TABLE OF CONTENTS

1.0) Executive Summary …………………………………………..………..

……………… 1

2.0) Introduction ……………………...

……………………………………………….………. 3
2.1 Purpose
2.2 Scope
2.3 Methodology
2.4 Limitations

3.0) Findings and Discussion

3.1 Introduction – Product &
Country………………………………………….… 4
3.2 Targeted market……………………………..………………...
……………..…… 6
3.3 Culture ……………………..……………………………….
……………….…....…..7
3.2.1 Language
3.2.2 Attitudes and Values
3.2.3 Business culture – Relationship development
3.2.4 Product adaptation – Think Global, Act Local
3.2.5 Subculture
3.4 Economic aspects
…………………………………………………………….…. 11
3.5 Other issues ………………………………………………………..
…………….. 13
3.5.1 Demographic
3.5.2 Geographical
 3.5.3 Design of the Outlet
3.6 Dangerous
issues………............................................................ 15
3.6.1 Diseases
3.6.2 Usage of Banned Chemicals in Food
4.0 Conclusion
……………………………………………………………………………………….. 16

Reference List……………………………………………………………………..
……………………17

1.0 Executive Summary

Secret Recipe, a restaurant franchise from Malaysia, wishes to
enter the Chinese market. China, with a population of 1.3 billion,
provides for a nearly infinite consumer base with which Secret Recipe
may tap into. Two of China’s most prosperous cities, Beijing and
Shanghai, are the ideal locations for Secret Recipe to set up their first
outlets in. This is in view of the advanced infrastructure in place within
those cities, the high density of population within those cities, and the
potential boost in the economy that will arise from the upcoming
Olympic Games and the World Expo. China’s younger generation which
consists of teenagers and the working-class, since heavily influenced
by Western culture, are very likely to prefer dining in the kind of dining
ambience that Secret Recipe’s outlets will have to offer.
Though a very attractive market the Chinese market may seem,
Secret Recipe must be aware of the cultural issues that may arise
when planning for their market entry strategy. The understanding of
the Chinese culture is imperative in attracting positive consumer
behavior and perceptions, while simultaneously Secret Recipe must
avoid being ethnocentric in this foreign country. Chinese cultural issues
such as language (China’s many diverse ethnic groups converse in

MKW 3444 – International Marketing 2 Market entry strategy

their own respective dialects), attitudes and values, business culture,
product adaptation, and subculture all must be taken into
consideration if Secret Recipe wishes to succeed in the Chinese
market. For example, Secret Recipe may adapt its products to suit the
Chinese market by including more noodle dishes, as the Chinese have
a favorable view towards consuming noodles.
The economic aspects of China are showing favorably, with
booming GDP growth in recent years. As disposable income in China
increases, so will the amount of customers that may dine at Secret
Recipe increase.
Other non-cultural issues include demographics, geographics,
and the service design of the Secret Recipe outlets in China. It is
noticed that there is a higher average income level in the major cities
as compared to smaller cities. Together with proper infrastructure in
the cities, these factors offer great business opportunities for Secret
Recipe.
Other threatening issues may come in the form of disease
outbreaks, such as the Avian Flu outbreak in recent years. Secret
Recipe must be alert to such events and suit their menu accordingly,
for example by providing more alternatives to poultry dishes.
As with China’s booming economy, there will always be a higher
demand for products than there is supply. Therefore, counterfeit
products bearing the names of de facto manufacturers may appear.
These may be in the form of food ingredients, which may contain some
banned chemicals. Secret Recipe needs to be vigilant in checking their
food supply that such harmful products do not end up in their kitchen.
In order to succeed in penetrating the Chinese market, the
various cultural and economic factors must be taken into account
seriously to try and cater for the whole market while avoiding offense
to any parties.

MKW 3444 – International Marketing 3 Market entry strategy

MKW 3444 – International Marketing 4 Market entry strategy
2.0 INTRODUCTION
2.1 Purpose
The purpose of writing this report is to create a better
understanding towards Secret Recipe’s target market, China.

