Contemporary Developments in Business Management - KFC Holding Bhd - Assignment Example

Contemporary developments in business management Name Course Tutor Date Company profile KFC holding Bhd (Malaysia) is a company that has its head quarters situated in Malaysia and has many subsidiaries in foreign countries such as UK, India, Cambodia, China etc. It is a public profit making organization-doing business in food and hotel industry. In its initial stages, KFC holding company was a private organization but after sometime, it was made public by the government of Malaysia. It operates in manufacturing foods stuffs and accommodation facilities such as hotels, restaurants, conferences facilities etc. Therefore, this firm is a diversified company serves the entire public with many services. Throughout its subsidiaries, this company operates three segments. We have the restaurants, integrated poultry, and lastly we have ancillary. Under the integrated poultry, the company operates breeder, broiler farms, feed mills, poultry processing and hatchery. The ancillary services include bakery, and commissary operations. Now, this firm has 539 KFC restaurants in Malaysia, more than 80 stores in Singapore (corporateinformation.com, 2012:1). This company has a total of about 13, 217 employees employed in its segments The vision of this company is “To be the leading integrated food services group in the Asia pacific region based on consistence quality products and exceptional focused services.” The mission is “To maximize profitability, improve shareholder value and deliver sustainable growth year after year.” (Kfcholdings.com, 2012:1). Actually, both the vision and mission statements reveal what this company is up to, and it has always worked hard to perform the way it has stated. Generally, the profitability of KFC holding company has been improving year after year as stated in the mission statement. For example, it reported sales of $918.84 million for the year ending 2011. Reports reveal that this was a 10% increase as compared to the previous year 2010. Competitive environment Question1. Differences between an industry and a market The term industry and market are used interchangeably but in real sense, they have different meanings. An industry is a group of companies that produce and sell commodities that are related and serves particular needs of targeted consumers. Companies in the same industry can be competitors or partners. Competitive companies tend to manufacture goods that are substitutes of those of their competitions. On the other hand, partner companies in the same industries are not competitors but they are either the suppliers or the consumers of the products of the other companies. One company can be a source of raw materials for another company; this means that to reach to a final product, two or more companies are involved. On the other hand, the term market refers to individual consumers that categorized by the buying habits that tend to attract them to buying certain goods other than others. In simple terms, a market is made up of a group of target customers who have the desire of buying a particular product. For a certain region to be refers to have a good market for a particular product, the sellers look at the demand in relation to the prices and the supply of the product to that region. An industry exists to serve a market; this means that if an industry becomes irrelevant to the demand of the market, this industry is deemed to fail. Therefore, an industry is refers to sum of firms engaged in the same kind of business while a market is a population of buyers of a particular product. For this matte, KFC holding is in food industry since its main concern I dealing in manufacturing of foodstuffs. The market for this company is wide because it serves every individual with the food products it manufactures. Question2. How industries are classified A standard industry classification (SIC) is a classification system used to classify industries according to their area of operation. Under this system, a company is coded with four digits basing on the line of products this company manufactures. Companies in the same industry, tend to have related codes. In UK, the classification codes are four digits, while in US, the classifications codes are composed of six digits. Normally, the first three digits of the codes show the industry group while the last two digits indicate the major group, which referred company, belongs (Statcan.gc.c. 2012:1). For example, KFC holding company belongs to hotel and motels industry since it operates restaurants and eating-places. Therefore, its code can be derived from (7011) which is represents hotel and motel industry and (5810) which represents retail eating and drinking places (Statcan.gc.c. 2012:1). Thus, restaurants fall under these two categories where the first three digits stand for the industry group whiles the last digits represents the major group. Question 3 Criteria used in classification of industry The main criteria that are used to classify a company in an industry group is the kind of service it offers to the customers (Statcan.gc.c. 2012:1). It is obvious that the restaurants service the public with foodstuffs, resting rooms, conference rooms and entertainment. The main service offered by KFC holding company is hotel and restaurants services. This enables it to be classified in the food industry since this is its main service. Another criterion that can be considered is the size f the company (Statcan.gc.c. 2012:1). A company that is established and has many branches worldwide, some specific codes can be attached to it. A famous company that is in the same industry with a small company cannot be given the same codes. Therefore, classification also depends on the size of the company. Question 4 The market structure where KFC holding operates KFC holding company belongs to a perfect competition market structure. A perfect competition structure is a market where there are so many companies operating in the same industry where the entry and exit is free. In this market structure, the prices are set by the demand of the customers; therefore, the companies struggle to provide