Dominos Expansion into the Mauritius

Contents

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  1. Introduction…………………………………………………………………………………1
  2. Framework of International Business in an overseas market………………………  2
  3. An analysis of why Domino’s could expand to Mauritius, as a potential market…. 3-5
  4. PESTLE Analysis of the Mauritian Market…………………………………………….  6
  • 4.1 Political Environment Analysis……………………………………………… 6
  • 4.2 Economic Environment Analysis……………………………………………7
  • 4.3 Social and Cultural Environment Analysis…………………………………8-9
  • 4.4 Legal Environment Analysis…………………………………………………10
  1. Recommendations…………………………………………………………………………11
  2. References……………………………………………………………………………  12-13

1.0 Introduction

The aim of this report is to show how Mauritius could be a land of opportunity for a restaurant chain like Domino’s to be developed and how it could target the whole population with it’s uniqueness and great taste.  The theory of international business and its implications on Mauritius as a new targeted market for Domino’s will be explained and put into a framework for analysis.  Moreover, to understand the power of a business situation and to know whether Mauritius can be viable as a market for Domino’s, the PESTLE Analysis tool will be used.  This will show whether or not this internationalization can be considered moving into.

From those tools mentioned, academic theories will be developed to analyse how strategically profitable this business could be and how powerful it can prove to be in the long run.  Globalisation has made competition become fierce worldwide and developing the fast food market with Domino’s could be a competitive advantage for Mauritius.

Domino’s Pizza Inc. is an American restaurant chain and international franchise pizza delivery headquartered in the United States (US), present in 73 countries and offering a wide variety of menus.  It was founded in 1960 and is the second largest pizza chain in the US, after pizza hut.  Mauritius has currently only two pizza chains namely; Pizza hut and Debonairs Pizza.

The report will also dig in and analyse some of the barriers that could exist in the Mauritian market for Domino’s based on the prevailing market conditions.  Overall the document will outline some theories based on the international business framework and will also give an idea about the internationalization process within an overseas market.

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2.0 Framework of International Business in an overseas market

In the context of an increasingly challenging global market environment, most companies depend on international business for survival and growth.  This presence of globalization has made competition become fiercer, which as a result calls for an improved quality of the selected overseas market and the chosen mode of entry (Koch, 2001).  Decision to expand in an overseas market is quite delicate and depends on various criteria before actually getting into this process of internationalization, or else that move could prove to be risky for both the company and the new market.  The international market should be scanned very carefully in terms of its strengths, weaknesses, opportunities and threats.

Mauritius, as a developing nation is considered as an emerging market.  According to Hoskisson et al.  Emerging markets are characterized by low income and are rapidly growing nations whereby economic liberalisation is their powerful tool to achieve economic growth (Douglas E, 2001).  Hoskisson et al. always say that emerging markets are different from other markets through “government policies favoring economic liberalization and the adoption of a free-market system” growth (Douglas E, p.9).  Moving to an overseas country in an emerging market could well be a good potential for a developed country to venture.

Before choosing to do business with an overseas country, the home country will think about a market that has ‘smaller, cultural, institutional and geographic distance’.  Other criteria that might affect their choice decisions are; the “lower tariff rates, cheaper resources and easier acquisition possibilities and less competition” (Fey et al. 2016).  If a developed country chooses to enter an emerging market, that market will need to be well developed with a stable environment created by no major political upheavals leading to social stability.

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The example of the Chinese telecommunication equipment company Huawei is a good one to explain why internationalisation should happen in a developing country first before moving to other developed nations.  The question was; “So how did Huawei achieve it’s success of having no international activity back in 1999 to $11 billion of sales by 2006, whereby 65% was foreign sales only, and 31 of the world’s top 50 telecommunications operators were their customers” (Fey et al. 2016).  It is believed that part of the secret emanated from Chinese history and followed ‘Mao’s military strategy’ – where the best way was to target rural areas first, barricade the cities and then move into them.  In regards to their business strategy, Huawei adopted the same approach of internationalising by first entering “developing countries or transforming economies”, which showed less competition and relatively good growth potentials and then later moved to developed ones (Fey et al. 2016).

