SONIC Drive-In is a fast food restaurant located in Oklahoma. It has successfully operated in the U.S. and it is now considered one of the biggest chains of drive-in restaurants. Its menu contains SONIC Cheeseburgers, SONIC Bacon Cheeseburgers, Coneys & hotdogs, chicken, onion rings and Flatmelts. Currently its share price trades at $ 10.54. The revenues of SONIC have reduced by 2.5 percent in the fourth financial quarter ended in 31 August 2011 (Yahoo! Finance, 2012). Its sales also decreased by 0.5 percent. The decline in its performance was attributed to high competition in America’s fast food industry. SONIC Drive In should consider expanding into China to facilitate the internationalization and increased sales.
Sonic Drive In should consider expanding to China so that it becomes a global business venture. The restaurant industry in China has been experiencing a boom in its revenues for the past 5 years. Statistics released by economists reveal that the restaurant industry has been experiencing an annual growth rate of 10 percent for the past 16 years (Ball, Horner & Nield, 2012). It proves that if SONIC Drive in expands to China, it will increase its revenues and company growth. In addition, China has the world’s largest population. This population will provide market for the range of fast foods that SONIC Drive in offers on its menu. China also has advanced technology. Advanced technology will help in supporting service activities offered by SONIC Drive In. Cheap skilled labor is also available in China. The labor overheads are incurred by this company and if it expands to China they will thus be low. Chinese government also encourages foreign direct investments. It has implemented laws that have made the registration of foreign companies to be easy and fast.
Analysis of China
a) Political Analysis
China has a pyramid shaped government structure. President Hu Jintao heads its government. The cabinet of China is composed of State Council. The State Council has the responsibility of making national policies. National People’s Congress passes key laws that govern operations in this country. It is the duty of China’s ministries to ensure that government policies in the country are carried out (Liu, 2011). The state level bureaus and agencies carry out China’s economic activities. They have the responsibility of regulating financial matters in the economy of China. In addition, they regulate the amount of imports entering China and the amount of exports moving from the country. They also handle issues dealing with intellectual property laws. Currently, China is not a market economy. The state is greatly involved in how business activities are conducted in this country. It discourages foreign investors from conducting their operations in this country. In addition, the government of China does not readily allow free business activities since businesses have to adhere to the strict policies set by the Central Government (Li, 2008). However, the ?central Government has been considering options of devolving power so that local authorities can control businesses policies.
b) Economic Analysis of China
The economy of China has been growing for the past 30 years. Its GDP grew by 10.456 percent in 2010. Its total GDP was $ 5,745.13 billion in the same year. However, in 2011, its GDP growth reduced to 9.2 % (Appendix 2). Statistics from economic analysts revealed that the total GDP in 2011 was $ 7.26 trillion (Lardy & Subramanian, 2011). Economic analysts are confident that the GDP will rise in 2012 because China is urbanizing at a fast rate. In addition, the development of the market economy and industrialization will favor the economic growth of this country. The unemployment rate in China has also reduced because of the strong economic growth. In 2010, the unemployment rate of the country dropped to 4.2% compared to the unemployment rate of 4.3% recorded in 2009. Factors that have contributed to China’s strong economic growth include policies that have facilitated the independence of businesses previously owned by the Central Government. Such businesses are given the mandate of making their own decision without being controlled by the Central Government. Moreover, the government has adopted strong fiscal policies that have led to the development of banking sector in the country. Chinese manufacturing sector is also strong and it encourages foreign investors to set their operations in this country. Economists however argue that the economic growth of China will depend on several key factors. One of these factors is inflation. In July 2011, its inflation rate stood at 6.5 % reducing the purchasing power of its consumers (Appendix 1). However, Chinese government adopted many policies and they successfully reduced the inflation rate to 4.2 percent. Moreover, its economic growth will depend on housing prices. Since China needs construction of more houses for the middle class people, there is a risk that the real estate market might collapse due to the many houses built. European crisis also threatens to hinder China’s economic growth (Back, 2012). China exports about 20 percent of its global exports to the European market. If the European debt crisis continues, there is a high risk that its export market might reduce.
