burger king case study answers
Burger king is an international chain of fast food restaurants engaged in selling hamburgers. The company has head quarters in Miami, Florida and United states. The company began its services in 1953 in Florida. At that time, the company was operating under the name of Insta burger king. Later on, the company adopted the name Burger King and operating under the same title until date. According to Denker and Elaboration (2013), by the end of year 2013, the company had more than 13,000 outlets in seventy-nine countries worldwide. Sixty-six percent of its operations were in US and rest of the portions in other countries in the world.
The company decided in 2013 to move to franchised model. The menu of burger king is expanded from basic offering of Berger to French fries, sodas, tea and mineral water (Mouw, 2007). The current study is concerned with analyzing various aspects of Burger king global operations. The study analyzes the potential benefits associated with expanding its operations to Pakistan, India, Nigeria, South Africa and France. Majority of the following countries are emerging economies and possess huge potential for the company to expand its market. The study also analyzes the potential benefits and disadvantages associated with expanding its operations to such countries(Jakle and Sculle, 2002).
Knowles (2000) described that, where there is high profitability and related benefits are associated with internationalization, potential drawbacks are important to consider which may face by the company. Moreover, study provides suggestions about the company possible expansion to emerging and developing economies to bridge its expansion gap. The countries, which are rich in youth population and commercial activities, could be a good option to initiate its operations. The youth and large number of shopping centers provide feasible business environment for the company (Motz, 2011). In addition, the study explores how the company’s head quarters in international locations have significant impact over competitive position of the company. The company has successful experience of initiating its business in Brazil. The company is intended to apply the same strategy to begin its operations in Russia. Lastly, the study evaluates the foreign exchange risks faced by the company and presented the way out from such situation
Analyzing Burger King Beefs Up Global Operations ABC Date Introduction: Burger king is an international chain of fast food restaurants engaged in selling hamburgers. The company has head quarters in Miami, Florida and United states. The company began its services in 1953 in Florida. At that time, the company was operating under the name of Insta burger king. Later on, the company adopted the name Burger King and operating under the same title until date. According to Denker and Elaboration (2013), by the end of year 2013, the company had more than 13,000 outlets in seventy-nine countries worldwide. Sixty-six percent of its operations were in US and rest of the portions in other countries in the world. The company decided in 2013 to move to franchised model. The menu of burger king is expanded from basic offering of Berger to French fries, sodas, tea and mineral water CITATION Ric07 \l 1033 (Mouw, 2007). The current study is concerned with analyzing various aspects of Burger king global operations. The study analyzes the potential benefits associated with expanding its operations to Pakistan, India, Nigeria, South Africa and France. Majority of the following countries are emerging economies and possess huge potential for the company to expand its market. The study also analyzes the potential benefits and disadvantages associated with expanding its operations to such countries CITATION Pro02 \l 1033 (Jakle and Sculle, 2002). Knowles (2000) described that, where there is high profitability and related benefits are associated with internationalization, potential drawbacks are important to consider which may face by the company. Moreover, study provides suggestions about the company possible expansion to emerging and developing economies to bridge its expansion gap. The countries, which are rich in youth population and commercial activities, could be a good option to initiate its operations. The youth and large number of shopping centers provide feasible business environment for the company (Motz, 2011). In addition, the study explores how the company’s head quarters in international locations have significant impact over competitive position of the company. The company has successful experience of initiating its business in Brazil. The company is intended to apply the same strategy to begin its operations in Russia. Lastly, the study evaluates the foreign exchange risks faced by the company and presented the way out from such situation. Burger King Beefs Up Global Operations Question 1: By mid-2011, Burger King was not in any of the following five countries: France, India, Nigeria, Pakistan, and South Africa. Compare these countries as possible future locations for Burger King. Except France, India, Nigeria, Pakistan, and South Africa have developing economies. These