SECRET RECIPE IN CHINA

GFMA6043 International Business

Group Assignment
Dr Noor Azura

Student Name Matrix Number

1. Maria Ulfa binti Fua'di 827784
2. Ahmad Irfan Fahmi Al Qudsi 826805
3. Farahiyah binti Ghazali 828485
4. Siti Salhah Binti Mohd Yasin 828532
 EXECUTIVE SUMMARY

The purpose of this study is to identify the success factors of Secret Recipe to enter China’s
market. We will be looking at the entry market strategy until the marketing strategy used by
Secret Recipe which made them be one of the successful companies in Asia.

This study also will briefly explain how the adaption is done by Secret Recipe to fit into the
Chinese culture as we know culture is one of the important factors for international business
penetration.

Most people in Malaysia know that Secret Recipe is a franchise company. However, in this
study, we will discuss why Secret Recipe has not used the same business entry strategy in
China, but they choose other types of business entry strategy which brings the successful for
their decision.

We know to enter China’s market is not easy, but it is not impossible to be done. As proven,
Secret Recipe managed to do it and details for their penetration strategy will be discussed
further as well in this study. From the Chinese government support until the joint venture
alliance occurs between Secret Recipe and one of the Chinese companies will also be
explained in the study.

International Business is such an interesting subject to be learned as we will have so much

information which can be applied in our business strategies. To be well known and establish
company is important but we will have to ensure we can make our business sustain for a long
time. We will need all the knowledge that we gained from this subject and practice when
designed the business strategies to minimize the failure risk factors.

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 TABLE OF CONTENT

Number and Tittle Page

Executive Summary 1

Table of Content 2

List of Tables 4

List of Figures 4
1.0 Introduction
1.1 The Establishment of Secret Recipe 5
1.2 Secret Recipe in China
2.0 Products For Internationalization 7
3.0 Market Analysis
3.1 Host Country Analysis
3.2 SWOT Analysis
3.2.1 Strength: High-Quality Product and Services
3.2.2 Strength: Strategic Partnership with Fosun Group
3.2.3 Weakness: The Price Range Is a Bit High for The Lower-
Income Group
3.2.4 Opportunity: Higher Demand Due to Larger Target
Market
3.2.5 Opportunity: The franchising concept generates more
innovation
3.2.6 Threat: Covid-19 pandemic
3.2.7 Threat: Competition of local bakeries and pastries that fit 8
the local taste
3.3 PESTLE Analysis
3.3.1 Politic
3.3.2 Economy
3.3.3 Social
3.3.4 Technology
3.3.5 Legislation
3.3.6 Environment
3.4 Porter’s Diamond Analysis
3.4.1 Factor Conditions
3.4.2 Firm, Strategy, Structure & Rivalry
3.4.3 Related & Supporting Industries

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 3.4.4 Demand Condition

4.0 Barriers for Internationalization

4.1 Domestic barriers
4.1.1 Food Waste Management
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4.2 Host Country Barriers
4.2.1 Adaption to Local Preferences
4.2.2 Expansion Strategy
5.0 Analysis of Cultural Differences
5.1 Hofstede Culture Analysis Model 20
5.1.1 Relationship Development
6.0 Business Entry Strategy
6.1 Justification for Business Entry Strategy
6.1.1 Wholly Owned
6.1.2 Joint Venture
6.2 Access to Resources
6.3 Ease to Access
6.4 The Strategy of International Business 24
6.4.1 Strategy Advantages
6.4.2 Strategy Disadvantages
6.5 Location Strategy
6.6 Logistic
6.7 Labour
6.8 Customize Menu
7.0 Marketing Strategy 29

Conclusion 30

References 31

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 LIST OF TABLES

Number And Tittle Page

1.0 Power Basis of Class Position and Its Economic Interests 13

2.0 China’s Foreign Investment Catalogue Divided Sectors 14

3.0 Internationalization Barriers 19

4.0 Cultural Analysis – Malaysia Vs China 22

LIST OF FIGURES

Number And Tittle Page

1.0 Cake Display Similarities Between Outlet in Malaysia and China 2

2.0 Swot Analysis of Secret Recipe China 8

3.0 Target Market Analysis of Secret Recipe China 15

4.0 Hofstede Model Cultural Analysis – China Vs Malaysia 21

5.0 International Business Strategy 26

6.0 Advantages of Secret Recipe Choose Transnational Strategy 27

7.0 Disadvantages of Secret Recipe Choose Transnational Strategy 27

8.0 Labour in China 28

9.0 7 P’s Marketing Mix of Secret Recipe In China 30

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1.0 INTRODUCTION

1.1 The Establishment of Secret Recipe

Secret Recipe, which opened in 1997, is recognized for its extensive range of high-
quality gourmet cakes. Since then, it has evolved to become one of the fastest-growing
lifestyle cake and café brands in the region. The founder of the company Datuk Steven
Lim started the business with three of his nephews who also a baker and since then
they were kept the strong target to build a global brand eventually. Secret Recipe
Cakes & Café has been seen in major cities and shopping malls around the region,
including Malaysia, Singapore, Indonesia, Thailand, Brunei, Maldives, and
Bangladesh. Kam (2009) in their article highlighted that brand development was a
priority for the company from the start. It created its logo, corporate color scheme,
marketing strategies, uniforms, menu layout, interior design, and customer service
standards. Secret Recipe holds to the brand value as follows:

“Ultimate Dining Experience Like No Other. Our Modern Lifestyle Regional

Cafe”

Sim (2009) cited in The Star article that to stand out, the company needs to analyze
the qualities of the brand which may be expanded and can make the brand stand out
in the competition. In addition, the components that drive and build the firm are
differentiation, innovation, flexibility, research and development, consistency, identity,
and brand promise. A new recipe and cake gourmet lifestyle trend has emerged
because of the demanding quality of meals and desserts prepared with high-quality
ingredients at an accessible price. It encourages people to live a high-value lifestyle by
providing a varied selection of high-quality meals at reasonable rates. Secret Recipe
cafés don't simply offer cakes; the cafe's concept is flexible, so different countries have
varied menu items.

