Jollibee Case Analysis

Executive Summary The case gives an idea about how the competition influenced Jollibee's strategy, both domestic and international. Jollibee ,which was a Filipino chain of restaurants, wasforced to change their strategy with the entry of McDonalds in Philippines, whichlater transformed the company into a global company .The company faced seriouschallenges with their international exposure. The challenges included the conflictswith franchisees/Joint venture and conflicts between divisions. Another issue that thecompany faced was the entry into Papa New Guinea, United States of America andexpansion plans in Hong Kong. The company has to consider the financial instabilityit faces while considering their plans. In the analysis we have tried to cover theeffectiveness of strategies adopted by Mr Tony Kitchner (Former InternationalDivision head).This case analysis report deals with, firstly the key management challenges faced bythe company, followed by some supporting arguments. In the management issues, thereport focuses into the conflicting areas or the need to establish a greater cooperationand coordination between the Domestic and International divisions.Then, the recommendations regarding what should the company do differently in eachof its department like in Marketing, HR, Finance or Operations, to succeed in its plansof global expansion. Finally, the feasibility of the three decisions that the newmanagement has taken is also discussed.We have also tried to analyse the dilemma faced by Mr. Tingzon regarding theopportunities of international expansions to Papa New Guinea, Hong Kong and USA.Jollibee Foods Corporation- International Expansion: Case Analysisa. Industry Analysis A fast food restaurant or Rapid Service Eatery (RSE) has the following 3characteristics.

1. It is characterized by its fast food cuisine and nominal table service.
2. It offers limited menu, cooked in bulk in advance, kept hot, finished, packaged to order, and available to take-out, drive-thru, and dine-in.
3. It is usually a part of a chain or franchise operation, which supplies standardized ingredients and/or partially prepared foods and provisions to each restaurant through controlled supply channels. McDonald's is one of the most famous RSE in the world. McDonald's became No.1 in every country of more than 100 countries in the world except Philippines where JFC has been overwhelming strength against McDonald's. JFC was founded by Chinese-Filipino Mr. Tony Tan Caktiong (TTC) as the ice-cream parlor at Cubao City in 1975. Gradually, it grew up to a reasonably large fast food chain in Philippines. Further, JFC started scouting avenues for expansion internationally. Thus it opened its franchises in countries like U.S.A., Brunei, Hong Kong, Guam, Middle East, etc. Assuming, Mc Donald's was the chief competitor of JFC in Philippines we have made an analysis of the strategies adopted by both the organizations. In order to analyze the strategy, we have utilized the following two tools.
a) Four-Tier Structure of Market
b) Type of Glocalization

A. FOUR-TIER STRUCTURE OF MARKET Khanna Palepu (2006) introduced the Four-Tiered Structure of Market. Theyinsisted that most product markets comprise four distinct tires: global, glocal, local,and regional.In Global segment, products of global quality with global features at global prices areoffered. In Glocal segment, products of global quality with local features (and localsoul) at less than global prices are offered. In local segment, local products with localfeatures at local prices are offered.B. TYPE OF GLOCALIZATIONAs objectives of glocalization can be product/service and business model, there aretwo types of glocalization.
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Product/service glocalization
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Business model glocalization.The following charts give an overview of strategies adopted by JFC and Mc Donald's.a. Porter's competitive strategies Model. Type of Globalization (Products/Services vs. Business Model)b. Firm Analysis SWOT ANALYSIS OF JFC: STRENGTHS WEAKNESSES
a. Jollibee was a regional industry leader that had experienced professionals as chief executives of the organization.
b. Proven past performance made dealings with prospective partners easier.c. Wide variety of products offered in diverse markets.
a. Lacked more effective marketing skills as growth revenues decreased.
b. Lack on in-depth planning and research in the expansion to foreign markets.
c. Poor co-ordination between the national and international units.
OPPORTUNITIES THREATS
a. The promising nature of international markets and also the available potential due to the migration of Filipinos in certain countries.
b. Being an agricultural country, full integration in sourcing raw materials could bedone.
c. For international markets, locating commissaries in the same country through joint ventures could be a potential source of success for the company. Jollibee could facilitate the technology provision while the partner could formulate the appropriate modus operandi to sell in the foreign market.
d. For the local market, an increase in the number of commissaries could easily reduce the transportation costs and the duration of shipments. This would allow the company to concentrate on the quality of products.