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3.0 An analysis of why Domino’s could expand to Mauritius, as a potential market

Before analysing the Mauritian market for Domino’s, it is important to briefly explain and link the expansion strategy as to why that particular market is chosen for business.  As such, the table below, which depicts a general systematic approach to international market expansion and entry mode selected, will be briefly analysed:

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(Koch 2001, p.70)

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The reason why Domino’s could target Mauritius as a long-term potential market for business would be because that would definitely help the firm to increase its profits, seek new economies of scale, to reduce operating costs by getting access to lower cost of factors of production and lower labour and ultimately take advantage of getting behind trade barriers, which can reduce the cost of entry in the island.  Furthermore, the area is well protected, free from wars and conflicts, provides easy access to goods and services, where it becomes easier to set up a business.

If Domino’s goals and objectives are aligned with the business strategy of entering the Mauritian market, then the risks involved might be lesser than choosing a bigger developed nation with more competition.  The major risk would be that Mauritius is a small country and there is no market propinquity between the island and Domino’s home country but the growth rates might increase faster because Mauritius does not have many pizza chains offering the same quality of product and service as Domino’s and is a culturally diverse country.  Therefore, the benefits will in the long run exceed the risks of operating in such market.  All these will be clearly analysed in the following analysis:

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4.0 PESTLE Analysis of the Mauritian Market

Mauritius is a republic and democratic country that gained independence from the British colony in 1968.  The country is small, an open African economy that attracts both Foreign Direct Investment (FDI) and domestic investment in a diversified economy, with a population of only 1,260,934 (Doing business 2016).  Mauritius is more engaged in exports than importing products, creating it as an Export Processing Zone since 1971 (Croucher & Rizov, 2015).  The country is characterised by low level of corruption and stable and strong institutions that attracts high levels of FDI.  ‘In 2011 the Heritage Foundation’s Economic Freedom ranked Mauritius as number eight in the world, two place above the USA’ (Croucher & Rizov p. 2702).  Very often the island is considered as an ‘African success story’, a unique example of constant successful developments where companies in Mauritius expand their operations in Africa and.  An effective analysis of the Mauritian market can be discussed as follows:

4.1 Political Environment Analysis

The political climate in Mauritius is moderate, thanks to democratic freedom.  The island has strong constitutions for successful development.  According to Alon and McKee 1999, Political risk refers to the host country government actions that have adverse effects on the business environment in which an international country wishes to venture for business (Hoffman et al. 2008).  In mid-2011 because of a high inflation rate, the government in Mauritius introduced a monetary tightening policy.  Therefore, this action facilitated improvements in the business climate, which ultimately created ease of access for foreign investments and business venturing in the region.

Mauritius depends largely on it’s exports to obtain FDI and have been a champion in doing so thanks to ‘low-cost labour, efficient infrastructure, preferential access to large markets to promote Free Trade, sound legal system, political stability, government policies favourable to foreign investors and a strong business environment with a vibrant entrepreneurial culture’ (Seetanah & Boopen, 2011, p. 29).

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This implies that thanks to political stability, within a democratic framework Mauritius attracts many foreign transactions and all those companies coming from abroad to work in the island constitute as ‘proofs’ of a stable political system.  Mauritius and the United States (US) have trade agreements where they signed a “Trade & Investment Framework Agreement *TIFE) in 2006 (Office of the United States Trade Representative 2014).  The aim of TIFA is to reinforce and expand trade ties between US and Mauritius.  It also provides an opportunity to work more closely on various trade-related issues, including moving the World Trade Organisation (WTO) Doha Round forward and implementing the African Growth and Opportunity Act (AGOA), all facilitating free trade between the island and other countries ( Trade Easy 2016).

