'Global Expansion Plan\r'

'LETTER OF TRANSMITTAL 22 November 2012 Datuk Steven Sim Chief executive officer and managing director ar bathum pattern Cakes and Cafe Sdn Bhd Malaysia Dear Sir, FINAL piece SUBMISSION †EXPANSION PLAN TO VIETNAM MARKET enrapture find attached the inform requested by the Board. This report reveals an insight into the Viet givese marketplace and explains wherefore this is a po cardinaltial superstar to station in. We hold that the randomness provided is useful in the closing-making with regard to throw give away development of inscrutable expression in the future.If you carry alone farther clarification on the report, enrapture do non hesitate to contact me, the ag collection leader, at an email address: [email protected] nottingham. edu. my Yours since curse, Nguyen Huynh Bao Ngoc On behalf of the spherical St placegy Team Table of circumscribe 1. Executive thickset3 2. ledger penetration4 3. Methodology5 4. Findings and Discussion6 4. 1. Motives of internationalisation6 4. 2. Justification of entryway into Vietnam6 5. Conclusion13 6. Recommendations:14 6. 1. near withdraw strategy14 6. 2. Entry mode14 6. 3.Appropriate organization structure15 7. References16 1. Executive summary This report critic all in ally examines the possibility of Vietnam to be the next stop in out of sight normal’s planetary blowup plan. Initially, the report highlights the current spectacular achievements that hole-and-corner(a) rule has been attaining from its very first off internationalized activity. Employing the squ ar-toed strategy and universe favored by consumers all guarantee an auspicious future for the reach. Taking all of these merits, the comp all consecutively looks for clean marketplaces with peeled resources.Simultaneously, findings behave shown that Vietnam is an appealing market because of its potentials in a aggressive economy and long-term valueability, as well as rich resources. Then, the c mortifi ednish bump analysis and the dry land market and effort opportunities analysis were introduced to evaluate Vietnam’s benefits and drawbacks. The result is that in that respect argon rooms for both of them. Therefore, so as to be successful, recommendations on appropriate gate mode, strategy and organization structure be specified.To be more detailed, the approximately suitable entry mode is master franchising via a joint back because it brings ab egress the positively high certainty in operating. As for strategy, it is an international one to ensure uniformity in the menu and concept by winning control over the hollow out competencies and leaving separate decisions to foreign subsidiaries. Besides, the Worldwide Area Structure is bouncy in terms of managing the company’s global expansion as it enables local responsiveness and modify authority, which both matter for future yield.Finally, the main result is that Vietnam is the right solution for the Board ’s decision to expand overseas. Nonetheless, the management should cautiously take into deem the recommendations so that Secret formula can win. 2. Introduction Secret formula has gained its popularity not only in Malaysia but also across the region. The great follow stemmed from the ambience brought to clients and the high-quality nutrient served at tenablenessable prices. The enactment of foreign outlets is instantly exceeding 40 and is expecting to increase.According to Welch and Luostarinen (1988), internationalization can be described as a process by which the direct of pastime in overseas activities of a firm rises. Indeed, adding the identification number of overseas outlets up to 100 was part of the pushy global expansion plan. Recently, the company has spent RM60 one million million million to invest in 2 more new markets which ar India and Cambodia (TheSundaily. com, 2011). Evangelista (1994) argues that the readiness to fund international activities proves that firms desires to question further.In the past 3 years, the company has witnessed an annual leaventh rate of 30% (Articlebase. com, 2011). Taking advantage of both the re shedation and the offshoot pace, it is the right time to vex one step further and seize the opportunities forthcoming in a new market to grow even larger. The Global Strategy Team, after doing look on several potential markets within the Asiatic area, strongly recommends Vietnam. In this report, the motives of internationalization of Secret chemical formula impart be disclosed, as well as the motives of choosing Vietnam as a new international market leave behind 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 formed leave be leaveed. 3. Methodology The development and data given were collected from many semipolitical relation and organization websi tes, namely Datamonitor, Trading Economics, public Statistics procedure of Vietnam, and so forthtera Besides, a proportion of them were also taken from reliable online discussionpapers such as TheSundaily. com.In addition, knowledge from planetary Business books and journals was also introduced to help provide a better understanding. Nevertheless, referable to the unavailability of official information about Secret convention performance, the analysis had to rely entirely on online newspapers and the CEO’s reported interviews. In addition, the focus of the report is mostly on the intellectual nourishment sector, not the franchising one. It is due(p) to the well-structured characteristic of the franchising that it promotes a simple way to interpret and analyze.By contrast, nourishment is a subjective topic as it relates to mortalal opinion, indeed there are limits on suggestions. 4. Findings and Discussion 4. 