MANTISSAASSIGNMENT COVER

Student Name AYANLEKE JULIUS

Student ID BBA - F1308 - 0324

Programme BBA PGSM

Module Subject: HOW TO SET UP BUSINESS IN ASIA

Module code: MG 433

Name of Lecturer: MS. MAUREEN

Assignment title: EXPANDING TO INDIA AND MODE OF ENTRY

Assignment Submission date

Name of Group Members

Extension date agreed (Written approval from Mantissa office)

Actual Late submission date

04 - 07 - 2014

Explanation for Late submission (if applicable)

Interim mark awarded

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Table of Content

Topics Pages

Executive Summary.................................................................................................... 3

Company Profile......................................................................................................... 4

External Environment

Political Influence....................................................................................................... 5-6

Economical Influence................................................................................................. 6-7

Social Influence.......................................................................................................... 7

Technological Influence............................................................................................. 8

Environmental Influence........................................................................................... 8

Legal Influence.......................................................................................................... 8-9

Swot Analysis

Swot Matrix................................................................................................................. 9

Strength....................................................................................................................... 9

Weakness..................................................................................................................... 9

Opportunities.............................................................................................................. 10

Threat.......................................................................................................................... 11

Locally Source Resources............................................................................................ 11

Corporate Social Responsibility.................................................................................. 11

Pricing......................................................................................................................... 11-12

Mode Of Entry

Joint Venture................................................................................................................. 12-13

Recommendation.......................................................................................................... 13

Conclusion..................................................................................................................... 14

References..................................................................................................................... 15

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EXECUTIVE SUMMARY

This report aims to evaluate Tasty Fried Chicken (TFC) performance in order to stipulate

expansion into India. Being that the company's objective centres around expansion, this

report identify a likely attractive target country in India for such plans.

The analysis used are SWOT, PESTEL, Industry Based View, Market Entry Mode and other

similar evaluative tools to reach an understandable and valid conclusion that India provides

varied opportunities for expansion that can be exploited by Tasty Fried Chicken.

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COMPANY PROFILE

The current mission statement of Tasty Fried Chicken is to inspire and nurture the human

spirit by one person, one plate and one neighbourhood at a time.

The first TFC outlet was opened in South Africa on March 20th 1970 by five partners and

name of the store originated from the novel Moby Dick. The firm believes in supplying and

serving the best meals especially seasoned chicken by using highest standards of quality

whilst adhering to ethical trading and responsible growing practices at the same time. In

1987, the first stores were opened outside South Africa in Nigeria (1988), Ghana (1989) and

Zimbabwe (1991) and in subsequent years stores followed the expansion were much more

extensive across Africa.

Based on Mintel global consumer research firm (2009), TFC had 73% market share in South

Africa and is significant because the majority of its revenue comes from their home market

which is $1.2 Billion compared to an overseas share of just $ 640 Million. Among TFC's

many achievements is its spot of being first in fast food and quick refreshment categories in

Africa.

The recession was a major factor that impacted the company's position because prior to

that, TFC was known for having stores around every corner in South Africa. However, prior

to the recession in 2007, their share price traded at $38.42 and mere two years later the

price had fallen to a measly $9.92, profits were down for the last three months of the year

from an astronomical $158.7 million to $5.4 million. The recession forced TFC to restructure

its management where the former chief executive took the back role and set the company's

focus on core markets and utilizing technological breakthrough to introduce TFC chicken and

dishes in an instant form. The management went back to the roots by focusing on customer

service that neglected during rapid expansion. All these decisions helped contribute to the

sales flourishing and profits rising to high levels once again. However, despite the

continuous increase in market share and profits the company is enjoying, TFC still want to

inspire and nurture human according to their mission statement and the next location is

India. Conducting a general assessment on the country both in the area of competition,

suppliers, consumers and the broad environment will determine the entry mode TFC will

adopt in other to survive in India.

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External Environment

This are conditions, entities, events, and factors surrounding an organization that influence

it activities and choices, and determine its opportunities and risks. Also called operating or

broad environment.

The following analysis will aim to extensively evaluate TFC and understand how Political,

Economical, Social, Technological, Environmental and Legal issues will impact the company's

External environment since it relatively has no control over such factors.

