Summary
Michael Porter developed Porter’s Five Forces Analysis Framework. The model enables industries to identify and analyze the five factors that comprise the industry, as well as evaluate a firm’s competitive strength and position. Porter’s thesis is based on the assumption that the five factors help to identify where power rests in a commercial setting (Bruijl, 2018). Numerous worldwide Quick Service Restaurant companies, such as McDonald’s, Burger King, KFC, and Pizza Hut, dominate the fast food sector.
Existing competitor rivalry is a driving force that affects an industry’s competitiveness and success. The amount of rivalry is determined by factors such as cost, industry consolidation, industry growth rate, distinctiveness, and switching costs. In the fast food industry, rivalry may develop quickly since fixed costs are high and switching costs are low. Furthermore, significant fixed expenses push fast-food restaurants to cut their rates (Raj & Singh, 2020). As a result, as prices fall, competition will heat up. The fast food market is competitive since there is little product differentiation among competitors. Furthermore, the significant number of competitors in the business causes a high degree of rivalry because each firm is attempting to attract and attract the same clients (Raj & Singh, 2020). Since the market is saturated, the fast food industry’s growth pace is modest. As previously stated, the drivers of robust competition include many enterprises providing similar items and low costs for switching. As a result, the fast food business suffers from this predicament.
The danger of new potential entrants substantially impacts incumbent enterprises’ capacity to produce a profit. Since a new rival joins the business offering identical products and services, an existing firm’s competitive advantage will be jeopardized. As a result, the danger of new entrants is referred to as the capacity of new rivals to enter the sector. Due to restrictions, the danger of new competitors in the fast food market is minimal. Capital requirements may be modest or low to start an established business in the fast food sector. Nevertheless, achieving economies of scale as new entrants is challenging since they join the industry with a lower market share and are compelled to accept high fixed costs (Raj & Singh, 2020). Overall, the danger of new entrants into the fast food business is mild due to cheap startup capital and fixed expenses. As a result, it promotes new entrants to participate, but they must be financially secure in order to bring distinctive goods and earn economies of scale.
Due to several factors, the danger of alternatives in the fast food business is considerable. In the United Kingdom, for example, there is a concern about substitution, as the government proposed to reduce calorie consumption to half the rates of pediatric obesity (Amies-Cull et al., 2019). As a result, health-conscious fast-food consumers may alter their eating patterns (Bumbac et al., 2020). On the other hand, good nutrition at a fast food restaurant may be more expensive than eating unhealthy. As a result of the financial circumstances, some customers have ceased dining out. As a result, consumers choose to make meals at home because the components are less expensive. As a result, the danger of replacements is substantial, as is competitiveness among rivals.
Buyers’ (fast food restaurant customers’) negotiating power in the fast food market is high for a few reasons. Buyers’ significant negotiating power is a disadvantage since there are several sellers in the industry to supply the consumers. Nevertheless, buyers’ price sensitivity encourages sellers to drop prices; otherwise, it is simple for the seller to transfer from one channel to another because the expenses are minimal. The bargaining strength of providers in the fast-food industry varies greatly depending on time and location. Dough, meat, and vegetable sellers, for example, are important suppliers to the fast food sector (das Nair & Landani, 2019). As a result, supplier power is minimal because other current suppliers can supply these items.
Next, a fast-food restaurant SWOT analysis is the most effective approach to explain a company’s current situation, how it would function in the market, and how it would be able to compete against rivals. The SWOT analysis considers both the external and internal environment of the industry. One must remember the positive and negative aspects of the restaurant company that are significant to rivals as strengths or weaknesses (Benzaghta et al., 2021). One may leverage their abilities to capitalize on market possibilities or promote the company to get a competitive advantage.
