Expansion Through Franchising - Case Study Example

Expansion Through Franchising Strategic leadership Answer of question no 1:- The first step that is required to survive and grow in a fast food industry is expansion through franchising. The high cost of opening new stores and the need to expand rapidly to take the control over the territory is the reason behind a company’s option of choosing a franchise for the expansion. Moreover franchise allows companies to enjoy the operating economies of scale in advertisement of the product and also in purchasing the raw materials needed for manufacturing the product. With the expansion and maturity of the franchise the chain managements often buy them or became interested in opening own stores for themselves which help in gaining a better understanding and controlling of the operations. And with increasing control and understanding the franchising fees get supplemented by profits. Secondly the decision to choose the town, the neighborhood and even which side of the street as the region of the location is an important key factor of success. A difference in the location of the store can make a huge difference between the success and the failure. Thus the importance of ‘scale economies’ is to be recognized at the store level because the fixed cost of the outlets are very high and so to meet the cost, the small returns per unit sells and the traffic volume is very crucial. Efficiency in store management is also an important factor of profitability within the industry. Since the opportunities of waste, inefficiency and shrinkage are many there is a requirement of an efficient management system. Thirdly the efficiency of the store managers in building relations with the local public, developing goodwill with the customers, maintenance of the morality of the employees and keeping an eye on the competing chains are important for ensuring the short term profits. Fourthly with the development of the industry a clear overall market image of the chain is very important. There is a need of maintaining consistency and reliability of the product line throughout the chain. Introducing more innovative recipes often becomes risky as it may deviate from the basic and core theme of the industry. (Bartlett and Rangan, 2) Answer of Question no 2:- Dick Mayer emphasizes on Strategic planning. According to him strategic planning can bring effective changes in the way of marketing and brings accountability in the function. Every product and their pricing proposals require analysis and review by the management to evaluate their ability to meet long term strategies. He focused mainly on the subsidiary in Japan as it was one of the fastest growing units with the highest potentiality also a challenge for the entire international operations. Mayer was aware of the issues related to the resistance of the headquarters administrative control over the entire international operations. The office of the international operations felt that the lack of organized and effective planning and control for the overseas expansions resulted in the financial constraints, the inconsistency in the strategies taken and the ‘stalled expansion’ in the overseas market. Accordingly increasing efforts made by the staffs of the head quarters aiming at increasing support to the overseas staff and providing them with the resource and the experience of the parent company would help them in achieving optimality. The subsidiaries were helped from the headquarters in developing new marketing skills. New techniques of market research and advertising in television to introduce the products to the customers and to enhance the brand awareness were introduced among the subsidiaries through seminars. According to him the head quarter cannot turn a blind eye on the subsidiaries submission of approval forms after the plan already implemented and not submitting proper reporting to the head quarters for analysis. Moreover manager’s proposals of new market entry and the details of their strategies should be properly evaluated for setting financial and operational expectations in the changing world of increasing political, currency and legal risks. Loy Weston was the president of the KFC’s exposure in Japan. It was a joint venture with the Mitsubishi Company of Japan. According to Weston the increasing interference of the headquarters staff in the local national operations was compromising the entrepreneur spirit that helped in building the business overseas. According to him the overseas expansion started independently without the assistance from the head quarters. Moreover the quality of the product the service provided and the cleanliness adopted in the subsidiaries were much better than those of the head quarters and so it was ironic to him that still the controllers were trying to teach them management procedures. According to him expanding in the international market requires leaving the decision and the responsibility of the expansion on a person with the combination of entrepreneurship and sensitivity alone and it require no need of continuous evaluation of the head quarters. He blamed the continuous hooking of the head quarters in the operations of the subsidiaries as the main reason behind the poor performance of the latter. The subsidiaries started learning the tools as prescribed by the headquarters and implementing those in the production process routinely within two years. Data revealed that KFC of Japan reported a profit level of 14 million yen which was a modest amount. Thus the support provided by the head quarter staffs proved to be beneficial for the overseas expansions. (Bartlett and Rangan, 1, 7-12) Answer of Question no 3:- The first change that Dick Mayer needs to ensure is the temptation of the management in regarding the overseas units as mature and the international head quarters had to maintain the drive for increasing the penetration rate of the overseas. Secondly the skills of the managers in managing the operations of the overseas companies should be made appropriate. There is need to revive the requirements of the managers at the different stages of operation according to their ability and skills, like at the entrepreneurial stage there is requirement of go getters, in the second stage of building autonomy there is need for people to develop their operational skills using their local knowledge where it requires organizational individuals and thirdly requires professional managers to review the planning, develop ideas for business. So in these different stages of operations Dick Mayer should choose different individuals and hence divide the total operational process among them on the basis of their ability to achieve success at each level. According to Dick Mayer in a fast food industry the professional managers could also be ‘source of entrepreneurial expansion and hence ‘go getters’ like Loy Weston could be replaced by suitable professional individuals. (Bartlett and Rangan, 10-12) Answer of Question no 4:- The Jollibee Company started with an ice cream parlor run by the members of the family and then it diversified its operations into a range of sandwiches as the president of the company expected a price rise of ice cream after 1977 oil crisis hit the country. The company’s philosophy consists of ‘five Fs’, “friendliness, flavorful food, fun atmosphere, flexibility on different needs of the customers and focus on family” (Bartlett, 1). Maintaining consistency and efficiency along with this desirable environment is the key factor behind the success of the company. Secondly the company maintains a machine record of the day to day operations of the company which is desirable for a company to grow. Though the family members hold important positions in the company but there were professional managers for supplementing their expertise and the head of the marketing department and the department of finance were always