The Entry Of Dunkin Donuts Into China: A Comprehensive Analysis Of International Market Selection

Globalization and International Business

Question:

Discuss about the Empirical Investigation of Consumer Perceptions.

The complexities of business have been improvising over the years with profound references to the increasing prominence of globalization and international business. The measures adopted by large scale organizations to address alternative target markets in the existing business jurisdiction of the enterprise as well as entering new markets which are novel for the organization (Ahmed & d’Astous, 2008).  It is imperative for organizations to understand the feasible outcomes that can be derived from expanding into new markets especially in terms of increased brand reputation, improvement in market share and sustainability for the business.

As per Ahmed & d’Astous, the impact of globalization and international business can be observed explicitly in different industries with substantial disparities in terms of outcomes (Ahmed & d’Astous, 2001). However, the fast food industry has been able to gain a strong foothold in majority of international markets with the flexible and strategic approaches for market entry and cultural diversification followed by organizations. The major market players in the food and beverage industry such as McDonald’s, KFC and Starbucks have acquired drastic global exposure with their product changes and effective pricing mechanisms as well as marketing alignment with individual local cultures in international markets (Ahmed & d′ Astous, 1995). The following report reflects on the case of Dunkin Donuts and its preferred entry into the international market of China. The capabilities of Dunkin Donuts for launching its iconic product brands in the world’s most populated country could be assumed as the explicit motivation for the following report.

The product and service description for Dunkin Donuts could be assumed as a credible requirement for justifying the selection of China as the international market to venture into. The competitive advantage of the organization is vested in the benefits provided to customers in the form of effective services and products which ensure customer loyalty (Al-Sulaiti & Baker, 1998).

The services of Dunkin Donuts employees are based on the treatment of the customer as the boss which leads employees to deliver services in the most appealing form. As per Baines & Harris, the primary products of the organization are baked goods and coffee with the finest ingredients that provide the advantage of novelty and uniqueness to the products of Dunkin Donuts (Baines & Harris, 2000). The doughnuts products offered by the company could be observed in an assortment of powered, frosted and glazed variants of 31 different types of doughnuts. The organization also serves other products for customers such as Eclair, Coffee Rolls and Munchkins which add to the improvement in the experience for customers. The entry of Dunkin Donuts into China is however characterized with the provision of Chili oil-glazed flavours, pork floss and seaweed topped rounds as its products is evident owing to the previous failed attempts of the organization to enter the Chinese market (Balabanis, Mueller & Melewar, 2002).

Dunkin Donuts’ Products and Services

The nature of the product facilitated by Dunkin Donuts is tangible and is largely reflective of the requirements of consumer service industry dynamics. Furthermore, the case of Dunkin Donuts has to review the justification for selecting China as a viable marketplace for the intended international market entry of the organization on the basis of a clear analysis of the external environment factors (Balestrini & Gamble, 2006).

The analysis of the external market environment could be accomplished through the use of models such as PESTEL analysis for China which could facilitate comprehensive insights into the political, economic, cultural, geographic and technological aspects of the market environment. The external environment analysis is mandatory to weigh the competences and available resources of the organization with respect to the analysis outcomes in order to observe the feasibility of the decision of Dunkin Donuts to expand in China (Becker, Benner & Glitsch, 2000).

The following section would illustrate the major dimensions associated with the international market condition in China on the basis of which the country can be validated as a recommendation for international market expansion of Dunkin Donuts (Bloemer, Brijs & Kasper, 2009).

Political factors are primarily tied to the aspects of regulations, government policy and law which could render formidable impact on government decision and economic factors. The implications of changes in labour laws introduced by the government could lead to formidable changes in the structures of job and leniency for employment.

This factor leads to the rise in unemployment owing to the provision of basic employment to people without any prospects for training in new skills (Bruning, 1997). However, the government has implemented necessary measures such as financing the labour intensive sectors in order to improve job availability. Initiation of drives to encourage foreign trade could be observed as prominent highlights of contemporary foreign trade policies adopted by the government which is responsible for increasing prospects for foreign direct investments (Chao & Rajendran, 1993). The favourable political ties between the US and China could also be accounted as factors which address the concerns pertaining to insecurities of Dunkin Donuts observed in context of daily life, jobs and the government.

