Entry Strategy for Starbucks in China
According to Michael Porter, the five forces that affect the company in any industry include the competition, the suppliers, the customers, the threat of new entrants and the threat of substitutes. The porters five forces analysis for KFC in China is depicted below. Industry Competition A diverse and expansive industry of restaurant, food and beverage and fast food items is present in the region. This makes the competition in the industry highly competitive in nature.
However the competition is still not entirely perfect in nature. The long standing rival of the company in this region is the chain of McDonald fast food stores. This is a flourishing industry as until now almost the entire population of china was China oriented and made a point to buy local products. However the increased Americanization of the younger generation has made the Starbucks brand popular angst the market as well, making it a strong force in the competition
Power of Buyers
The power of the buyers is highly strong in China as KFC is an international and foreign chain to them and they yield the power of determining which products should be made available by KFC. However in terms of prices, the bargaining power of KFC in chain is low as a diverse offering of products and services is already existent in the market which reduces the impact on the competition. Power of Suppliers KFC makes a policy of taking in raw materials for about 80% of the required material form the local and domestic produce market. This tends to increase the profitability and operations in the domestic market.
However the supplier power is moderate in nature as the company tries to reduce threats of supplier power by taking on multiple suppliers. Barriers to Entry The KFC is an established brand name so when other companies think of entering the industry/ market they are somewhat constrained by the brand name and the competition in the industry. As a result the threat of new entrants is moderate. Threat of Substitutes The threat of substitute for the chain is high as the local and international businesses are trying to offer much more appealing product offerings to the consumers.
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However due to the established brand name and image as well as the popularity of chicken as a meal reduces the threats of substitutes for the company. After the analysis of the company and its prospect in China it was determine that the best strategy for entry in the Chinese food and beverage market would be to focus on increasing the profitability of the company while proving high quality products and services to the customer and increasing the market share in China as well as across the world.
The market penetration pricing would involve charging a slight premium for the products and service offered in order to establish and keep the brand name in the market as a well renowned and famous entity. Aside from this the company will have to employ diversity management strategies. The company would also have to customize its product offering and settings according to the customer’s requirements in the region without abandoning and changing then original theme and ambiance of the truck retail outlet and store.
Moreover by including the following four elements the Starbucks company would be able to successfully enter and establish itself in the Chinese market These elements pertain to “establishing and maintaining good relationships with government officials and local joint-venture partners; targeting the nascent middle class beyond first-tier cities; finding and hiring experienced local executives, and adapting business models and systems to local conditions and requirements” (‘China’s New Consumers’, 2006)
The internal resources, which are available to the KFC company in order to compete in the market while establishing itself in the Chinese fast food industry are derived form the strengths of the company. The KFC Corporation has been operating in various parts of the world since the 1950s which gives the company and the brand a long term experience which is varied and extensive in nature.
This can allow the company to be proactive in its strategies for change and business management. The strong brand image of the company allows it to establish itself in the new industry with ease while the customer orientation of the company enables it to build a loyal customer base. The global expansion strategy employed by the company tends to combat the challenges of the domestic market while providing for growth.
Aside from this the company has also been establishing itself as a socially responsible corporate citizen, which can help improve the image of the brand and the company much more in the eyes of the consumer. Additionally the trained staffs of the KFC Corporation and its experienced managers and executives are an integral part of the internal resource for the company as well. The SWOT Analysis for the company is depicted below: