This business report has been developed with the help of a case study on Burger Fuel. The aim of the report is to analyse the environment in which Burger Fuel operates. As has been seen in the past decade, Burger Fuel has been successful in creating a name for itself in the New Zealand market. Although, the brand has opened stores in Middle East and Australia, the store in these locations are not as popular as in New Zealand. Burger Fuel is now planning to open stores in world’s largest market – United States of America.
The first section of the report analyses internal and external environment of the company with the help of SWOT analysis and PESTLE analysis. These analyses help in understanding the market and the company’s internal structure.
In the next section, we discuss the core competencies of Burger Fuel and how the company uses these or can use these to gain a competitive edge in the market over its competitors.
In the third section of the repost, we have analysed the resources and capabilities of Burger Fuel and their role in helping Burger Fuel succeed in the global market.
The last section of the report lists down the four level of strategies that companies have to deal with in order to successfully operate and expand in a new market.
This analysis has helped us understand the position of the brand in the market and is also very helpful in understanding the ways and reasons Burger Fuel could expand internationally.
Burger Fuel is a growing global fast food chain that specialises in burgers. It was founded by Chris Mason in 1995. The chain was started to introduce New Zealanders to gourmet burgers made from fresher and more natural ingredients. In 2007, the company added “worldwide” to its name and was listed on stock exchange. With 80 restaurants located in New Zealand, Australia, United Arab Emirates, and Iraq, Burger Fuel is an example of fulfilling the needs of the customers and filling a gap in the market. It was only when the company started expanding its network in New Zealand, it started franchising as well.
In the first section, we will look at how Burger Fuel has been successful in understanding the needs of the customers and the gap in the market to build a globally successful brand name. With fast food giants like McDonalds, KFC, Carls Jr, and Burger King present in the New Zealand market, Burger Fuel’s management has built on its expertise and is on the way to growth. Today, it is competing with global brands that are well established in the market.
For any business to be successful, it is very important that the company researches the market it is operating in and analyses the internal and external environment it operates in. The analysis of the internal and external environment of a business is defined as strategic management.
In other words, Strategic Management is the managerial responsibility to achieve competitive advantage through an optimization of internal resources and making use of external opportunities. The external environment is of more value than the internal environment of the company. There are multiple ways of evaluating and analysing the internal and external environment of a company – SWOT analysis, PESTLE analysis, value chain analysis, Porter’s Five Forces etc.
We will now look at the internal and external environment of Burger Fuel Worldwide with the help of SWOT analysis. SWOT can be defined as an analysis of strengths, weakness, opportunities, and threats in the internal and external environment in which the company operates.
The table above discusses the strengths and weaknesses of burger fuel. The opportunities that burger fuel could make use and the threats that face the brand are also listed in the table. Looking at the strengths of the brand, it can be clearly seen that burger fuel is a very strong brand with some very unique products. We will discuss the strengths of the brand in the next section. Looking at the weaknesses of the brand, it can be seen that although burger fuel provides some unique offerings (product differentiation), it is still a weak brand in the market as compared with its competitors.
Product differentiation is essential in today’s financial climate. It allows the seller to contrast its own product with competing products in the market and emphasize the unique aspects that make its product superior. When utilized successfully, sellers gain a competitive advantage by demonstrating why their products are unique. Burger Fuel scores very high in terms of product offerings. These products are different from the competitors’ products and this is one route for burger fuel to enter new markets and establish itself.
In the next section, we will be discussing the strengths, weaknesses, opportunities, and threats of the brand Burger Fuel in detail.
By looking at the SWOT analysis, we are trying to analyse the impact of internal and external environment on the brand. In the table above, we have listed out the points that support/hamper the growth of the brand. We will now discuss each one of them in detail.
- Strong management: Burger Fuel has a very strong management and people who come with a lot of experience. It is only because of the management at Burger Fuel that the culture at the workplace is appreciated by its employees and the company also has a high staff retention rate. With the help of the management, Burger Fuel has managed to establish a work culture that employees love to work in.
- Financial leverage: Burger Fuel managed to list itself in the stock exchange within a few years of establishing. That has given the brand a bit of financial leverage, and because of the franchise structure of the business, Burger Fuel uses the capital to expand its current market and position itself as a ‘cool’ brand.
