November 25th, 2013

Taco Bell Corp.
1 Glen Bell Way
Irvine, California 92618
United States
Phone: +949-863-4500
Fax: +949-863-2252

Attention: Mr Greg Creed

Dear Sir,

As a member of the Global Strategy Team, I am presenting an expansion strategy which is in accordance to Taco Bell’s ideas and image. Our team is pleased to offer the documents entitled ‘Internationalisation of Taco Bell in Malaysia’ as a growth prospect.

The report has undertaken all aspects of analyzing the climate for Taco Bell in Malaysia. We have studied the environment and the business strategies to propose a plan that fits the company’s policy and purpose of internationalization.

Our team would like to thank you for this opportunity and hope that we have clarified all areas of the proposal. We are grateful for this opportunity and anticipate to working with you in the future.

We hope that this proposal will meet your approval.
Yours sincerely,

Sehr Ali Jafri

Table of Contents 1. Executive Summary 3 2. Introduction 3 3. Methodology 3 4. Motives for Internationalisation 4 5. Malaysia Economy Profile 5 5.1 Malaysian Fast-food Business Environment 6 6. Taco Bell’s Global Strategy 6 6.1 Entry Mode 7 7. Conclusion 7 8. Recommendations 7

1. Executive Summary
The purpose of this study is to critically analyse the investment opportunities prevalent in the Malaysian market by taking into consideration the significant macroeconomic factors, food industry trends, political environment and other socioeconomic trends that can affect business competitiveness.
The idea is to take advantage of the growing Asian market as part of Taco Bell’s internationalisation. The report also presents a valuable insight towards the possible strategies that should be adopted towards expansion into new markets. The study of macro and micro levels recommend that Malaysia is an attractive market with assuring growth prospects that can contribute to Taco Bell’s increased market share of the worldwide market.
Amid all the positivity, factors such as high debt ratio and government controls should go unnoticed. However, entry into the Malaysian market is quite profitable. Lastly, recommendations are provided by our team to give a better insight to the company.
2. Introduction
In today’s fast forward world, fast-food restaurants are extremely popular and blend right in. People rejoice the fact that they can acquire a quick and reasonably cheap meal. The mainstream fast-food restaurants usually offer the option of buying a hamburger and French fries so when Taco Bell came along and introduced Mexican food to the fast food world and it was greeted with a warm welcome (QSR Magazine, 2013). Taco Bell became an immediate success. From the beginning, back in 1954 till date, Taco Bell has been providing their customers the option to choose from a variety of Mexican food in over 5,600 locations in 20 countries.
With a track record of winning over customers abroad and the lack of competition indicate that Taco Bell has global potential. The key factor of this report is to expand the scope of the business, in the worldwide market, thereby presenting motives to continue its growth through internationalisation, by penetrating into a market it seems fit for.The challenge is to go to countries that aren’t too popular with Mexican food and to convince customers to try the Americanized version crafted at Taco Bell (Abc News, 2013).
We recommend Taco Bell to try to penetrate into the Malaysian market and pinpoint the advantages of entering this growing economy, and specifically to position themselves into the ever-growing fast-food industry. After examining Taco Bell’s global strategy, entry into Malaysia seems an appropriate market to tackle.
3. Methodology
The sources from this studycomprise of company websites, government reports, journal articles and newspaper articles. Methodology conveyed in this report is mainly extracted via secondary research since gathering and compiling primary data is expensive and time consuming. Therefore the drawback of this type of data is that it may contain irrelevant variables or subjects that might result in a bias (Aaron, 2011). Had we no budget and timeconstraints, primary data would give our team a better insight and interpretation of the target market.
However, to overcome this, our team emphasised on applying up-to-date information, from credible sources with great emphasis on the current economic data. Alongside with that, we also studied past trends with case studies to paint a complete picture of all necessary events that took place.
4. Motives for Internationalisation
Internationalisation is a multilateral succession (Barett, 1986). Welch and Luostarinen (1998) illustrate internationalisation as a practice whereby the company increasesits contributiontowards global activity. The reason that companies mobilize to other locations and countries is largely driven by increased profit and market share of the world economy.
Considering Taco’s Bell’s fame in the fast-food industry, it should take advantage of their brand name and expand. It can gain more by investing into foreign markets that accept the hybrid culture that are always willing to try new things. This can be supported by the success Taco Bell has in all 20 countries that opened arms to the fast-food chain with the Tex-Mex edge.
The Eclectic paradigm theory, as suggested by Dunning (1980, 1981), can be applied to using Malaysia as a market seeking investment for Taco Bell to multiply across the globe and promote new potential markets. It is an ideal opportunity to capitalise on the strong growth of South East Asia’s largest economy.
Internationalization of Taco Bell can be further supported by the Eclectic Paradigm. Dunning (1981, 1988) proposed the three integral factors pushing firms to internationalise. Firstly, firms should have “ownership” advantages that act as a driving force (Tees and Al-Aali, 2013). A successful company like Taco Bell possess unique advantages that don’t just include creative thought process and efficient technologies but also have a brand name that keeps customers coming back for more. The “Doritos Locos Tacos” is an example of the creativity that Taco Bell used to re-invent the taco and became an instant hit. Moreover, price is a main weapon that the company uses to gain larger market share. Managing the business operations is of great value to Taco Bell which is costly to imitate and thus has been awarded as the fastest QSR (Taco Bell Annual Report, 2012).
Secondly, the “location” specific advantages follow, which structures the company’s expansion plans (Cantwell and Mudambi, 2005). This exists in terms of political, social and economic conditions. Favourable government legislation encourages FDI in the services sector (MIDA, 2013).Malaysia has low corruption and good political ties with the U.S. The diverse ethnicity of the country shows eagerness for the acceptance of other cultures. In addition, last year, 25.03 million tourists arrived in Malaysia, with earnings of RM 60.6 billion, which will attract foreigners that recognize the brand (Tourism Malaysia, 2012)
Lastly, “internalization” advantages that is largely firm-specific.Williamson (1975) describes it as the costs of structuring the economic system. Taco Bell can internalise its costs in Malaysia by making their own signature sauce to keep it exclusively for Taco Bell. This will also minimise the transaction costs of getting it from elsewhere. Further, when a firm goes overseas, it has the option of investing directly to create a physical presence or dealing with a local firm by licensing its trademark and/or its technology, or some intermediate arrangement such as a joint venture (Buckley and Casson, 1976).
5. Malaysia Economy Profile
Malaysia is considered to be one of the most promisingnations in Southeast Asia. It has a GDPof RM 743.54 billion and GDP Growth Rate of 5% (MIDA, 2012). In the Global Competitiveness Report (2013) it was ranked second amongst the ASEAN countries, after Singapore. The most significant advantages is its efficient and competitive market for goods and services (10th), its advanced and secure financial system (6th) as well as its friendliness in institutional framework (29th).The World Bank (2013) placed Malaysia sixth in ease of doing business. Malaysia was also listed as the world's 10th most attractive FDI destination, possibly with the increase in business confidence with increasing governmental initiatives (MIDA, 2013).

