The proposed KFC franchise outlet, which will be opening in an approximate five branches in the Melbourne city, is also aimed at expanding to a much wider market. However, the expansion depends on how it performs in the first year of its launch. The expansion will definitely need significant investment (Serra & Kunc, 2015). A business expansion can be through various contextual factors like Globalization, Cross-Cultural Management, and Regional Economic Issues. It solely depends on the management of what they feel as the best suitable strategy for expansion. They may consider different parameters like the capital flow, the opportunities in the target market and the probable challenges (Beckert, 2013). For the expansion of proposed KFC franchise outlet, Regionalization has been chosen as the strategy to target the market that is close to Australia geographically or have more or less the same trade policies (Steinert et al., 2015). The study is aimed at analyzing the impact of regionalization on the business expansion of the proposed KFC outlet.
Defining the key terms and utilizing the theories & concepts presented in the chosen topic which is "Topic 6: Regional Economic Issues”:
Regionalization facilitates a trade relationship with the nations that are close to existing country and have similar trade policies. They adapt the regionalization strategy to utilize the similarities, which is among the different nations. They also do it for reducing the business risk, which is much higher in doing business with countries that are geographically placed at a much higher distance (Li, Goodchild & Church, 2013). Regionalization can be understood as one of the key finds of the later quarter of 20th century. The 21st century has seen growths in Regional Trade Agreements (RTA) and Regional Economic Integration (REI) (Lapadre & Tajoli, 2014).
The strategy will have several benefits for KFC franchise for various factors that also include the customs union. The Customs Union enables a full integration of economic and political factors (Helbich et al., 2013). The integration will reduce the economic and political barriers that are potential threats to business in foreign countries. Doing business in China will be full of uncertainties than doing it in New Zealand, which is close to Australia and shares more or less the same trade policies (Gleeson, Lopert & Reid, 2013).
The Common Market concept is another opportunity, which the KFC franchise chain will get on considering the regionalization strategy. The common market concept means that there are no trade barriers within the different state of the member countries. There will be freedom to move to any member nation without fulfilling any strict formalities like immigration, cross-border capital flow between the member countries and emigration (Friel et al., 2013). One of such examples is of European Union as the member nation had no trade barriers in the other entire member nations. However, things have changed post-Brexit as there will be trade barriers between the other European Nations and the United Kingdom (Vardavas, Filippidis & Agaku, 2015). The Common Market concept may prove to be extremely beneficial for the proposed KFC franchise outlets in countries that are close to Australia. This will help the company to get labors from other nations that are close to Australia. Moreover, the franchise outlet will be able to get cheaper labors, which may or may not be available in Australia (Shen & Xiao, 2014).
The Economic and Monetary Union is one step ahead of the common market. It deepens into the prospect bringing closeness to the different economy in respect to common currency, harmonization in tax rates, equivalent fiscal and monetary policy. This is a much better state when different member nations will share the same currency rates and will have the same policies for tax rates & other benefits. Common tax rates are indeed a much better relief to small businesses (Sawyer, 2013).
Economic integration is done with the help of two factors negative integration and positive integration (Sawyer, 2013). Negative Integration helps to eliminate the barriers that prevent a free flow of goods, factors of production and services (Sawyer, 2013). Positive Integration means the creation of common sovereignty with the help of modifications in the existing institutions (Sawyer, 2013).