economies have high growth markets. The expansion of the middle class of these economies provides great international expansion. The Burger king is facing limited growth opportunities and intense competition in domestic markets. In such a situation, the company can essentially exploit the emerging markets of India, Nigeria, Pakistan, and South Africa to cope better with intense competition and growing internationally CITATION Won05 \l 1033 (Yee, 2005). The burger king has to follow the five-step strategy to consider these countries for possible future locations. The five strategic steps include analysis, formation, goal setting, structuring and feedback. The company has to perform SWOT analysis to assess the environmental conditions for operating in these countries. The analysis include various consideration such as availability of raw materials to produce hamburgers and other items related to fast foods, distribution channels, Governmental rules and regulations, current and potential competitors, purchasing power of the consumers and availability of resources and manpower to operate CITATION Ale131 \l 1033 (Denker, 2013). Figure 1: GDP growth rate of China, Pakistan and India over the year Source: http://oilprice.com/Finance/the-Economy/A-Look-At-Pakistans-Deep-Economic-Weaknesses.html The middle class of these countries is growing and there is increase in the consumption of burger and fast foods. The Pakistan and India bear similar demographics and the consumption of fast food and burgers is significant. Although, Pakistan is not considered as developing countries, however, the markets and the culture are demanding and consumption for fast food and burgers has increased. Pakistan is politically instable country and faced the problem of poverty from decades. However, the poverty rate is decreased by 10% due to the steps taken by the federal government of Pakistan. The rise in the GDP up to 4.3% from the year 2004 shows a positive indicator for growth in economic activities. The government of Pakistan has initiated various actions such as monitory fund standby agreement in 2008. This initiative was response to balance of payment crisis. The foreign exchange reserves have been stabilized which shows positive trend in economic activities and FDI CITATION Pro02 \l 1033 (Jakle and Sculle, 2002). Figure 2: Nigeria and South Africa GDP and per capita for the year 2012. Source: https://theafrikamarket.com/2014/09/22/accelerating-proper-economic-development-in-nigeria/ Such improvement in the economic sector is also beneficial for the Burger king to invest in Pakistan. Both, Pakistan India are facing the problem of poverty, Governments are trying to escalate economic growth, and seeking for foreign direct investment, which is suitable for the companies like Burger king, which is willing to start new ventures for the sake of expansion .Similarly; Nigeria and South Africa have historical political and economic relations. Both countries have rapidly growing middle class. Nigerian economy is the largest economy of the African continent and there is growing number of middle class in the country. The Nigerian economy is expanding and the economy has over taken South Africa in terms of expansion CITATION Ric11 \l 1033 (Vanderpool, 2011). The similarity of both countries in terms of expanding middle class and consumer consumption provide excellent markets to pursue growth strategy, which is the part of company’s strategic objectives. However, the case of France is different. France is considering as developed economy. The growth opportunities are comparatively less as compare to emerging economies such as Pakistan, India, Nigeria and South Africa. France has high per capita income and GDP. The company has to focus on stiff competition provide by the local competitors in fast food and hamburger industry. The company has to focus on quality, price and availability along with focus on expansion CITATION Pai05 \l 1033 (Leavitt and Hasanali, 2005). Question 2: When entering another country, discuss the advantages and disadvantages that an international restaurant company, specifically Burger King, would have in comparison with a local company in that market. The firm with growth and internationalization strategy faces number of advantages and disadvantages. Internationalization activities include but not limited to exporting, importing contract, silencing, franchising and joint ventures of the business. The company has to consider various factors, which positively and adversely affect the organization. Franchising business is the most feasible option for the company’s like Burger king who are engaged in fast food. The internationalization of Burger king would rearward the company in terms of growth, expansion, high sales volume, profitability and revenues CITATION And08 \l 1033 (Smith, 2008). Moreover, company may exploit other benefits such as cheap labor force available in the countries; taking advantage of work force specialization and favorable conditions for trade such as low tariffs, taxes and excise duties. Those countries, which are seeking FDI, usually promote such measures to attract the foreign investment. Despite