A KFC free essay sample

If one international brand must be selected as the most favourite one for Chinese consumers, it would be Kentucky Fried Chicken, or KFC as it is known more commonly. According to questionnaire survey conducted by the globally-renowned marketing researching company AC Nielsen in 30 China cities in 1999, KFC was accepted by Chinese consumers as â€Å"the most popular brand† and ranked as the No. 1 among top ten international brands in China. With the increasing abundance of managerial experience, the expanding number of staffs and the gradually impeccable management system, KFC accelerates its velocity of development since entering the Chinese market in 1987. Up to now, there are over 3,200 outlets in more than 700 cities across China and the number keeps growing rapidly, which makes China the largest overseas market of KFC. It cannot be denied that KFC has achieved great success in China and the prosperity cannot be separated from its effective international business development roadmap for the Chinese market. Mode of Entry In the late 1980’s and early 1990’s when KFC entered China joint ventures were the only viable option for mode of entry due to government regulation. Initially KFC China formed joint ventures with local partners chosen by the government. The first joint venture was with the Government Poultry Department but this faced problems. Afterwards, KFC successfully partnered with the Tourist Department to form a joint venture because they had sufficient funds. This model was successfully replicated with many local partners across China. It effectively leveraged the tangible and intangible local resources of the joint venture partners, over time transferring them to KFC. Once joint ventures were no longer required by the government in the mid 1990’s KFC began buying out its partners and refrained from entering into new joint ventures. This gave KFC control and avoided disagreements commonly associated with joint ventures. KFC initially chose a regular chain model, rather than franchising as the mode of entry to the Chinese market because of a lack managerial skills and fear of losing their secret recipe. In 1992 after the fast food market matured, they introduced franchise method which helped KFC to expand faster. The first franchise territory was centred on the ancient Chinese city of Xian in 1993; however this produced mixed results and no more franchises licenses were issued until the year 2000. In early 2008 there were only a few dozen franchise stores out of over 2000 in China. In 1987 KFC opened its first outlet near Tiananmen Square in Beijing. Since then they have opened over 3,200 outlets in more than 700 cities across China. It is believed that a vital ingredient to KFC’s early success was its leadership team at the time. The pioneering team known as the ‘Taiwan Gang’ collectively had decades of fast-food industry experience prior to landing in China. Many of the team were from Taiwan or other South East Asian countries and understood Chinese culture. This meant that they knew how to manage relationships with government and joint venture partners, and also which strategies would be successful in the Chinese market. International Alliances At the time KFC entered China Joint Ventures were a necessity. In the late 1980s many businesses in China were at least part, if not wholly owned by the government. This meant that choosing the right partners was of vital importance for KFC as this would ensure business and political connections and help to build guanxi. Overall KFC chose the right Joint Venture partners in China. This was a complex process, and in each city KFC worked with different partners. There were often multiple partners within each city. For example partners in Beijing included a state owned bank and a food distributor/retailer. In Shanghai the New Asia Group led the Joint Venture partners. This was later merged into a hotel and catering group that remains affiliated to the Shanghai Municipal Government. These alliances and Joint Ventures proved pivotal to KFCs early success, guiding them through Chinas government regulatory and licensing hurdles. It helped that the partners were either pseudo-government enterprises, or already involved in the food distribution/retailing industries. However these alliance and joint venture relationships have often been complex, with many examples of disagreements. One of the most common areas of disagreement was against KFCs drive for system standardisation and centralisation to build a more efficient supply Chain. This disagreement was based around self-interest, as many of KFCs partners had established supply relationships with local partners outside of the KFC system, and to withdraw from those would mean a loss of guanxi. Other disagreements stemmed from a difference of short term and long term goals and business strategy. The nature of KFCs alliances in China has changed since the mid-1990s as the government has relaxed its stance on FDI and foreign ownership. As explained earlier KFC has also begun to franchise in China, with mixed levels of success. Human Resource Management One of the factors of the success of KFC comes from the outstanding managing group. Most of the managers they hired are from Taiwan which they called â€Å"Taiwan Gang† in 1990s. They have at least ten years’ experience in fast food industry, and some of about them have 15 to 20 years. Some of them even have working experience in McDonald’s. There are two reasons why Taiwanese dominated the leadership in KFC. First, the population of 23 million which is three to five times than Hong Kong and Singapore is one of the advantages. The fast food industry had been operating in Taiwan since the beginning of 1990s. Therefore, there are more restaurant management talents in Taiwan. Second, the education in Taiwan is highly related to Chinese culture, history, literature†¦etc. Thus, these Taiwanese have better understanding about Chinese culture even though