high-level services to its customers in order to remain in the market. There is always a stiff competition between the competing firms. In hotel and food industry, we have numerous companies operating in this industry. These companies compete one another by trying to offer extra ordinary services t customers, a company that offers poor services can easily be put out of the market due o the stiff competition. Question 5 How the structure model conduct performance There are so many food hotel and food companies found in Malaysia and the neighboring countries where KFC holding operates. This means that there is alot of competition and that why this industry of hotel and food is referred to as a perfect competition market structure. This structure conducts its performance by enabling those companies that are efficient and effective in their management to capture many customers on the market. The consumers are the price takers; they enjoy the quality services offered by the competing firms. It is always known that in a perfect competition market, the consumers tend to enjoy the services at lower prices and they get quality services. They can easily shift to those companies that offer good services at lower prices. Question 6. How the measures of industrial concentration are measured Industrial concentration is the degree to which a production in an industry or economy is dominated by large firms. Industrial concentration was looked as a sign of market failure, but nowadays it is looked as an indicator of superior economic performance (Werden, 2009:1). In the current times, industrial concentration remains a matter of public policy in every government. In measuring the industrial concentration, the most important thing that is considered is the market shares of the major companies operating in the same industry. The industrial concentration is found by calculating the concentration ratio by considering the major companies. However, the most commonly used measure is the Herfindahl-Hirschman index (HHI), this is the standard measure used to determine the industrial concentration (Werden, 2009:1). It is calculated by summing the squared market shares of all of the firms in an industry. Thus, the main advantage of this method is that it uses all the information from every company be it large or small to get the exact picture of then industry. Generally, when there are few firms in a given industry, there will be more unequal in the distribution of the market shares (Werden, 2009:1). Therefore most appropriate measure of the industry concentration is the using the HHI standard measures other than using the ratio method. Question7 How privatization has affected KFC holding Company privatization is an act of converting a public company to become an individual firm. In most cases, many governments tend to privatize their companies or sell their public companies to private individuals due to various reasons. So many advantages are accrued to private companies than to public companies. For example, private companies are well managed; the owners tend to contrite in good management in order to earn good income from the business. Public companies in most cases are poorly managed hence poor performance. Thus, when a government feels that a certain company provides essential services to the community and its management is not good, it privatize it so that it gets good management to provide the required services to the public in a n efficient manner. KFC holding in contrary was a private industry in its initial stages but it was later on taken from the private hands to become a public firm. The act of converting a private company to be a public also has some reasons. For example, when services provided by the firm are essential and risky to be left in the hands of private individuals, the government is obliged to take over such firms so that to ensure that the public is not exploited y the private sector. Actually, KFC holding company provide essential services to the public, therefore there was a need by the government o ensure that since the firm deals with many people, it may stand a chance of exploiting these people in terms of hiking the prices of food and accommodation facilities (Nzte.govt.nz, 2012:8). These services are part of the primary or basic needs of human survival. Thus, this firm was publicized to ensure that the consumer meet their basic needs at a fair price. Question 8 How the antimonopoly laws have impacted KFC holding In recent year, many governments have advocated for competitive markets than monopoly markets. They enact some laws that encourage competition other than monopoly. Monopoly is a market structure where there is only one dominant firm in an industrial providing all the services to the public. In such a market structure, the dominant firm is the price maker; it means the firm has the entire mandate to decide what prices it going to sale its products to the consumers. In most cases, in such industries, the entire public suffers at a great deal in terms of high prices and poor quality products. Therefore, the governments enact laws that discourage monopoly but encourage competitive market structures. When an industry has a competitive market where there are many firms within one industry, these firms compete by manufacturing high quality products and the prices of their commodities are subsidized in that the consumers can easily afford them (Nzte.govt.nz, 2012:8). The issue of encouraging competitive environment in the hotel and food industry in Malaysia has made the KFC holding company to ascent to greater heights since it has improved service delivery to the public because there are other firms providing similar services. Question 9. Other firms that exists or operates in the same industry as KFC holding Competition among these firms has resulted to quality services to the consumers. This means that pro-competition laws are preferred because they activate the market and the firms work hard this in turn improves the economy of the given country other than a monopoly market. Some of the competitors of KFC holding in this industry in Malaysia are Nestle (M) Bhd, Dairy firm, Mercator, AEON Jusco and Tesco (Nzte.govt.nz, 