Assignment 1 | Foreign Market Analysis | Nando’s going into China | | Muhammad Usman Dastgir (23104392) | 8/24/2012 |

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Executive Summary

This report is designed to provide an environmental analysis for the penetration of Nando’s into the Chinese market. Nando’s is a South African based multinational which specializes in fire grilled chicken, promoting a healthy lifestyle through their signature offering of a grilled piece of chicken with side dishes.
With a population of more than 1.3 billion, China is the most populous country on earth and the growing economy provides a higher disposable income for consumers. Moreover a growing trend of western cuisines has strengthened this industry and laid a perfect platform for Nando’s to enter the market.
The Chinese consumers belong to a well knit community and believe in benefit for all. Thus Nando’s needs to engage the locals in the business as much as possible to create friendly ties which will help the company establish itself. Furthermore with the acceptance of Western culture, multinationals aspiring to enter the Chinese market find it much easier to penetrate the market.
Over the years, China has transformed into a growing country and a superpower, and comparatively boasts of a stable political and legal system. Although it may not be ranked highest on the ‘ease of doing business’ scale, China has nevertheless transformed itself into an investment hotspot.
It could be concluded that China has rapidly transformed itself from a backward soviet state into a frontline superpower, and the investment climate in China is very welcoming. Thus Nando’s has a lot of potential in order to launch operations in the People’s Republic of China.
1.0 Introduction
The purpose of this report is to conduct a comprehensive environmental analysis of the Republic of China which will guide in developing a feasibility report of how Nando’s could penetrate into the Chinese market.

1.1 Nando’s
Nando’s originated from South Africa through a Portuguese/Mozambican theme (Nandos, 2012). It was founded in 1987 by Fernando Duarte & Robert Brozin. Nando’s brings to the table its signature chicken dishes offered in a variety of flavours ranging from lemon & herb for those consumers which do not prefer very spicy chicken, to extra hot, for its spice lovers. Nando’s is a large multinational operating in 27 different countries (Nandos, 2012), however despite penetrating a diverse set of markets with vastly different cultures, Nando’s has kept its product market the same all over the world. It specializes in flame-grilled Peri-Peri chicken, which is served with a variety of side dishes. Nando’s was founded on the basis of friendship when its two pioneers who were very close friends decided to purchase a restaurant called Chickenland in Rosettenville, after which it was renamed Nando’s. Ever since, Nando’s has expanded their business globally and has targeted grilled chicken lovers all over the world through their Peri-Peri chicken which boasts the rich flavors of Peri-Peri spices with a healthy meal through its low-fat fire grilled chicken.

1.2 People’s Republic of China
People’s Republic of China, informally known as China is the most populous nation in the world with an estimated population of over 1.3 Billion (World Bank, 2012). Since Mao’s death, when the country transformed into a mixed economy from a former planned economy, China has witnessed substantial economic growth and is now the second largest economy in the world. With an increasing population and a prosperous economy, the standard of living is improving quickly and with an increase in disposable income, people are now frequently eating out, thus leaving huge potential for any business in the food sector (Euromonitor, 2006). With the majority of the population not having the habit of cooking at home, China is a huge target market for Nando’s where its diversity and potential customers is large in number. Furthermore China has more recently accepted Western cuisines and many Chinese consumers tend to prefer international cuisine rather than traditional Chinese cuisines, thus it is a land of opportunity for a company like Nando’s, to provide a different, yet very successful cuisine (Euromonitor, 2012). A thorough analysis of the economic, cultural and political environment is given through this report in order to assess the potentials the Chinese market has for Nando’s.

1.0 Economic Environment
China’s economy is ranked as the second largest in the world, overtaking Japan in 2010. The economy has emerged into a very competitive market and is now seen as an attractive destination for foreign investments (Euromonitor, 2012). Although China has seen impressive economic performance in previous years, it was criticized for having tough regulations and a non-transparent system, causing difficulties for multinationals (Euromonitor, 2012). However a new regulatory framework introduced in 2011 which tightens safety standards is likely to damage domestic firms, and with increasing awareness of health issues, companies like Nando’s have been given a perfect opportunity to make use of these regulations and gain a competitive edge in the Chinese economy (Euromonitor, 2011). Furthermore with a fast growing economy boasting a nominal GDP of $7.3 trillion, China has huge potentials for businesses. The economic environment can be analyzed through sever factors which consist of population, income, infrastructure, debts, resources, quality of life and geography (Crawford & Fletcher, 2011). 2.3 Population
China’s population being 1,338,300,000 in 2012 is the most populous country in the world and represents nearly 20% of the world’s population (World Bank, 2012). The economic capital of China, Shanghai was claimed to be the 25th largest city in the world in terms of GDP, which totaled $304 billion in 2011 (CIA Factbook, 2011). World Bank believes that China is predicted to grow at an average annual rate of 9.5% from 2011-2015 (World Bank, 2012). Along with a growing population expected to hit 1.45 billion in 2040 (World Bank, 2012), China also is the third most visited country in the world with an estimated 55.7 million inbound visitors in 2010 (Global Times, 2010). The large population and the huge tourist base in China shows a large potential for Nando’s to prosper in the Chinese economy.