- Unique products: The market for restaurant products was USD 745.61 billion in 2015 compared to USD 48.2 billion in 1970. Given the size of the market, there is a lot of scope for companies to enter the market with new products. Burger Fuel did just that. Its offerings are very different from those of its competitors, and its use is the use of freshest ingredients. Where most burger joints make use of fried burger patties, Burger Fuel leverages on the use of grilled meat. This has proved to be helpful in the market growth of the brand.
- Cost advantages: Although burger fuel is more expensive compared to other brands, the use of better and fresher ingredients allows for it to charge a premium and maintain a cost advantage in the market.
- Supply chain: Burger fuel has managed to maintain a very efficient supply chain which allows it to source the products and supply the products in a timely manner.
- Lack of scale: This means that Burger Fuel’s cost per unit output is very high. Burger Fuel should look at improving quantity, and still maintain the quality to reduce these costs and increase profits.
- Weak brand: Burger Fuel still needs to position and market itself as a global brand. Brands like McDonalds, KFC and Burger King are well established in the market and charge prices accordingly. Although the prices of products at burger fuel are high, the brand still cannot justify changing the prices and increasing them every so often.
- High debt burden: Burger fuel needs to be very cautious in making business decisions, as any poor decision can lead to high debt burden and eventually bankruptcy.
- High staff turnover: One of the major reason of Burger Fuel’s staff retention is its work culture. But, given the nature of the industry, staff is very valuable and replacing staff is expensive for companies as it includes training costs as well.
- Acquisition synergies: Burger Fuel should look at acquiring new and famous small businesses in the areas they operate in. This would mean that not only they gain on the competitive advantage of the business, but also eliminate competition from the market.
- Online market: Most restaurant joints these days are opting for online marketing. This offers customers ease of ordering, and comfort. Burger Fuel should look at the online market as the market is still new and gives burger fuel the opportunity the first mover advantage.
- Innovation: Burger Fuel has been innovating with its products and unique marketing strategies to position itself as a unique brand in the market. Burger Fuel should fulfill the demand gap in the market by innovating new products more suited to the needs of the customers. One way of doing this would be to enter the market with healthier choices.
- New services: The brand should look at offering new services to its customers as this would mean expanding its customer’s base. These services could include free home delivery, or catering for corporate events etc.
- New technology: Being the first mover in the field of technology would help burger fuel create barriers in the market against its rivals. Unlike products, technology is hard to imitate and lends itself as a competitive advantage against rival brands.
- Emerging markets: The restaurant market is huge and it has a lot of scope for entering with new products and services. Burger fuel should look at other countries for expanding its business and serve the needs of people of those countries.
- Volatile currencies: With businesses expanding in international markets and currencies being volatile, business investments are tough decisions as revenues and costs change rapidly.
- Mature markets: mature markets like USA are competitive and unless the company has a huge investment portfolio, it is very difficult to compete in these markets. But, for the brand to succeed globally, it needs to succeed in these markets and increase its market share. This is one of the major threats that burger fuel faces. The brand, should therefore, look at diversifying their portfolio or expanding in the market in collaboration with already established brands.
- Government regulations: Government regulations in the USA make it very difficult for new brands to go and establish themselves in the market. Also, with changes in government regulations there are chances that the brand might be negatively affected.
- Change in taste: It is very difficult to predict the changing trends in the taste of the customers. A brand needs to change its offerings with the changing trends and tastes of the consumers. It is also very important for a brand to research a country well before it tries to open up a business there.
- Substitute products: The threat of substitute products is very high in the market. Brands must keep changing their offerings to establish itself in the growing markets, and compete with its existing or new competitors.
According to the discussion above, it can be concluded that although burger fuel is a very well established brand in New Zealand, it is still struggling to find its place in the global market. Burger Fuel is competing with global brands which have an endless supply of capital, and have been there in the market for quite a while. But, with McDonalds shutting a few stores in the USA because of its struggle to find new base of customers, Burger Fuel has an opportunity to fill the demand gap in the market. Customers are always looking for something new to try. Burger Fuel should position itself as a brand that offers different products from its competitors, if it wants to succeed in the US market. The brand could also differentiate itself with a diverse and improved portfolio of products than what the competitors are already offering in the market. Burger Fuel also definitely needs to tie up with businesses in the US or use the franchise model to expand in the market.
In the next section, we will look at the PESTLE analysis which will help in understanding the operations of the industry.
