With an increasing number of cash-rich people, eating out has moved to the forefront of the UK lifestyle. Thus, the value of the restaurant market is expected to grow rapidly in the future (Reuther, 2006).
1.4.2 The Chinese Restaurant Market:
In terms of size, China is the third largest and the largest in terms of population around the world (geography.about, 2010). In contrast to UK, it has a comparatively large economic dimension. IMF scales China has the biggest economy of world after Japan in 2008 based on international monetary fund statistics. From of the past century it has emerged into the next big thing. The GDP growth rate of China has sustained at more than 9% per year during the timeframe with an enumerated rate of 10.7% recorded for 2007 (Index Mundi, 2009). Even though the rate went down in 2008 but still China's economy keeps on the track of progression and enlargement. UK can capitalize the opportunities to flourish business in China because of the potential market in the business essence of Shanghai, Beijing, Guangzhou and Shenzhen. Furthermore the development is made in numerous emerging regional centres.
Before going into further detail, it is essential to understand that the political, economic, and legal systems have a direct impact on the benefits, costs and risks associated with doing business in foreign countries. In addition, the national culture also has a role to play.
Further, to open a restaurant, there are additional licenses and approvals that are necessary in addition to the traditional requirements of a limited liability company. However, once the company is set up with the proper business scope and registered capital, it can be used to open additional branches, though, of course, each branch will require certain approvals for that specific location (Lou, 2008).
2. Chinese national business systems and cultural conditions
The government and politics:
China’s government is a pyramid shaped structure, at the top of which sits the President, currently Hu Jintao. The role of the Presidency is essentially to provide vision. Below the Presidency is the State Council. Even in the most liberalized business sector in China, foreign investors entering the market will find themselves dealing with representatives from one or more sections of China's administrative hierarchy. All activities in other sectors are closely supervised. Business in special zones may be free of nearly all administrative drag. China has 56 nations however the politics is quite solid. The stable politics, economy and society of China have a positive impact on FDI inflow (Swain & Wang, 1995.
Incentive Policies:
China attempts to encourage investments from foreign residents. The state government of China has utilized favourable policies of tax to attract FDI. China is still one of the four countries, which implement different tax systems between national and foreign corporations .Benefits that China grants to foreign investors are not given in the form of grants. Most benefits are in the form of a tax benefit, including value added tax, customs and income tax benefits in putting the emphasis on an investment in a Special Economic Zone (SEZ) or in special sectors and areas (Worldwide-tax, 2009).
Intellectual Property Right:
China is making big progress after entrance of WTO however IPR dispute is happened occasionally. IPR has been acknowledged and protected in China. China is making big progress after entrance of WTO however IPR dispute is happened occasionally. China has been moving its intellectual property rights (IPR) regime closer to those found in many more developed nations. China is making more comprehensive laws, and more attention to enforcement have led to an increase in the number of IPR infringement cases being brought before the courts or taken up through China's administrative procedures.
Labour policy:
The Trade Union is very weak, many firms and organisations do not have Trade Union, this is one of the reasons that the labour cost is low in this country. According to (CNN Money online 2008) the Chinese government issued a new labour protection law, in which the employer has to provide new employment contracts with social security programme and overtime pay. As a result, the labour costs have been raised by 10 to 15 per cent annually
The business Culture:
According to Yang (1986) explored that the art of Guanxi “lies in the skilful mobilization of moral and cultural imperatives, such as obligation and reciprocity in pursuit of both diffused social ends and calculated instrumental ends. The system of Guanxi which relies on trust and consents of mutual advantages leads business succeed in Chinese society. According to “symbolic capital and mutual obligation and trust, and are alternatives to contracts and legal rights”. Chinese Relationship Hierarchy “Guanxi” plays an important role in Chinese business culture, this relationship is deeply permeating to all different Chinese firms and organisations
Fig. 2 Chinese Relationship Hierarchy
Source: Strategies for Asia Pacific Meeting New Challenges
THE CHINESE CULTURE:
There is no doubt that China is regenerating and becoming modern but it is not becoming a western entity. The Chinese do not compromise on their national and local cultures and beliefs even though they are at the head of the curve. The Chinese business system may differ like in China coalition and competition between businesses is much closer and integrated. On the other hand, British have the content that the business refers to be totally dependent on competitiveness and striving through market. The business system of China relates more into synergy than in competition.
The relation between British and Chinese economic sector is the ideology of culture and the anticipated culture disputes which cannot be ignored. In one’s simple opinion culture can be defined as any entity, it’s different for everything. An organization has a different and distinguishing culture as compared to the other one. Nevertheless, when it comes to the culture of a country, it is totally a different object. The culture of a country is so vast and important that it cannot be avoided. The concept of culture is the agreement, differencing and then settling it by using tactics to have consent of both the parties and countries (McNamara, 2000).
