UNIVERSITY OF LA VERNE
La Verne, CA

Group Assignment: Panda Express

Prepared by

05/21/2014

College of Business and Public Management
Department of Business Administration Business overview In 1973, Andrew Cherng opened the first Panda inn in Pasadena, one of America's great ethnic melting pots. In 1983, He realized that Southern California offered an excellent market for fast food. So he launched Panda Express and opening the first Panda Express in a mall in Glendale, California. It proved to be a very successful beginning because the Panda Express was one of the few quick-service restaurants with full-service concept. The early Panda Express was usually located in shopping malls, but eventually they spread into other spots. They first in its home base of Southern California, then eastwardly, to the Western states of Nevada, Arizona, Colorado, and Utah and eventually to the East Coast.
In 2007, Panda opens its 1000th location in Pasadena and achieves 1 billion in revenue. In 2013, Panda Express achieves with 23,000 employees and over 1600 stores in 51 States and abroad. ("Cherng. A," 2012). Panda’s annual sales is about 9.2 millions.
Panda Express Motivation of Expanding
Panda Express has already enter into the foreign market-Mexico in 2011. Until now, it has the Canada and Mexico foreign market. Panda Express has the goal that becoming the largest and a leader in the quick-service Asian restaurant and inspire everyone to better their lives. Panda Express wants to seek the new market and support the health food to the whole world.
Seeking the market is the most important motivation, thorough this way, Panda Express can open more stores and get more market share in the fast food industry. In traditional fast food industry, health food is the future development trend. Panda Express commits itself to develop the health food with the wok smart system. This way can improve Panda’s competitive power in the fast food industry. So Panda Express wants to expand the market and scale.
Another motivation is securing the key supplies. Fresh and huge food supply is essential requirements for a restaurant. As we know, Agriculture has the government subsidies in U.S. Agricultural products are a little higher than outside. Panda Express can find the new stable supply with lower price. The key supplies are also the important requirement for Panda Express to find the best location.
Overview of countries
We choose three countries-Australia, Singapore, and Brazil for the project plan. Those countries have stable political environment and Chinese food background, so we choose them. Australia is a developed country with the world's 12th-largest economy in the world. The territory area size is 7.6 million km2. The population of Australia is 23 million. GDP is $1.56 trillion in 2013. Singapore territory area size is 716.1 km2. The population of Singapore is 5.4 million. GDP is $276 billion in 2013. Brazil is the largest country in South America both by geographical area and population. Brazil is a developing country with a 201million population. We use more details about those countries to take SWOT analysis to find the best location for Panda Express. SWOT analysis of each country
Australia
Strengths: Australia has the huge tourism market. Lots of visitors can improve the market demand. There have lots of Chinese people who would like the Chinese fast food in Australia.
Weakness: Australia is a developed country with a saturated market. Secondly, Australia just has the 23million people which are not high consumer level. Last one, Australia government have higher tax rate for fast food industry.
Opportunity: There have the mature fast food industry and has the Chinese food and consumers in Australia.
Threats: There are lots of fast food restaurants in Australia.
Singapore
Strengths: Most of people are Chinese in Singapore. Secondly, Singapore’s market is concentrated. This is helpful for the advertisements.

Weakness: Singapore is very small country with the limited market. Secondly, Singapore imports the necessities of life from outside. That will be a big barrier for the restaurant operations.
Opportunity: Small market is easy to control.
Threats: Lots of Chinese restaurants will be the competitors.
Brazil
Strengths: Firstly, Brazil is the agriculture country. Panda Express has the enough suppliers. Secondly, Brazil is Brazil is a part of South America. It is the largest country in South America. Brazil also is a developing country with the high growth rate. The market is huge. Thirdly, Brazil has the mature fast food industry and has the Chinese food restaurant. Fourthly, Brazil has the huge tourism market. Lots of visitors can improve the market demand.
Weakness: Brazil has diversified culture about food. The food industry is booming and complicated.
Opportunities: Firstly, there have the Olympic Games 2016 in Rio de Janeiro (the capital of Brazil). That is the best time for Panda Express to advertise the public image to the whole world. There also will have a huge demand in the Food industry.
Threats: There have lots of fast food restaurant in Brazil which will be the competitors.
Reason for Choose Brazil
Panda Express has their strategy about expanding the global market. The expansion strategy is taking in North America and South America as the first step. In North America, Panda Express has the Canada and Mexico market. Brazil is a part of South America. It also is the largest country in South America with the huge market.
Through the SOWT analysis, there are lots of strengths and opportunities. If Panda Express access to the Brazil market, Panda will have enough suppliers and save the transports fee. Panda Express also can use the Olympic Games to do advertisement.