they were studied in the West. Therefore, they have better understanding for the Chinese market. Also, Taiwanese can speak and write Mandarin better than managers from Hong Kong or Singapore. KFC also spent a lot of money and effort on training their employee in different aspects with systematic and scientific method. This not only enhanced the skilled of the employees but also built the culture of the company step by step. KFC provides good incentive strategies to their employees. For instance, they rate the best worker of the month and reward them. They also held competitions for employees such as â€Å"Champion of new product promotion†, â€Å"Master of chicken cooking† etc†¦ Through these kinds of competitions, KFC creates the competitiveness between different restaurant and increase the proficiency of their workers. KFC also emphasize on individual ability. Hence, as long as the employee has good skill and ability, it is very easy for him to get promoted. Unlike other companies, there is less of a bureaucracy problem in KFC. They convey the idea of â€Å"working in a big family† which means your colleges or even boss are like family and friends. Every employee will get a card with all the blessing from their colleges on his birthday. KFC wants their employees to know that they never forget their birthdays and increase the cohesion of their workers. KFC’s marketing strategy KFC has found the recipe for success in China. China has become the highest-growth market of KFC. There’s no doubt that KFC has well understood the Chinese consumer. KFC’s success can be attributed to context, people, strategy and application. Its core strengths are its marketing action and its high level of understanding in consumers’ habits and needs. KFC has achieved such dominance even over McDonald’s in China. This marketing strategy section will, first, develop a brief analysis of the fast food market and its consumers. Then, we will focus our study on the internal analysis. Therefore, we will analyse the marketing mix of KFC through the 5 P’s: product, price, promotion, place and people. External analysis With an average growth of 8% in GPD per year and a population of 1. 3 billion people, China remains to be a real great growth opportunity for both international and domestic brands. The Chinese fast food industry knows a huge growth, around 25% (between 2008-2010). Consumers’ habits are changing; Chinese urban consumers have a busier life, they belong to a fast emerging middle class, their average income is growing fast Indeed, in the last years, the changing in Chinese lifestyles and eating habits have created a real boom in fast food chains industry. The consumers considered here, are essentially those who live in large urban areas. Western-style foods have been more and more accepted as a way of eating in China. Therefore, China is now considered as the 5th largest fast food consuming country in the world. KFC has played an important role in the acceptance of fast food restaurants in China. Particularly, the market which is at stake here is the Chicken fast food restaurant’s one. The Chinese market is a great opportunity for chicken fried food. Food habits across China vary a lot, but, generally speaking chicken is the most preferred meat after pork. The fast food industry in China faces more and more players such as: KFC, Mc Donald’s, Dairy Queen, Burguer King, Pizza Hut, Subway, Kungfu, Little Sheep, Quanjude * Internal analysis Market segmentation and positioning Over the last few decades, KFC has become the most popular fast food chains among Chinese consumers. Yum is now the biggest restaurant group in China with annual sales in China over US$2 billion in 2008 (the New York Times 2008). Originally, the main KFC target was both children and youth. Both targets offer great opportunity of development for present and future. Youngsters have a real influence among society; they can exert it on relatives for generations to come. These groups are easier to convert to western eating habits than older age groups. Targeting young people is usually the best way of influencing the whole family decision; in fact, in many countries the children are the trendsetters and are always willing to adopt the latest trends. In China the one-child-policy plays an important part in reinforcing this phenomenon. Then, the launch of the â€Å"Family Bucket† product is a new step in KFC’s strategy since it targets the whole family and focuses on the Chinese value of sharing. The Segmentation of Chinese food market is not easy to define since you have to take into account the differences in: geography, economic classes, occasions, local habits†¦ Therefore, the easier segmentation to take into account here is the rural and the urban one. First, KFC targeted urban people; they are those who face western brands, those who can afford it. Consumers of KFC are looking for quality, price, flavor, speed, quality service†¦ From now on, KFC opens new restaurant in rural cities. These openings are considered as huge events. In other words, KFC is the more Chinese of the western fast food chain restaurant who knows how to combine fast food values and Chinese traditional values. KFC’s Positioning: An American Brand with Chinese characteristics and values for all the family * The 5 P’s * Product KFC benefits from Chinese consumer preference for chicken. It remains to be a great opportunity for them. KFC’s strategy focuses on a strategy of localization and adaptation to consumers’ habits and needs. This strategy is a huge part of KFC’s success. With a market such as China with a longstanding tradition in food market, KFC has no choice than adapt its offering and its menus to traditional Chinese meals. KFC couldn’t distribute the same product, it should adjust its product; therefore, KFC should fit their products to Chinese culinary taste. KFC highly localizes its offer and continuously launches new products such as: Chinese-style porridge for breakfast, rice, Beijing