Political factors: The operations of any brand/company are heavily influenced and governed by the political factors on operation and state policies in a region. It can be noted that there is a group of people in US and Europe that protest the consumption of fast food. And Burger Fuel would be no exception to that. Although the offerings of Burger Fuel are different from that of its competitors, it still falls under fast food industry. Another issue that most restaurants face is employment of more staff than required. All companies need to adhere to employment laws and therefore adding more staff increases the overall costs and lowers the profits. These kinds of restrictions have a very strict bearing on the operations of the company.
Economic Factors: Organizations like McDonalds and Burger Fuel are impacted heavily boo changes in regulations, currency exchange, inflation rates etc. Other factors that impact the performance of the business are wage rates, living costs etc.
Socio-cultural Factors: A company needs to understand the socio-cultural factors when launching or expanding in a new country. It is important to offer the customers products that they need and observe to their socio-cultural norms. Ivy thesis, 2011 notes that most of McDonald’s customers are below the age of thirty-five.
Technological factors: Burger Fuel markets itself with the help of visual and print media. It is also makes use of digital media to attract and reach out to the younger consumers. Burger Fuel also has a very good inventory system in place which allows them the timely supply of raw materials and hence supporting their front end operations. With a good supply chain and inventory system in place, it is easy for Burger Fuel to operate in international markets.
Environmental Factors: Among all the factors that are important for a company while operating in a specific region, environmental factors are one of the most important ones. McDonalds has been into legal trouble because of their usage on non-biodegradable substances. Therefore, it is important that Burger Fuel observes the legal issues of the countries it is expanding into. Legal issues often tarnish the image of the brand. And Burger Fuel is a relatively new brand, and therefore needs to uphold its image in the market to successfully expand into new markets.
All the factors discussed above have a bearing on the operations of any business. It is, therefore, very important for a business to be cautious and well researched before starting their operations in a new country. McDonalds has faced a few issues in the past when it chose to disregard socio-cultural factors in India by launching beef burgers and in US regarding employment laws.
Burger Fuel is a growing brand and should make sure that it observes the countries it is trying to expand into to have a successful run.
In the next section, we will be discussing the business strategy that Burger Fuel could formulate to successfully launch its operations in the US markets. We will draw comparison from the already established brands in the US market which are also directly competing with Burger Fuel.
Business Strategy for US market
90% of McDonald’s restaurants are owned by small businessmen and women. This figure is approximately 80% worldwide. According to this figure, it can be seen that McDonalds heavily relies on the franchise model for its business operations. One advantage of a successful franchise model is that the corporate office can focus on establishing and marketing the brand while the units can continue leveraging on that and satisfying the needs of the customers by improving service standards and quality of the food served to the customers.
McDonalds also has a customized menu for different countries it operates in. This is extremely important for any business operating in the food industry – to research the tastes and preferences of the consumers in the market one plans to expand into and launch a customized menu.
A similar strategy is followed by Burger King in the countries it operates in. We will now discuss the strategy Burger Fuel could take when expanding in the US market.
Before expanding in the US market, it is important to consider the fact that the taste and preferences of the consumers in US might not be same as the consumers in New Zealand and Australia where Burger Fuel has successfully expanded its business. While McDonalds has built an empire on selling burgers, it also started a Mc Café and a breakfast menu just to attract new consumers. It is very important that Burger Fuel understands the preferences of the consumers and the demographics of the region where it plans to expand before finalizing the menu for the US market.
Location of a restaurant is one of the most important factors to consider while opening a new business/store. Any good business will understand the demographics of a location before deciding on a final location. Most fast food restaurants prefer opening businesses at places that attract younger crowd and have more visibility. Malls, business streets, colleges/university are some of the options Burger Fuel should consider when finalizing the location of the new stores.
Although Burger Fuel has been successful in building a business based on a franchise model, it needs to understand the US market before launching a similar business concept in the US. The key issues that Burger Fuel needs to consider when deciding the franchise route is the capital needed, investment decisions, government regulations, trade secrets. It is important that the business be franchised once it has already been established in the market. The risks attached with an established franchise are lower than the risks attached with a business which is trying to establish itself in the market.
The safest business strategy for Burger Fuel when expanding in the US market is to open a few restaurants at a few specific locations. This would help the brand in promoting itself and attracting consumers. If Burger Fuel sells already established franchise in the market, the bargaining power that it would hold over the franchisees will be higher.
