Final GSM Report (1)

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Report to the CEO of a MNC to aid in the assessing of major strategic implications for locating in foreign country Kilele, Steven 200831933 1 | Page

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GSM report

Transcript of Final GSM Report (1)

Report to the CEO of a MNC to aid in the assessing of major strategic implications for locating in foreign country

Kilele, Steven 200831933Murphy, Shauna 200886563Ylazaca, Elizabeth 200794264

ContentsExecutive Summary. 3Introduction.. 4Background to the UK restaurant Industry..... 5Rationale for choosing UK market.... 6 Table 1 ....... 6Liability of foreignness... 8Entry Mode 11Advice on the organisational structures and control strategies that would be appropriate given the selected entry mode 13Conclusion. 14References .... 54Individual Reflections.. 21

Executive Summary This report will assess the major strategic implications for a Peruvian restaurant chain locating to the UK restaurant industry. Entering the market through a joint venture, the report will evaluate the necessary suggestions in order for the expansion to the UK to be a success. It will consider the necessary rationale for choosing the UK restaurant industry largely due to the size and success of the industry. Moreover, it will discuss the liability of foreignness with special reference to Hymers Hofstedes and Scotts pillars theories. Drawing upon these theories the report will recommend the necessary costs and implications needed in order to develop and expand within the UK economy. Additionally, the report will discuss the most appropriate methods for entering the host country and conclude that the most efficient would be a joint venture. Lastly, this report will advise on the organisational structures and control strategies that would be appropriate given the selected entry mode. And conclude that the most appropriate is the matrix organizational structure and to use socialization as a form of control strategy.

Introduction The idea that this report is proposing is that a new exciting restaurant chain which originates from Peru and to move this chain to the UK where the current restaurant industry is thriving. The rationale is Market Seeking, for the movement from Peru to the UK. The proposal includes the major strategic implications for deciding to locate in the UK and the reasons why this specific market is chosen. The restaurant chain that is intended to develop is a Peruvian eating outlet that provides traditional recipes and ingredients whilst seemingly creating an environment whereby consumers feel like they have entered Peru. It will have a relaxed atmosphere, and provide Peruvian drinks; TVs showing current sports and traditional music. The recent interest in the healthy fresh ingredients and unique flavouring has created a surge of interest within Peruvian food and restaurants (Cobe, 2008). Following the success of the South African brand Nandos within the UK which has successfully expanded to 280 establishments and created a Nandos Culture amongst young adults (Yann, 2013) it can be believe that it can bring a different innovative chain of restaurants which provides Peruvian food that is not seen anywhere else within the UK. Moving to the UK will provide the firm with a wider target audience and within the UKs restaurant industry eating out has become the new eating in (De Angelis, 2013), thus if done strategically this will be the most effective move for the company as the UK provides the appropriate market and even though the institutional distant may be problem the appropriate entry strategy will allow the company to effectively grow within the new market.

Background of the UK Restaurant Industry Since a growth in the economy in 1982 the UK restaurant industry has continued to grow as consumers have become more and more dependent on it. During this period of an economy growth there was an increase in travel which brought on closer ties with Europe stimulating demand for more exotic cuisine (Martin, 1993). In the 1992 the industry was worth 20 billion and its performance has developed over time so much so that the UK restaurant industry is extremely profitable (De Angelis, 2013). The growth within this industry has developed from the growing interest of convenience foods which has been driven by the continued progression of more women in the workforce. Many UK consumers have become dependent and comfortable with the eating out culture and even during the recession were reluctant to give up this luxury (Martin 1993). The restaurant industry within the UK is extremely diverse and can range from upscale dining establishments to quick casual take-out services (De Angelis, 2013).

Research from Mintel discovered that the British consumer is looking for a posher alternative to the typical junk food which is why there is currently a trend in the gourmet junk food. Helena Spicer from Mintel expressed that restaurants are now looking to appeal to the risk adverse diners and they are doing this through flavour innovation (Mintel, 2013). This portrays why there has been an increase in the ethnic sector within the UK food industry market as consumers stated that when they go out to eat they look for something which they could not usually make at home (ibid). In todays multicultural society within the UK it has been important to provide a diverse range of eating establishments and this is why they are 52% of the market share (Angelis, 2013).

