Mcdonald Gains Of Entering To Vietnam

Published Date: 02 Nov 2017

1.0 Introduction

We decide to choose McDonalds’ as our company to invest in Vietnam. Despite KFC had did a nice job operate in Vietnam and popular among Vietnamese, the fast food industry is still remain competitive. We found that with young population and fast income growth, there will be a promising market for foreign fast food companies to invest in Viet Nam ("Boom time for foreign fast-food," 2012).

Fast food had been rapidly growth up to 26%. It is due to fast food able to maintain a stable price, making dishes more affordable for consumers. Besides that, improving lifestyles leading by Vietnamese had help to increase the demand for fast food in Viet Nam. Government of Viet Nam allows fast food operators to operate more efficiently with franchising regulations.

Vietnam’s population has just entered a 30-year period with promising economic growth when there are two workers per one dependent. The continued growth of the manufacturing sector, the market is more stable to enter for foreign investors, hence standard of living for the local increases, spending power of people increases too, market opportunity available ( "Institute for Strategy and Competitiveness", n.d.).

It is profitable for McDonalds’ to enter the unsatisfied market which they can maximize profits by following first the highest expected profit opportunities around the globe, and allocating resources across markets in a way that exploits all the best opportunities first (Anderson, Erin, Gatignon, 1986).

With its focus on risk aversion, McDonalds’ can expand abroad only once they have exhausted opportunities within their home market, and that they then expand first in market that share similar culturally or in close geographic proximity to those they are already in, and that they exhaust opportunities in each market before moving into new ones (Lambson and Jensen, 1995).

The cost of learning will be relevantly lower if enter Vietnam, including the cost of advertising the brand and making itself and its product known in this new market since McDonalds’ is already an internationally well-knowned brand by itself. The economic literature on firm entry has focused explicitly on the importance of sunk costs in determining the number of firms that can operate and thus compete at a point in time in a market (Lafontaine & Leibsohn, 2004).

2.0 Analysis

2.1 McDonald gains of entering to Vietnam

McDonald has visited Vietnam and announced plans to open outlets in Vietnam market to capture public’s attention. The reason of McDonald visited to Vietnam is to finding business opportunities and profitable market (McDonald's and The Great Challenges It Faces When Entering Vietnam, 2012).

McDonald as a Quick Service Food (QSF) and is an internationally well-know brand. Truong & Bennett (2012) noted that QSF has grown significantly in Vietnam and multinational have operated long period in Vietnam such as KFC, Jolibee and Lotteria have started earning profit. From preliminary report, the value of the QSF industry in Vietnam could be up to VND870 billion (USD41.4 million) in 2011 (Tre & Tri, 2011). The purchasing power of franchising fast foods has increased rapidly because Vietnamese consumer more favorable fast food brands (US companies leading Vietnamese franchise market, 2012).Thus, McDonald also want take this advantage entry into Vietnam to gain their profit for their competitor and increase their sales.

Besides that, Vietnam has a potential market for McDonald to expand their business because of the large population with 90.5 million (Appendix 1) which is the third largest population in Southeast Asia. The half of the population is under 30 years old. McDonald restaurants are specially located in highly populated urban cities and target for young population. Thus, McDonald plans open up their restaurant in the two high population cities which are Hanoi and Ho Chi City to start their business. According to Truong et al. (2012), Vietnamese consumers change their lifestyles and become more interested in Western food and designed of the restaurant in Western styles. Therefore, demand of McDonald will increase with the large young population and Vietnamese consumers change their lifestyle.

Furthermore, McDonald entry into Vietnam can gain cheaper labor cost. According to Lucintel (2012), Vietnam’s minimum labor cost was the second lowest in Asia. Besides that, most of the young people willing work for low wages (Cheap Labour a Double-edged Aword for Nation's Development, 2012). According to Meyer, Tran, & Nguyen (2006), Vietnamese employees are hardworking and ambitious. So, McDonald entry into Vietnam market can operate their business with the low production cost and more productivity because of the low labor cost and good attitude of the employees.

Vietnam joined a member of World Trade Organization (WTO) in January 2007 which to reduce import and export tariff (Tumbarello, 2007). So, McDonald entry into Vietnam market can help them reduce their import material source tariff such as tomato ketchup, chicken meat and etc. By this way, McDonald can save their import tariff. Besides that, Vietnam has ease restrictions on food service operators and allow them open their shop without a local partner (Smith). Besides that, Vietnam opened doors for multinational investment to Vietnam market. So, McDonald can easy opens their own outlets in Vietnam and reduce the coat of operate in Vietnam because do not have many law and regulation.

2.2 McDonald shortcoming of entering to Vietnam

First of all, it is late entry and market saturation for McDonald entering into Vietnam market. McDonald will face intense competition from both local and foreign competitor in Vietnam (Abiri, 2012). For an example, KFC, Lotteria, Jolibee, Pizza Hut and others has been exist in Vietnam’s fast food industry for few years.

