PapaRich is a moderm ‘kopitiam’ that serves quality coffee and asian delicacies at affordable ‘Malaysian’ prices. PappaRich kopitiam has multiplied from one kopitiam to 41 shops around Malaysia, one in Hong Kong and one in Singapore. Thailand would be a good market for PappaRich to enter because Thailand’s GDP by sectors show as high as 45% for service industry. This clearly shows us that PappaRich can invest in Thailand to serve the community with Malaysian authentic, classic, and timeless kopitiam meals.
Using the SWOT analysis, in terms of strength, the PappaRich serves the community with Malaysian’s kopitiam meals with affordable prices with a classic coffee shop ambience. In terms of opportunities, economically the GDP and inflation rate has been steadily increasing in recent years. Interest rate fell sharply due to the US financial crisis. The Thai Baht appreciated against MYR and a result of that, the revenue generated in Thailand comparatively to the Malaysian Ringgit would be higher. The weakness for PappaRich to go into Thailand which is the food that PappaRich is serving might not be accepted by the locals. Besides that, the threats to the company are the political instability due to street protests.
PappaRich’s success as of today is due to its successful differentiation business level strategy to set them apart from other companies from the same F&B industry. PappaRich focuses on the quality of their product and keeping it consistent throughout all their outlets. Furthermore, the ambience is what captivated the consumers and made them regular customers in PappaRich.
The best way for PappaRich to enter the Thailand market is the franchising market entry strategy. To become a successful F&B franchisors that can go nation, PappaRich (the franchisee) can sell the franchisor’s trade mark, product or services, or trade name and benefits from the franchisor’s help and support in Thailand market. In return, the franchisee from Thailand need to pays an initial fee to PappaRich and then a percentage of the sales revenue.
In cultural analysis, there are five areas to be concerned, the cultural analysis of Thailand and Malaysia is shown respectively; PDI 64;104, IDV 20;26. MAS 34;50, UAI 64;36, LTO 56. This is further elaborated in the pages to come.
Many years ago, to enjoy a classic ‘kopitiam’ meal in Malaysia, such as half-boiled eggs, toasted bread with kaya and butter, and a cup of coffee, one will have to travel many miles back to their hometown. Kopitiam is a traditional breakfast and coffee shop found in South East Asia. Since the establishment of PappaRich in 2006, one need not go the distance. PappaRich is a modern ‘kopitiam’ that serves quality coffee and asian delicacies at affordable ‘Malaysian’ prices. In four years, the string of PappaRich kopitiams have multiplied from one kopitiam in Selayang Mall to 41 shops around Malaysia, one in Hong Kong and one in Singapore. It has emerged as a formidable player in the local and food beverage chain. PappaRich’s philosophy is to serve authentic, classic and timeless kopitiam meals, the traditional Malaysian style where the locals can mix and mingle in the ambience of a relaxing atmosphere with a sense of belonging.
In Thailand, PappaRich intends to serve the Thai community the same philosophy it currently serves the Malaysian community. As there are not many ‘kopitiams’ in Thailand that serves authentic Malaysian coffeeshop-styled cuisine, PappaRich intends to venture into Thailand by becoming one of the pioneers in serving the authentic Malaysian coffeeshop-styled cuisine.
As seen in the diagram on the left, the services industry holds a 45% stake of the total market share for GDP composition in Thailand. Examples of the services industry include the tourism sector and the F&B sector. Due to the high stake of the services industry in Thailand’s GDP percentage, investing in PappaRich in Thailand may be a wise investment choice. Furthermore, potential customers from the tourism sector would be an added advantage to the company into raking in more potential revenue.
3.0 Situation Analysis
3.1 SWOT Analysis
As mentioned in the introduction, PappaRich’s philosophy is to to serve authentic, classic and timeless kopitiam meals, the traditional Malaysian style where the locals can mix and mingle in the ambience of a relaxing atmosphere with a sense of belonging. This concept is a major strength in branding the ‘kopitiam’ brand in Thailand as there aren’t many affordable restaurants in Thailand that serve traditional kopitiam meals. This places PappaRich as one of the pioneers into introducing the cuisine to the Thai locals. Furthermore, it will further strengthen its reputation as being one of the most original and authentic kopitiam in Thailand. Another major strength of the company is its emphasis on clientele service. In the F&B industry, it is important to note that service is one of the main priorities in differentiating a good restaurant and a bad one. Thus, PappaRich places much emphasis on its clientele service to not only lure first-time or one-time customers but reoccurring customers, over and over again.