POLITICAL INFLUENCES

Tariffs and International Trade Regulations:

India has progressively cut duties and taxes since 1991, after it began switching from a

Socialist-style system to a market economy. However, domestic industry still enjoys

relatively high levels of protection in several areas. U.S. companies face tariff and non-tariff

barriers that impede their exports. One such area of protection is in the agricultural sector

where Indian tariffs remain high compared to international standards. For non-agricultural

goods, however, India has made considerable progress in restructuring tariffs. In February

2007, the Government of India (GOI) further reduced the peak applied customs duty on

non-agricultural goods from 12.5 percent to 10%. The Indian government plans to gradually

ease currency restrictions and reduce tariffs to the low levels prevailing in other Asian

countries in order to make the Indian environment more conducive to improved economic

performance.

In the case of TFC planning on setting up in India, the tariffs and trade barriers will not affect

them much because majority of the resources can be locally sourced in India. For example,

Basmati rice is available in India and chicken can easily be rear since majority of the citizen

forbid eating of cow, so a better means of rearing chicken was developed.

Even though India market has been liberalized, some industries maintain approval

requirement to foreign investment. After the 2008 financial crisis, India government

increase taxation in order to support a huge deficit in its budget.

Government Stability

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Political stability of India is an important issue that TFC needs to consider because other

indicators may point to that India is investor friendly, however that could rapidly change

when there is political instability. However, there has been a lot of improvement in India

government in the last decades and it is consider as one of the most stable and nonviolent

government in Asia. Tasty Fried Chicken was forced out of Egypt as a result of unrest in the

country unlike India who conducted easy and transparent elections recently. This is an

indication of stability in government.

ECONOMICAL INFLUENCE:

Positive Economy:

To decide if one country is suitable for entry, the country long run economic profit and

growth potential should be assessed. Based on international monetary fund's published

data, India has become the world's fourth economic entity by 4001bn GDP following United

States, China and Japan. BRIC is an acronym for the combined economies of Brazil, Russia,

India and China. The economies of these four nations are collectively called the BRICs, the

BRIC countries, the BRIC economies or the Big Four. The countries currently represent about

25% of the world's land mass and 40% of its population. India is one of these giant and with

the nation's rapid growth, it will be four times bigger by 2050.

Monetary Transactions:

The falling of US dollar rates compared to other currencies which was caused partly by

weaker monetary policy will affect imports. The Indian rupee could gain as much as 6.5% in

the next three months as international investors pump in dollars to buy stocks and bonds,

hoping to benefit from India stable government. The rupee, which has posted a dramatic

turnaround from being the worst performer among emerging market currencies to the best

in a matter of months, is poised to climb to as high as 57 against the dollar. According

Economic Times (12th December, 2013), poll of strategists and traders. This will increase the

company profitability since resources can be locally sourced.

Purchasing Power:

Despite the income gap between the rich and poor, there is a huge increase in the emerging

middle class as a decrease in unemployment rate. In India, the unemployment rate

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measures the number of people actively looking for a job as a percentage of the labour

force. The number of unemployed persons in India decreased to 3.4 % in December 2013.

Reduction in unemployment rate will increase customers buying habit. Income distribution

is highly skewed in India. Just 20% of the richest Indians share more than 40% of the

national income. A profile of average annual household income distribution in India.

According to a study by National Applied Economic Research (2004), the number of

households with an annual income over Indian Rupees (Rs.) 1 (US $228,351) has grown by

26% since 1995-96 to 20, 000 in 2001-02. By 2009-10, it will increase more than seven times

to 1,40,000 households.

SOCIAL INFLUENCE

Changing Taste:

The changing taste in TFC home country indicates that consumers are purchasing more

which amounted to about 2.4% increase in sales. However in India, local meal is still mainly

preferred, so TFC might have to alter its strategy there. This will not be difficult taking into

account and its success across developing countries.

Health Consciousness:

Product adaption to incorporate healthy ingredients. Government and non- governmental

organisation emphasis towards healthy eating in India due to concerns regarding hepatitis A

might influence companies such as TFC to update its menu in terms of introducing new line

and healthy alternatives to be sold in India.

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TECHNOLOGICAL INFLUENCE

Wave of Technological Trends (Emerging Middle Class):

Technological advancement is rapid and organisations needs to follow the trends and

exploit any opportunities that may result and implement any changes required. TFC can

integrate enterprise resource planning to its business for effective operations to cut long

queues at peak times.

Social networks memberships is growing by the millions e.g. facebook has over 500 million

users and time spent on the site is over 700 billion minutes a month. Exploiting this trend

offers TFC a platform to relate and share ideas with customers.

ENVIRONMENTAL INFLUENCE

Environmental Pressure Groups:

Non- governmental organisations and pressure groups possess incredible ability to coerce

business into changing their practices. It impact the intangible assets of a firm which usually

involves tarnishing a company's name. TFC works with Green Life a non-governmental

organisation advocating for sustainable environment is also in India and the alliance with

the organisation over there will bring improvement to TFC image and recognition, hence

environmental influence is favourable for TFC.