2.4 Income
Although China has a huge GDP, the GDP per capita (PPP) is still below the world average of $8,500 (CIA Factbook, 2011), but due to changing economic conditions, prospects are bright in China. Currently, consumer expenditure per capita has increased at an average of 8.3% per year from 2006-2011 (Euromonitor, 2011). Furthermore with easing inflation and rising incomes, consumers have now become more willing to spend their disposable income. Moreover the annual disposable income standing at $2,912 is expected to grow at an annual rate of 7.0% between 2012 and 2020, therefore it will lead to higher consumer spending in all sectors including food and beverages. Along with these, the staggering expected GDP growth of 9.5% between 2011 and 2015 means that income levels and disposable income is on the rise, which in turn leads to a growing upper and middle class, thus bringing around drastic changes in spending patterns and this good for food chains like Nando’s which can effectively target their markets.

2.5 Consumption Patterns
Engel’s law states that as income rises above a certain level, it reduces the percentage of income spent on necessities such as food (Crawford and Fletcher, 2010). As far as China is concerned it is still a developing country and incomes are on the rise, but they have not surpassed any such level that their spending on food reduces. Furthermore Nando’s is classified under high class dining, and thus rising incomes is actually beneficent for Nando’s since people with a higher disposable income prefer to spend on quality dining rather than fast food or other diners available. Moreover due to the domestic firms in China being plagued due to various scandals, foreign food chains are attracting a lot of consumers in the country, and since China is in support for healthy eating habits (Euromonitor, 2012), Nando’s healthy and pleasant environment is likely to attract a large number of customers into the restaurants. Also, with higher disposable incomes, a recent trend has seen the number of consumers preferring to dine out increase substantially and many restaurants have been beneficiary due to this change in consumption pattern (Euromonitor, 2011).

2.6 Industry
China has seen a boom in the food industry in recent times. Western diners and restaurants offering pizza’s and other food items have flourished due to globalization and the younger Chinese generation adapting to Western lifestyle has helped firms firmly establish themselves (Euromonitor, 2011). Due to growing urbanization in China and changes in consumer trends and patterns, food services’ chains saw a 15% growth in chained outlet volume in 2010 compared to 2009, evidently signifying the massive growth by multinational food chains in China (Euromonitor, 2011). Furthermore the food safety laws in 2009, roughly 5000 business closed in China, reducing competition for foreign firms and this gave newer firms an opportunity to start services in China (Euromonitor, 2011). The strict laws are still prevalent and thus Nando’s has a good opportunity to penetrate into the Chinese market. Health issues in China have given awareness to consumers and consumer confidence has been on the rise in foreign firms giving international food chains a competitive edge, making China a potentially lucrative investment for food chains like Nando’s.

2.0 Cultural Environment
Culture is something that distinguishes people of different backgrounds and nationalities. It is the norms, traditions and shared beliefs of a society (Wang & Juslin, 2009).A major factor which contributes to the success of multinationals is the close study and the understanding of the target market’s culture in order to devise the ideal strategy that fulfills the consumers’ needs and wants in an efficient & timely manner (Morales, 2010). A lack of understanding of different cultures can cause many firms to fail & end up in big trouble. For example, any food and beverage company who plans to set up in Pakistan needs to make sure they are certified ‘Halal’, or they cannot enter the market, as is the case in other Muslim countries (Salman & Siddiqui, 2011). If we put this in China’s context, China has a small percentage of Muslims in its population and thus no such dietary requirements are necessary in order to penetrate this area. Moreover it is Nando’s policy to follow dietary requirements of the target market, if there are any, but Nando’s does not have just one policy regarding its chicken (Nandos, 2012), thus Nando’s can easily penetrate into the Chinese market. This means that Nando’s does not need to try something different in China as the business procedure will be similar to what it is in many different Nando’s restaurants around the world. Moreover the Chinese prefer domestic involvement in any business operating in China (Milicevic, Lovric & Aleksandar, 2012), and since Nando’s has a policy to employ locals for as many jobs as possible, Nando’s will find it quite easy to gain acceptance by this Chinese culture.