The strengths of the fast food restaurant industry include several aspects. As such, professional restaurants understand the value of professional and trained workers (Albayrak et al., 2019). Next, one of the most significant aspects of a fast-food restaurant’s brand image. Customers will follow wherever the outlet is if they have developed a brand image via constant marketing and promotional initiatives. Customers prefer to test what they already understand and are acquainted with since checking out a different food outlet is hazardous in terms of flavor and quality. Next, price is essential in the fast-food restaurant industry since customers must purchase it repeatedly daily (Vercammen et al., 2019). It is a significant competitive advantage to offer quality and appetizing fast food items at a lower price than competitors.
However, the fast food restaurant industry’s weaknesses prevent newcomers’ success. For example, whether one’s fast-food business is on the road or in the city, having a drive-through option is critical to its success. Drive-thru service is becoming increasingly popular among fast-food establishments (Hongsrimuang et al., 2020). Next, when it comes to updating the dinner menu, introducing new items, modernizing the interior and exterior, boosting service quality, or personnel training and development, all of these initiatives need money. Hence, a business will not be able to make use of numerous chances if its restaurant does not have appropriate financial resources. Finally, if a fast-food business serves the same food as its rivals, it will be difficult for the organization to remain competitive.
Opportunities for fast food restaurant entrepreneurship are present even for the new players in the market, as well as for giants like Macdonald’s. For example, when any of the competitors’ businesses in the neighborhood close, the business might raise its marketing and advertising operations to attract its clients. Those clients must purchase fast food, and the business’s priority is that they do so from them. New housing constructions are also lucrative for fast food chains to expand their reach (Finlay et al., 2020). If there is a housing development and the construction of new residences, it is an opportunity to build banners of one’s brand and disseminate flyers for marketing purposes. It is an excellent approach to informing individuals about the market presence. Opening a new location provides similar options for a new and established business in the market. If a new office building opens in the vicinity, one can go there and promote their fast-food company and the sort of cuisine it provides.
Finally, the fast food industry’s organizations constantly face several threats. Rental, operating, supply, personnel pay, and other expenditures have skyrocketed in the post-pandemic world. When total costs grow, businesses do not have many options except to raise the selling price, and customers do not take it lightly. Moreover, the expansion incentives of businesses lower the quality of their workforce (TaĆpınar & TĂŒrkmen, 2019). Finally, the local brands join the fast-food industry and draw a large number of people. If they remain on the market, they slash established businesses’ profits and sales in half.
Global Strategy Benefits and Alternatives
Many firms may explore expanding into worldwide markets as they grow. However, in order to function worldwide, a corporation needs to consider developing a global strategy. A global strategy is a plan developed by a corporation to grow into the worldwide market. The goal of creating a global strategy is to grow sales all around the world. Standardization, as well as international and multinational plans, are all included in the phrase global strategy (Peng, 2022). Creating a worldwide strategy may help one’s firm in a variety of ways, including expanding sales in new areas and improving global brand recognition.
Pursuing a worldwide strategy has become more accessible due to the emergence of hyper-connected information systems. Even so, it is sometimes necessary to construct or acquire actual physical premises in several nations if a business intends to create and sell things in all of them (Saqib & Satar, 2021). Advancing a global strategy almost always provides companies with an underlying competitive advantage over competitors pursuing only a national or municipal strategy (Kaur, 2022). For example, if a business in the United Kingdom begins selling goods in South Korea, it now generates revenue from two significant marketplaces rather than just one. In general, the more a company expands into worldwide markets, the more influence it may have as a trademark and the more revenues it can make.
Creating a global strategy is critical because it may help an organization guarantee that its company succeeds in numerous areas throughout the world. Several variables contribute to the advantages of a global approach. One significant advantage of developing a global strategy is increasing revenue by entering new markets. When a company enters a worldwide market, it might increase the sales of its existing items. Burgeoning a global strategy might also enable it to capitalize on developing markets, which are areas of the world with developing marketplaces and rising economic growth (Andi Haslindah et al., 2021). Thus, operating in new countries may help an organization expand sales and profits.