Burger Fuel also needs to consider all the health codes and state regulations in the US market. Each region or a state would have different laws and regulations as well licenses and permits. Consider all the US Food and Drug Administration health codes before opening any store in the US market. A thorough understanding of the laws and regulations will help mitigate the chances of making mistakes.
According to the research conducted by McDonalds, the target market of the fast food business are young people below the age of thirty-five. Although, there is a huge amount of data available related to the target market, Burger Fuel needs to understand the target market with respect to the position it is trying to obtain in the market. Burger Fuel is trying to position itself as a brand that serves healthier and fresher food options, which means that the target market could be altogether different from its competitors.
Burger Fuel needs to hire the right staff which fits into the culture of the company. This could take a long time. It is therefore important that the company makes the hiring decision well in advance so that they have enough time to train the staff about the standards the company wants to maintain. It is very important to train the staff properly as they will be the ones dealing with the customers on an ongoing basis and will be the face of the company.
Burger Fuel needs to focus on product differentiation if it wants to succeed in the US market. Most of its competitors KFC, Burger King, McDonalds, Carl’s Jr. Position themselves as fast food joints that serve quick menu. Among these, McDonalds was the only brand which came up with healthy options and a breakfast menu for market. There is a demand gap in the market that focuses on health fast food options. Burger Fuel has a very good opportunity to differentiate itself from its competitors and position itself in that market.
One can also see that obesity is on a rising in the US market. This also gives Burger Fuel an opportunity to differentiate its products and market the health benefits of their products. One of them including the use of grilled meat instead of fried. This is one of the major factors when it comes to product differentiation.
The second aspect Burger Fuel could consider while positioning itself in the US market is its ‘cool’ factor. Burger Fuel is considered a cool brand by its users and they should a similar positioning in the US market as well. Burger Fuel already uses Radio Burger Fuel in the New Zealand and Australian markets. It could consider launching that into the US market as well. Unlike its competitors, Burger Fuel does not use pre-mixes to play in the stores. Instead, it uses live radio where live bands also play. This is more entertaining than playing the same recorded music repeatedly.
Another marketing strategy that Burger Fuel incorporates is the use of New Zealand products which come with their own branding. Burger Fuel capitalizes on the fact that it has free access to raw materials from New Zealand, which its competitors do not. This lends a competitive advantage to Burger Fuel.
The strategies that a business should focus on for a successful expansion or launch in the market includes functional level strategies, business level strategies, global level strategies, and corporate level strategies.
Functional level strategies are aimed at improving the effectiveness of operations within a company. This can include improving marketing, manufacturing, product development, and improving the quality of customer service.
On the other hand, business-level strategies are aimed at improving the overall performance of the company. This includes improving the ways in which a company positions itself in the market. A company’s positioning strategy could include cost leadership, differentiation, niche marketing, or a combination of these strategies.
Global strategies address the issues related to the expansion of operations of a country, mostly outside of the home country. A global strategy is needed to grow and prosper in a competitive environment.
Lastly, corporate level strategies answer the most primary questions related to a business. What business should the company be in to achieve maximum profitability? How can a business gain competitive advantage in a new market?
For a business to be successful, it is very important that the company pays attention to all these strategies. While in case of Burger Fuel, global strategies make more sense, it still must consider the other 3 levels of strategies that are needed for smooth functioning of a business.
In the next section, we will critically analyze the resources and capabilities available to Burger Fuel and how they can be used to expand its business in the US market.
One of the core competencies of Burger Fuel is its access to raw materials from New Zealand. Burger Fuel is the only brand that provides a ‘kiwiana’ experience with its 100 per cent NZ lamb burger, along with kiwi and aioli. Burger Fuel has been able provide local ingredients in an international format. This has been a major success factor for the growth of the brand outside of New Zealand.
Gourmet Burgers: Burger Fuel is one of the few brands that provides a gourmet burger experience at an affordable price. The burgers are produced with fresh and wholesome ingredients and are prepared from grass fed beef and hormone free chicken. This lends a competitive advantage to Burger Fuel over its competitors as most of the other brands prepare the food beforehand, and prepare from scratch. Burger Fuel is also known to use unusual ingredients to create new and exciting combinations for its consumers. Their menu varies from time to time, and there are always some additions to the menu.
