Strategy And Global Fast Food Industry

Published Date: 02 Nov 2017

Companies with ambitions to establish themselves internationally must examine fundamentally how they operate. A multinational organization differs significantly from a single-nation firm by virtue of having to operate in more than one country. Activities such as formulating policies and strategies, dealing with competitors, responding to the customers’ needs, creating new ‘needs’ for customers, coping with pressure groups, complying with government policies and regulations, designing appropriate organizational structure, and employing appropriate technologies, are among the normal preoccupations of managers in any company. But these are magnified and become far more complicated as companies stretch their boundaries to cover more and more countries. In addition, there are other challenges, opportunities and threats which are unique to multinational firms and require special skills to handle. This is so because individual countries have their own more or less unique laws and regulations, political, social and cultural norms and practices, and their own economic and technological characteristics. These have implications for the majority of the activities of multinational firms.

The pressure towards global integration highlights the need for or the desirability of standardization of the processes and activities across space, and an integrated approach toward strategy and the concentration of activities to support the objectives of the operation. National responsiveness reflects adaptable marketing strategies as well as the need for sufficient discretion to be given to local managers to achieve these objectives. Nevertheless, when study within the context of current developments in the international industry, it is worth noting that multinational corporations (MNC) do not only deal with these kind of pressures for global integration rather quite often these corporations consider pressures for local responsiveness when devising their strategic map and marketing mix as well.

Being one of the key players in the international fast-food industry, KFC Corporation is likely to perform some extent of global integration of activities, at the same time acknowledges the pressures for local responsiveness in the country it operates. This is best exemplified by its mix of global entry strategies. While it is more regular that the KFC expand its global franchise-network and permit its outlets to be opened up by the local franchisees (69%), about 31% of its international opening is done through a company-owned overseas subsidiary or by a joint venture.

When it comes to fast food industry it is all about balancing and creating the right fit between global and local motives which summarised the phrase ‘Think global, act local’. Pressures for global integration facing KFC and other global fast food industry can be given from several factors influencing as follows:

Global customer: Customer taste and perceptions varies country to country so any business which vastly effected by these variations must consider co-ordinate their activities globally. KFC and other fast food industry have to understand their multinational customers and have to incorporate those specific needs and lifestyle to their strategy. For example some countries have an attraction for spicy foods in those markets KFC put on their brand standard hot and crispy chicken. In West Africa people eat a type of rice called jollof rice, so in Nigeria, KFC have jollof rice on the menu.

Investment intensity: High level of investment or technology require large sales for recovery such as production, branding and R&D in addition, there is a need to recoup large investment costs, for example research and development. In KFC’s operation it has taken an integrated step to its packaging of food and drink, a standard set of recipe and meal-set materials. It has a universal standard for its outbound logistics and service, including the uniform code and other physical evidence in its interiors design. The research and development in particular, is a major aspect of its development and is centralized in its home market, U.S.

Competitors: Different national competitors may make it difficult to offer precisely the same competitive advantages in every market, which means that companies need to improve their global co-ordination in order to compete in those markets. In this case, KFC needs to be able to stand on the competitor’s point of view thus can modify their strategy to beat their competitors. For example to gain competitive advantage over KFC and other global fast food industry beer was served in all McDonald restaurant in Germany and also used different sauce in its sandwich that appealed to the French palate.

Cost cutback: The pressure for cost cutback means that global integration is more crucial for a firm to benefit from diverse economies of scale

Universal customer needs: The growing availability of technologies and products in the world means that customer needs are converging, leading to the manufacturing is determined in a single area, remote form other activities, thus requiring integration and co-ordination.

Access to raw materials: Pressures for global integration stems from increased accessed to raw materials and cheap energy, which can be achieved if manufacturing is concentrated in a single area, remote from other activities, thus requiring integration and co-ordination.

In the case of KFC, pressures for local responsiveness do exist in its current development in the (fast-food) industry. There are certain differences between each country that call for an adaption in their operations to comply with the local culture, language, customs, regulations and other market characteristics. One of the more obvious "pressures" is the country-specific customer needs where KFC will have to adapt their menu offerings to comply with. Furthermore, there are the differences in buying behaviour and purchasing power that also call for local responsiveness on KFC’s part. Also, pressures for local responsiveness also exist in the form of varying supply structures and government regulations. While in a few countries where KFC has more suppliers to choose from, there are others where it has only a sole supplier for its chickens. The political factors particularly referring to the countries’ openness to foreign competition also varies among the different countries KFC operates in, which necessitate different strategies in its development throughout its global expansion plan.

Pressures for local responsiveness facing KFC Corporation can be reviewed from several factors influencing as follows:

Differences in consumer needs: responsiveness is required when needs differ between countries. KFC has to understand the cultural, social and ethical factors of their consumer in the different countries.

Differences in distribution channels: when distribution channels differ between countries, local responsiveness is needed to deal with differences in pricing, promotion, and product positioning.

Availability of local substitutes: related to Porter’s Five Forces, local responsiveness is also required if adaptations of the product is need to compete with local substitutes.

Host government demands: countries have differing rules and regulations imposed by each government, which require a local response. For example, KFC has to follow the requirements from the government like: the health guidelines, taxation, franchising policy in Malaysia, etc.

Market structure: in concentrated local markets (such as oligopolies), firms must react to the actions of local rivals. As for KFC in Malaysia, they have to be aware of the local competitors like Marry Brown.

