One definition of competitive advantage is “A condition or circumstance that puts a company in a favourable or superior business position.” (Oxford dictionary) and the definition of comparative advantage is “The ability of an individual or group to carry out a particular economic activity (such as making a specific product) more efficiently than another activity.” (Oxford dictionary).
This report is based on competitive advantage and comparative advantage to analyse the strengths and weaknesses of the nations and organisations. Michael Porter argues that even though the theory of comparative advantage has appeal, it is limited by its traditional focus on land, labour, natural resources and capital. There are many factors that are influencing the competitive advantage. The surrounding environment and conditions will also affect it.
Human resources of Domino's Pizza
Domino's Pizza is an American pizza restaurant chain and international franchised pizza delivery corporation which headquartered at Michigan. It is the second largest pizza restaurant chain in the United States which is only preceded by Pizza Hut. According to the factor conditions of the Porter Diamond, Domino's Pizza has more than 260,000 employees worldwide including the management team, the staff who deliver food to the customer and the staff who engage in the production process. (Domino's, 2016.) There is a head office team with different expertise, including IT, finance, HR, legal, marketing, operations and property. Most of them are responsible for professional and complicated task. (Domino's, 2016.) Also, there is also the supply chain team manufacture and deliver most of the ingredients to different stores. (Domino's, 2016.) The supply chain also include driving, warehouse and production. (Domino's, 2016.) On the other hand, there is also a store operations team. Domino's offer their team members to receive a full training of dough management and food hygiene for pizza makers and road safety for all delivery drivers. (Domino's, 2016.) These shows that most of the workers are well-trained and specialize in their work.
Capital resources of Domino's Pizza
There is a Domino Farms Office Park located in Ann Arbor area of Michigan which most production process and administration work take place in it. (Domino's, 2016.) Domino's mainly focuses on using technology and large scale machine combine with some human forces in the production process. For example, they use silo to hold flour and pump it in to the production floor. Also, there is a huge oil tank to store the oil in order to keep its temperature and quality. Besides using the large scale of tools to store the ingredients, they also use the machines in their production process. There are machines with cutter to portions out the meat of dough balls into various sizes for small, medium and large pizzas. After it's cut, it goes into a rounder to shape it into balls. After the dough balls heading out of the rounder, the conveyor belt transfer the balls to an X-ray machine to scan them for foreign and kick out any ball that are fail. In short, Domino's mainly focuses on technology and machine to help the production which can easier achieve efficiency.
On the other hand, Domino's Pizza has its branch stores in 81 countries. There are already 5245 stores in the United States. (Domino's, 2016) There are about 840 independent franchise owners in the United States. It has covered most the places (10 million miles each week) the United States which they can make their delivery to the customers from different places. (Domino's, 2016)
Demand conditions of Domino's Pizza
In 2016, Domino's profit in the United States has increased because of the demand holds up in the pizza price war. (Reuters, 2016) Domino's reported that there was an unexpected profit from the cheese prices fall. Although there are heavy promotions from the rivals such as Pizza Hut and Papa John's, the demand of Domino's Pizza held up in the United States. The sales at Domino's United States company-owned and franchised restaurants rose 10.7 percent in the fourth quarter in 2015. (Reuters, 2016) Besides, there are some special days that the demand for ordering Domino's Pizza increase. For example, Halloween is the busiest delivery day of the year because most people would celebrate on that day and they don't want to cook for the night. Also, there are Thanksgiving Eve, New Year's Eve, New Year's Day and Super Bowl Sunday in that period. Especially on the Super Bowl Sunday, Domino's Sell more than 11 million pizza slices which is nearly 350% more than a normal Sunday. (Reuters, 2016) This shows that the price war and the special events may help boosted the demand of ordering Domino's Pizza.
Domino's strategy, structure and rivalry
Domino's Pizza has been the second largest franchised pizza chain because they have a foreseeing business strategy. Domino's Pizza implements the franchise policy which allows the others the right to own, operate and franchise branches of the chain in other countries. In fact, Domino's is 97% franchise-owned. It has already operates 12,900 stores in more than 80 countries around the world. (Domino's, 2016) More than half of the sales are now coming from the global market. Also, Domino's has experienced 22 consecutive years of positive same store sales growth in the international market. (Domino's, 2016)This shows that the success of the franchising lead to the growth of sales and market share for Domino's Pizza.
