Chipotle Mexican Grill Internationalizing into Switzerland - Case Study Example

Chipotle Mexican Grill Internationalizing into Switzerland Name: Institution: Chipotle Mexican Grill Internationalizing into Switzerland Organizational overview Steve Ells founded Chipotle Mexican Grill in 1993 after acquiring $75,000 loan from his parents. After launching the business concept and beginning operations, the business was selling more than 1,000 burritos in a day. In 1995, the company began an expansion process by opening a second store from the profits ploughed back into the business. In 1996, the company opened a second store and a strategy aimed at funding more growth, Steve Ells parents contributed an additional $1.5 million while the board of directors at Chipotle raised another $1.8 million from local investors (Villavisencio, 2015). Chipotle Mexican Grill was incorporated in 1998. This provided a platform for expansion considering that it was able to develop and operate Chipotle Mexican Grill restaurants in different locations. Chipotle Mexicana Grill was founded and incorporated on the philosophy that fast food could also be cooked to be highly nutritious unlike the junk food believed to be part of the food. The company through its managements has been successful due it ability to create and ensure the growth of an exceptional customer experience while calculating the culture of honesty and ensuring the provision of rewarding opportunities for its employees (Villavisencio, 2015). In the process of ensuring diversification and market, expansion the company through its stores the company operates on a menu focused on tacos, burritos, salads, and burrito bowls. With more than 1700 operational restaurants in Canada, United States, Germany, France, and England, the company has been able to improve in term of its competitive advantage, market share and customer base (Villavisencio, 2015). Chipotle Mexican Grill has also been able to introduce diversification by targeting Asian customers. This explains why the company owns about 10 ShopHouse Southeast Asian Kitchen restaurants specializing in Asian cuisine (Wylie, 2014). The company also operates two Pizzeria locale restaurants, which were developed as a concept of providing target customers with a casual pizza experience. For the company the process of attracting and retaining its customers is also focused on the sale of gift cards, which do not have an expiry date (Grant, 2016). Chipotle Mexican Grill also specializes in the provision of varieties of extras, which include tortilla chips, salsas, and guacamole. In addition, the restaurants operated under Chipotle also serve beverages such as organic milk, fruit drinks, sodas, and a selection of beer. As a strategy of guaranteeing customers, the provision of healthy food the company only prepares meals raised without using non-therapeutic antibiotics or added hormones as a guarantee of responsible food (Katsenelson, 2013). Country attractiveness and entry strategy for internationalization Switzerland is located in west central Europe where it borders Germany and France to the North, Liechtenstein, and Austria to the east and Italy to the South. The county is landlocked and it covers about 41, 290 square kilometers, this makes it twice the size of New Jersey (swissworld.org). The capital of Switzerland is Bern which is located along Aare River which is on the northern part of the country. The largest city is Zurich and the country is also home to other cities of greater significance on the international platform such as Geneva, Lausame and Basel (swissworld.org). In terms of the rates of inflation, Swiss economy has been experiencing higher rates of deflation especially income prices. This has been attributed to cheaper cost of the means of production such as fuel and the raw materials. In addition, availability of labor and automation of the production and manufacturing system has also contributed to the decline in inflation rates (Grünig & Morschett, 2012). Questions based on the internationalization case study or country attractiveness and entry strategy report 1. How can Chipotle Mexican Grill ensure successful entry into the Swiss market? 2. What are the prevailing economic conditions affecting internationalization of organizations in Switzerland 3. How does the procedure of opening an organization in Switzerland affect the development of an internationalization strategy for Chipotle Mexican Grill? Answers How can Chipotle Mexican Grill ensure successful entry into the Swiss market? One internationalization strategy that Chipotle can in its expansion and growth is the horizontal integration. This allows the company to acquire smaller chains hence accessing firms that operate in an established market and supplier relationship. Through this strategy, the company has been able to eliminate competition and excess capacity within the fast food industry especially when expanding in international markets. The horizontal integration in the view of Chipotle will allow the company to ensure a relatively smoother transition into new markets. For instance, the company in 2010 began