The International Franchisor of the Year award was given to Secret Recipe Cakes &
Cafe by the Franchising and Licensing Association Singapore in 2007. The Malaysia
Book of Records has also named the firm the World's Largest Café Chain. Apart from
that, it won numerous international accolades, including the Yayasan Penghargaan
Prestasi Indonesia's Best Restaurant Award in 2006, Hospitality Asia Platinum Awards'
Best Casual Dining Restaurant of the Year 2007/2008, and The Philippine Tatler
Magazine's Best Restaurant 2008. Secret Recipe also received other several awards,
i.e., Putra Brand Awards – Special Mention (Retail-Food) 2011 by the People’s Choice
Putra Brand Award, Superbrands Malaysia’s Choice by Superbrands Malaysia as well
as Brand of The Year Award 2018-2019 By World Branding Awards.

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1.2 Secret Recipe in China

In recent years, China's GDP has been continuously growing, as the Chinese people's
earnings rise, so does their purchasing power (UKEssays, 2018). Demographics,
geography, and the service design of Secret Recipe shops in China are examples of
non-cultural issues. Viral breakouts and other unfriendly issues may emerge. Due to
various China's rapid economic growth, demand for products will always outweigh
supply. Thus, the Secret Recipe's food supply should be monitored. Numerous cultural
and economic aspects must be carefully examined to appeal to the whole market while
avoiding any unnecessary conflicts to be successful in reaching the Chinese market.

China Retail News (2014) mentioned that Secret Recipe established its first restaurant
in Changzhou, Jiangsu province. Even though Secret Recipe originally entered the
Chinese market in 2007, it took a long time to gain traction, only picking up in 2014.
Secret Recipe is a major casual restaurant brand in Southeast Asia, specializing in
cakes, western-style food, and Southeast Asian cuisine. In February 2014, Secret
Recipe received a CNY210.5 million investment from Fosun International Ltd, a
Chinese investment business. As a result of the transaction, Fosun has become Secret
Recipe's second-largest shareholder. This is Fosun's first investment in an
international restaurant chain, according to reports. New Straits Times (2016)
highlighted that Secret Recipe is known for producing high-quality gourmet cakes using
only the best ingredients. Customers may enjoy a pleasant and customized full-service
dining experience in a comfortable setting at Secret Recipe, which is known for its
award-winning cakes, the extensive menu of Western and Asian cuisine dishes,
pastries, and pies.

The prestigious "Best Cake in China" Award, sponsored by China's top restaurant
review website Dianping.com and Fonterra China Foodservices, sought for the "Best
Cake in China" in six categories every year (New Straits Times, 2016). This campaign
was utilized by Dianping.com, which has 190 million active users, to identify the “Best
Cake in China” in 290 cities around the country. Secret Recipe won the coveted "Best
Cake Award for Eastern China" for the second year in a row, beating out over 7,000
other bakeries and placing competitors in second place. Durai (2019) highlighted that
in the Best Cake in China Award, which strives to discover the best cakes throughout
China's six regions, the brand's exquisite Chocolate Brulee cake won the coveted
regional title. The multi-layered cake has a crunchy biscuit foundation, a firm mud cake
layer, creamy vanilla crème Brulee in the center, feather-light couverture chocolate
mousse on top, and a thin chocolate glaze.

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2.0 PRODUCTS FOR INTERNATIONALIZATION
Customers may choose from a variety of meals at Secret Recipe. There were more
than 20 different types of fusion meals, 40 different cakes and pastries, more than 30
different beverages, and a wide variety of ice cream flavors. Secret Recipe has also
become one of the fastest-growing lifestyle cake and café businesses as a result of its
success in expanding and establishing its business internationally. Their main product
is cake. Even though they provide a variety of other foods and beverages, their cakes
remain their most well-known and popular product.
Secret Recipe does the adaptation for their products to fit with the local taste. At the
start, Secret Recipe is focusing to include noodle dishes in the menu. Chinese society
belief that longer noodles can bring them a long life. Secret Recipe also changes the
size of the menu as in China, they preferred to have the menu in family size. To honor
the Chinese word for "home," which is a combination of the characters "roof" and "pig,"
the menu must also contain more meat, preferably pork, as pork is a popular dish in
China. Aside from that, the Chinese drink Chinese tea at every meal to cleanse the
palate of the previous dish before going on to the next. (Kreutz 2006). By considering
all this, Secret Recipe has introduced Chinese tea on its menu.
To ensure the quality and flavor of its main items, Secret Recipe continues to supply
factory-based standardized goods for its cake variations. The term "factory-based"
refers to a single central site that manufactures and distributes cakes to other places.
As a result, product quality is consistent across the board.

Cake display at one of the Cake display at one of the

outlets in Malaysia outlets in China

Figure 1.0: Cake display similarities between outlets in Malaysia and China

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3.0 MARKET ANALYSIS

3.1 Host Country Analysis

China is one of the biggest markets in the world with a 1.4million population. The
stability of politics and advanced technology used in China has attracted the most
foreign company to enter China’s market. Although Secret Recipe is well known as a
franchise in their home country, they are not franchised the China’s outlet. In China,
they are solely owned by Secret Recipe franchisors. Secret Recipe starts to enter
China’s market once they have offered by Carrefour to open their outlet inside the
shopping premises. The first outlet was opened in 2007 in Shanghai, and they keep
expanding from there. When they start the first outlet, they use the feedback from the
ground and used it as a pilot operation to overcome their weaknesses.

