McDonalds & KFCs Success in China - Essay Example

McDonald’s is without a doubt the most successful fast food chain in the world. Close rival KFC is not even near the accomplishment in terms of global expansion and market share of McDonalds. McDonalds has 17,500 outlets across the globe, and in fact the first one to properly start international franchising (Szulanski, & Lee, 2009). KFC on the other hand enjoyed more success in the huge Chinese market. The recipe for success for both the companies lies in ‘localization’. Talking about KFC, it is also on a winning role when compared with global expansion. In 2004 KFC opened its 1000th restaurant in China (Liu, 2008), and enjoyed a great deal of success. KFC entered the Chinese market before McDonalds, that’s why the latter had to come up with a strategy to deal with this dilemma. McDonald used the same strategy as of KFC’s. They looked for partners when they entered China; chose Guy Russo as Greater China international relationship partner (Szulanski, & Lee, 2009). International expansion of both the fast food giants lies in franchising. Successful franchising lowers expenses that they would otherwise have to bear and also increases brand loyalty. For instance, KFC entered Asia in 1970. The franchising strategy worked like this; they gave franchising rights to a joint venture company, including two Japanese and one local when they entered Taiwan in 1984 (Szulanski, & Lee, 2009). Many claim that KFC’s early entry into China is one of the major factors that contributed to their huge success in terms of revenues and expansion in China. On the other hand, McDonalds used a similar strategy; in 1971, the first McDonalds restaurant opened in Tokyo’s Ginza district (Szulanski, & Lee, 2009). It was a marketing strategy that was following the rival KFC’s. It seems like economics Game theory; one competitor opens an outlet somewhere, the other follows, strangling the hold on market share. The move into Asia of both the giants seems like a ball game; one makes the move, the other reacts. And reaction was what McDonalds needed in China. KFC was cashing in a lot more than McDonalds. McDonalds with its 1000 outlets in China compared to 2300 of KFCs was raking in less revenue per outlet. Some put it at $900,000 per outlet compared to KFC’s $1.2 Million per outlet (Szulanski, & Lee, 2009). This was the dilemma that McDonald faced. So what was their strategy? One of the many problems that McDonalds faced was either go for replication or adaptation. But studies show that replicating KFC’s strategy wasn’t an easy one. KFC had more than twice the number of outlets in China than McDonalds. The way they were delivering their fast food all across China was definitely something to look forward to. When such a huge company like McDonalds or Burger King expand or diversify, they enter into different markets and hire local labour and chefs that cook food and manage customer traffic. To keep the trademark taste consistent all across the globe is not an easy task. Despite of all the hard work, there is usually some variations observed in the taste of the food, if it tastes different from the standard, it can give a bad name to the company. So why both the franchises focused on China? Why was it so crucial to get a strong foothold here to dominate the Asian Market? First and foremost China is a huge country in terms of population. A huge workforce is present here who can afford McDonalds and KFC deals. Proper marketing can bring home the crown. Despite of all the attraction in Chinese market, there are huge challenges too; people can afford the food of American companies but a huge population would save money to eat there. It was considered a luxury to have a KFC burger or McDonalds meal back in 1978 (Szulanski, & Lee, 2009), but since then the things have changed considerably, now more people can afford meals and there is an ever increasing demand. So how did McDonalds get on with the market share fight? They entered the localization phase. KFC simply rooted up from Kentucky and planted in Chinese soil would not have worked. So what they did was they went into joint venture with Beijing Animal Production Company and Beijing Tourism Board (Szulanski, & Lee, 2009). This is understandable why they went into a joint venture instead of a ‘solo adventure’. China was a new market and for better product supply and promotion, they needed locals to help them. After their business deal, they had almost nothing to import from outside China, everything from chicken to vegetables were purchased from local buyers (Szulanski, & Lee, 2009). KFC was successful in recruiting a vibrant workforce for simply the salary they offered; they gave 140 RMB per month to their employee, which was higher than the monthly salary of associate professors at Universities (Szulanski, & Lee, 2009). This was such an attractive offer for the locals that almost 20 people for each opening were available (Szulanski, & Lee, 2009). So KFC had the option of choosing the best from the lot. KFC’s marketing approach included focus on localization. They started their business with recruiting and training locals. Majority of their managers are local Chinese, and their input is vital for the growth. They understand their constituencies really well and hence contribute to the business expansion in a productive manner and save cost. For KFC it was almost impossible to hire the same talent back in the US as the talent they recruited in China. Here in China, they went to universities to hire the best they had to offer. University graduates joined them, and now almost 90% of the general managers in China consist of local people. Almost all of them started their career as cooks or as management trainees 20 years ago. It is not only a matter of entering a market sooner or later. How managers handle marketing and advertisements plays a major role. Aggressive marketing, which includes heavy investments in TV and print advertisements, is one of the most productive tools in acquiring decisive market share. Globalization of services has definitely made its mark but the amount of globalization of manufacturing is way ahead of service (Aharoni & Nachum, 2000). McDonalds and KFC have benefitted a lot from globalization of services but they will need to fight other competition in China. Burger King opened in China after 18 years of Yum! Brand and after 15 years of McDonalds (Kitty, 2007). So will Burger King replicate or adapt? Sources Aharoni, Y. & Nachum, L., 2000. Globalization of services: Some implications for theory and practice. Routledge. Ong, J., 2005. Rivals to feel bite from Burger King. Bloomberg. Liu, W., 2008. KFC in China: Secret recipe for success. Wiley. Szulanski, G. & Lee, J., 2009. McDonald’s & KFC: Recipes for success in China. 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