1. Motives of internationalization Secret Recipe is now among the fastest-growing restaurant manacles both domestically and regionally. For the last 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 response from the consumers. A proven fact is that Secret Recipe has been portrayed with many titles such as â€Å"Best Cheese legal profession award”, â€Å"Malaysia’s best local restaurant chain”, â€Å"Indonesians Best Restaurant Award”, â€Å"Singapores Excellent nourishment Award”, â€Å"Best Restaurant Award †Philippines Talter”, etc. This is to say, Secret Recipe, after securing its stance in Malaysia, is interminably gaining customer awareness and fame throughout the region. As a result, Secret Recipe’s movement could be best explained using discrimin ating paradigm (Dunning, 1980, 1981).Among the 3 advantage factors recognized by the Eclectic paradigm, the will force advantage appears to be most relevant to the stage backcloth of Secret Recipe. As stated above, the company now possesses a valuable intangible asset which is sizable discolouration awareness. Besides, stated in the guess, one of the reasons skunk the internationalization of a multinational firm is market seeking investment. In this particular case, Secret Recipe is to exploit new market (i. e. Vietnam) because of its prospects of market size of it and market growth (Dunning and Lundan, 2008) 4. 2. Justification of entering into Vietnam Vietnam risk analysis:Political risks Vietnam is famous for its political stability. This diminishes the hazard and uncertainty of foreign investors deciding to invest in Vietnam. According to Worldwide Governance Indicators (2011), the Vietnamese political environment remains almost steady in the past 15 years. jut 1 bug: Worldwide Governance Indicators (2011) Note: Percentile ranks show the percentage of countries worldwide that rank lower than the indicated country, so that higher values indicate better brass section scores. The line graphs include margins of error shown as pelt along lines, corresponding to 90% confidence intervals.Competitive risks subversion train in Vietnam is reported to be one of the highest in the world. According to Transparency International, 2011’s score was 2. 9, which increase 0. 2 points compared to the year before. Indeed, in manageness to some other countries in Southeast Asia such as Malaysia and Thailand, Vietnam’s freedom from putrefaction index remains low (refer to figure 2). However, the formation of the Vietnam Anti-Corruption Initiative Program 2011 (VACI) back up by World Bank somehow saves the situation. Figure 2. Vietnam’s freedom from Corruption in comparison with Malaysia, Thailand and the World AverageSource: Heritage (20 12) Operational risks Suppliers play an definitive role in deciding the quality. In any market, suppliers are abundant but not all of them can provide what Secret Recipe desires for a good menu. Therefore, an insightful search should be carried out before entering the market. Economic risks The inflation rate of Vietnam fluctuates wildly (refer to figure 3). This issue somehow imposes a concern, as the less wealthy class will be more conscious with eat-out whenever the rate is high, which lastly will negatively impact the foodservice sales. Figure 3 Source: TradingEconomis. om | General Statistics Office of Vietnam Vietnam market and persistence opportunities: Market: In the World Bank’s 2011 Annual Report, Vietnam is perceived to reach a middle-income level country soon enough. The Vietnamese foodservice industriousness 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 novel y ears, the country has also witnessed a steady urbanization, with a rate of 3. 1% in 2010 (ReportLinker, 2012) accompanied by a sharp rise in state, implying an increase demand for food.The rationale behind this is that as battalion move to big cities to work, they will have shrimpy 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 effort are single member households and working couples as it fits into their fast-paced lifestyle. Furthermore, Vietnamese population is huge (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. F igure 4. Vietnam population by age and sex in 2010 Figure 5. Vietnam population by age and sex in 2020 Resources: craunch: Secret Recipe can be unspoilt from a low-cost and huge workforce. According to General Statistics Office of Vietnam, 57. 2% of Vietnam’s population participated to repulse market and 32. 5% of them had undergone or completed a vocational/professional training.It somehow guarantees skilled tire out force availability. Raw materials: Basic ingredients are obtainable here in Vietnam. However, only competent suppliers cost the contracts otherwise they may ruin Secret Recipe’s image. Nonetheless, some of the flavors can be expensive as they are imported goods with high prices. An accession to this problem could be buying in mountain and storing them for further process. Location: A number of obtain malls and superior residential areas are being build as a developing plan (Food operate in Vietnam, Market Analysis, 2012). Therefore, Secret Re cipe can easily reach to its customers.Apparently, however, rental price should be considered consciously. Competition: Porter’s Five Forces model, which consists of tail fin elements, is used to give an overall picture of the food industry in Vietnam. Intensity of rivalry: culture medium 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 show their menu on that. Nonetheless, as for other Vietnamese dishes that will be developed later on, Secret Recipe should be aware that they have been being offered by domestic independents for years (Food Service profile, 2012).Their uncomplicated advantage is the understanding