3.2 SWOT Analysis

The summary of SWOT Analysis for Secret Recipe China can be referred to as follow:

Strength Weakness
•High quality product and services •The price range a bit high for lower
•Strategic partnership with Fosun Group
income group

SWOT Analysis

Opportunity Threat
•Higher demand due to larger target •Covid-19 pandemic
market •Competition of local bakeries and
•Franchising concept generates more pastries that fit the local taste
innovation

Figure 2.0: SWOT Analysis of Secret Recipe China

3.2.1 Strength: High-quality product and services

Secret Recipe is recognized for making high-quality gourmet cakes utilizing only the
finest ingredients, according to the New Straits Times (2016). Secret Recipe, which is
recognized for its award-winning cakes, a comprehensive menu of Western and Asian
cuisine, offers customers a high-class dining experience in a cozy atmosphere. In fact,
Secret Recipe not only offers strict quality food and desserts but together at a cheap
and affordable price. According to Euromonitor International's 2013 study, Secret

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Recipe has a strong brand position in Malaysia, placing among the country's Top 3
Most Valuable F&B Brands (SME Asia, 2014).

3.2.2 Strength: Strategic partnership with Fosun Group

SME Asia (2014) cited that Secret Recipe and Fosun Group signed a strategic
cooperation agreement during a press conference in Shanghai to create a complete
collaboration to expand Secret Recipe's franchise in China. The announcement
mentioned that Fosun Group has invested CNY210.5 million in Secret Recipe as the
shareholder. Secret Recipe will be able to benefit from Fosun Group's advantages in
China, and on the other hand, Fosun Group will be able to invest in the ASEAN market
because of the joint venture. The strategic partnership will open an opportunity to
Secret Recipe as Fosun Group is a subsidiary of one of the public listed companies in
Hong Kong.

3.2.3 Weakness: The price range is a bit high for the lower-income group

Since Secret Recipe's food range using high-end and high-quality materials, especially
for cakes and desserts, it involves high maintenance costs. As the production cost is
high, thus the price at Secret Recipe is a little more than normal. Despite being a
lifestyle café, most of Secret Recipe's customers are from the middle and upper
classes income. UKEssays (2018) did highlight in their article that as Secret Recipe
considers the price differentiation in their pricing approach, it results in the setting of
various rates for middle-income and higher-income customers. Hence, it will limit the
market range and excluding the lower income group in the list. Since low-income
customers are unable to buy their items, the number of customers drops, resulting in
lower revenue.

3.2.4 Opportunity: Higher demand due to larger target market

As of July 2021, China's population density was 150.4 persons per square kilometer
(Countrymeters, 2021). The population density of China is calculated by dividing the
permanent resident population by the entire area of the nation. In fact, China is the
world's fourth-biggest country, behind Russia, Canada, and the United States of
America, with a total surface area of roughly 9.6 million km2. Thus, it offers a larger
market that led to higher demand. As food is a necessity to the living human, the F&B
industry will forever be relevant to the market with ongoing demands from time to time.
Even though Secret Recipe offers high-quality food and desserts, at a reasonable
price, it still fits the market need.

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3.2.5 Opportunity: The franchising concept generates more innovation

The business is primarily a franchisor, and franchising is essential for producing

outstanding food, delivering specialized services, and growing profits. Secret Recipe
may improve its operations through franchising while franchisee ideas are evaluated
and, if successful, implemented across all relevant shops. For instance, the Boba
series received high engagement and requests from the Malaysian market due to the
viral of Boba or Pearl tea at one time. China, being the place of origin might benefit
from the selling of the Boba series as the drink is considered as their local favorite
drink. It shows that the franchising strategy might benefit their innovation and brand
development as each franchise may experiment and implement the new concept as a
trial. Once the concept has proven successful, then they can implement it in other
outlets.

3.2.6 Threat: Covid-19 pandemic

Pan et. al. (2020) stated that China's GDP rose by 7.9% to 21 806.28 billion yuan in
the first quarter of 2019. Nevertheless, the GDP in the first quarter of 2020 is 19 115.02
billion yuan, showing a declination of 12.34 percent due to the 15-day suspension of
economic activity. As a result, the first quarter GDP loss would be around 4413.95
billion yuan during the pandemic period. In fact, the Covid-19 pandemic did not only
affect China’s GDP but also affected the global economy. As the pandemic is highly
spreadable especially with the existence of the new variants and mutations, it will
cause the affected place to be quarantined or locked down. Thus, once the place is
locked down, it resulted in the local business since they cannot operate. The company
is forced to do cost reduction to maintain the business hence it will lead to other issues
such as retrenchment, shut down of the business, etc.

3.2.7 Threat: Competition of local bakeries and pastries that fit the local taste

As China is known as the main producer of raw material, it will be advantageous to the
local business as they can gain the raw material at a cheaper price at lower tax
charges. Thus, the price of local bakeries or pastries will be much lesser compared to
Secret Recipe. Jiang (2021) highlighted in the article that the increasing number of
China's middle class and the adaptation of Western lifestyles and diets, which involve
quick meal alternatives, influenced the bakeries industry's rapid growth in recent years.
It is recorded those local bakeries make up most of China's 600,000 bakeries. As the
local bakeries offer the traditional bakeries and start to adapt with the modernization,
Secret Recipe needs to step up its games to maintain relevance in the market.

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3.3 PESTLE Analysis

3.3.1 Politic

As the country is strictly influenced by government laws, either statutory or informal

corporate legislation needs to be followed (Pestle Analysis, 2015). The People’s
Republic of China was founded and ruled by the Communist Party. In our opination,
this led to the lack of political freedom, and this can cause major concern to enter
China’s market. Despite the lack of openness in the country's political system, China
is still considered a stable political environment. Besides that, China also managed to
maintain a good diplomatic relationship with many other countries including Malaysia.

Even though the government has focused on e-commerce expansion over the past
few years, there are no standards in place to safeguard privacy, digital signature
recognition, consumer rights, or the validity of electronic contracts up till now. Another
aspect that should be highlighted is the existence of the Communist Party in China
(Farooq, 2019). If a product, service, or one of its components is considered
incompatible with the Communist Party's principles, it will be specifically banned. As a
result, all ads and marketing strategies must be modified when dealing with the
Chinese market.