various ongoing problems, the emerging economies such as Pakistan and India are willing to provide favorable conditions for FDI. Apart from advantages of internationalization, there are number of potential disadvantages associated with internationalization. The internationalization of the business is complex procedure as compare to establishing the business on domestic markets. The internationalization is coupled with both advantages and disadvantages. The international environment could affect the Burger King in terms of physical, societal and environmental factors. The adjustment of Burge king in foreign countries required how the international environment resembles to the domestic environment of the company CITATION Jam97 \l 1033 (McLamore, 1997). Currency, interest rates, inflation, taxation, governmental rules, regulations and laws, language, cultural values and economic barriers could negatively affect the operations of Burger King. Such factor could lead to rapid depletion of limited natural resource available to utilize. Licensing and regulations may compel the company to step down to operate in a specific foreign country. Other barriers include the interference of the governments in the operation of the company to influence the business. In domestic markets, the skilled labor is readily available which is hard to find in the foreign markets. Particularly in the poor and under developed countries, the shortage of skilled labor force is common problem. Low literacy rate and poverty are the causes behind this problem CITATION Ric07 \l 1033 (Mouw, 2007). Pakistan and India bears similar attributes in terms of skilled labor force. There literacy rate is extremely low and poverty rate ids high. The Nigeria has huge number of population affected by the poverty and not in position to afford the education. Domestic market of the company use single language, however in international markets, multiple regional and national langues are being taught. Unequal distribution of wealth and resources make it difficult to exploit various natural and human capital resources CITATION Geo111 \l 1033 (Motz, 2011). If the Infrastructure of the countries is poor in terms of roads, transportations and air traffic, this may create difficulties to move resources and to operate efficiently and effectively. The political landscape of the developing and poor countries is attributed with politics. Such political situations involve the companies in huge paper work, documentation, bribery and illegal means to satisfy the authorities to get the business done. The cultural values, norms, traditions and belief system also affect the company about its marketing and the use of Halal eatables ingredients in the products CITATION Ric06 \l 1033 (Chase et al., 2006). Question 3: A bit over 60% of Burger King’s restaurants and revenues are in its Americas region (U.S. and Canada) and a bit less than 40% elsewhere. Should this relationship change? If so, why and how? Yes, the situation should be change to tap the international market that has huge growth margin. The countries like Pakistan, India, Nigeria and South Africa are the idle markets to expand and grow. Apart from Burger king’s US and Canada operations, which are, about 40% of the countries and 24.6% of the restaurants are situated in the Latin America and Caribbean island. These countries only contributed for 13.5% of the company’s operations outside US and Canada. The countries such as Cayman Island, Saint Lucia and Aruba have relatively small populations and growth opportunities are less as compare to emerging economies such as India, Pakistan, South Africa and Nigeria. The market and the culture of these countries are demanding and consumer seeks high value for their money. The word bank has defined developing countries that have lower than average per capita income. Low income is the first criteria because this provides the most important condition, which is economic growth CITATION Smi06 \l 1033 (Smith, 2006). The Burger king could exploit the growth oppor4tunitie sin these countries. The governments of these countries are willing to industrialize the economy and they welcome FDI. The emerging economies have very important characteristics of higher than average return on the investment. These countries focus on FDI in various industrial sectors to boost economic growth. The companies that fulfill the demand of FDI earn more than average advantages. The profit margin and the revenues are expected to grow rapidly. The companies are paid by high stock prices. The financial growth enables the companies to cover the risks of being internationalization. Such characteristics are prevailing in Pakistan, India, Nigeria and South Africa. Their emerging economies are excellent places to pursue growth and expansion strategy CITATION Kno00 \l 1033 (Knowles, 2000). Figure 3: Business expansion of Burger king on quarterly basis. Source: http://marketrealist.com/2014/11/must-know-burger-king-adds-units-outside-us-3q14/ There are several ways to exploit the advantage of high growth rate and opportunities emerge in the developing countries. The Burger king may pick up emerging fund