Considering China as a strategic location was based from a SWOT analysis.
Availability of Supply (Strength)
There is ready access of quality poultry in the major metropolitan areas such as Shanghai, Guangzhou and Beijing. Poultry industry is one of the top priority categories in China’s agriculture modernization and it is highly encourage by the government. Thus, the company can ensure a reliable supply of high quality chicken.
Low Competitive Pressure (Strength)
Potential competitors such as MacDonald’s face major barriers to enter the China market due to poor beef supply while KFC, aside from availability of high quality chicken supply, has the clear advantage since its main product-chicken- is eaten almost everywhere in the world. Furthermore, chicken is already familiar in China and even much cheaper.
Company’s Control Measures (Strength)
KFC s control mechanisms are designed to ensure standard levels of quality, service and cleanliness (QSC) at all of the restaurant’s chain stores. This fits the positive image in Asia of American fast food restaurants as famous, air-conditioned, and hygienic.
Product Consumption (Strength)
Chicken has long been regarded as a kind of nutritious food, which is especially good for the patients, the elders and children. An increase in health conscious consumers also raises the consumption of chicken. Moreover, chicken is a more popular meal than hamburgers in most Asian countries and KFC has the opportunity to offer an American style experience that is different from most other food establishments.
Drawing Area (Opportunity)
In late 1978, China began implementing economic reforms to modernize its economy by lessening the government’s control of the economy. This reform referred as a socialist market economy boosted the national wealth and the consequent increase in individual’s income has led to steady changes in Chinese consumer patterns prevalent in pre-Mao era. As the world’s most populous nation with over 1 billion inhabitants, the potential size and growth for KFC makes the Chinese market very attractive. Not to mention, the possibility of establishing the first Western style fast-food operation in China as a historic opportunity for the company.
Scarce Human Resources (Weakness)
Managerial resources are precious because of the scarcity of Chinese-speaking KFC managers. There are also possible conflicts between KFC-appointed managers and local employees. Lack of Local connections (Weakness)
Pioneering in the fast-food field would find KFC very difficult to form local and personal networks between businesses and government agencies, which are crucial in providing access to the local market and domestic suppliers and eventually, to the company’s success. Entering into a relatively unknown market, KFC, as a new entrant will have to get in touch with the local business customs and laws as well as with knowledge of culture and language.
Quality of Government (Threat)
A communist government with strict foreign investment laws rules China. Setting up here requires heavy investment expenses and high levels of resource commitment. The risk of domestication measures may be imposed by the host government, often leading to major financial losses for the foreign investor.
Overcoming Threats and Weaknesses
KFC has three options of entering the China market thru, namely: Franchising, Wholly owned subsidiary and Joint venture.
The traditional franchising strategy, in markets where political risk and cultural unfamiliarity exists, certainly would reduce financial risks. However, KFC had already encountered problems in the past with the aligning of corporate planning with the franchisee’s short-term focus on profitability. In addition, KFC will be pioneering in the fast-food service and thus needs to be highly sensitive to...