The main competitor that McDonald will face in Vietnam is KFC which has 130 outlets and operate within year. Vietnamese customer familiar with KFC brand with a growth rate of 20 to 30 new restaurants per year, said Le Hoai Nam, KFC Vietnam’s marketing director. Recently, KFC is planning to implement drive thru restaurant to suit Vietnamese needs and increase their satisfaction level (Abiri, 2012). Besides that, Lotteria is the second rival fast food company in Vietnam market with 50 outlets. Also, Lotteria is aggressive offering discount to increase awareness among the Vietnamese (Abiri, 2012).

According to appendix 2 and 3, KFC is successfully own majority number of outlets which consider 130 outlets and contain 39% in Vietnam market. Meanwhile, Lotteria own 50 outlets and remain 36% in Vietnam market. The other company such as Jolibee, Pizza Hut, Domino Pizza, Burger King and Popeyes, they own the rest 25% outlet from Vietnam market (TUOI TRE, DAN TRI, 2011).

Therefore, when rival company offer fast food menu, the consequences is there are only fewer customers in each location (Fast Food Industry Analysis 2013 – Cost & Trends, 2013).

Consequently, it pressures the profit margins towards McDonald (Fast Food Industry Analysis 2013 – Cost & Trends, 2013). One of the global market research company Nielsen has completed a survey conducted in Vietnam, 2010. The finding shows that they are only 42% from the questioned people have intention to try fast-food. The most frequent group who enjoy fast food was ages within 20-30, and it generated 76% for fast-food business. Although it remains a profitable sales for McDonald but it is hard to generate greater revenue. KFC will dominate 60% of fried chicken market share and Lotteria also accounted 60%-70% hamburger market share. Based on Phuang, the remaining market share was distributed among other western fast food brands (Vietnam investment review - Youth swallow up fast food, 2012).

In addition, the material sources which still cannot satisfy McDonald requirement included the special taste of Vietnamese consumers (McDonald’s and the great challenges it faces when entering Vietnam, 2012). It will be difficult for McDonald management because if they import the raw materials from other countries, it will definitely increase the cost. In addition, McDonald management might feel that to suit Vietnamese taste, they need to hired professional to redesign their menu and it is expensive.

Furthermore, McDonald may face products imitation from Vietnam’s local restaurants (Abiri, 2012). Due to McDonald success in global market, it offers a great opportunity to imitate McDonald product such as the owner might try to get similar raw materials to generate similar product to their customers.

Finally, the challenges facing by McDonald in Vietnam is food safety (Abiri, 2012). Nowadays, unsafe food spreads everywhere globally. Vietnamese consumers think that eating in a prestigious fast-food restaurant such as KFC is confidence to enhance quality of the food and traceability. Therefore the fast food companies, McDonald in Vietnam has to put up their efforts to guarantee the quality and specifically identifying its source. Traceability is essential for McDonald to ensure Vietnamese customers have confidence in the safety and origin of the food they serve (Food Safety on the Menu, 2012).

3.0 Recommendation

In order to strengthen company’s competitive advantage, we recommend McDonald’s to apply the localization strategy in their business at Vietnam. This is because the products of McDonald’s were culturally different from what Vietnamese normally eat. The information stated that the majority of Vietnamese foods will add in lots of fresh herbs and vegetables where the foods was considered as the healthy mix of light and refreshing flavors with very little added fats (Sim, 2013). Besides, Vietnamese foods also depend deeply on the rice and peanuts. Therefore, McDonald’s must localize their menu based on the culture of Vietnamese to suit the Vietnamese’s tastes and preferences. As an example, McDonalds’ can introduce the dishes like "McThai" that combine a variety of herbs, vegetables and meats.

On the other hands, since McDonald’s will face intense competition in Vietnam from the local and even the foreign competitors, thus we recommend that McDonald’s should conduct a comprehensive market survey about the locations of competitors’ store at Vietnam. McDonald’s should combine the societal, demographic and other relevant data into the market survey analysis about their competitors (Chapman, n.d). This will help McDonald’s management discern market gaps, improve efficiency and increase the profitability of McDonald’s as well.

Furthermore, since McDonald’s will employ local employee to handle the restaurant’s daily operation in Vietnam, therefore McDonald’s should use a scheme which will satisfy the Vietnamese employees through an efficient reward program that addresses these four areas: compensation, benefits, recognition and appreciation (Entrepreneur, 2013). Throughout the efficient reward program, McDonald’s able to motivate, energize, retain and attract talented staff that will able to boost up the corporations leadership position in the fast food industry and generate greater sales performance.

