Is Tony Wang correct in assuming that China is an ideal market for KFC? Should KFC be pursuing the Chinese market at the present time?
Considering China as a strategic location was based from a SWOT analysis.
Availability of Supply (Strength) There is ready access of quality poultry in the major metropolitan areas such as Shanghai, Guangzhou and Beijing. Poultry industry is one of the top priority categories in China’s agriculture modernization and it is highly encourage by the government. Thus, the company can ensure a reliable supply of high quality chicken.
Low Competitive Pressure (Strength) Potential competitors such as MacDonald’s face major barriers to enter the China market due to poor beef supply while KFC, aside from availability of high quality chicken supply, has the clear advantage since its main product-chicken- is eaten almost everywhere in the world. Furthermore, chicken is already familiar in China and even much cheaper.
Company’s Control Measures (Strength) KFC s control mechanisms are designed to ensure standard levels of quality, service and cleanliness (QSC) at all of the restaurant’s chain stores. This fits the positive image in Asia of American fast food restaurants as famous, air-conditioned, and hygienic.
Product Consumption (Strength) Chicken has long been regarded as a kind of nutritious food, which is especially good for the patients, the elders and children. An increase in health conscious consumers also raises the consumption of chicken. Moreover, chicken is a more popular meal than hamburgers in most Asian countries and KFC has the opportunity to offer an American style experience that is different from most other food establishments.
Drawing Area (Opportunity) In late 1978, China began implementing economic reforms to modernize its economy by lessening the government’s control of the economy. This reform referred as a socialist market economy boosted the national wealth and the consequent increase in individual’s income has led to steady changes in Chinese consumer patterns prevalent in pre-Mao era. As the world’s most populous nation with over 1 billion inhabitants, the potential size and growth for KFC makes the Chinese market very attractive. Not to mention, the possibility of establishing the first Western style fast-food operation in China as a historic opportunity for the company.
Scarce Human Resources (Weakness) Managerial resources are precious because of the scarcity of Chinese-speaking KFC managers. There are also possible conflicts between KFC-appointed managers and local employees. Lack of Local connections (Weakness)
Pioneering in the fast-food field would find KFC very difficult to form local and personal networks between businesses and government agencies, which are crucial in providing access to the local market and domestic suppliers and eventually, to the company’s success. Entering into a relatively unknown market, KFC, as a new entrant will have to get in touch with the local business customs and laws as well as with knowledge of culture and language.
Quality of Government (Threat) A communist government with strict foreign investment laws rules China. Setting up here requires heavy investment expenses and high levels of resource commitment. The risk of domestication measures may be imposed by the host government, often leading to major financial losses for the foreign investor.
Overcoming Threats and Weaknesses
KFC has three options of entering the China market thru, namely: Franchising, Wholly owned subsidiary and Joint venture.
The traditional franchising strategy, in markets where political risk and cultural unfamiliarity exists, certainly would reduce financial risks. However, KFC had already encountered problems in the past with the aligning of corporate planning with the franchisee’s short-term focus on profitability. In addition, KFC will be pioneering in the fast-food service and thus needs to be highly sensitive to cultural demands. In such case, franchising is not feasible. On the other hand, a wholly owned subsidiary would rely upon total control over competitive advantages and ensures complete operational and strategic control. It also involves high financial risk and little country-level flexibility and responsiveness.
This option is not recommended. Entering into a joint venture is highly recommended. Such an international business strategy will attempt to solve many logistics problems such as access to good quality chicken and other supplies, ease the access to Chinese market, share risk with a local entity, utilize ways to cut bureaucratic red-tape and finally, serve as a sign of commitment to the host government increasing goodwill. In addition, due to the complexity of many barriers to entry into China, a potential partner with sufficient contacts or networks with the government officials may smoothen the process of setting-up operations in the country.
The potential joint-venture partner should be large, well established, provide excellent distribution channels and have personal network access to government officials. It is recommended that a partner be found by backward integration- that is, a good domestic supplier of poultry. In order to ensure total commitment, the set-up of the joint venture should be with KFC as the dominant partner.
