Report to the CEO of a MNC to aid in

the assessing of major strategic

implications for locating in foreign
country

Kilele, Steven

200831933
1 | Page

Murphy, Shauna

200886563

Ylazaca, Elizabeth 200794264

Contents
Executive Summary. 3
Introduction.. 4
Background to the UK restaurant Industry..... 5
Rationale for choosing UK market.... 6
Table 1 ....... 6
Liability of foreignness... 8
Entry Mode 11
Advice on the organisational structures and control strategies
that would be appropriate given the selected entry mode 13
Conclusion. 14
References .... 54
2 | Page

Individual Reflections.. 21

Executive Summary
This report will assess the major strategic implications for a Peruvian
restaurant chain locating to the UK restaurant industry. Entering the
market through a joint venture, the report will evaluate the necessary
suggestions in order for the expansion to the UK to be a success. It will
consider the necessary rationale for choosing the UK restaurant
industry largely due to the size and success of the industry. Moreover,
it will discuss the liability of foreignness with special reference to
Hymers Hofstedes and Scotts pillars theories. Drawing upon these
theories

the

report

will

recommend

the

necessary

costs

and

implications needed in order to develop and expand within the UK

economy. Additionally, the report will discuss the most appropriate
methods for entering the host country and conclude that the most
efficient would be a joint venture. Lastly, this report will advise on the
organisational

structures

and

control

strategies

that

would

be

3 | Page

appropriate given the selected entry mode. And conclude that the
most appropriate is the matrix organizational structure and to use
socialization as a form of control strategy.

Introduction
The idea that this report is proposing is that a new exciting restaurant
chain which originates from Peru and to move this chain to the UK
where the current restaurant industry is thriving. The rationale is
Market Seeking, for the movement from Peru to the UK. The proposal
includes the major strategic implications for deciding to locate in the
UK and the reasons why this specific market is chosen. The restaurant
chain that is intended to develop is a Peruvian eating outlet that
provides traditional recipes and ingredients whilst seemingly creating
an environment whereby consumers feel like they have entered Peru. It
will have a relaxed atmosphere, and provide Peruvian drinks; TVs
showing current sports and traditional music. The recent interest in the
healthy fresh ingredients and unique flavouring has created a surge of
interest within Peruvian food and restaurants (Cobe, 2008). Following
the success of the South African brand Nandos within the UK which
4 | Page

has successfully expanded to 280 establishments and created a

Nandos Culture amongst young adults (Yann, 2013) it can be believe
that it can bring a different innovative chain of restaurants which
provides Peruvian food that is not seen anywhere else within the UK.
Moving to the UK will provide the firm with a wider target audience and
within the UKs restaurant industry eating out has become the new
eating in (De Angelis, 2013), thus if done strategically this will be the
most effective move for the company as the UK provides the
appropriate market and even though the institutional distant may be
problem the appropriate entry strategy will allow the company to
effectively grow within the new market.

Background of the UK Restaurant Industry

Since a growth in the economy in 1982 the UK restaurant industry has
continued to grow as consumers have become more and more
dependent on it. During this period of an economy growth there was an
increase in travel which brought on closer ties with Europe stimulating
demand for more exotic cuisine (Martin, 1993). In the 1992 the
industry was worth 20 billion and its performance has developed over
time so much so that the UK restaurant industry is extremely profitable
(De Angelis, 2013). The growth within this industry has developed from
the growing interest of convenience foods which has been driven by
5 | Page

the continued progression of more women in the workforce. Many UK

consumers have become dependent and comfortable with the eating
out culture and even during the recession were reluctant to give up
this luxury (Martin 1993). The restaurant industry within the UK is
extremely diverse and can range from upscale dining establishments
to quick casual take-out services (De Angelis, 2013).

Research from Mintel discovered that the British consumer is looking

for a posher alternative to the typical junk food which is why there is
currently a trend in the gourmet junk food. Helena Spicer from Mintel
expressed that restaurants are now looking to appeal to the risk
adverse diners and they are doing this through flavour innovation
(Mintel, 2013). This portrays why there has been an increase in the
ethnic sector within the UK food industry market as consumers stated
that when they go out to eat they look for something which they could
not usually make at home (ibid). In todays multicultural society within
the UK it has been important to provide a diverse range of eating
establishments and this is why they are 52% of the market share
(Angelis, 2013).

