KFC Holdings Bhd's Socio-Cultural and Technological Environment - Case Study Example

KFC Holdings (Malaysia) Bhd Student’s Name Number Course Code Course Date Socio-cultural Environment Question 1 KFC Holdings (Malaysia) Bhd is a franchisee of the restaurants’ chain of KFC that are located in Malaysia, India, Singapore, Brunei and Cambodia. It also operates the local restaurants’ chain of RasaMas, the Ayamas stalls, as well as Kedai Ayamas group of convenience outlets. In addition, it is active in production and processing of poultry and a range of supplementary businesses (RBR 2010). There are a number of socio-cultural elements in Malaysia that affects the operations of KFC Holdings Bhd (Malaysia). Business etiquette forms one of the main elements. Different aspects of Malaysian business etiquette affect the operations of KFC in different ways. To start with, business decisions in Malaysia are made in a very calculated and slow way. The Muslim influence and Confucian ethic highly affects numerous business factors in Malaysia. In most cases, organisations have a long chain of command with their main business decisions being made by only a small number of top leaders (BusinessCulture.Com 2012). BusinessCulture.Com (2012) maintains that, the slow decision-making process has a negative impact on KFC especially when it comes to spotting and exploitation of new business opportunities. This is because; plans regarding whether or not to venture in the identified opportunities have to be developed, weighed and then the final decision is made. Going through such a long and slow process makes KFC to lose many business opportunities to competitors from other countries, since by the time decisions are finalised, the rivals have already spotted and captured the business openings. In order for a firm to gain competitive advantage over its rivals, it should have the capacity to spot and quickly exploit any untapped business opportunity before it is spotted by rivals. Moreover, KFC is a multinational corporation doing business in different countries whose business environments vary. The long hierarchy in the making of decisions does not match the business nature of KFC. This is because; usually a number of leaders representing the company’s different branches have to be involved in the making of business decisions. The Malaysian decision-making culture has adverse effects on the operations of KFC. The involvement of only few leaders in the making of decisions for the organisation implies that, some of the branches are not fully represented. Participation in the food industry is very challenging since different countries have different gastronomies, customs and religion all of which affect the eating habits of the locals. Thus, what works for KFC in Malaysia may not work for it in India. For instance, Muslim is the dominant religion in Malaysia while Hindu is dominant in India. Both religions have different eating habits and thus KFC’s decisions should address the specific needs of its branches by having decisions made by leaders from different branches (Kwintessential 2012). BusinessCulture.Com (2012) further says that, facial expressions are central in Malaysian business negotiations. The negotiations take much longer time as compared in other countries. Showing negative emotions such as impatience, temper and irritation may lead to loosing face of Malaysian customers or suppliers. This makes it difficult for KFC during establishment of potential and effective suppliers as well as in its marketing activities. This is because; time is a precious asset to a business and lot of business time is wasted in business negotiations and also in convincing customers to buy KFC products and services. This is more common, when such operations are being conducted by new KFC employees or employees from other countries who do not have sufficient knowledge on Malaysian business culture. Question 2 According to Department of Statistics (2012, p.11), Malaysian demographics are represented by numerous ethnic groups that are present in the country. By July 2010, the population of Malaysia was estimated at 28, 334,000 making it to be ranked at 41st position of the most populated countries across the globe. Out of the total population, 5.72 million Malaysians reside in the East part of Malaysia, while 22.5 million reside in Peninsular Malaysia. Additionally, the population of Malaysia keeps on growing at a 2.4 percent per annum rate. Referring to the latest census which was conducted in 2010, amid the three biggest groups in Malaysia namely Bumiputera and Malays, Chinese and Indians, their fertility are 2.8, 1.8 and 2.0 kids per woman respectively. The population of Chinese has declined to half its initial peak proportion in 1957 when it used to be 45 percent of Malaysian population. However, its absolute numbers have multiplied to over threefold. Moreover, 70 percent of the Malaysian population live in urban areas. It also has more than 3 million migrant employees due to the country’s increase in labour-intensive sectors. Malaysia’s population growth rate in 2012 is estimated at 1.542 percent. In terms of age structure, Malaysian population consists of 29.6 percent, 65.4 percent and 5 percent being aged 0-14 years, 15-64 years and 65 and above years respectively. In general, the number of males is higher than that of females (Department of Statistics 2012, p.13). The