to exploit such opportunities in these markets to grow internationally. However, it is worth considering that not every emerging economy is the suitable place to make investment. There are some countries, which take the advantages of rising price of the commodities due to increase in the consumption, which is due to growing middle class. However, the governments of these emerging countries do not invest in the public and the infrastructure CITATION Edw98 \l 1033 (Mazze and Michman, 1998). As a result, their economies grew quickly and people have imported goods, but the inflation tends to rise, which ultimately negatively affects the economy in long run. Keeping in mind all such precautionary measures, the Burger king could successfully expand its operations to these emerging economies beyond America and Canada. Currently Burger King’s hold its 60% operations in US and Canada and rest of the operation which is accounted for 40%, lies in other countries. The strategy to focus emerging markets will assist the company to bridge expansion gap and bring its operations to Asia and Africa continent CITATION Won05 \l 1033 (Yee, 2005). Question 4: Burger King prefers to enter countries with large numbers of youth and shopping centers. Why do you think these conditions would be advantageous? The reason behind is the huge purchasing power of the youth and shopping facilities that provide Burger King with opportunities to sell its fast foods. The emerging economies are attributed with high spending power of the consumer. The consumer, particularly the youth has high disposable income And they are willing to spend money on those things, which are beyond the scope of necessities. These things include but not limited to fast foods, hamburgers, beverages, gaming, outing and recreation. TRU Insights conducted research on the purchasing power of the youth. The study focused on the teen between the ages of twelve to nineteen years and revealed that the spending of youth has reached to 819 US dollars globally CITATION Edw98 \l 1033 (Mazze and Michman, 1998). Figure 4: Region wise youth spending power Source: http://insights.mastercard.com/2012/11/21/purchase-power-of-global-teens-tops-819-billion/ The study further revealed that teen with the age of 12 and 19, spent 473.7 US dollars on the spending. However, Latin America only accounted for 68.6 million dollars. Similarly, Africa counted for 44.2 million dollars. These scenarios indicate that the youth, particularly from emerging economies have huge potential to invest. The youth is willing to invest in non-necessities of life. Their purchasing patterns are different old people. They live fast and dynamic life. They love fast foods and outing. Another aspect of developed and emerging economies is the growing numbers of shopping centers. The economic activities and the growth of the markets lead to more and more investment in various business activities. Such activities ultimately result in shopping centers where people dispose off their incomes through purchasing various products such as clothing, footwear, foods, apparel CITATION Ale131 \l 1033 (Denker, 2013). The business activities also attract the fast food suppliers to open their services who visit the shopping centers. They rightly assume that when people will come for shopping, mean while they will eat and drink for recreation. Hence, this is the strategy of the Burger King to focus on countries with large number of commercial activities and youth population. Shopping centers and large number of youth is considered favorable for the Burger King to expand its business CITATION Ric07 \l 1033 (Mouw, 2007). Question 5: How has Burger King’s headquarters location influenced its international expansion? Has this location strengthened or weakened its global competitive position? The location of the Burger King’s Miami headquarters positively influences the expansion and growth strategy of the company. Many consumer travel through the Miami to other areas and are targeted by the company. Brand recognition and acceptance by the consumer made the company easier to enter in the local market of the foreign countries. The expansion and growth strategy of the company ate its earlier stages focuses to make the customer familiar about the markets. The company first focused the Latin America and Caribbean group. Although this expansion has increased the market size for the company, however the low level of population of these countries prevents the company to earn large revenues. The head quartos in the near bay countries of Latin America and Caribbean countries enhanced the ability of the company to open franchises in these countries and expand its operations. These head quarters enabled the company to open thousand restaurants in Latin America and Caribbean in 2008. Management of the company took another initiative in this regard and opened its head quarter in the Brazil. The office assisted the company to develop and maintain its supply chain and establishing franchises in the Brazil CITATION Kno00 \l 1033 (Knowles, 2000). Although the country alien language and different culture created some difficulties for the company, however