On the other hand, Domino's has been focusing on technology and online development. According to the Domino's official website, Domino's is one of the top five companies using online transactions. There are already 95% of smartphones can cover with the ordering app such as iPhone, Android, Windows Phone 8 which around 50% of its sales in the United States come from the digital ordering channels. (Domino's, 2016) Therefore, Domino's has made the right decision in developing online transaction.
The role of government
Domino's is subject to different local, state, and federal laws that are affecting its business operation. For example, meeting various health, sanitation, fire and safety standards in different states because its franchised stores are subject to licensing and regulation by a number of government authorities. In order to unite the image of each store, Domino's is required to expand funds to meet certain regulations. Besides, it is also subject to the regulations of the Food and Drug Administration. There are regulations which would require its franchises to show the calorie information on their in-store menu board. This cost each store $4700 every year and the operating cost would be higher. On the other hand, it is also subject to the regulations of the Federal Trade Commission and state laws that are managing the sales of franchises. The Federal Trade Commission and state laws state that they should provide a franchise disclosure document which include information to prospective franchisees. The state laws not only limit the duration, scope of non-competition provisions, but also the ability of a franchisor to terminate or refuse to renew a franchise designate sources of supply. Therefore, their franchise disclosure document with applicable state versions, supplements and franchise procedures are all following the Federal Trade Commission guidelines and all state laws that are regulating franchising in those states. As a result, it shows that the government regulations might affect the operation of Domino's. Although Domino's is the second largest pizza chain and having a large market share in the United States, it is constrained by the government regulations. Their operating cost would be higher as they need to mention the calorie information on the in-store menu board and follow different laws and rules while making franchise agreement with others. The government has such regulations in order to protect the customer and provide those information to the customer. Also,
Porter Five Force
“The Porter's Five Forces is a simple but powerful tool for understanding where power lies in a business situation. This is useful, because it helps you understand both the strength of your current competitive position, and the strength of a position you're considering moving into.” According to the Porter Five Forces, there are five dimensions to analyse a competitor's strengths and weaknesses. Although Domino's has already been the second largest pizza chain in the United States, Pizza Hut still remains the largest pizza chain. In the following paragraphs, the strengths and weaknesses of Pizza Hut would be discussed.
Threat of New Entrants
The threat of new entrants for Pizza Hut is low because of three reasons. Firstly, the industry is affected by the effects of a deep recession as the prices of the ingredient is higher and more competition from non-traditional channels. Secondly, the competitors keep offering lower prices or discount for their products. Also, some of them even expand distribution channels to block the potential entrants. Thirdly, as the existing competitors can be benefit by the first mover advantages, they can have more mature technology in special production and a better relationship with the distribution channels. Thus, if others do not have any innovation or idea in the industry, they wouldn't remain their competitiveness.
Threat of Substitutes
There are a lot of substitutes products for the pizza restaurants as pizza is a kind of fast food. Pizza chain might face competition with other fast food chains. For example, chicken fast food chain, sandwich chains, burger chains etc. Also, other traditional restaurants start offering some fast convenient and cheap products and services as well. Thus, this may influence on the price competition, price will be more elastic as customers have more choices.
Power of Customers
The power of customers is low. Little do they have the bargaining power because fast food customers are large in number but it only need to focus on the individual customers. Every customer is unlikely to purchase a large quantity of product. Quick service restaurants are common in shopping centres, residential areas, college campuses and offices. As buyers are fragmented, pizza chain will not be suffered from losing small amount of customers. Besides, customers are not sensitive to price fluctuations that providers would have large price controlling power.
Power of Suppliers
The power of suppliers is low. In this industry, there are many competitive suppliers. The major suppliers are raw material suppliers. Raw materials for food production in the industry are commodity products, such as cheese and flour. Therefore, they have less influence in the industry. Although the industry is labour intensive, the labour supply is abundant that companies are not concerned about their labour force. Besides, suppliers tend to keep a long-term relationship with the purchasers. This shows that the suppliers are more reliable on the purchaser who is less powerful. Furthermore, some large scale fast food chain may vertically integrated with the supplier in order to maintain low costs and high quality products.
Local, regional and global
Local, regional and global competitors need to be analysed separately. According to the paragraphs in the Harvard Business Review, the rising tide of globalization haven't blended geographic and other distinction. However, it is arguably that distinctions are increasing in importance. The fact that is regionally focused strategies are not only an intermediate point between local and global strategies but also a separated strategy. It is used in integrated with local and global initiatives which can boost an organisation's performance.
High labour cost can improve national competitiveness
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