‘NICE’ is seeking growth to satisfy its shareholders, and does not feel that it can achieve that growth in its existing market. Applying the five forces model to Beron, it can be determined the attractiveness of this market to ‘NICE’.

Threat of new entrants – As ‘NICE’ is planning to enter the market, it needs to be able to overcome any barriers to entry which may prevent it from being successful. However, an attractive market will have sufficient barriers to stop many other new companies from entering, and possibly saturating, the market. Barriers may include capital investment requirements, knowledge or legislative barriers. Capital and knowledge should not be a problem for ‘NICE’ as they already operate within the same industry in Lentonia. Strong barriers do not appear to exist to prevent smaller regional companies from joining the industry. However, it seems that the existing major brands in the industry have acted to prevent overseas companies from entering the market, having cooperated on nationalistic marketing campaigns and lobbying the authorities. Local authorities refusing planning permission could be a problem for ‘NICE’ as they will need outlets to operate.

Competitive rivalry – The industry itself is more than double that of Lentonia, with a total market turnover of $7,000 million. Lentonia has an annual turnover of £3,445 million (758*100/22). With a growth of 5%, it could still be considered attractive, even if this has slowed down from previous years. There are only three main competitors in Beron, but they hold 65% of the market between them. This would suggest that they will be approximately double the size of ‘NICE’, with an average turnover of $1,517 million (7,000*65%/3). It appears that they are not afraid to cooperate with each other to protect their share against foreign competitors. This market appears to operate on two different models, depending on whether the market is considered to be regional or national. The larger brands seem to be undifferentiated, offering a wide variety of menu items, and possibly operating a low-cost model, given the lower profit margins than in Lentonia (18% compared to 30·61% achieved by ‘NICE’). However, the regional brands appear to focus on the particular preference of the region in which they operate.

Power of suppliers – The major suppliers are the producers of the raw ingredients, as well as of the processed ingredients. The scenario suggests that there is no shortage of the raw ingredients, with there being a strong farming industry. Therefore, the farmers may have little power over the fast food suppliers, as it is likely they can source the raw ingredients elsewhere. However, the vertical integration of the major brands has given them ownership of the food processing plants. These suppliers have power over the regional competitors. Given that the three major competitors own some suppliers, similar power is not exercised over these. This could also act as a barrier to entry for ‘NICE’ depending on the type of menu they decided to offer. Given their current specialisation, it is likely they would need to purchase processed ingredients were they to offer a wider menu. However, if the company were to enter the market with its current specialisation, it is likely that suppliers of their ingredients are already in place in Beron and could possibly support their new venture.

Power of buyers – There is little mentioned in the scenario about the buyers, but it would be a reasonable assumption, given the nature of the industry, that the buyers are individual customers, with few, if any, major customers. A large volume of individual buyers would indicate low buyer power. However, if they were to act together, and start using an alternative fast food outlet, then this would have a major effect on a particular brand or outlet. The lack of differentiation amongst the major competitors does make it easier for buyers to switch, and so their custom may depend on factors such as pricing, location or brand recognition. If pricing is an issue, this could have an effect on ‘NICE’’s currently high profit margins.

Threat of substitutes – Substitutes can lead to the complete decline of an industry, should they replace the need for that product or service in the long run. It is unlikely that the fast food industry will enter total decline as a result of substitutes, given that it is still growing at a rate of 5% a year. However, different, new varieties of fast food may become substitutes to the existing market offerings. Substitutes may be direct, e.g. another type of restaurant or an alternative approach to dining. It is suggested that healthy eating is becoming important and this may lead to a decline in the fast food industry. However, ‘NICE’’s menu of noodles and rice dishes could themselves be considered to be healthy, allowing them to thrive where other companies may fall victim to the trend. Substitutes could also be indirect: an alternative use for the funds spent on this industry. Whilst people must eat, it is likely to be cheaper to buy their own ingredients and cook at home.

In summary, the market is large, twice the size of in Lentonia, and is still growing at a reasonable rate. This should satisfy the shareholders’ desire for growth. However, there are strong threats, lowering the attractiveness of the Beron market. ‘NICE’ may be in a position to overcome a number of these threats, such as the supplier power, provided the entry to the market is carefully planned. It may be that an initial entry in one region avoids the attention of the major brands, allowing ‘NICE’ to get a foothold in the market before making plans for further expansion.

Entering the Beron market through an agreement with Go appears to be a better method than to go it alone, as it seems that the major competitors only take action against overseas entrants. By using either acquisition or joint venture, ‘NICE’ may avoid any direct action aimed at preventing its entry into the market. It would also help to overcome the authorities’ stance on new outlets, as it would have access to the existing 25 outlets.

It needs to be considered whether either of these alternative approaches will lead to less resistance than the other. Go would prefer a joint venture and has stated that the terms must be right for an acquisition. This could mean that, if an acquisition went ahead, ‘NICE’ would end up paying a premium for the company, which in turn could lead to a poor financial position as a result. Additionally, competitors may be more likely to resist an acquisition than a joint venture, as Go would be under foreign ownership as a result.

However, an acquisition would bring a number of benefits to ‘NICE’. It would have full control over the operations of the company and could continue to offer a menu of its own style of food, without having to consult over this and other strategic and operational decisions. Whilst there may be cultural problems in dealing with suppliers, customers and other stakeholders in Beron, there would be a lower chance of cultural problems in the internal operations of the company.

‘NICE’ should be able to fund the acquisition as Go is much smaller than ‘NICE’. Its average turnover per restaurant is $2·3 million, compared to ‘NICE’’s $3·13 million ($758 million/242restaurants), and it has only 25 outlets. However, it is better than industry average and perhaps reflects a positive reputation in its region. This may make it easier to grow into other regions. Go clearly thinks that further growth is possible as it approached ‘NICE’ with this in mind. With acquisition, ‘NICE’ would take the full benefits of this growth, but it would also incur all of the risk.

A joint venture would still have many benefits but probably of more of an intangible nature. Working together with Go, ‘NICE’ would have better knowledge of the market and of the competitors. This could lead to the formulation of better strategies for this market. Additionally, Go would have the contacts with suppliers. This would ensure the company continued to satisfy the ‘eat local’ campaign. Go may also have built up a regular customer base, who may not appreciate any changes which ‘NICE’ might make if they take over entirely. Tangible benefits may be forthcoming too, as the sharing of ‘NICE’’s resources, with Go’s knowledge, could lead to synergistic benefits.

One of the difficulties of a joint venture is determining the terms, and this may be difficult for ‘NICE’ as it is not based in the country of operation. Go might continue to operate in their own style and resist any input from ‘NICE’. This could be detrimental to the growth ‘NICE’ is hoping to achieve. The terms would also include how the profits would be divided, and this can be a matter of disagreement initially.

However, the joint venture may overcome some of the potential difficulties with acquisition, such as resistance from competitors.

Overall, it seems like there is a risk that the planned growth may not occur, given the refusal of planning permission for local companies. There also seems to be quite a nationalistic culture in Beron. Therefore it could be that the benefits of a joint venture operation outweigh those of acquisition in this instance.