BM023-3-2Individual Assignment APU

Table of ContentsExecutive Summary21.0 Introduction32.0 Political-Legal Environment33.0 Economic Environment54.0 Social Environment66.0 Technological Environment77.0 Recommendations87.1 Political Environment87.2 Economic Environment87.3 Social Environment97.4 Technological Environment98.0 Summary99.0 References99.1 Websites99.2 Reports119.3 Electronic journal11

Executive Summary

The objective of this report is to provide comprehensive research and analysis on the political, economic, social and technological environment in Hong Kong. The research and analysis is then used to evaluate the market for potential in restaurant chains such as McDonalds. The restaurant chain industry in Hong Kong has been flourishing despite the already saturated market for restaurants. In order to establish a restaurant business in Hong Kong, PEST analysis is a noteworthy tool for studying and assessing the business environment. The company will see if the potential for restaurant chains in Hong Kong exists.

According to Hong Kong: The Facts by Cenus and Statistics (2013), Hong Kong is one of the worlds most populous territories. Its population density stands on 6,375 people per square kilometer. The population of Hong Kong is at 7.15 million people. Chinese form the largest ethnic group, comprising more than ninety five (95) percent of the population. Other ethnic groups that can be found in the territory include, mainly, communities of immigrants from Southeast Asian countries, with a strong presence of Philippines, Indonesians, Indians, Pakistanis and Nepalese.

Fertility rate in Hong Kong, according to Hong Kong: The Facts by Cenus and Statistics (2013), is among the lowest in the world and stands on 0.95 children per woman. Despite of the low birth rate, the territorys population continues to increase, mainly due to the massive migration from mainland China that stands on an average of forty five (45) thousand newcomers a year.

According to The World Factbook: Economy Hong Kong 2014 by the CIA (Central Intelligence Agency), Hong Kong possesses a free market economy extremely dependent upon international trade and finance which is significantly incorporating with mainland China . As a result of the beneficial economic policies, Hong Kong is a worldwide center for foreign investment and one of the simplest places in the world to do business. Its primary trade associate is China accounting for 49% of exports and 47% of imports. Additional primary trade partners consist of the US, Japan, Taiwan, Singapore, and South Korea. Its primary imports are raw materials and semi-manufactures, consumer goods, capital goods, foodstuffs, and fuels. Exports consist of electrical machinery and appliances , textiles , apparel , footwear , watches , clocks , toys , plastics , precious stones , and printed material . According to Peoples Daily Online (2010), Hong Kong ranked 2nd out of 185 countries in the World Bank Groups Ease of Doing Business Ranking.

1.0 Introduction

Regardless of whether its determining when to enter a foreign market or perhaps where to manufacture a new product, entrepreneurs need to comprehend the more substantial forces transforming their choices. One systematic approach to understanding these forces is to execute a PEST. PEST evaluation/analysis of any industry sector investigates the key elements which are influencing the industry and influencing the companies functioning in that sector. PEST is an acronym for political, economic, social and technological analysis.

Hong Kong features an uncommon stable and efficient business environment with the modern infrastructure and telecommunications that is certainly anticipated of the worlds 9th largest economy. The territorys economy may well rightly be described as the most laissez faire economy in the world and the governments policy is strictly non-interventionist.

2.0 Political-Legal Environment

The Political/Legal Environment refer to the political modifications in government influence which enables them to play a significant roles for companies. Political modifications are meticulously fixed with legal changes. Laws and regulations are constantly becoming updated in an array of areas, for instance, environmental legislation, health and safety and employment law.

According to Hong Kong Politics, government, and taxation by Advameg Inc. (2014), under the one country, two (2) systems arrangement, Hong Kong bears an independent system from that of Mainland China. Hong Kong enjoys low rates of corruption (figure 1.0), although business interests exercise a strong influence in the unicameral legislature and executive branch. It includes a unique legislative framework and a Judiciary independent of the government. Hong Kongs legal environment delivers a solid foundation for its free market, competitive economy.

Figure 1.0 (Freedom from Corruption)

Source: Heritage.org (2014)

The profits tax rate is the same for foreign and local companies a low 16.5 %, According to the report Doing business in Hong Kong by HSBC (2011). In addition, the actual tax bill is often even less after various deductions and depreciation allowances. The court system assures the enforcement of contracts and effective resolution of disputes. In addition, there are minimal legal procedures to register a company or to establish a business.

The most significant opportunity for a Restaurant chain such as McDonalds, is that Hong Kong is politically stable, so there would rarely be any political factors that will interrupt and slow down the companys growth. The impact of the recently introduced minimum wage on the labor market has been relatively subdued (figure 2.0, Labor Freedom). An additional substantial opportunity is that there is not well-established minimum wage policy in Hong Kong, which allows restaurants to hire employees at a reduced wage to maximize their profit.