2.2 Scope
This report will give a clearer picture of the target country, China,
which can help Secret Recipe, a restaurant franchise, determine how
best to enter the Chinese market and whether or not the venture will
be successful.

2.3 Methodology
Resources such as marketing–related books, economic books,
online academic journals and the internet were used to complete this
report.

2.4 Limitations
In this report, only a few prime issues that may determine the
success of the company will be discussed. However, in reality, there
are many more issues that may affect the success of entering the
market.

MKW 3444 – International Marketing 5 Market entry strategy

3.0 FINDINGS & DISCUSSION
3.1 Introduction – Product & Country
China, with a population of 1.3 billion, is the world’s most
populated country (Miller 2004). In a country with such a large
population, the demand for food is surely high. It is because food is the
primary need for human survival (Kotler et al., 2004).

Figure 1.1

Source: China National Bureau of Statistics (stated in Gale, 2003)

According to Figure 1.1, the rise of China’s food consumption is a

significantly good economic prospect and will impact on the world food
demand. The data shown in Figure 1.1 has indicated that China’s total
spending on food and beverage has significantly increased. This has
given Secret Recipe a good prospect of business opportunities in
choosing China as the target country to invest in.

MKW 3444 – International Marketing 6 Market entry strategy

Since China began opening its economy up to the world after the late
1970s, a large number of overseas firms have begun investing in this
country, which has a rich ancient history (Miller 2004). Secret Recipe
has chosen franchising as the market entry strategy. Franchising is
defined as “when a retailer (franchisee) agrees to make some payment
and meet the operating requirements of a manufacturer (franchisor), in
exchange for the right to market the franchisor’s goods or services
under its brand name” (Boone & Kurtz 1998).

Beijing, as China’s capital city, is the country’s political, cultural

and international exchange center. Shanghai, as the largest city, is
also the most prosperous city in terms of Gross Domestic Product
(GDP) in China. Both Beijing and Shanghai are autonomous
municipalities in China, and as such they enjoy the similar economic
and administrative autonomy as a province (Market Profiles on Chinese
Cities and Provinces - Beijing, 2005). The coming year 2008 Olympic
Games will be held in Beijing. Thus, the Beijing government is investing
about RMB280 billion in the city (Market Profiles on Chinese Cities and
Provinces, 2005). In theory, the high investment from the government
should result in higher per capital income in Beijing (Parry and Kemp
2002). Shanghai has also been appointed to hold the World Expo at the
year 2010 ((Market Profiles on Chinese Cities and Provinces - Shanghai,
2005). The Olympic Games and the World Expo are some of the world’s
most important events. Many tourists from around the world will visit
these cities during the event. This will inevitably bring in billions of
tourist dollars into the Chinese economy, thus boosting China’s
economy and benefiting the investors in the country (Parry & Kemp
2002). If Secret Recipe starts up in China, it is going to benefit from the
high investment by the local Chinese government as well as the two
internationally acclaimed events.

MKW 3444 – International Marketing 7 Market entry strategy

3.2 Targeted Market
As a cafe and restaurant, Secret Recipe will tend to attract the
working-class and teenagers. The high average income among the
population in the targeted cities can help ensure Secret Recipe’s
affordability amongst the working-class (AP 2000). As China’s modern
generation has been greatly influenced by Western culture, the
younger generation look forward to it readily (Wittenberg 2001). The
food and beverage that is provided may fulfil China’s younger
generation’s needs. The emergence of the higher working-class has
transformed China from an ideology economy to a capitalist economy
(AP 2000).

By targeting the chosen markets, Secret Recipe can develop a

menu to fit China’s society. Prices, distribution channels, and
advertising can be adjusted to penetrate the target markets efficiently.
Secret Recipe’s adoption of an aggressive pricing strategy against a
leading competitor such as Starbucks can be undergone to grab the
market share in the market.

