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Introduction KFC operates in 74 countries and territories throughout the world. It was founded in Corbin, Kentucky by Colonel Harland D. Sanders. y 1964, the Colonel decided to sell the business to two Louisville businessmen. In 1966 they took KFC public and the company was listed on the New York Stock Exchange. In 1971, Heublein, Inc.
acquired KFC, soon after, conflicts erupted between the Colonel (which was working as a public relations and goodwill ambassador) and Heublein management over quality control issues and restaurant cleanliness. In 1977 a "back-to-the-basics" strategy was successfully implemented. By the time KFC was acquired by PepsiCo in 1986, it had grown to approximately 6, 600 units in 55 countries and territories. Due to strategic reasons, in 1997 PepsiCo spun off its restaurant businesses (Pizza Hut, Taco Bell and KFC) into a new company called Tricks Global Restaurants, Inc.
Reasons for going overseas Companies moves beyond domestic markets into international markets for the following reasons: Potential demand in foreign market Saturation of domestic markets Follow domestic customers that go abroad Bandwagon effect Comparative advantage - some countries possess unique natural or human resources that give them an edge when it comes to producing particular products. This factor, for example, explains South Africa's dominance in diamonds, and the ability of developing countries in Asia with low wage rates to compete successfully in products assembled by hand. Technological advantage - In one country a particular industry, often encouraged by government and spurred by the efforts of a few firms, develops a technological advantage over the rest of the world. For example, the United Sates dominated the computer industry for many years because of technology developed by companies such as IBM, Hewlett-Packard and Intel Organization structures for International Markets (Modes of Entry) The mode of entry affects a company's entire marketing mix Exporting Export merchant (Indirect) Export agent (Direct) Company sales branches Contracting Licensing Franchising Contract manufacturing Direct Investment Joint venture Strategic alliance Wholly owned subsidiaries Criteria for selecting a mode of entry 1. Company's marketing objectives: - production volume - time scale (long / short term) - coverage of market segments 2. Company's size 3.
Government encouragement or restrictions 4. Product quality requirements 5. Human resources requirements 6. Market information feedback 7. Learning curve requirements 8. Risks: political or economic 9.
Control needs Mode (s) of entry for KFC Franchising/Licensing wholly owned subsidiary Joint venture Firstly, KFC's traditional franchising strategy, which is emphasizing standardization and reducing financial risk, on the expense of cultural sensitivity and control. Due to China's strict foreign investment laws such a strategy is not feasible. In addition, KFC will be pioneering in the fast-food field and thus needs to be highly sensitive to cultural demands. In the past, KFC encountered problems with aligning corporate planning with franchisee's short-term focus on profitability. A wholly owned subsidiary represents the second option.
Such a strategy relies upon total control over competitive advantages and ensures complete operational and strategic control. It also involves high investment expenses with no financial risk sharing. With high levels of resource commitment and little country-level flexibility and responsiveness, this option is not recommended. Recommended market entry strategy: joint venture The essence of a joint venture is the synergy effect of two different entities merging. Such an international business strategy will attempt to; solve many logistic problems such as access to good quality chicken and other supplies, ease the access to the Chinese market, share risk with a local entity, 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 / networks with government agency officials may smoothen the process of setting-up operations in the nation.
The potential joint-venture partner should be large, well established, provide excellent distribution channels and have personal network access to government officials. It should also have modern equipment and a good management record. It is recommended that a partner is found by backwards integration. In other words, it is a good domestic poultry supplier. In order to ensure total commitment and balance of power between the two partners, a 55 / 45 joint venture, with KFC as the dominant partner should be set-up. 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 detrimental to its success. A joint venture will also significantly ease the entry to the virgin Chinese market. A new entrant would find it very difficulty to form local and personal networks between businesses and government agencies, which are crucial to success and provide access to the local market and domestic suppliers.
In addition, local business customs and laws can be quicker understood and established ways to cut bureaucratic red-tape can be further utilized. Also, the local knowledge of culture, language and geography is beneficial for any foreign entrant into a relatively unknown market. In order to cope with the significant political risk of investing in China, a local joint venture partner will share this risk. There is always a risk of domestication measures imposed by the host government, often leading to major financial losses for the foreign investor. By having a 55 / 45 joint venture agreement, this risk is potential eliminated, since only 55 percent of operations are domesticated. If such an unfavorable situation would arise, KFC has clearly less to loose in such an agreement.
In addition, by being the dominant partner, KFC will be able to ensure cost, quality and strategic control measures. The Chinese government may very well find KFC beneficial to the nation, as it is the pioneering western fast-food outlet. Training the joint venture partner, personnel and other institutions in the value chain can reduce learning and experience curves. KFC's operations may also inspire local competitors to increase service and quality of food. It can also help to create a competitive fast-food industry in China as new competitors respond to KFC's ideas. Moreover, a joint venture agreement commonly produces goodwill and commitment between the host government and the foreign investor.
In such a relationship, the foreign investor is not seen as trying to take advantage of the nation for profit purposes, but rather show willingness to share. Maintaining good relations with the host government is a critical success factor as government policy impacts intensely upon business activities. Factors that influence marketing decisions Social and cultural forces Family Social customs and behaviour Education Language differences Economic environment Infrastructure Level of economic development Competition Political and legal forces Trade barriers o Tariff o Import quota o Dumping o Local-content law o Boycott Trade agreements o GATT o WTO o EU o NAFTA oAPEC o ASEAN Information gathering (Marketing Research) Marketing research - the systematic and objective identification, collection, analysis, and dissemination of information that is undertaken to improve decision making related to identifying and solving problems (opportunities) in marketing. It is indeed, has a broad range of applications and plays a crucial role in the marketing decision-making process. The task of marketing research is to assess the information needs and provide management with relevant, accurate, reliable, valid, and current information to aid marketing decision marking. Company conduct and use marketing research to stay competitive and to avoid high costs associated with making poor decisions based on unsound information.
Marketing research plays a significant part in the development of marketing plans because it allows the...
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Research essay sample on Joint Venture Wholly Owned