Presently there is an absence in a goods and services tax in Hong Kong, this allows Restaurant chains to have lower expenses. In addition, Hong Kong taxes are among the lowest in the world, and the tax regime is simple and predictable. Nevertheless, there are many work unions and organizations in Hong Kong that tries to protect and improve the workers right. As an illustration, according to Hong Kong/China: Union for McDonald's fast-food workers demands better wages by Infoshop News (2014), work unions put pressure to McDonald to accumulate the workers salary and to improve the working environment. This has certainly affected McDonalds corporate image.

Figure 2.0 (Labor Freedom)

Source: Heritage.org (2014)

3.0 Economic Environment

Economic changes are meticulously associated with social changes. An economy experiences a series of fluctuations correlated with common booms and slumps in economic activity. When an economy flourishes, pretty much all other organizations .businesses benefit. When an economy experiences a slump, most companies lose out, for instance general level of increase in prices. An Organization will be more likely encouraged to expand and take risks anytime when economic conditions are right, for example, low interest rates and rising demand.

According to Economic and Trade Information on Hong Kong by Hong Kong Trade Development Council (2014), Information regarding Hong Kongs economic climate, not to mention economic outlook, is essential, simply because it permits a business to plan upcoming strategies or realign present ones. Statistics for instance economic indicators or the governments national accounts all bestow information regarding the well-being of the economy as well as grant the foundation for good decision making for a business.

According to the report Lehman Brothers Bankruptcy by Price water house Coppers (2009), the economic breakdown which was brought on by the Leham Brothers has brought on Hong Kong to enter the recession phase in the economic cycle (Figure 1.0 Shows the Inflation Chart of Hong Kong). Consequently, the demands for low price food increases immensely and this would benefit restaurant chains, considering that food is cheap and the quality is guaranteed. Inflation has triggered the cost of supplies to increase and this could cause restaurants to raise their product (meal) prices. In the long run, in the event that the inflation continuously increases, it will certainly generate a threat to restaurants due to the fact that the product prices will be raised to a point that it will likely be unaffordable and the resturant will lose its large customer base that is from the lower class.

Figure 1.0 (Hong Kong Inflation Chart)

Source: Focuse-eonomics (2012)

4.0 Social Environment

The Social Environment refers to the pattern of behavior, choice/tastes and lifestyle. A significant element of this is a change in consumer behavior resulting from modifications in fashions and styles. The age fabrication of the population also changes over time. A comprehension of social changes provides organizations with a better feel of future/upcoming situations.

According to Doing Business in Hong Kong by Kwintessential (2013), the most important influence on the business (and social) environment would be the simple fact that Hong Kong is overwhelmingly populated by Chinese. The Chineses population are primarily drawn upon the five major groups of Southern China; i) The Cantonese, ii) The Fukkien, iii) Hainan, iv) The Chui Chow and v) The Hakka. Cantonese and English are the two languages of use on the island. In Hong Kong it is also necessary to point out that certain endemic Chinese cultural traits will permeate virtually all Hong Kong business life. Issues surrounding loss of face, communication styles and attitude to family ties will remain constant regardless of company type or even, to a large extent, educational background.

In Hong Kong, the way of life (lifestyle) is influenced by the Britain colonization which grants western restaurants a great advantage. People in Hong Kong are used to western food, so therefore western restaurants would have the potential of carrying a sizable customer base. A western fast food restaurant would be able to carry out their services in a short period of time and this would fit with the fast paced lifestyle in Hong Kong. In spite of this, in the past few years, Hong Kong people are more conscious of healthy eating, and therefore they stay away from high calories and high cholesterol food. In order for restaurants to adapt to this conscious of healthy eating, they should prevent the loss of customers by including healthier food alternatives in the menu, such as salads, fruits and sandwiches.

6.0 Technological Environment

Technological advancements has turned out to be particularly significant in the post-millennium world. This is certainly true when it comes to modern day communication technologies. The development of electronic communications and databases have allowed extensive quantities of data and information to be shared and rapidly dispersed in a modern company allowing extensive cost reductions together with frequent enhancements in services. It is essential for businesses to be knowledgeable about the latest applicable technologies for their organization.

The near proximity to the availability of resources such as raw material and cheap labor from mainland China together with South Asia possesses advance information technology system, constant together with close interaction by means of effective information flow ith relevant and supporting industries have become possible with good high-tech fiber-optic technologies and superior infrastructure in Hong Kong.

Hong Kong bears a competently developed transportation system, particularly the airport that have air carriers that connects to various parts of the world. This is certainly a substantial convenience to restaurant chains simply because their food supplies can be delivered in a short period of time and at a low cost. In addition, the integration of technology in the operations of a restaurant chains tends to add value to their products. The improvement of the inventory system as well as its supply chain allows the company to operate in an international context.

In Hong Kong, nevertheless, technology has allowed the capabilities of research which could affect restaurant chains. According to McDonald fined for excessive bacterial count in ice cream by Deccan Herald (2004), claimed that McDonalds had poor food processing, and that they found out there was an excessive amount of bacteria in McDonalds ice cream. This would have resulted in the decrease of sales for food products. This would also result in the decrease of sales for the other product lines, since the customers lose trust towards the company.

