Kfc_Wins_in_China

KFC wins in China Introduction The Kentucky Fried Chicken was founded by Colonel Harland Sanders (born on September 9,1890) at the age of sixty-five. KFC is a fast food restaurant which specializes in fried chicken, and KFC relied on this advantage to occupy the Chinese market. By 2001, there were more than 500 KFC outlets all over China, so many that its stores couldn't get enough imported potatoes for mashing. In 2002, as China's middle class swelled and acquired more cars, KFC opened China's first drive-through restaurant. In 2004, the 1,000th store opened, and portraits of Colonel Sanders were displayed in all stores -- where he was quickly mistaken for Uncle Sam. By 2008, KFC had twice as many outlets in China as McDonald's, a reversal of the ratio in other parts of the world. Obviously, KFC’s success can be seen all around China, and even if its original rival, McDonald's has no choice but acknowledging the facts. There are many reasons for KFC’s success analysis from two parts, one is company’s external, the other is company’s internal by analysis methods, which are PEST, Five Forces and SWOT to help its analysis. KFC first entered China in Hong Kong, China in 1973; it quickly grew to 11 restaurants in the following year. But it misjudged the local market and failed to develop a suitable business model. By 1975, all 11 restaurants were forced to close their shutters Macro Environment Ten years later, KFC entered Chinese market again. At this time, KFC made an adequate preparation that PEST analysis for entering. Political Environment Political factors are how and to what degree a government intervenes in the economy. Specifically, political factors include areas such as tax policy, labour law, environmental law, trade restrictions, tariffs, and political stability. Political factors may also include goods and services which the government wants to provide or be provided (merit goods) and those that the government does not want to be provided (demerit goods or merit bads). Furthermore, governments have great influence on the health, education, and infrastructure of a nation At the time, China was in a transition which was at the beginning of reform and urban development. At the time, industry and city grew up quickly. In detail, China government provided a relatively relaxed environment through developing guidelines and policies to encourage FDI invested in China. For example, preferential tariffs reduce the import duties on products. Moreover, half capital and workplace become the preferential condition. In addition, a mind of peaceful development and building harmonious social advertises to citizens and the world. It looks like an invitation for foreign corporation develops in China. There is no doubt that China presented a huge business opportunity. So KFC got the first mover advantage entering China market. Economic Environment Economic factors include economic growth, interest rates, exchange rates and the inflation rate. These factors have major impacts on how businesses operate and make decisions. For example, interest rates affect a firm's cost of capital and therefore to what extent a business grows and expands. Exchange rates affect the costs of exporting goods and the supply and price of imported goods in an economy. Up to now, China GDP grows speed so fast have puzzled all around the world, even if 2008 financial crisis emerge a strong impact on the global economy, China GDP still maintain 8% to grow. For KFC, it is a good news that powerful economy supports the growing demands, then China market sales decrease the pressure from this financial crisis. On the other hand, an overseas market share was declined. It has been proved that KFC made a right strategy to choose China. Social Environment Social factors include the cultural aspects and include health consciousness, population growth rate, age distribution, career attitudes and emphasis on safety. The culture of a society presents together all elements, and forms a common culture. It means there are same value, norms , socialization, symbol and language and so on. Trends in social factors affect the demand for a company's products and how that company operates. Attitudes – ethnocentric and stereotypical attitudes are a particular source of noise in cross-cultural communication. Social Organization – nations, tribes, religious sects, or professions can influence our priorities and values. Though Patterns – the logical progression of reasoning varies by culture. Roles – the perception of the manager’s role differs considerable around the world, consider the conversation between the American and Chinese. Nonverbal Communication – behavior communicated without words; even minor variations in body language, speech rhythms, and punctuality can cause mistrust. Language – an inability to speak the local language, and a poor or too literal translation are often causes for mistrust. As a historical nation, China has own special culture. If KFC wants to sale their product in China market, research and study of Chinese culture is important. Attitude of consumer determines market share, social organization represents a number of consumers, good services and some coupons can get a good impression, and find a right commercial model to develop, play a reliable role in the business field, study and learn local language and adapt to local custom, let local people accept and trust KFC., and then KFC have done these and been success. Technological Environment Technological factors include ecological and environmental aspects, such as R&D activity, automation, technology incentives and the rate of technological change. They can determine barriers to entry, minimum efficient production level and influence outsourcing decisions. Furthermore, technological shifts can affect costs, quality, and lead to innovation. As we know, in China patent protection is going to complete the patent laws. KFC must consider the accelerating macro-environmental phenomenon of technoglobalism that rapid developments in information and communication technologies and the appropriability of technology. In a word, China is a place worth of investment that no one want to miss the potential market. But if KFC only relied on this analysis, it is not enough to enter this market. KFC needs a further analysis of Chinese market situation through Porter’s Five Forces Model. Porter’s Five Forces Model. The Threat of Entry. Seriousness of threat depends on size of pool of entry candidates and available resources, barriers to entry and reaction of existing firms. At that time, China government did not take measures to limit the scale, on the contrary, Chairman, Deng Xiaoping was willing to attract foreign company invested in China with all kinds of preferential policies, includes no limitation scale, low cost of entry, sufficient resources, industry growth is rapid and profit potential is high. Moreover, KFC got the first mover advantage in China and maximum benefits. Therefore, the threat of entry was stronger. The Power of Buyers. It is a fact China had to acknowledge