Chipotle_entry into New Market

                                   If Chipotle has to enter new markets at this moment, we propose to enter Australian market through wholly owned subsidiary option; we came to this conclusion after extensive and thorough research and analysis of MPI index, Hofstede’s dimensions, CPI index etc. of several countries (As shown below).

Country Screening:

Global markets are becoming more important for every company as internationalization is growing, and expansion is a key part of the corporate strategy but with too many choices of markets with several factors to consider, choosing a market is not so easy; so to summarize and measure the market potential of countries, indexing (Market Potential Index) approach is chosen. We have constructed Market Potential Index (MPI) tables for several years including 2010, 2011 and 2012 by using the industry specific parameters like urbanization, GDP per capita (PPP), GDP growth (annual %), Econ Freedom, Trade (% of GDP) etc.; after evaluating carefully several parameters and their impact, a final table is built based on key factors such as Market Size, Market Growth Rate, Market Intensity, Infrastructure, Market Receptivity, Free Market Structure, Country Risk by providing appropriate weightage and sorted out according to the countries rank (Refer MPI Tables for years 2010, 2011 & 2012 # Table.2). After the final tables are built, top country markets have been chosen based upon their overall rank; in this case, countries with top 20 ranks have been selected (1 being best) and after further analysis Australia, Japan and China have been chosen as the top three choices for Chipotle’s entry, this conclusion is based on the rank, market size, and some other factors like Free Market Structure. After choosing the top three countries, several market analysis techniques are applied to choose the final country, please see below.

1. Hofstede’s dimensions: The major four dimensions of Hofstede framework are individualism-collectivism, power distance, uncertainty avoidance and masculinity-femininity, although a fifth dimension named long-term orientation is later added considering more Asian countries; first four are predominantly used to evaluate national level cultural differences and impact on organizational management methods and practices. After evaluating the Hofstede dimensions for Australia, Japan and China; it is clearly evident that Australia culture is very closer to U.S. culture, this conclusion is based on Euclidean distance (square root of summation of squared differences of country-level scores), lower the number indicates that the culture of that nation is closer to United States; in this case Euclidean distance for Australia is 7, 74 for Japan and 83 for China; from this it can be understood that China culture is distant away from U.S. culture when compared to two other countries. After analyzing Hofstede’s dimensions closely, it can be observed that Squared idv (individualism) difference for Japan and China has impacted their indexes heavily and also Squared mas (masculinity-femininity) difference and Squared uai (uncertainty avoidance) difference has shown impact on Japan index and in case of China, Squared pdi (power distance) difference caused impact on overall index. In terms of cultural differences, Australia has huge advantage over Japan and China. (Please refer to Table#3 for top-50 countries in Hofstede’s dimensions table.)
2. PESTLE analysis: PESTLE stands for Political, Economical, Sociocultural, Technological, Legal, Ecological (Environment). Political term refers to the stability of country's political environments and political parties approach towards new business; in this case when China, Japan and Australia are compared; political influence is very high in China on private businesses due to the structure of the political system and also legal framework for e-commerce in China is still in early stages and currently there are no regulations supporting the privacy, consumer rights and recognition of digital signatures. Japan legal and political system together presents a complex scenario to new business in Japan particularly to foreign business entities; although political situation in Japan is stable the factors like high tax rate and decisions like lowering an annual net operating loss (NOL) deduction limitation can cause issues to business and when Australia is compared to above countries, Australia is a safe destination for foreign investments and the country’s regulatory and political environment is stable and open with favorable tax systems. Australia and Japan are advanced countries with GDP per capita (current US$) of $61,887 and $36,194.4 respectively while China is a developing nation with $7,593.9 as GDP per capita (current US$). As part of evaluating economy, agriculture in the country needs to be assessed as Chipotle prefers to grow the products domestically rather than importing from other countries; when we compare above three countries Australia has huge benefit in terms of agriculture because the amount of available fertile land and high technology used in the agriculture production, although China has good amount of production, demand is very high locally and also it has to be noted that China is a major importer of agricultural products because of high population. Japan has a huge disadvantage in terms of agriculture because of its scarcity of agriculture land and high density of population. Sociocultural forces are important for any business because they create a high impact on the business and when the above nations are compared in terms of sociocultural factors, China and Japan has a bigger disadvantage because of the difference in language, religion and cultures. Also, Australia has huge number of immigrant population (Exhibit#1), and it also has people belonging to several different ethnics, which can be an advantage to Chipotle if Australia is chosen.

Mode of entry:

Chipotle has several market entry options like wholly owned subsidiary, Joint Venture, and various types of franchising like direct franchising, area franchising, master franchising, multi-unit franchising, sequential franchising and when asked to choose market entry option, we strongly believe that market entry option should be based on each country’s profile and several market potential indexes because every country has its own set of regulations, different business environments, diversified culture and more importantly different lifestyle and taste preferences. In this case, we would recommend Chipotle to enter as a wholly owned subsidiary model; this would be in line with Chipotle corporate strategy. At the beginning we considered to use the model of joint venture with some of the local suppliers, however after a cost analysis between the two alternatives WOS vs JV (Exhibits 6-9) we found a 15 per cent of difference between the two models which is a slight difference of revenue compared with all the benefits that we are translating to the other company vs what we are receiving from them. For example, we already invested in development a natural recipe for all our menus and we established a strict quality selection of all our ingredients and suppliers, with a Joint venture model the benefit that we are receiving is not compared with the benefit that our ally is receiving. We also discard the option of franchising or Join Venture because we used some methodologies to evaluate the benefit and costs of these alternatives (Exhibit 10). As we can see from these results, our major opportunity continues being to establish our WOS. With those results, we also analyzed what we have done in our other markets and we discovered that we have made impressive progress by offering our customers a unique recipe eliminating the presence of GMOs in our food. This is a value that is appreciated by all our customers and which we cannot compromise when working in conjunction with an allied company, because there is a risk of eliminating total control over our products.