7.0 Recommendations7.1 Political Environment

Mainly because it is obvious that the restaurant chain will be expanding constantly, it is prudent to deal directly with the appropriate authorities in the corresponding markets which they intend to operate in. By doing so, it will be an effective way of developing good/sound relationships with the government. To accomplish this, restaurant chains need to achieve all the prescribed acts and satisfy all the prerequisites for doing business. The restaurant business should also be familiar with the law to be able to know exactly what their responsibilities and their possible liabilities.

7.2 Economic Environment

Before penetrating the market, the business ought to perform a well conducted market research particularly within the economic environment of Hong Kong. The rate of recurrence of the changes in the inflation rate as well as the fluctuations in the exchange rate affects the operations of the business.

7.3 Social Environment

Acquire the applicable information from the target marketing in conjunction with the individual customers of the business. Find out the changes in areas similar to the consumer behavior as well as purchasing patterns of the market. Essentially, this really is the key condition for executing a suitable customer relationship managing system.

7.4 Technological Environment

Make use of the internet to their advantage. The cost-effectiveness, interactive features and real-time effects of the communication are a sensible way to find suppliers. Additionally it is a sensible way to correspond with the respective headquarters in a restaurant chain.

8.0 Summary

The PEST analysis clearly exposes the political, social, economic and technological environment in Hong Kong and bestows additional opportunities than threats to the resturant chain industry. For the political environment, there is no reputable minimum wage policy in addition to there being no goods and services tax, this enables the restaurant to gain lower expenses. For the social environment, the peoples lifestyle is utilized to and fits well with the fast food custom.

For economy, the recession in Hong Kong has the capability to boost the resturant chains sales because the demand for low price food has increased. For the technological environment, the efficient transportation system enables the food supplies to be delivered at a more affordable price in addition to a quicker time. Those benefits has permitted the fast food industry in Hong Kong to operate effortlessly, however, it is important to observe the market as it has reached its top.

9.0 References 9.1 Websites

CIA (Central Intelligence Agency) (2014) The World Factbook, Available at: https://www.cia.gov/library/publications/the-world-factbook/geos/hk.html (Accessed: 17 October 2014).

Advameg, Inc (2014) Hong Kong - Politics, government, and taxation, Available at: http://www.nationsencyclopedia.com/economies/Asia-and-the-Pacific/Hong-Kong-POLITICS-GOVERNMENT-AND-TAXATION.html (Accessed: 19 October 2014).

Infoshop News (2014) Hong Kong/China: Union for McDonald's fast-food workers demands better wages, Available at: http://news.infoshop.org/article.php?story=20071008075338379 (Accessed: 19 October 2014).

Hong Kong Trade Development Council (2014) Economic and Trade Information on Hong Kong, Available at: http://hong-kong-economy-research.hktdc.com/business-news/article/Market-Environment/Economic-and-Trade-Information-on-Hong-Kong/etihk/en/1/1X000000/1X09OVUL.htm (Accessed: 19 October 2014).

Kwintessential (2013) Doing Business in Hong Kong, Available at: http://www.kwintessential.co.uk/etiquette/doing-business-hongkong.html (Accessed: 24 October 2014).

Deccan Herald (2004) McDonald fined for excessive bacterial count in ice cream, Available at: http://archive.deccanherald.com/Deccanherald/aug112004/update5.asp (Accessed: 24 October 2014).

PESTLE Analysis (2014) What is PESTLE Analysis?, Available at: http://pestleanalysis.com/ (Accessed: 26 October 2014).

Jim Riley (2012) PEST Analysis, Available at: http://www.tutor2u.net/business/strategy/PEST_analysis.htm (Accessed: 26 October 2014).

Focus economics (2012) Hong Kong - Inflation, Available at: http://focus-economics.com/news/hongkong/inflation/inflation-accelerates-march (Accessed: 26 October 2014).

Atsushi Sunami (2012) Environmental Technology: Hong Kongs Innovation System, Available at: http://www.savantas.org/cmsimg/files/Research/HKIP/Report/13_sunami.pdf (Accessed: 28 October 2014).

Peoples Daily Online (2010) Hong Kong's business environment ranks second in the world, Available at: http://english.people.com.cn/90001/90778/90861/7136854.html (Accessed: 29 October 2014).

9.2 Reports

Government Hong Kong (2013) Hong Kong: The Facts, Hong Kong: The Information Services Department.

Price water house Coopers (2009) Lehman Brothers Bankruptcy,: PricewaterhouseCoopers Financial Services Institute (FSI).

HSBC (2011) Doing business in Hong Kong, Hong Kong: PWC.

9.3 Electronic journal

M. Saeed, Ajay Kumar Singh (2000) 'THE BUSINESS ENVIRONMENT IN HONG KONG', Delhi Business Review, 1(2), pp. 1-6 [Online]. Available at: http://www.delhibusinessreview.org/v_1n2/dbrv1n2e.pdf (Accessed: 3 June 2014)