A worldwide strategy might also assist an organization in capitalizing on new resources. Some businesses prefer to develop a global strategy in order to locate new resources in other regions of the world. This plan may often help businesses employ less expensive resources, lowering expenses and increasing profits (Leiblein et al., 2022). As an international company expands its worldwide presence, it has access to resources in each new country where it operates. In other words, if one starts expanding their company’s performance and distribution to other regions of the world, they will have a much simpler time reaping all of the positive advantages of the global market.
Developing a worldwide strategy might also assist one in increasing global brand recognition. As a company enters a worldwide market, it will get recognition in all regions of the world. There are several advantages to utilizing a global branding approach, including increased messaging consistency, lower marketing expenditures, and more global customer recognition. Due to their international reach, global companies receive significantly more attention than domestic businesses (He, 2022). When a corporation begins to sell its goods in multiple nations, whether through affiliates or stores, it generates brand recognition in countries other than its own.
Another advantage of developing a global strategy is the ability to take advantage of cheaper labor prices in other regions of the world. Some businesses include efficiency-seeking operations in their worldwide plans in order to reduce labor expenses. Efficiency seeking is the endeavor to take advantage of cost disparities in regions outside of a company’s home nation, and it may allow corporations to dramatically lower expenses while increasing profits (De Massis et al., 2018). Global corporations have more productive, competitive, and cost-effective economies of scale and scope economies. As a corporation expands into new regions of the world, it obtains access to lower-cost labor and material markets. This allows the internationally conscious corporation to carry on the savings to customers.
Another advantage of adopting a global strategy is the increased operational flexibility. Working in a worldwide market allows a company to move its output. With a global strategy, an organization may relocate manufacturing overseas, cooperate with foreign companies, promote its products in new regions, and transform its manufacturing in other ways. Global scaling diversifies a company’s supply chain and value network, giving it more flexibility and the ability to endure downturns (Choi et al., 2018). If one operates from a number of different nations, one can act as a backup if issues arise in another market.
Although a worldwide approach might assist an organization in acquiring new customers, it has the disadvantage of causing cultural differences in other nations to hinder its marketing efforts. For example, certain sorts of advertising are prohibited in some Arabic nations, so if a company operates a fitness firm, it may be unable to advertise its goods in any way that indicates good looks (Yurur et al., 2018). Language variations might also distort a firm’s advertising messages if it does not engage skilled translators who live in the nation where it is conducting business.
Although diversity is usually advantageous, the drawback of expanding a business internationally is that it can be a costly investment. Setting up a firm in another country takes substantial time, energy, and market research. Finding qualified local talent and training them to comprehend the mission and philosophy that a company wants to promote is one of the most expensive investments. Afterward, a firm will have to deal with international employment contracts, compliance rules, and the complexities of acquiring approval for any domestic staff it wishes to send over to assist with the start-up of its overseas firms.
Moreover, multinational corporations have alternative strategies other than global ones. For example, a multi domestic strategy is a global marketing technique that focuses commercial and promotional efforts on the demands of a specific local market rather than a more universal or worldwide approach. This implies that corporations using this marketing approach will aim to study the culture of distinct local markets and adjust their entrance into those areas depending on demographics. A company that employs a multi domestic approach foregoes efficiency in favor of prioritizing responsiveness to local needs in each of its markets.
Next, a transnational strategy is a plan of action in which a company intends to conduct business across international borders. This approach invests in abroad operations and assets, linking the corporation to every country in which it operates. A transnational strategy tries to strike a balance between a multidomestic and a global strategy. Such a company attempts to strike a balance between the goal of efficiency and the necessity to adapt to local tastes in numerous locations.
Compared to the described alternative strategies, a company that pursues a global strategy foregoes responsiveness to local needs in each of its regions in favor of prioritizing efficiency. This approach is contrary to a multi-domestic approach since minor changes to goods and services may be implemented in various regions. However, a global strategy emphasizes the need to gain economies of scale by delivering the same items or services in each area. Therefore, the global strategy might be less culturally sensitive, resulting in a perceived lack of differentiation in the products of a firm that chooses the approach.
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