Rationale for choosing the UK MarketThe UK has a very lucrative and potential restaurant industry. At the moment, the industry is worth just a little over 88 billion dollars, with an estimated growth of 5% over the next five years to reach 112 billion dollars in 2018 (Market Line, 2014). Besides, since the growth of 27.8% on 30123, the Market Line has estimated the restaurants industry in the UK will have a significance of $112.6 billion; this can be appreciated in Table 1.Table 1: United Kingdom restaurants industry value forecast: $ billion, 2013-18

Available at: [Accessed 02 November, 2014].

Therefore with a potential 30 billion dollars up for grabs over the coming years, it is crucial to invest within the UK market especially as almost half of the restaurant market share belongs to the restaurant and caf segment. It is best to wholly invest in the UK market as its market capitalization and short term growth rates exceeds that of any EU nations, closest rivals being Germany and France which are estimated to grow at 4% and 1.9%, respectively, over the next few years (ibid). Furthermore, Latin American restaurants have the highest growth with 8% in current value terms (Euromonitor International, 2014), particularly the Peruvian cuisine (Gerrie, 2014; Ward, 2013; Payne, 2014; Aqua Expeditions, 2014 and BerkeleyScott, 2012), and the trend for outside dining is very strong in London (Tristiano, 2014), hence the impetus for expanding towards that particular geographical segment. This will only increase with time as the Latin American segment of the full service chain restaurants is estimated to increase at CAGR rate of 4% at constant 2013 value over the next five years, the strongest performance compared with other cuisines in the UK market (Euromonitor International, 2014).Apart from the market overview, research does show that the industry has not been particularly affected by the recent economic depression, even with an average industry wide 1% rise in price per transaction to 37.50, as the culture favours eating out regularly (Market Line, 2014). Also even though, the economic forecast looks gloomy in terms of future wage cuts and decrease in government spending (Giles, 2014), this will not deter the cultural trend but serve to move consumers towards affordable brands that offer convenient prices and promotions for cash strapped consumers without substituting on quality (Market Line, 2014). This bodes well for the brand as it is the particular unique selling point that we are keen to offer.