Political and legal environments in Brazil
Firstly, the political of Brazil is very stable. We compare Brazil with U.S., Brazil is about 8.5 political stability, the U.S. is 9-9.5 (Higher score means more stable). The stable environment is advantageous for Panda Express’s expansion. Secondly, Brazil is also a developing country. The government is open-minded on attracting the foreign investment and would offer the promotion policy.
For the legal environments, we can refer to the mature fast food industry in Brazil. There are lots of American fast food companies and domestic fast food companies in Brazil. Through that, we can know that the foreign fast food industry is accessible in Brazil. For example, Brazil has the KFC, McDonald’s and Burger King which are America’s fast food in Brazil. Brazil also has lots of regulation about the food industry. Panda Express should follow the regulations. There also have a mass of Chinese restaurant in Brazil; Panda Express can draw on the experience of those restaurants. In the project plan, Panda Express will take the domestic suppliers to support their restaurant. We should not concern about the Import policy about Brazil. About the trainers and managers of Panda Express, they will introduce those people from U.S. The law and policy in Brazil can sustain those requirements.
Analysis in terms of financial and cultural environment
First of all, before we expand our business abroad, we need every potential risk and possible issue to be clear enough so that we can avoid or prevent it from causing huge damage to our company while expanding. Hence, analysis of the local environment is very important. The following analysis will include from population, economic and financial figures.to their culture analysis
Population

Generally, population is equal to your market scale, the more population there are, the larger market we have. Thus, as this figure shows, the population increase around 10 million during past 10 years which our target market is accessible.
GDP growth rate:
From GDP growth rate we can see how good or bad a country’s economy is, it’s either growing or recessing. As we see this chart, most time the GDP growth rate are positive except during 2008 to 2009, the biggest global financial crisis impacted Brazil and led their GDP grow rate to be negative. But after that, their economy went up in a huge degree, even cover the negative periods, although the growth became slowing down in 2012, it was still positive and tended to be stable at 2 to 3 percent which their business environment is good.

Currency rate and average wages in Brazil:
Now the currency rate as following graphic 1 shows is around 2 to 2.2, compare with rate during past six years it has been depreciated for around 40 percent, which for us is a great time to expand since we have exchange more Brazil real than before. Also, not just currency rate, their consuming behavior is one we need to consider. As a fast food restaurant company, we need to know at how much they spend on food and at what percent of their salary.
Graphic 1: currency rate

Graphic 2 spending statistic

From graphic 2 we can see the average wages is around 2000 which is around 1000 USD. But food consuming is the biggest part of their total spending which means in Brazil any business related to food has a bigger advantage.
Cultural issues:

As chart shows, in terms of Hosftede’s six dimensions theory, United States has the big difference on individualism and power distance and small difference for rest parts, which once our business enter Brazil, these would be conflict between two different culture, so finding the way to prevent cultural impact is also priority.
First, the way that used to manage a company in US need be to changed, in US, people have a strong sense of individual rather than a group, they care about personal right and love to be free, and can’t accept too many private questions since they are kind of protect themselves from people. By contrasting, in Brazil, people believe that group will be much stronger than individual work, and working with group will be more efficient and better quality.
Once our business conduct there, we need to set up a cultural system to make change to fit their group behavior. For instance, we don’t give them individual work as we did in US, instead, we collect those individual works and combine them to a project then assign it to a group. But even this way, the further problem might occur which is the relationship. As a team, conflict between members always happen while different opinion raise. Hence, to maintain the harmony and long lasting relationship, well communication and sense of trust need to be create before team work start.
Another problem is the power distance, US has medium low PD index but Brazil has medium high rate. The most important thing in this part is that hierarchy system and inequalities in company are fundamental factors, not as flat and US, which the hierarchy needs to clear and there need to be one guy to command for the whole company. Current and Historical Marketing Practices
Product
On websites, nutrition calculators allow customers to customize the perfect meal “Panda” and to ensure nutrients. The only thing customers need to do is choose the meal size and add their favorite delicious entrees and sides by clicking the green button that appears as they hover over each tasty item. The selection of entrees may be decided by location. Panda offers various foods, including chicken entrees, beef entrees, seafood entrees, regional entrees, and also sides, appetizers, desserts, and drinks. Panda not only tells the customer how they make every item and the ingredients used, but the customer also gets information about the nutritional value. The most important thing is the taste of the food must be timely and adjustments must be made to cater to local tastes. Brazilians favor tenderloin, and most like spicy dishes.
Price
A panda bowl is a reasonable size bowl with rice chow mien, or something like that, and with a meat of the customer’s choice. They are all good! The price is about $6, if the customer does not order a drink. There is a two-entree meal: half of the plate is a yummy meat and the other a side with rice or another similar side dish. The two-entree meal is about $7. You can also get egg rolls and other Asian side items for an extra $2. Over all, some people would say it is really expensive! However, the price is really good, and it is not bad to treat yourself with some yummy Chinese food every once in a while.
Promotion
Panda attracts more consumers with coupons, as does other fast food restaurants. For example, customers can get a free third entree after completing a short online survey. To access the survey, customers have to use the code printed on their receipt from a Panda restaurant. There is one thing, be sure to keep the receipt because you also need to enter the store number, and customers have to do it within a couple days of purchase. The receipt will give customers the web address for the survey. Many customers always get a free entree with this code. On the other hand, panda launched a new promotional gift card. Each card is 30$USD. Customers can purchase the gift card on Panda's official website. The most delicious gift will be given and customers will find the right size and color without having to worry. Family and friends will be surprised when they receive the gift card. The promotion also applies to Brazil.
Place
Panda restaurants are generally located on densely populated streets and areas. Brazil's population distribution has a large regional difference. Very few people live in north, central and west Brazil. Ninety percent of people live in the southeast coast area; large cities are also concentrated in this area. The area has maritime transport facilities, a tropical monsoon climate, and a surging population.
Sao Paulo, Brazil's largest city; Rio de Janeiro, the second largest city and the host city of the 2016 Olympic Games; and Recife are the three most densely populated cities in Brazil. The local climate in the country and relatively low altitude of this area are all conditions that are suitable for human growth. On the contrary, the capital of Brazil, Brasilia, does not have these advantages.
Market Opportunities
The fast food industry is a large and diverse industry with plenty of opportunities in Brazil. According to A Survey of Brazilians' Eating Habits (2010), 33% people of Brazilians were spending more on food than they were before because of the increasing size of the Brazilian middle class and the economic boom. This percentage follows only China and the USA, where 48% of the population is willing to spend more of their money on food. Whereas, 25% of Brazilians said that they ate fast food frequently. 28% of American ate fast-food regularly, which is similar to the fast-food habits of Brazilians. 19% of Brazilians said they dined at least two times a week in restaurants, which is also only behind China where 33% the Chinese ate out with such frequency. There are some other data about the food and drink industry in Brazil: 2014 per capita food consumption = +7.2% y-o-y, the forecast compound annual growth rate (CAGR) to 2018 = +7.4%; 2014 soft drink sales = +8.4% y-o-y; and forecast CAGR to 2018= +8.3%.
On the other hand, the chief economist Ian of Ukraine Bank in Brazil recently released a report showing that according to an observation of Brazil's economic structure development plan in 1950, the Brazilian World Cup and the Olympics are bound to promote its infrastructure and employment rates. It also will create a tourist tide in Brazil. In other words, it will inject a strong economic stimulant from all areas of the country. The Vacas Foundation said the World Cup will inject 142 billion reais into the Brazilian economy from 2010 to 2014 (1 U.S. dollar equals 2.1 reais), and will bring revenue of 63.48 billion reais for Brazil. The 12 host cities in Brazil will receive a total of 14.54 billion reais in infrastructure investments from the 2014 World Cup; therefore, the GDP is expected to increase to 7.18 billion reais in Brazil. The World Cup and the Olympic Games biggest gift to Brazil will be their important role in the development of tourism. According to Brazilian government statistics and forecasts, thanks to several major events continuously held in Brazil, between 2010 to 2014, the total number of international tourists in Brazil will increase by 298 million, and in 2014 it will reach 7.4 million passengers during the World Cup. The Brazilian government will obtain an additional 5.94 billion reais in revenue throughout this four-year period. The fast food industry will get a huge market opportunity not only for the large number of tourism, but also the economic growth.
Human Resource
Panda express holds the principle that everything it has built is the spirit of opportunity and a belief in creating an environment that invites participation from everyone. So Panda express cares little about an employee’s nationality or gender. Instead, diversity in the workforce is an important element that composes of people from different skin colors and countries. No discrimination in Panda express. With such large diverse workforce, employees in different cultural background, race, religion and sex come to unite in Panda express. As a consequence, Panda express absorbs diverse culture and infuse it to itself, which makes it understand needs of customers who come from foreign countries easily due to its diverse employees. In Brazil’s market, if anyone who want to join in Panda’s family, they need to submit their resume, background checks, and personal references and so on.
Panda Express tries to put employees on the first place and improve their quality by offering them opportunity to immerse in social environment. That is an uncommon way to learn something. With Panda Express’s training, it is not only an ordinary restaurant to sell food or service to people, but also a good chance to enhance its workforce, which makes its employees more knowledgeable and capable. “Today, there are 400 corporate employees, working in a culture Brandt describes as nurturing, instructional and focused on giving back, whether through the nonprofit Panda Cares program or through internally driving driven training and development events.” (Field, 2008, p. 61) Hiring problem
There are many aspects involving the hiring process in Brazil. In 1943,Brazil created the Consolidation of Labor laws regulated labor relations, after that, this denomination must be followed by employers when they were hiring the employees. Otherwise, employees also expect other benefit, such as health care and day care assistance. Therefore, the workforce in Brazil is quilt expensive.
Working week
According to Brazil’s business law, no one can work more than 44 hours a week, which means the person should work 8 hour work day (Monday – Friday) and then 4 hours on Saturdays in a week. Another right is that the benefits vary accordingly to company and employee's occupation, for example, companies that have large number of women can be special cared a lot. Companies with high percentage of students will focus on scholarships.
Benefit
Many people in Brazil are willing to work for minimum salaries while they require providing benefit by companies, for example, some companies focus on benefit like day care because they are high degree of women concentration, the other companies focus on scholarship because the trainees and students employees.
The most common benefits are:
Health care: most companies not only offer health care to their employees, but also this benefit can be extended to children and spouse.
Day care assistance: the employer pays the daycare or at least part of it for the parents who have little kids. Some companies also pay part of the tuition for employees who are willing to attend a course that is relevant to his/her occupancy in the company.
Transportation and meals
Based on the law, employers should provide employees with transportation when they go to work or back home. Employees who work 44 hours a week can be provided with one meal. If a company has more than 30 employees should provide a proper place for employees to have meals.
Paid vacation
Employees have 30 day’s vacation after they have worked for 1 year. The employer decides which day of the vacation begins. If family members work in the same company, they can apply for the vacation together without affecting the company’s business.