of the market, customers and their taste perception, which will take generation for Secret Recipe to gain. Threats of new entrants: Medium to spicy Setting up a food stage duty commandly does not require high heavy(p) in comparison to other artes. However, the proce dure to claim for permission to do business in Vietnam inescapably good relationship with the government activity. Undoubtedly, food is a recession-free industry; hence business entities can earn profit eventually setting foot into this industry. dicker power of suppliers: LowAs mentioned, in order not to ruin Secret Recipe’s name, only reliable and qualified suppliers filmed. Therefore, once the contract is signed between the ii parties, it will be a long-term one and thus the switching cost would be comparatively high, causing the suppliers’ bargaining power to be low. Bargaining power of customers: High Vietnamese food consumers are offered with many choices. Currently, there are several cake patsys operating in Vietnam such as capital of France Baguette, Chewy Junior (Singapore brand), Tour le Jour (Korean brand).Besides, thoroughfare vendors’ food is plentiful with many different taste and prices to learn from. Consequently, together with a favor i n 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 person’s daily life. Moreover, food in general in Vietnam is diversified and can be prime on any street with a comparatively reasonable price, mostly serve local cuisines to their generally native customers especially in big cities homogeneous 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 company’s strategy is trying to spread its brand name beyond borders by constantly looking for new international markets and by bravely spending figure on them. Accordingly, one with great potentials would be worth(predicate) 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 banes (e. g. unstable inflation rate, high corruption rate), choosing the right strategy, the right means of going into it and structure a suitable organization structure would harbor an effective 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 twain reasons for this choice. Firstly, the Secret Recipe’s menu on cheese cakes was originally developed by Malaysian chefs. People come to the restaurant mostly to transport the unique fine taste and the ambience there. Therefore, the R;D function should be in the home office country so that the uniqueness making t he brand name will always be the same. This happens to be parallel with the top management’s stand 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 willingness to develop products for foreign markets (Rosson and fording, 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, border rolls, etc. Thus, being able to fruitfully offer them in the menu will certainly be an advantage. 1. 2. 3. 4. 5. 6. 7. 1. 7. 2. Entry modeOviatt and McDougall (1994) advise that firms should use ”alternative brass instrument structures”, such as franchising, licensing. And together with the analyses about Vietnam risks and industry opportunities, the recommended entry mode for Secre t Recipe is establishing a master franchise 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 thanks to right on implementing that form. In other words, the management is experienced.Moreover, the franchising is now astray 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 costs and risks. As a result, setting up a master franchise will somehow save the management from many problems as it is now the master franchisee’s job to select and train franchisees, select locations, etc. Also, the costs and risks will be shared with the local quisling in a joint venture.Thirdly, there is always a need to reduce con trol challenges and to protect the brand name, as well as to benefit from a local partners’ knowledge of the host country’s competitive 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 apparently expand to other markets in different countries and territories round 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 alter bureaucracy, which can be built under a Worldwide Area structure.Plus, the structure facilitates local responsiveness, which is comparatively 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 oscillating review. [Words count: 2,254] 7. References A recipe for success (2011) [Online]. acquirable 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’. diary of International Business Studies, 25 (1994), pp. 45â€64 Corruption in Vietnam is serious, blatant, rampant (September 2012) [Online]. operable 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). transnational Enterp rises 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 falsifiable evidence from Australian manufacturing firms ,in: S. T. Cavusgil, C. T. Axmin (Eds. ), Advances in international marketing, vol. 6JAI Press, Greenwich, CT (1994), pp. 207â€229 General Statistics office of Viet Nam [Online]. Available at http://www. gso. gov. vn/default_en. aspx? tabid=515;idmid=5;ItemID=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. 34â€55 P. J. Rosson, L. D. Ford (1982). ‘Manufact urerâ€overseas distributor relations and trade performance’. Journal of International Business Studies, number (1982), pp. 57â€72 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-5066674. hypertext markup language [Accessed twenty-second 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%2F20105989;sec=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,,contentMDK:22793085~pagePK:1497618~piPK:217854~theSitePK:387565,00. 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 Inflation 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 [Accessed\r\n'