A critical discussion of Porters view that the economic structure of Essay

A critical discussion of Porters view that the economic structure of the restaurant industry determines the pattern of competition in that industry - Essay Example The global restaurant industry is highly saturated and in a mature stage of development along the industry life cycle, a factor that is driven by the economics of the industry. The economic structure is influenced by the tangibles along the value chain for food services organisations, including the volume of suppliers along the supply chain and the pricing structure of procurement, which impacts all restaurant organisations. The industry is also impacted by the demographics of the consuming public in terms of income as well as the availability of financial capital or ability to raise capital in the regions where the food services organisations operate. Hence, there are a variety of factors that will determine the methods and strategies by which competitors attempt to compete to attain some form of competitive advantage that are all linked with the economics of the industry. The restaurant industry In China, as one example, there is a high concentration of Western fast food companies that have saturated the industry. Growth in consumer demand for Western food brands has given food service companies ample opportunities for expansion out of the North American and European markets. However, it not only consumer demand that has provided these opportunities, it is the investment by a more liberal Chinese government that has stabilised the regional economy that provides advantages for market entry and expansion. The government has injected considerable financial capital into urban development, there is more interest by venture capitalists for this same pursuit, and government policies have provided much more incentives for foreign direct investment in the country (Areddy 2009). Inflation has been largely stabilised by government intervention and policy development, thereby offering consumers much more disposable income that is crucial for sustaining profitability. In 2012, the government invested 57.92 billion USD to motivate more effective corporate borrowing and to control interest rates (Safe Trading 2013). From a social perspective, as Chinese culture begins adopting more ideologies and principles associated with a capitalistic economy, lifestyle preferences are changing that are favourable for new entrants in the fast food industry. In contemporary China, 50 percent of consumers prefer eating in restaurants over that of household consumption (Ganster 2006), which provides a potential market of approximately one half billion consumers. In 2008, consumers in Shanghai spent approximately seven percent of their total disposable income on restaurant dining which represented a whopping 20 percent increase in spending from that of 2007 (Rentz and Xu 2010). Therefore, the economic structure of the industry, coupled with higher guarantees of consumer expenditures on food services, establishes an industry environment that can satisfy profit expectations for a variety of major competitors and new market entrants into the country. The entire fast food industry in China, from a market value perspective, increased 16 percent between 2010 and 2011 and is estimated to be worth 74.8 billion USD in revenues to all competitors (Ho 2011). Therefore, major fast food companies, such as KFC, McDonald’s, Pizza Hut and Taco Bell, have found considerable profit success by entering the Chinese fast food market. Prior to recent years, however, in order for the aforementioned companies (and their large variety of other competitors) to achieve market success, they were forced to import food products from the West which significantly raised operating