2012:8). All these firm provide services similar to those of KFC holding. Therefore, this industry is purely perfect competition market. Question10. Outline of Porter’s five forces of analysis Porter’s five forces of analysis is a framework that is used for industrial analysis. Michael porter designed this framework and it all about industrial organization economics where five forces of that determines the competitive intensity on the market is derived (Katapult.ku.dk, 1). When all these five forces are balanced, they make a particular market to be attractive. Attractiveness here means overall industry profitability. On the other hand, unattractive industry is the one that when these five forces are combined they drive down the profitability. In his derivation of the framework, he found that there are forces that emanates from the inside and outside the industry that tend to affect the profitability of the firms operating within these industries (Katapult.ku.dk, 1). He called the internal forces as microenvironment, while the external forces he called them macro-environment. The five forces Porter postulated are; threat of new competition, threat of substitute products or services, bargaining power of customers, bargaining power of suppliers and the intensity of competition rivalry (Roy, 2011:9). These are the forces Porter identified can make an industry to be profitable or non-profitable. Question 11. Explanation of Porter’s five forces of analysis The outline of the Porter’s forces is that the new competition in the industry is brought about when the industry appears to be profitable, thus, new firms rush to enter in this industry. They dilute the opportunities of the existing firms and the profits falls to normal. The threat of new competition arise when a certain industry seem to be profitable hence attracting more firms to enter in this industry (Katapult.ku.dk, 1). Many new entrants into the industry lead to decreased profitability for the firms operating in the same industry. In such a situation, the abnormal profit tends towards zero hence perfect competition. As mentioned earlier, Food and hotel industry in Malaysia is composed of perfect competitive markets since there so many firms operating their business in this industry apart from KFC holding. Thus, this industry in Malaysia is performing fairly because many firms provide a variety of quality services to the consumers and any firm that tends to mismanage its operations is thrown out of the market due to stiff competition. The customers can easily shift from one firm to another where they would get satisfaction. The second force is the buyers’ bargaining power. This is the ability of the customers to put the firms under pressure of demanding quality products at a lower price (Roy, 2011:5). The bargaining power of customers tends to reduce the profitability of the firms. KFC holdings and the other firms in this industry are controlled by the demand of the buyers. The buyers are the price setters and the firms are the price takers. Thus, the firms rely on the demand of the customers in setting the prices of their products and services. The third power is the threat of the substitute of the products or service. In a perfect competitive market, firms produce related products that can be used to satisfy a certain need of consumers (Roy, 2011:11). Thus, the consumers have many options when they want to get a good that satisfies them. Therefore, when a firm risks producing a low quality product, the customers can easily shift to other substitutes that can be used in place of the other products. The good services provided by the KFC holdings in Malaysia and its subsidiaries in other countries are aimed to attract and maintain the customers so that they cannot shift to the services of the competitors. The fourth power which porter outlined was the bargaining power of the suppliers. This is also referred to as market input (Roy, 2011:8). To some extent, the suppliers of the raw materials to the firms can develop the bargaining power. When there are few substitutes in the industry, they can decide to refuse to work with the firm (Katapult.ku.dk, 1). This threaten the firms’ performance, they can decide to charge higher prices on the raw materials they supply to the firms. This external force can reduce the firms’ profitability. The supplier of the raw food materials, and the room furniture in the KFC holding hotels can form a bargaining power to ensure that they firm pays tem good amount on their raw materials they supply, failure to this, they can refuse to work with it and shift to other competing firms in the same industry. The last force that Porter identified was the intensity of competitive rivalry. The profitability of any firm within a given industry depends on the level of competition that exists among the firms. When the competition is quite intense, the firms tend to strategize some mechanism to counter the competition. In most cases, the mechanisms can be too expensive hence reducing the profitability of the firms (Roy, 2011:8). Some of the strategies they use include; innovation, use of online services, intense advertisement, use of powerful competitive strategies, and being flexible in setting the prices of the commodities. Thus, many firms in this industry in Malaysia have adopted sophisticated methods that protect them from the competition posed by the competition from the competing firms. Question 12 Other forces of analysis apart from those of Porter’s Forces A part from the Porter’s five forces, there are other forces that can affect a firm not to realize good profits within an industry. Some of these forces include; the government policies, the geographical barriers, rapid change in technology, and the intermingling of the cultures of people hence changing the tastes and the preferences (Roy, 2011:8). These other forces ought to be checked upon by the firms so that they do not affect the operation of the business. Question 13 The differences between concentration ratio and Herfindahl Hirschman Index (HHI) As discussed in the previous paragraphs, the concentration ratio (CR) is one of the methods used to measure the market concentration of industries. It