Research Proposal on "Kentucky Fried Chicken in China"

Research Proposal 9 pages (2939 words) Sources: 3

[EXCERPT] . . . .

KFC

A) When KFC entered the Chinese market, it had just begun to open its economy. The chicken outlet had originally begun to develop its Chinese market strategy in the early 1980s, half a decade after Deng Xiaoping began his market reforms. At the time KFC opened its first Beijing outlet, Chinese economic development was still nascent, but beginning to progress quickly. The government was still hesitant to eliminate its social controls, but was beginning to trust private enterprise to some degree. There were few, however, if any foreign brands present in China at the time.

The fast food industry, at least the Western conception thereof, did not exist when KFC entered. Indeed, restaurants were relatively uncommon in China up until the mid-1980s. Chinese were given extended lunch hours, sufficient for them to return home for lunch. Regulations changed, making dramatically reducing the incidence of these extended lunch hours, leading to a restaurant boom. KFC came to China in the middle of this boom. While a lot of food service is efficient in China, the Western concept of a fast food restaurant did not exist. KFC knew that the Chinese people had a fondness for chicken, based on their prior experiences in Singapore, Taiwan and Hong Kong. Thus, KFC had a strong product and entered the market at the right time.

The fast food industry in China today has developed substantially. KFC remains a market leader, and one of the most recognizable Western brands in China. The Chinese economy has developed considerably in the past 22 years, such that the middle class has grown by hundreds of millions of people. The wealth of that middle class has improved as well. KFC faces competition, however from a wide range of chains, especially McDonald's. At this point, though, KFC is buffered somewhat by the presence of fellow Yum! brand Pizza Hut. McDonald's is a leading Western competitor. Independent local restaurants have also proliferated in China, increasing the amount of competition. Despite the increased competition, the market is growing so rapidly that KFC is continuing to add new stores at a rate of 250 per year and plans to do so for the foreseeable future (Adler, 2003). The market, therefore, is not even close to saturation.

B) When KFC entered the Chinese market, its primary strength was in having first-mover advantage. It was creating the market, which gave it a competitive advantage in that its product/service offering was unique. They were well-capitalized and had a strong local partner. The weaknesses at that time also stemmed from being the first mover. KFC did not have an established business model and did not know how the mainland market would react to their product. Lack of Chinese market knowledge was their biggest weakness.

In terms of opportunities, KFC had all the opportunities in the world, as the first mover in a country that was moving towards a more capitalist economic model, increasing wealth, had a historic love of chicken and a fascination about all things new and modern. The biggest threat to KFC when they entered China was the threat of government intervention. Even as the economy was being slowly opened up, China's government maintained strict controls over most forms of economic activity. This was especially true for foreign enterprises entering the country. Further, the specter of corruption represented another risk to KFC when they entered China.

Today, KFC's main strengths are its established brand name and its sophisticated distribution network (Associated Press, 2007). There are no significant weaknesses at this point in time -- the company's performance is stellar. Its back end operations are the envy of all Western nations trying to enter China. Sales are growing and the brand is among the most recognizable in the nation. Better still, the market still exhibits near limitless growth potential. KFC is opening an outlet a day (Ibid), and the rapidly expansion of the Chinese middle class shows no signs of slowing down. The threats are very different, however. The government is no longer a major concern, in part due to KFC's status as a major success story. However, increased competition is a threat, as other Western fast food chains and Chinese chains as well have made the restaurant industry competition in China very intense.

C) When entering the Chinese market, there are several differences between China and the West, both political and social. The government in China is more heavily involved in politics, and there is substantially more corruption in China than in the West. The increased regulation combines with the unfamiliar culture to make market entry a challenge for KFC.

There are social differences as well. Chinese people were unfamiliar with the concept of fast food and with fried chicken in particular. The company needed to add some Chinese dishes, such as congee, to the menu in order to better appeal to consumers. The Chinese people needed to become accustomed to the fast food concept as well. These social differences also apply to the workforce, resulting in some human resource challenges for KFC. One such challenge involved a legal case where KFC was obligated under Chinese law to pay for the living expenses of workers not working, but did not (Legal Daily, 2006), a situation entirely foreign in the U.S. labor market.