The Malaysian Ringgit is one of Asia’s best performing currencies (Dey, 2010). In 2010, it had appreciated by 6% against the US dollar, 19% against the euro and 16% against the British pound (World Bank, 2011).
However, IMF Managing Director Christine Lagarde (2012) said Malaysia needed to address the concentration of FDI and the worrisome high-debt ratio against the country's GDP.The government budget deficit only represented 4.3% of the GDP in 2012; with low level of female workforce participation and relatively low technological readiness refer on Malaysia’s competitiveness (Global Competitiveness Report, 2013).
Policymakers worried that extreme inflows of FDI may cause overheating, nonetheless recent concerns have shifted to the disturbance that might result from sudden stops as interest rates in the US normalise (IMF, 2012). Moreso, the country’s perceived level of corruption has increased, and there is no sign of effective anti-corruption measures, the judicial system remains vulnerable to political interference (World Bank, 2012).
To overcome the limitations above, The New Economic Model (NEM), launched in 2010, aims to reach a high income status by 2020, at the same time, ensuring that growth is also sustainable and inclusive. The NEM predicts economic growth which is propelled by the private sector and that drives the economy to adding value in industry and services sector. The nation currently had a GNI per capita of $ 9,800 and is currently an upper middle income status. To accomplish these ambitions, Malaysia will require better skills, more competition, a leaner public sector, a better knowledge base, smarter cities, and greater efforts to ensure environmental sustainability (World Bank, 2013).
5.1 Malaysian Fast-food Business Environment
The food industry in Malaysia is valued at $5 billion. It grew at an average of 6.5% per year for the past 5 years and is predicted to grow at a rate of 7-10% for the next 5 years. The restaurant sub-sector accounts for 70% of which 17% is fast food. More than 24% of household income was spent on food. This indicates that the growing demand for convenience is making fast-food the fastest growing sector. New regulations may impact small chains and give larger ones the edge (Statistical Handbook Malaysia, 2012).
In a study done by the Multimedia University, Malaysia (2012) pointed out the domination of the U.S. brand companies in the fast-food industry. KFC and McDonald’s are the biggest multinational restaurants in Malaysia.in response to this the government, under the 8th Malaysian Plan, tried promoting local chains by offering training and financial support.Despite the government attempts to promote the local fast-food chains, foreign brands subjugated the industry (Tan, 2012).
The latest update stated that the industry contributed RM 28458 million which was 14% to GDP according to the Economic and Financial Data for Malaysia obtained from Bank Negara Malaysia (2011). For these reasons above, the fast food industry is important for Malaysian economy and contribution to GDP as well (Statistics Handbook Malaysia 2010).