3.3.2 Economy

Pan et al. (2020) highlighted that China's GDP increased 7.9% to 21 806.28 billion
yuan in the first quarter of 2019. Despite this, due to the 15-day economic activity halt,
GDP in the first quarter of 2020 is 19 115.02 billion yuan, down 12.34 percent from the
previous quarter. As a result, during the pandemic period, the first quarter GDP loss
will be about 4413.95 billion yuan. Nevertheless, as the GDP decreased due to the
pandemic, it shows that the country recovered rapidly in the second quarter after the
pandemic affecting their economy badly. Even though China's pandemic situation had
stabilized by the second quarter, global outbreaks had a significant impact on China's
import and export, with most domestic products demanding transport for internal
demand.

China is categorized as the world’s largest economy based on purchasing power basis.
Despite all the GDP numbers, we cannot argue that China has a big population, and
we should consider this to enter China’s market. However, there are also a few
challenges due to the economic development in China such as high inequality, rapid
urbanization, and environmental damages. All these challenges need to be handled
by China to ensure economic sustainability.

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 Moreover, factors of the cheap labor in China also became an attractive factor for most
of the global companies to manufacture their product in China. With the cheap labor
and improved infrastructure, China became more dominant for overseas investors
such as Australia, Brazil, Indonesia, United Arab Emirates, Argentina, and Pakistan.
China also becomes the largest exporting nation in the world in 2009 and later be the
specialist area to produce automatic data processing machines and components,
clothes, mobile phones, textile, and many other products (Blazyte, 2020).

3.3.3 Social

Women account for over 65 percent of baked goods customers in China, according to
Daxue Consulting, with more than 80 percent under the age of 40. (Jiang, 2021). As
65 percent of customers are female and most of the bakeries are purchased by more
than 80 percent of China's largest age group, it suggests that market demand for
bakeries and pastries is rather strong. For China market, the aesthetic appeal and
flavor variation are the focus since they serve as an attraction for them. In fact, a fancy
layered cake with a unique flavor will appeal to them, thus variety in flavors and product
advances are as important as localizing tastes to target consumer preferences.

The private sector was governed by market coordination, which was incorporated in
the state authority structure to aid the state in maintaining control over private company
market access, financial channels, and social credit in China (Wu 2010). In the
transaction on private property rights, the state will have a role in bureaucratic
coordination. Based on “The Journal of Chinese Sociology” by Xin Liu, in China, to
manage residual income, there are major class positions based on the ownership of
economic assets and human capital.

Control Control
Ownership of Control
rights of rights of
Class Position economic rights of
economic human
capital income
capital capital

Party and − + + +
government organ
and public institution
cadre

SOE/SCE board +/− + + +

chairman/general
manager

POE board + + + +
chairman/owner

POE manager +/− + + +

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 Control Control
Ownership of Control
rights of rights of
Class Position economic rights of
economic human
capital income
capital capital

Self-employed + + − +

Farmer +/− + +/− +

Professional +/− +/− +/− +/−

Worker − − − −

Table 1.0: Power basis of class position and its economic interests

3.3.4 Technology

Even though China has almost 450 million internet users, which has an impact on
consumer behavior, there are few secure online payment options, and credit card
usage is extremely low (Farooq, 2019). The main technological challenge for the
development of China's Business-to-Consumer sector is the lack of a secure and
dependable online payment system. In addition, the Chinese market has a high level
of uncertainty avoidance and a long-term orientation, which worsens the situation.
Nevertheless, it cannot be denied that the most important technical component
assisting the Chinese market is the internet. E-commerce is another important factor
that has increased the purchasing power of the Chinese market.

China also has rapid technological advances which also contributed to the role of
contemporary geopolitical competition. Besides that, China also managed to make
enormous investments and implemented a policy that can contribute significantly to
economic growth military capability, and global influence. The use of technology in
their daily life is significant in China and this will be one of the factors of entering China
market.

3.3.5 Legislation

One of the key concerns in the legal topic in China is the creation of e-commerce law
and its numerous repercussions, such as intellectual property rights, consumer rights,
tax policies, and so on (Farooq, 2019). In China, e-commerce is still a young industry,
and its legal development will largely benefit the economy's current growth model. As
this legal environment for e-commerce is still in its early stages, China has little
experience drafting e-commerce laws for concerns such as intellectual property rights
protection and taxation. At the time, no standards exist to secure personal information,

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 recognize digital signatures, defend consumer rights, or verify the validity of electronic
transactions.

There are a variety of laws in China that control company and employment activities,
including labor standards, employee compensation and benefits, labor disputes, and
so on. The PRC Labor Law of 1995, the PRC Labor Contract Law of 2007, and other
administrative legislation governed all of these laws (Chen 2020). The Ministry of
Commerce (also known as MOFCOM) in China has published the Foreign Investment
Catalogue and the catalog was divided into 3 main sectors. Refer to table 2.0 for the
sectors divided.

Main Sectors Description

Encouraged Industry These industries are actively seeking
(Agricultural, manufacturing industry of international investment. Investors are
food & beverages, textile, chemical sometimes given tax breaks, lower land prices,
products, pharmaceutical industry, and streamlined approval procedures.
equipment manufacturing, etc.)
Restricted Industry Government-imposed restrictions for foreign
(Cultivating of new varieties of crops & investments. The government will be imposed
seeds, manufacturing complete foreign shareholding ratios, special approvals
automobile, telecommunication, requirements, and limits on the operation of the
securities company, etc.) company.
Prohibited Industry Foreign investment is prohibited for companies
(Fishing, news agencies, internet news operating in several Chinese industries.
services, air traffic control, development
& application of human stem cell and
genetic diagnosis technologies, etc.)

Table 2.0: China’s Foreign Investment Catalogue Divided Sectors

Secret Recipe managed to take advantage of encouraging industry and leisure on

some of the benefits given by China’s government. Accelerated approval procedures,
lower land investment prices, and favorable tax treatment are just a few of the benefits.