MKW 3444 – International Marketing 8 Market entry strategy

3.3 Culture
Culture is considered essential for marketing as it conditions
wants and needs, which are the major concepts of marketing, defined
by “the total way of life in a society” (Burca et al 2006). Hofstede
(1983) explains culture as “the way people in different countries
perceive and interpret their world varies along four dimensions: power
distance, uncertainty avoidance, individualisms and masculinity”.
Cultural influences often affect the buyers’ decision in accepting the
product. In regards to this, Secret Recipe needs to understand the
Chinese culture in driving the consumer’s behaviour and perceptions,
while simultaneously avoid being ethnocentric in a foreign country.

3.3.1 Language
Language is the key to a country’s culture and is described as
the mirror of culture (Hollensen 2004). It plays a central role in
marketing communications in an international context as
communication styles and world views are deeply influenced by
language structure (Usunier and Lee 2005). China has many diverse
ethnic groups which communicate in their own respective dialect.
However, the majority of Chinese can still understand and speak their
national language, Mandarin. Language is deemed important as a
marketing communication tool in advertising, personal selling, public
relations, and business negotiations. It also helps to build brand image
and convey marketing information to local consumers (Usunier & Lee
2005). Secret Recipe will incorporate the national language into the
advertising and promotion efforts, as well as communicating with its
customers, suppliers, partners, and the Government (Melewar et al.
2004).

3.3.2 Attitudes and Values

MKW 3444 – International Marketing 9 Market entry strategy

 For Australians and Europeans, individualism is an unquestioned
positive value. Individual self-fulfilment and maximal realisation of
individual potential are legitimate and are expressed aims in life. This
view contrasts sharply with most of the Chinese’s views which are
grounded in traditional Confucian philosophy (Brick 2004). The Chinese
are more sociable when integrated into strong, cohesive in-groups in a
collective society. Therefore, word-of-mouth becomes crucial because
they are able to influence one another in being favourable towards a
brand – generating positive attitudes in ensuring brand achievement
(Hofstede, 1994). Brand perception is highly noted within the Chinese
consumers, so new entrants in the market often struggle to compete
with long-established brands. To establish the quality brand of Secret
Recipe, Secret Recipe can hire a local Malaysian artist who is famous
among the Chinese population in promoting its brand. It not only helps
to increase the awareness towards the brand but it also educates the
consumer regarding the specialities of the restaurant and its country of
origin.

3.3.3 Business culture – Relationship development

Business cultures of the Chinese are vastly different to Western
due to the strong influences of Confucius teaching. Secret Recipe could
start the process of establishing good ‘guanxi’ (relationship) with wide
networks of suppliers, retailers, banks, and local government officials
to gain trust in the relationship for mutual benefit and satisfaction. By
getting the right ‘guanxi’, it will minimise the risks, frustrations, and
disappointments when doing business in China (Los Angeles Chinese
Learning Center 2006). ‘Mianxi’ (respect and self-esteem) is an
essential component of the Chinese national psyche. In China, causing
a person to become embarrassed is unforgivable (Brick 2004). Secret
Recipe needs to be aware that the Chinese need for respect and

MKW 3444 – International Marketing 10 Market entry strategy

acknowledgement preside over all business communications and
negotiations (Miller, 2005).
3.3.4 Product adaptation – Think Global, Act Local
China is a vast country and different cultural needs apply to
different parts of the country. In the beginning, Secret Recipe can
focus mainly on including noodle dishes in its menu. Noodles are
considered the most popular food amongst Chinese as they hold
essential position in Chinese cuisine and the superstitious Chinese
consider long noodles to provide them a long life. The menu should
also be designed to be served in family style rather than individually
(Kreutz 2006). Chinese cultures are strongly advocated by Confucius
teaching and usage of knives is prohibited. Therefore, chopsticks must
be available in all outlets and the dishes should be served in bite size.