3.7 Cultural Analysis
The Chinese culture is characterized by collectivism, in which everyone wants to win, together. It emphasizes upon personal dealings, friendship and harmony (Wang & Juslin, 2009). In order for any business to be successful in China, business needs to be done in a harmonious fashion. For example, Ericsson in China was criticized by some Chinese officials for poor service and a lack of standard in its operations in China, however instead of going against the officials, Ericsson’s management decided to work collectively with the Chinese to solving these issues, and this resulted in not only a prosperous business, but immaculate ties between the company and the locals (Crawford & Fletcher, 2010). This is easy for Nando’s to adapt to, because Nando’s operates in different countries with a policy to engage locals and Nando’s primary goal is to create a friendly & welcoming environment, thus Nando’s will fit in perfectly with the Chinese culture (Nandos, 2012). Furthermore with the increasing acceptance and growing trend of western foods, Nando’s has been set up with a perfect opportunity to flourish (Euromonitor, 2011). Moreover, recent trends have shown that the Chinese culture has started to lose its ethnocentricity as western food & beverage companies are starting to flourish, such as McDonalds. Along with this, especially the younger generation, has started to eat out more, and not only have they had a liking develop for western cuisines, but consumers in China are no longer dogmatic in the sense that the use of forks and knives have become common rather than the traditional chopsticks, thus Nando’s has very good potentials to expand into China (Euromonitor, 2012).

3.0 Political & Legal Environment
Each country has its own laws and regulations and any firm wishing to operate under its jurisdiction must abide by the rules. China’s political system however is different than most of the world. It is defined as socialism with Chinese characteristics since it is one of the last soviet nations in the world, however some laws and functioning have been amended thus giving it this name (CIA Factbook, 2011).
Due to the different political governing system, business in China has been difficult, thus it is ranked 91st for the overall Ease of Doing Business in the world (World Bank, 2012). However times are rapidly changing and unlike many other countries in the world where the political system is constantly changing, China has a stable political environment. Moreover with the inclusion of China in the WTO in 2001, the business environment in China has become much more welcoming and friendly (Euromonitor, 2012). These are promising signs for companies like Nando’s who may wish to invest in the future.

4.8 Political Analysis
On one hand, it can be argued that due to a friendlier environment, it is a better environment to run your business in. For example the new health and safety laws of 2011, has damaged the reputation of domestic firms, and since it lays emphasis on healthy food, thousands of businesses were forced to close down (Euromonitor, 2011). This could be at the advantage of Nando’s in the sense that consumer confidence increases towards foreign firms and competition is reduced from domestic firms. However on the other hand, it cannot be argued that the political system and the regulations do not allow businesses to function as easily. World Bank ranks China as 151 on the ease of starting your business ranking, clearly showing that despite improvements, the political environment is not like a free economy.
Despite these problems, it can still be said that due to a stable economy, China is a hotspot for investment and Nando’s has a lot of potential even according to the political scenario.

4.0 Marketing Mix Implications
The environmental analysis shown above could have implications upon the marketing mix of Nando’s, and it will guide the management to developing the correct strategies for the firm’s entry into China. In terms of product, Nando’s needs to deliver its signature chicken dishes, however some amendments could be made regarding the side lines. Some local Chinese cuisines could be incorporated into the menu in order to attract a larger consumer base. In terms of place, Nando’s could do well if it locates in city centers and more importantly it should penetrate the market by entering into the major cities like Shanghai or Beijing, where the customer base is likely to be larger. The pricing strategy to be used by Nando’s is a premium pricing strategy as that is what symbolizes the high quality food offered by Nando’s, and the rising incomes in China means a higher willingness to spend on commodities such as food. Lastly, Nando’s needs to promote its product by signifying its healthy aspects to gain the competitive edge, and mediums such as billboards and newspapers could be used along with social media to advertise.

5.0 Conclusion
From the analyses above, it can be concluded that China is a good option for Nando’s to expand into. It is a prospering economy with a large population, and dramatically changing culture and political situation opens its doors more for Nando’s to take advantage. China has fast developed into a superpower and its environment has become quite similar to other developed and developing countries, therefore Nando’s could adapt easily to the Chinese environment.

Reference List

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Salman, F., & Siddiqui, K. (2011). An exploratory study for measuring consumers awareness and perceptions towards halal food in Pakistan. Interdisciplinary Journal Of Contemporary Research In Business, 3(2), 639-652.

The World Bank.(2012). Economy Profile. China. Retrieved on August 21, 2012 Retrieved from: http://www.doingbusiness.org/data/exploreeconomies/china/.
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