Chicken Roll served with scallion and seafood sauce, Spicy Diced Chicken, Sichuan-style dish, Mushroom chicken congee, tomato egg drop soup†¦ KFC Chinas frequent introduction of new and localized product is one of the core strengths of KFC and a direct result from its quick adaptation ability. RD teams are really close to the real consumers’ world. All of this product strategy leads to a real differentiation from competitors. KFC is turning into a real Chinese fast food chain. P172 * Price The KFC’s pricing strategy was globally a skimming strategy. They, first, focused on middle class to upper class people with high price. They, gradually, cut down on prices so as to also target the middle to lower class people and to answer to the competitive pressure. It’s a good way of entering both sides of the market. KFC proposes better marketing operations such as vouchers to cut down on prices, which is very important for most of Chinese people. It reinforces customer loyalty. Nonetheless, KFC is considered as a trustful fast food chains, therefore, the firm has to pay attention to such promotion since Chinese consumers demand a lot of KFC about trust, respect for consumer and promotion. There were few scandals which damaged KFC’s image, such as the fake promotional coupons on April 2010. * Promotion KFC’s localization strategy is not only focused on product but also on promotion. In fact, KFC adapts its promotion and advertising to Chinese values and Chinese symbols. KFC benefits from a good brand image thanks to its brand symbols. Actually, Colonel Sanders is the image of elderly, wisdom and good fortune. Through centuries, Chinese people respect and honour old people as a symbol of wisdom, affection, trust and benevolence. Therefore, KFC uses in its promotions this image of benevolent grand-father to target family instead of individuals. The Colonel plays an important role in enhancing and building a strong positive image to KFC among all age brackets. Moreover, in its promotions, KFC uses important values for Chinese people: tradition, family, sharing Most of the time, each region proposes local thematic promotions, local sponsorship involvement and local charity actions. For its promotion, KFC uses many different Medias to promote both brand image and values and products such as television, radio, the internet, street marketing, sponsorship, vouchers, charities, co-branding * Place As we have seen before, KFC matches franchising and fully owned restaurants. Most restaurants are located downtown. The average restaurant in China is quite different from US’ ones due to a bigger transaction volume per restaurant. Indeed, they benefit from a larger dining area, they have greater frying equipment in kitchens and they have larger volume equipment required behind the counter. * People The management is a front-line centred and customer focused. Maintaining a high quality service standard is really important within KFC’s strategy. This system is called CHAMPS: Cleanliness, Hospitality, Accuracy, Maintenance, Product quality and Speed. Those 6 values are shared by all the supply chain’s employees. Achieving such an excellence in quality service requires a well-trained and motivated workforce guided by a well-tested system. * SWOT Strengths| Weaknesses| * Chicken preference of consumers * Localization Product strategy * Localized promotion * KFC’s Symbols * CHAMPS| * Problem of trust in pricing (vouchers-misleading advertising) * Censured Advertising * Failed launches| Opportunities| Threats| * Growth in potential consumers * Chicken high consumption * Good supply in chicken| * High competitive pressure * Saturation risk| Yum Brands Negotiation for Startup Yum Brands Inc. based in Louisville is the worlds largest restaurant company with nearly 38,000 restaurants in over 110 countries and territories and more than 1 million associates. Yum brands are KFC, Pizza Hut and Taco Bell and they had to carry out the negotiation at the start up in China. Yum tried to use the western negotiation approach at the beginning but this approach in the negotiation proceedings was always hampered by the Chinese way of operating and YUM been a western capitalistic business that required a profit, time was always money but that was not the case for the Chinese. The Chinese had the option of sitting back and either waiting for a better deal to arrive from Yum or waiting for another restaurant business to come along that required access to the poultry industry. KFC Supply Negotiation Method KFC adopted a competitive bidding as its negotiation scheme for its supply chain. During 2000, in a continuous drive to reduce cost of goods sold, it used bidding process. The original method called for an open, fair and competitive bidding process that takes place every 6 months, but this method was tough and too demanding until they developed a new way by bidding price from the lowest X to the highest, each qualified supplier Y and they match the price X in other to protect Y’s volume purchased by KFC. If Y matched the price X, the sellers purchase volume was protected for the next 6months. If Y refused to match the price X, Y’s volume was awarded to X unless X’s maximum production capacity of KFC’s internal guideline threshold to avoid single-supplier risk was reached. Six months later, this biding process repeated itself. The adoption of this method helped KFC in China to continue to reduce cost of goods sold. Before any negotiation is attempted, it makes good sense to develop a BATNA. A BATNA is short for the ‘â€Å"Best Alternative To A Negotiated Agreement†. BATNA is a dynamic option that remains open for modification should any significant event occur during the negotiation proceedings. The application of BATNA had to be modified during the negotiation with the Chinese government because Yum needed to wait for the Chinese government and business sector to come up to speed to support the necessary quick-service food supply chain needed to sustain the growth