Business HL: Burger King

Burger King’s global expansion plays a key role in the business’ hopes in overtaking McDonald’s prestigious position in the profitable fast-food world. Currently maintaining its spot as the second-largest global fast-food brand in the world, Burger King’s senior officials realize that they must effectively strategize their global marketing skills. As a global titan in the fast-food world, it is apparent that Burger King’s investment appraisal skills have paid off. Through this report, I will aim to answer the question: “Should Burger King open a franchise in Pakistan?”

The first portion of my report will be the research overlook. This will outline my entire report. I will include a rationale, theoretical framework, and methodology. These will briefly overview the basis of my report.

The second portion of my report will include my research findings, my analysis, and my calculations. SWOT and PEST will be amongst the analytical tools that will be shown. My research will be mainly secondary but I will show a hint of primary findings. My conclusion will answer my question from a financial and non-financial perspective.

The numerical values used in the “Calculations” and “Main Results and Findings” sections are estimates. The price obtained for the value of a 500 square meter plot in a commercial area was given by Pakistani real estate companies. The annual cash flow is a forecast based on the amount of cash McDonald’s generates annually in Pakistan and the average amount of cash a fast food restaurant generates per year.

Introduction

Burger King’s plethora of notorious legal issues has resulted in a loss of money and reputation. Although their cost cuts have resulted in higher earnings, their revenues continue to fall along with their share prices. In order to restore their reputation and higher their revenues, it is important for the brand to tackle international expansion opportunities, especially in
regions where their sphere of influence is low.

When deciding whether to open an international franchise, a number of financial and non-financial aspects must be taken into account. The political state, consumer preferences, and cultural distinctions in Pakistan must be considered. On top of this, it is important to assess the profitability and desirability of the expansion (i.e. Investment appraisal). Burger King is not very prominent in the East and so building their prominence in sub-continental Asia will be a milestone in their global influence.

This has therefore led me to research the following question: “Should Burger King open a franchise in Pakistan?” Research Question
“Should Burger open a franchise in Pakistan?”
Procedure/Method

My research was fully gained through secondary resources. Online sources were used to provide interviews with Burger King Officials, get financial statistics, and gather information on Burger King’s marketing strategies. My information was collected from online databases that specialize in marketing and financial monitoring. I obtained my balance sheets from these databases also. I discovered an interview in QSR Magazine. This interview was also used in my research and findings. Possible problems I could face are the biased in the interview I found and the reliability of my numbers (credibility of my sources). The research I obtained was very useful. I am fortunate to have found a large number of sources to choose from. My non-financial data is fully based on my research. I did not face any problems during this report.

If I could do this report again, I would explore more financial aspects of the issue being explored. This is because numerical research is more reliable than non-financial findings. Non-financial findings give room for bias. All in all, I feel like this was a successful report.

Analysis

SWOT Analysis

The estimated payback period is about six and a half years; this relatively low payback period. This is because the franchise will be profitable. The cost of labor in Pakistan is low due to the minimum wage laws in the country. Furthermore, there is a high rate on unemployment. Although the unemployment rates are decreasing, the amount of working-aged citizens that are unemployed is still high. Weaknesses presented by this appraisal include expensive land, expensive food products, power shortages, and political instability.

The political state of Pakistan is extremely volatile, especially this year. Elections are being held this year and so tensions amongst opposing supporters is high. Atop this, constant riots and protests shake the stability of the nation. A political unrest could result in vandalism and our destruction of property. The largely anti-American attitude in Pakistan is also a problem due to the fact that Burger King is an American fast-food chain. This problem can be potentially decreased however, with insurance and an extensive contingency plan. Moving on, the political state of Pakistan has resulted in a high price for fruits and vegetables. Vegetables are necessary in order for this business to strive.

In addition to a high cost for vegetables, the cost of 500 square meters of land is also relatively high ($350,000). This is not too large of an issue however. This is because the land will be bought and not rented. Thus, the cost of the land was included in the calculations for the payback period, which turned out to be low. Lastly, power shortages are abundant. Load shedding is very consistent. Thus, the cost of a generator must be taken into account. The threats presented by this investment have already been mentioned; safety, power shortages, and the year of elections). The opportunities presented by this investment are vast. First and foremost, this will be the first Burger King franchise in Pakistan.

As mentioned in my introduction, Burger King, unlike its completion (McDonald’s) lacks Asiatic franchises. The success of this franchise may lead to the commencing of more franchises around the region. The cheap labor makes it attractive and profitable. Furthermore, there will be a larger range of consumers. Because Burger King has a very limited amount of franchises present in sub-continental Asia, its menu is not fit to satisfy Pakistanis. New customers and new flavor preferences will likely result in the production of new food items. These may be popular on a global scale. In addition to new products, Burger King will strengthen its fan base.

PEST Analysis

External political factors have already been mentioned in the previous sub-section (SWOT Analysis). Civil unrest is extremely unpredictable due to the hostile state of the government and citizens. Unrest could potentially cause result in lasting, detrimental effects. Mediocre health and safety laws may also be an issue. Optimal hygiene factors influence the performance of the business’ employees. Also, it is vital to have optimal hygiene in order to attract customers. In addition to health and safety laws, minimum wage laws are also low. This is seen as a pro rather than a con as it ensures cheaper labor.

Economic issues are also abundant in Pakistan. The weak currency is one example. The rupee is constantly dropping and so exchange rates will be high. However, due to Pakistan’s Islamic form of banking, there is no interest. This is a convincing quality of the location. Moreover, economic growth in Pakistan is very mediocre. Moving on, pork/ham is illegal in Pakistan. Ham makes up much of the Burger King menu and so they must be willing to modify the menu in order for optimal effectiveness. Also, the culture in Pakistan is highly patriarchal.

Women are expected to stay home and cook. Families usually eat home cooked meals together, at home. This may be an issue as this can result in a smaller customer count. However, the Pakistani population is growing constantly and so there are many more children from newer generations. Teenagers are Burger King’s most loyal customers. Furthermore, there is a sense of anti-Americanism in Pakistan. This brings up many red flags. Burger King is an American fast-food chain and so boycott and/or vandalism must be taken into account when developing a contingency plan. This problem may not be such a big deal however. Pakistan is constantly modernizing.

Views on the United States and American corporations are becoming more supportive and/or indifferent. Poverty may be the largest obstacle. Pakistan has an extremely high rate of illiteracy and poverty. This can negatively affect the franchise as many citizens will be incapable of affording fast-food. Contrastingly, Burger King can host fundraisers and/or other charity events to benefit the poor. This is one way in which they can bring up their reputation as a global brand. Lastly, the cost of packaging is high.

Conclusion

According to the SWOT analysis, the opportunities presented by this investment are far greater than the threats and the weaknesses. Furthermore, the payback period presented by this investment is relatively low and a franchise in Pakistan could majorly impact Burger King’s global sphere of influence. Opening a franchise in Pakistan will also add more variety to their flavor and potentially better their reputation. Their balance sheets and income statements would not show significant changes and so they were not mentioned (because this would be 1 of 11,000 franchises).

In my opinion, opening a Burger King franchise in Pakistan is a swell idea. The opportunities and strengths outweigh the negatives. The franchise should open after elections to lessen the risk of political unrest.