Jean-Marie le Corre – 3ème année / Promo 10 International Business Strategy - Case preparation
Outback Steakhouse goes international
Problem statement: Faced to US Market soon saturated, and with incentives given by foreign demand for franchise, Hugh Connerty, president of Outback is considering international expansion. However, benchmarking shows different stories, successful or not, that makes the firm wonders about what would be its international strategy and what would be the operational change needed. Outback Steakhouse (OSH) today Outback was started in 1988 by Chris Sullivan, Bob Brasham and Tim Gannon with 2 stores. OSH had been the fastest growing steakhouse chain with 200 restaurant in 1995. Focused on casual dinner, success had been mostly held through the high quality policy, the entrepreneurial spirit of the firm and the well being of the staff. OSH sees the market being satrated within 4-5 years (at the time of the case), and besides international expansion, seeks a diversification in the Italian dining segment. SWOT analysis Strength Recognized High Quality and super value of meal it serves Strong entrepreurial spirit Low turnover due to an internal policy focused on the well being of employees Good geographical strategy that target customer where they are (B-location with A demographics) Very good relation with suppliers willing to follow OSH strategy of international expansion Weaknesses: No international experience No brand awareness in foreign countries Very tights links with suppliers may makes OSH too dependent on them
Jean-Marie le Corre – 3ème année / Promo 10 International Business Strategy - Case preparation Opportunity: High potential of foreign markets Better potential for franchise as they traditionally perform better that the company-held restaurant. Demand for foreign franchise Threat: Inability of suppliers to follow OSH internationally. It would force OSH to find themselves local suppliers and delay the expansion Faster saturation of the US market. It would not give enough time for foreign franchisees to be strong relay on growth Implementation in countries that would reject the OSH concept. Alternatives: 1- Franchise internationally in random countries 2- Franchise to specific areas a. Canada b. Germany c. Japan d. Mexico e. South Korea f.
United Kingdom
1- Franchise internationally in random countries Advantages a- Enables fast brand recognition around the world b- Get high return in terms of experience and acceptation of the brand Drawbacks a- Hard to manage b- Expensive as infrastructure has to be put in place in every country
2- Franchise to specific areas Advantages a- It would be a way to learn to handle a business internationally. (No international experience yet.)
Jean-Marie le Corre – 3ème année / Promo 10 International Business Strategy - Case preparation b- Outback could concentrate itself more on this country and achieve more penetration on the market. c- Less expensive to be in one market. d- Easier to choose the country
Decision Franchise to specific areas Choice of the country Every country has its advantages and drawbacks. In order to make a list, I will use a decision grid that will include four determinants: - Demographics - Infrastructures - Income - Trade Laws
South Coefficient Canada
Germany
Japan
Mexico
Korea
UK
0,3
3
2
3
1
2
3
Demographics 0,4
3
3
2
2
2
3
Income
0,2
3
3
3
1
1
3
Trade laws
0,1
3
2
1
3
1
2
Total
1
3
2,6
2,4
1,6
1,7
2,9
Infrastructure
The grid shows that OSH should first expand to Canada, and it is followed closely by the United Kingdom. The difference is due to trade laws. Canada being part of the Nafta has a slighter advantage over the UK. The Infrastructure in both countries is very good (Germany still has to remedy to the eastern part infrastructure). Demographics shows that countries have a close cultural heritage that allows greater acceptance of the concept. Incomes in both countries are high and sustain a good economic growth. Finally, trade laws makes those countries more open to foreign investment (Japan and Korea are known to have non-tariffs barriers).
Jean-Marie le Corre – 3ème année / Promo 10 International Business Strategy - Case preparation Implementation Build strong relationships with local supplier in order to obtain the quality service. Franchising would be the way to enter a foreign market as the franchisee would know its own market. Most of successful restaurant chains that went international knew their success thanks to such a strategy (e.g. : Mc Donald’s). Create a small business unit in the country in order to obtain information about working laws. If laws are similar, the same management process could be used. After having acquired a first international experience, likely in Canada, OSH can move to another country. UK would be an interesting strategic move as it has close characteristics with the American market and would open the doors to an European expansion.