it assisted the company to pursue its expansion and growth strategy. The company succeeded to secure 80% of its supplies in Brazil and increased the supplies up to 90% in 2008. Since then the company is affectively operating in the Brazil. Subsequently, the company expanded its operation in all major and important cities of the Brazil. The success of its operation in Brazil encouraged the company to set its operation in Russia. The company established its office in Moscow and started its initial operations CITATION Jud09 \l 1033 (Judy A. Siguaw, 2009). Question 6: Evaluate Burger King’s strategy of using the Brazilian experience to guide its entries into Russia. Burger king success in Brazil led the company to open its operations in Russia. The company is intended to use the same model in Russia, as it applied in Brazil. The company enjoys the recognition advantage in Brazil, which could be beneficial to launch its operation in Russia. The company has observed the mistakes of its competitors to enter in the fast food industry of Brazil and decided not to commit such mistakes in future. Brazil is the company’s rapidly growing markets in fast foods. In mid 2009, the company had 68 restaurants in Brazil. The company initiates several strategic steps to expand its operations in the Brazil. The company has developed infrastructure before the establishment of the restaurants. The infrastructure enabled the company to move its raw materials and other supplies necessary for the potations. The company developed management team to look after the operation at domestic markets of the Brazil. The local management team was well aware of the Brazilian culture, language, life style of the people and consumer behavior. Such initiative greatly assists the company to interact with the stakeholder in terms of supplier, consumers and other stakeholders. In addition, this was the strategy of the company to initiate its operations in the major cities of the Brazil and the adjacent geographies CITATION Pro02 \l 1033 (Jakle and Sculle, 2002). Such locations had large number of shopping malls and flow of consumers. Already established shopping malls ensured the commercial activities, which were suitable for the food business as well. The company established its local offices to look after the company’s day-to-day portions in domestic market of the Brazil. The continuous development approach of the company has rewarded with improved quality of the fast food, happy and satisfied customers and improved goodwill of the company as compare to its competitors in the domestic markets of the Brazil. The company utilized the opportunity of the available local suppliers CITATION Edw98 \l 1033 (Mazze and Michman, 1998). These suppliers provide the company with the necessary raw material to produce fast food such as meat, vegetables and grains. The company did not go for opening its regional headquarters and business support centers for its regional restaurants. However, it was necessary for the company to establish Brazil main office. The reason was the large territory of the Brazil and its population. Moreover, the issue of language also held important for the company to interact with people. The magnitude of the raw material providers, supplies and investment in expanding the network of the franchise compelled the company to open its head office in Brazil. T early basis, the head office served the role for market commitment and handling early procurement of supply chain processes. Such initiatives rewarded the company to secure 80% of its supplies in the Brazil and the figure reached to 90% within short span of time. Initially, the company only focuses on the Sao Paulo, which is the largest city of the Brazil. Its initial operations enabled the company to develop economies of scale in its marketing and distribution processes and operations. Per unit cost of the company was extremely low due to these economies of scale. After its initial focus on Sao Paulo, the company focused on other cities of the Brazil, which were near to Sao Paulo CITATION Ric06 \l 1033 (Chase et al., 2006). That was the gradual expansion of the company after establishing its base in the largest city of Brazil. Subsequently, the company builds a staff of Portuguese speaking Brazilians. Such strategic moves made the company able to develop a good repute in the eyes of external stakeholders. The competency of the company in fast food chain increased with confidence of stakeholders. The success of the company in Brazil led the company to follow the same strategy in Russia. The company has to establish its head office in Moscow and subsequently expand its operation to other cities in Russia. Other factors regarding the similarities between Brazil and Russia also play an important role to follow the Brazilian strategy in Russia CITATION Edw98 \l 1033 (Mazze and Michman, 1998). There are multiple reasons that the company adopted the same strategy to enter in the Russian markets as adapted in the Brazil. The company has expanded its operations in large markets such as China, Brazil, Russia and India. Brazil and Russia has certain similarities such as larger population and