. Competition from both international companies and other local eateries.b. Political instability in the country threatened JFC as it could hamper theopportunities to convince international investors and country leaders to allow a JFCentry in their country.c. Driving ForcesAnalysis of Tony Kitchner's Strategya. Marketing PerspectiveJollibee was able to attain a competitive advantage in Philippines over McDonald's bydoing following things:
• First mover advantage
- Jollibee was the first to enter the market.Analysis of Tony Kitchner's StrategyIn 1994 Tony Kitchner was hired to head the International Division. He wassuccessful over his three years. He was successful in creating wealth and increasingthe presence in countries that had less or no competition. During his time the totalnumber of stores increased 65% to 205 from the end of 1993 to the end of 1996.Moreover the total sales increased over 94.5% over the same period These increasesare dramatic. Very few companies can experience rapid growth like this. He alwayshad the idea to be the first -mover into untapped markets as he believed that althoughyou may incur losses in the initial years, which can be cross subsidized fromPhilippines operation, the company will be able to restrict the entry of its competitors.But these do not show the whole picture of his strategy implementation. There wereinstances of shutdown of stores due to mounting losses .The chaotic strategy of investments unsupported by proper research failed costly for the company. Hisstrategy of targeting expats had the risk of targeting a narrow segment. The lifestyle,tastes and preferences of the expats was also not considered during internationalexpansion.a. Marketing PerspectiveJollibee was able to attain a competitive advantage in Philippines over McDonald's bydoing following things:
• Jollibee was the first to enter the market. • Retaining tight control over operations management, which • Allowing it to price below its competitor.

• Having the flexibility to cater to the tastes of its local c onsumers.As Jollibee entered international markets, it faced new challenges. The fast foodindustry is highly competitive and price wars and marketing innovations are seenfrequently. The rivalry is also centered on the key success factors of the industry,which are good food, good, service and reasonable pricing. Rivals are somewhat equalin capabilities and opportunities, thus making the competition stiffer. Internationallywell-established players like KFC and McDonalds had high brand values that Jollibeefound difficult to compete with. The threat of substitute products is considerable.Local street food and high-end restaurants form two ends of a range of substitutes.Potential entrants face entry barriers that will hinder them from entering the industry.These are the inability to gain access to technology and specialized know-how, brandpreference and customer loyalty, capital requirements, economies of scale, andstrategically situated distribution channels.Tony Kitchner was hired to build the global Jollibee brand with the dual goals of positioning Jollibee as an attractive partner, while generating resources for expansion.In order to become one of the "top 10 fast food brands in theworld," Kitchner implemented a two-part international strategy whichcomprised of "targeting expats" and "planting theflag."1. TARGETING EXPATSKitchner's idea of "targeting expats" allows the company to easeits transition into an unfamiliar market. Although there is the risk of targeting toonarrow of a segment, Jollibee's success in the niche market would allow it generatemomentum for the company's expansion. The concentrated marketing campaignallows the company to generate stable revenues that can be used to support Jollibee'sentry into other segments, while the popularity amongst expats could generatepublicity and attract walk-in traffic from non-Filipinos.Recommendation:"Targeting expats" will only lead Jollibee to become a globalbrand if:a. Jollibee correctly targets expats who have a need and want for the product and thusavoid repeating its mistake in the Middle East.b. The company continues to build its competitive advantage through learning and byappealing to a broader audience.2. PLANT THE FLAG On the other hand, Kitchner's decision to "plant the flag"reflected a desire to build an empire under his leadership, rather than a strategicallysound decision for the firm. Although Kitchner hoped to leverage Jollibee'scompetitive advantage by entering new geographic market, his rapid expansionstrategy was unfocused and poorly executed. Kitchner also neglected to consider thelarge transaction costs associated with establishing markets in new countries.Kitchner's desire to be first-mover in a number of small, undeveloped markets wouldnot have brought the prestige needed to win the firm better partners."Planting the flag" only showed that Jollibee knew how torepeat its success.RecommendationMarket research prior to entering new markets will help in avoiding the unprofitableventures as in the Middle East. In order to compete on the level with multinationals,rather than just being a first mover, Jollibee would have to take its performance to thenext step and prove that it could continue to build its competitive advantage.b. Financial Management PerspectiveJollibee's sales, net income, operating income, and