Q2. A) There were several key success factors at the time of KFC's launch in China. One was the choice of Beijing as the initial location. While they had good discussions with Tianjin, another one of China's main cities, setting up shop in the capital contributed to the success of the venture in a couple of ways. One is that the venture received a high degree of visibility. Prestige and face are important in China so setting up shop in a provincial city, even a large one like Tianjin, would not have portrayed the correct image for KFC. By taking their business to the most prestigious location right away, they were able to establish a strong image for the brand. The brand needed this strength to appeal to the Chinese consumer, in particular because it positioned the foreign brand as luxury. Thus, despite its mass appeal, the brand was able to become an aspirational brand, which helped drive its success.

Another key success factor for KFC's Chinese launch was going to be the relationship that the company had with government. KFC needed several things to work out. One was cooperation on legal issues -- they needed the government to remove roadblocks in order to help them start and grow. Furthermore, KFC needed to build out its infrastructure if it was going to grow rapidly, and the government's cooperation was going to be needed for that as well.

A third key success factor for KFC was going to be to find the right domestic partner. The company knew that they had succeeded in Japan in large part because they chose the right strategic partner. In China, KFC knew they would need to duplicate this feat. This was particularly important because it would allow KFC access to government officials, which in turn out facilitate better growth opportunities and reduce some of the key risks.

B) The first entry strategy is franchising/licensing. This option has several advantages. One is that KFC maintains complete control over the operation, including the profits. If KFC was going to be as successful in China as they thought they would be, it would be beneficial to be able to keep all of the profits. This option also reduces financial risk and would allow for greater control over product standardization, which is a crucial element of competition in the fast food industry in the United States.

There are several drawbacks to franchising, however. One of the main drawbacks is that it was almost impossible, if not outright illegal, for a foreign company to operate a 100% owned subsidiary in China. Additionally, there are many potential political and social challenges associated with entering the Chinese market. Franchising would allow the local Chinese owners only limited means to deal with these challenges. Indeed, other forms of organization would result in superior performance with respect to dealing with the social and political challenges associated with operating in China.

A wholly-owned subsidiary is akin to a riskier version of franchising, in that the option allows for even greater standardization, but also has the same risks only greater in intensity. For example, a wholly-owned subsidiary would give 100% control both financially and operationally to KFC. With this total control, KFC would be able to leverage its competitive advantages to a greater degree.

However, there are many drawbacks to entering the Chinese market with a wholly-owned subsidiary. One is that this option does not give the firm any local experience, or local connections. The risk would then exist for a major social faux pas much less a significant issue with government officials. A wholly-owned subsidiary is also the most costly option and the one with the most risk, since the risk is not shared among a group of… READ MORE

How to Reference "Kentucky Fried Chicken in China" Research Proposal in a Bibliography

Related Research Proposals:

Factors Affecting Customer Choice of Fast Food in Different Countries Term Paper

Fast Food Among Individuals of Different Countries and Differentiations in Health Perspectives Related to Consumption of Fast Food

The objective of this research is to identify the impact that culture… read more

Term Paper 30 pages (8131 words) Sources: 15 Style: Harvard Topic: Agriculture / Food / Culinary

---

KFC's Business Expansion Strategy for Within the Chinese Market Literature Review

KFCs Business Expansion Strategy

Over the last several years, KFC has been engaging in an aggressive marketing strategy to rebrand its image and help maximize profits. Where, the company has… read more

Literature Review 10 pages (3555 words) Sources: 20 Topic: Business / Corporations / E-commerce

---

Total Rewards and Compensation Research Paper

Total Rewards and Compensation at KFC

Research any named company in a global environment and select three total rewards programs that demonstrate innovative monetary and nonmonetary options for expatriates.

When… read more

Research Paper 3 pages (978 words) Sources: 5 Topic: Business / Corporations / E-commerce

---

Fast Food Industry Term Paper

Yum!Brands Strategy Analysis

With increasing competitive and market consolidation pressure on its core lines of business in the U.S., Yum! Brands turned to international markets for increased revenue and gross… read more

Term Paper 4 pages (1160 words) Sources: 4 Topic: Agriculture / Food / Culinary

---

Economics Case Study

Economics Case Study

DOMINANT FIRMS: McDonald's

While examples of purely monopolizing companies in the world of business are hard to find, dominant firms are more numerous. Examples of these could… read more

Case Study 2 pages (637 words) Sources: 2 Topic: Agriculture / Food / Culinary

---

View 100+ more related papers  >>