LEGAL INFLUENCE

Not all companies welcome big firms because they want to protect their indigenous firms

from unfair competition and takeover. National protectionist law in India Protectionism is

the economic policy of restraining trade between states (countries) through methods such

as tariffs on imported goods, restrictive quotas, and a variety of other government

regulations designed to allow (according to proponents) fair competition between imports

and goods and services produced domestically.

According to 16th August 2013 Wall street Journal, published that Indian government is

changing its foreign investment rules for companies to protect the country's supply of cheap

products. India Prime minister said if foreign companies acquire Indian firms, they could

refuse to produce cheap generics. India's retroactive changing of policy has dampened its

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image as an investment destination. Foreign direct investment fell 38% year-on-year to

$22.4 billion in the fiscal year ended March 31. This is an important factor TFC need to

consider before setting up.

In summary, the PESTEL analysis found that external influence was altogether balanced

since sociological, technical and environmental influence were favourable, while the other

factors such as Political, Environmental and Legal factors still pose valid threat. Nonetheless,

TFC strengths counteracts some PESTEL factors because although it cannot control external

environment, it has become imperative to change and exploit opportunities.

SWOT ANALYSIS

SWOT analysis is a structured planning method used to evaluate the strengths, weaknesses,

opportunities, and threats involved in a project or in a business venture. A SWOT analysis

can be carried out for a product, place or industry.

STRENGTH

Unique Strategy Valued and Motivated Employees

WEAKNESS

Over-reliance on home market Brand Image

OPPORTUNITY

Entry into New Market Increase in Purchasing Habit

THREAT

Competition Corruption

STRENGTHS

Unique Strategy:

The ability to capture key location key locations and open stores in close proximity to each

other is a unique strategy for TFC. This ensures that company that do not meet set

achievement are closed down. Therefore only profitable stores that maintain high sales and

retain the most customer survive.

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Valued and Motivated Employees:

The fast food industry is some extent dependent on front house staff, their attitude and

their ability to make customers come back. Tasty Fried Chicken promotes an environment

that encourages team working and collaboration. Hence through exceptional service,

customers keep coming back.

WEAKNESSES

Over-reliance on home market:

TFC market in their home country is over $18 Billion, too much dependant on this market

leaves TFC vulnerable to unforeseen changes that might occur in such market. Such as

recession affects disposable income for customers and subsequently, profits. Thus the

management decision to focus mainly on the African market makes it a weakness.

Brand Image:

TFC is among the leading fast food in Africa but not in Asia. Few people got to know them

during world cup 2010 in South Africa. The brand image is not as strong as its competitors

which include McDonalds and Kentucky Fried Chicken.

OPPORTUNITIES

Entry into New Market:

Global companies that plan for expansion usually seek out attractive countries with such

opportunities. In a bid to increase its worldwide presence, TFC has opened a range of stores

and operates in over 10 countries with 500 fast food outlets. It is on its way to exploiting

potentially lucrative markets such as India that will generate opportunities for growth.

Increase in Purchasing Habit:

Increase in India's GDP and emerging middle class will encourage TFC in its early years in

India. This is favourable because it provides an opportunity for TFC to expand its customer

base with the possibility of higher profit margin.

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THREATS

Competition:

Although the competitive threat from the specialty fast food is minimal, competition from

other sectors such as restaurants and other big coffee shop still remain. The dominant

threat from other competitors such as dunk' n donuts and especially McDonalds.

Corruption:

Another area of concern in India is corruption. According to published corruption perception

index by Transparency International in 2013, India was ranked the 87th of 178 countries

with a score of 3.3 compared with CPI 2009 with 84th position . This indicates that

corruption in India is worsening. TFC known for its anti corruption practices will be force to

engage in some corruptible practices in other to get things done.

LOCALLY SOURCE RESOURCES

TFC can easily source for brown or white basmati rice India, as they are both rich in nutrient.

At the just concluded Global Animal Conference (GLANCE 2014), The livestock sector

contributes approximately 4% to GDP and 27% to agricultural GDP. Thus, chicken which is

another important resources to TFC will easily be outsourced in India.

CORPORATE SOCIAL RESPONSIBILITY

India being the only country planting and exporting of Basmati rice, makes it a good target

country that matches TFC sustainable development. Tasty Fried Chicken is ready to give

back to the community where the rice is being planted. Fertilizers and equipment used in

harvesting rice will be given annually.