3.3.6 Environment

Farooq (2019) highlighted that many companies need to pay additional money to
ensure that their products fulfill environmental standards when they manufactured their
products there since China is acknowledged as one of the most polluted states in the
world. As a result, the production costs will rise, and thus leading to the profit margins

14
 falling. To overcome the issue, several forces had been highlighted and one of them
stated that China is aiming to break into the electric car industry, which will help to
reduce pollution levels in the country's cities. The government had put the initiative to
address the environmental concern to encouraging public participation in
environmental protection.

For Secret Recipe they are using standardize packaging made by paper box and the
packaging can be recycled as well. This factor is one of the factors which can support
the government intended to protect the Chinese environment.

3.4 Porter’s Diamond Analysis

The Porter’s Diamond analysis for Secret Recipe in China can be summarized as
follows:

Factor Conditions Firm, Strategy, Structure & Rivalry

• Adaptation on Western culture in food
• Targeted for middle- and upper- income
industry groups
• Urban regions
• Beijing and Shang Hai

Porter's Diamond
Analysis

Related & Supporting Industries Demand Condition

• 41% demand on cakes • 1.45 billion total population
• 40% demand on pastries • 51.9% male and 48.1% female
• 18% demands on breads • 73.6% between 15 to 64 years old

Figure 3.0: Target Market Analysis of Secret Recipe China

3.4.1 Factor Conditions

The growing middle class in China, as well as the adaption of Western lifestyles and
diets, which include fast meal alternatives, encouraged the bakeries industry's rapid
rise in recent years, according to Jiang (2021). Western-style pastries, which are
becoming a daily meal item for many middle-class urban clients, are posing a threat to
traditional Chinese pastries. The most typical periods for baked goods consumption in
China are breakfast, snacking, and festivities, with cakes, pastries, and bread being
the most popular products. Since the Chinese are adapting to the intake of bakeries in
their daily life, the target market will be increased as the demand increased as well.

15
3.4.2 Firm, Strategy, Structure & Rivalry

Secret Recipe considers price differentiation in their pricing method, which leads to the
setting of separate tariffs for middle-income and higher-income clients, according to
UKEssays (2018). Since the target market is from the middle- and upper-income
groups that are ready to spend their money on items other than fundamental
requirements, Secret Recipe will be situated in urban regions. Thus, for the first
opening, they focused on Beijing and Shanghai as the start.

3.4.3 Related & Supporting Industries

Jiang (2021) mentioned that for the record, cakes currently account for 41% of all
baked goods sold in Chinese markets. Whereas pastries account for 40% of bakery
sales, and bread accounts for just 18% of total sales. For Chinese customers, the
visual attractiveness and flavor variety are crucial as it becomes the attraction point for
them. For instance, the fancy layered cake with a different kind of flavor will attract
them. As localizing tastes to target market preferences is essential, variety in flavors
and product advancements also important. Thus, local flavor needs to be induced in
the cake recipe as a signature product in China.

3.4.4 Demand Condition

According to the Countrymeters (2021), the current population of China is recorded as

1.45 billion people with the distribution of 51.9% male and 48.1% female. Whereas for
the age distribution, 17.6% of the population is below 15 years old, 73.6% of them are
between 15 to 64 years old, while the remaining 8.9% are 65 years old and above.
According to Daxue Consulting, women account for about 65 percent of baked goods
purchasers in China, with more than 80 percent are below 40 years old (Jiang, 2021).
It shows that the market demand for bakeries and pastries is quite high since 65% of
the customers are female and more than 80% of the largest age population is the main
purchaser for bakeries in China.

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4.0 BARRIERS TO INTERNATIONALIZATION

Secret Recipe has an important goal of entering international markets around the
world. This is of course important to ensure that the Secret Recipe gets global
recognition. This goal is interpreted to be an effective strategy in winning the hearts
and satisfaction of more customers and thereby further securing the revenue and sales
of Secret Recipes (UKEssays, 2018). As we know, Secret Recipe is established in
Malaysia, and currently, they are growing the foreign countries as well such as
Indonesia, Singapore, Thailand, Brunei, Philippines, China, and Australia. (Yeong,
2011).

4.1 Domestic barriers

4.1.1 Food Waste Management

Secret Recipe baked the cake on daily basis and the problem will occur when the
cakes were unable to sell and it became stale. This issue had force Secret Recipe to
come up with a way to manage food waste. The proper planning for stocks and
operations needs to be done to minimize wastage.

4.2 Host Country Barriers

4.2.1 Adaption to Local Preferences

After the first outlet was opened in 2007, Secret Recipe still yet managed to become a
well-known brand in China, they did the adaption to their products and designs to cater
to China’s market. In the beginning, they have invested in R&D to include noodles in
their café menu to cater to local tastes. Besides that, they also pay some respects to
China’s belief to not used knives in the café. There are a few more adaptations did by
Secret Recipe which made them be accepted in China.

4.2.2 Expansion Strategy

Market globalization has grown rapidly in recent years. Therefore, the joint venture
strategy was applied by Secret Recipe Café as their main expansion strategy. For
practicing the strategy arising some barriers should be highlighted from the very
beginning. Most importantly, Secret Recipe as a foreign company might be losing a
great deal of control. It is far more difficult to assure quality and maintain the brand
when have quite strict regulations and when they are binding with some of the
restriction. Appropriate training, equipment, quality control, and resources are all key
elements in determining which partners to work with and providing them with the tools
they need to manufacture high-quality goods that align with brand values. It's important

17
 to remember the risk/return ratio. For joint venture strategy they can used the benefits
of the brand name by the influence from the local company who invested. As a foreign
food and beverages company, when they able to catch the attention of local company
who managed to invest it shows that their product is in a good quality and trustworthy.

The nature and severity of internationalization barriers vary not only between different
stages of internationalization but also between companies that are at the same stage
of the globalization process. External factors present in some markets greatly influence
how internationalization barriers are perceived. Firm size often determines the nature
and effect of internationalization barriers, with small businesses more likely to feel the
impact of the barriers (Leonidou, 1995).

The table below will show the barriers of internationalization in terms of both internal
and external aspects of a globalization process.