outsiders. Moreover the company went public in the year 1993 and joint ventures in 1995 diversified the availability of the company. McDonald’s entered the market in 1981 and became the competitor. It had more money and better operating system than Jollibee. But the latter experience the advantage of the consumers’ preference as the products of Jollibee was in more demand and more preferred by the natives of the country. The taste and the size of the product offered by Jollibee add the advantage to their side. Moreover McDonald’s run on foreign investment went on a slow down after the political unrest in the country and Jollibee broadened its core menu with the fading ‘foreign brand appeal’. Thus Jollibee enjoyed the dominating position in the market. (Bartlett, 1-3) Answer of Question no 5:- Kitchner, the appointed vice president for the international division of Jollibee wanted a separate identity for the international counterpart without the simplicity and the basic management approach of the parent organization. He insisted a formal dress code for the company to attract the investors but it results in the lost of the friendly atmosphere of the company. He then started employing more and more staffs under his department and expanding the company internationally. As they began expanding they realize that the international expansion was not that easy for the company and they need to face several market entry barriers in many countries. They realized that there was need of evaluating and modifying several areas of the international model of the business setup. Moreover the pattern of the market also differ with countries like the while expanding in the Indonesian market they realize that the pattern of the demand different from the domestic country market and the consumers of the country did not spend too much money on the consumption of Fast foods. He also changed the logo of the country which reports misunderstanding among consumers guessing the outlet as ‘toy store or a candy store’ .Emphasis was given from changing the menu offered in the outlets according to the taste of the local consumers which created tension in the domestic company and hence little help was provided by the domestic counterpart regarding the research and development functions. With the increasing expansion, the relation with the domestic counterpart deteriorates. There were increasing tensions among the employees of the domestic division and that of the international divisions which resulted in less assistance and support from the domestic counterpart. With time financial problem creeps in as many foreign stores run out of fund and it require the domestic company to support the unprofitable activities. Thus evaluating the initiatives taken by Kitchner it can be said that the ideas were not suitable for the long run .Initially it was thought that the expansion would be profitable and would generate more money for the company but with time it was noted that importance should be given to each outlet first before expanding in order to help that stand profitable then move on to open new ones. This would in turn create more revenue and also expand the market of the company beyond barriers. (Bartlett,10) Answer of Question no 6:- Tingzon had the option of choosing a viable and profitable area of new expansion among three alternatives, either in New Guinea or in Hong Kong else in California. Considering New Guinea as the option for expansion it was seen that though the original idea was to set up a single outlet in the area but to make the venture profitable it requires at least three or four new stores to develop the market and hence gain from it. With this concern the response of the franchise was that it would negotiate with the petroleum retailers of the country to allow the outlets in the service stations of the country. Jollibee was in no need of risking any equity in the venture as if needed for more stores fund would be invested by the franchiser itself. For Hong Kong the proposal was to open a fourth store in the country. But there were problems regarding this venture. Firstly the language became a problem for the Chinese customers as Jollibee failed to recruit any Chinese crew members. Secondly the rigidity of the menu offering of the company also became a problem as it did not match with the preference of the consumers. There were also problem in staffing, product quality and design of the short term marketing strategies which made this option a tough one to increase the ability and create brand recognition among the consumers. The third plan of action was investment in California, the place said to be the birth place of fast food. Jollibee had the opportunity of wining prestige if they could successfully expand and satisfy consumers of this country. The advantages that it would enjoy was the confidence that the taste pattern of the consumers which would require no change in the menu pattern as served in the domestic country. Moreover it was backed by strong interest on the part of local investors and a confidence that if they succeed then they could earn the interest of the consumers throughout USA. Dealing with the three options Hong Kong did not seem to a profitable one. Between the other two New Guinea is more risky because of less idea regarding the consumer taste pattern than California. Thus the latter one seems to be the profitable one in every field of consideration. (Bartlett, 11-13) Answer of Question no 7:- TTC’s job in Jollibee and managing Kitchner would be more desirable to me. This role is more preferred because the policies taken by Kitchner seemed to be profitable in the short run for the company and helped its expansion in the outside world. With some required modifications in the strategies applied it would also have proved to be viable for the long term growth of the country. The strategies that need to be considered were making maximum utilization of the available resources to enjoy a cost advantage like the South west airlines. Moreover the environment of simplicity is required in an organization to ensure its success. The south west airlines provide almost half the salaries than the other airline companies but it enjoys the highest employee morale because of the simple environment and the respect it ensures to the employees. Moreover the customers should be respected in order to ensure customer cost advantage. Importance should be given in team work and coordination should be maintained among the different departments of a company. Increasing friction among the departments of domestic and international domain of the Jollibee Company became a main cause of failure of the strategies of Kitchner. The south west airlines employ people able to work in a cooperative environment and hence they give importance in employing fresher’s so that they could easily get accommodated with the work environment. Suggestions of all level employees should be considered for the well being of a company. (Internal context).While implementing strategies the firm should exploit the location advantage and made competing strategies based on the factor conditions and availability, the demand conditions, presence of rival industries and also the location of supportive and complementary industries should also be considered. Ultimately the company need to understand the appropriate scope of the geographical competition and coordinate activities, active the management so as to enjoy economies of scale and enhance the scope to learn across value chain. (Enright) References Bartlett, Christopher A. and U. Srinivasa Rangan, Kentucky Fried Chicken (Japan) limited, Harvard Business School, December 30, 1992 Bartlett, Christopher A . Jollibee Foods Corporation, Harvard business school, December 17, 2001 Enright, Michael J. The Geography of Competition and strategy, Harvard Business School, December 1, 1994 Internal Context: organization design Read More