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4.2 Economic Environment Analysis

According to the ‘Doing business 2016 World Bank Report’, Mauritius is ranked at the 32nd place in it’s ‘ease of doing business’ and 66th in ‘trading across borders’, among 189 countries globally ( business 2016).  This could be a source of attractiveness on behalf of overseas companies willing to operate in the island.  A small island state, still in a developing mode with little population is quite impressive in terms of various developments so far, based from those ranking indicators.  Mauritius made business easier by decreasing ‘trade license fees’ ( business 2016).

The Mauritian economy has become an upper middle-income diversified economy with a rise in economic growth over the years in the financial, industrial and tourist sectors.  This rising trend is ongoing, putting the island as a growing economy and it has shifted from a predominantly agriculture based economy to an industrial one.  “There are three pillars which are at the heart of the Mauritian economy namely; sugar, tourism and garment sectors with recent investments in information and communication services as well as of a seafood hub” (Kothari & Wilkinson, 2013, p. 94).

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The country is an export-oriented business hub that attracts a massive inflow of FDI’s, coming mostly from France, South Africa and other countries.  “The World bank’s 2008 Doing Business Report ranks the island first in Africa and 27th in the world for ease of doing business” (Seetanah & Boopen, 2011, p.29).  It forms part of the business-friendly countries.

The economic conditions of any countries are considered to be positive when an economy is growing at a steady rate and in a negative phase if an economy is in contracting mode.  Those favourable economic conditions diminish the risk perceptions of that market and make it more attractive to expand in that particular area (Hoffman et al. 2008).  As per the International Trade Forum, Mauritius “is an economic development success story” (Mauritius International Trade Forum 1999).  Thanks to it’s national export strategies, the island has become a mono-crop economy with an ‘internationally-oriented service sector’.  Preferential access to the European Union and United States markets for good and services have further expanded the Mauritian economy.  The government encourages enterprise development with subsidies and investment incentives to maintain an open economy.

4.3 Social and Cultural Environment Analysis

The Mauritian culture is recognised for its uniqueness and rich social and cultural diversity, which comprises of many various religions like Hindus, Christians, Muslims and Chinese and even people from abroad settling in the island.  As such, doing business in the country creates fewer challenges in terms of cultural dissimilarities.  The literacy rate in Mauritius is quite high.  As per the “education indicators in the United Nations Development Programme (UNDP) Human Development Report 2013, the island is doing relatively well with a youth literacy rate of 96.8% and an adult literacy rate of 88.8%” ( 2015).

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However, according to Statistics Mauritius, in 2013, 2,200 unemployed graduates were looking for a job and this was due to a skills-mismatch between the training gained at higher education level and what the market demanded in terms of skills.  This could represent an obstacle for doing business in Mauritius.

Nevertheless, from my personal observation, between 2013 and now, things have started to change with the recent government election in December 2014.  Creation of jobs has increased and is still in progress and various schemes have been introduced to offer training and work placements.  Mauritius creates social stability in a way because there exists no wars, whereby few ethnic conflicts do exist but do not last long.  Mauritians adopt the “fruit salad” metaphor, unlike the “melting pot” metaphor in the United States, which simply says that a multiethnic society prevails in the island instead of an individualistic one (Ng & Bloemraad, 2015, p. 623 ).  This way of living therefore creates a level playing ground between the genders and promotes equality.

Level of poverty in Mauritius is good, with less than 1% of the total population living on less than 1USD per day.  This also implies that purchasing power could remain strong for Mauritians.  More and more Mauritians now do not have time to cook or simply find it easier to buy food outside because of a wide variety of ‘food courts’ selling different types of food.  This ‘take-away’ and ‘food delivery’ trend is quite common in the island.

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4.4 Legal Environment Analysis

The legal environment of Mauritius comprises of various trade unions.  These trade unions protect employees’ and employers’ rights and laws for effective employment practice on the market.  “Countries with better legal investor protection should attract more foreign inflows of financial capital to their domestic businesses” (Starky, 2003, p.

3).  We have discussed earlier that Mauritius attracts and receives high inflows of FDI’s from exports, which also implies that the legal framework of the island is stable and sound.