high and increasing population of Malaysia has positive impacts on the operations of KFC Holdings. A large number of people imply a big and ready market for the products and services of KFC. An increase in population will increase the demand for KFC’s chicken as well as other products leading to an increase in its sales volume, which in turn will increase the profitability of the company. With a constant profitability, chances of KFC’s business growth through opening of additional outlets within Malaysia as well as in other parts of the world are high. In addition, the presence of a large number of migrant employees will provide cheap labour for KFC which will also increase its productivity and profitability since its cost of operations will be low due to a decrease in salary amounts. Most of the migrants are in Malaysia illegally and thus are ready to work for whichever wage level is being offered in the food industry, which is more advantageous for KFC. Moreover, a bigger percentage of Malaysian population are young people who are highly active. This is beneficial to KFC since the young people can provide adequate labour to it (Mat & Omar 2012, p.119). Question 3 Rimmer & Dick (2009, p.137) define urbanization as the general population increase as well as an increase in the level of industrialization in a given settlement. It incorporates augmentation of the extent and number of cities and symbolizes peoples’ migration from rural areas to the urban areas. Increased urbanization has both positive and negative impacts on KFC. On the positive side, the movement of people to urban areas will provide adequate and cheap labour supply to the company. As a result, the operating cost of KFC will reduce due to a decrease in its expenditure on salaries. Moreover, other sectors in the Malaysian economy will also benefit from the cheap labour leading to the overall growth of the economy through increased income per capita. Thus, the demand for KFC’s products such as chicken and pizza will go up since the people working for those sectors will have some disposable income to spend. In addition, increased urbanization will lead to improvement of infrastructures such as road and communication networks. This is very beneficial to KFC because good roads will facilitate faster and cheaper transportation of its products especially from its poultry farms to the restaurants as well as to other buyers. The company will also benefit from faster, cheaper and reliable supply of raw materials such as poultry feeds, spices and cooking oil that are used in preparing its food from the suppliers. Low transportation and materials cost will automatically lower KFC’s cost of production leading to increased profitability. Moreover, the company will benefit from the concentration of resources such as water and electricity that are readily available in the cities. This will facilitate smooth running of the business (Rimmer & Dick 2009, p.138). On the contrary, increased urbanization poses some threats to the business activities of KFC. First, high population in the cities will lead to increased traffic, which may result to delays in transportation of raw materials, and thus delaying the production or food preparation process. Delays in preparing customer orders may make KFC lose customers. Traffic may bring about inconvenience when delivering customers’ orders to homes or offices. Additionally, increased urbanisation is likely to lead to water pollution and health hazards. Water is an important resource in KFC’s operations especially in the restaurants and thus contaminated water may compromise the quality of its food. It may also attract law suits from the affected consumers which may ruin the company’s reputation (Rimmer & Dick 2009, p.138). Technological Environment Question 1 International Business Publications (2007, p.56) maintains that, technology has dramatically reshaped and enhanced every aspect of people’s lives. It has barely left any aspect untouched. Technology has transformed how people work, entertain themselves as well as what they eat. Through the adoption of more edge cutting technologies which deliver fresher, more varied and healthier foods, the food sector has more and more developed. At the present, the marketplace presents consumers with a wide range of foods that they can select from, at an enhanced quality and affordable prices as compared to the past. Through the adoption of new technologies, KFC has been in a position to offer better services and products in gradually bigger quantities and hence, satisfy a broader variety of clients’ needs. Through technology, KFC has developed a website through which it creates awareness to a wide population of consumers regarding its services and products, outlets and other investments. This has really helped the company in its marketing activities since advertising through the internet is cheaper and less time consuming compared to other marketing forms like through mass media, use of billboards and personal selling. Furthermore, through the internet, KFC is able to get feedback from consumers regarding the quality of its services and products. The consumers are also able to propose any changes that they would like to be done in the future and thus, the company has been able to improve customer satisfaction leading to increased brand loyalty. Additionally, the increased use of mobile phones has helped KFC