KFC Case Study
If one international brand must be selected as the most favourite one for Chinese consumers, it would be Kentucky Fried Chicken, or KFC as it is known more commonly. According to questionnaire survey conducted by the globally-renowned marketing researching company AC Nielsen in 30 China cities in 1999, KFC was accepted by Chinese consumers as “the most popular brand” and ranked as the No.1 among top ten international brands in China. With the increasing abundance of managerial experience, the expanding number of staffs and the gradually impeccable management system, KFC accelerates its velocity of development since entering the Chinese market in 1987. Up to now, there are over 3,200 outlets in more than 700 cities across China and the number keeps growing rapidly, which makes China the largest overseas market of KFC. It cannot be denied that KFC has achieved great success in China and the prosperity cannot be separated from its effective international business development roadmap for the Chinese market.
Mode of Entry
In the late 1980’s and early 1990’s when KFC entered China joint ventures were the only viable option for mode of entry due to government regulation. Initially KFC China formed joint ventures with local partners chosen by the government. The first joint venture was with the Government Poultry Department but this faced problems. Afterwards, KFC successfully partnered with the Tourist Department to form a joint venture because they had sufficient funds. This model was successfully replicated with many local partners across China. It effectively leveraged the tangible and intangible local resources of the joint venture partners, over time transferring them to KFC. Once joint ventures were no longer required by the government in the mid 1990’s KFC began buying out its partners and refrained from entering into new joint ventures. This gave KFC control and avoided disagreements commonly associated with joint ventures. KFC initially chose a regular chain model, rather than franchising as the mode of entry to the Chinese market because of a lack managerial skills and fear of losing their secret recipe. In 1992 after the fast food market matured, they introduced franchise method which helped KFC to expand faster. The first franchise territory was centred on the ancient Chinese city of Xian in 1993; however this produced mixed results and no more franchises licenses were issued until the year 2000. In early 2008 there were only a few dozen franchise stores out of over 2000 in China. In 1987 KFC opened its first outlet near Tiananmen Square in Beijing. Since then they have opened over 3,200 outlets in more than 700 cities across China. It is believed that a vital ingredient to KFC’s early success was its leadership team at the time. The pioneering team known as the ‘Taiwan Gang’ collectively had decades of fast-food industry experience prior to landing in China. Many of the team were from Taiwan or other South East Asian countries and understood Chinese culture. This meant that they knew how to manage relationships with government and joint venture partners, and also which strategies would be successful in the Chinese market.
At the time KFC entered China Joint Ventures were a necessity. In the late 1980s many businesses in China were at least part, if not wholly owned by the government. This meant that choosing the right partners was of vital importance for KFC as this would ensure business and political connections and help to build guanxi. Overall KFC chose the right Joint Venture partners in China. This was a complex process, and in each city KFC worked with different partners. There were often multiple partners within each city. For example partners in Beijing included a state owned bank and a food distributor/retailer. In Shanghai the New Asia Group led the Joint Venture partners. This was later merged into a hotel and catering group that...
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