A major setback that hinders the kopitiam business into the Thai market is the different taste buds between the Thai and Malaysians. Only the adventurous ones may venture out of their comfort zone into eating Malaysian kopitiam cuisine. Furthermore, street food is popular and cheap in Thailand, thus the locals may not be very willing to pay extra for Malaysian food. Besides that, PappaRich and the kopitiam concept is a rather new brand in the region, and thus may acquire more time to be familiarised by the locals. Also, the management style used in Malaysia may not be applicable to the culture of the locals and thus, new management style may have to be devised to suit the employees in Thailand.
3.4 Opportunities and Threats
In recent years, Thailand has been politically unstable due to street protests and riots. It is important to note that such political instability is a major disadvantage to the business. This is because, the employees of the company may engage themselves into the protests that halts production and services of the restaurant. Furthermore, a demonstration will hinder potential customers from leaving their homes to eat out as they may fear for their safety.
An improvement of technology has both pros and cons to the setting up of the new company. It can improve the cooking standards of the restaurant as better kitchen equipments are purchased to monitor the quality of the food. Furthermore, improvement of the equipments may reduce cooking time that increases efficiency. In time, more customers can be served and profit can be increased. However so, an improvement in technology can bring about an increase in capital cost due to expensive kitchen equipments.
As seen in the graph above, the GDP rate of Thailand has been steadily increasing in the last couple of years. However, during the US financial crisis in 2009, there has been a slight fall in GDP. It may be wise to hold back the venturing of the business into Thailand for a couple of months to ensure the stability of the market.
During the 2009 US financial crisis, the inflation rate went negative, to as low as -4 showing a shrink of the economy. However so, in 2010, Thailand has begun to pick up the pace and shows that there has been a boost in the economy. As the consumer’s expectation and confidence is strengthened, Papparich can start investing into Thailand.
Unemployment rate has been steadily decreasing over the years. As unemployment falls, more people in the community will have income to spend on goods. As such, it is a good idea to invest into Thailand. Hopefully, when the company decides to invest in the country, there will be people to be employed as staffs.
A fall in interest rates in recent years is an advantage as we can apply for loans at low interest rates to set up restaurants in the country. This will encourage more franchising options.
Comparitively, the Baht rose 0.115% against the MYR. There are both pros and cons to this situation. Pro, the revenue generated in Thailand comparitively to the MYR would be higher and the con, more money will have to be pumped into Thailand to set up the restaurant, comparitively to the MYR
4.0 Business Level Strategy
In order to measure the feasibility of Thailand as a strategic location for expansion, we have to look into the business level strategy of PappaRich.
Every organization has a competitive strategy to plan how it will compete in its business and this applies to PappaRich as well. PappaRich is a food & beverages (F&B) industry that focuses on serving quality authentic traditional Malaysian delicacies at affordable prices and that is their competitive advantage and what sets them apart other regular kopitiam. Aside from that, the ambience of PappaRich has also been one of their greatest assets as the decorated surroundings are chilling and hence many people would choose to go to PappaRich to enjoy one of their specialty; coffee made from locally roasted coffee bean while catching up with friends and family. They’re also located everywhere as they have over 41 outlets in Malaysia as of today and this brings great convenience to their customers as the nearest outlet is just around the neighbourhood. This is PappaRich’s aim in their investment into the Thai market as well that people would have a pleasant experience every time they set foot in PappaRich.
