Apr 7, 2019 in Business

Subway Fast Food Chains in China

Introduction

For this assignment, I selected the international company, which is recognised as “the world’s largest submarine sandwich franchise,” the Subway restaurant chain based in the USA. In the current paper, I will provide the analysis of its business in China where the company already owns more than 500 stores, and is among the top ten fast-food chains. The choice of this particular organization was made in order to understand and further demonstrate the strong cultural differences, as well as the opportunities and barriers in operating the international business.

Expanding to the international level, the company should have the awareness at least of political, economic, cultural, and social differences in the countries where it intends to open a new branch. The matter of difference regards not only the geographic homeland, customs and language, but also the values, beliefs, norms of behaviour, religion, national symbols, art, music and societal characteristics inherent in particular country. Thus, in order to make the right decisions about the business strategy, the company should conduct a market research in the chosen country before starting any business there. 

I am going to present the similar brief analysis in the further sections, starting with the company’s overview, analysing the peculiarities of the Chinese market in terms of cultural and social aspects, and drawing the summary of all the results obtained.

Executive Summary

The first submarine sandwich shop of Subway was founded in 1965 in the USA by seventeen-year-old Fred DeLuca and his partner, Dr Peter Buck. Nine years later, the founders realized the necessity of franchising and began to expand first in other states, and then, globally. Currently, Subway is a privately held international company owned by Doctor’s Associates Inc., which has opened about 44,000 restaurants in more than 100 countries.

As for the Chinese franchising conditions, it should be mentioned that they are rather favourable as the country has already gained the experience with similar international companies. Another positive point is that Chinese prefer international products to those of local manufacture because they believe in the higher quality of the former. During last decades, the American goods have become very popular. However, any new product usually takes much time to be approved by the local community. But as soon as it is accepted, the similar goods will have higher chances of success. The quality and enlargement of Subway restaurants is controlled by Jim Bryant from the main office in Beijing. He employs, trains, supervises, and evaluates the work of the new and old franchisees in the country.

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The company is represented in the industry of the restaurant business. The core product in any chain of Subway is the submarine sandwich. Despite being a fast-food business, it is frequently positioned as a healthy food that includes fresh and low-fat ingredients. Due to the fact that Subway received the Heart Check Certification on the most of items from its menu, the company is distinguished from other fast food chains.

Any international organization has to be heterogenetic if it is to satisfy customers in different parts of the world with their various local tastes. With this respect, Subway began to make regional variations of its products depending on the country. For example, in Muslim countries the company uses soy-based products instead of pork, in Asian countries there are more variations with fish and local sauces. Nevertheless, there are much more features to take into consideration.

Cultural Heterogeneity in the Analysed Company

Subway is a multinational company that operates in all continents. Hence, it ought to pay significant attention to the heterogeneity of the countries where the business operates. For this assignment, such dissimilarities inherent in both American (where the head office is located) and Chinese cultures are analysed. According to the results, the strongest differences arise in the perception of language, time, and culture itself.

As regards language, the difference is not only in language group since due to globalisation, the world accepted English as the main means of communicational. The bigger problem that leads to misunderstandings in the common work between Chinese and American is that the former is high-context culture, while the latter is low-context. The meaning of this can be illustrated on the following example: when an American wants to be clear and direct, a Chinese will leave the question open, answering with “maybe”, or “we will try to do everything possible,” which does not provide the direct reply. The concept of time is also perceived differently in both cultures. For instance, the Chinese employee would think that the decision has to be thoroughly considered and discussed at all levels regardless the amount of time it may take. The American colleague would get angry and lose patience because for them “time is money.”

The website of The Hofstede Centre provides the basis for comparing and analysing the cultures using the 6-D Model that demonstrates how strongly does the country relate to every dimension of this pattern, including power distance, individualism, masculinity, uncertainty avoidance, long-term orientation, and indulgence. Comparing Chinese and American cultures using those criteria, one can observe a considerable difference in four of them (See Figure 1).

First of all, the criterion of power distance (80 for China vs. 40 for the USA) implies that in China inequality in society and business life is acceptable and everyone behaves according to their rank. With this respect, the misunderstanding might arise when the American colleague of much lower rank conducts a meeting with Chinese CEO. Furthermore, it influences the next dimension, individualism (20 vs. 91), in which unlike the American one, the Chinese culture represents a collectivistic society where people care about their group rather than themselves. In daily life, most of the cultures perceive their individual goals seeking benefits for realisation of their own aims. Asians will look for achieving the mutual goals that create the win-win result. Another criterion that demonstrated quite significant difference between these two cultures was the long-term orientation (87 vs. 26), which defines China as a pragmatic country respecting its old values and traditions rather than being ready to react in a new way on every slight change. This particular aspect is better explained on the examples in the social trends’ section. Lastly, in terms of indulgence (24 vs. 68), Chinese culture is described as restrained with a high control of thoughts, desires, and impulses of its representatives. It directly influences the customer behaviour and the way they select products and company. Such analysis assists in understanding the fundamental characteristics of national cultures in order to further adapt the company’s organisational culture to it in a better way.