Regional Trade Agreements that became popular in the later part of the 20th century serves some objectives, which are as follows:
- To facilitate highertrade gains as business will be limited only to few countries than just expanding to a multilateral level (Friel et al., 2013)
- To strengthen the domestic policy reform(Friel et al., 2013)
- To increase the bargaining power at the multilateral levelas the two-member nation will then be able to negotiate an agreement with the third country at the multilateral level in regards to the common external barriers (Friel et al., 2013)
- To facilitate access to a larger marketlike the agreement between the United States and Canada (Friel et al., 2013)
- To get business securityin member state through the Regional Trade Agreements (Friel et al., 2013)
The Trans-Pacific Partnership Agreement (TPP) is one of such examples of member nation trade agreement. The TPP currently has several negotiating nations like Australia, Brunei, Chile, Canada, Mexico, Japan, Malaysia, Singapore, New Zealand, Peru and Vietnam (Fooks & Gilmore, 2014). The agreement was a landmark achievement of the 21st century, which had the following objectives for it (Fooks & Gilmore, 2014):
- To avail a comprehensive market access to get either a reduced tariff and non-tariff related barriers or to eliminate it
- To facilitate a seamless production and development process across the different member nation in the TPP
- To address to new challenges with effective use of innovation and technology
- To help small and medium-sized business by informing them the opportunities that the agreement provides an addressing to the challenges that such businesses may face
- To facilitate a regional economic integration and to also include the Asia-Pacific region as additional economies
Explaining major internal and external contextual factors and how they affect business structures and strategy:
The internal and external contextual factors can well be categorized as the internal and the external business environment, which affects the business performance. The case study organization is KFC franchise outlet, which has been planned to open in five different branches in the Melbourne city and then to help it to spread through entire Australia. The future plan for the business is to consider an elevated expansion through the regionalization. The business will be impacted by its internal business environment and the external business environment in Australia. The impact will be much bigger once it moves beyond Australia.
Internal contextual factors and their effects on the business structure:
This can be understood with the help of SWOT analysis, which may impact the business as follows:
Strengths- KFC has a global presence, which may also help the franchise outlet that has been planned for the Melbourne city (Zhu, Anagondahalli & Zhang, 2017). Customers will come in the name of the brand; however, the franchise outlets may not afford to compromise on the quality part which the customers are familiar with.
Weaknesses- Unhealthy fats may be a serious challenge for the outlets (Zhu, Anagondahalli & Zhang, 2017). They need to be extremely focused on what they are targeting. They indeed need to offer accordingly to avoid any negative consequences. Additionally, many franchises have their relations broken with the KFC, which means the proposed franchise outlets need to follow the policies of KFC to avoid any such consequence.
Opportunities- Rise in health-conscious people can be an opportunity for the outlets (Zhu, Anagondahalli & Zhang, 2017). They should give high values to health-related ingredients in their foods.
Treats- Competition from the rival companies like McDonald is a threat. Rapidly changing eating habits of consumers is another threat. Fluctuating prices of raw materials is also a threat (Zhu, Anagondahalli & Zhang, 2017).
External contextual factors and their effects on the business structure:
Political- Operation in Australia and in the member nation of the Trans-Pacific Partnership Agreement (TPP) in future will remain smoother provided the outlets do not get stuck with the product’s quality (Kapczynski, 2015).
Economic- The TPP agreement will provide bigger markets like Canada, Singapore, and Australia. Such markets will provide potential customers, which are good for business growth (Kapczynski, 2015).
Social- Regionalization will provide a broader range of customers in the different member nation within the TPP agreement (Filser, Kraus & Märk, 2013).
Technology- The franchise outlets will get technological benefits in different nations like Australia, Canada, Singapore and Japan (Arshad et al., 2014). Moreover, the outlets will be able to use the different technologies that can effectively improve its customer service and product’s quality.
Environmental- They need to have answers for consumer's rising concerns for healthy foods. This is necessary to get success in countries other than Australia (Vanevenhoven & Liguori, 2013).
Legal- The TPP agreement will provide a much-needed support in the different member nation. Moreover, the outlets will have fewer barriers in trade tariffs, tax rates and fiscal policies (Vanevenhoven & Liguori, 2013).
Providing well justified and feasible business recommendations based on the analysis conducted:
To recommend, the franchise outlets need to follow the instructions set by KFC as the company has canceled the license of few franchises. It means there is a need to have a good relationship with the parent company. The relationship will remain smoother if it follows the business strategies of KFC. Moreover, they are also required to be cautious while selecting the ingredients to satisfy the needs of those consumers who are conscious of their health.
To conclude, the proposed franchise outlets of KFC have better opportunities in the form of regionalization as this will offer the benefits, which was assumed while establishing the Trans-Pacific Partnership Agreement (TPP) agreement in the 20th century. However, the different franchise outlets need to follow the set guidelines of KFC in order to avoid the cancellation of license. This will not only hamper the business but will also kill the chances of expanding to other member nation of TPP.
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