demanded by Yum upper management and stockholders. Educating the company’s management division about the Chinese customs and the cultural differences also enabled them to negotiate more effectively because contract negotiations in China are still considered a work in progress, even when an agreement has been established there are modifications based on post settlement agreements. Conflict Faced Many of the conflicts YUM faced in China were directly correlated to the cultural differences and philosophies that exist between the Western and Eastern countries. When YUM entered the Chinese market the idea of bringing western ideologies to China were considered exciting. However, the fad seems to have worn off and the Chinese are more concerned with their ideals and beliefs. Therefore YUM brand Inc. will be required to continue negotiations with the government and maneuver through the complex legal system in order to continue the development of supply and distribution channels necessary for more growth. Guanxi Define the term ‘Guanxi’. Guanxi can be translated as relationships and connections. In all the Chinese dominated societies in Asia, people use the word Guanxi to speak of someone who knows lots of people, who is well connected, and gets things done, not necessarily through formal channels. Thus Guanxi is a social dimension and a human factor. What are the main theoretical explanations for Guanxi? There is an opportunity to link the two concepts, where relationship marketing is a formal legal contract defined and protected by the institutional framework, and guanxi is an informal interpersonal relationship involving mutual trust which is not stated explicitly in the legal contracts. How important are Guanxi in business relationships between Chinese and Western companies? To what extent should MNCs consider building Guanxi as part of their business strategy? In the west, they would like to make a deal by signing contract. In China, they would like to make a deal by Guanxi. In case of KFC, it gets successful because it picked the right joint venture partners in china. There were two JV partners of KFC, state-owned bank and a food distributor. They helped KFC a lot because they are government enterprises, which had a good relationship with government. It may help KFC to get the license quickly and prevent the regulatory hurdles. The other JV partner is already in the food distribution industry; its experience can help KFC to run business in China. They contribute read-to-use physical assets and Guanxi of various categories to KFC. Therefore, they facilitate KFC relatively smooth start-ups and early business success. To conclude, a right local partner is important for MNCs to setup their overseas company. For MNCs running business in China, we know that China has lacked a strong rule of law. Because the law has not often been able to provide the legal protections which it does in the west, Chinese people needed to develop another means of ensuring trust amongst themselves in personal and business matters. Maintaining face, or reputation, among people within one’s own network is also an important characteristic of Chinese culture. Because of the importance of maintaining face, Chinese people will usually not take advantage of a person with whom they have guanxi. This is true because if they develop guanxi with them and they were to take advantage of them, all of the people in their network would know what they had done and they would lose face with this network. By losing face they would also lose the respect of others in the group and potentially lose their connection with their network. Therefore guanxi has become a means of building trust that law cannot always provide for Chinese people in personal and business matters. For these reasons, a Chinese company will feel far more comfortable doing business with a company which they have strong guanxi because they believe it will make it far easier for them to trust their business counterpart Suggest strategies for MNCs to create and maintain Guanxi relationships. There are a number of online networking sites where you can make business contacts. If you are a trader (importer/exporter), you are probably already a member of Alibaba. Use the site to begin communications with your China contacts. For consultants, entrepreneurs and business people, Dragon China Business Network is a place to meet new China contacts. Professional networking sites like Linkedin and Xing, although they are not China-focused, have Chinese members and China groups. Keep in mind that online networking is just a starting point. Eventually, face to face meetings will be necessary to take these relationships to the level where there is mutual trust between both parties. Also, dont confuse guanxi with the style of business networking you may be accustomed to in North America or Europe. Guanxi goes beyond basic business networking. It takes longer to develop but in the end is more powerful. While developing guanxi is important to doing business in China it is not necessarily easy to develop, especially for a foreign company. Having a full-time, long-term presence in China is essential to developing and maintaining guanxi. In addition, to effectively develop guanxi your company it will be helpful to have a native-born Chinese person to be responsible for developing these relationships. A native Chinese person will be familiar and comfortable with the cultural niceties of developing guanxi in China. Your local Chinese staff or representative should meet regularly, in both formal and informal settings, with potential and current customers and relevant government agencies to develop strong relationships on behalf of your company. If government relations are important to your business your company may also want to consider hiring someone experienced working with the Chinese government on a full or part-time basis to leverage their contacts and experience with the government on your company’s behalf.