Charcoal BBQ Chicken Moving to the Poland Market - Case Study Example

1. INTRODUCTION Despite the numerous challenges operating a business in the foreign country pose, more than ever before businesses have continued to expand their operations globally. This is because many are seeking opportunities that will help them grow their businesses in terms of market share and revenue generation. This trend however, has been accelerated with the liberalization of the global market and removal of trade barrier which in the past have hindered penetration into foreign markets (Tsang, 2004). The purpose of this study is to carry out critical analysis of the move by an Australian company into the Poland market. Charcoal BBQ Chicken is a well-established business with over 300 stores in Australia and has a mature experience in the ‘roast chicken’ business and also a good revenue base. The business also has expertise in delivering quality services (Blanchard, 2011). Further, with a large business presence, the company has managed to develop their experience by managing numerous stores and using strategies in the market. This report will first provide a critical overview about Poland through a PEST analysis, and then Porter’s Five Forces will be demonstrated in order to better analyze the country’s market attractiveness for the firm. This detailed analysis about operation management for the firm to operate the business in Poland and some ownership strategies will be introduced. Finally, a summary will be provided and some suggestions for the firm’s expansion will also be given. 2. CRITICAL OVERVIEW Poland is located in central Europe at 52 00 N, 20 00 E between Eastern and Western Europe, and encompassed by Germany, Belorussia and Ukraine which as shown in the map below. This country is also the most populated Eastern European country with a total population reaching 38,510,960 in 2006 providing a large consumer market (Euromonitor International, 2012). In order to attempt to determine whether Poland is a suitable country for the Australian Charcoal BBQ Chicken to operate in, the analysis will entail consideration of five factors including politics/legislation factors, economic factors, social/culture factors, technology factors and environment factors, which can have an influence on the company’s ability to deliver in the new market (Blanchard, 2011). This PEST analysis model will be used to demonstrate how various forces in society are likely to affect the business. 2.1 Politics/legislation Factors Beside the country's strong economic growth and central location, Poland offers a large consumer market and improved regulations for investors. Poland’s investment laws as of 2012 are transparent and foreign investors have the same rights as local investors, the Polish Information and Foreign Investment Agency (PIFIA) also provide assistance to foreign investors (Economic Freedom Act, July 2004). Furthermore, according to indices on Ease of Doing Business by the World Bank, there were large improvements in investor’s protection rankings in Poland, this led to rise to 33rd in 2006 from 43rd place in 2005 according to Euromonitor International (2012). The other legislation that is likely to affect business is employment. The country’s employment policy is that foreign investors would only be allowed to operate in the country as long as they give opportunity first to the local populations (PKF, 2012). This may limit the business in terms of skill and expertise in case there is shortage in the local market. 2.2 Economic Factors Since the joining of EU in 2004, the country’s GDP growth averaged 4.6% between 2003 and 2006 and reached 5.8% in 2006 (Euromonitor International, 2012). Moreover, according to the Fitch Agency Rating report in 2008, Poland had experienced uninterrupted economic growth of 5% while maintaining its export level at 30% (PIFIA, 2012). The per capita income of Poland is also comparatively high as it stood at PLN23, 667 (US$7,851) in 2010. Between year 2005-2010, it improved by 19.0%. In general, what this means to the business is that the quality of life is high and people have some disposable income to spend, as well as the business environment of Poland is very active for foreign direct investment (Gärtner, 2006). Tourism Industry and EURO 2012 Tourism in the country is a major economic activity and contributes nearly half of the country’s foreign exchange earnings (Euromonitor International, 2012. This is significant for the business as it will not only depend on the local market tourism but also foreigners including Australians who come in as tourists (PIFIA, 2012). Poland and Ukraine were the host countries of the European Football Championship EURO 2012. This major sports event created an excellent opportunity to promote Poland in Europe and in the world. There were nearly 500,000 foreign football fans who attended EURO 2012, which was an excellent business opportunity for major sectors within the tourist and travel industry, such as fast food sectors. According to the report conducted by Euromonitor International in 2012, it is predicted that, such major sports event will result in long-term increase in interest of visiting Poland amongst prospective incoming tourists from various European countries, which will drive up sales of tourist and travel services. In general, what this means to the Charcoal BBQ chicken is that, more opportunities will be generated within this country due to Poland being widely exposed in different media throughout the world before and during the event. Low Hourly Wage A large pool of skilled and unskilled labor with relatively low wages is an attraction for investors. According to the statistical data from Euromonitor International (2012), the average hourly wage in the economy of Poland was much lower than the EU average of US$17.2 in 2011. However, from another perspective, the labor productivity was also far lower than the EU average of US$72,085 which was only US$28,474 per person employed in Poland in 2011. Poland also has high preferences in terms of unemployment rate among 20-24 year olds and 25-29 year olds at 21.2% and 19.2% of the total unemployed population in 2011 respectively (Brzeszczynski & Michael, 2006). For any investor, those factors will mean a wide source of labor, but a scarcity in skills and competencies. 