Culture: Another very important core competency of the brand is its work culture. Burger Fuel has a high staff retention. This means that the company has been able to create a culture of sustainability, and is preferred as a workplace by employees. To create a brand where employees like to work is a difficult task. Given the fact that fast food industry is very competitive, it is important for the brand to be able to retain employees as the hiring and training costs can be very high. Work culture lends itself as a competitive advantage for the brand. The management can market this to hire and retain potential employees in future. Not only employer branding is beneficial for the company, it is a very difficult competitive advantage to build upon.
Burger Fuel can make use of these competitive advantages to enter the US market and further expand its operations.
As US will be a relatively new market, an access to raw materials from New Zealand will play an important role in establishing a brand identity in the market. New Zealand is known for its fresh ingredients and Burger Fuel has an opportunity to play around NZ’s branding and establish itself in the market.
Secondly, US market does not boast of internationally recognizable gourmet burger brands. Burger Fuel could use this as a demand gap in the market and seek to provide the market with product that is scarcely available. Burger Fuel could also tie up with other small, local businesses or acquire them to establish itself as a larger player in the market. This would give Burger Fuel an access to the database of current customers of the existent businesses and would also create a new market in the US.
US is a very competitive market and is home to some of the biggest fast food brands. Although, this might prove to be disadvantageous for Burger Fuel, the brand can use its resources and products to create demand for gourmet burgers in the market. None of the big and established brands supply the market with gourmet burgers. This means that Burger Fuel can create this demand in the market, and charge similar pricing. This means that Burger Fuel should take an opportunity to create a niche market in the US.
Given the nature of the US fast food market, it is important that the brand makes the right hiring decisions. In the past, it has been seen that Burger Fuel has built a very nice culture and working environment for its employees. Once a brand can do that, there is no shortage of potential employees. But, Burger Fuel should rely on its experience and make the right hiring decisions as the cost of hiring and training new employees is an unnecessary expense for the company.
Now that we have looked at the core competencies of the brand, we will now look at a few ways Burger Fuel can enter and sustain itself in the US market.
- Burger Fuel should focus on create a niche market in the US, a market that demands gourmet burgers and which the competitors are not able to supply or do not supply.
- Maintain its tradition of making products from fresh and NZ grown products.
- Just like in the other countries of its operations, Burger Fuel should maintain the right culture in US and hire people that fit well within the culture of the company.
- Product differentiation: To create a niche market for itself, Burger Fuel should focus on creating products that are different from its competitors. This would attract more consumers in the market.
- Expanding its franchise network: Burger Fuel has been very successful in establishing a workable and efficient franchise model. What this means is that the brand should aim at doing the same in US market as well. With a focus on opening a few stores in the US, Burger Fuel should establish itself as a successful brand and create a demand in the market for its franchise. In an ideal situation, Burger Fuel should be able to establish itself successfully in the market, and then move on to the franchise business.
- In the past McDonalds, has faced a problem of creating a new customer base for its business. This is mainly because of the location. It is very important that Burger Fuel opens stores in locations that are more attractive over others. This would mean more brand visibility.
- Burger Fuel also has a very unusual way of marketing itself in the market. With the use of digital media, Burger Fuel has been able to generate a lot of publicity. This should continue in the US market as well. This lends a brand a very unconventional appeal that is popular with the younger generation.
- Just like Burger Fuel has tied up with Spark in New Zealand to set up burger fuel radio. It should do the same in US market as well. This would help the brand to reach out to more people and create a cult brand in the long run.
- One of the most important concerns for Burger Fuel is that it should try and open bigger store than opening smaller stores at more locations. This is largely since markets are volatile and rents are increasing. The brand should open larger stores and cater to larger number of people than open more stores with a small section of people to cater to.
In the previous section, we looked at a few ways Burger Fuel can enter the US market and work its way to establish and retain itself in the US market. We also looked at the strategies at various levels of business – functional, global, corporate, and business. In the next section, we will discuss strategies at these levels and how Burger Fuel Worldwide can make use of these strategies to gain competitive advantage and sustainability for the organization in the US market.
As has been discussed in the previous section, functional level strategies are aimed at improving operations within the company. This can range from improving the production, marketing, manufacturing or customer service. Although, these functional level strategies seem like very basic strategies, it is very important for the brand to improve these strategies to improve the end-level user experience. Burger Fuel is said to have a very efficient supply chain system in place. While entering the US market or operating in the US market, it needs to do the same. This would lead to a timely supply of raw materials to the company, and in return would lead to an improved customer service as the wait time for products is less, and one does not run out of raw materials.