Economic factors are capable of inducing major changes in a business which could be influential on the major aspects of capital availability, supply, demand and cost. The limitations on capital cost could be complemented with high demand in order to acquire higher investment from the organization as well as improving the production volumes. Furthermore, the impact of the economic recession has enabled the prospects for smaller companies to acquire a stand in the business market alongside competing with others (Chattalas, Kramer & Takada, 2008).

External Environment Analysis using PESTEL

The recent economic development observed in the case of China could be apprehended as a major influence on the prospects for organizations. The implications of the Bank of China could be observed in terms of reviewing monetary policies which can facilitate improvement and decrease in the interest rates. The specialized initiatives for ensuring transparency of financial transactions which international organizations have in the economic framework (Chen & Pereira, 1999).

Environmental factors involve refer to the preferences of the Chinese society for businesses to adopt eco friendly practices and resources. The prominence of green economy in China could account as flexible opportunities for an organization to realize prominent advantages to accomplish strategic flexibility (Chryssochoidis, Krystallis & Perreas, 2007). The implications of using low carbon technology, emissions reductions and relevant green economy characteristics could be beneficial for organizations to realize a formal depiction of their corporate social responsibilities.

Social aspects that could be observed in China for validating its choice as an international market for Dunkin Donuts could be observed in the importance of education, changing lifestyles of the Chinese population, shifting of rural individuals to urban locations and the preferences of the local population for leisure and work (Chu, et al., 2010). The family structures observed in China also favour the decision of Dunkin Donuts that can be leveraged for alternative approaches to product design.

Technological improvements are accessible in China with the prominent implications for investments in research pertaining to innovation for improving technology transfer and address the emerging concerns of energy requirements (Clarke, Owens & Ford, 2000). The increasing adoption of internet and related communication technologies is responsible for inducing new channels for marketing for organizations in the customer service sector such as Dunkin Donuts.

The observation of the above factors in the external environment for Dunkin Donuts in the new international market i.e. China provides a feasible validation for selection of the market (d’Astous & Ahmed, 1995).

The prominent highlights that could be observed in this section refer to an illustration of the competitors of Dunkin Donuts, recent growth trends in the fast food industry and competitive factors. The competitors of Dunkin Donuts in the Chinese market could be identified in McDonald’s and KFC which have established formidable presence in the international market (d’Astous, et al., 2008).

The western fast food culture was introduced by KFC in 1987 with its first restaurant in Beijing which has progressed to the extent at which the organization is serving more than 10 million consumers every day in the Chinese market. The capabilities of KFC as a pioneer in the industry are also reflected in the association of the supply chain of the organization with local standards thereby ensuring formidable integration. The organization maintains its quality standards alongside maintaining a local supply chain which account for its competitive advantage in the market (Demirbag, Sahadev & Mellahi, 2010).

Competitors in the Fast Food Industry

The advent of McDonald’s was not observed until late 1990 when the organization found its first restaurant in the Guangdong Province. The major source of competitive advantage for the organization in the international market of China could be observed on the grounds of competences such as globally standardized service, operating policies and products (Drozdenko & Jensen, 2009). The marketing alignment of the organization to specific target customer groups could be assumed as an explicit source of competitive advantage for the organization in Chinese market.

As per Ettenson & Gaeth, the market share of the organizations depicts the prominent challenges that can be imposed by them for Dunkin Donuts which are estimated to be 0.5% for McDonald’s and 1.3% for KFC (Ettenson & Gaeth, 1991). The competitive environment in the fast food industry is also likely to be affected by the future trend of increasing emphasis on legal obligations for health and safety of food products. The fast food industry is highly criticized on the grounds of provision of unhealthy food which has to be addressed by organizations as a competitive factor (Ferguson, Dadzie & Johnston, 2008).  Therefore organizations which could be able to address the requirements of health and safety in context of fast food products can obtain competitive advantage over others in the market.