2.3 Social/culture Factors According to a survey conducted by Ernest and Young 2010, found out that many foreign managers had indicated that Poland is one of the favorable countries in Europe in terms of investment, as a result of high level of hospitality which is a factor of the Polish friendliness and hospitality. For the business, adapting to the culture of the people and having good relationships with the indigenous populations will be easier (Gärtner, 2006). Eating Behaviors Consumer’s expenditure on food in Poland grew by nearly 11% during the review period, reaching PLN158.7 billion in 2010 (Euromonitor International, 2012). Moreover, in 2010, the largest proportion of spending was on meat which occupied 33% of the total spending. In addition, based the increased foreign travel undertaken by Polish, there is a growing demand for meals originating from other countries. Polish prefer meat, potatoes and cream as their staple food. Their food is not very starchy food like the case of Czech’s favor and it is also not too spicy like Hungary or Belgium food. Polish typically eat three main meals a day, with the main meal eaten at about 2pm or later. This meal usually consists of two courses, starting with soup such as popular chicken soup (rosól), tomato soup or beet borscht (barszcz). In addition, polish also generally prefers homemade meals hence cooking at home remains highly preferred. Despite this fact, due to their increasingly fast-paced lifestyles and the necessity for many females to combine work and family duties, many consumers continually look for ways to save time hence driving demand for packaged food, frozen food, ready meals and takeaways. Indeed, during the review period the value of the home delivery/takeaway meals segment, it increased by 15.5% to reach PLN194 million in 2010. Moreover, fast food operators in Poland began including healthier options on their menus and this also attracted new customers. During the review period, value sales in the fast food segment increased by 21.8% to reach PLN6.1 billion in 2010 as shown in the following table. Source: National statistical offices, Euromonitor International Local Language Barrier Unlike in the case of Australia where the official language communication is English, in Poland the case is totally different. Despite Poland being one of the countries in Europe that have high population, ‘Polish’ is the language commonly used there both in official communication and in business transacting. For the Australian business, this may require the use of the interpreter who speaks in polish to be doing the work of translation when making business transactions with the locals. This may imply extra cost for the business. Euro Culture The Australian business culture is different from that of Euro. A number of business aspects do differ. For instance while in Australia it is very common and seen as a normal practice to call somebody by the first name, in the case of Europe, calling someone by the surname is preferred way. What this means for the Australian business is that the investor must learn to call the clients by the names or titles they prefer in order to accord them the respect they deserve. 2.4 Technology Factors With the advancement in technology globally, Poland has also made important steps in technology in infrastructure and communication in internet use. In terms of internet use, Poland is ranked 4th in Europe in terms of internet use, in 2010, it had a market share of 29.9% (WARSAW, 2011). This is significant growth from 10.1% in 2004 (PIFIA, 2012). Generally, more Polish consumers are choosing the low prices and convenience of internet retailers and growth in this channel is expected to be seen in the food sector over the forecast period. What this means for the business is that communication and more specifically the use of the internet is likely to affect how the consumers will carry out their purchases. It is forecasted that in the future, use of the internet to make transactions could be an irresistible trend for the customers. 3. MARKET ATTRACTIVENESS Based on the PEST Model analysis, the Porter’s Five Forces Model will be used to analyse the Poland market and ascertain its attractiveness for the Charcoal BBQ Chicken that is specialized in preparing and selling roast chicken for the market. Porter’s Five Forces Model identifies five factors that are important in analyzing a given market and they include customer bargaining power, supplier bargaining power, threat of new entrants, threat of substitutes and competitive rivalry as shown in the following picture. 