Another factor that Burger Fuel should be focusing on is its import of ingredients from New Zealand. As this is the up of the brand, it needs to maintain the authenticity of the products, along with maintaining the rising costs of importing.
A high level of training needs to be provided to the employees at burger fuel US as they are the end service providers to the customers. Improving customer service is an ongoing consideration, and every hiring manager should put in place procedures and courses to help its employees improve their level of customer service.
If Burger Fuel decides to enter the US market with the franchise model, the marketing strategies and efforts will be part of the global business strategy. But, in case of non-franchise model, which it should use while still trying to set up base in the market, Burger Fuel should continue using unconventional ways of marketing and reaching out to consumers just like it has been doing in other global markets. The brand does need to understand that what might work in the New Zealand market – tone, language and the humor might not work in the US market. They should use the local language, and the unconventional ways to market keeping in mind the preferences of US customers. Marketing is at a functional level as each business unit in cohesion with another will use similar strategies of acquiring new customers. The entire approach to marketing should be integrated and the brand should be able to send out the same message to different target groups in the US market. The message that the brand tries to send out should not differ from one region to another. There must be a cohesiveness in what the brand is trying to communicate. Although, the medium of the message can differ for different target groups, the body of message should remain largely the same.
The whole idea of a functional strategy is to support the functions of business by improving efficiency, quality innovation, and enhancing customer responsiveness. To establish itself as a leader in the market, the brand needs to improve efficiencies. For e.g.: McDonalds has the least waiting time. This means that they have an improved efficiency as they can serve more customers in an hour than its competitors.
It is only with the help of an improvement in the functional strategies, a brand can create value in the market and increase its profitability. We also analyzed the per unit output of burger fuel which is quite high. The functional strategists should also look at reducing per unit cost of the output, which in turn would lead to improved profitability. An efficient company has higher productivity, and therefore they can maintain low costs than its competitors.
Burger Fuel also needs to up its volumes whilst maintaining the quality of their products. This would help them achieve economies of scale and lower down variable costs.
In the previous section, we discussed that a business level strategy aims at improving the business’s overall theme, the way the company/brand positions itself in the market to gain competitive advantage, and the various positioning strategies the brand can undertake to establish and sustain itself in the market. In case of Burger Fuel, we have already discussed the importance of niche marketing and product differentiation.
Although US market is home to the burger market, it is still largely dominated by global brands that do not offer gourmet burgers and imported ingredients. Burger Fuel can fill that demand gap in the market by trying to acquire small businesses or creating a demand in the market by niche marketing.
From the marketing perspective, Burger Fuel does not differentiate between the different segments of people. This means that the brand caters to people of all age group and sex similarly. But, in the same market Burger Fuel can use a focused market strategy where it defines the markets it wants to cater to initially. This will also help the brand in skimming the market and eventually catering to all sections of the market.
Another perspective could be if Burger Fuel would make use market segmentation and would offer a different product to each of the market segments. Although, this would be expensive for the company in the first year of its operations, it might help the company to get a better understanding of the market and improve their product range suited to the taste and preferences of the market.
This does not mean that the company should decide to produce a wide range of products aimed at each market segment. Profitability increases to the degree that there are significant differences in customer needs for a product in a market or industry.
To maximize profitability, managers must choose a premium pricing option that compensates for the extra costs of product differentiation but is not so high that it chokes off the increase in expected demand (to prevent customers from deciding that the extra differentiation is not worth the higher price). Once again, to increase profitability, managers must also search for other ways to reduce the cost structure but not in ways that will harm the differentiated appeal of its products.
One of the major advantages that Burger Fuel will have while pursuing differentiation strategy is that it creating a demand in the market for a unique product, one that is perceived differently by the customers in some important way. This means that burger fuel can satisfy a need of the customer which its competitors cannot.
Industry competitive structure
Functional level strategies to lower costs
Michael Porter identified four attributes of a national environment that have a major impact on the competitiveness of the company operating in that global market.
- Factor endowments
- Local demand conditions
- Competitiveness of related and supporting industries
- Intensity of rivalry
We will now discuss each one of them in detail with respect Burger Fuel
Factor endowments: Factor endowments is the cost and quality of production. This is one of the primary determinants of competitive advantage. Factors of production include labor costs, land costs, raw materials, technological costs etc. In case of Burger Fuel, these costs will be relatively higher than the competitors as the brand is yet to establish itself in the market.
