Tuesday, May 1, 2012

KFC's Expansion Into China

When household U.S. companies consider entering emerging markets, they have to think critically about their business model and whether or not they have to adapt to the foreign market. These companies have to think about the different landscape (infrastructure, policy, culture) and whether or not it is feasible to operate and expand seamlessly.

Consider KFC's approach to China (1987). Let's just say it's nothing like the KFC we see in the U.S. Here is list of 5 strategies KFC used to integrate themselves into China:

1. Infusing a brand with Chinese characteristics
-KFC: Huge fast-food chain selling inexpensive Western-style food. Small stores, with a focus on home dining. Menus are standardized and have only 29 items.
-KFC China: Local community restaurants that are individually owned. More variety and traditional dishes. Large stores, twice the size of US stores. More emphasis on takeout. Menus typically have 50 or more items, and vary depending on its location (e.g. Sichuan vs. Hunan).

2. Expanding rapidly
-Instead of competing against other Western fast-food chains in China's largest cities, KFC decided to pursue smaller cities to build their brand. Smaller cities allow KFC to scale with limited costs, be the first to enter, and build its national brand with minimal competition.

3. Developing a logistic network
-KFC: Uses a network of distributors to deliver the food from the farm to the restaurants. 
-KFC China: Built its own warehouses and used its own trucks to deliver the food to its restaurants. Instead of outsourcing the handling of the raw materials (meat, sauce ingredients), KFC China oversaw the entire supply chain. 

4. Training employees in service
-KFC China prides itself on providing excellent customer service, which (interestingly) is not widely promoted in their culture. They utilize team-building activities to teach their employees basic people skills.

5. Focusing on ownership rather than franchising
-KFC: Fast-food chains tend to franchise because it reduces investment costs and risks. Increases geographic expansion 
-KFC China: Focused on ownership to give owners more control over their operations, from menus to restaurant decor. Ownership also enables KFC China to take into account the varying cultures and customer preferences in different regions of China.

Article: Bell, David E., and Mary L. Shelman. KFC's Radical Approach Into China. Harvard Business Review. Nov 2011.

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