3.1 Bargaining power of the customers – Medium The customers tend to be more powerful in the market if the supply of a given product or service is more than the demand, and when the customers have numerous substitutes and alternatives for a given product or service (Porter, 2008). In the case of Poland, Polish are used to spending a lot on meat and the demand for takeaway food and fast food also gradually increase. What this means, therefore, is that the customer will have low bargaining power, as they favor meat food a lot. However, there are many different well-known brands and much kind of substitutes in Poland’s fast food industry. These lead customers have more power due to they have many choices. Based on those situations, the bargaining power of Poland customers is at the medium level. 3.2 Bargaining power of the suppliers – Low The supplier has more bargaining power when there are few alternatives in the market, and where the supplier is superior in terms of quality and product differentiation as opposed to the competitors (Porter, 2008). The most important suppliers for the Charcoal BBQ Chicken are the chicken meat suppliers. Based on the statistical data conducted by (The Food Industry in Poland report) in 2004, the polish chicken meat production was occupied about 10% of the EU market in 2004. Moreover, according to the table below which shown the number of enterprises operating in the food industry in Poland in 2008, there are 5980 enterprises engaged in the segment of meat and meat products (green color report, 20xx). This large amount could demonstrate that the competition among those meat suppliers is very high. What this means therefore, is that the Charcoal BBQ Chicken, has an upper hand in the market in relation to the chicken meat suppliers. Segment Total number of enterprise Meat and meat products 5,980 Fish and processed fish products 707 Processed fruit and vegetables 1,874 Oils, animal and vegetable fats 211 Dairy goods 1,123 Milled grain products and starch products 1,749 Animal feeds 834 Other food products 14,868 Beverages 1,542 Total 28,820 (Source: GUS-REGON Register, 20xx) 3.3 Threat of new entrants – Medium-high The threat of new entrants is likely to come into play if the law governing a particular industry, allows for free entry and exit of companies (Porter, 2008). Poland, according to the 2011 World Bank Report on economic indexes, is ranked 68th globally in terms of flexibility in business. What this means is that as compared to other countries in Central Europe, flexibility in doing business is very low. To the investor, this can both be a positive and negative. This will be a positive in that it will not be easy for new entrants to enter the industry and will be a negative if the business wishes to leave the industry (Hill, 2005). From another perspective, as mentioned in the previous part, there was a large improvement in Poland's protection of investors (Euromonitor International, 2012). Meanwhile, the high unemployment rate and relatively low labor wages are another attraction for investors to enter Poland market. Based on those factors, the threat of new entrants in Poland is medium-high. 3.4 Threat of substitutes – High The threat of substitutes in an industry occurs when there are other products and services that can be used as alternatives and when there are other companies that can offer similar products (Kotler, 1997). As tourism is a major force for Poland’s economy, this is very significant for the business, as it will not only depend on the local market but also foreigners including Australians who come in as tourists (PIFIA 2012). However, within the fast food industry, the business needs to consider about some large well-known fast-food chains. For example, McDonald’s can be seen as the largest competitor for the Charcoal BBQ Chicken shared almost 50% of Poland’s fast food market (Euromonitor international, 2012). Moreover, there are a lot of other brands within Poland’s food industry which provide many choices for consumers. Based on those situations, the threat of substitutes is relatively high. 3.5 Competitive rivalry – Medium As a matter of fact, competitive rivalry in the market is at medium level. This is because the country so far has not had many foreign investors in the industry and at the same time, and the country is only known traditional chicken which is minted and fried after some soup. This may be compromise the taste and quality of the chicken, and thus give the Australian brand an upper hand in the market (PIFIA, 2012). Moreover, there is still very large market population that has not been reached. Since European laws have been recently reformed, more foreign companies are yet to invade the market. To the Charcoal BBQ Chicken, this will have numerous market opportunities to exploit. However, some local fast food operators in Poland began to pay attention on innovation, such as provide healthier options on their menus and these also attracted new customers. Therefore, the competitive rivalry in Poland is at medium level currently. 4. OPERATIONAL MANAGEMENT Operational management entails the numerous actions that are taken by an organization in order to adapt into the new environment. It with this regard, this analysis has sought to take detailed analysis of the operations management model that is being used by Charcoal BBQ Chicken of Australia, in its endeavor to expand its business to the Polish market. The input-output model start with put input resources (include transformed resources and transforming resources) into the transformation process and generate the output products and services to customers (7201 textbook) as shown in the following figure. As a foreign investor, Charcoal BBQ Chicken may have to work hard to deal with the difference situations in Poland. Some of management issues are vital important to its operation in a foreign country and those issues will be analyzed as following based on the input-output model. 