emerging economy. Moreover, the Russia and Brazil are included in the group of those countries, which hold 40% of the population of the country. These countries occupy over a quarter of the land area. The Russian economy is considered as emerging economy and has a huge potential in future to provide excellent consumption opportunities. The middle class is growing and spending on the non- necessities are high. The company has experienced the same experience in Brazil and expected to be the same in Russia. The economist such as Goldman Sachs revealed that the “BRIC” countries are growing rapidly and by 2050, the combined economies of these countries will be the richest countries of the world. Such scenario entices the company to expand its operation in Russia. Moreover, in Brazil and Russia the growing middle class preferred to live dynamic and fast life style. They are more opted to consume fast food CITATION Smi06 \l 1033 (Smith, 2006). Question 7: What type of foreign exchange risk does Burger King face, and what advice would you give them to hedge against their risks? The company faces unfavorable foreign exchange rates particularly related to the Euro and British pounds. Such risk reduced the earning of the company by one to two cents per share. The company expects neutral to slightly negative effect on the earning. Such scenario contrast with the prior beneficial currency impact on fourth quarter earnings and slightly positive impact for the fiscal operations. Burger king attained 26% company owned revenues in the third quarter of 20120. Germany and the Europe was the sole largest market for the company, which accounted for 10% or more in the total revenues for the company. Currently the company has 20% restaurants in the Germany CITATION Won05 \l 1033 (Yee, 2005). Germany and other European countries are affected by the Euro zone crisis and the management of the company anticipates that there is reduction in the earning due to foreign exchange risk. To battle the crisis, the company is deciding to open large number of franchises in the Germany to overcome the crisis. The company also expects that the negative impact of Euro foreign exchange rate will partially offset the strength of the company in Latin America. MacDonald received 42% revenues from Europe and 70% sales from outside of the US. The earning time was 2010. MacDonald is less expected to affect by the volatility of foreign exchange rate because of company’s 45% debt denominated in foreign currencies. Such arrangements were done to mitigate the impact of currency fluctuation in the market. The share of the Burger king reduced to 2.3% at 18.67 US dollars on Monday on the New York Stock Exchange CITATION Ale131 \l 1033 (Denker, 2013). Conclusion: The company needs to expand its global operations which are currently span over the US and Canada. Pakistan, India, Nigeria and South Africa are the feasible locations for such expansion. There is growing middle class in these countries and the consumption of the public in non-necessities is high. Such conditions provide good signs for Burger King to sell its fast food products. The expansion will result in high profitability and growth opportunities for the company. However, risks are also associated with expansions such as country demographics and political and economic situations. The study concluded that it is better for the company to expand its operations to emerging and developing economies such as India and Nigeria to balance its expansion worldwide, which is mostly spread over US and Canada. Emerging economies are coupled with large number of youth and shopping centers, which is a sigh of commercial activities. Youth has high consumption power and willing to spend on non-necessities of life. Such aspects provide favorable conditions for Burger King to sell its fast food items in those countries. Burger king’ head quarters in the main cities of domestic and international markets enabled the company to affectively control the operations regarding supplies, distribution, development of management team at local levels and controlling the company’s operations. The company is intended to utilize its successful strategy in Brazil to initiate its operations in Russia. That was the company strategy to establish headquarters in the major city of the Brazil and gradually expanding its operations to other cities and nearby areas. The company has developed local management teams, which were well aware of local languages and culture. The study also focused on the foreign exchange risks faced by the company Euro and British markets and the way to hedge against such risk to offset the losses to make investment emerging economies such as India, Pakistan, Nigeria and South Africa. The company may ensure investment with risk free exchange rates. References BIBLIOGRAPHY \l 1033 Chase, R.B., Jacobs, F.R., Aquilano, N.J. and Agarwal, N.K. (2006) Operations Management for Competitive Advantage (Competitive Adventage, Competitive Advantage) , the McGraw-Hill. Denker, A. (2013) Elaboration Case Study: Burger King, GRIN Verlag. Jakle, P.J.A. and Sculle, P.K.A. 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