Furthermore, we recommend that the differentiate theory help the McDonald’s to increase its strength. Based on the differentiation of product, we can introduce the new vegetarian menus for the Vietnamese as the eating habits of the Vietnamese tends towards the vegetable and rice. As the competitor KFC and Burger King do not provide the vegetarian food menu for the Vietnamese, McDonald’s already provide the first meat free in South Asia country sales in Amritsar, a northern Indian city ("The world's first vegetarian McDonald's,"2012, September 5). The name of vegetarian menu is McCurry Pan. Due to the eating habit of Indian is similar with the Vietnamese; the vegetarian food menu can be design to the Vietnamese consumer to increase their competitive advantage. Based on the research, there is about 500 million strong market and 40 percent of Indians do not eat meat, its means that a big opportunities for the vegetarian market ("McDonald's to open its first vegetarian restaurant in India,"2012, September 5). Compare with the truth of Indian market research, Vietnam also have the big potential for vegetarian a market, because the majority population of Vietnamese likes to eat vegetable and rice. Vietnamese food uses a lot of fresh herbs and vegetables and is a healthy mix of light and refreshing flavor with very little added fats ("Vietnamese Food and Culture,"2008, May 31).

We can serve the vegetarian menus that already have in the McDonald’s menus into the Vietnam market such as McDonald Pan, Garden Side Salad and Carrot Stick. Then, we also can design the new vegetarian menus to differentiate the menus with other competitors as KFC and Burger King only provide the meat menu compare to us.

In addition, we recommend that McDonalds’ can be more focus on children market because McDonalds’ had built "happy land" (playground) and providing a fantastic "happy meals" with novelty toys to the children. Whatever how different the tastes and the local needs and wants are, McDonalds’ has paid considerable attention to the children in each country they have entry (Han, 2008). One of the reasons for McDonald’s that needs to concentrate on the children market in Vietnam which is there are almost 26 million of children population in Vietnam ("the children in Vietnam, n.d."), thus focusing on children can build the stable business in Vietnam.

Besides, we also recommend that McDonalds’ can produce more new products on happy meal which can suitable for whole family. McDonalds’ is using "happiness" to introduce their brand to children. Children will influence their parents, because parents are the one who bring their children to buy the food. Therefore, focus more on children is better than focus on parents. We found that focused on children segment will totally worked for their future development purpose. No matter how the environment and economic to become worse but focus on children segment can develop future generation customers’ loyalty and the happy children can also bring in the whole family become happy (Han, 2008).

Last but not least, McDonald’s should ensure their restaurant’s outlets will always look contemporary and fresh by apply the "green field" entry strategy (Abiri, n.d). At the same time, McDonald’s should strongly emphasize to promote their brand in Vietnam. This may include motivating the employees to work for the brand by focus on the environmental issues and promoting consumer health matters as well.

4.0 Conclusion

In a conclusion, fast food restaurants can be characterized as one of the largest sectors of the food industry with over 200,000 restaurants and $120 billion in sales in the U.S. alone. A significant decline in sales over the past couple of years, reflect the maturity of the industry. This has been cause by market saturation, economy down turn and more health conscious eating (Nazrul & Shafayet, 2010). However, analysis is still optimistic about the outlook of the fast food industry. The global fast food market is forecasted to have a value of $125.4 billion, an increase of 22.2 percent over 2067.

Urbanization is accompanied by changes in habitual dietary practices and food consumption patterns. Important forces driving the differences between urban and rural diets are the higher average wages, opportunity cost of time in urban areas and the higher participation of women in the labor force (Stamoulis, Pingali, & Shetty, 2004).

Fundamental to its prospective success will be maintaining its core strengths and a persistent emphasis on consistency and quality, while prudently testing with innovative options. These new initiatives could include identifying more with the local market and introducing sophisticated restaurants under novel brands that would not be burdened with McDonalds’ fast food image (Abiri, 2012).

Fast food business should focus on emerging markets like Vietnam. With all this changing trends, McDonalds should add healthier choices in their menu like salad, fruits and juices. Modify their restaurants to be more family friendly to meet changes in customer taste and preferences.

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Appendix

Appendix 1

Population in Southeast Asia

Rank

Country

Population (2012)

1

Indonesia

240 Million

2

Philippine

94Million

3

Vietnam

90.5 Million

4

Thailand

64 Million

5

Myanmar

60 Million

6

Malaysia

28 Million

7

Cambodia

14.8 Million

8

Laos

7 Million

9

Singapore

5.2 Million

10

East Timor

1 Million

11

Brunei

400,000

Source: http://latitudes.nu/introduction-to-southeast-asia-11-countries-593-million-people/

Appendix 2

Table: Restaurant Company Profile

Company Name

Outlet Name

Number of Outlets

Yum! Brands

KFC Viet Nam, Quick- Service Restaurant

Pizza Hut

130

22

Jollibee

Jollibee, Quick- Service Restaurant

50

Vietnam Lotteria Company Ltd.

Lotteria

120

Imex Pacific

Burger King

Domina Pizza

Popeyes

5

3

1

Source: http://www.globaltrade.net/f/market-research/pdf/Vietnam/Travel-Tourism-Food-Service-Activities-Food-Service---Hotel-Restaurant-Institutional-12.html