With Michael Porter’s five forces model, managers can determine and control the rules of completion and create a sustainable competitive advantage. Firstly, PappaRich is an F&B industry with barrier to entry; PappaRich must comply with the standard set by the Thai government in its policy, the high level of capital needed for investment may be hard to acquire as the result of the recent US financial crisis and also the brand identity may be unknown to most consumers as it is new in the market. Furthermore, economies of scale may also be another barrier to entry for PappaRich as existing companies in Thailand enjoys low cost of production due to this factor and there is no way PappaRich could compete with them in short term period. If PappaRich were to venture into the Thai market, it might face substitute companies such Hailam Kopitiam, Station 1 caf’ and Old Town Kopitiam and Madam Kwan which are also strong growing F&B companies with similar business concept that may also be trying to expand internationally to Thailand as well. Not to mention, the substitute companies that are already in Thailand such as Coffee Bean and Starbucks. However, in terms of bargaining power, many consumers would choose PappaRich over Starbucks for coffee as the price is more affordable in PappaRich. The supplier also plays an important role in determining the feasibility of PappaRich as a good investment opportunity in Thailand as supplier determines the cost of operating and this will affect the total profit of the business. PappaRich can get their supply of raw material from suppliers such as President Rice Products Public Co. Ltd, Siam Future Farm and Exotic Food Co. Ltd. Lastly, the current rivalries that are already in Thailand would also affect the profitability of PappaRich if it were to venture into Thailand as it is a very competitive industry and the competitions are intense.
In terms of the target market of PappaRich, it would target the middle income group of consumers as the prices are moderate. It would not fully use the cost leadership strategy which refers to the basis of having the lowest cost in the industry as there are many other companies that have comparable price ranges with PappaRich. Also, PappaRich is a contemporary classy type of coffee shop with required standard of decoration which further increase their cost and this doesn’t comply with the low cost leader strategy. In fact, PappaRich’s success as of today is due of its successful differentiation strategy to set them apart from other companies from the same F&B industry. PappaRich focus on the quality of their product and keeping it consistent throughout all their outlets. Furthermore, the ambience is what captivated the consumers and made them regular customers in PappaRich.
5.0 Market Entry Strategy
Expanding a company to new market can increase the sale, brand awareness and achieve business stability. To entering new market, we need to study the size of the country, number of opportunities and sheer geographical size. Besides that a proper market entry strategy requires market research so to give us a vision about the existence opportunity, understand the competitive landscape and see who are our potential customers. Foreign market entry can be done via four mechanisms which are exporting, licensing, joint venture, and franchising.
Exporting is the most traditional way to go into foreign market by direct sale of the domestic-products to the country. This can be done through an export intermediary such as commissioned agents and trading companies. Exporting do not require the goods or product must be produce in the target country therefore there is no necessary to invest in foreign facilities. PappaRich is a F&B business through serving Malaysian Traditional Delight at their outlets cafe. This mechanism is not suitable for PappaRich extend to Thailand because they are providing service but not produce goods.
Licensing is an essential permit to enter a new market. A license is a legal contract to run a business. The licensee is about to pay a fee of exchange for the right to use the property of licensor such as trademarks , patents , and production techniques . For PappaRich, the licensing support comes in the form of outlet setup, outlets designs, menu and recipe of PappaRich, chef and waiters training by experienced Pappa licensing trainers.
Joint venture is a legal entity formed when two parties equally invest in terms of money,time and effort on the same project. Basically joint venture happen when one individual want to extend his business to nation while he has no enough of capital to do so and need to find a partner from the target country to run the project together. The joint venture may be an easier first-step for PappaRich to extend to Thailand before go to franchising. PappaRich can reduce the entry risk by using Thailand partner’s assets through joint venture. Besides, the inadequate knowledge of legal environment can be solve. Through joint venture, PappaRich can start the business at little or no costs.
Franchising is another form of licensing. Franchise occurs when the franchisor grants a licence to the franchisee to use their business idea. To become a successful F&B franchisors that can go nation, Papparich (the franchisee) can sell the franchisor’s trade mark, product or services, or trade name and benefits from the franchisor’s help and support in Thailand market. In return, the franchisee from Thailand need to pays an initial fee to PappaRich and then a percentage of the sales revenue.
In a conclusion, we found that franchising is the best way for PappaRich to go into Thailand market as Papparich is F&B industry which gives servicing to community.