The important tendency is observed in the loss of culture and its moral values by younger generations. Hard conditions that arise among people in different aspects created a life-long competition in getting the best education, work, salary, or in becoming a part of the elite group. Even Confucianism is gradually losing its power, because people are losing their morals and beliefs in continuous race for better life.

Social Trends

The social life in China explicitly depends on its political and economic system since the government tries to control the steps of every single person within the country in all possible ways. A good example is the prohibition of certain social media, such as Facebook and Twitter. This peculiarity should be taken into account by the companies that are entering the Chinese market, because social networks are important tools to reach marketing goals by enhancing the knowledge about the product and influencing prospects’ decisions to buy the product. At the same time, the Chinese government approved some other socialising platforms which are more internal than international. Even though their functions are not as wide and effective as in well-known Facebook, they can be considered as the way of reaching more clients.

Another important point in this section is the recent decision of the government to accept the new development policies. Unfortunately, instead of improving the life of the population, they increased the inequality among the different groups of social and geographical stratifications. Also, despite certain regulations, such as the one-child policy, the Chinese already huge population has a tendency to grow further. Moreover, the whole society of the country is ageing more and more every year. All the above mentioned changes influence the consumer behaviour and decisions about the particular product or company.

It is necessary to point out that the consumer behaviour plays the significant role in international business. If not studied in advance, it may create misunderstanding. First of all, in regard to Chinese, older generation values price more, while the younger prefers better quality. Secondly, the lifestyle trends cause Chinese youth and business people to eat more outside so as to save the time for work and social life. Thus, such healthy fast-food as Subway is a good option for them. Thirdly, discounts work well everywhere but especially in China as they help to increase and retain customers. The next point is that Chinese are value seekers: they will try every product, visit every shop to choose the one that suits their price-quality ratio best. Apart from that, they choose brands once and forever: if they liked the brand, it is highly possible that they will be loyal to it for many years.

At the beginning of the Chinese fast-food market penetration, Subway encountered certain problems. The franchising chain was not ready to meet differences so fast, so it took some time to cope with all the complications. One of the examples of such issue was the situation, where during the first days, customers would not go inside the restaurants and were watching outside instead. Furthermore, the way the local clients were eating sandwiches was also unexpected. Instead of the normal way, they ate it horizontally, peeling off the wrap in order not to touch the food with hands.

In the meanwhile, such companies as KFC and McDonalds occupied the leading positions in China and adapted their businesses to the local needs. As a result, they continue to get high revenues from year to year. Subway has already obtained a high position among other fast-food restaurants in China, but it is still far from the above-mentioned companies. However, by accelerating the research of this international market, the organization has a chance to overtake the competitors and even surpass them in this race.

Conclusion

To conclude, Subway has already achieved a huge market share worldwide. The company uses franchising to enable the local people to manage the business in their city. Hiring the employees who know the local culture, law, and market tendencies, the owner does not have to perform this research himself. Yet, there is a risk that they will not follow the corporate culture, or violate the rules, misbehave, use worse ingredients, etc., which may lead to worsening the image of the company in the whole country, or even internationally. The example of this can be the case of scandal regarding the use of expired products and low-quality meat in the preparation of sandwiches.

In every franchising business, there are some rules that make the company recognisable from hundreds of other, including the same type of the restaurant, service, uniform, and unified menu. Nonetheless, the wise business person will try to meet the regional differences as well as distinct the local culture in all of these elements. Subway improves its menu by adding different variations to it. Yet, it should not be limited to only a couple of dishes since the low adaptation to the local markets affects the success of the company. Introducing more variations in the menu which will be fitting to the local cuisine and cultural values is likely bring to the company more success.

Cultural and social differences build the way the business offers its product to particular countries. Subway conducted the investigations of both of them, but did not fully adapt to them. Not only the goods should be chosen elaborately to be accepted in another culture, but also the people who will run the business there and represent the company’s name. Any wrong decision will lead to changing the image of the whole company in this country. It is necessary to keep in mind that even a small change can make a big difference.

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