International Production the Multinational Enterprise †Free Samples

Question: Discuss about the International Production the Multinational Enterprise. Answer: Introduction Due to globalisation and digitalisation, it has become easier for corporations to expand their business in overseas markets. Companies use different entry modes to enter into new countries and expand their business such as franchising, licencing, merger and acquisition, joint venture and others. The success of a business expansion depends upon the strategy chosen by the firm after conducting thorough research in its targeted market (Verbeke, 2013). Different strategies can be adopted by an enterprise after selection of a market such as global standardisation, localisation, international and transnational strategy. This report will focus on the international business expansion of Wendys which is an American fast food restaurant chain. The report will develop an expansion strategy for hamburgers of Wendys in the markets of Australia and China. The report will analyse the appropriateness of the markets by analysing various political, financial, economic, cultural and legal factors of Au stralia and China which negatively affects the business expansion strategy of the firm. Further, the report will recommend a general strategy of Wendys and entry mode which can be utilised by them to expand their products in the international markets. Wendys The company was founded in 1969 by Dave Thomas as an American multinational fast food chain restaurant. The headquarters of the firm is situated in Ohio, United States, and it offers services in more than 30 countries (Wendys, 2018a). It is one of the most popular fast food in term of sales; the firm is fourth highest selling fast food restaurant in the industry. The enterprise is known for its quick services and high-quality products. The company continuously introduce innovative strategies in order to generate a competitive advantage over its competitors such as McDonalds, Burger King, Subway, and others. The corporation is organised as a traditional brand in the United States due to its quick delivery and quality of food and services (Wendys, 2018b). As per the past year's performance of the firm, it is losing markets shares to large fast food restaurant chains such as McDonald's and Burger King due to various internal and external factors. The firm is unable to maintain its posit ion in the market due to the launch of new corporations in the United States market. In order to maintain its growth, the firm is required to expand its operations in international markets. It can assist in increasing its market share in the fast food restaurant industry, and it will also increase companys sales because new customers will buy the products of the firm. Description of Wendys Products The corporation operates in the restaurant industry, and it offers a wide range of products to its customers including hamburgers, salads, frozen desserts, French fries, chicken sandwich and others (Wendys, 2018c). The firm has gained a competitive advantage in the United States markets because of its quick delivery of products. The company offer fast check out for customers that reduce the long lines in the restaurants. Further, Wendys has also introduced drive-thru facilities for its customers which allow them to order food without getting out of their cars. Wendys is popular for their hamburgers since the company use fresh beef rather than frozen which result in improving their products quality. The corporation has opened more than 6,500 stores worldwide from which around 632 are company-owned restaurants which are situated in the United States (Statista, 2018). Other products including baked potatoes, salad and chilli which are included in the standard menu of the firm. Description of Target Market The target market for business expansion of the Wendys includes age demographic of people between 8 years to 50 years. Generally, children below the age of 8 years did not prefer to eat hot and spicy hamburgers. People above the age of 50 years avoid eating fast food since it is unhealthy and can cause serious health issues for them. Therefore, the target market for Wendys is people between the age of 8 years to 50 years since they enjoy eating fast food and they prefer quick services in restaurants. The firm also provides facilities such as free WI-FI and affordable hamburgers to attract teenage customers (Cohen, 2015). Identification of Two Potential Markets for Wendys International Expansion The two potential overseas markets for Wendys include Australia and China. Australia is a developed country, and it has similar culture as compared to the United States which makes the expansion process easier (Taylor, 2015). Australians prefer quick services and fresh food in restaurants which are offered by Wendys. China is another potential market for Wendys. China is a developing nation, and it provides the substantial opportunity for growth to Wendys. The population of China is high, and they like American food as well which provide a significant opportunity to Wendys. The corporation can expand its market share by opening restaurants in different parts of the country. Therefore, both Australia and China are potential overseas markets that are suitable for Wendys international expansion. Comparative Analysis of Political, Economic, Legal, Financial and Cultural factors Political Factors In Australia, the government support expansion of international businesses which is beneficial for Wendys. The firm is required to comply with the provisions of Australian Foreign Investment Review Board (FIRB), and it has to approve its expansion requirement from FIRB (KPMG, 2018). On the other hand, the regulations for expansion in China are relatively strict. China has a communist government which implements strict regulations for international companys expansion (Fogel, 2010). Corruption and transparency of government procedure are major concerns which Wendys has to deal with while expanding its business in Chinese markets. Economic Factors Australia has a strong economy with high per capita GDP. The country is included in developed nations due to high levels of foreign investments that include copper, gold, natural gas, renewable energy and others (Brady, et al., 2012). There are transparency and equality in policies of international trade which provide various economic benefits to Wendys. In case of China, Wendys can easily get skills labour at lower costs than compared to Australia. There is also potential urban growth in the country which is beneficial for the expansion of Wendys (Kang and Jiang, 2012). Legal Factors The legal structure of Australia promotes and support international corporations that expand their business in the country. Wendys has to comply with the regulations of Australian Securities and Investments