4.1 Input There are two aspects within the input stage may influence the business in Poland market, which include raw material and human resource issues. Raw material As a roast chicken company, Charcoal BBQ chicken has to work hard to ensure the ingredient which is chicken always available with good quality and affordable price when they running their business into Poland. According to the data about the food industry in Poland, polish chicken production had about 10% share in the EU market in which Poland become a vital competitor for other manufacturers of the EU-15 in 2004. For Poland, chicken production occurred three quarters of total poultry production which was almost 700 thousand tons were produced in 2004, an increase of 6% from 2003. The report also pointed out that poultry had been overproduction in 2003. In addition, according to the analysis in the prior part, there are 5980 enterprises engaged in the segment of meat and meat products with a very high competition among this segment (green color report, 20xx). Therefore, the raw material could be sufficient, and the price could be acceptable. Human resource issues The foreign company operates their business without host country is highly influenced by the differences in regulatory and cultural environments (textbook). Poland’s policy regulates that foreign companies must provide work opportunities firstly to the indigenous populations if they willing do business into Poland (PKF, 2012). Furthermore, according to the statistics data from Euromonitor International in 2008, Poland’s employment rate was 57% in 2007 which is almost the second lowest performance in the Eastern Europe and the employed population is largely increased in the service industry from 19.7% to 31.5% between 1990 and 2004. (Mobilizing the Polish labor force, Euromonitor international , 2005). In addition, the average wage in Poland was US$6.6 which is also much lower than US$17.2 hourly EU’s in 2011 (Euromonitor international, 2012). For investors both internal and external, the fact reflects there is a wide source of labor with low wage level in Poland, especially beneficial for service-based business like Charcoal BBQ Chicken. Education level can influence the skill level of employees directly and consequently contribute to labor productivity. According to Euromonitor international (2006), the labor productivity of Poland was €17,472 in 2005 which is lower than the average labor productivity of EU-8 at €18,579 (Boosting Poland’s human capital). Therefore, Charcoal BBQ Chicken as a foreign investment company, it is essential to provide training programs to increase the skill level of their employees in order to provide higher quality service. Location According to the report conducted by Euromonitor International (Consumer Lifestyles in Poland, 2011), urban residents of poles accounted by 61% of total population which is 23.3 million in 2010. Those urban residents, especially young and worked people, are more likely contribute to the increasing demand for fast food and take-away as the fast-paced lifestyle and the willing to dining out. Therefore, urban areas provide high demand to the business to be operated. Furthermore, compare with the larger city where already existed many foodservice providers, smaller cities became less risky and ease enter into shopping malls in which positive affect restaurants. That is, as a new player enters into Poland, low risky also play an important role to avoid defeated (Euromonitor International, 20xx). 4.2 The Transformation Process According to Nickel and Lewis (2010), the supply chain in the business relates to its key stakeholders and more especially the suppliers and the intermediaries before delivering the final service to the consumer. Currently, the Charcoal BBQ Chicken in Australia is characterized by its supply chain where the chicken meat is supplied by the poultry providers before it is roasted and made ready for consumption and then delivered to the market through its 300 retail stores operating in various parts of the country. As the supply chain seeks to deliver to customers both in terms of quality and reliability, it is also for the business in ensuring an interrupted supply and increase in efficiency (Nickel & Lewis, 2010). Despite the fact that this model has worked very well for the business in Australia, it is not automatic that it will always work in all business environments especially in foreign markets. This is because different countries have different legislations and market conditions that will always impact on the supply chain (Gärtner, 2006). Since, Charcoal BBQ Chicken has no experience about the market in Poland; the company may be forced to partner with local businesses in order to have the opportunity to learn more about the complexities in the market. 4.3 Output Service Design In terms of Poland, the report from (Euromonitor international, 2012) indicated the demand of full-service restaurants had been increasing because of the growth number of poles are willing to dining out and spend on full-service restaurants. Many full-service restaurant starts to provide take-away service and delivery service to satisfy consumers’ demands (Euromonitor International, 2012). Meanwhile, in terms of the accelerating pace life of poles, the demand of fast food was also growing. Product Design The health awareness of poles became increasing in recent years and they keep looking for healthier lifestyles. Based on the survey (Euromonitor international, 2012), food industry was influenced by healthy demand of consumers and positioned as healthy of their products. For example, comparing with soft drinks, the sales of spring water were increased from 2006 to 2010 in Poland, which is good for health. In related to Charcoal BBQ Chicken, the existing menu already emphasis the health attitude both from cooking methods and sales products like salad. Furthermore, to use the spring water replace of the soft drink is advised to the company in Poland. 