Qustion 2

Every company is part of a vertical chain in that it purchases inputs from other companies and sells its output to other companies or final consumers. Intuitively it may appear attractive to gain control of both upstream and downstream activities and integrate all aspects of the productive process. But this raises an important strategic question: what is the rationale for vertical integration? This in fact comes down to the question of whether a company should make something itself or buy it from some other company; in other words can the market provide inputs more cheaply than internal production? In this case ‘more cheaply’ does not refer simply to the price paid for the input in question, but has to be seen in the wider context of the costs and benefits of using the market rather than producing internally. There are various degrees of vertical integration: a company can control all levels of the process from extraction of raw material to sales to the final customer, or it may only cover a part of the process. Another dimension is that integration between stages is not always complete. A fully integrated company which produces just enough to supply each stage of its own productive process is relatively rare.

Forward integration involves the company carrying out the functions of its customers; a typical example is when a company distributes its output instead of using contractors, or opens its own retail outlets. Much the same considerations apply as in backward integration. For example, it is unlikely that the company is currently the only supplier for the forward customer, and integration can again have the characteristics of an unrelated diversification. Companies will pursue backward integration when it will result in improved efficiency and cost savings. For example, backward integration might cut transportation costs, improve profit margins and make the firm more competitive. From the case study PepsiCo realized the marketing of fast food followed many of the same patterns as the marketing of soft drinks and snack foods. So they thought these products could be marketed together in the same television and radio segments, thereby providing higher returns for each advertising dollar so in 1977 PepsiCo acquired Pizza Hut, in a year later Taco Bell and KFC in 1986 which completely diversified PepsiCo’s business and operate in a same corporate umbrella. As KFC’s early experiences operating abroad put it in a strong position to take the advantages of growing international market and by 2001 KFC already have had 50% restaurants located outside of the United States where 69% were franchised so they have some control over those restaurants and 21% were company owned and 10% were licensed or joint venture where they have to share some control over the business.

Demographic trends are very popular with marketers because most of the time its associated with the customer needs and wants and at the same time they are easy to measure. Generally demographic variables are based on age, family size & life cycle, gender, income, occupation, education, religion, race and social class and over time these trends changes. During the last two decades, rising incomes, greater affluence among a greater percentage of American households, higher divorce rates, and the fact that people married later in life contributed to the rising number of single households and the demand for fast food. More than 50 percent of women worked outside of the home, a dramatic increase since 1970. Double-income households contributed to rising household incomes and increased the number of times families ate out. Less time to prepare meals inside the home added to this trend. Baby boomers aged 35 to 50 constituted the largest consumer group for fast-food restaurants. So KFC has to cope with those changes. KFC has always been practicing customer centred marketing as the traditional product centred marketing does not get on well with fast food industry. During the 1970s, Americans experienced double-digit inflation, high interest rates, and high unemployment, as well as two major oil crises that resulted in gas shortages. The U.S. economy began to expand again during the early 1980s and continued to expand almost unabated through 2000. Unemployment was at its lowest point in more than two decades, Labour costs made up about 30 percent of a fast-food chain’s total costs, second only to food and beverage costs. Intense competition, however, made it difficult for KFC to increase prices sufficiently to cover the increased cost of labour. Consumers made decisions about where to eat partially based on price. So KFC started to give discount and offers like buy one get one free and accepts coupon from competitor. As the social awareness and the awareness of eating healthy grows mostly among young adult fast food industry had to re-consider its marketing strategy and KFC has incorporated healthier food range in its menu, like they say ‘Fresh, tasty, healthy and filling. Salad doesn’t have to be boring, throw in some original recipe or BBQ griddled chicken and good is great’. Throughout past decade in UK Muslim community has increased significantly and consequently KFC has recived many request to provide Halal food in store and they listened and this is what they said ‘At KFC we listen to our customers to help us to evolve our menu and the choices we offer. For some time, we have received requests to provide halal food in parts of the UK and as a result of this, we are running a halal trial within communities where we anticipate a strong demand for halal products’

uestion Three:

"Hofstede’s (1993) theory of cultural dimensions implies that although not all the individuals within a country’s population will have exactly the same characteristics, the cultural dimensions will colour the institutional and administrative arrangements that are made within the country, and will set the norms for behaviour."

Hofstede, G. (1993) ‘Cultural constraints in management theories’, in De Wit, B. and Meyer,

R. (2004) Strategy Process, Content, Context, 3rd Edition, Thomson, London; cited in SIM336 Module Workbook, 2011, Unit 7, page 203.

Using your understanding of Whittington’s (2000) ‘Systemic School of Thought’, critically evaluate the implications of these cultural dimensions for international strategic managers at KFC in building productive relationships with the outside world. (25 marks)

Systematic approach has a relativist position. It believes that organisation is able to plan and act effectively. It is much less pessimistic than Processual approach about people’s capacity to carry out rational plans of action and much more optimistic than evolutional approach about its ability to define strategy regardless of market forces (Whittington, 2001). The approach argues that strategies must be sociologically efficient to understand the firm’s environment. This means that there should be no separation between economic activities and social factors to ensure success.

For international strategic managers at KFC in building productive relationships with the outside world, this approach is more focuses on the understanding of the social factors and the economic activities. Social factors include the cultural aspects and also include health consciousness, population growth rate, age groups, and emphasis of safety. Trends in social factors affect the demand for a company’s products and how that company operates. For example, an aging population may imply a smaller and less-willing workforce, thus KFC may change various

management strategies to adapt to these social trends.