royalties and franchise fees hasbeen increasing rapidly for the period under study. The total number of storesincreased 65% to 205 from the end of 1993 to the end of 1996. By 1996, sales hadincreased to 8.57 billion which translates to a market share of more than 50% amongall hamburger fast food chains. Total assets increased over 230% in the same period.Moreover operating income increased about 114% while net income increased over100% during the same period. These increases are dramatic. Significantly Inventorydecreased from about 11.5% in 1992 to just 7.5% in 96. This implies that less of thecurrent assets were tied up inventory. During the same period the trade accountsreceivables has increased from 8.4% in 1992 to 12.7% in 1996. Jollibee was able tocompensate for this increase by corresponding increase in sales and hence this neednot be a cause of concern.On the other hand, all is not well with the financials of Jollibee. There was 28.9million pesos of long-term debt outstanding at the end of year 1996. Cost of sales hasincreased each year with an increase of about 46% from the end of 95 to the end of 96. But during this same period, total sales only increased about 28.7%. Thisescalation in the cost of sales must be brought under controlAccounts payable and accrued expenses increased by about 156% from 94 to 96. Inaddition, earnings per share decreased 19% to 0.68 pesos per share from 94 to 96.Jollibee has debt and some financial instability; however it is not something they can'tovercome. They have 24 stores in foreign countries, which account for roughly $9 million in sales. This is an encouraging sign as far as Jollibee is concerned and theywill be able to pay off their debts and loans.One thing they should consider doing is slowing down expansion. Jollibee shouldconsider opening a store and giving it time to grow and turn a profit before it financesthe opening of a new store. Opening new stores requires a lot of financing. They muststudy markets to determine a location, buy furniture, purchase kitchen appliances, andtrain new managers and employees. Opening multiple stores at the same time will hurtthe bottom line and will increase debt. It took McDonald's 20 years for theirinternational operations to account for 50% of total sales. Also, they must reduce costof sales. During the period under study the cost of sales has increased at a faster pacethan the sales increase, which is not acceptable.The company has good internal financial resources but a certain code should bemaintained in the relationship with the franchisee. Also, the allocation of the financialresources needs to be done wisely and judiciously. This is where there has to becollaboration between the marketing and finance department. The feasibility(financial) of opening up a new store needs to be studied before going ahead with thedecision.c. Operations Management PerspectiveFrom the very beginning Jollibee Foods Corporation had focused on deliveringquality food and service at an affordable cost to the customers. This had been possibleonly due to excellent operational control.They enjoyed a dominant position in the fast food market in Philippines untilMcDonalds entered the market. To take on McDonalds, they focused on their mainasset, their knowledge of taste and preferences of the local population. This strategypaid off initially but slowly McDonalds caught up. To maintain their market share andcounter the growing popularity of McDonalds Big Mac sandwich they came up withtheir USP, a large hamburger named Champ which contained a wide hamburger pattyas against Big Mac which had two small patties.Once Jollibee Food Corporation was well established in Philippines, TTC's decisionto expand overseas was a good bet. But due to their inexperience and wrong choice of partners they suffered losses in their initial foreign ventures. In Singapore there weretoo many partners thus hindering smooth operation.In Taiwan there were disputes over management of local operations. In a franchisearrangement standardisation of operations is the most essential factor. But in this casethe local partner was objecting to the presence of company employees.
ISSUES- HIRING OF AN OUTSIDER:Hiring a professional as Vice President of international operations was a wisedecision. But he did not get adequate support from the company management toimplement his ideas.Going in for franchising was a good decision because they lacked huge resources toopen and run their own stores everywhere. Kitchner implemented a good strategy of assigning the responsibility of opening of new stores to a Franchise Service Manager.Thus FSM became the point of contact between the local partner and the company.This helped avoid disputes of management of local stores. FSM was also responsibleto send the weekly data of store sale to the company. This helped them to monitor theperformance of each of their stores.But as the international operations grew, disputes arose between the parent companyand international operations on various issues such as varying the menu according tolocal taste, company logo etc.RECOMMENDATIONS:
• International operations should be completely separated from domestic ones. • Strategy of varying the menu to local taste should be implemented. • Smooth supply chain management system should be put in place to increase efficiency and productivity.