5. OWNERSHIP STRATEGY Ownership strategy is defined as the model of ownership of a given company or organization (Mishkin, 2004). In Poland, there are various forms of ownership that a company can use as its model which include joint ventures, limited liability companies, unlimited liability companies, partnerships both general and limited, undisclosed partnerships, sole proprietorships, subsidiaries, branches and representative offices as well as trusts and other fiduciary entities (PKF, 2012). Even though the registration of the company is allowed both to the foreign and local investors, there as some factors which may influence the kind of ownership model that the company will use, and they will include the knowledge the investor has about the market, the requirement for registration and the cost associated for registration, tax levies, employment policies and regulations. Currently, the Charcoal BBQ Chicken is well-known through its own numerous stores and franchises in Australia. This experience helped the company very successful in the industry by reaching almost all markets in Australian. However, in Poland this is a very different scenario. For a foreign investor outside the EU, the levies are different, and at the same time employment is restricted only for the local populations (PKF, 2012). In such circumstances partnering with the local companies in order to avoid heavy taxes and also to access skilled labor is available. It is suggested that joint venture is a better ownership strategy for the Charcoal BBQ Chicken to enter into Poland market. The following table provides some advantages and disadvantages for the business to use joint venture ownership strategy: Advantages Disadvantages Overcome local language barrier; Better understand the local culture; Better understand the rules of cooperation with other local businesses, such as suppliers or competitors; Avoid heavy levies; Better understand the local eating behaviors; May better handle staff conflict; May learn more about the complexities in the Poland market Risk of unpleasant cooperation with local partner; Employment constraint – local populations only; It will be difficult to transfer to other type of ownership strategies. 6. CONCLUSION Poland market for roasted chicken is still growing and despite the numerous challenges it poses to foreign investors, it also exhibits some positive features that are likely to attract any interested investor into the industry. For instance, Poland is one of the countries in Europe that are recording high preferences in terms of population growth. To the investor, this means increasing market for his products and services. Economic reforms are also a key feature for any investor. Given the current economic reforms that followed the fall of communism in Poland, security for all business investments in the country is almost guaranteed. However, there are underlying issue that have to be dealt with and which include the anticipated competition, adaptation to the business culture and language and restriction to give employment opportunities to the locals. 7. RECOMMENDATION As identified in the analysis competition is likely to become stiffer in the country given the country’s FDI policy which allows for foreign investors into the country. The business is also likely experience difficulties with operating under culture and language and also complying with the government policy on recruitment of locals. With this regard therefore, the following recommendations have been proposed: 1. Define its business in the industry in terms of quality and value so as to be distinct from others. 2. Take time to learn on the business culture of the people of Poland in order to determine their likes and dislikes. 3. Use of the interpreter in business transactions incase the language becomes a challenge 4. Consider own developing training programs for employees to develop the skills required in the business 5. APPENDIX B: Per Capita Annual Disposable Income, Spending and Savings Ratio: 2005-2020 Per capita annual disposable income stood at PLN23, 667 (US$7,851) in 2010, up 19.0% in real terms over 2005- 2010. Real per capita annual disposable income remained relatively strong throughout the global economic downturn of 2008-2009, growing by 2.6% in 2009 and 2.7% in 2010, with growth forecast at 2.3% in 2011. Meanwhile, per capita consumer expenditure stood at PLN22, 579 (US$7,489) in 2010, up 21.2% in real terms over 2005-2010. Real annual per capita consumer expenditure was not severely affected by the economic downturn either, although growth did slow down to 0.7% in 2009 before recovering to 2.8% in 2010, with a forecasted 2.1% rise expected in 2011. Due to the economy's strong leverage, Poland's banking system withstood the global turbulence. However, despite this stable performance, plans to transfer to the euro have been postponed beyond the initial deadline of 2012. REFERENCES Brzeszczynski, J and Michael, M. (2006). “Explaining trading volume in the euro”. International Journal of Finance and Economics, 11(1), p. 25–34. Elaine A. (2005). Polish-Style Roast Chicken: Ingredients, retrieved on 28th September 2012, available at: http://www.food.com/recipe/polish-style-roast-chicken-143040 Fotios, P. (2006). 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