American Fast Food in Korea Essay

1. Base on market information for Asia Pacific, we can made conclusion that business future in Asian region has to have bright future. With 33% of the world’s GDP and 50% of its population, Asia has emerged as a rapidly growing force in the global economy. Due to the cultural diversity, regulatory controls, growing base of consumer power and its own set of business â€Å"rules,† the multinational corporations (MNCs) find it challenging to enter the Asian market successfully. Most MNCs are reassessing their existing strategies or formulating new strategies to sustain their growth (4). With regional exports exceeding $1. 3 trillion, the East Asia and Pacific region’s share of trade in GDP is the highest in the world. (Global Development. Finance Report. 2006). The economy of South Korea has grown in the last 35 years. Per capita GNP only $100 in 1963, exceeded $20,000 USD in 2005. South Korea is now one of the world’s largest economies (as of 2006, it is 14th in the world according to GDP). (2). If we will compare Korean market to East Asian countries (Exhibit 1 p. 12). From report I have strong understanding that mane fast-food market in any Asian countries is in big cities. Let’s check urban population level in all Asian countries. Based on Exhibit 1 we can clearly see that Korea has one of the best Urban Population level-total population level 47. 6 million and urban population is 82%. Check GDP and GNI level. We can see that Korean level one of the highest in the Asia. Nominal GDP (2005 est. ): $811. 1 billion. GDP growth rate: 2003, 3. 1%; 2004, 4. 6%; 2005, 4. 0%. Per capita GNI (2004): $14, 162. (5). In 1997 Korea had some serious economic crises and faced sever difficulties. After some structural reforms in Korean government, economy starts to recovery. Already In 2001 Korea was 13th largest economy in the world with GNP of $398 billion. So based on all information from above I can make conclusion that Korea has good future and it is one of the most promising market in Asian region. 2. Porter’s Five Forces have become a yardstick for assessing industry profitability. They are†¦ ?Buyers’/customers’ power ?Suppliers’ power ?Rivalry among competitors ?Threat of new entrants ?Threat of substitute products I will try to analyze each one, for Korean fast food market. Buyers ‘power. The power of buyers is the impact that customers have on fast food industry. Buyers could be powerful in different circumstances. I believe that in our case we can say that buyers are concentrated. As I could explain earlier, main per cent of population in Korea are in the big cities. Its give us good idea that for fast food industry in this region will be easier to delivery product to the customers. Buyers purchase the significant proportion of output. Suppliers power. A fast food industry require raw material for there business-labor, components. It leads to buyer-supplier relationship between the fast food industry and the firms that provide it the raw materials used to create products. Suppliers are powerful if they are concentrated- it will be really expensive to switch the supplier. From another side suppliers are week if it will be many suppliers with standard product on the market Korean agriculture sector includes forestry and fisheries. National products are rice, vegetables, fruit, root crops, barley; cattle, pigs, chickens, milk, eggs, fish. About 20% of the land used for agricultural busyness (5). From here we can understand that for fast food companies will be easy to find or switch the suppliers without problems for there businesses. Threat of new entrants. The possibility that new firms may enter the industry also affects competition. In theory any firm should be able to enter and exit market. And if free entrance and exit exists, than profit always should be nominal. There are some barriers of entry. Easy to entry if: little brand franchise; access to distribution channels; common technology. On Korean market steal not allot firms with brand franchise. And it is big requirement in new choices for customers. It let us know that it will be easy to enter to the market. Threat of substitute products. Product price elasticity is affected by substitute products-as more substitute become available, the demand becomes more elastic since customers have more alternatives. A close substitute product constrains the ability of firms in an industry to raise prices. In our case we can see example of some firms, Lotteria and McDonalds, who easy change there recipes for Korean customers which needs more healthy national ingredients for there food. Rivalry among competitors. In pursuing an advantage over its rivals, a firm can choose from several competitive moves: changing prices; improving product; creatively using channels of distribution; exploiting relationship with supplier. For firm who will try to enter Korean market, I would say more realistic and more helpful move will be to improve products. Improving quality of materials, quality of services, and probably quality of food preparation technology (healthier environment), will be most important key to success on the Korean fest food market. 3. Urban Koreans eat out frequently. Fast paced lifestyles are driving Koreans to choose western-style fast-food, but healthy eating is a concern. These factors are driving a fast growing market for sandwich store franchising (3). Another important factor is that about 75%-80% fast food customers are young people whose age less than 20 year old. It is mean that â€Å"along with westernization of Korean taste, western chain gained in popularity†. In the past, people seeking a fast meal would have been satisfied by fast-food giants like McDonald’s or Burger King, but it is changing. Consumers are seeking different choices. This new requirements has opened doors for a steadily growing market for fresh and healthy sandwich businesses. Lotteria is a local hamburger franchiser and is the fast-food market leader in Korea. From 2002 to 2003 Lotteria experienced a sharp sales drop of 40%. However, a strong contrast was seen in the South Korean sandwich market, as its $41. 20 million1 market value in the second quarter of 2003 doubled to $82. 40 million in the fourth quarter. This dramatic growth is forecast to continue, and the anticipated market value for 2004 is $117. 71 million (3) Besides Lotteria, the local franchisers include Sandday, Sandpresso and Sand & Food. In response to the aggressive foreign companies, they are also coming up with strategies to secure their position within the market, and the competition is about to heat up. Based on all this information I would say that fast food business in Korea growing and this will continue until people need more choices. 4Globalization is the key to sustained growth for Yum Company! Brands, the world’s biggest quick-service restaurant company headquartered in the United States and managing five fast food brands – KFC, Pizza Hut, Taco Bell, A&W and Long John Silver’s. â€Å"Demand for fast food is rising because lifestyles are changing,’’ said Allan, who leads overseas operations outside of the U. S.and China, in a recent interview with The Korea Times. More Koreans are being time pressured than they were historically. This trend is happening here. The number of people eating ready made food is continuing to increase. ’’(Graham Allan, president of Yum! Restaurants International. 11. 06. 2006) (6). As a socially responsible company, the 51-year-old executive said Yum will provide more optional dishes to health-conscious consumers amid a well-being spree in the nation, but will not abandon its traditional concept of â€Å"great taste. ’’ Under his leadership, Allan said he will target an annual growth of 10 percent or more in operating profits. There are about 250 Pizza Hut delivery outlets in the nation, which are set to expand to over 400. Korea makes up about 5 percent of Yum’s international division sales, which amount to some $11 billion – half of the group’s overall system sales. If I were business consultant, I would recommend starting making money on Korean fast food market. The new trend is propelling growth in the franchising market. It is anticipated that the market will experience intense competition for the next couple years. New fast food companies should be able to take advantage of the situation and enter the market without much difficulty, while it is still at an early stage of development. Reference page: 1. http://www. iff. com/Internet. nsf/0/B7A5C7E9B662B52685256D02006683DA 2. http://www. answers. com/topic/economy-of-south-korea 3. http://ats. agr. ca/asia/3879_e. htm 4. www. berkeleyabc. org/2006/ 5. http://www. state. gov/r/pa/ei/bgn/2800. htm 6. http://times. hankooki. com/lpage/biz/200611/kt2006110617463411890. htm.