• In case of expanding the menu, economies of scale and operational efficiency should be kept in mind.
• Some items which increase inefficiency should be removed from the menu. d. HR PerspectiveRegardless of location or culture, effective customer brand loyalty can be developedthrough human resource departments and the company's personnel. The mostsignificant difference between domestic and international human resourcemanagement (HRM) seems to be that with domestic HRM there is a common standardpractice that most companies are familiar with, whereas with international HRM,there are a variety of different laws and business practices that internationalcompanies have to consider. The similarities between these two types of HRM can befound on a more practical level of managing employees. Both serve to fulfil the goals,needs of employees, and to ensure that they have the necessary resources tosuccessfully complete their duties. The first step to successful International HRM is an understanding of culturaldifferences and developing appropriate means of addressing these differencesJollibee ensures that it provides top-notch services in all its outlets. Jollibee's successcan also be attributed to its organizational culture depicted through "funand friendly environment". Through stringent recruitment and selectionprocedures, Jollibee ensures a service-oriented staff to man its outlets. Willing to payabove-average compensation, Jollibee ensures loyalty among its staff members andthis translates into better service performance and dedication toward serving thecustomers. Training programs equip its staff with the necessary skills needed to betterperform their tasks. By hiring professionals to devise strategies for its storeoperations, Jollibee is able to create a working environment that boosts high standardsof professionalism and service excellence.However, there are other problems that Jollibee faces in the international expansion of its business. Thus we have analysed the case under the following heads:1. Polycentrism at Jollibee2. Tony Kitchner's Kafkaesque Desires1. POLYCENTRISM AT JOLLIBEEThe Jollibee Corporation follows the polycentric approach in partnerships. Apolycentric approach recruits host country nationals to manage subsidiaries whileparent country nationals occupy key positions at corporate headquarters. The Jollibeecorp. has taken this a step further, and most of the key positions are held by familymembers. The cost of value creation could be greatly reduced using this method, andcultural imbalances can be reduced to a great extent.But this approach at Jollibee was perhaps not carried out effectively at Jollibee. TheJoint Ventures at Singapore, Taiwan and Indonesia are case in point. The parentFilipino management at Jollibee was very keen on imposing themselves on the hostmanagement. Conflicts arose on day to day management issues. Jollibee could operateproperly in Brunei as there was a silent partner. When going for Polycentricpartnership as a strategy it is only imperative that a certain amount of flexibility andautonomy be provided to partners. Trust was lacking in the relationships forged. Thecoordination required to transfer core competencies or to pursue experience curvesand location economies was lacking. Instead of the formation of a transnational entity,what resulted was the formation of independent federations, trying to resist parentalcontrol.2. TONY KITCHNER'S KAFKAESQUE DESIRES In Tony Kitchner's case, in his three years as head of the company's InternationalOperations, his leadership manifested both sharp professionalism and abysmalinternational expansion efforts. Kitchner's institution of a dress code was apt,converting the company from one that looked like a neighbourhood chain to one witha multinational image. While his "planting flags" approachreflected an interest in giving the company greater reach within its region, Kitchner'segregious lack of planning and research made it a failure. He simply opened stores invarious Asian cities on the assumption that Jollibee's success in the Philippines couldbe transplanted with little adaptation and these stores folded one after another as hediscovered his error. In addition, his approach created strained relations between hisPhilippine staff and the International staff. Kitchner's three years could be summed upas a period of great ideas backed with too little research and foresightAlthough Tony Kitchner was hired to bring more structure to the InternationalDivision, he failed to build the rapport needed to push forward the division'sinitiatives. Kitchner began creating a "world-class company" bystealing employees from domestic operations — a poor first impression that lasted theduration of his career at Jollibee. By setting the stage for competition, Kitchnerensured that his actions, even if they were beneficial for the company, would meetcriticism from the domestic side. Kitchner should have recognized that