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c) Legal Analysis
The judicial system in China lacks independence. This is because Communist Party of China (CCP) has a great influence on most of the court appointments. The judicial system in the country has People’s Courts, Supreme People’s Courts, the People’s Procuratorates, Supreme People’s Procuratorates and Military Procuratorates (Yu, 2011). The highest court in China’s judicial system is the Supreme People’s Court, followed by Higher People’s Court, Intermediate People’s Court and Basic People’s Court. The commercial law in the country has been undergoing reforms to encourage foreign direct investments (Khan, 2007). The legal system in China has adopted strict measures to deal with any form of business disputes. Such disputes include labor disputes, copyright infringement and unlawful business transactions. This country has many lawyers experienced in commercial law and they help in protecting the rights of majority of businesses in this country. China also has alternative systems where citizens might forward their complaints in case their rights are violated. Examples of such alternative systems include protests, mediation and petition system. Using China’s petition system, citizens forward complaints about wrong treatment received from individuals, businesses or the Central Government. However, the petition system in China has not been that effective because most of the cases filed in this system are not put into consideration.
d) Cultural Analysis
Cultural peculiarities of China can be investigated using Hofstede’s five cultural dimensions. China has a low score in the individualism dimension. It shows that Chinese people love to work as a group and live as a family. China has a high score in the power distance index. It proves that there is inequality in wealth and power distribution in the society (Colson, 2012). The score of China considering the masculinity dimension is average. It shows that gender differentiation is not common in this country. Chinese score in uncertainty avoidance index is low. This score proves that China is a liberal society. It has a high score considering long-term orientation dimension. It demonstrates that this country has a strong will to overcome obstacles. Most Chinese people value politeness. It is common for Chinese people to greet strangers proving their great value for respect. They use chopsticks to eat their meals. Circumcision, alcohol abuse and smoking are not accepted readily in this culture (Guillan, 2008). Chinese people mainly value Confucian ethics. Confucian ethics focus on the characters and traits of an individual. They also value the importance of molding ones character. These people also value Mohist ethics. Mohist ethics emphasize on the importance of doing good to everybody without considering family relationships.
e) Commercial Analysis
Market demand for fast foods in China is high. American fast food companies are expanding to this country because there is a demand for sandwiches, pizza and fried chicken. It proves that if Sonic Drive In expands its operations in this country, the sales of its products will be high. The restaurant industry in China has been experiencing tremendous growth. One of the reasons that make the restaurant industry in this country to earn high revenues is that Chinese culture encourages people to eat in restaurants (Kwok & Yip, 2007). Traditionally, the Chinese people meet and spend time with friends in restaurants. Major competitors selling fast foods in this country include McDonalds, KFC, Café de Coral, Fairwood Fast Food and Maxim MX. The main strengths of McDonald’s and KFC are that they have a wide brand portfolio. In addition, they have branches in many countries making them to earn significant revenues. McDonald has a huge capital base and it has helped it to expand in many countries (Watson, 2006). Fairwood Fast Food, Café de Coral and Maxim MX sell local Chinese foods and it makes them to have a wide customer base. In addition, they have a qualified workforce. McDonalds and KFC also face several difficulties. Most consumers are abandoning their products because people are adopting the trend of consuming healthy foods. In addition, high taxes they pay in this country reduce their revenues. Maxim MX and Fairwood Fast Food do not have chains in many countries and this prevents them from earning significant revenues.
Internal Analysis & Implementation of Sonic Drive In
Strategic goals and objectives
Sonic Drive In has several strategic goals. The main strategic goal of this company is to become or maintain its position as the leading restaurant operator in all the markets over the globe (Witzel, 2002). In addition, one of its key objectives is to maintain high level of satisfied customers and to increase the number of customers it has. Sonic Drive In does several things in order to ensure that it achieves these objectives. It has expanded its stores to many states within the United States. This helps it to achieve its goal of becoming a leading restaurant operator. Moreover, it uses its drive in concept that is unique to attract and retain customers. Its menu offers a wide range of products, therefore making consumers satisfied with the products that it offers.
Another key strategic goal of Sonic Drive In is to maximize the level of shareholders earning. It adopted the capital management strategy to help it achieve this goal. Sonic Drive In aims at increasing the earnings per share of all its outstanding shares by using its capital management strategy (Russel & Cohn, 2012). In addition, the managers of this company always concentrate on maximizing the share price of its stock. It adopted multi-layered growth strategy in an attempt of increasing its shareholders earnings. In this strategy, the management spends many funds to advertise the products that are in Sonic Drive In menu. It helps to boost the share prices of the stock of this company. Extensive marketing also helps it to build its brand.
Company strengths and Weaknesses
Sonic Drive In has several strengths. It has a brand that is already established. When customers want to order goods from this restaurant, they first drive into a ‘drive in space’ owned by this company (Witzel, 2002). After this, they place their orders through an intercom speaker. A carhop then delivers the food to the customers. If Sonic Drive In introduces this brand to China, consumers will be willing to purchase the products that this restaurant offers. Sonic Drive In also has a strong brand portfolio. It offers a wide range of foods where consumers can choose. Such foods include tater tots, hand-battered onion rings, wraps, hamburgers, sandwiches and cherry limeades. It shows that the consumers from China will have a wide selection of food to choose from. This will help in boosting the amount of revenues that Sonic Drive In earns. In addition, if one of the foods that Sonic Drive In offers in China performs poorly, the company will have other brands to sell to the consumers. It will therefore diversify its risks. Sonic Drive In also has good marketing campaigns that are conducted by the marketing department of this company. In 2009, Sonic Drive In spent $ 184 million in media marketing campaigns. This helped to improve the number of consumers seeking the services offered by Sonic Drive in. It proves that the strong marketing campaigns that this company contributes will be used to woo the consumers seeking fast food products in this country.
