Firms may find it appropriate to expand their operations into foreign markets mainly for purposes of expanding their profit base. Additionally, the need to limit production costs may lead to such a decision, especially in instances where the factors of production may be less costly in the foreign country.
Although Pakistan has a smaller population size compared to China and India, it has not been the target market for the international fast food retail stores like the case is in China and India.
In other words, although Pakistan has a presence of international fast food restaurants, they do not seem to give the country serious consideration as they do with the emerging markets of China and India.
There is too much competition in the sector in China and India than is the case for Pakistan (Raja 1).
Pakistan’s strategic location, right at the heart of Asia, makes it a viable country for business growth and excellence. Pakistan is actually the gateway to Central Asia, which is rich with energy sources, as well as the gateway to the Gulf region, whose financial liquidity is renowned all over the world.
The country’s location is also at a vantage position in relation to the economically advanced Far Eastern tigers, including Malaysia and Singapore. These are strategic advantages that make the Pakistani economy teeming with possibilities.
In other words, the economic prospects of the country will definitely benefit from the country’s neighbors, who are set to influence the economy overly.
Pakistan is a country that is rich with natural resources, which are critical in enabling the country to attract multitudes of tourists annually. The Punjab, for instance, includes vast fertile plains, while the south of the country includes both a desert, as well as a long seacoast.
These are major sites with greater potentials of attracting millions of tourists into the country. The economic boost expected to be derived from the tourism sector can potentially transform the country into a vibrant market.
In addition, the tourists will also serve as the expansive market for fast foods served by El Pollo Loco.
The political instability in the country is a threat to business. Pakistan has recently been linked with global terrorist activities, which has seen such groups as Al Qaeda operate their cells comfortably from within the country’s borders.
The country also shares a porous border with Afghanistan to the east, which has remained lawless for many years and attracted groups of terrorists to operate from within its borders.
The terrorist groups have occasionally targeted the government and other business ventures, which scare away investors from the country.
The international war against terrorism, which has for several years been led by the US military and the NATO forces, has seen raging wars being fought in Pakistani territory, as well as in the neighboring Afghanistan.
The international forces are fighting against a resilient Taliban group, which has used parts of the border area between Pakistan and Afghanistan as its safe heavens.
This fighting remains disruptive to the growth of Pakistan as an economic powerhouse owing to the repercussions that are being faced by the local communities as well as business entities seeking to establish their operations in the country.
Pakistan has for years engaged in an international war with her eastern neighbor India over the disputed Kashmir region. The intermittent cross-border wars are likely to be an issue of concern in discouraging visitors, especially tourists, from visiting the country.
Such a move would see numerous sectors, such as the food industry, suffer from lack of foreign consumers, and thus incur losses.
China is a fast growing economy, with its middle class growing at a fast rate. This is positive for business as it portends a growing number of fast food consumers who often belong to the middle class.
China has a large pool of well-trained labor skills. This is good for business because it increases productivity and quality, while reducing the cost spent in operations.
Additionally, Chinese labor costs are comparatively lower as compared to the developed countries, such as the USA. This means El Pollo Loco will spend less in its business operation if it were to establish operations in China.
The business atmosphere in China is generally considered as favorable. The country’s meteoric rise in economic development has particularly been as a result of better economic policies and structures, which have mainly been attractive to the investor community.
The country boasts of modern infrastructure, which also includes fully furnished buildings that can be used as restaurants and hotels.
These changes are continuous and could eventually see China do away with all laws and regulations that inhibit on business growth and expansion, particularly limitations on foreign enterprises.
In addition to the large population in China, the country has emerged as a preferred location for tourism. The increasing number of tourists visiting the country, apart from the national economy, also provides a direct market for the fast food restaurants in the country.
Chinese authorities have not fully opened China to foreign firms. Regulations still exist, which put hurdles to foreign firms seeking to operate in China. The authorities still fear competition from the well-established firms, especially those originating from the developed world.
This has seen the government insist on interested foreign firms to form partnerships with local enterprises as the strategy for entering into the market. However, this posses challenges, especially because the businesses need greater trust between the partners.
China’s economy has been growing at a fast pace. However, the growth has not spread throughout the country in a uniform manner. The urban areas are booming with business while the rural areas continue to reel in abject poverty.
The rural areas of the country comprise of the biggest population, which would potentially be transformed into a significant market.
These large potential markets, therefore, remain less productive in terms of purchase power, which means the smaller population in the urban areas remains as vibrant market.