The business association in China becomes a social connection after the business is on the track. However in case of British businesses, even after a long time the relationships are always proficient and professional. If a company wants to indulge in the business of China, they can achieve it by targeting the social culture of this country. The discussions and meetings should be formal but should include personal matters which removes the hurdles and improves the relationship.
The basic step in investing is not to make generalisations, especially in the case of doing business in China. Not only investing money but also investing expertise, time, energy and other factors are also vital in this case. These understandings give safety to a company while facing confrontations in future. There are many aspects to study before doing business in China but the following factors identified through are specifically targeted for entering into a Chinese market (Kwintessential, 2010):
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Establishing relationships and contacts is the most important aspect in China. The more informal and social, the better you get closer with them. The meetings and all business activities should be professional but also in accordance with Chinese culture.
- Parties and socialising events should be attended after meetings.
- Souvenirs are exchanged as a gesture of goodwill.
- Chinese are always sympathetic and kind-hearted, so one should be like them to make good contacts with them
- There are some controversial issues such as speeches about Taiwan, Japan and the relation between Beijing and Shanghai. These issues shouldn’t be discussed.
Chi-Bri restaurant has the edge of mixing both the Chinese and British culture together. Chi-Bri has the superiority and advantage over other restaurants by snatching the market through adaptation of culture and taste in a peerless manner. Chi-Bri has the impact of a multi-culture environment which attracts both Chinese and foreigner customers. It is also because the chef and the waiters will be both Chinese. The meetings with the Chinese for the sake of restaurant opening and foundations will be done through rendering the culture.
To capture the market in China, the expertise of Chi-Bri will have to reach customers in all the different regions. The strategy will be divided into two parts. First part will be to attract the customer through sales promotions, advertisement and communication tactics to let the consumers acknowledge the level of this restaurant. The other strategy will be to allocate the resources and means of distribution of the brand. The brand image will be positioned in the minds of the customers as a multi-cultural ambience.
Chi-Bri will create a roadmap before entering into the market by targeting the level of income and status in the country and then interlinking it with the dishes and cuisines of the restaurant. Total focus will be on a new image of the brand which will include making and cooking products and dishes in accordance with the status and the level of income of a person. The urban population can definitely afford the edibles from a restaurant but Chi-Bri will totally focus on the culture of China and introduce new and cheap food also for the rural community.
SHAPE OF TRADE BETWEEN UK AND CHINA:
Chinese restaurants can be found around the world in every corner of the city or state. Many of them have acquired a huge market named China-town as the ethnic entity but for Chi-Bri it might be the pioneer of opening a multi-cultural restaurant in China. Even though fast food restaurants like MacDonald’s, Burger King and KFC have their roots in mainland China but still restaurants are about to open like Dunkin’ Donuts. As it was founded in 1950, today it is the largest coffee and baked goods chain in the world. Dunkin’ Donuts has more than 7,900 restaurants in 30 countries and territories worldwide (Dunkin’ Donuts website, 2008). Therefore, there is a huge potential in the targeted market. The Chinese Food and Beverage industry is so vast and still a lot is to be covered. The following figure shows the graph of Food and Beverage in China.
EXCHANGE RATE IN CHINA:
China has experienced dramatic growth in both exports and imports since 1978.However, Chinese exports grow at a much faster pace compared to imports, resulting in a large trade surplus. Chinese currency is under a higher pressure to appreciate. Chinese currency (RMB) underwent dramatic fluctuations during last 15 years. As the graph shows
Source: (MOFTEC, 2009)
The Chinese currency is appreciating step by step under the western countries pressure. Along with the Chinese currency appreciation, the production cost is increasing which has a negative impact on the FDI inflow. Due to currency appreciation, the price of export goods is increasing and reducing the price of import goods, which will result in export decrease and import increment. The currency appreciation will result in the export environment worsening and then productivity reducing. Maintaining a stable Chinese currency has a positive side to the persisting stable development of Chinese economy and finance.
FOREIGN DIRECT INVESTMENT (FDI) IN CHINA:
FDI in China mostly comprises of JV’s and WFOE’s. JV is divided into two further parts which are Contractual Joint Venture and Equity Joint Venture. Nowadays, Equity Joint Venture and Wholly Foreign Owned Enterprises (WFOE) are regarded with favour in China (Lou, 2008).
Chi-Bri restaurant has the potential of flourishing in Chinese restaurant industry. The entry in China will be a Joint Venture (JV) via participation with the domestic government. Joint venture (JV) has many positive reasons behind it. It accommodates very quick services in the market and makes domestic links easier. This will help the management of Chi-Bri in collaborating with the local Chinese community and the expertise for managing the restaurant. Joint Venture (JV) is also a method in many developing countries to provoke and enhance the level of the country in domestic and international stratum.