Rationale for choosing the UK Market

The UK has a very lucrative and potential restaurant industry. At the
moment, the industry is worth just a little over 88 billion dollars, with
an estimated growth of 5% over the next five years to reach 112 billion
6 | Page

dollars in 2018 (Market Line, 2014). Besides, since the growth of 27.8%
on 30123, the Market Line has estimated the restaurants industry in
the UK will have a significance of $112.6 billion; this can be
appreciated in Table 1.
Table 1: United Kingdom restaurants industry value forecast: $ billion, 2013-18

Available at: <http://store.marketline.com/Product/toc.aspx?productId=MLIP1223-0014> [Accessed 02

November, 2014].

Therefore with a potential 30 billion dollars up for grabs over the

coming years, it is crucial to invest within the UK market especially as
almost half of the restaurant market share belongs to the restaurant
and caf segment. It is best to wholly invest in the UK market as its
market capitalization and short term growth rates exceeds that of any
EU nations, closest rivals being Germany and France which are
estimated to grow at 4% and 1.9%, respectively, over the next few
years (ibid).
Furthermore, Latin American restaurants have the highest growth with
8%

in

current

value

terms

(Euromonitor

International,

2014),

7 | Page

particularly the Peruvian cuisine (Gerrie, 2014; Ward, 2013; Payne,

2014; Aqua Expeditions, 2014 and BerkeleyScott, 2012), and the trend
for outside dining is very strong in London (Tristiano, 2014), hence the
impetus for expanding towards that particular geographical segment.
This will only increase with time as the Latin American segment of the
full service chain restaurants is estimated to increase at CAGR rate of
4% at constant 2013 value over the next five years, the strongest
performance

compared

with

other

cuisines

in

the

UK

market

(Euromonitor International, 2014).

Apart from the market overview, research does show that the industry
has not been particularly affected by the recent economic depression,
even with an average industry wide 1% rise in price per transaction to
37.50, as the culture favours eating out regularly (Market Line, 2014).
Also even though, the economic forecast looks gloomy in terms of
future wage cuts and decrease in government spending (Giles, 2014),
this will not deter the cultural trend but serve to move consumers
towards affordable brands that offer convenient prices and promotions
for cash strapped consumers without substituting on quality (Market
Line, 2014). This bodes well for the brand as it is the particular unique
selling point that we are keen to offer.

Liability of foreignness

8 | Page

In his PhD dissertation The International Operations of National Firms:

A Study of Direct Foreign Investment, Stephen Hymer (1976) defines
Liability of Foreignness (LOF) as the additional costs incurred by a
foreign firm, costs that are not equally inclined by local firms. He then
further elaborates that these such costs arise due to a number of
reasons, example additional costs of operating internationally, lack of
familiarity with the environment (political, social and economic) and
discriminatory attitudes of key stakeholders. Zaheer (1995) agrees with
Hymer and cites spatial distance between host and home countries as
well as their current nature of the opposing environment as the source
of LOF.

So, to elaborate what this means, MNEs will always incur

additional costs as a result of operating across national borders, but

these costs can be greatly reduced if an understanding of the host
environment and culture, as well if an understanding of the differences
between the home and host environment is taken into knowledge
(Thomas, 1977).
Hence some consideration should be done in these two countries, Peru
and UK. In order to do so, even though there are many frameworks
(e.g., Kluckhohn and Strodtbeck, 1961; Hall, 1976; Hofstede, 1980;
Trompenaars, 1993; Schwartz, 1994; Ronen and Shenkar, 1985), this
report will be built on the work of Hofstede and Scotts three pillars.
The reason being is that Hofstedes cultural dimension has been a near
complete structural framework for assessing the cultural differences
between nations, a key component for estimating the liability of
foreignness (Kirkman, et.al, 2006). In addition to that, it has an in
9 | Page

depth reserve statistics for most nations (Sivakumar and Nakata,

2001), making it a useful resource. On the other hand, Scotts three
pillar framework is very useful when looking at all the segments of
institutional differences. It measures the institutional differences
between nations by assessing them through three pillars; regulation,
norms and culture-cognition (Scott, 2008).
Based off the analysis of Hofstede cultural dimensions between the two
countries (Hofstede, 2014), there are some unique key points. UK
scored higher than Peru in four categories; Individualism, Masculinity,
Pragmatism and Indulgence. This means that people in the UK are
more independent and individual and pragmatic people, who have a
more result-driven society. In addition, they have a high degree of
indulgence meaning that they are more leisure free than Peruvians
(Villaran, 2000). This is a key statistic for the company because
restaurants are clearly viewed as leisurely activities and thus it is
certainly to their benefit. On the other hand, Peru scored higher than
the UK in two categories; power distance and uncertainty avoidance.
This means that Peruvians have a higher acceptance of unequal
distribution of power, even though its only 64 (out of a 100); therefore
they will only accept that statement to a certain point. Additionally,
they are very wary of the future and in result (De La Cruz, 2000); they
minimize spending money on leisure when compared to the people in
the UK who have a much lower scoring of 35 in terms of uncertainty
avoidance.