The cultural profile of China can be established through references to the references to Geert Hofstede’s dimensions of national culture which comprise of power distance, individualism, masculinity, long term orientation and uncertainty avoidance (Glitsch, 2000). China could be assumed as a highly collectivist society wherein people are identified to be associated with each other and individuals prioritize the interest of others in the family over their personal interests.

The implications of a highly collectivist culture could be observed in the in-group considerations for family members during promotion and selection initiatives (Hamin & Elliott, 2006). The aspect of masculinity is higher in the national culture of China that defines the progress of society on the basis of achievement, success and competition. The prominent example of the higher masculinity aspect can be observed in the Chinese culture where work is prioritized over leisure and family time and the emphasis of students on ranking and exam scores as prime criteria for accomplishing success (Hamzaoui Essoussi & Merunka, 2007).

Uncertainty avoidance depicts the capability of a society to address the concerns that could emerge in the future (Hamzaoui & Merunka, 2006). China does not depict substantial uncertainty avoidance as the culture is dependent on pragmatism and reforming laws according to the present situation. The national culture of China is also characterized by ambiguities with the references to different ambiguous meanings observed in the Chinese language. Power distance is highly observed in the Chinese national culture and accepts the inequalities among people flexibly that is characterized by the example of polarized relationship of superior and subordinate (Harcar & Kaynak, 2008).

Long term orientation aspect indicates the association of national cultures with the past in order to address the challenges observed in the present and future. The Chinese national culture emphasizes on a high score of long term orientation since it is directed along the lines of pragmatism that can be observed in the encouragement of international education among students in order to address the concerns of future (Heslop, Lu & Cray, 2008). The culture depicts formidable abilities to adapt to different conditions while the people have the notable characteristic of perseverance to accomplish their objectives.

The impact of a customer’s perception regarding the product is a mandatory requirement for ensuring the sale of the product. The different factors which could be identified as impactful on the perception of customers regarding the products of Dunkin Donuts in China comprise of Consumer animosity, consumer disidentification, country of origin effect, consumer affinity and consumer ethnocentrism (Heslop, Nadeau & O’Reilly, 2010).

The analysis of these elements could provide the basis for strategic recommendations. The country of origin effect refers to the approach followed by customers for associating with foreign brands and making their purchase decisions accordingly (Hui & Zhou, 2003). The country of origin effect is responsible for influencing customer perception of a product based on the country where the product is manufactured. Consumer ethnocentrism is observed in the isolation of culturally different products which could be based on the presence of foreign ingredients and the encroachment of western culture (Insch & Florek, 2009).

The aspects of customer disidentification could be observed in the dissent of customers for products from the domestic country which leads to favourable prospects for foreign brands to earn competitive advantage. The impact of customer affinity has been observed explicitly in the cases of large firms such as Apple, Polo etc. which describes the long term relationship of a brand with the customers (Johansson, 1989).

The impact of customer affinity is reflected in the requirement of lower costs for product launch. If consumer affinity is low then the organization would have to invest in addressing the negative factors affecting customer affinity in order to acquire new customers. The review of these factors in the case of Dunkin Donuts reflects that the aspects of customer disidentification can favour its international operation while the organization could gain support through addressing the concerns of customer affinity, country of origin effect in marketing and consumer ethnocentrism (Josiassen, Lukas & Whitwell, 2008).

The traditional model of STP is implemented for the strategic planning for international market entry. Segmentation of the markets is ensured through division of the selected market into different sub groups in order to facilitate their different products and services. The observation of customer segments facilitates prominent competitive advantage for an organization like Dunkin Donuts which has already depicted proficiency through inclusion of coffee in its product line (Kaynak, Kucukemiroglu & Hyder, 2000).