the hostilitycoming from Domestic was underscored by a fear that their division would beeclipsed by International. Rather than cultivate this fear, Kitchner should have made itexplicit that the International Division's success would have reflected on the companyas a whole. By simply increasing communication, Kitchner could have enlistedDomestic's support in his endeavours.Under the company's early divisional structure, value-chain activities such asR&D and Finance were controlled by the Philippine operations. The failure togain access to these resources hindered International's ability to modify the logo, storelayout, and menu — modifications, which were potentially beneficial for Jollibee.Kitchner fostered tension within the organization and it was ultimately thiscontribution that led to his dismissal.Kitchner never really understood the organizational culture at Jollibee. It would not be an exaggeration to opine that Kitchner was ‘culturally challenged'. He failed to realize that a bulk of his interventions at Jollibee was paradigm shifts. Practices that werebuilt over 16 years were shoved into oblivion in a matter of months. His performanceduring his three year stint is a marked reflection of inherent superiority complex thatis usually associated with Western expatriates. He is a perfect example of the ‘sea gull manager.'Recommendations It is evident that Jollibee is following a transnational strategy. The recommendationsfrom a HR perspective would be1. A geocentric approach: Switch to a more flexible geocentric approach to staffingand partnerships. Seek the best people for key jobs throughout the organizationregardless of nationality. Mr. Tony Kitchner was perhaps the first person who waschosen regardless of nationality, and the disaster that ensued was perhaps because of the overwhelming cultural myopia polycentricism imbibed. A geocentric approach isthe best way to utilize Human Resources. A cadre of international executives who feelat home working in multiple cultures is the need of the hour if Jollibee has to expand.While the lower rungs of staffing can be citizens of the host country, the top levelmanagement should be people who have the expertise and the skill to push theoperational effectiveness of Jollibee without having to compromise on organizationalculture and effectiveness.2. Management Development: International Business is increasingly usingManagement Development as a strategic tool. Jollibee needs a strong corporateculture, and informal management networks to assist in coordination and control. Italso needs to understand local cultures before expansion. All this can be achievedthrough a proper emphasis on Management Development. An effective MDP canbuild a unifying corporate culture by socializing new managers and partners into thenorms and value systems of the firm. Personal culture should be stripped; thecompany culture must be donned. Tony Kitchner was exhibiting his personal culturethroughout. The organizational culture was forgotten. How else could friendliness,one of the pillars of the Jollibee brand be replaced by scathing competition, in theshort three year period he was in charge?3. Facilitate inter unit cooperation: The R&D wing of Jollibee was not forthcoming in its interactions with International. The creation of ‘departmental silos' have often resulted the fall of Goliaths in business. Intra and inter unit communicationcannot be ignored. Knowledge Management cannot occur in its absence. Various outbound and internal training exercises should be carried out in the Jollibee facility toiron out differences and inflict comradeship. The use of external corporate trainers inthis regard would definitely be a plus.Small differences in management style and culture between the cooperating firms maybecome serious problems that make it difficult to create synergies, which ultimatelylead to poor financial performance. Given the difficulty of identifying theorganizational compatibility between two firms, it can be convenient to use somespecific procedures to predict whether the relationship might work.Noli Tingzon –
A Fresh Look at Strategy

The arrival of Noli Tingzon marks a critical juncture for Jollibee, where it will beginentering the US market. The key to Jollibee's success in Daly City will be its ability tofind a local partner that can leverage its organizational advantage, while navigatingthe challenges of conducting business in the United States.Three Options for Expansion
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Papua New Guinea- Raising the Standard
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New Entrant into 3 store fast food chain
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Tingzon offered to put up all capital required
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Hong Kong- Expanding the Base
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3 Store already established, possibility of a 4th one.