expensing into the UK by opening niche Burrito bars such as Pinto and Mission Burrito (Krier, 2015). Vertical integration is also an internationalization strategy applied by Chipotle. Currently the company’s food cost is at 35%, which is higher than the industry average of 27%. To tackle this problem the company has been able to purchase supplier operation as a way of ensuring that maintains low production of high quality food (Krier, 2015). What are the prevailing economic conditions affecting internationalization of organizations in Switzerland? Microeconomic conditions In terms of industrial production, Switzerland is currently experiencing an increase in its production rates due to the availability of labor and raw material that are imported into the country art relatively low prices. One of the contributing factors in the decline in the cost of energy and the elimination of trade restrictions between Switzerland and the exporting countries is the availability of labor (Hug & Kriesi, 2010).. Government policies have also been cited as major contributing factors to the increase in industrial production since it allows more foreign and local investors to participate in the economic process (swissworld.org). Switzerland is one of the countries in the world with low unemployment rates especially among the youth. This is because of the availability of employment opportunities arising from high rate of foreign and local investments. Since 1990 the country has been experiencing a steady rise in its gross domestic product (GDP). In 2014 for instance the country had a gross domestic product of $800 billion which was about 10% rise form that of 2013 (swissworld.org). Foreign Direct investment Foreign direct investment in Switzerland is a reflection of the level of foreign ownership of production facilities. For facilities to be classified as part of foreign direct investment, the share of foreign ownership must be equated to at least 10% of the value of the company (Ketelhöhn & Kubeš, 2010). Foreign direct investment in Switzerland can be in the manufacturing, agricultural or and other sector within the country. In addition, Switzerland also allows for foreign direct investment in the creation of something new this can occur in the form of acquisition, or a joint venture (Nicholls, 2012). Since 1983 to 2013 foreign direct investment in Switzerland is at an annual average of 2.9% with its minimum at -1.3% in 2013 and a maximum of 13.3% in 2006 (swissworld.org). Research and development Research and development initiatives in Switzerland focus on the production of high quality goods and services for the local and international markets. Businesses in the country operate on a niche strategy which allows even small enterprises to focus on a small range of quality products hence establishing a position on the global market. In Switzerland compared to other countries a high percentage of its workforce are in research and development. This explains why the country spends about 3% of its gross national product on research and development as a way of building a strong competitive advantage internationally (swissworld.org). Financial Institutions, Currency and Stock Exchange Banks and other financial institutions in Switzerland play an essential role in the development of the country’s economy. The financial sector employs about 6% of the Swiss workforce including thousands of staff from other countries (Braillard, 2010). The financial sector in Switzerland is also a major leader in offshore private banking considering that it has been able to close more than 25% of all private offshore finances. UBS and Credit Suisse are major forces in the Swiss and international economy since they have the ability to generate more than 33% of their profits from offshore operations (Zweifel, 2013). In terms of currency, Switzerland operates the Swiss franc which is one of the stable currencies in the world today (International Monetary Fund, 2014). The leading entity in operating the stock exchange in Switzerland is the Six Swiss Exchange. This is especially in trading of shares, investment funds, bonds and exchange traded funds. In addition, the major stock market index for this entity is the Swiss Market Index which comprises of 20 of the major and most liquid large and mid-cap Stock Price index equity securities on the basis of free float market capitalization (Braillard, 2010). In the period of 1988 and march 2015, the Stock Market Index (SMI) in Switzerland has been averaged at 5360.60 index point with the long time highest index of 9531.50 index point sin 2007and the lowest at 1287.59 index points in 1991 (swissworld.org). Industries and Logistics Industries in Switzerland majorly focus on highly developed and specialized production of its goods and services. This is a competitive advantage that distinguishes Swiss companies from their competitors. In addition, through research and development initiatives that different firms have been involved in, the industries within the country have also improved on reliability, innovation and levels of customization. Some of the important industrial sectors in