Liability of foreignness In his PhD dissertation The International Operations of National Firms: A Study of Direct Foreign Investment, Stephen Hymer (1976) defines Liability of Foreignness (LOF) as the additional costs incurred by a foreign firm, costs that are not equally inclined by local firms. He then further elaborates that these such costs arise due to a number of reasons, example additional costs of operating internationally, lack of familiarity with the environment (political, social and economic) and discriminatory attitudes of key stakeholders. Zaheer (1995) agrees with Hymer and cites spatial distance between host and home countries as well as their current nature of the opposing environment as the source of LOF. So, to elaborate what this means, MNEs will always incur additional costs as a result of operating across national borders, but these costs can be greatly reduced if an understanding of the host environment and culture, as well if an understanding of the differences between the home and host environment is taken into knowledge (Thomas, 1977). Hence some consideration should be done in these two countries, Peru and UK. In order to do so, even though there are many frameworks (e.g., Kluckhohn and Strodtbeck, 1961; Hall, 1976; Hofstede, 1980; Trompenaars, 1993; Schwartz, 1994; Ronen and Shenkar, 1985), this report will be built on the work of Hofstede and Scotts three pillars. The reason being is that Hofstedes cultural dimension has been a near complete structural framework for assessing the cultural differences between nations, a key component for estimating the liability of foreignness (Kirkman, et.al, 2006). In addition to that, it has an in depth reserve statistics for most nations (Sivakumar and Nakata, 2001), making it a useful resource. On the other hand, Scotts three pillar framework is very useful when looking at all the segments of institutional differences. It measures the institutional differences between nations by assessing them through three pillars; regulation, norms and culture-cognition (Scott, 2008). Based off the analysis of Hofstede cultural dimensions between the two countries (Hofstede, 2014), there are some unique key points. UK scored higher than Peru in four categories; Individualism, Masculinity, Pragmatism and Indulgence. This means that people in the UK are more independent and individual and pragmatic people, who have a more result-driven society. In addition, they have a high degree of indulgence meaning that they are more leisure free than Peruvians (Villaran, 2000). This is a key statistic for the company because restaurants are clearly viewed as leisurely activities and thus it is certainly to their benefit. On the other hand, Peru scored higher than the UK in two categories; power distance and uncertainty avoidance. This means that Peruvians have a higher acceptance of unequal distribution of power, even though its only 64 (out of a 100); therefore they will only accept that statement to a certain point. Additionally, they are very wary of the future and in result (De La Cruz, 2000); they minimize spending money on leisure when compared to the people in the UK who have a much lower scoring of 35 in terms of uncertainty avoidance.As mentioned before, Scotts framework for measuring institutional distance is pillared by regulation, norms and culture-cognition. Hoffman observes that the pillars move from the conscious to the unconscious, from the legally enforced to the taken for granted (1997: 36). What this means is the pillars are very much inter related and, together, form a rule of law in the way that a particular society operates.The regulative pillar concerns itself with the rules and laws of the society. In business this can mean licenses, taxation laws, all of which can affect company success (Scott, 2008, p.60); he also adds that an efficient national institutional system should also have agents in place whose responsibility would be to enforce the laws for example, police and courts. Peru has a less efficient national system where corruption is rampant and thus laws are not efficiently enforced and the hierarchical bureaucracy is very present within the national institution system ( Presidencia del Comsejo de Ministros, 2008; 2012/2016). As the business moves to the UK, a positive is that the laws are clearly enforced. However, London is quite an expensive area (Litton, 2014) and the restaurant industry is heavily taxed and laden with multiple regulations (BDO, 2011) that are to be followed to the letter. Still, if followed, it has a regulative pillar that can support the expansion of our business. The second pillar, norms, is quite in contrast to the first pillar. Instead of being written in law, this pillar is generally made up of values and norms, that is a societal train of thought on how different entities exist and conduct themselves and in what ways can they conduct themselves (Scott, 2008, p64). Besides unlike, regulatory structures that, according to North (2005), are formally controlled systems meaning that they require legal agents in order to oversee implementation or condemn it, the norm pillar is a mentality of the society which is ingrained and brings about the emotions of shame and guilt whenever something is done that is not in line within protocol. Early normative theorists such as Parsons argue that norms are a stabilizing influence and for the basis of social order (Scott, 2008, p.66). Stinchcombe (1997, p.18) adds that institutions have moral roots showing that norms do play a part in the culture of an organisation. The last pillar is culture-cognition, which in some respects could be held to be similar to normative pillar, because it also deals with society culture. But culture cognition argues that norms and values are not universally perceived in the same way, even in a small society there are people who hold views different to others (Scott p70, 2008). Scott emphasises that these perception differences between society members gives rise to a framework of meanings that governs the society (ibid). UK being a multicultural society has enabled it to develop a wide array of social groups within itself (London is even more diverse) (Wood, 2006). In order to succeed in such an environment, the brand needs to develop and understand the culture and its entities.Therefore, it is to be recognized that the two country systems are highly different, however, Scott (2008, p.62) also provides an interesting point that countries can at one point, be heavily dependent on one pillar over the others but with time this is likely to change. What this means is that if a firm from a country that has a slightly less developed regulative system, such as Peru, it can over time develop a stronger regulative system that it can rely on.

Entry modeA firm has to adopt a good business marketing strategy (McDonald and Payne, 2006), this will make firm able to provide the right products to the right market at the right time with the right quality and the right price (Bennett and Blythe, 2002, 13). Therefore, when considering the entry mode firms should consider factors that have great implication in it, including the ones given by the institutional differences between Peru and UKs organisations, and the liability of foreignness created by it. A joint venture, according to Booz Allen and Hamilton (1999) can allow home firm to access the scare resources, which would increase the return on equity, investment and success rates. Besides, this is a restaurant with Peruvian specific cooking methods, and according to Ireland, et.al, (2006) joint venture is best option to keep the core competence of the firm. Moreover as the firm is just entering a new market not having a great understanding of the market is a big problem, therefore teaming up will provide stronger competitive advantage (Harrigan, 1987) and it could prevent against political and economic risks (Srinivasan, 2008). According to the Uppsala model, a company is more likely to invest on a market where the psychic distance is low compared to the origin country, due to the fact that the physic distance is related to the uncertainty (Hansson, Sundell and Ohman, 2004). The bottom-line of the Uppsala model is that the lack of knowledge regarding a foreign market becomes the main barrier to an increasing commitment to internationalization; yet, they can overcome such liability through experiential learning (Argez Hernndez & Zwerg-Villegas, 2011)

Even though traditional views such as the one by Uppsala Model (Johanson and Vahlne, 1977), suggesting that a firm will only use joint venture as a future investment when it has higher level of commitment and wants higher control. Contemporary views oppose to it (McDonald, n.d) suggesting that may organization engage to it at the early stages (Forsgreen, 2008). So if a firm is committed (Lorange and Roos, 1993), and the research is showing that there is market opportunity and it is profitable, also considering the evidence presented before, Joint Venture is the best option.