is the simplest method that can be used to determine the level of concentration. In this method, the few most dominant firms in an industry are chosen and their performance is assessed to determine the level of concentration. Another method that measures the level of industry concentration is the Hersfindahl Hirschman index (HHI). This method is said to be the most accurate method where the performance of all the firms within the same industries are squared to find a certain index so that one can determine the level of industry concentration. In this method, many factors are put into consideration, it is different from the ratio method because every detail is considered and the study of every firm in a given industry is done to come up with the credible results. Thus the results of the two methods are always different, the HHI methods gives accurate and reliable results than ratio method. The political system of Malaysia Question 1Outline of the Malaysian political system The political system of Malaysia is made up of the federal representative and democratic constitution monarchy. The government is dived into three parts; has the federal, state and the local government (Crouch, 1996: 45). The prime minister is the head of the government. The constitution of Malaysia is based on Westminster system. The hierarchy of the authority is as stipulated in the federal constitution, where it has been provided in three braches i.e. the executive, the judiciary and the legislature. Malaysia has a multiparty system right from the first direct election in the federal legislature in the year 1955. The ruling party was the Alliance party but it was taken over by the National front coalition in 1973. Other parties emerged and as per now, there are more than twelve other political parties (Crouch,1996: 32). Malaysia has had a stable political system that is why it has managed to develop to the great heights. The political stability has had many advantages because a country that has a stable government encourages investments. Many investors had confident in the government that is why they invested a lot in Malaysian economy. Firms such as KFC holding, Tesco, Nestle and other thrived due to the stable political system. The political climate in Malaysia has been improving with time. Though we had a stable political system, some critics reveal that the ruling parties and the arms of governments such as the executives the judiciary and legislature conspired to do some things secretly that are not as per the constitution (Funston, 2001:47). However, since the last decade, the media coverage on every detail in the operation of the government has been good and such acts have reduced at a great deal. The political process is described today as taking the form of consociationalism. This is where the community interests tend to be resolved in the framework of the grand coalition. The executive branch of government is the one dominating in political issues with the office of the prime minister (Crouch,1996: 33). Therefore, the executive and the office of the prime minister make many policies that affect the public and the business sector. The sitting prime ministers with time have done many constitutional amendments and this has really changed many operations in Malaysian government (Funston, 2001:29). The business sector has really changed since there are numerous business policies drawn to regulate business operation. KFC holding firm as business organization is not left behind, it has been also affected by these policies like other firms operating in this country. Question 2 How KFC holding rank in doing business in Malaysia The ease of doing business in Malaysia is not so restricted. Malaysia is part of the Asian continent where there is a big population, which provides a market for the manufactured goods by the local and foreign countries (Funston, 2001:23). A foreign firm enjoys the readily available market. Malaysia is a culturally diversified country; therefore, many industries can thrive well in such an environment since the inhabitants are from different cultural backgrounds. Thus, firms operating in food and hotel industry like KFC holding have an opportunity of manufacturing a variety of food products that suit different people of different cultural backgrounds. The national business policies encourage both the local and foreign investors to operate business in this country (Funston, 2001:23). Moreover, Malaysia is strategically situated on the world map where accessibility is easy. It has good transport and communication network, well-developed infrastructures such as the airports, seaports and road terminals. This encourages businesspersons to travel in and out of the country easily. Question3. Foreign countries where KFC holding operates KFC holding firm has done its investment in other foreign countries. We have a subsidiary of this company in the United Kingdom where many hotels and restaurants have been set and they are doing well as those of the home country (Funston, 2001:16). Another country where there is a subsidiary of KFC holding is India. In both these two countries i.e. UK and India, KFC holding company enjoys doing business because of it is a variety of the services it provides its customers. UK actually has a stable political environment a factor that has really boosted the performance of this firm in its market. India as well has a stable political environment that has encouraged sustained good performance of this firm. The large population of India provides a rich market for this firm and many braces have been opened in many parts of India. Another factor that has boosted the sustenance of this firm in India is India and Malaysia is neighboring countries thus, their culture is more related (Funston, 2001:23). Thus, the company has easy time in serving the customers on this market. This is because these customers tend to have the same preferences as those of the customers in the home market. Thus KFC holding find it easy to operate on the Indian market than on the UK market. This is just because of the differences in the cultural practices of the population of UK and those of India. The legal environment Question1 