REPRINT R K
Approach to China
To succeed, the fast-food giant had to throw out its
U.S. business model. by David E. Bell and Mary L.
With compliments of...
At a KFC in Beijing
Approach to China
PHOTOGRAPHY: GETTY IMAGES
To succeed, the fast-food
giant had to throw out its U.S.
business model. by David E.
Bell and Mary L. Shelman
2 Harvard Business Review November 2011
lobal companies face a critical
question when they enter emerging markets: How far should they go to localize their o erings? Should they
adapt existing products just enough to
appeal to consumers in those markets? Or
should they rethink the business model
from the ground up?
The typical Western approach to foreign
expansion is to try to sell core products or
services pretty much as they’ve always
been sold in Europe or the United States,
w ith headquarters watching closely to
make sure the model is exported correctly.
This often starts with selling imported
goods to the expat community or opening
one or two stores for a trial run. Once such
an approach is entrenched, companies are
reluctant to rethink the model. U.S. retailers and food corporations that have spent years saturating the huge home market
tend to cling to what has worked in the
past. Domino’s Pizza nearly failed in Australia because it underestimated the need to adapt its offerings to local tastes; only
after it turned the country over to a local
master franchisee did Domino’s become
the largest pizza chain there.
A master of adaptation is the Swiss food
giant Nestlé, which has created an array
of products that incorporate differing regional avors—and cater to local tastes—in co ee, chocolate, ice cream, and even water. For a hundred years Nestlé’s country
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managers have been empowered to say
no to the head o ce if a product or a campaign doesn’t suit their locales. Perhaps the greatest tribute to the strategy is that many
consumers around the world believe Nestlé
is a local company.
One of the most impressive stories of a
U.S. multinational in an emerging market is
unfolding right now in China: KFC is opening one new restaurant a day, on average (on a base of some 3,300), with the intention of reaching 15,000 outlets. The company has achieved this success by abandoning the dominant logic behind its growth in the United States: a limited menu, low
prices, and an emphasis on takeout.
We recently studied KFC China’s transformation of the business model that had made Kentucky Fried Chicken a global
brand, and we learned how, in the process,
the company accumulated strengths and
competencies that now pose formidable
barriers to competitors. KFC China o ers
important lessons for global executives
who seek to determine how much of an existing business model is worth keeping in emerging markets and how much should
be thrown away.
Five Competitive Advantages
In 1987, when the rst Chinese KFC opened
in Tiananmen Square, Western-style fastfood restaurants were unknown in China. Many Chinese still wore the tunic suits of
the Mao era, and bicycles were the main
means of transportation. KFC was a novelty, a taste of America. It was a place where residents with spending money could go
for a special occasion. Although customers
didn’t like the food much, KFC made steady
progress, according to Sam Su, now the
chairman and CEO of Yum! Brands China
Division, which owns KFC and a number of
other brands in the country.
In 1992, after the Chinese government
granted foreign companies greater access
to markets, KFC China’s managers gradually developed the blueprint that would transform the chain. Like every other multinational in China, KFC made its way up the learning curve by trial and error. But
the strategy that emerged was remarkably