Burger King Beefs Up Global Operations
Although the company has expanded their original menu throughout the years, burgers remain their core competency, with the Whopper sandwich as its signature product. When your business is successful, the thought of expansion of sales is common, as it can lead to more profits. Expanding internationally can be a profitable venture for many businesses, but just like any new investment there are pros and cons involved. The fast food industry is no different and therefore before expanding internationally the advantages and disadvantages must be consider.
For instance, depending on where BK decides to expand, they may be able to take advantage of favorable government regulations, such as lower taxes. Most importantly when you expand a business into a new country and the people like your product, it creates demand which results in substantial sales. A disadvantage an international restaurant company may face when competing with a local company may be a result of cultural differences. Overcoming the cultural barriers in other countries is not that simple.
Every country has its own culture and “tastes”, and BK may not be able to accurately predict what people in that culture will truly enjoy (Arthur, 2011) Thus, new products in the menu may vary by region. For example, in Puerto Rico BK offers fried plantain as a one of the side items while in India McDonalds offers goat burgers in their menu. Despite Burger King’s successful franchise in the US, the decision to expand internationally was not made until after McDonalds (its main competitor) went global. The decision to expand globally at a later time had its advantages and disadvantages depending on the market size and supply infrastructure.
For instance, in large markets where sustainability was of less concern and the demand for the product was greater the company was able to concentrate on its product without incurring the early developmental costs. On the other hand, in small markets sustainability would be a problem because there may be an inadequate supply infrastructure resulting in an operation disadvantage for the firm in those locations (Daniels, Radebaugh & Sullivan, 2011). In addition, the potential of gaining the best locations, suppliers, and partners (first-mover advantage) may be significantly reduced by entering later into a market.
Approximately 90% of Burger King Restaurants are owned and operated by independent franchisees and the remaining 10% by the corporation. By owning a percentage of its restaurants, the company displays a high level of market commitment, especially when entering a market for the first time. As the company continues to evolve in ownership and expands its portfolio, it continues to redefine the “who”, the “what”, the “how”, and the “us” by revising its strategy and changing the way it performs its core activities in order to create the most value for the company (Luzio, 2010).
Burger King’s strategy when moving into new countries includes: (1) develop an infrastructure before bringing in the restaurants, (2) develop a local management team, (3) focus development on major cities with established shopping mall location, (4) establish a local office or headquarters, and (5) demonstrate commitment by procuring locally and supporting continuous development (Daniels, Radebaugh & Sullivan, 2011). Burger King Corporation focuses on long-term value creation.
Although about two-thirds of Burger King’s restaurants are currently in the United States and Canada, I would expect this to change with time. As stated in the textbook, BK “sees the United States as a mature market for fast food, especially for hamburgers, in comparison with many foreign countries. ” (Daniels, Radebaugh & Sullivan, 2011, p. 467) As long as the conditions are advantageous in other locations, you can expect for international business to produce solid growth in sales, profits and returns well into the future when comparing it to the US and Canada.
The case study further mentions that Burger King favors countries with large numbers of youth and shopping centers. This is simply because it captures the client segmentation and target markets for fast food restaurants, probably indicating a low risk and high opportunity location. Burger King, as a result of being headquartered in Miami, has a large presence in the Latin American and Caribbean region with 24. 6 percent of its restaurants located in that region.
The company’s initial international expansion included restaurants in the Bahamas and Puerto Rico. This decision was a direct result of its headquarters location since there is a high volume of people from Latin America and the Caribbean that come to or through Miami which resulted in brand recognition and acceptance. In addition, the proximity of the countries in this region to Miami promoted strong relations between management and franchisees. Two common tools the CEO of Burger King may use when deciding on future locations are grids and matrices.
Grids are tools that may depict acceptable or unacceptable conditions and rank countries based on a set of predefined important variables. Grids help you to decide between several options, where you need to take many different factors into account. Matrices are used to clearly show the opportunity and risk relationship of a given location or country. For instance, the Burger King CEO and directors will decide which factors are good indicators and weight them to reflect their importance. Each location or region is then evaluated with an opportunity-risk matrix based on the weighted indicators.