The final option is the joint venture. There are several benefits to entering the market with a JV. Among them is the local experience that KFC would gain. Their local partner would be able to help them maneuver through the social and political pitfalls that the company may run into. A JV is less risky as well because the risk is shared among the partners. With each partner bringing different expertise to the table, there is less operational risk as well.
The drawback to a joint venture is that you must cede some control. This increases the risk of a lack of standardization. Additionally, with less controlling interest, the firm retains less of the profits, the remainder of which to the JV partner. However, a joint venture partner also helps the firm to gain access to the Chinese market. It encourages the Chinese government to remove barriers to operations and to support the company, since the growth of the company is beneficial to the country as a whole.
C) The proposed characteristics of the Chinese partner are good, as evidenced by the success of the Japanese situation. There are differences between the Chinese market and the Japanese, particularly in terms of government intervention in market activities. In recognition of that, I would recommend that KFC has increased stipulations with regards to government contacts. Poor relations with government would scuttle this venture, so the partner must be extremely well-connected. Another recommendation I would make with respect to the partner is that they have to meet Western ethical standards. KFC will ultimately be held accountable for hiring and sourcing issues that occur, even if the decision is made by their JV partner. Management at the Chinese partner needs to be sympathetic to KFC's needs that its subsidiaries and partners adhere to Western ethical standards or potentially face damaging scandal at home.
Q3) A) In a situation such as this, if all other factors are handled well, KFC will ideally be in a position where each new location is opened to fanfare and pent-up demand. The rollout therefore should be conducted carefully, to maximize the amount of pent-up demand. We have established that we are going to start in Beijing. We should open a few locations in Beijing, in each high-profile tourist or shopping district. This will make KFC a widely-known brand not only in the capital but in other parts of China as well. KFC will become a destination restaurant.
From there, the company should slowly move into other high profile Chinese cities, further enhancing the brand's established prestige. The best initial candidates in 1987 would be Shanghai and Guangzhou, followed by other major eastern cities like Tianjin, Hangzhou and Qingdao. By this point, saturation of Beijing and Shanghai can commence.
The rationale for this location strategy is to build the brand's trendy, luxury image. The demand in the marketplace needs to be built organically for the first couple of years, and this strategy allows for the slow diffusion. After a year of being in a market, however, saturation of that market should commence, since the brand's novelty will have worn off by that point.
In terms of price, KFC should be priced in accordance with its twin objectives of developing a strong middle class brand and saturating the nation. The strong middle class brand demands a price point within reach of that demographic, but slightly out of reach of the mainstream demographic in 1987. Thus, the ability to eat at KFC becomes a status symbol. It is important to remember that at this point in time, the company's offering is differentiated, as there is little in the way of foreign food in China. The experience should therefore not be cheapened. It is expected that the economic reforms will result in economic growth sufficient to support a growing middle class demographic.
Promotion should focus around establishing brand awareness. At this point, China's population has enjoyed little to no access to the outside world. They do not receive Western media and do not travel within China, much less outside of the country. Therefore, the KFC brand is entirely unknown. For the first several years, KFC will need to focus on introducing the brand to the Chinese audience. As such, promotions should focus on everything from the fast food concept to the concept of southern-style fried chicken. KFC has a strong history and lore, which will be attractive to the Chinese audience. Therefore, this should also be included in the promotion. The core North American audience has all of this lore ingrained over the course of years, but this is not the case with the Chinese audience, so KFC will need to rapidly establish their name, their offering and their credentials.
The product is perhaps the most interesting element. KFC sells chicken, with which the Chinese audience is familiar. However, they are unfamiliar with southern-style fried chicken. While it is therefore believed that the core product will catch on with Chinese consumers, KFC should offer some local, more familiar products to help entice audiences and make them feel more comfortable. This can include not only the aforementioned congee, but also noodle dishes and rice as a side instead of fries.
Part of what KFC is selling is the service as well. The fast food concept is a new idea in China and therefore can also represent a core service offering and a source of competitive advantage. KFC will need to take care how it positions fast food. The convenience aspect has advantages to the increasingly busy Chinese consumer. However, the typical dining experience at fast food restaurants is not conducive to the boisterous family dinners that Chinese consumers enjoy. KFC may find that adjustments to its service offering are needed in order to attract that larger market.
B). There are a couple of major reasons that KFC succeeded in China where others did not. One was that they had an offering more appealing to the culture -- chicken. Moreover, chicken is easy to acquire in China whereas beef, the core offering of McDonald's and Burger Kind is not as easy to acquire and not as favored by Chinese palates.
Another reason KFC succeeded is because it entered the market with a local partner, and was able to achieve first-mover advantages. They were able to forge strong ties with government and were therefore able to set up the business is a manner conducive to their success. The local partner helped smooth the entire procedure for KFC. While McDonald's was able to become established in China, they took longer to do so, and Burger King never really got going in the market.
Lastly, KFC had strong support, first from RJ Reynolds then from PepsiCo. The parent companies saw that China was the key to long-term success for KFC and fully supported their move into the market. The move was risky, and lack of total support from head office could have scuttled the endeavor.
C) The major factors KFC needs to take into account when operating in China are the differences in culture and the legal environment. Differences in culture will impact all areas, from hiring and human resources management to the way that KFC interacts with its customers. These cultural differences can have significant negative impacts, in particular if cultural norms are violated. The loss of goodwill can harm the company's business prospects for years to come if a major incident occurs.
The legal environment is also quite different from that in North America. The government has much more control over business than in Western markets. Moreover, the process of economic reform is less than ten years at this point, which increases the risk that the process will be reversed, particularly if the main proponent, Deng Xiaoping, loses power. There are many laws that are vastly different, and the systems of enforcement are different as well. The legal system in China will require expert local attorneys to navigate.
The final thing that KFC must consider when entering into and operating in China is where the strategy fits with their overall strategy. The move is risky and could be expensive, so there must be firm commitment from head office that China is critical to the company's future, if the market is to be entered into at this time.
Adler, Carlye. (2003). Colonel Sanders' March on China. Time Magazine. Retrieved May 12, 2009 from http://www.time.com/time/magazine/article/0,9171,543845,00.html
No author. (2007). McDonald's Challenges KFC's China Dominance. Associated Press. Retrieved May 12, 2009 from http://www.msnbc.msn.com/id/20726553/
No author. (2006). Beijing KFC Accused of Unfair Employment System. China Labour Bulletin. Retrieved May 12, 2009 from http://iso.china-labour.org.hk/en/node/38856