Main features of Malaysia legal system Every country has some laws that govern and regulate the business operations. In many countries, the legal environment is the basis at which the business operation is based on. Countries that have good business laws encourage both local and foreign investments. The legal system of Malaysia is mainly based on the common law (Hamzah, 2003:3). The constitution of Malaysia set out the legal framework and the rights of the Malaysian citizens. We have also the federal laws and the state laws that have been enacted and are enforced throughout the country of Malaysia. The legislature or the members of the parliament make the federal laws and they apply national wide (Hamzah, 2003:8). On the other hand, the state laws are made by the assembly members sitting in the state legislature and these laws only applies in particular states. Generally, the laws of Malaysia can be divided into two parts, we have written laws and the unwritten laws. The written laws are those that have been enacted in the constitution. The unwritten laws are sometimes referred to as common laws (Ibrahim & Joned, 2008:7). All the federal laws and the state laws tend to affect the operation of the business in this country. Every business firm that operates in this country is expected to adhere to the business laws that have been enacted both by the state and by federal government. Question 2 How health and safety laws have affected KFC Holding Nearly every country in the world has enacted some health laws that ought to be observed by the public and the business firms that intend to operate their businesses within these countries. Malaysia as well has some health laws that regulate the operation of businesses, firms are required to observe these. Some of the health laws are under food and drugs act, Hygienic act, building and construction act. Food and drug act laws requires that those business dealing in manufacturing of these stuffs should do it considering the safety of the human beings. Food and drugs should be not harmful to the consumers. Hygienic act requires that good hygienic conditions should be maintained in places such as hotels, restaurants and other public places where people are served. On the other hand, building and construction act requires that when putting up a building to be used as a business premises, safety conditions should be observed. There should be good ventilation, good lighting in the rooms, fire extinguishers, and escape doors in case of dangers such as fire or collapse. KFC holding being a firm that deals with food products and accommodation services for the public, these laws have touched it. Since it operates restaurants, and manufacturing of foodstuffs, it must observe these laws closely. Quetion3 Contract law, law of tort, criminal law and international law Like in other countries, in Malaysia the laws are classified into different categories. We have the law of contract, the law of tort, criminal law and international laws. Both the law of tort and the law of contract are under business law (Emerson, 2009:12). They govern the operations of the business within the Malaysia. The law of tort refers to a civil wrong. The law of tort main deals with the following wrongs. Trespass top person, trespass to someone else’s land and defamation, these are the civil wrong that one individual can easily commit to another individual especially in business environment. The law of contract on the hand is the legally binding agreement made between two or more parties or persons. Sometimes the law of contract can be defined as the set of the defined promises by the two parties for which the breach of which the law provides a remedy and the performance for which the law recognizes as obligations (Emerson, 2009:5). In simple terms, all contracts are agreements; this is because a contract imposes upon the parties in the agreement legally binding obligations. When forming a contract, the contract becomes binding when another unequivocally accepts an offer by one party. On the hand, criminal law is defined as the law of crimes. A crime is an act committed in violation of the public law. Examples of crimes include; murder, robbery, rape, stealing, etc. All the laws rat are related to crimes are created by the legislature through statutes (Emerson, 2009:5). In criminal law, when someone is charged with offense, the suspect becomes the accused. The accused is said to be innocent until he is proved guilty. Some of the forms in which one who has been found guilty can be punished are through imprisonment, capital punishment, corporal punishment, community service fine etc. International law is a body of rules and regulations that help to regulate relations between countries or states. The international laws are based on the international agreements of treaties and customary practices of the states and other general principles (Emerson, 2009:5). Thus, countries tend to carry out the same kind of business within the same industry come together and agree on a number of issues affecting their interests. They enact some laws that even eliminate some border barriers to ensure easy carrying out of business amongst them. Malaysia is one of the countries that has signed international agreements with countries such as India, Cambodia, China, New Zealand etc to improve the business operations across their borders Bibliographic references Crouch, Harold. (1996). Government and society of Malaysia. Cornell University press. New York. USA. Corporateinformation.com. (2012). KFC holding Malaysia. Accessed on web 6th Nov 2012. Retrieved from http://www.corporateinformation.com/Company- Snapshot. aspx?cusip=C458W2530 Emeson, Robert. (2009). Business Law. Barron education series. New York USA. Funston, John. (2001). Government and politics in South east Asia. Institute of Southeast Asia. London. UK. Hamzah, arfah. (2003). An introduction to the Malaysian legal system. Fajar Bakti. University of California. USA. Ibrahim Ahmad &Joned, Ahilemah. (2008). The Malaysian legal system. The university of Michigan. USA. Katapult.ku.dk. (). Porter’s five forces. Accessed on web 6th Nov 2012. 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