Advice on the organisational structures and control strategies that would be appropriate given the selected entry modeConsidering the selected entry mode is a joint venture it is necessary to firstly assess the different organisational structures which would efficiently satisfy the needs for the business. Therefore, the matrix organisational structure successfully divides different departments within the company into the functions that they provide and dividing the latter by geographical location (Johnson, 2012). The matrix structure thus allows employees to have at least two managers, in this case for our proposal one manager should be from the host country and the other from the home country. However, a problem that can occur within the matrix organisation structure is the communication problem, for example having two managers can cause conflict such as contradictory ideas and beliefs that lead to confusion for the staff (Duggan, 2012). Moreover, there can also be interpersonal conflicts which will inevitably result because of certain employees loyalty to different staff members and a difference in culture from Peru to UK (Duggan, 2012). The matrix structure gained popularity in 1970 and has continually developed since this era however it is argued that although this theory is strong it also provides problems as presented (Heywood, et.al, 2014).

Control strategies are concerned with detecting problems or changes in the strategy and making necessary adjustments (Adams, 2010). Therefore, a recent strategy which has developed is the strategy of control by socialization. Socialization is a form of control that is both a process and outcome. It ensures when employees accept a firms culture, organizations target employees minds, they inculcate shared concepts, such as norms and values (Alvesson, 2006). Thus, given the joint venture anticipated it would effectively allow employees to understand and combine the two different cultures which have been brought together to share common values and aims for the success of the company (Eden and Miller, 2004).

ConclusionTo conclude, this report will provide a brief summary of what has been discussed as well as some additional points. The Peruvian restaurant is in prime position to get the most out of the UK market as the restaurant industry has been steady overall the pass of time. Besides, it should take advantage that there is a current trend of people going out to Latin American Restaurants, especially those with the Peruvian cuisine. Moreover, even though it is only been half a decade away moved from one of the worst global depression, the industry hasnt been affected much as leisure time is still much a part of the British culture and people favour eating out (as it is a custom). This report has also state the institutional differences between the two countries, Peru and the UK, and verified potential dangers of entering the UKs market. However, it is being shown that a joint venture, as being the best approach to enter into this specific industrys market, it would nullify several of these threats, as most of them are a direct result of the unfamiliarity with the new environment. Finally, the Peruvian restaurant should invest in the UK, the future looks bright for them as the industry is estimated to increase by about 30 billion dollars over the next five years (Market Line, 2014), and this can only mean good business and more importantly more profits.ReferencesAdams, D. (2010). What Are the Four Types of Strategic Control?. Available at: [Accessed 02 November, 2014].

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Reflections Kilele, Steven (200831933)To begin with, we started the group with 4 members and within a week the number was down to 3. This was our first challenge as we had already accustomed ourselves to certain roles within the group. However, after that we were able to readjust and it taught me to be flexible as sometimes teams can be shuffled around and we need to adapt to that. Another interesting note on our group was the fact that our report was based of two cultures (Peru and UK) that were present in the group and I think this was useful for us in terms of gelling together because as we researched information we came to appreciate the differences in our culture. And me, being from Tanzania, would sometimes try to take examples from my own culture to prove a certain point. Due to the culture difference within the group the research on the respective countries was relatively easier than it would have been.Another interesting fact is that we also challenged ourselves. For example, even though we had a domestic student we all made an effort to write and contribute to the report. In addition, we each researched our counter parts country in an effort to build not only our report but also our business knowledge. This fulfils one of ULMS graduate skills in the sense that it enables us to commercially aware and culturally aware.Apart from that, I think our biggest challenge was adapting to our personalities. I, on one hand, was very laid back, more so than others, and sometimes I felt that I tried their presence a little too much. But, with every challenge, we kept an open dialogue that enabled us to confront our issues head on.Lastly, for the reasons above, I think this was my favourite group to work, during my time at the university. Before working with my group members, I was very unsure and doubtful when it came to working in groups and I had a certain attitude against them. But I feel that this group has enabled me to change that mind set and it would be a very key asset for me as I move from the classroom to the work room.

