A Corporate Management Case 9 PDF

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Case Study of KFC in the Asian market...

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Case 9: KFC Loves Global Growth Student: Cynthia Mesikano Corporate Management Professor: Dr. Lang November 23, 2019

Case overview Kentucky Fried Chicken first opened its doors in China in November 1987 and was the first ever Quick Service Restaurant (QSR) to open in China. Due to a great market entry strategy which involved localizing their menu, adapting their layout to the Chinese culture and strategic alliances, they have become the largest fast food chain in China. They operate under the YUM China umbrella and have over 6,100 locations all over China [ CITATION YUM19 \l 1033 ]. They have been very successful in China and continue to enjoy first mover advantages. KFC supply chain challenges One of the main challenges that KFC is currently facing in China that of a steady and quality oriented supply chain. This year alone has seen the increase in the price of chicken due to disruptions in the supply chain because of African Swine Flu [ CITATION Les19 \l 1033 ]. As a manager, I would work towards diversifying our supply chain to offset such situations. This would require us to source our meat from other regions. This would be difficult to solve because by nature China is protectionist to its economy. But it would be a necessary step in stabilizing the supply chain. I would also develop sources closer to home to ensure we can easily control the quality of the chickens we use in our products. This may entail quality training to be a requirement in order to be our vendor. I would recommend for YUM China to invest in our own agricultural farms so as to also control the quality of our product. It may also be necessary to invest in research and development of alternative meat which can be used when the supply chain is stricken. There are already some samples on the market and this may be a good time to begin testing these options with our customers. Other fast food chains like A&W already have these on the market. There have also been several incidences of scandals in recent years concerning KFC meat suppliers, i.e. the Husi rotten food scandal of 2014 [ CITATION Zoe14 \l 1033 ]. These scandals have affected the public’s trust in KFC’s ability to serve quality food and it takes the company a

long time to recover. Because of such incidences, it is imperative for KFC customers to be assured that our meat supplies are from vendors who provide the utmost quality. This is why I would implement rigorous and regular screening of our meat suppliers and a transparent means for the customers to know where their food is sourced.

Redesign Local Menus While KFC has done a tremendous job in meeting its foreign market needs by localizing menus, for example, serving meals with beer in Germany and serving meals in Bento boxes in Japan [ CITATION Tor19 \l 1033 ]; there is still some ways they can improve their operations back home. In recent years KFC has faced stiff competition in the USA from companies like Chick-FilA who have kept their focus on the changing tastes of the American consumer. Chick-Fil-A and other North American brands have introduced meat substitutes into their menu [ CITATION Ame19 \l 1033 ]. This movement was triggered by consumers preference for healthier lifestyles, sustainability and the need for ethical animal husbandry. As KFC’s focus was on internationalization, their competitors have taken advantage of this distraction to gain market share in the US. KFC is failing to adapt to the healthy eating trend in North America at the moment and companies like Nando’s are capitalizing on this inflexibility. KFC needs to redesign their menu for the health-conscious customers at home. They have already tried this in China by introducing a concept style restaurant called KPRO, they can stand to have the same concept in the US. Increase use of Technology In the last three years, McDonald’s has changed its organizational structure. They removed multiple layers of middle management. This has helped them become more agile in decision making and have been able to quickly roll out McCafe and Mobile Order and Pay system which allows customers to order ahead of time and pick up at the store [ CITATION EYR18 \l 1033 ].

KFC restructure their organization in order to quickly act and introduce these types of initiatives to remain relevant in the US.

Activities of other international QSR chains There are many ways to enter a market. There is direct exporting, franchising, joint ventures and turnkey to name a few. However, there are many hurdles which influence an organizations choice in selecting a strategy. Many fast food chains are expanding to growing markets like Asia and Africa, as in the case with Taco Bell entering the market in Sri Lanka as a partner to Gamma Pizzakraft Lanka and Pizza Hut entering Africa through Ethiopia’s Belayab Foods [ CITATION Rhi17 \l 1033 ]. Other fast food chains are expanding from Asia to North America. Jollibee, the Filipino fast food giant opened its first few restaurants in Canada as part of their global expansion initiative[ CITATION Sla19 \l 1033 ]. While the American brands are adapting their menu items to suit the Asian consumer, Jollibee is keeping its Asian menu intact to offer unique and “exotic” products to the western palette.

KFC was very successful in their Chinese market entry strategy due to the following factors:

High investment in Market Research It is clear that the main reason KFC found success in China was because they invested a lot in valuable and extensive market research. They took their time to understand the customer, the business environment of the country and how to capitalize on their core competencies in this market. This knowledge was useful in selecting and developing a very effective and efficient market entry strategy which is the back bone of their success today. Starbucks suffered great failures in Australia and Israel simply because they misunderstood the coffee culture and tastes in these two countries [ CITATION Int13 \l 1033 ]. Burger King and Wendy’s are lagging behind McDonald’s and KFC simply because their strategy has not helped them differentiate

themselves with the current market competitors. Other North American companies like Best Buy, Wal-Mart and Target failed in foreign markets because their market research was not accurate as that of KFC.

Successful Business Partnership KFC in China operates under Yum China Holdings which houses other fast food brands like Pizza Hut, Little Sheep and Taco Bell [ CITATION Yum19 \l 1033 ]. Being under the umbrella of a successful local company has helped KFC in building a strong relationship with the Chinese government and this in turn has helped lower some of the barriers to entry in the country. Being the first mover in this industry in Asia has given KFC a remarkable advantage over their competition. Their parent company also has a lot of experience with this market, and this know how has been essential in winning the Asian market over.

Menu and Service Customization

Unlike other fast food giants, KFC has not forced their American product onto the market. KFC has instead infused their core product into the local food culture of China. They included local cuisine to the menu to make it more appealing to the consumers. KFC China serve their customers in larger spaces because the Chinese culture is communal and families or social circles tend to eat together unlike western cultures [ CITATION Dav11 \l 1033 ]. This adaptation has made KFC endearing to China. McDonalds has also adapted their menu in places like India where they serve more vegetarian products to be successful. Domino’s Pizza has been known to serve Curry Pizza in India and Tuna toppings in Japan[ CITATION Don18 \l 1033 ]. Internationalizing of menu items has helped western fast food companies become successful. Taco Bell, a subsidiary of the YUM brand has failed to appeal to most non-western countries because they have not adapted their menu enough to attract the new markets.

Lessons for B2B There are lessons to be learnt here especially of B2B business on how to find success in foreign markets. B2B business have to fully understand their customer and customer needs. This will help them formulate winning strategies especially in foreign markets [ CITATION Mat17 \l 1033 ]. They have to adapt their products to their target market as much as possible in-order to capture and grow a market like how KFC and McDonalds have done in China. They should understand the business culture they are entering into and if the market is protectionist, they should endeavour to build strategic alliances with local firms and government bodies [ CITATION Mat17 \l 1033 ]. This is what KFC has done in this case.

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