The cuisine of Secret Recipe should include more meat,

especially pork. Of all meats, pork is the most common in all Chinese
cuisine and the pig is thus respected as the Chinese character for
“home” as a combination of the character “roof” and “pig” (Kreutz
2006). Chinese tea is preferred by the Chinese as a drink during all
meals for clearing the palate of a former dish before proceeding to the
next dish. With this knowledge, Chinese tea should be launched as a
new drink in Secret Recipe. The tea served should also be high of
quality, because it is believed in Chinese culture that a tea worth
drinking must be of high quality (Kreutz 2006).

3.3.5 Subculture
Subculture is a set of people with distinct sets of behaviours
and beliefs that differentiate them from a larger culture of which they
are a part. It may be distinctive because of the age, race, ethnicity,
class, gender, and the qualities that determine a subculture as distinct

MKW 3444 – International Marketing 11 Market entry strategy

may be aesthetic, religious, occupational, political, sexual or a
combination of these factors (Wikipedia 2006).

China officially recognises 56 distinct ethnic groups, the largest

of which are Han Chinese, who constitute about 91.9% of the total
population. The majority of Chinese are non-religious which constitute
about 59% of the population (Wikipedia 2006). China’s religious
distributions are shown in Figure 2.1. It is important to note that the
believers of a majority of the religions do not have any restrictions on
the type of food that they consume.

Figure 2.1: Ethnic groups in China

(Source: World Christian Encyclopedia, vol. 2 Mid-2000 numbers)

However, Buddhists are not allowed to consume beef whereas

Muslims are prohibited from consuming pork. It is essential for Secret
Recipe to have a variety of food choices which do not contain any of
these ingredients, so that most if not all of the Chinese people are
eligible to consume the delicacies irregardless of their religion.

MKW 3444 – International Marketing 12 Market entry strategy

3.4 Economic aspects
Since 1979, China has reformed and opened its economy. This
was the result of a great transformation from an ideological economy
to a market-oriented economy. China has since undergone its largest
reduction of poverty and its fastest increase in income levels (China
Country Review, 2006).

Figure 3.1

Source: Growth Rates: Real GDP, Population, Real GDP Per Capita – China (China Country Review, 2006)

Real GDP growth rate is the economy’s growth rate after taking
into consideration of the inflation effect. According to Figure 3.1, the
real GDP of China was a minimum of 8% at year 2000 and the highest
real GDP growth rate of 9.3% was achieved at year 2004, an indication
that China’s society is becoming wealthier than ever before (China
Country Review, 2006). Therefore, Secret Recipe can invest in cities
such Beijing and Shanghai as they are autonomous municipalities with
the highest growth rate.

MKW 3444 – International Marketing 13 Market entry strategy

Figure 3.2

Source: China Macroeconomic Activity Real GDP per Capita (China Country Review, 2006)

As shown in Figure 3.2, the real GDP of China has increased with
the average rate of 8.5% from the year 2000 to the year 2004. The fast
growth in real GDP resulted in a higher disposable income which
provides for a higher spending power amongst the people. If foreign
investors continue to invest in China, it is highly predictable that the
economy will continue to enjoy future growth. This is a good reason for
Secret Recipe to create product extensions in order to benefit from the
upward spending trend in China.

MKW 3444 – International Marketing 14 Market entry strategy

 China joined the World Trade Organisation (WTO) at 10
November 2001 (China.org.cn 2001). The entry to WTO is deemed to
bring instant benefits to China. Furthermore, longer-term boost on GDP
growth would be the outcome of a successful restriction of the
domestic economy which will benefit China’s long-lasting growth
prospects (China Country Overview 2005). Secret Recipe is likely to
enjoy the benefits of continuous GDP growth as higher GDP growth
contributes to higher disposable income for consumption.

3.5 Other Issues

3.5.1 Demographic
The first issue that needs to be taken into consideration is
demographic segmentation. Demography is defined as “the study of
human population in terms of size, density, location, age, sex and
others” (Kotler et al. 2004). Demographics are very important for
Secret Recipe to determine its main target market. It is necessary to
target the teenagers as those aged 0 – 14 years old account for 21.4%
of China’s population (World FactBook 2005). From this information,
Secret Recipe can focus more on the needs and preferences of its main
marketing target.