PRICING

Pricing strategy can be attributed to company's growth. In India an average of each

household spends about 50% of income on food and beverages, food prices are always a

sensitive issue. Even the Indian middle class, despite their much improved income level,

remains very price sensitive. TFC will pursued what is called “purchasing power pricing” or the

customer’s ability to pay. The adoption of such a pricing strategy in India offers a useful

country specific insight on possible price differences of the company’s products on the basis

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of purchasing power parity (PPP). Calculations across India as provided, meals will be in the

range of —Rs 29, Rs 39, Rs 49, Rs 59, Rs 79,and Rs 89. This prices indicate the affordability of

the product

TFC employed this value ladder strategy to ensure affordability and thus attract the widest

section of customers. The main motive strategy is to bring the customers in initially and

provide a range of entry-level products so that they can try new items and graduate to the

higher rungs.

Another pricing strategy is to have customers, and is called the 80-20 menu board, 80%

visual and 20% descriptive. The main objective of the company is to make it easier for

customers to understand what the 29, 39, 49, 59, 79, and 89 rupee options are. Coupled

with the pricing range, TFC quick service, convenience, and no tips environment will attract

many school and college going customers, as well as young middle class families.

MODE OF ENTRY

After detailed analysis from the previous sections above concerning the company's motive

to go international, its strengths and weaknesses; evaluating the attractiveness and risks of

the Indian market to decide on the entry mode. There are various mode of entry suitable for

TFC, which includes Franchising, Foreign Direct Investment, Exporting, Licensing, Wholly-

Owned, Direct Investment and Joint Venture. However, Joint Venture is the appropriate

entry mode.

JOINT VENTURE

Joint venture is an association of two or more individuals or companies engaged in a solitary

business enterprise for profit. Joint venture is a popular mode for entering a new market. A

typical joint venture is a 50/50 venture, in which there are two parties, each of which holds

a 50% ownership stake and contributes to share the operations and risk.

In India, government only allows foreign firms to hold no more than 51% equity in 34

industrial sectors, including the retailing industry in which TFC will operate (Russ Thai,

2009). Therefore, a wholly owned subsidiary by acquisition or Greenfield investment is

impossible for TFC to choose at this stage.

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Tasty Fried Chicken (TFC) is considering partnering with Burger Point a popular outlet across

India with over 1000 stores for a start with TFC having the majority stake (51% - 49%).

After identifying Joint venture as preferred mode of entry, it is important to assess the

benefits and downsides of such entry mode.

Advantages:

Potential risk such as unseen future regulations, political risks or natural disasters for

growing basmati rice, could be shared among its partners.

TFC could gain more knowledge about growing the Indian Basmati rice, and retailing

industry from its partner during their work together.

Disadvantages:

Even though TFC holds a majority role in the venture, it means TFC cannot have total control

and may face some conflicts related to decision and management issues, which could

possibly result from their different expectations or objectives on each other and their

cultural differences.

The nature of Joint venture determine that TFC must share profits with its partner which is

uncharacteristic of the company

RECOMMENDATION

No entry mode is perfect and all has its downsides but Joint ventures seems to be the most

suitable for TFC in India. On the final note, precaution must be taken during negotiation and

agreement should be clearly stated between partners, to avoid unnecessary conflict in the

future.

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CONCLUSION

Having assessed the evidence concerning TFC decision to expand to India, it is fair to

conclude that the company is in a strong position to expand especially after successfully

scaling through all the factors that may influence TFC performance in India. The outcome of

the analysis showed a strong favourable PESTLE condition, emerging middle class receptive

towards TFC, high profitability and strategic position or location.

Based on the environmental condition in India, it should be the next country for its

subsequent expansion since it provides a very good opportunity.

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REFERENCES

Corruption perception INdex2010 (2011) Transparency international (Online) Available

from: http://www.transparency.org/policy_research/surveys_ indices/cpi/2010/results

(accessed 27th June 2014)

Statement on Industrial Policies (1991), Ministry of Industry, Government of India (Online).

Available form: http://saidipp.nic.in/publicat/nip0791.htm( Accessed 27th June 2014)

Consumer Lifestyle inIndia: Cafe Culture (2010), Euromonitor International: Country Sector

Briefing

Wilson and Purushothaman (2003) Dreaming with BRICs: The Path to 2050, Goldman sachs

(Online). Available from: http://www2.goldmansachs.com/ideas/brics/ten-things-doc.pdf

(Accessed 20th May 2014)

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