Commission (ASIC) in order to expand its business in Australia (Australia Unlimited, 2018). The Australian government supports foreign investments in the country which will assist Wendys in easily expanding their business. In China, the corporation has to deal with corrupt officers and strict laws. However, the government has introduced new laws for supporting foreign investors to expand their business in the country. The Tax Regime of China also provides attractive tax packages to international countries in order to expand their operations in the country (Brys, et al., 2013). Financial Factors Australia has a strong economy with a stable financial position. Cited company supports the international enterprises that expand its business in the country. The government also provided monetary support to the firm which establishes their operations in the country since it contributes to the economy of the firm and increases employment (Purves, Niblock and Sloan, 2015). The cost of labour is high in Australia as compared to China. Chinese market is unstable which creates various threats to the firm. The government also did not provide any financial support for the corporations (Zhang, Wang and Wang, 2012). However, Wendys can receive various tax benefits by investing in the Chinese market. Cultural Factors There is a similarity in the culture of Australia and the United States which is beneficial for Wendys. For example, most people prefer to eat fast food and they appreciate quick check out service in the restaurants. Both countries share a common heritage as well due to which there are numerous similarities in their culture. China, on the other hand, has completely different culture than the United States. Most Chinese prefer to cook their food at home or they prefer Chinese food over foods like Hamburger (Cheong, Kim and Zheng, 2010). However, the popularity and demand of American food are growing in large cities of China which provide a potential market to Wendys. Assessment of Business Opportunities and Challenges Opportunities in Australia Strong economy of country provides support to Wendys international expansion. Less legal requirements since the government support international corporations which establish their business in the country since it supports its economy and provides employment to Australian citizens. Cultural similarities between the countries assist corporations in effectively operate its business Potential customers who prefer to eat at fast food restaurants that provide quick check out service Challenges in Australia Wendys already has high competitors in Australia from large fast food chains such as McDonalds, Burger King and Subway High labour costs since the population of Australia is low High investment cost since it is expensive to buy land or start a business in the country Opportunities in China Tax incentives from the government which supports the expansion of international corporations Due to high population, the labour cost is considerably low in the country Wendys have the option to increase its sales since there are large number of customers in China as compared to Australia due to high population Challenges in China Corruption and lack of transparency in government operation makes it difficult for international corporation to expand their business in the country Lack of financial support from the government Complex legal regulations Lack of cultural similarities Selecting most appropriate nation As in the above section of the report, it can be seen that both these countries have very different kind of cultural, economic as well as the political background. After analysing both the markets, it can be said that Australian market is more suitable for the expansion. This is due to several reasons which are directly affecting the environment of the company (Ball, et al., 2012). Some of the reasons in this regards are as follows: Cultural similarity: Australian culture is almost similar to that of America which is a home country for the Wendy. This will help firms in easily expanding their market in Australia as they have a better understanding of the way in which a company operates. On the other hand in China, they have a very different kind of culture. The taste buds of the people in China are also attracted towards the native foods ex. Chinese food like noodles is more preferred over the Hamburgers. Economic factor: Australia is a developed market whereas China is a developing market (Dunning, 2012). Due to this reason, it is better for the company like Wendy to invest in the Australian market as there will be fewer chances of turmoil even when the other markets around the world gets collapsed. Australia has a market where people love fast food like Hamburgers which is less in China. Many other food chains in Australia have been successful in the past. This will help Wendy in having a supply and distribution chain at a lower cost as many suppliers are present in the market. Per Capita Income of Australia is higher than that of China which provides better opportunity for the company to generate higher profits as they can easily set pricing on a bit higher side (Griffin and Pustay, 2012). Political approach: It is one of the essential aspects on which business development depends as well as the scope of entering of any new country widen (Cavusgil, et al., 2014). It can be understood by the fact that Australian Government has made many policies that help new companies to invest in its market. This is also to be understood that the tax leverages for the new companies lower in Australia. On the other hand, Chinese government is more focused towards promoting their internal products. There are a lot of investors that are present in Australia which helps companies in opening up of new stores. As in the later part of this report, it will be seen that there will be use of equity mode for the entry and it would be better for the company to have their own subsidiary. For this reason, they will require larger number of money. Development chances: Since there is larger number of people that are living in the Australia who is having higher wages and hence company can easily expand their business in most parts of Australia. Rural China does not have such a large scope of expansion while rural Australia is having a larger scope of expansions. This is also due to the reason that average income of the people in rural Australia is also higher (Nielsen and Nielsen, 2011). Freedom of Business: In Australia it is easier to do business as compared to that of china. Even after the ease of doing business is better in China still the chance of investing money and taking out when required is better in Australia. This will help company in investing in the zones that is performing and taking out money where their performance is poor (Ripolls, Blesa and Monferrer, 2012). Strategy