Organizational structure
First of all, let us be familiar Organizational Structure for a Catering Company. The organizational structure of your catering company comes down to how much control you would like to give up. According to Lister (2010), this shift in control can be greatly beneficial if you're able to put the right professionals in key positions to manage your company and provide consistent food and service for clients.
Marketing: Looking at the organizational structure of Panda Express senior management, it is evident that the company uses a liner system structure that keeps to unify commands and advises usefully.
The company is organized along different major business processes/functions, each headed by an Executive VP. Every department have special domain experts, training and monitoring are easy. These functions are HR (hiring, management), Complaint (customers service), Finance (including accounting system), Real estate (store design and location) and marketing (expansion in domestic or the global). This organizational structure can be used in Brazil because it is the most efficiency that can meet both the marketing requirement and the customer requirement. Mission is clear and every department just care their missions.
Environment and financial: Brazil is a developing country with stable political. The government is open-minded, so a lot foreign companies are willing to invest in Brazil. The government spending and consumer spending is increasing year by year, which means the financial environment in Brazil is optimistic and it is a potential market to expand.
Culture: Panda Express might seem like just another successful Chinese-food chain. But its success stems from an unusual corporate culture that centers on personal self-improvement as the route to better business performance. (Carol, 2010) “Panda focuses on fostering a culture that creates happy associates, which becomes happy guests. But first we have to work on ourselves and love ourselves. ” (Christopher, 2012) At Panda meetings, managers usually hug each other and sit together to come up with many good ideas. Managers usually discuss their personal lives, failings, and difficulties with their employees. What Panda Express wants to create is a fully equal society for both employers and employees. If it still use this strategy in Brazil for hiring employees, which will gain large popularity. Because everyone wants to be treat equally no matter he/she is the supervisor or employee.
Analysis of three international expansion strategies for Panda Express After some analysis of the Brazilian market, our group discuss about the three international expansion strategies for Panda Express. As we learned four traditional expansion strategies, the best three for Panda Express are Cooperative Contracts, Strategic Alliances and Wholly Owned Affiliates.
Cooperative Contracts Cooperative Contracts have two forms, licensing and franchising. First one, licensing for Panda Express is to allow a specific Brazilian company to produce some of its product in Brazil, and the company pays for royalty payments to Panda Express. But licensing seems not fit Panda Express. Because all the product of Panda Express it about food, especially Chinese food they don’t have any technology patent. Everyone could cook Chinese food everywhere only if he wants, even they cooked the same taste. So licensing doesn’t work for Panda Express. Second one, franchising is the most popular way for many companies to enter foreign market. KFC, McDonald’s, and Pizza Hut, they are all through franchising to join the globalization of business. Franchising means Panda Express will license the entire fast food business to another people or organization. By this way, Panda Express does not have to pay much on research and develop department on the Brazil market, especially culture analysis and how did they integrate into the Brazil market. It saves lots of time and money to enter the market. It is a very good strategy when a firm’s domestic market is close to saturation and has a strong need to develop new market. But the domestic market for Panda Express still has huge potential; the revenue is also growing every year. There is also some disadvantage of choosing franchising. One of the biggest impacts is loss control of quality and brand image. Especially for the developing companies like Panda Express, it is very important to have enough control on the international operation. And they are also in the early stage of internationalization development.
Some small mistake on operation and management will influence the whole company's internationalization development.
Strategic Alliances Strategic Alliances contain Strategic Alliance and Joint Venture. Strategic Alliance for Panda Express means to combine with a local Brazilian company to develop and operate fast food business in Brazil together. In this way they also combine the key resources, total costs, business risk, technology and people. Joint Venture is a little bit same as Strategic Alliance; the difference is the two companies collaborate to form a third independent company. It means Panda Express may not use its own brand to enter the Brazil market. They may use the new brand name of the third company like Panda Brazil; depend on the two companies’ plan. Strategic Alliances for Panda Express could avoid some government barriers to entry. For example, there may be some higher requirement for foreign companies to sale fast food in Brazil. So when Panda Express combines with Brazil companies, it would turn to be a local brand. It makes them faster to enter the market, and also share the costs and risks of the business. But there are also many disadvantages for Strategic Alliances. The most important point is profit. Panda Express is in a rapid development stage, so they need as more cash flow as possible to support their development; two companies mean half profit or less profit for each. Two cultures of each company and two cultures of each country need to be well combined. Cultural differences may influence the operate decision and lose many business opportunities. Two ownerships also will cause the power struggles, especially during some big decision. For example, local company wants to change the logo and add some Brazil culture but Panda Express wants to keep the tradition. It becomes very complicated to decide who lead the company and make decisions.