The types of segmentation approach that can be followed by Dunkin Donuts include geographical, demographic, behavioural and psychographic segmentation. Geographic segmentation can be based on the locations of customers and can be applied in context of this case through location of the stores near busy business districts where people would be able to access breakfast. The demographic segmentation could be identified for the organization in the form of different customer groups on the basis of occupation, income, education, gender and age. Psychographic segmentation is intended for categorizing customers on the basis of lifestyle preferences which is helpful for Dunkin Donuts to design tailor-made products such as products to remark the Chinese New Year with indigenous flavours (Khan & Bamber, 2007).

The impact of behavioural segmentation could also be observed in this case which suggests the division of the market on the basis of a user’s attitude or response to a specific product. Market segmentation has to be followed with the targeting process which is responsible for identifying the specific audience and analyze the customer segments alongside approaches to address the individual segments (Khmel’nyts’ ka & Swift, 2010).

The individual stages involved in the targeting stage would refer to evaluation of the market segments, selection of target market segments, selection of a targeting strategy and ensuring compliance with social responsibilities in targeted marketing. The aspects of market targeting enable an organization to improve its marketing campaigns and production capabilities in accordance with the distinct needs of various market groups (Kim & Thorndike Pysarchik, 2000). The major aspects that must be taken into consideration while addressing the market targeting refer to buyer preferences, existing market environment and competitor actions. Finally, an organization has to position itself in the international market through communicating value differences, selection of areas of competitive advantage that lead to the finalization of a positioning strategy. The positioning strategy is defined by the value proposition presented by the organization in the market environment (Kim, 2006).

The most feasible market entry and expansion strategy for Dunkin Donuts would be observed in the method of a joint venture and franchising. The organization’s franchisee Golden Cup would supervise the international outlets in China. The requirement of selection of franchising in a joint venture in the case of Dunkin Donuts can be validated on the grounds of two failed attempts of the company to enter the international market of China. The first attempt of the organization to enter the Chinese market in 1994 was direct and failed since customers were not acquainted with the brand and disliked the primary products i.e. glazed doughnuts (Kinra, 2006).

The company’s second attempt to enter Chinese market was observed in 2008 which also resulted in failure due to the changing preferences of customers and their requirements for sophistication. The effect of adopting a joint venture strategy for international market entry and expansion could be validated in the form of experience that could be facilitated by local franchises and the financial aid required for the organization to ensure sustainable growth of the enterprise in international market (Knight & Calantone, 2000). Furthermore, the organization would have the opportunity to tap into evidence based approaches from the observations of partners firms in joint venture and franchisees in order to improve their international market performance (Lawrence, Marr & Prendergast, 1992).

The organization’s expansion strategy has been established according to the agreements of the joint venture and the organization aims to expand its stores to a count of 1400 in a course of 20 years. The expansion of Dunkin Donuts would be primarily based on the provision of tailored products to the local culture and novel product designs to cater the changing preferences of customers (Lentz, Holzmüller & Schirrmann, 2006). The organization could also emphasize on its promotion as a status brand rather than a convenience option which would improve the sustainability of the expansion strategy of Dunkin Donuts.

The prominent highlights of the report were observed in the review of the nature of products and services of Dunkin Donuts, selection of an international market, cultural dimensions of the international market and valid suggestions for market segmentation, targeting and positioning (Lim & O’Cass, 2001). The organization should emphasize on the cultural aspects such as high collectivism and long term orientation could be leveraged by the organization to promote culturally aligned products as well as new products among culturally adaptive customers.

The references to the external environment available for Dunkin Donuts in the Chinese market suggest that the aspects of foreign direct investment and political favourability for foreign trade could be useful for the organization to ensure long term success in the international market (Maronick, 1995). The aspects of customer perception for a product could be addressed in the marketing approaches of the organization which should maintain a thin line between communicating the brand as a status brand and its capability to adapt to the indigenous culture.

While the aspect of customer disidentification could be assumed as a feasible indicator for promoting the organization as an international brand, the organization should be able to improve customer affinity and reduce ethnocentrism which can be considered as formidable challenge for the organization (Phau & Suntornnond, 2006). The prominent impact of market segmentation, targeting and positioning provide insights into the significance of working professionals and youngsters as the specific market segments which could be addressed with the value propositions of access to international products at flexible prices.

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