a big deal in its delivery services. Nowadays, certain KFC outlets offer free delivery services of food stuffs such as chicken and pizza to its customers in offices and homes. All a customer needs is to call the outlet and provide his or her address and then the food is delivered. This has enabled KFC to attract a large number of new customers and maintain existing customers since people save a lot of time and energy that they could have wasted walking or driving to KFC’s food joints (International Business Publications 2007, p.57). International Business Publications (2007, p.57) further asserts that, technology has helped KFC enhance its raw ingredients’ quality. In the preparation of its chicken, KFC adds certain additives which help in maintaining the freshness and succulence of the chicken. Additionally, KFC mostly deals in perishable products and thus the introduction of new preservation methods like the use of freezers is very helpful especially in the transportation of the products from the factory or farms to the restaurants. More so, the invention of automatic new machines for manufacturing packaging materials like plastic bags has made the packaging process of KFC less expensive. Such materials are useful in wrapping take-away food stuffs and also packaging the products that are supplied to supermarkets like chicken for retail purposes. Despite the many advantages associated with new technology, KFC faces some challenges. First, the initial cost and maintenance of certain technologies like packaging machines and preservation equipment is very high. Also, highly qualified personnel need to be hired to operate such equipment and machines. Moreover, advanced technology puts KFC at a risk of counterfeiting of products through fake labelling and trademark by fraudulent sellers. Question 2 Altekar (2005, p.373) defines e-business as the carrying out of business through the internet by selling and buying of commodities, as well as giving services to consumers and joining powers with corporate partners. It also includes internal processes like stock management, production, development of new products, HR, finance and risk management. KFC has recognized the use of internet as a long-term asset with its management team being aware of the reality that, they should make good use of e-business in order to maintain the company’s competitive edge. KFC uses the internet to sell its products and provides contacts through which customers can place their orders for delivery purposes. In addition, it has online customer feedback systems for comments and compliments regarding its products and services. On its HR side, it advertises any vacant positions through the internet on its career site and gives the protocol for applying for such positions. E-commerce is conducting business transactions and communications over networks and through computers. It includes selling and buying of services and products via digital communication. It also covers transactions conducted through the Internet and World Wide Web as well as the use of electronic funds transfer, digital cash and smart cards. KFC’s e-commerce activities include outward processes which interact with consumers, external partners and suppliers such as marketing, delivery, purchasing and supply of materials and sales. SNAX account and cards are good examples of KFC’s e-commerce activities where users are able to participate in the company’s online games, earn points and also redeem KFC products. Moreover, KFC allows customers to pay for products through swapping of their bank cards (Altekar 2005, p.373). According to Backman (2010, p.19), B2B (Business to Business) refers to firms selling to and buying from one another through the internet. It is a commercial operation between businesses. The use of online B2B by KFC is on the increase in both vertical and horizontal markets. In the horizontal market, KFC does poultry farming and thus purchases poultry keeping equipment like feeders, housing materials and lighting systems from other industries. In the vertical market, KFC being a producer and processor of poultry products sells them to other food joints. It also purchases poultry feeds from feed suppliers. In addition, it sells manure from its poultry to other business people in the farming business. In other words, KFC carries its B2B transactions along its supply chain. B2C (Business to Consumer) is applicable to every organisation or business that retails its services or consumers through the internet for their individual use. Around 20 percent of KFC’s e-commerce activities occur between the firm and consumers. KFC is highly interested in B2C because a bigger percentage of online purchasers are individuals and not firms. The main B2C business transaction of KFC is the sell and delivery of pizza and chicken through the internet (Backman 2010, p.19). Question 3 Porter’s five forces are used to explain the impact of a company’s business environment on its operations. The increased use of e-commerce by KFC affects Porter’s five forces in the following manner; New competitors’ entry The use of e-commerce enables KFC to be able to venture in new markets. Through the use of internet and online selling, KFC can consider attracting new consumers by reaching individuals in other regions across the globe. Through the use of open and standard systems, the switching costs of suppliers and consumers