10 | P a g e

As mentioned before, Scotts framework for measuring institutional

distance is pillared by regulation, norms and culture-cognition. Hoffman
observes that the pillars move from the conscious to the unconscious,
from the legally enforced to the taken for granted (1997: 36). What
this means is the pillars are very much inter related and, together,
form a rule of law in the way that a particular society operates.
The regulative pillar concerns itself with the rules and laws of the
society. In business this can mean licenses, taxation laws, all of which
can affect company success (Scott, 2008, p.60); he also adds that an
efficient national institutional system should also have agents in place
whose responsibility would be to enforce the laws for example, police
and courts. Peru has a less efficient national system where corruption
is rampant and thus laws are not efficiently enforced and the
hierarchical bureaucracy is very present within the national institution
system ( Presidencia del Comsejo de Ministros, 2008; 2012/2016). As
the business moves to the UK, a positive is that the laws are clearly
enforced. However, London is quite an expensive area (Litton, 2014)
and the restaurant industry is heavily taxed and laden with multiple
regulations (BDO, 2011) that are to be followed to the letter. Still, if
followed, it has a regulative pillar that can support the expansion of our
business.
The second pillar, norms, is quite in contrast to the first pillar. Instead
of being written in law, this pillar is generally made up of values and
norms, that is a societal train of thought on how different entities exist

11 | P a g e

and conduct themselves and in what ways can they conduct

themselves (Scott, 2008, p64). Besides unlike, regulatory structures
that, according to North (2005), are formally controlled systems
meaning

that

they

require

legal

agents

in

order

to

oversee

implementation or condemn it, the norm pillar is a mentality of the

society which is ingrained and brings about the emotions of shame and
guilt whenever something is done that is not in line within protocol.
Early normative theorists such as Parsons argue that norms are a
stabilizing influence and for the basis of social order (Scott, 2008,
p.66). Stinchcombe (1997, p.18) adds that institutions have moral
roots showing that norms do play a part in the culture of an
organisation.
The last pillar is culture-cognition, which in some respects could be
held to be similar to normative pillar, because it also deals with society
culture. But culture cognition argues that norms and values are not
universally perceived in the same way, even in a small society there
are people who hold views different to others (Scott p70, 2008). Scott
emphasises

that

these

perception

differences

between

society

members gives rise to a framework of meanings that governs the

society (ibid). UK being a multicultural society has enabled it to
develop a wide array of social groups within itself (London is even more
diverse) (Wood, 2006). In order to succeed in such an environment, the
brand needs to develop and understand the culture and its entities.

12 | P a g e

Therefore, it is to be recognized that the two country systems are

highly different, however, Scott (2008, p.62) also provides an
interesting point that countries can at one point, be heavily dependent
on one pillar over the others but with time this is likely to change. What
this means is that if a firm from a country that has a slightly less
developed regulative system, such as Peru, it can over time develop a
stronger regulative system that it can rely on.

Entry mode
A firm has to adopt a good business marketing strategy (McDonald and
Payne, 2006), this will make firm able to provide the right products to
the right market at the right time with the right quality and the right
price (Bennett and Blythe, 2002, 13). Therefore, when considering
the entry mode firms should consider factors that have great
implication in it, including the ones given by the institutional
differences between Peru and UKs organisations, and the liability of
foreignness created by it. A joint venture, according to Booz Allen and
Hamilton (1999) can allow home firm to access the scare resources,
which would increase the return on equity, investment and success
rates. Besides, this is a restaurant with Peruvian specific cooking
methods, and according to Ireland, et.al, (2006) joint venture is best
option to keep the core competence of the firm. Moreover as the firm is
just entering a new market not having a great understanding of the

13 | P a g e

market is a big problem, therefore teaming up will provide stronger

competitive advantage (Harrigan, 1987) and it could prevent against
political and economic risks (Srinivasan, 2008). According to the
Uppsala model, a company is more likely to invest on a market where
the psychic distance is low compared to the origin country, due to the
fact that the physic distance is related to the uncertainty (Hansson,
Sundell and Ohman, 2004). The bottom-line of the Uppsala model is
that the lack of knowledge regarding a foreign market becomes the
main barrier to an increasing commitment to internationalization; yet,
they can overcome such liability through experiential learning (Argez
Hernndez & Zwerg-Villegas, 2011)

Even though traditional views such as the one by Uppsala Model

(Johanson and Vahlne, 1977), suggesting that a firm will only use joint
venture as a future investment when it has higher level of commitment
and wants higher control. Contemporary views oppose to it (McDonald,
n.d) suggesting that may organization engage to it at the early stages
(Forsgreen, 2008). So if a firm is committed (Lorange and Roos, 1993),
and the research is showing that there is market opportunity and it is
profitable, also considering the evidence presented before, Joint
Venture is the best option.