Sonic Drive In also earns high revenues. In the financial year ended 2009, it reported revenues of $718.8 million. However, these revenues reduced to $546 million in the financial year that ended 2011 (Russel & Cohn, 2012). It shows that Sonic Drive In has enough revenues to finance the acquisition of assets to be used in the new restaurants located in China. Sonic Drive In also has skilled laborers. Some of these laborers may be taken to China so that they help in serving consumers of this country. It will help in improving the level of consumer satisfaction since this company will offer quality services to its customers.
Sonic Drive In will experience several weaknesses when it starts its operations in China. One of the key weaknesses is that it does not offer local Chinese food. It will therefore find it hard to compete with the already established businesses offering Chinese food in this market. In addition, most people in China are adopting the trend of consuming healthy foods (Andexer, 2008). It shows that the sales of Sonic Drive In will not be that high, since it offers fast foods which are mainly considered junk food.
Sonic Drive In could adopt several market entry strategies while expanding into China. These strategies include:
- 1. Joint Ventures
A joint venture is established when two companies combine their resources to form a third independent company owned by the two companies. The two companies share revenues and expenses incurred by the new company. There are certain advantages of establishing a joint venture. One of the main advantages is that the two companies share the risks that may incur in foreign markets (Andexer, 2008). Moreover, the two companies contribute capital and this will help to increase the capital base of the joint venture.
- 2. Exporting
In terms of exporting, a firm may opt to export directly to consumers or indirectly using agents and distributors. A firm chooses direct exporting if it is familiar with the market. If a firm is not familiar with business practices and regulatory requirements of a foreign market, it may opt to work with distributors and agents (Tielman, 2010). An agent works on behalf of a company seeking to expand into international markets in order to sell products of this company into a particular chosen foreign market. In exchange, the agent earns a commission.
- 3. International Franchising
In a franchising agreement, a franchisee pays fees to a parent company known as the franchiser in exchange for rights of being identified with the trademark of selling the products and services of a franchiser (Andexer. 2008). A franchiser offers the franchisee rights such as right to use managerial systems of the franchiser and operations systems.
- 4. Foreign Direct Investment
A firm may choose to adopt this strategy in order to penetrate foreign markets. In this strategy, a firm purchases another local firm in the foreign country or starts its operations from scratch. Most companies prefer foreign direct investments to franchising or licensing since the company retains strategic control after adopting this strategy.
I would recommend Sonic Drive In to adopt foreign direct investment. Sonic Drive In will have the overall control of its restaurants in China. It will therefore be easy for the management to make quick decisions since it will not need to consult another party (Andexer, 2008). Sonic Drive In will also have direct contact with its customers if it adopts foreign direct investments and this will help it improve the level of consumer satisfaction in China. If it adopts foreign direct investments, it will increase the number of job opportunities in China. Consumers will therefore view it as a socially responsible company therefore increasing its sales.
- d. Product/Service adaptation
Sonic Drive In should do several things in order to ensure that the product that it offers adapts to the Chinese markets. One of the key things is introducing local Chinese food in its menu. Such food include Honey Walnut Shrimp. This dish contains fresh tempura shrimp mixed with honey sauce and walnuts. It could also consider introducing stinky tofu and doufulu dishes in its menu. Another key thing that Sonic Drive In could do to make its products adapt to the Chinese market is to conduct extensive marketing campaigns in the country. It will help consumers to be aware of the products that Sonic Drive In offers to its consumers. This will also help Sonic Drive In to deal with the high competition that is common in the fast food industry (Andexer, 2008). The advertisement should be done in Chinese and contain key media personalities from China. Sonic Drive In could also consider changing the packaging of its products. Information on the packages should be written in Chinese.