reduce and thus getting new suppliers and consumers becomes easier for KFC. In addition, such systems also make the capital requirements for entering new markets lower (Tassabehji 2011, p.278). Buyers’ power Strengthening the rapport amid suppliers and buyers through the use of high software capital outlay is now a thing of the past. Using contemporary technologies facilitates backward and forward incorporation within KFC’s value chain. E-commerce enables the company to have straight connections throughout the numerous levels within its supply chain because mediators are under huge pressure. As a result, transparency is enhanced in KFC’s market, which in turn helps the company evade extra costs that may come as a result of corrupt dealings especially by suppliers (Tassabehji 2011, p.278). Supplier power According to Tassabehji (2011, p.278), just like with power of buyers, the use of e-commerce permits backward and forward amalgamation among buyers and suppliers in KFC’s value chain. Suppliers operate under pressure and thus, they are forced to increase their efforts in order for them to establish, expand and maintain a good rapport with customers. Threat of substitutes Tassabehji (2011, p.279) further says that, the enhanced transparency in the market makes it easier for KFC to create substitute products for other marketplaces. Through the use of latest internet technologies, the company is able to collect and analyse large volumes of data about the market. Thus, KFC acquires adequate knowledge regarding the existing products in the market as well as how they can be substituted. Moreover, due to a reduction in switching costs, there is a likelihood of entry of new substitutes in KFC’s market. Degree of rivalry E-commerce allows more firms from different industries or numerous countries to venture in the food industry through low switching costs and reduced capital requirements for investing in the industry. As a result, the number of players in KFC’s market increase which further leads to a rise in competition among existing as well as new competitors (Tassabehji 2011, p.279). Financial Environment Question 1 Money supply refers to the sum total of monetary possessions that are available in a given economy at a given time. Money supply is important to KFC because of a number of reasons. To start with, a rise in money supply lowers interest rates, thus spurring investment. Investment forms a central part of KFC’s business operations and thus through increased money supply; the company’s investment activities are boosted. In addition, high money supply avails additional cash for consumers, makes them feel richer and hence spending is stimulated. A lot of spending is beneficial to KFC because the demand for its products will go up leading to increased. Under normal circumstances, the company will respond to the rise in sales by placing orders for additional raw materials which will in turn increase its production. Being a listed company, KFC will benefit from a rise in share market provided that the economy is buoyant. An increase in the company’s share price will mean an increase in shareholders’ worth. On the other hand, a decline in money supply will reduce the demand for KFC’s products since people will have small amounts of money for spending. Interest rates will also go up resulting in low investment since the cost of capital will be very high (McCallum 2009, p.126). Inflation is also important to KFC because of its likely effects on the operations and profitability of the company. The main impact of inflation on KFC will be the discouragement of investment. High rate of inflation brings about less projectable returns on acquired capital as well as the expectation of a future fall in demand. Investment discouragement is the major reason why governments strive to control inflation. Low rate of inflation encourages investment and helps firms to build up a long run perspective. Moreover, with high inflation, KFC will suffer from increased menu costs since it will be forced to constantly re-price its food stuff and poultry. Such re-pricing will make the company to suffer from such costs as reprinting of sales details and brochures (NGFL 2009, p.2). Drawing from Miller & Reuer (2009, p.25), exchange rate denotes the price of a country’s currency expressed in another country’s currency. KFC is a multinational company and thus it has to deal with different customers and businesses from across the world. In such deals, it either sells products and services to other countries for which it will get payment, or it purchases services and products from other countries, in which it has to pay for them. The purchasing and selling activities involve the use of currencies. Thus it faces the challenge of varying exchange rates. The variations make it difficult for KFC to make future plans since it is not certain about exchange rates which will prevail at a given time. Moreover, exchange rates’ changes will influence the demand of exports and imports because the price of exports and imports will apparently change. Question 2 According to Schwabl (2012, p.7), the creation of the Euro currency mainly affects firms operating within the Euro Zone. However, KFC Holding (Malaysia) is also affected since it trades with firms from the Euro Zone and KFC also has a branch in United Kingdom. There are a number of advantages that accrue to KFC from the use