14 | P a g e

Advice

on

the

organisational

structures

and

control

strategies that would be appropriate given the selected

entry mode
Considering the selected entry mode is a joint venture it is necessary
to firstly assess the different organisational structures which would
efficiently satisfy the needs for the business. Therefore, the matrix
organisational structure successfully divides different departments
within the company into the functions that they provide and dividing
the latter by geographical location (Johnson, 2012). The matrix
structure thus allows employees to have at least two managers, in this
case for our proposal one manager should be from the host country
and the other from the home country. However, a problem that can
occur within the matrix organisation structure is the communication
problem, for example having two managers can cause conflict such as
contradictory ideas and beliefs that lead to confusion for the staff
(Duggan, 2012). Moreover, there can also be interpersonal conflicts
which will inevitably result because of certain employees loyalty to
different staff members and a difference in culture from Peru to UK
(Duggan, 2012). The matrix structure gained popularity in 1970 and
has continually developed since this era however it is argued that
although this theory is strong it also provides problems as presented
(Heywood, et.al, 2014).

15 | P a g e

Control strategies are concerned with detecting problems or changes in

the strategy and making necessary adjustments (Adams, 2010).
Therefore, a recent strategy which has developed is the strategy of
control by socialization. Socialization is a form of control that is both a
process and outcome. It ensures when employees accept a firms
culture, organizations target employees minds, they inculcate shared
concepts, such as norms and values (Alvesson, 2006). Thus, given the
joint venture anticipated it would effectively allow employees to
understand and combine the two different cultures which have been
brought together to share common values and aims for the success of
the company (Eden and Miller, 2004).

Conclusion
To conclude, this report will provide a brief summary of what has been
discussed as well as some additional points. The Peruvian restaurant is
in prime position to get the most out of the UK market as the
restaurant industry has been steady overall the pass of time. Besides,
it should take advantage that there is a current trend of people going
out to Latin American Restaurants, especially those with the Peruvian
cuisine. Moreover, even though it is only been half a decade away
moved from one of the worst global depression, the industry hasnt
been affected much as leisure time is still much a part of the British
culture and people favour eating out (as it is a custom). This report has
16 | P a g e

also state the institutional differences between the two countries, Peru
and the UK, and verified potential dangers of entering the UKs market.
However, it is being shown that a joint venture, as being the best
approach to enter into this specific industrys market, it would nullify
several of these threats, as most of them are a direct result of the
unfamiliarity

with

the

new

environment.

Finally,

the

Peruvian

restaurant should invest in the UK, the future looks bright for them as
the industry is estimated to increase by about 30 billion dollars over
the next five years (Market Line, 2014), and this can only mean good
business and more importantly more profits.

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> [Accessed 02 November, 2014].

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Yann, K. (2013). 'With more than 280 branches in the UK, Nando's has
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of Management Journal, Vol. 38, pp. 3463.

Reflections

Kilele, Steven (200831933)

To begin with, we started the group with 4 members and within a week
the number was down to 3. This was our first challenge as we had
already accustomed ourselves to certain roles within the group.
However, after that we were able to readjust and it taught me to be
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flexible as sometimes teams can be shuffled around and we need to

adapt to that.
Another interesting note on our group was the fact that our report was
based of two cultures (Peru and UK) that were present in the group and
I think this was useful for us in terms of gelling together because as we
researched information we came to appreciate the differences in our
culture. And me, being from Tanzania, would sometimes try to take
examples from my own culture to prove a certain point. Due to the
culture difference within the group the research on the respective
countries was relatively easier than it would have been.
Another interesting fact is that we also challenged ourselves. For
example, even though we had a domestic student we all made an
effort to write and contribute to the report. In addition, we each
researched our counter parts country in an effort to build not only our
report but also our business knowledge. This fulfils one of ULMS
graduate skills in the sense that it enables us to commercially aware
and culturally aware.
Apart from that, I think our biggest challenge was adapting to our
personalities. I, on one hand, was very laid back, more so than others,
and sometimes I felt that I tried their presence a little too much. But,
with every challenge, we kept an open dialogue that enabled us to
confront our issues head on.