6.0 Cultural analysis
Country PDI IDV MAS UAI LTO
Malaysia 104 26 50 36 –
Thailand 64 20 34 64 56
6.1 Power Distance Index (PDI)
Hofstede’s PDI measures the extent to which the less powerful members of organizations accept and expect that power is distributed unequally (Geert Hofstede’Cultural dimensions).
On the scale, Malaysia has a score of 104 and Thailand 64. Thailand does not have a large gap between the wealthy and the poor, but have a strong belief in equality for each citizen. Thailand has the opportunity to rise in society compared to Malaysia. Malaysian employees see their managers as being far more superior to them and perceive them as unapproachable. This attitude gives the managers a sense of superiority and empowerment. In Thailand however, people view themselves more as equals hence there is a lot more communication between the employees and managers.
Individualism is the one side versus its opposite, collectivism, that is the degree to which individuals are integrated into groups (Geert Hofstede’Cultural dimensions).
Thailand’s and Malaysia’s IDV is at 20 and 26 respectively. A low score, as Thailand and Malaysia has, indicates the society is more of a collectivist than an individualist. This manifest in a close long-term commitment to the member ‘group’, is that a family, extended family, or extended relationships. Loyalty in a collectivist culture is paramount, and over-rides most other societal rules and regulations. The society fosters strong relationships where everyone takes responsibility for fellow members of their group. Therefore in Individualism, it can be said that Thailand and Malaysia stands almost the same. Employees in both countries are very team orientated; therefore the managers do not need to make any changes.
Masculinity versus its opposite, femininity refers to the distribution of roles between the genders which is another fundamental issue for any society to which a range of solutions are found.
Thailand has the lowest masculinity ranking among the Asian countries listed at 34, while Malaysia is listed at 50, compared to the Asian average of 53 and the World average of 50. This lower level is indicative of a society with less assertiveness and competitiveness, as compared to one where these values are considered more important and significant. This situation also reinforces more traditional male and female roles within the population. Therefore it can be said that Malaysia is doing better than Thailand in terms of assertiveness and competitiveness. Thailand should improve in this area in order to continue to compete. Malaysians tend to be a bit more to being assertive and aggressive while Thai employees are more laid back and more accepting of feminine traits. Therefore managers from Thailand have to be stricter in order for their employees to be more efficient.
6.4 Uncertainty avoidance index
UAI deals with a society’s tolerance for uncertainty and ambiguity; it ultimately refers to man’s search for truth. It indicates to what extent a culture programs its members to feel either uncomfortable or comfortable in unstructured situations (Peruvian Attitude On UAI)
The UAI indicates the society’s low level of tolerance for uncertainty. In an effort to minimize or reduce this level of uncertainty, regulations are adopted and implemented. The ultimate goal of this population is to control everything in order to eliminate or avoid the unexpected. As a result of this high UAI characteristic, the society does not readily accept change and is very risk adverse. The Thailand rank of 64 is slightly higher than the Asian average of 58 while Malaysia is slightly below average of 36. It can be said that Malaysia is doing quite well while Thailand should start to accept change and implement policies to control everything. The Malaysian managers in Thailand will have to change the way they manage their employees and actually put into place more guidelines and rules to get the best out of their Thai employees.
6.5 Long-Term Orientation
Long-Term Orientation is the fifth dimension of Hofstede which was added after the original four to try to distinguish the difference in thinking between the East and West, defined as the degree to which one plans for and considers the future, as well as values traditions of the past.( Making Sense of Cross Cultural Communication) Below are some characteristics of the two opposing sides of this dimension:
Long term orientation:
-ordering relationships by status and observing this order
-having a sense of shame
Short term orientation:
-personal steadiness and stability
-protecting your ‘face’
-respect or tradition
-reciprocation of greetings, favors, and gifts
Thailand measure a middle ranking being listed at 56 while Malaysia has no measures of LTO therefore no comparison can be made between both countries.