that it can adopt There are various kinds of strategies that are used by the companies while entering into the market. But it is essential for the company to choose most appropriate strategy for their expansion purpose. This helps to ensure that they do not have any loopholes while they are entering into any market. The selection of strategy for entering into any market depends on the country in which it is operating as well as the type of product that company aims to sell (Wu and Chen, 2014). Since the market of Australia is more similar to many other bigger markets of hamburgers, hence it is advisable for the company to enter the market of Australia is Global Standardisation. This strategy helps to bring uniformity in the business worldwide (StartupOverseas, 2016). This will also lower down the efforts of the organisation in understanding the local marketing strategy. In the start it is always difficult for any company to expand its business in new nation due to less understanding of the market. Oth er important thing that needs to be understood is the fact that Australia is having the population that comprises of peoples from different parts of the world. In this strategy, company utilises relatively standards brands for the start purpose. On the other hand, company also focuses on packaging, formulations, distribution, positioning in the market where it wants to expand (Hutzschenreuter, Voll and Verbeke, 2011). Since the Company aims to open the wholly owned subsidiary and hence it is essential for them to standardise their products. It is also beneficial due to the fact that every market has different taste for the same products and hence it is better for the company to adopt global standardisation. It will help the company in bringing uniformity. In the age of Globalisation, it is beneficial because if the company has to change any strategy, they can easily implement at once in all the parts of the world. This international strategy will assist the company in maintaining its product as well as service standards (Aharoni, Tihanyi and Connelly, 2011). This includes from product development to packaging. There can be reflection of local taste in the product, but the basic idea of the product remains same throughout the world. It also reduces the marketing efforts of Wendys as they will have a global marketing strategy irrespective of the nation. Wendy also needs to take care of the fact that there must be flexibility while adopting this strategy. Flexibility in the strategy helps to prevent from the situation where a local competitor of the Wendy may attract the customers with the Hamburgers having local taste. Company must be able to make changes in their strategy as per the demand of the market (Casson, 2013). It will also help Wendy in having the edge over their competitors as well as it will provide more taste variation to attract larger consumer base. Entry mode suitable for Wendy Australia is a stable market, and hence company can open wholly owned subsidiary and still gain profits from it. The entry mode is always selected according to the country in which company wants to expand its product (Rugman, Verbeke and Nguyen, 2011). For this company, it is advised to choose the equity mode of entering into the market. In the equity mode of entry, it will be beneficially to choose a wholly owned subsidiary. This mode of expansion needs high sum of money to be invested (Kumar, Gaur and Pattnaik, 2012). It is due to the fact that in the fast-food industry no one wants to compromise with the quality it is serving to its consumers. In franchising there is a problem that company will have less control over the quality of the products it is delivering to its consumers. In case of franchising it is always a chance that there can be service failure which may lead to having long-term loses both to the brand of the company as well as in monetary terms. By owning a wholly own ed subsidiary Wendy can easily market its products as per their global strategy as well as their planned strategy with flexibility of making change. The investment made while opening such stores can be recovered in only few month of its operations. It is important for the company to make sure that in the start they make investments in multiple cities. It will help them in capturing larger part of the Australian market. Cities like Melbourne and Sydney have higher potential for such type of investment as they have more number of target markets which company has aimed. It would take around AUD 2-3 million for opening a restaurant in Australian city. In such mode of expansion, company can train their employees as per their standards. This will help the company to expand quickly and give competition to other established competitors like McDonald's. In the later part of the expansion and its establishment, they can give their franchise to other investors also. It will also give an edge over the competitors as they will have a subsidiary which is completely under their control and hence they can plan their ideas for business as per their choice (Zekiri and Angelova, 2011). A wholly owned subsidiary in Australia always helps the company in expanding their business in nearby countries. It will act as a strategic centre for the company in that region. Conclusion From the above-based report, it can be concluded that Wendy is a big fast food chain of America and has a higher potential to expand its business in other International markets. The product that they want to launch in the international market is their trademark Hamburger. There are two potential markets for Wendys Hamburger China and Australia. Both these markets have all the favourable conditions for opening a fast food chain as China is having large number of population that is coming under target market while Australia has high per capita income. Out of the two, Australia is a better market for the company. It is due to the reason that Australia has almost similar food habits as Wendys parent country, i.e. America. Apart from this the socio and economic conditions of Australia is better for generating higher profits for the company. For the expansion purpose, it can take use of the strategy named global standardisation. It helps the company in maintaining quality of their products as per the international market. It can take use of the equity mode for expanding into the Australian market and choosing a wholly owned subsidiary method for establishing inside Australia. This will help the company in maintaining their standards of operation which will further improve its brand image inside the market. References Aharoni, Y., Tihanyi, L. and Connelly, B.L. (2011) Managerial decision-making in international business: A forty-five-year retrospective.Journal of World Business,46(2), pp.135-142. Australia Unlimited. 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