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American Franchisers in China - Case Study Example

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The Kentucky Fried Chicken (KFC) has become one of the most successful franchises in the world since its birth in 19521. It started as a small restaurant under Colonel Sanders in Kentucky2, USA. KFC became well-known, expanded to other countries and now, still continues to operate thousands of its branches around the globe…
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American Franchisers in China

Download file to see previous pages... Foreign franchisers invested in Europe, Asia, South America and some parts of Africa. In Asia, China has the biggest market and starting businesses in this country is very strategic. However, the political, social, and cultural conditions in China are not the same with the United States. This paper tries to analyze the different strategies that the KFC franchisers took to make KFC one of the most successful franchises in China today. This paper also mentions the problems the managements encountered and the measure they took to remedy those. It also analyzes how successful KFC franchises are in China that they reached a total of 2,200 KFC branches4 in China alone.
Johan Olsson cites several reasons why an international business strategy such as joint venture is recommended for China: (1) solves many logistic problems such as access to good quality chicken and other supplies, (2) eases the access to the Chinese market, (3) shares risk with local entity, and (4) serves a sign of commitment to the host government increasing goodwill.5
Pei Liang and Sun Zhixian examine which of the three (3) business strategies: (1) direct franchising, (2) master franchising, and (3) joint ventures is effective in the Chinese market. For direct franchising, the success of this strategy relies on establishing a good relationship between foreign investors like the Americans and local partners in China. Local partners know and understand much about the political, economic, and social conditions of the country. They are also in "much better position(s) to negotiate with government agencies as well as required suppliers."6 The authors also add that direct franchising for American franchisers will be difficult without local partners in a culturally-different state like China.7 Olsson adds that franchising is not suitable for China because of the strict foreign investment laws.
For master franchising, the main problem that exists why this strategy has lower success rate compared to joint venture is the availability of a qualified master franchisee. Liang and Zhixian describe a master franchisee to have not only an abundant capital but also "a favorable social relationship as well as the entrepreneurial skills and the ability to communicate easily with a franchisor." If the master franchisee fails to maintain "franchise quality or reverse engineer and duplicates the franchisor system, he franchisor could, as a practical matter, face considerable difficulties in enforcing the terms of the master franchising agreement or terminating the relationship."8 For the master franchising to work in China, the master franchisee must possess the qualities of leadership and a lot of public relation skills.
For Liang and Zhixian, they recommend the joint venture as the best choice for starting a business in China. They also mention that choosing a good and qualified local partner is the critical point for the success of any foreign business in China. Working with unqualified local partners may incur more management costs than management benefits because it weakens the performance of the business.9 Olsson supports these arguments by saying that "a potential partner with sufficient contacts [and] networks with government agency officials may smoothen the process of setting-up operations in the nation."10 Olsson also adds that joint ventures produce ...Download file to see next pagesRead More
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