Based on both SWOT analysis and Porter’s competitive force framework, it is the right decision to further the investment of PappaRich Group Sdn. Bhd to Thailand as it has the qualities and potential to penetrate into Thailand’s market. PappaRich is a modern ‘kopitiam’ that serves quality coffee and asian delicacies that is currently doing very well in Malaysia. However in Thailand, PappaRich intends to serve the Thai community the same philosophy it currently serves the Malaysian community. As there are not many ‘kopitiams’ in Thailand that serves authentic Malaysian coffeeshop-styled cuisine, PappaRich intends to venture into Thailand by becoming one of the pioneers in serving the authentic Malaysian coffeeshop-styled cuisine as well as Thailand’s own authentic delicacies.
Setting up a food industry in Thailand is certainly a wise investment as services industry holds a 45% stake of the total market share for GDP composition in Thailand. Besides that Thailand has a lot advance in the improvement of technology, this can improve the cooking standards of the restaurant, and better equipment in the kitchen which will enhance efficiency and improve in the quality of the food and drinks.
In addition, after the 2009 US financial crisis, Thailand has begun to pick up the pace and shows that there has been a boost in the economy. As the consumer’s expectation and confidence is strengthened, Papparich can start investing into Thailand. Based on the cultural analysis by Hofstede’s framework, by comparing PDI, IDV, MAS, UAI, and LTO, the employees and managers in Thailand are more team orientated, more laid back and more accepting of feminine traits, and dominant. The type of managers in Thailand will be suitable to handle PappaRich, although they are not perfect, they are trainings available to improve their standards to achieve better efficiency and to increase productivity.
PappaRich is slowly being recognised globally as it has build up a good reputation internationally in countries like Singapore and Hong Kong. Referring to the market entry strategy, requires market research so to give us a vision about the existence opportunity, understand the competitive landscape and see who our potential customers are. Foreign market entry can be done via four mechanisms which are exporting, licensing, joint venture, and franchising. The strategies of exporting, licensing, joint venture, and franchising have to be done efficiently in order to enter a new market.
Lastly, based on Michael Porter’s five forces model in the business level strategy, managers can determine and control the rules of completion and create a sustainable competitive advantage. PappaRich is an F&B industry with barrier to entry and it requires high level of capital to start up the business. Besides that the brand identity of PappaRich might not be well known in Thailand, it faces substitute companies that are already in Thailand such as Coffee Bean and Starbucks. However, in terms of bargaining power, many consumers would choose PappaRich over Starbucks for coffee as the price is more affordable in PappaRich. The supplier also plays an important role in determining the feasibility of PappaRich as a good investment opportunity in Thailand as supplier determines the cost of operating and this will affect the total profit of the business so maintaining a good relationship with the supplier will definitely give and advantage to the company. The investment to Thailand is a good choice as PappaRich focus on the quality of their product and keeping it consistent throughout all their outlets. Furthermore, the ambience has also captivated the consumers and made them regular customers in PappaRich.
After much evaluation from the swot analysis, business level, market entry strategy and the cultural analysis, it is concluded that Thailand is a good choice of investment location for PappaRich to venture into internationally. It can also be one of the pioneers of Malaysian food cuisine in Thailand as there are very few coffee shops that serve authentic Malaysian delights in Thailand as of today. Thailand’s increasing GDP is also another attraction to investment in Thailand as it shows the stability of the economy and the higher expected return on profit because of the appreciation in Thai Baht against Malaysian Ringgit if PappaRich were to venture into Thailand. Other advantages in investing into Thailand include attracting the locals in Thailand to experience new and different culture and delicacies. Furthermore, this provides Malaysian in Thailand a taste of their hometown within reach.
Although there are many advantages in investing in Thailand, there ought to be some setback on the investment too and they are such as the political instability of the country which may hinder the operation of the business if the employees were to go on riot. Moreover, the political situation in Thailand may also cause the consumers to be fearful of leaving the house to dine out as it is unsafe. Lastly, from the uncertainty avoidance index, it has shown that Thailand is rank 64 while average in all other countries are at 58, this means that Thailand is very risk adverse and do not like any changes in their countries so they would have very strict policies and laws regarding foreign investment being parked in their country.