- Timeline of Internationalization process
Setting up Sonic Drive In in China will take approximately six to eight months. At first, the government of China has to give Sonic Drive In approval. This takes place after it inspects all the relevant documentation and reports produced by the company. After Sonic Drive In gets its approval, it will be issued a business license to indicate that it has been approved to start its operations in China. This company will also be required to file all the seals that it has. The management of Sonic Drive In should also consider acquiering enterprise code verification from the Chinese government. After receiving this code, it will obtain foreign exchange approval. This will grant the company a permission to conduct foreign transactions while it is in China (Lardy & Subramanian, 2011). The financial department of this company will also be required to register with the City Tax Bureau. It will help in ensuring that the company pays all its taxes while conducting operations in China. The capital of Sonic Drive In will also need to be verified by the Chinese government before it starts its operations in this country.
- Negotiations and Communication
The company needs to negotiate with several companies so that they support its restaurant activities in China. Sonic Drive In needs to sign contracts with logistics companies in China. These companies will help to deliver all the ingredients that this fast food will use to prepare its meals. In addition, Sonic Drive In will need to will need to negotiate with companies offering consultancy services in this country. Tax consulting companies will help Sonic Drive In to determine the things that it could do to ensure that it complies with all the tax laws in this country. In addition, they will give Sonic Drive In advice on the things that it could do to help it get tax benefits (Andexer, 2008). Sonic Drive In also needs to communicate with the local producers in China so that it receives cheap supply of quality ingredients that will be used while preparing dishes.
- Motivation and Appraisal Systems
Sonic Drive In should do several things in order to motivate the employees to work in the new restaurant that will be located in China. One of the key things that it could do to motivate the employees is by offering them flexible working schedules. The restaurant cooks will be given the opportunity of working at their own convenient time as long as they follow the schedule. In addition, the employees who show superior performance should be rewarded by giving them bonuses or certificates of good performance. This will motivate them to improve their performance. The management team handling the restaurant in China should also consider adopting a participative form of management. Participative management motivates employees, since they know that the management of an organization appreciates their efforts. The employees in this country should also be given fringe benefits in an attempt of improving their performance. Regular appraisals should also be conducted on all the workers working in this restaurant. This will help in determining how well they are adapting to the culture of China (Colson, 2012). In addition, the human resource management department will be able to define the areas in which the employees in this restaurant need further training.
- Leadership Approach
The leadership approach that Sonic Drive In should adopt while in China is a participatory leadership. Participatory leadership utilizes collective intelligence during decision making. Before the management of this restaurant makes any change, it should consider involving all the employees so that it gets diverse views from the employees. It will help it to make quality decisions. A participatory leader should act as a facilitator. This will help in ensuring that all the employees in Sonic Drive In are free to brainstorm ideas on the management strategy that it will use in China in order to attain its objectives (Russel & Cohn, 2012). This form of leadership also encourages creativity and innovation. Employees will be free to raise ideas on how to appeal to Chinese consumers.
The human resource department of this company should consider training all the foreign employees on Chinese culture and norms. It will help in ensuring that they interact freely with consumers, therefore, leading to an increase in the level of consumer satisfaction. In addition, it should also hire a certain percentage of its employees from the local Chinese people. It will help in ensuring that its employees have diverse culture. Chinese employees will help foreign employees in Sonic Drive In to adapt easily to the Chinese way of life (Guillain, 2008). The human resource department in this organization should also hire experienced in cooking Chinese dishes employees. This will help the restaurant to introduce local dishes in its menu.
Marketing/ Advertising Approach
The main advertising approach that Sonic Drive In should use to inform the Chinese market about the goods that it plans to offer to the consumers is television commercials. Television commercials are effective, since they reach a wide consumer base. Nowadays many people own television sets. The advertisement messages about the quality services that Sonic Drive In offers will, thus, reach a wide consumer base (Teilman, 2010). Television also allows for sophistication of messages so that they are able to create an appeal to the public. Television adverts can be combined with music. In addition, they can be combined with many forms of advertising creativity. Sonic Drive In should also consider using social media to advertise the types of products that it offers to the consumers. It should use social media sites such as Facebook and Twitter to create public awareness. Social media is an effective tool along with the TV advertisement, as, it will also reach a wide consumer base. Moreover, this form of advertising is cheaper compared to TV advertising.
To conclude, Sonic Drive In should consider expanding to China so that it can improve its growth. Chinese restaurant industry has been experiencing a boom in its sales. If it expands to China, it will be able to escape high competition present in America. The company might also take advantage of cheap labor and high technology present in China. This will contribute to an increase in its profits. The legal environment in this country has also started favoring direct foreign investments. Dispute, resolution processes have also started being transparent. Chinese people are friendly by nature and this proves that they will support Sonic Drive In activities in this country.Strong capital base of the company will help it to easily start operations in this country. It should use foreign direct investments in order to ensure that it gains full management control, which helps to make quick and quality decisions. The human resource department in this organization should hire local Chinese employees in an attempt of creating staff cultural diversity. It should also motivate its employees so that they are able to improve their performance.