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Lastly, for the reasons above, I think this was my favourite group to
work, during my time at the university. Before working with my group
members, I was very unsure and doubtful when it came to working in
groups and I had a certain attitude against them. But I feel that this
group has enabled me to change that mind set and it would be a very
key asset for me as I move from the classroom to the work room.

Murphy, Shauna (200886563)

During the coursework assignment for global strategic management

there were several problems that we encountered which we had to
effectively resolve. A problem faced was the fact that a team member
was put into our group and then had to change to a different group
immediately. This effected group morale as we already had started to
brainstorm ideas and plan meetings; we overcame this problem by
changing our meeting schedule. On reflection this helped bring the
remaining group members closer and allowed us to all effectively be on
the same wave length. Moreover, once we began to plan the report
and discuss who would be best at researching each area a problem
occurring was the approach to academic journals and how to reference
them. Considering this problem we decided to ensure that we all read
the ULMS handbook and agreed that I was the one who understood the
appropriate format and I would check the others work. Through this

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experience I learnt that it was important to help others in the group

without focusing solely on your own work. The other group members
were international therefore; it took them to longer to do certain pieces
of work which I found simple. I learnt to always make sure that
everyone felt at ease and that they felt I was an approachable person
who would help them in any way possible. Additionally, we could have
been more time efficient as the whole group had other personal work
due during the same period of time and we made the mistake of
leaving the report to the two weeks prior to when it was due in. This
resulted in some group members feeling anxious and worried if it we
would be able to construct the work to the highest quality. Thankfully,
we all understood and decided that we would create an easy plan to
use our time resourcefully and to make sure that everyone within the
group felt calm. This inspired me to learn from this mistake and to start
writing my future deadlines at an earlier stage so that I could modify it
as many times as I felt necessary so that I was truly happy with the
final copy. Once the report was written up and put into the correct
format a difficultly was to channel all of the separate writing styles to
make the report flow and read well, this was a matter of checking
punctuation, spelling and sentence structure. We overcame this
problem by all reading the final copy of the report on separate
occasions and changing any part even if it was not our own into a
fluent style. Overall, this is one of the best groups that I have worked
with and I have learnt that getting to know group members personally
helps create an enhanced piece of work and making sure that
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everyone attends meetings and feels comfortable in each others

company allows any problems the group has to be overcame in an
effective manner.

Ylazaca, Elizabeth (200794264)

For this module we were asked to do a group work assignment, also we

were told that the team members had to be from different nationality
but that we were not allow to pick our own team member, they were
going to be allocated by the teachers, this would normally create the
biggest problem of disconformity, as you do not know any of the team
member it is very difficult to adapt to a stranger, one does not know
how to interact with people that has different culture perspective.
Besides, one does not know how they are with studies, some take it
seriously and some do not or simply that we have different methods on
studies and application to the work done.
In my personal experience this is the best group team that I have had
in University, previously I had to do all the organising, do most of the
research, set an outline of the report, coordinate meetings, ask
continuously for the work done by others and check one and another
time for any margin of error of other team members.

However, this

time even though at first there was still the uncertainty of how this
group was going to work, it actually worked really well. As we

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encountered some difficulties it was not only me trying to fix them, but
the whole group looking for solutions. For instance, the first problem
was that, as we were all most from different mayors, finding an
acceptable time to meet for everybody was very difficult. However, we
manage to stable some specific dates for our meetings, these were
explicit (going over tasks we previously decided and then setting new
tasks for the next meeting).
Then, we were reduced from a group of four to a group of three; this
presented a difficulty as we had to change the previous plans besides
from adding more work to cover the research that the fourth member
was supposed to do. Nevertheless, we manage to fairly divide the work
by the team member, and we didnt have to push anyone to do the job,
as everyone volunteered to do something that we were most familiar
with. For instance, the one was from England offered to the UKs
research, I was in charge of doing my countrys research (Peru) and the
third, as not being from any of these countries, was going to apply a
critical analysis. This helped us to create a bond between each other,
and encourage us to state the part of this subject that we were not
familiar with, and the ones that were could offer explanations about
them. After this, the difficulties were less problematic and easy to
manage.
So, the task for this module has thought me so much, not only about
group work, but also business management. It has enhanced my
abilities to overcome problems meanwhile learning about Global

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Strategic Management. Furthermore, it has given me an inside of how

knowledge will help me in my future job environment.

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