Wholly Owned Affiliates
Wholly Owned Affiliates is defined as a parent company which is 100% owned by another company, the parent company could be new build or buy from the market. So for Panda Express it means to build a parent company in Brazil. The parent company receives all of the profits and has complete control. By this way Panda Express could build up the Brazil Company whatever they want to develop the market. Because of the fully controlled, they can choose to keep the product style and operation or change it depends on the market. They are also free to allocate their revenue and even support their domestic market. The only disadvantage of Wholly Owned Affiliates is the expense of building a new company and operations. And Panda Express also need to make enough research to ensure that the new company fits the demand of the local market.
Justification of the chosen strategy from the alternatives After a series of contrast, and as we mentioned before Brazil is a big potential market, the Wholly Owned Affiliates is better for Panda Express. As what Panda Express did, they have more than 1,600 restaurants, but there is no franchises store, Panda Group directly operates all the restaurants. And there are couple reasons why it fits Panda Express in Brazil.
The disadvantage of this strategy is the cost of building the new company, but recently there is a good chance to build the company- The Olympic Games and World Cup Brazil in Brazil. Both are the world’s largest sports event. The most direct impact is a huge number of tourists will come to Brazil from all over the world. Especially around some scenic spot and sport field, fast food restaurants are often the most crowded places. It means the large demand is over the limited supply. So it is the great time to enter the market. Tourists will not care about you are a new company or not, they just want their fast and delicious food. So it is a good time to build up the brand and also gain the revenue. And the 100% owned also makes Panda Express earn the whole profit, and the recovery of costs will be shorter. After the Olympic Games, Panda Express would have enough experience and money to join the competition in local market. So it is a good idea to set the restaurants near some scenic spots and race place in the early time when enter the market. And Wholly Owned Affiliates also provide wholly control and directly operation. The market now requires more innovation than before, and it also becomes more complicated and changeable. So how to make the right decision in time according to the market reaction is very important. For example, if one kind of Panda Express food has some health issue even it has not been confirmed. They could just remove this item from the menu and provide some discount to consumers in order to keep the brand image. Those actions could be decided in a short time even if it will cost a lot. But if there are two or three profit shares as it in other strategies, it would need more time to discuss it is sure or not, and lose the best time to make decision.
So the Wholly Owned Affiliates would help Panda Express a lot at this perfect time. Although the short-term investment will be more than before, the long-term revenue is very considerable.
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