China’s economic emergence has been the centre of attraction for all business enterprises from across the world. Foreign firms are flocking into China as they target to share in the economic boom. This has in turn resulted in heightened competition within the country.
Firms are taking all they require to ensure that they outdo their competitors in winning the market. The essence of this is that the market cannot be considered as highly lucrative as it is.
High costs are being spent in terms of advertising, as well as sustaining other marketing activities, which eventually reduces the profitability for the firms.
Together with China, India has over the years emerged as a strong economy that is characterized by a fast growing middle class. This is a positive indicator for business, especially in the fast foods sector as more consumers with financial power are realized every year.
The Indian government has been establishing policies and structures that aim to enhance and sustain the country’s economic growth. This has seen India improve its infrastructure network, including building modern roads and business buildings.
With the huge population in India that exceeds 1.1 billion people, the labor cost in India is less expensive.
Additionally, workers can easily be found, and this is a positive aspect for growth. Firms operating in India can expect to spend less in labor costs than would be the case if they operated in such developed countries as the USA.
Cultural variations between the US and India extend to the food preferences in the two countries. Thus, El Pollo Loco will need too much time to understand the food market in India before establishing its operations.
Although India has a huge population, which also translates to the labor force, most of the people lack specialized skills. This means that firms establishing operations in India will still require spending significant resources to train the local population.
International Market Expansion Strategies
Licensing and franchising
Licensing mode of international market entry involves the company interested in the foreign market paying commissions or royalties in as far as the sales or supplies they make for their purchasing are concerned (Pride and Ferrell 265).
The foreign company with interest to a market, in this case El Pollo Loco, is referred to as the licensee.
This strategy is important in instances where El Pollo Loco may require exchanging its management experience with another company located in the foreign market, or where its technical assistance is required by a foreign firm.
Franchising, on the other hand, involves a kind of licensing where a local firm in the foreign market of interest is granted the right to deal in the products of the foreign firm.
In this case, El Pollo Loco may grant a firm in Pakistan the right to market its products in the local market in accordance with its standards. However, the use of a foreign trade name in Pakistan, for instance, may result in poor results for El Pollo Loco.
The local market may fail to recognize any attachment between El Pollo Loco and their traditions, thus resulting in them shunning the franchises.
This internationalization strategy involves a firm hiring a foreign company to manufacture or produce a specific number of its own products or components as per the specifications details it gives.
El Pollo Loco may use contract manufacturing in Pakistan by seeking local firm in the country to produce its products and services basing on the specifications that will be issued by El Pollo Loco.
The products, however, will carry El Polo Loco’s brand name. Either El Pollo Loco or the contract manufacturer in Pakistan may undertake the marketing aspect.
However, contract manufacturing may result in delayed deliveries. This will result in inconveniencing El Pollo Loco in its operations.
Political instability or other changing circumstances in the country where a firm is collaborating with its contract manufacturer could also be a hindrance to business operations and performance (Pride and Ferrell 266).
Joint ventures involve foreign firms entering into cooperation partnerships with domestic firms as a way of establishing their market activities in the local market (Pride and Ferrell 267).
El Pollo Loco may adopt this strategy by way of collaborating with a Pakistani fast food chain in order to penetrate the Pakistani market. A joint venture presents the advantage of the local market perceiving the foreign firm as legitimate.
This would in turn deal with the challenge of the local Pakistani’s shunning El Pollo Loco and regarding it as a foreign firm. Equally, the partnership allows the foreign firm to understand the foreign market quickly and well as opposed to when the firm operates on its own.
However, joint ventures face the challenge of lack of trust on the part of the companies. Local firms entering into such joint ventures may feel threatened by the foreign partner and, thus, decide to sabotage the operations of the foreign firm.
Joint ventures may also force a foreign firm to restructure such that its model may fit with that of its partner firm. Such restructuring often affects operations and may result in slow performance.
El Pollo Loco should consider Pakistan as its foreign market of choice, as compared to China and India. Although both China and India have large populations that can easily be transformed into ready markets, the countries are experiencing intense market competition.
Many established fast food firms have targeted the two countries, resulting in cutthroat market competition.
However, Pakistan remains less targeted despite having a huge population, as well as a highly prospective economy. The country’s strategic location remains a factor worth considering in influencing growth in the fast food sector.
Pride, William, and O. C. Ferrell. Pride & Ferrell Marketing. Mason, OH: South Western Cengage, 2012. Print.
Raja, Rashid. The Retail Food Sector-2011 Pakistan. Islamabad: Global Agricultural Information Network, 2011. Web.