of a single currency. To start with, KFC’s branch in UK is in a position to make substantial savings in its expenses on transactions in the Euro-Zone. As a result, it is able to develop a broader market for its services and goods in across Europe due to lack of conversion of currencies during its deals with different consumers and firms within the zone. In addition, through the UK branch, other KFC branches in different regions such as Malaysia, Brunei and India are able to obtain better and clearer information regarding costs of inputs and prices of competitors. This enables enhanced openings for long-term business planning and formulation of strategies, since there is less uncertainty regarding probable returns from their foreign transactions with members of the European Union. On the negative side, KFC may suffer from a decreased market share especially on the operations of its UK branch. This is likely to be caused by stiff competition from other firms in the food industry which are located outside the Euro-Zone (Schwabl 2012, p.7). Question 3 Piana (2012, p.35) maintains that, interest rates’ changes have both direct and indirect effects on businesses. For KFC, an increase in interest rates will imply that, the cost of acquiring finances or credit in form of bank loans is very high and thus the company may shun borrowing loans from banks. Loans form one of the main sources of funds for big companies like KFC and thus failure to take loans could make the company to lack sufficient funds for a smooth running of its business activities. Loans also highly support business expansion activities and thus an increase in interest rates may paralyse the expansion activities of KFC. In contrast, a decline in interest rates will lower the cost of capital in form of bank loans and thus KFC will be encouraged to borrow loans. Consequently, it will have sufficient funds for supporting its operations as well as for venturing into new markets. Having a wider market for its products will increase its profitability from high sales volume. Changes in interest rates also affect consumer behaviour which indirectly affects businesses. A rise in interest rates will lead to high charges for getting personal loans for consumers. Therefore, the demand for KFC products is likely to fall since individuals will only have little cash for spending on their various needs. For middle and low class individuals they may only afford cash for catering for their basic needs while considering chicken and pizza as luxury goods. However, a fall in interest rates will have a positive impact on KFC since it will be an incentive for borrowing loans, which will increase individuals’ disposable income. With high income, people will definitely spend and thus KFC’s sales are likely to go up (Piana 2012, p.35). The effects of interest rates’ variations on KFC can also be experienced indirectly through their impact on mortgages. A mortgage is a form of bank loan that a person gets in order to purchase property like houses and land. More than 75 percent of home owners in Malaysia as well as other countries where KFC is operating have a mortgage. For these owners, the payment of mortgages forms their biggest expenditure every month. Increase in mortgage rates will automatically increase the amount of its monthly payment. Thus, for a bigger percentage of home owners, rate of interest is crucial because it determines the amount to be paid to the bank and hence, the amount of money left for other household needs like food and clothing. In this case, an increase in interest rates will lead to a fall in demand of KFC’s products and services due to a small amount of money left for spending after paying the mortgage amount (Piana 2012, p.35). References Altekar 2005, Supply chain management, New Delhi, Prentice hall . Backman, M 2010, The Asian insider: unconventional wisdom for Asian business, Basingstoke, Palgrave Macmillan. BusinessCulture.Com 2012, Business Culture in Malaysia, [Online] Available at: http://businessculture.com/malaysia.html [Accessed 17 November 2012]. Department of Statistics 2012, Population, Kuala Lumpur, Department of Statistics. International Business Publications 2007, Malaysia Business and Investment Opportunities Yearbook, USA, International Business Publications. Kwintessential 2012, Malaysia - Language, Culture, Customs and Etiquette, Kwintessential, 12 November. Mat, R & Omar, R 2012, Demographic Trends in Malaysia with Special Focus on Women, Ulaanbaatar, Department of Statistics, Malaysia. McCallum, BT 2009, Monetary Economics, New York , Macmillan. Miller, KD & Reuer, JJ 2009, Firm Strategy and Economic Exposure to Foreign Exchange Rate Movements, Journal of International Business Studies, 4(1), pp. 23-31. NGFL 2009, Inflation and its impact on business, Business Studies, 2008(2), pp. 1-3. Piana, V 2012, Interest Rates, Kuala Lumpur, Economics Web Institute. RBR 2010, KFC Holdings to expand in India, [Online] Available at: http://fooddrinksandgrocery.retail-business-review.com/news/kfc-holdings-to-expand-in-india- [Accessed 18 November 2012]. Rimmer, PJ & Dick, HW 2009, The city in Southeast Asia : patterns, processes, and policy, Singapore, NUS Press. Schwabl, T 2012, The Euro: Advantages and Disadvantages Of A Single Currency, Currency Solutions, 12 January, p. 7. Tassabehji, R 2011, Applying e-commerce in business, London, SAGE Publications. Read More