Local demand conditions: Demand for a product plays an important role in upgrading the competitive advantage. Companies must be sensitive to the needs of the customers which are loyal to them. When the demand for the product is high in a certain market, the country’s local companies have an advantage over global companies. This puts a pressure on the global company to improve its product quality and produce innovate products. In case of Burger Fuel, US is a mature market for burgers. This means that because of the presence of national brands, Burger Fuel will need to revamp and innovate its product and constantly improve its product quality.
Competitiveness of related and supporting industries: The third factor which impacts the competitive advantage in a global context is the presence of internationally competitive suppliers in the market. In case of Burger Fuel, although using NZ grown products might seem to be a good idea, but it will be costly as well. Burger Fuel should try and look for suppliers who cater to the needs of the industry in a more cost effective way.
Intensity of rivalry: The intensity of rivalry is very high in the US fast food market. This can either lead to improved efficiencies of competitors or new businesses moving out of the country altogether. Burger Fuel should focus more on brand building and improving its efficiencies and maximizing returns.
By serving a global market, a company, in this case Burger Fuel can potentially utilize its production facilities more intensively, which leads to higher productivity, lower costs, and greater profitability.
While choosing a global strategy for US market, Burger Fuel should choose to follow a localization strategy. This means that rather than producing products that are catering to NZ market, the company should look at producing products that match the taste and preferences of the local population. This will help the brand in increasing profitability by customizing company’s production to match the taste and preferences in different national markets. Localization is best preferred when there is a vast difference in the taste and preferences of consumers, and the cost pressure is not too intense. By producing a product catering to the local taste and preferences, a company increase the value of the product in the market.
Another factor that Burger Fuel needs to consider at a global strategy is the entry decision in the market. The company can choose between licensing, franchising, joint ventures or wholly owned subsidiaries. Looking at the business model of Burger Fuel, it is suggested that the company opens wholly owned subsidiaries and thereafter move towards franchising model in future. It is a costly method of setting up in a new country, but it allows for complete hold of the business and business decisions.
The choice of corporate level strategy is the final part of the strategy formulation for a business. Corporate level strategies allow a company to drive its business model over years and helps in identifying which types of business structure will maximize long-term profitability. A corporate level strategy should allow a company or a unit to perform value chain functional activities, and allow for differentiation.
A company can choose between horizontal integration and vertical integration. In pursuing horizontal integration, managers decide to invest their company’s capital resources to purchase the assets of industry competitors to increase the profitability of its single-business model. Profitability increases when horizontal integration (1) lowers the cost structure,
(2) Increases product differentiation,
(3) Replicates the business model,
(4) Reduces rivalry within the industry, and
(5) Increases bargaining power over suppliers and buyers.cf
A company chooses to pursue vertical integration to strengthen the business model of its original business and to advance its competitive position. Vertical integration increases product differentiation, lowers costs, or reduces industry competition when it
(1) Facilitates investments in efficiency-enhancing specialized assets,
(2) Protects product quality, and
(3) Results in improved scheduling.
Burger Fuel in future should look at horizontal integration as it will help in cost reductions, and will help the company in increasing bargaining power over suppliers and buyers.
In the above section, we have successfully analyzed the internal and external factors that impact the business model of Burger Fuel’s operations in a global environment. Using the SWOT analysis and PESTLE analysis, we identified the factors which can help the company to succeed in a global market, and the factors which hamper its growth globally. It should be noted that Burger Fuel is a relatively new brand in the market and lacks capital investment vis-à-vis its competitors. Burger Fuel should choose to enter market with a differentiation strategy and aim to reduce costs and improve profitability. This is only possible if the company reduces per unit output cost. We also discussed the four levels of strategy that the company needs to focus on is it wants to establish itself in the market successfully. Out of all those strategies, Burger Fuel should pay attention to create a local strategy for catering to the US market. This requires a good understanding of the taste and preferences of the US consumers.
In the last section, we also discussed the benefits of a horizontal and vertical integration by Burger Fuel. Although the brand right now is in its nascent stage and at a very critical stage of establishing itself. Burger Fuel should look at integrating in future to lower down costs, increase volumes and maximize its return on profit.
Hill, C. W., Jones, G. R., & Schilling, M. A. (2014). Strategic management: theory: an integrated approach. Cengage Learning.
Bowman, E. H., & Helfat, C. E. (2001). Does corporate strategy matter?. Strategic Management Journal, 1-23.