Office of Vietnam, 57. 2% of Vietnams population participated to labor market and 32. 5% of them had undergone or completed a vocational/professional training.It somehow guarantees skilled labor force availability. lancinate materials Basic ingredients are available here in Vietnam. However, only dependant suppliers worth the contracts otherwise they may ruin Secret Recipes image. Nonetheless, some of the flavors can be costly as they are merchandise goods with high prices. An approach to this problem could be buying in protrude and storing them for further process. Location A number of shopping malls and superior residential areas are existence built as a developing plan (Food services in Vietnam, Market Analysis, 2012). Therefore, Secret Recipe can comfortably reach to its customers.Apparently, however, rental price should be considered consciously. Competition Porters Five Forces model , which consists of five elements, is used to give an overall picture of the food industry in Vietnam. Intensity of rivalry mean(a) Currently, in terms of cheese cake, which is a core product of Secret Recipe, there are no direct competitors as none of the existing players emphasize their menu on that. Nonetheless, as for other Vietnamese dishes that will be authentic later on, Secret Recipe should be aware that they have been being offered by domestic independents for years (Food Service profile, 2012).Their primary advantage is the understanding of the market, customers and their judgment, which will take times for Secret Recipe to gain. Threats of new entrants Medium to spirited Setting up a food business more often than not does not require high capital in comparison to other businesses. However, the procedure to ask for permission to do business in Vietnam ineluctably good relationship with the authorities. Undoubtedly, food is a recession-free industry hence business ent ities can earn profit eventually setting foot into this industry. negotiate power of suppliers LowAs mentioned, in order not to ruin Secret Recipes name, only reliable and qualified suppliers selected. Therefore, once the contract is write between the 2 parties, it will be a long-term one and thus the displacement cost would be comparatively high, causing the suppliers negotiate power to be low. Bargaining power of customers High Vietnamese food consumers are offered with many choices. Currently, there are several cake brands operating in Vietnam such as Paris Baguette, Chewy Junior (Singapore brand), number le Jour (Korean brand).Besides, street vendors food is plentiful with many different taste and prices to choose from. Consequently, together with a favor in low switching cost, customers can easily go to another restaurant if they want to. Threats of substitutes High Cakes are not that essential in a persons daily life. Moreover, food in general in Vietnam is diversified a nd can be found on any street with a relatively reasonable price, mostly serve local cuisines to their largely native customers peculiarly in big cities like Ho Chi Minh City.Thus, when it comes to hunger, people can choose from a wide range of them. 5. Conclusion To put it in a nutshell, the motives of internationalization of Secret Recipe can be best enlightened applying Eclectic paradigm, particularly the Ownership advantage. At the moment, the companys strategy is trying to spread its brand name beyond borders by constantly looking for new international markets and by bravely outgo budget on them. Accordingly, one with great potentials would be worth the investment.All the findings and data have proved that Vietnam comes in the first place in the list of promising marketplaces due to its strongly growing economy, low-cost labor, and dynamic food market. Although entering into the country poses obstacles (e. g. intense competition, good authorities relationship) and economic th reats (e. g. volatile inflation rate, high corruption rate), choosing the right strategy, the right means of qualifying into it and building a suitable organization structure would foster an efficient and efficient managing job. 6. Recommendations 1. 2. 3. 4. 5. 6. 7. 1.Most appropriate strategy The most suitable strategy to be executed when entering Vietnam market is international strategy. There are two reasons for this choice. Firstly, the Secret Recipes menu on cheese cakes was primitively developed by Malaysian chefs. People come to the restaurant mostly to enjoy the unique fine taste and the ambience there. Therefore, the RD function should be in the home country so that the uniqueness making the brand name will always be the same. This happens to be parallel with the top managements viewpoint in which the menu stays unchanged in any market.Secondly, the pressure for local responsiveness is low, not zero. Also, the most crucial characteristic of any organization is the wil lingness to develop products for foreign markets (Rosson and Ford, 1982). In fact, the success of Secret Recipe in foreign markets has its root in the willingness to include the popular dishes of the local food culture. Furthermore, Vietnamese consumers favor their traditional dishes such as Pho, spring rolls, etc. Thus, being able to fruitfully offer them in the menu will for sure be an advantage. 1. 2. 3. 4. 5. 6. 7. 1. 7. 