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High volume with Filipinos but not with residents (Chinese)
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4th store location high traffic but few Filipinos
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California-Supporting the Settlers
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Success in Guam led them to believe US had potential
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Food Appealed to Filipinos and Americans
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Decided on Daly City-Large Filipino population
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Plans to appeal to Asian Americans and then Hispanic AmericansRecommendationsPAPUA NEW GUINEA: There are five million people in Papua New Guinea withextremely limited fast food options. Jollibee can come in and set a high standard,attract many customers, and scare future investors away. However they would have toquickly add three to four stores to be competitive and cover costs. There was alsoquestion as to whether the area could handle 20 stores. Either they will get the firstmover advantage or they will sustain huge loss. Since the benefits offered by the localpartner are uncertain and profit potential is low, Jollibee should not seek to enter NewGuinea at this time. HONG KONG: In Hong Kong, Jollibee are located near a very densely populatedarea, which has a very loyal Filipino customer base. These people gave them greatbusiness on the weekends, but sales fell off during the week because the local HongKong people rarely frequented the Jollibee establishment. Also, there weretremendous problems with the Chinese stores. All of the managers resigned and manyemployees quit because the Chinese like to work for Chinese. There was obviousfriction between the Chinese and Filipino's. While the fourth store in Hong Kongrepresents a valuable learning opportunity, it will not generate the revenues needed tobuild a global empire. Catering to the local Chinese palette would allow Jollibee tobuild its competitive advantage by learning to balance flexibility in menu offeringswith consistency across the global brand. Additionally, a success in cosmopolitanHong Kong could give Jollibee the brand exposure it needs to attract better partners.However, given the staffing issues and uncertainty involving the local Chinesecustomer, it would be better for Jollibee to improve its current operations, rather thanto commit additional resources to a new store.CALIFORNIA: It will be a very good idea to target the Asian community living inU.S and California is the best place to start from. The intense competitive atmosphereof US fast food market will provide Jollibee tremendous opportunity of globallearning. Furthermore, they also discovered that there were many elements of theirrestaurants that appealed to Americans. Similarly, there was great support fromFilipino-Americans. Likewise, Jollibee was going to expand throughout Californiabefore it moved east. They were determined to gain recognition. Another helpfulaspect is the diversification of America. In any given city a person can find Chinese,Italian, Greek, Spanish, Japanese, American, German, Polish, Indian, and other ethnicrestaurants. Americans like to try food of different cultures and there is no reason tobelieve that we will not try Filipino food. There is very little reason to believe thatJollibee cannot successfully enter the fast food market in the United States. But on theother hand, United States is home to some of Jollibee's most formidable competitors.As a late-mover, it will be difficult for Jollibee to obtain access to the distributionchannels, suppliers, and store locations which allowed it to become a cost leader in thePhilippines. Additionally, aside from its experience in Guam, Jollibee does not haveany real experience operating in a Western business environment.Conclusion: Implementation Plana. New product-new marketJFC could introduce new product develop targeting the foreign market. The newproducts that they had introduced in the Philippines could also be applicable to theinternational market. These stores should be particularly targeted towards theFilipinos working overseas. b. Increase depots in the domestic and other countriesJFC could establish additional depot near Jollibee stores. Through this, they could beable to reduce logistics costs thus leading to cost efficiency.Such a measure will ensure the freshness and high quality of the products that theywill deliver to the international stores. In addition, they could avoid high shifting costfrom the Philippines to other countries.They can also enter into joint venture agreement with other country in establishingnew depot abroad. That is for JFC to be able to have ready knowledge about theexternal factors governing the country.c. Maintaining market dominanceTo attain market dominance, Jollibee should concentrate on increasing the presence ininternational markets. The international market will only need a good communicationplan like tailor made ads, PR articles, good promotional plans in getting the newlyintroduced products known, and focusing on pushing products, getting it known, andcreating loyal customers. Besides, the transfer of the local taste buds would not be thatquick going to international markets.Also, the company should improve on its research and development from newmarkets, potential acquisitions and new products to be developed.For each of the other business units, JFC should communicate the company culturethrough company conventions to ensure that the company interests are achieved.Advertising campaigns though do not always have to be Jollibee sponsored. As asuggestion, the other business units should focus on environment publicity, comparedto Jollibee's ads for humanity and youthAs the macro environment changes, the company should be responding by aligning itsstrategy and structure according to these changes. The group feels that companyshould take baby steps rather than the aggressive steps as those taken by Kitchner,owing to the financial constraints .The company should try to ride on the learningcurve and experience from different markets. The company should try to resolve theinternal conflicts and should have a focused vision.