An overseas market is also considered effective when its legal environment is of good quality and does not raise any uncertainties (Roy 2006).  Mauritius legal system, which is based on both English and French practices offers flexible corporate legislations together with good operation costs (‘Mauritius provides ocean of advantages’ 1997). The workforce in the island speaks both English and French with further creates a competitive advantage in terms of attracting business from Africa, Asia, the Middle East and Europe.  The good legal environment is due to the positive political participation and culture prevailing in the country.

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5.0 Recommendations

Based on the above analysis and framework, it could be deduced that Mauritius as a destination market for Domino’s could benefit from the Michael Porter’s possible generic strategies for competitive advantage.  Those advantages could exist both internally (firm’s level) and externally (the general pizza industry level).  Since Mauritius has only two pizza chains in the island, with not many competitors and substitutes, whereby pizza hut is not profitable enough and has closed down some it’s shops across the island, and debonairs is average, Domino’s could be a market leader for pizza, bringing value for money, uniqueness and a wide variety of menus if it adopts a ‘differentiation strategy’.

Domino’s should try to produce at a less expense than its competitors on the Mauritian market  so that demand and market share for the product increases and brings high revenue, thus creating a ‘cost leadership’ strategy as well.  The marketing trend says that people tend to buy more of a product at the creation stage.  Therefore, overall entry in Mauritius will be like a competitive move since political, economic, legal and social climates are stable and favourable to the little ‘fast-food nation’, whereby purchasing power is still high.

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6.0 References

1) Croucher, R & Rizov, M 2015, ‘MNEs and flexible working practices in Mauritius’, The International Journal of Human Resource Management, vol. 26, no. 21, pp. 2701-2717

2) Douglas E, T 2001, ‘Who goes abroad? International diversification by merging market firms into developed markets’, ProQuest Dissertations Publishing, pp. 1-121

3) Doing Business 2016, Measuring Regulatory Quality and Efficiency,

4) Fey, C.F, Nayak, A.K.J.R, Wu, C & Zhou, A.J 2016, ‘Internationalization Strategies of Emerging Market Multinationals: A Five M Framework’, Journal of Leadership & Organisational Studies, pp. 1-16

5) Hoffman, R.C, Kincaid, J.F, & Preble, J.F 2008, ‘International Franchise Expansion: Does Market Propinquity Matter?’, Multinational Business Review, vol. 16, no. 4, pp. 25-52

6) Koch, A.J 2001, ‘Selecting overseas markets and entry modes: two decision processes or one?’, Marketing Intelligence & Planning, Vol. 19, no. 1, pp. 65 – 75

7) Kothari, U & Wilkinson 2013, ‘Global Change, Small Island State Response: Restructuring and The Perpetuation of Uncertainty In Mauritius and Seychelles’, Journal of International Development, vol. 24, no. 1, pp. 92-10

8) Mauritius Trade Easy: Expanding markets and Facilitating compliance 2016,

http://www.mauritiustrade.mu/en/trade-agreements/usa#haut

9) Mauritius International Trade Forum 1999,      

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10) Mauritius 2015,

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11)  ‘Mauritius provides ocean of Advantages’, 1997, South China Morning Post, 27th April.

12) Office of the United States Trade Representative: Executive office of the President 2014,

13) Roy, J-P 2006, ‘International joint venture partner selection and performance: The role of the host country legal environment’, Proquest Dissertations Publishing, pp. 1-240

14) Seetanah, B & Rojid, S 2011, ‘The determinants of FDI in Mauritius: a dynamic time series investigation’, African Journal of Economic and Management Studies, vol. 2, no. 1, pp. 24-41.

15) S. NG, E & Bloemraad, I 2015, ‘A SWOT Analysis of Multiculturalism in Canada, Europe, Mauritius, and South Korea’, American Behavioral Scientist, vol. 59, no. 6, pp. 619-636.

16) Starky, S 2003, ‘Legal Environment as a Determinant of International Investment Positions: An Empirical Analysis’, ProQuest Dissertations Publishing, pp. 1-95.

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