that at that time, the power of buyer is weak for KFC. Buyers purchase item infrequently or in small quantities, switching costs to competing brands are high and Surge in buyer demand creates a “sellers’ market”. Fortunately, KFC‘s brand reputation is well-known around the world, and with high quality and good services attract consumers. The Power of Suppliers. The power of suppliers tends to be a reversal of the power of buyers. But in 1987 in China, numerous suppliers was a dream. So KFC in China used own ingredients from importing to ensure KFC’s quality. This result in high cost and some suppliers threaten to integrate forward. The power of supplier was stronger. The Threat of Substitutes KFC is a fast food restaurant, which is easy to copy. But under that circumstance, bits of competitors could produce substitute, and competition was very weak, even if there were some lower the price of substitutes, the famous brand will be the first choice in people’s heart. Moreover, foreign product were fresh for most people, in their eyes, KFC’s fast food would be professional. Therefore, there hardly exists powerful substitutes, and the threat of substitutes was weak. Competitive Rivalry This is most likely to be high where entry is likely; there is the threat of substitute products, and suppliers and buyers in the market attempt to control. This is why it is always seen in the center of the diagram. In China, because the threat of substitute products was weak, and suppliers was stronger, and buyers was weak, furthermore, Chinese market economy was not developed, householders’ income was too low to have consumption. Moreover, foreign appetite had not accepted by most of people, and KFC was a luxury product at the end of 20 century. So most of native people still would firstly chosen domestic restaurants. As a whole, domestic restaurant was the biggest rival. Micro Environment Next, when KFC learn about Chinese market situation, internal analysis that SWOTS will help us find a right product orientation. SWOT Strength 1.KFC is a well-known brand in the fast food industry. This emerge a strong brand effect, and then when Chinese people want to have a fast meal, KFC will be the first choice in people’s mind. And the success of the franchise depends on consumer loyalty and attracting the right sort of franchisee. 2. In China, most of people like pork as their main meat, and the second main meat is chicken, and KFC happens to mainly supply chicken foods. In other word, KFC’s product accords with Chinese appetite. Today KFC in China, Chinese consumers can choose foods they like; whatever the traditional KFC foods, or traditional Chinese foods. Furthermore, KFC tried its best to close to the local taste, only in China some special taste are, and various taste foods keep updating. Every fresh foods will bring a large growth. Local strategy is not only help KFC expand its market and increase the new growth, but also give a response for rational diet and get a large market share,. 3. KFC is a fast food restaurant; needless to say, its clear advantage is fast and convenient. For the majority of office workers, under the high work pressure and quick pace of city life, a simple meal is to supply energy to the body. quickly and convenient for more time to concern about the work. Weakness Health problems. In general, fast food is high sugar, high salt, and if we eat too much, as a result, obesity. As we know, obesity would emerge a series of health problems, like overweight, hypertension, hyperlipaemia, cardiopathy and so on. Most of foods are fried food and sweet foods in KFC. No matter how KFC announced that fast food of KFC have been rearranged in term of wholesome diet, the facts that fast food is junk food can not be changed. Nowadays, It is not difficult to find that growth people began to realize that the disadvantages of junk food, and they have been refusing. Therefore, KFC has to make a new strategy to face the future challenge, maybe we could see all kinds of fresh vegetables and bits of meats replace junk foods. Opportunity With the development of society, we can predict the future is an era of information technology. Various advanced technique speed up our paces of life. Everyday people will focus on innovation and creation; they have no more time to waste so that fast food is still a potential product in the future. As long as KFC keeps study of fast food, and do it better and better, which combines health and convenient, KFC could survive along. Threats A number of western fast food restaurant entered China, KFC is heating up competition with other fast food companies. At the same time, native fast food restaurant is to rise abruptly and the competition will be fiercer than before. Strategy Making From these analyses, KFC needs to choose a business model and make strategy to achieve the goal that marketing the Chinese market. At first, KFC chooses franchise approach to marketing. second, localization strategy. Franchise KFC sells intangible property and insists on rules for operating business to Chinese businessmen. One hand, costs have been reduced and risk of establishing enterprise is low. On the other hand, it may prohibit movement of profits from one country to support operations in another country, and quality control is limited. Worse quality means damaging the famous brand. But now, franchise have been success and used widely. This is a key to success for KFC. Localization KFC, a foreign brand with Chinese characteristics. In China, native people can eat the foreign fast food with Chinese taste, for example, local people which are in the southwest region of China like to eat spicy and sour food, then KFC create a new product for people who like to eat spicy and sour food. On the other hand, local people which are in the east of China like to eat sweet and mild food, KFC will emphasis on foods with sweet and mild food. Furthermore, Chinese traditional foods like twisted cruller have been presented on the menu of KFC, and KFC is focus on study of foods for Chinese only. Clearly, KFC’s success is inevitable in China. Conclusion Along with the pace of life speeding up, Chinese fast food industry is in rapid growth, the consumption food of convenience and nutrition are favored extremely by people, KFC are in a stronger position today. On the other hand, new challenges come into being, KFC keeps going, at the same time, get ready to face challenges. References KFC history: Veronica Romualdez(2009), The History of KFC in China, http://www.ehow.com/about_5476140_history-kfc-china.html#ixzz12rtD9EV4)   KFC entered the Hong Kong: Karen Cho(2009), KFC China's recipe for success, http://knowledge.insead.edu/KFCinChina090323.cfm'vid=195 Political Environment: Wikipedia, http://en.wikipedia.org/wiki/PEST_analysis Economic Environment: Wikipedia, http://en.wikipedia.org/wiki/PEST_analysis Social Environment: Wikipedia, http://en.wikipedia.org/wiki/PEST_analysis & Helen Deresky(2006), International Management, Pearson Education International Technological Environment: Wikipedia, http://en.wikipedia.org/wiki/PEST_analysis