This way, cost, quality and strategic control measures are maintained. By building on each partner's core competencies, knowledge, and efficiencies, a mutually beneficial synergy effect could be achieved as a result of joint venture activities. For instance, the local partner can learn from KFC how to produce a better product at a lower cost and further expand on its new competitive positioning. KFC, on the other hand, can maintain quality supply, which is critical to its success.
The Chinese market represents a great opportunity for KFC where Tony Wang is correct in his assumptions. By finding an appropriate domestic business partner via backward integration, it is possible to further build onopportunities and significantly reduce risk throughout financial sharing, cultural sensitivity and favorable treatment from the host government. KFC should start pursuing this strategy at the present time and develop a coherent international strategy linking the China operations with the other markets.
Which of the three cities being investigated should the company choose if it decides to enter China?
The capital city, Beijing, is recommended as the preferred location for KFC’s entry into the Chinese market. Beijing is the center for most political activities and provides the necessary access to government agencies and business regulatory bodies. Also, it has a large population of nearly 9 million inhabitants.
The numerous universities located in the city contributes to more affluent and educated people that may make them more open to foreign ideas including Western fast-food. More importantly, plenty of Western tourists are attracted to Beijing’s many tourist attractions, increasing the potential for generating foreign currency sales. Furthermore, supplies of poultry are readily available. Beijing can serve as the initial platform of KFC’s operations and later expand into other potential areas such as Shanghai and Guangzhou.
One or two initial outlets should be set-up to get an insight of how KFC will be perceived in the Chinese capital. Both dine-in and take-out facilities much in line with most KFC’s international operations ought to be offered in large, clean and well-serviced outlets to cater for the customers with above-average disposable incomes. In order to serve large numbers of customers due to the sheer size of the population, the right cultural fit of the business restaurants must be highly functional and effective. Special menu-substitutions may also have to be facilitated to cater to consumers taste for traditional Chinese meals.
Capitalizing on Strengths and Opportunities
In the initial period of KFC’s entry into China market, few of Chinese consumers were really impressed with the food itself since the country is known to have the best culinary culture in the world. Instead, they were more fascinated with the eating experience: the encounter with friendly employees, quick service, spotless floors climate-controlled and brightly-lit dining areas, and smiling Colonel Sanders standing in front of the main gate. Having experienced the initial surprises brought by a never-seen western lifestyle, Chinese consumers have gradually calmed down and their consumption attitudes towards foreign products are getting more reasonable.
Since Chinese people are more concerned with the nutrition and tastes of the fast food, KFC taken advantage of McDonald’s. By offering poultry food that is more acceptable to Chinese people compared with beef, have taken consumers needs and competition with other brands into account. Knowing the market
The most prominent success of KFC in China is not only the outcome of KFC’s persistent tenets “quality, service and cleanliness” but also the achievements of its keen perception of cross-cultural marketing and its understanding of Chinese culture. Based on its scrutiny and adoption of Chinese traditional culinary arts, KFC has developed a series of products that are specially designed for the tastes of Chinese consumers. Moreover, in purpose of maintaining its image of a U.S. brand and keeping consistent with its globalization strategy, most of KFC s Chinese side dishes are defined as short-term products and would be replaced by new products.
KFC’s product strategies are categorized into two aspects:
1)To meet consumers desire for novelty by introducing western style products like Mexican Chicken Warp and New Orleans Barbeque Wings. This means can satisfy young consumers who are more open and acceptable to the foreign flavors.
2)To cater to consumers taste for traditional Chinese meal by offering Chinese style fast food from time to time, say, Old Beijing Chicken Roll, a wrap modeled after the way Peking duck is served, but with fried chicken inside and accompanied with green onions and hoi sin sauce, and Sichuan Spicy Chicken which absorbs the spicy flavor of Sichuan dish. This measure can attract older consumers who are fond of Chinese food and in need of the convenience of fast food service as well.