3.5.2 Geographical
Geographic segmentation refers to the division of the market
into different geographical units such as provinces or major cities
(Kotler et al. 2004). Since the bulk of consumers targeted are from the
middle and upper income categories, Secret Recipe outlets will be
established in large cities, mainly Shanghai and Beijing. This is solely
because the average income level in the major cities is higher
compared to those in the smaller cities. The location of the Secret

MKW 3444 – International Marketing 15 Market entry strategy

Recipe outlet is also influenced by the infrastructural and
transportation system in place. Lastly, people living in major cities tend
to spend their income more willingly to enjoy a better life and also to
fulfil their ego needs by eating in a classy restaurant.

3.5.3 Design of the Outlet

After having set its market target and its potential customers’
segmentation, Secret Recipe needs to position its products and
services to suit the consumers’ needs and wants. As Secret Recipe
targets the working-class adults and teenagers, the interior design of
its outlets need to provide a luxurious, elegant yet modern feel. The
luxurious and elegant design of the outlets will allow the status-
conscious consumers to feel that they are dining in a high class outlet,
thus fulfilling their ego needs. Social status is hierarchical in the
society (Schiffman et al. 2005).

Secret Recipe outlets must also be very clean and hygienic

conditions. Since the outlets will be located in major cities in China,
most of the population in those cities are well-educated and more
health-conscious. Teenagers and the working-class adults are also
more health-conscious due to their improved education and thus are
more likely to prefer dining in a restaurant that is clean and hygienic.
The staff members working in the outlets must also undergo rigorous
training to ensure that they are well-mannered and efficient in the
outlets, as all consumers do prefer dining in an outlet staffed with
polite waiters.

MKW 3444 – International Marketing 16 Market entry strategy

3.6 Dangerous Issues
3.6.1 Diseases
In recent years, there has been the Avian Flu which has caused
many people to avoid eating poultry. In more recent months, the Avian
Flu outbreak in some parts of Europe may affect the sales of poultry
dishes in Secret Recipe’s outlets (CDC 2005), as consumers are afraid
to consume poultry fearing that they may be infected with the Avian
Flu. In order to overcome this issue, the management needs to come
up with alternatives to poultry products so that consumers will still
have a wide choice of meals to choose from. This step can ensure the
consistency of sales in Secret Recipe’s outlets.

3.6.2 Usage of Banned Chemicals in Food

China’s economy is growing at a very fast rate and will soon
resulting in a higher demand for needs than there is supply. Thus,
there may be some scheming manufacturers who will use this
opportunity to incorporate some illegal chemicals in their products. The
banned chemicals are hazardous and may cause death to the
consumers. In 2001, 146 people were reported dead and over 15000
were hospitalized due to the chemical used in the food industry (Li
2004). There is also a common problem whereby the manufacturer will
sell some of the food under the name of a popular brand but is actually
a copy version of it. Secret Recipe outlets should pay extra precaution
on the supplies of food ingredients delivered so as to ensure that the
goods they ordered are indeed approved by the government’s health
regulations.

MKW 3444 – International Marketing 17 Market entry strategy

4.0 Conclusion
In conclusion, China’s market presents a lucrative opportunity

for Secret Recipe to invest in. China’s economy is currently expanding

rapidly, and will furthermore be boosted when the 2008 Olympic

Games are held in Beijing, followed by the 2010 World Expo being held

in Shanghai. Therefore, since China’s market is still on the verge of a

robust economic boom, Secret Recipe will not stand to lose from

investing in China, and will reap long-term profits. However, though

attractive the market may seem, it must be noted that the Chinese are

very culturally sensitive. Secret Recipe must take into accounts of all

aspects of the Chinese culture and society seriously before proceeding

with business. Any success at all for Secret Recipe in China will very

much depend on these cultural factors.

MKW 3444 – International Marketing 18 Market entry strategy

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MKW 3444 – International Marketing 21 Market entry strategy