Murphy, Shauna (200886563)During the coursework assignment for global strategic management there were several problems that we encountered which we had to effectively resolve. A problem faced was the fact that a team member was put into our group and then had to change to a different group immediately. This effected group morale as we already had started to brainstorm ideas and plan meetings; we overcame this problem by changing our meeting schedule. On reflection this helped bring the remaining group members closer and allowed us to all effectively be on the same wave length. Moreover, once we began to plan the report and discuss who would be best at researching each area a problem occurring was the approach to academic journals and how to reference them. Considering this problem we decided to ensure that we all read the ULMS handbook and agreed that I was the one who understood the appropriate format and I would check the others work. Through this experience I learnt that it was important to help others in the group without focusing solely on your own work. The other group members were international therefore; it took them to longer to do certain pieces of work which I found simple. I learnt to always make sure that everyone felt at ease and that they felt I was an approachable person who would help them in any way possible. Additionally, we could have been more time efficient as the whole group had other personal work due during the same period of time and we made the mistake of leaving the report to the two weeks prior to when it was due in. This resulted in some group members feeling anxious and worried if it we would be able to construct the work to the highest quality. Thankfully, we all understood and decided that we would create an easy plan to use our time resourcefully and to make sure that everyone within the group felt calm. This inspired me to learn from this mistake and to start writing my future deadlines at an earlier stage so that I could modify it as many times as I felt necessary so that I was truly happy with the final copy. Once the report was written up and put into the correct format a difficultly was to channel all of the separate writing styles to make the report flow and read well, this was a matter of checking punctuation, spelling and sentence structure. We overcame this problem by all reading the final copy of the report on separate occasions and changing any part even if it was not our own into a fluent style. Overall, this is one of the best groups that I have worked with and I have learnt that getting to know group members personally helps create an enhanced piece of work and making sure that everyone attends meetings and feels comfortable in each others company allows any problems the group has to be overcame in an effective manner.

Ylazaca, Elizabeth (200794264)For this module we were asked to do a group work assignment, also we were told that the team members had to be from different nationality but that we were not allow to pick our own team member, they were going to be allocated by the teachers, this would normally create the biggest problem of disconformity, as you do not know any of the team member it is very difficult to adapt to a stranger, one does not know how to interact with people that has different culture perspective. Besides, one does not know how they are with studies, some take it seriously and some do not or simply that we have different methods on studies and application to the work done. In my personal experience this is the best group team that I have had in University, previously I had to do all the organising, do most of the research, set an outline of the report, coordinate meetings, ask continuously for the work done by others and check one and another time for any margin of error of other team members. However, this time even though at first there was still the uncertainty of how this group was going to work, it actually worked really well. As we encountered some difficulties it was not only me trying to fix them, but the whole group looking for solutions. For instance, the first problem was that, as we were all most from different mayors, finding an acceptable time to meet for everybody was very difficult. However, we manage to stable some specific dates for our meetings, these were explicit (going over tasks we previously decided and then setting new tasks for the next meeting). Then, we were reduced from a group of four to a group of three; this presented a difficulty as we had to change the previous plans besides from adding more work to cover the research that the fourth member was supposed to do. Nevertheless, we manage to fairly divide the work by the team member, and we didnt have to push anyone to do the job, as everyone volunteered to do something that we were most familiar with. For instance, the one was from England offered to the UKs research, I was in charge of doing my countrys research (Peru) and the third, as not being from any of these countries, was going to apply a critical analysis. This helped us to create a bond between each other, and encourage us to state the part of this subject that we were not familiar with, and the ones that were could offer explanations about them. After this, the difficulties were less problematic and easy to manage. So, the task for this module has thought me so much, not only about group work, but also business management. It has enhanced my abilities to overcome problems meanwhile learning about Global Strategic Management. Furthermore, it has given me an inside of how knowledge will help me in my future job environment.2 | Page