6. Taco Bell’s Global Strategy
Firms generally face two types of pressures when competing in the global marketplace; pressures for cost reductions and pressures of local response (Hill, 2013).It strategically implemented low prices so that it can attract a larger market share and that customers keep coming back for more. Taco Bell has created a fast-food cult; cheap and delicious food. It is the leading Mexican QSR as it provides customers with an unusual taste of convenience food. Therefore it can penetrate internationally with its differentiation tactic, as it has no direct competitor.
Taco Bell is a very popular brand and has high customer loyalty therefore it should focus on the international strategy. Being a major hit in the U.S. market, it should try to spread the Taco Bell culture to the worldwide market. It essentially sells tacos and should carry on with some amount of customisation when entering a country. It must align the taco with the local customers in order to keep up demand for the product. For example, Hindus largely exist in Malaysia and so should consider some vegetarian style of tacos in their menu (Yum! Annual Report, 2012).
Furthermore, Taco Bell is well known of their advertising and marketing strategies and should consider promoting itself through social media while entering Malaysia. The company earned its place in QSR and social media history with the “most talked about” launch of Doritos Locos Taco, a taco reinvented from Frito-Lay’s enormously popular Nacho Cheese Dorito. Therefore, it can create a global link and spread brand awareness (Swanson, 2012).
6.1 Entry Mode
There is quite a flair for entrepreneurial spirit in Malaysia (Forbes, 2013). The Malaysian government also prospers entrepreneurship through high standards of infrastructure, business advisory services, and ease of attaining capital. Franchising seems like the most appropriate mode of entry into the market, particularly due to the availability of capital to the locals.
In addition to that, since KFC and Pizza Hut possess most of the market share in Malaysia and come from the same parent company as Taco Bell, these franchisees may also be interested in completing the family. It is a good idea if we approach these successful entrepreneurs as it will cost less than going directly.Less risk is involved as the franchisee bears the cost which will be beneficial for the company.
7. Conclusion
After analysing Taco Bell’s expansion plans, it appears that Malaysia is a suitable market to enter. It has low corruption rates and good political ties with the U. S. The level of technology is high, which means the firm is able to operate in a similar manner, in terms of machinery and equipment (MIDA, 2013).
With education on the rise, the average household income has increased 7.2% each year (Statistical Handbook Malaysia, 2012). Furthermore, as the young population is a majority, they like to eat multiple times in a day which means that they are a good target market and can prove to be profitable. Thus Taco Bell should exploit the Malaysian economy as part of its growth strategy.
8. Recommendations
Taco Bell is also known for its quick service. Recently, Taco Bell has been adapting to distributing healthier, hygienic foods to stay ahead of the competition, like the introduction of the Catina Bell. This will increase market share of the health conscious. Alongside, it should also revise its menu to tune into local tastes and perhaps adding more rice, chicken and fish. Breakfast is quite popular in Malaysia hence bringing the breakfast burrito will be successful. 60% of the population is Muslim so the requirement of Halal food is high (MIDA, 2013).
KL Sentral is a good location to introduce Taco Bell, since all trains and buses emerge from there. Moreover, it acts as a good tourist spot that will recognize the brand and pick up a taco, while waiting for the train. Also, the pricing should be equivalent to U. S dollars in order to maintain the purchasing power. Family dinner combos will even give a jumpstart to Taco Bell.

9. Appendix:

10. References
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