Internal Information Markets are difficult to find and assess due to a lack of information.
International market data that is problematic
Identifying business possibilities in other countries
Inability to reach consumers in other countries
Functional Management time to cope with internationalization is limited.
Personnel shortages/under-training for internationalization
Internationalization is hampered by a lack of surplus manufacturing
capacity.
Working capital shortage to fund internationalization
Marketing Product Creating fresh items for international markets
Adapting product design/style for internationalisation
Meeting product quality standards/specs for
internationalization
Packaging and labeling requirements for
internationalization
Providing technical and after-sales support
Price Customers are offered reasonable pricing.
It's difficult to match the prices of rivals.
Providing credit to international consumers
Distribution The intricacy of international distribution routes

18
 Obtaining distribution channels for
internationalization
Obtaining dependable international representation
Keeping a tight grip on foreign merchants
Inventory supply issues in other countries
Logistics Lack of warehousing facilities in other countries
Costs of transportation and insurance are excessive.
Promotion Adapting promotional efforts for internationalization
External Procedural Unfamiliar procedures/paperwork for internationalization
Communication issues with international consumers
Payments from overseas take a long time to arrive, and there isn't any
help or incentive from the government at home.
Governmental Home laws and regulations that are unfavorable
Various international customer behaviors and attitudes
Task Intense rivalry in international marketplaces
Unfamiliar procedures/paperwork for internationalization
Environmental Economic Economic circumstances in other countries are poor
or worsening.
Exchange rates for foreign currencies
Political- In international markets, there is political unrest.
Legal Foreign laws and regulations are quite strict.
Tariff and nontariff obstacles are high.
Sociocultural Foreign business methods that are unfamiliar
Various sociocultural characteristics
Differences between verbal and nonverbal language
Table 3.0: Internationalization Barriers

Source: Leonidou, An Analysis of the Barriers Hindering Small Business Export Development, 2004

Referring to the table above, we can see that many barriers must be faced by a
company to expand its business globally. The founder of Secret Recipe applied a
different strategy to adopt and penetrate the external market. When Secret Recipes
came to China, changes were made to the menu based on the four seasons in China,
such as adding more meat during winter. Moreover, he also believes that building a
sustainable business in another country is not easy as they will face several challenges
(Kam, 2009).

19
5.0 Analysis of Cultural Differences

Culture is essential for marketing because it influences desires and needs, which are
the primary marketing ideas, as well as the overall way of life in society (Ravasi &
Schultz, 2006). The way people in various nations see and interpret their reality differs
along four dimensions, according to Hofstede (1983): power distance, uncertainty
avoidance, individualism, and masculinity. The influence of culture often influences the
buyer's decision to accept the product. Meanwhile, organizational culture is defined as
the collective programming of the mind that distinguishes an organization member
from another.

For Secret Recipe, they use the concept of globalization to adapt the best culture that
can cope with the whole nation to ensure that they can deal with the cross-cultural
differences in every country they enter. Cultural shifts may make managing an
internationalization business more challenging, thus complicating communication,
decision-making, as well as employee management (Child & Markóczy, 1993). This
means that multinational CEOs must learn how to do business in a foreign country, as
well as how to work with a local partner (Barkema, Bell, & Pennings, 1996). According
to Barkema and Vermeulen, the chance of the JV surviving is lowered when joint
partners are located in countries with large differences in uncertainty avoidance and
long-term orientation (1997). Individual differences, on the other hand, have been
discovered to strengthen joint venture profitability and productivity (Li et al. 2001).
According to Georgieva et al., cultural differences impact managers' readiness to take
risks, the development of financial markets, and the tendency of firms to join contracts
(2012). In their research, cultural differences are also highlighted as a cause for firm-
like institutional failures.

5.1. Hofstede Culture Analysis Model

There are a few major cultural differences between the home country and the host
country. Based on the Hofstede Cultural analysis the difference is shown in the table
below.

20
 Hofstede Model Cultural Analysis – China vs. Malaysia
120

100
100
80 87
80
60 66
57
40 50
41
36
20 30
26 24
20
0
Power Distance Individualism Masculinity Uncertainty Long term Indulgence
Avoidance Orientation

China Malaysia

Figure 4.0: Hofstede Model Cultural Analysis – China vs Malaysia

(Source: Hofstede-insights.com)

Culture Home Country Host Country

Definition
Element Condition Condition
Power Dimension of how Society in Malaysia Most of the
Distance the society handle accepts a hierarchy inequalities in China
inequality among order which needs no being accepted by
people further justification. society and there is
no defense against
power abuse by high-
level authority
Individualism The degree of Similar to China, China is a quite high
interdependence of Malaysian society collectivist culture
society among its tends to have loyalty in where the society
members a collectivist culture. tend to have an
interest in the group
Masculinity Indicated that For Malaysian society, Chinese societies are
society is driven by it shows that no willing to sacrifice
competition, conclusion can be family and leisure
achievement, and made based on the priorities for work as
success as a value result they are based on
system

21
 success-oriented and
driven
Uncertainty When the The score shows that A quite low score
Avoidance members of society Malaysian society, not shows that China
felt threatened by concerned to avoid society has truth in
an uncertain uncertain situations. the immediate social
situation and Most of the society can circles. Chinese
created the belief easily be tolerated such society also felt
to avoid it as the flexible schedule comfortable with
and innovation is not ambiguity situations
seen as threatening. as most of the society
is ready for
adaptability and
entrepreneurship.
Long Term How the society From the score, it China practices
Orientation deals with their shows that Malaysian pragmatic culture
connection based society applied where they believe
on past normative culture. They the truth depending
experiences and have a strong concern on the situation,
challenges of with establishing the context, and time.
present and future. truth. They pay great Chinese society can
respect for the adapt to tradition
traditions. easily.
Indulgence The practice where Malaysian society Chinese society tends
people are trying to tends to realize their to become cynical and
control their impulse and desires to pessimistic. They can
desires and enjoy life. They have a be seen as a
impulse based on positive attitude and a restrained society
there were raised tendency to become which made them put
optimistic less emphasis on
leisure time and
control the
gratification of their
desires.
Table 4.0: Cultural Analysis – Malaysia vs China

22
China is distinct from the other six Southeast Asian nations into which they have
expanded. They learned a lot about the local culture when they traveled to China. It's
like starting a business in a new nation when they set up shop in a Chinese city.
Shanghai cannot represent the entire China and we cannot standardize the whole of
China. In terms of lifestyle and brand awareness, Beijing, Shanghai, and Guangzhou
are still acceptable, but when compared to a smaller province, things must be toned
down significantly. In this regard, Secret Recipe must grasp how Chinese culture
influences customer behavior and views while avoiding cultural differences in a foreign
country.