Switzerland include machine and metalworking, textile, pharmaceuticals, food and beverage, trading, shipping and logistics (swissworld.org). In terms of logistics and shipping, about 4% of the country’s gross domestic product is derived from this sector. In addition, the logistic sector is also responsible for the employment of about 1305, 000 people in Switzerland. One of the major reasons for the success of this industry is the availability of infrastructure that ensures easy flow of commodities from the production sector to the consumers at the local and international levels (swissworld.org). Taxation in Switzerland Compared to other countries in the European Union, Switzerland ranks the lowest in terms of taxation rates and this explains why the country is home to different highly competitive local and international corporations (Oberson & Hull, 2011). The low rates of taxation can be attributed to tax exemptions on Swiss companies operating overseas. There are different levels of taxation considering that the country operates on three levels of government. This means that the Swiss Confederation, the cantons and the communal levels of government will level taxes on businesses on different grounds (OECD, 2010). The federal taxes for instance comprise those taxes that are levied on the income of individuals. The cantonal and communal taxes are controlled by the Cantonal Tax Regulation Act as designed by the federal government (swissworld.org). The average corporate taxation rate in Switzerland in the period between 2006 and 2014 has been determined as 17.90%. This highest corporate tax rate was in 2006 at 21.20% while the record low was in 2014 at 17.90%. The Swiss Federal Tax Corporation has the responsibility of handling taxation related issues which are inclusive of the amount of taxes levied at different government levels. In addition, this corporation also has the responsibility of ensuring that every individual and corporation within Switzerland remits their tax returns as required by law (swissworld.org). What is the procedure of opening a foreign company in Switzerland? Switzerland operates on a centralized system of setting up businesses to ensure that both domestic and foreign investors are subjected to equal terms and conditions that define the process. In addition, though this process it is also possible for the government to ensure high level of competition within its market (swissworld.org). The establishment of a company in Switzerland is considered as a relatively easier process. The Freedom of Trade and Industry as developed by the government of Switzerland allows anyone including foreigners to establish companies in the country of become a major shareholder in any of the existing companies (International BPU, 2012). However, there are some sectors such as the hotel industry and financial sector among other that require some level of authorization. The process of establishing a company in Switzerland requires the company owner to establish a legal structure of the business (International BPU, 2012). The determination of this structure will be through the Swiss Code of Obligation that is applicable to both foreign and local investors. The Swiss Code of Obligations recognizes the following forms of company’s general partnerships, simple partnerships, joint ventures and franchising (swissworld.org). References Braillard, P. (2010). Switzerland as a Financial Centre: Structures and Policies: A Comparison at the International Level. Dordrecht: Springer Netherlands. International Monetary Fund (2014). Switzerland. Washington: International Monetary Fund. Grant, R. (2016). Contemporary Strategy Analysis: Text and Cases. Chichester, West Sussex, United Kingdom : John Wiley & Sons Inc. 2016. Print. Grünig, R., & Morschett, D. (2012). Developing International Strategies: Going and Being International for Medium-sized Companies. Heidelberg : Springer Hug, S., & Kriesi, H. (2010). Value Change in Switzerland. Lexington Books International, B. P. U. (2012). Switzerland starting business (incorporating) in....guide. S.l.: Intl Business Pubns Usa. Katsenelson, V. (2013). Active Value Investing: Making Money in Range-Bound Markets. Hoboken, N.J: Wiley. Ketelhöhn, E. W., & Kubeš, J. (2010). Cases in international business strategy. Oxford: Butterworth Heinemann. Krier, D. (2015). Chipotle Mexican Grill Inc: Case Study. , Middletown, DE. Nicholls, D. (2012). Foreign direct investment: Smart approaches to differentiation and engagement. Farnham, Surrey, England: Gower. Oberson, X., & Hull, H. R. (2011). Switzerland in international tax law. Amsterdam: IBFD. OECD. (2010). OECD Economic Surveys, Switzerland 2009. Paris: Organisation for Economic Co-operation and Development. Villavisencio, J. (2015). Quality Analysis of Chipotle Mexican Grill. Spring term: Indiana Tech. Wylie, K.(2014). Marketing Analysis Chipotle Mexican Restaurant and Applebee's Restaurant. München: GRIN Verlag GmbH. Zweifel, P. (2013). Services in Switzerland: Structure, Performance, and Implications of European Economic Integration. Berlin, Heidelberg: Springer Berlin Heidelberg. www.swissworld.org Read More