2. Entry modeOviatt and McDougall (1994) advise that firms should use alternative governance structures, such as franchising, licensing. And together with the analyses about Vietnam risks and industry opportunities, the recommended entry mode for Secret Recipe is establishing a master licence via a joint venture. The reasons are as follows. First of all, Secret Recipe is in the food industry where the best mean of doing business is franchising. Indeed, the company has achieved its regional prospect thank to properly implementing that form. In other words, the management is experienced.Moreover, the franchising is now widely perceived and accepted by Vietnamese business entities and the government, making the process easier and less costly. Secondly, Secret Recipe is still on the progress of opening a foreign market, thus what matters the most to the management would be the development be and risks. As a result, setting up a master franchise will somehow save the management from many problems as it is now the master franchisees job to select and train franchisees, select locations, etc. Also, the costs and risks will be shared with the local participator in a joint venture.Thirdly, there is always a need to get over control challenges and to protect the brand name, as well as to benefit from a local partners knowledge of the host countrys competitory conditions, culture, language, political and business systems whenever expanding internationally. In this sense, a joint venture appears to be essential and practical. Besides, due to the complexity of Vietnamese market, a Vietnamese partner would be helpful in negotiating with the authorities, finding suppliers, recruiting personnel, etc. 7. 3. Appropriate organization structureIn terms of global expansion management, the recommendation structure goes to Worldwide Area Structure. The reason is that for farther development, Secret Recipe will obviously expand to other markets in different countries and territories around the world. Sooner or later, the management will have to deal with problems arising from dissimilarities in customers taste, operational issues, etc. Consequently, to save costs and efforts, it is necessary to have a decentralized bureaucracy, which can be built under a Worldwide Area structure.Plus, the structure facilitates local responsiveness, which is relatively crucial to a restaurant chain like Secret Recipe. On the other hand, the structure bears the threat of fragmentation of the organization. Hence, it needs close monitor and periodical rev iew. Words count 2,254 7. References A recipe for success (2011) Online. on hand(predicate) at http//top10malaysia. com/home/index. php/trail-blazing-companies/secret-recipe Accessed 19th October 2012 B. M. Oviatt, P. P. McDougall (1994). Toward a theory of international new ventures.Journal of International Business Studies, 25 (1994), pp. 4564 Corruption in Vietnam is serious, blatant, rampant (September 2012) Online. Available at http//tuoitrenews. vn/cmlink/tuoitrenews/politics/corruption-in-vietnam-is-serious-blatant-rampant-1. 85998 Accessed 12th November 2012 Dunning, H. J. , Lundan, M. S. (2008). Multinational Enterprises and The Global Economy. (2nd Edition). UK Edward Elgar Publishing Foodservice in Vietnam to 2014 (July 2011) Online. Available at http//www. marketresearch. com/Datamonitor-v72/Foodservice-Vietnam-6446347/ Accessed 28th October 2012 F. U. Evangelista (1994). Export performance and its determinants some empirical evidence from Australian manufacturing firm s ,in S. T. Cavusgil, C. T. Axmin (Eds. ), Advances in international marketing, vol. 6JAI Press, Greenwich, CT (1994), pp. 207229 General Statistics office of Viet Nam Online. Available at http//www. gso. gov. vn/default_en. asp viperx? tabid=515idmid=5ItemID=106550 Accessed 5th November 2012 Hill, C. W. L. (2012), International Business Competing in the Global Marketplace, (9th ed. McGraw Hill, p434-439. L. S. Welch, R. K. Luostarinen (1988). Internationalization evolution of a concept. Journal of General Management, 14 (2) (1988), pp. 3455 P. J. Rosson, L. D. Ford (1982). produceroverseas distributor relations and export performance. Journal of International Business Studies, Fall (1982), pp. 5772 Secret Recipe to invest RM60m on expansion (December 2011) Online. Available at http//www. thesundaily. my/news/243733 Accessed 21st October 2012 Secret Recipe in Malaysia (July 2011) Online. Available at http//www. articlesbase. om/customer-service-articles/secret-recipe-in-malaysia-50 66674. html Accessed 22nd October 2012 Secret Recipe plans more foreign outlets (January 2008) Online. Available at http//biz. thestar. com. my/news/story. asp? file=%2F2008%2F1%2F24%2Fbusiness%2F20105989sec=business Accessed 22nd October 2012 Vietnam Anti-Corruption Initiative Program 2011 Awarded 34 Proposals to Minimize Corruption http//web. worldbank. org/WBSITE/EXTERNAL/COUNTRIES/EASTASIAPACIFICEXT/VIETNAMEXTN/0,,contentMDK22793085pagePK1497618piPK217854theSitePK387565,00. tml Accessed 12th November 2012 Vietnamese foodservice The future of food service in Viet Nam (October 2012) Online. Available at http//www. reportlinker. com/p01010818-summary/Vietnamese-Foodservice-The-Future-of-Foodservice-in-Vietnam-to. html Accessed 5th November 2012 Vietnam rising prices rate http//www. tradingeconomics. com/vietnam/inflation-cpi Accessed 11st November 2012 Vietnamese population pyramid for years Online. Available at http//www. nationmaster. com/country/vm-vietnam/Age_distribution Acce ssed