Also through Joint Venture social involvement and relationship with local community and partners will give Chi-Bri progressive and prosper business outcomes. All the branches and outlets will have same criteria to find expertise and investors in the local market of the city and perform Joint Venture with them. All branches will use same methods for training, development, recruitment, selection and all the management and marketing patterns.
10.0 INITIAL SETUP PROCEDURES:
Apply and obtain company name approval notification from Chinese Administration of Industry and Commerce. The name would be composed in the following order (Lou, 2008):
- Part 1 – City of WFOE: In this case it would be the city of operation of the restaurant (For example Beijing)
- Part 2 – Company name (Chi-Bri)
- Part 3 – Business Type (Restaurant)
- Part 4 – Form of organization (i.e., Limited Liability Company).
All together, the registered Chinese name would read Beijing Chi-Bri Restaurant Co., Ltd. The rest of the procedures are as follows:
- Apply and obtain Health and Food Hygiene License with Municipal Health Bureau.
- Alcohol permits registration (if applicable).
- Environment protection examination and approval.
- No tobacco permit (not suitable for foreign commercial enterprises)
Once the temporary business license is issued, the applicant may apply for the various approval certificates and the injection of capital. Before the permanent business license the applicant must obtain the following certificates, reports, and take care of the following banking issues (Lou, 2008):
- Organization Code Registration Certificate with the Organization Code Bureau;
- Tax Registration Certificate with the Taxation Bureau;
- Statistics Registration Certificate with the Statistics Bureau;
- Foreign Exchange Registration Certificate with the Foreign Exchange Supervision Bureau;
- Exit-Entry Administration Bureau of the Public Security Bureau registration
Open RMB Basic Bank Account with the Designated Bank;
- Open Foreign Currency Capital Bank Account with a Designated Bank;
- Inject capital after the opening of Foreign exchange capital bank account by the client; and
- Capital Verification Report with a Chinese CPA firm.
Finally the restaurant is being given a permanent business licence.
11.0 RECOMMENDATIONS
Following are the few recommendations that Chi-Bri Restaurant Co., Ltd should take into consideration before starting their business operation in China.
- Doing business in China is difficult despite the huge potential. On the other hand language and culture of China is largely distinct. Chi-Bri Restaurant Co., Ltd before starting its operations in the target country should seek local partners which can help them to navigate the local business environment. The other thing recommended is that if a partner in the same industry should be arranged which should have access to the channel of distribution, industry connections etc.
- The product of Chi-Bri Restaurant Co., Ltd is service, atmosphere and the overall experience and on the other hand domestic restaurants won’t cause much of a problem for the restaurant. If the management wants to be more successful, then they should emphasize on the western society of their products by making standardization feasible. Only minor modifications would be required to adapt to local tastes. For Example, Starbucks in Shanghai offers a sausage Danish while McDonald’s serves seafood soup (Alon 2008).
- Adaptation is really very important in case of Chi-Bri Restaurant Co., Ltd. For Example., Pizza Hut localized its business by decorating with large red "Double Happiness" signs, decorative firecrackers, traditional poetic couplets and the traditional Chinese character Fu (fortune); changing the design of the red roof to a Chinese feather Calligraphy brush willed with red; offering a customized "Xinyi" (goodwill) pizza from the Chinese new year to the Lantern Festival (Alon 2008).
- With regards to the pricing strategy, if Chi-Bri Restaurant Co., Ltd focuses on high quality and presents a new concept then a relatively higher price will single quality and credibility. Furthermore, the restaurant management should also take into account the fact that the average income of the economy is substantially lower than western countries.
- Chi-Bri Restaurant Co., Ltd should focus on foreigners and expatriates (short and long-term). Visitors and other tourists have relatively high income. On the other hand, they are willing to pay extra for the food that they are familiar with.
- Business people and professionals are the ones which are most open to new ideas so, they are also the ones which should be considered by Chi-Bri Restaurant Co., Ltd as their target market.
12.0 CONCLUSION:
Around the world, the business of restaurant is not about one’s ego and self-esteem. It’s about an ambiance where individuals and groups want to have a good time by spending their earned money. In the current situation of crisis, it is more important as people can eat same food at their homes but they pay extra to get value-added services with the food. Good environment, cultural diversities, cleanliness, attitudes, beliefs, norms, values and all aspects count while one is willing to pay outside their homes for food. While evaluating the determinants of FDI in China, the concept of investing in the restaurant industry broadens the fact that there is huge potential in the target market. The large population of China, highly accelerated economy, low labour costs, huge investment returns makes it more agreeable and beneficial for Chi-Bri restaurant. In conclusion, one can claim that the companies invest in China not only for a single factor but are attracted by the whole package of profit and stability.
Moreover, all foreign investors setting up a business in China will be presented with many obstacles. Establishing a restaurant will add many other variables to the issues involved. Proper planning, professional advice and set-up can reduce and avoid unnecessary delays and risks, so that the business can begin to operate and generate income (Lou, 2008).
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