5.1.1. Relationship Development

Chinese business cultures are vastly different from Western ones because of
Confucius' teachings' powerful impact. Secret Recipe may begin the process of
creating solid guanxi (relationships) with a wide network of suppliers, merchants,
banks, and local officials to build trust and mutual benefit, and satisfaction. By getting
the right ‘guanxi’, it will minimize the risks, frustrations, and disappointments when
doing business in China (Los Angeles Chinese Learning Center 2006). The Chinese
national mentality is shaped by the concept of ‘Mianxi' (respect and self-esteem). It is
unacceptable in China to make someone feel humiliated (Brick 2004). Secret Recipe
must keep in mind that the Chinese need for respect and acknowledgment governs all
business contacts and agreements (Miller, 2006).

23
6.0 BUSINESS ENTRY STRATEGY

There are varieties of ways for an organization to penetrate the foreign market. The
definition of business entry strategy is a map out distribution design and delivery
method of goods or services to a new target market. The import and export of services
refer to the creation, establishment, and management of contracts in a foreign country.

6.1 Justification for Business Entry Strategy

6.1.1 Wholly Owned

Secret Recipe, they are well known as a franchise business in Malaysia, however,
once they enter China market, they did not start a franchise. As mentioned by the CEO
of Secret Recipe, during the interview session conducted by BizWeek, The Star
Publication in 2008, Datuk Steven Sim said they were invited by Carrefour to open one
outlet in the shopping mall, and they did open then the first outlet in 2007 in Shanghai.
Currently all outlet in China is wholly owned by Secret Recipe franchisor. The first
outlet was opened as a pilot test for Secret Recipe to know more about China market.
As proved, after 2007, they managed to open a few more outlets but still yet to directly
franchise the business.

They decided not to franchise the business as they founded that the Shanghai market
review can’t represent the whole China market. A lot of research needs to be done to
understand Chinese culture.

This entry strategy made by Secret Recipe is a wise decision as they want to start the
business in China by knowing the actual market preferences. Although they believe
that franchising is the easiest way to expand the business, they want the business to
be a long-term business. To have long-term business survived in such a complicated
demographic Secret Recipe chose to not open the franchise system yet in China.

They learn how to adapt to the Chinese market by did the product adaption, pay some
respect to their culture and traditional belief before they can be well known by achieving
a lot of recognition for their brand in China.

In terms of resources, as food and beverages are one of the encouraging industries in
China, Secret Recipe can have more support from the government, and they also have
the support from Carrefour as the party who invite them to open the first outlet and
enter the market at the first place.

24
6.1.2 Joint Venture

By 2014, to ensure Secret Recipe managed to continue expanding in China, they did
the joint venture with Fosun International Limited. These strategic alliances gave more
leverage for Secret Recipe to penetrate China’s market.

It is a must for Secret Recipe to adapts the Chinese business model as an expansion
strategy to have more knowledge in monitoring the food materials used and ensure
there is no violation of cultural taboos. Apart from that, Secret Recipe needs to get to
grips with the problem of trade barriers that have been issued by host countries as
well. Some of the examples are tariffs and non-tariff.

6.2 Access to Resources

Secret Recipe HQ will provide the training needed to operate its business model
accordingly. Because the industry of food and beverages is encouraged industry in
China, Secret Recipe managed to have access to the resources quite easy. From the
technology used, labour access and even some reduction of the tax is applicable for
encouraged industry like Secret Recipe. In this case, Secret Recipe will have the
benefit and enables to strengthen the business modules to compete with the rivals or
competitors in the same industries.

6.3 Ease of Access

Secret Recipe may utilize the locality advantages, for instance, a special menu needs
to be developed with the assists and advice of local customer feedback and
observation. The food market chain is bright in the prospective future. This is because
of immersing population of China. Therefore, food demand is high since everyone
needs food to live. However, Secret Recipe should ponder Chinese culture to excel in
the market. The strategic location needs to be choosing accordingly. Easy access will
benefit the customer to having a meal in the shop or take away.

6.4 The Strategy of International Business

International business strategy can be defined as the strategies that reflect trade-offs
between global integration and local responsiveness. The goal of such a strategy
involves increased profit for both parties. To successfully expand the market, Secret
Recipe needs to balance both. A good international business strategy will profile the
features and functions of the value chain. The below figure shows the most appropriate
international business strategy an organization can take on considering international
business strategy.

25
 INTERNATIONAL BUSINESS STRATEGY

High
C Global
O Transnational
standardization
S Strategy
T Strategy
R
E
D
U
C
T International Multi-domestic
I
Strategy Strategy
O
N

Low
Pressure for local responsiveness
Low High

Figure 5.0: International Business Strategy

To contemplate the above international business strategy, Secret Recipe will be

recommending using “Transnational Strategy” to foster China market. This strategy is
in favour of Secret Recipe that is not only in pressure for cost reduction as well as
pressure for local responsiveness.

To expand their presence into a new market, Secret Recipe must consider the
appropriateness of the product in that environment including how to market it based
on that specific culture and those customers' behaviours.

6.5.1 Strategy Advantages

The below figure is the advantages of Secret Recipe could indulge by choosing a
Transnational strategy for penetrating the China market.

- Less costly - Adapting to the local market

- Prioritizes global in which it operates.
standardization and - Greater penetration in local
efficiency. market
- centralize as many - Local preference and
resources as possible sensitivity

Figure 6.0: Advantages of Secret Recipe choose Transnational Strategy

26
6.5.2 Strategy Disadvantages

The below figure is the disadvantages of Secret Recipe could indulge by choosing a
Transnational strategy for penetrating the China market.

➢ Skilled staffs and resources

➢ Difficulties in managing entire organization.
➢ Alienation of local consumer

Figure 7.0: Disadvantages of Secret Recipe choose Transnational Strategy

From the above tables, we could conclude that Secret Recipe is more suitable to
implement a Transnational strategy because it can balance between the pressure in
cost reduction and local responsiveness. Secret Recipe should be analysed the
advantages and the potential risk that may occur along the way.

6.6 Location Strategy

The right location should be one of the key factors for an organization to succeed.
Hence, Secret Recipe should locate the store during the busy area for instance inside
the shopping mall. The ideal stores located inside the shopping mall also need to be
choosing perfectly. It should be easy to access to attract customers to come to the
store.

6.7 Logistic

Another key factor that must be determined is the logistics and transportation supplies
as well as storing place. In China, Yusen Logistics offers thought leadership in
industries such as Automotive, Health, Aerospace, Hi-Tech, Retail, and Food and
Beverages. (https://www.yusen-logistics.com). It is suggested to make a good
relationship with a local provider for all inbound and outbound therefore Secret Recipe
can avert circumstances. Considering for Shanghai area, the following companies
were recommended for consideration.

➢ Yusen Logistics.
➢ Everglory Logistics.
➢ Elee China Logistics.

Secret Recipe needs to avoid late delivery for resources such as raw material to keep
the store running. Secret Recipe promises a high-value lifestyle with a wide selection
of high-quality meals at reasonable costs. The demanding quality of food and desserts

27
 made with high-grade ingredients, along with reasonable prices, has created a whole
new lifestyle craze of food and cake enthusiasts. (https://www.secretrecipe.com.my).

6.8 Labour

When China began labour force reform ever since 1978, most of the labour force was
either working at a state-owned enterprise or as farm workers in the rural countryside.
Employment in China is generous and economical. Thus, Secret Recipe will open new
job opportunities and lift the China economy as well. It could be less hassle to get a
replacement for staffing. The skilled staff will deliver a delighted experienced.
Therefore, training and a happy environment need to be maintained to minimize staff
turnover. Common jobs in China industry consist of the service industry for forty-five
percent (45%), manufacturing for forty-five percent (45%) as well and agriculture for
ten percent (10%).

LABOUR IN CHINA

SERVICE
MANUFACTURING
AGRICULTURE

Figure 8.0: Labour in China

6.9 Customized Menu

Secret Recipe has a professional resource & development (R&D) team to work on a
unique menu to attract the customer’s attitudes of buying. Most cakes have been
segmented as interesting and leisure characteristics. The kids and teens are the
initiators of the buying process. The buyers will be anyone who has the financial
abilities. Secret Recipe always makes and sells cakes and dinners for special
occasions such as Valentine's Day, Mother's Day, and others. Customers may
purchase individual parts of the cake, and each piece is priced. Noodles are China's
most popular dish because the Chinese believe that eating 'long noodles' will ensure
a long life. (https://www.ukessays.com).

28
 7.0 MARKETING STRATEGY

A marketing mix consists of “the four Ps “(4P’s) marketing which includes Product,
Price, Promotion, and Place. However, in this Secret Recipe case, we will analyse
more. Therefore, instead of 4P’s, we will be using the marketing mix 7P’s instead and
evaluate the ideal strategy.

McCarthy, 1960 listed the People, Process, and Physical Evidence, and Promotion are part of
the seven Ps of marketing, but three other components assist to address the problems of
marketing services: Product, Price, Place (Booms & Bitner, 1982).

7P’s of Secret Recipe in China

PLACE PRICE PROMOTION PEOPLE PROCESS PHYSICAL
PRODUCT
EVIDENCE

Customized Customer
Easy to Advertisem experience Same store
Quality access Affordable ent Fast design
Skilled staff applied
Simple yet Logistic Relevant Special Organized
tasty menu Culture Headquarters
Sustainable Structured
Store adaption
Variety location Occasional Right location
Penetration Centralized
promo Loyalty
Improved strategy Company
Modern customer Complaints
recipe Event
concept image
Standardized Conducive

Figure 9.0: 7 P’s Marketing Mix of Secret Recipe in China

Secret Recipe, as a good marketer will adjust the theory to fit not only with current time
but as well as the business model. Marketing is not only to promote and sell the
products or services but to provide an unforgettable customer experience as well.

For Secret Recipe, they still maintain the standardized colour of packaging worldwide
and people can easily recognize when anyone holds it. They build the establish brand
and well maintained to keep up the remarkable value. They always ready to do some
adaption for their product to cater to the local market which can made them successful
when they enter new market.

29
 CONCLUSION

Secret Recipe is a well-known brand because of the quality of products offered. There are a
lot of factors that can contribute to the success of Secret Recipe in China. From the entry
market strategy until the marketing strategy, they made it comes from deep research and
observation. Secret Recipe does not just focus to expand their business, but they want to
ensure their business can be sustained for a long time in the market. The option they did for
China’s market was not a famous decision by Secret Recipe at that time as they are well
known as a franchise business, they still took the opportunity by grabbing the offered by
Carrefour to open their first outlet in China. Although they took some time to make Chinese
society know them, it is still on a good track where they keep the momentum from year by year
until they managed to attract Fosun Group to invest in their business.

Their strength in the marketing strategy by maintaining the signature of their packaging, the
used of their corporate colour, and even the similarities concept of the restaurant and café will
make people easy to recognize and remember their brand. Although in China they have so
many ethnics Secret Recipe still manages to cater to it by doing some of the adaptation to
their products. Besides the adaptation for some of the menu, they still maintaining some of the
signature products which they believe can be known globally.

30
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