Case 3-6: McDonald\'s and KFC: Recipes for Success in Chin a ?? China. In the It

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Case 3-6: McDonald's and KFC: Recipes for Success in Chin a ?? China. In the It was a totally different picture in Ch Quick Service Restaurant Giants in the Middle Kingdom Middle Kingdom, KFC was not only recognised as leader in foreign quick-service restaurants but was significant player in the Chinese restaurant whole, alone contributing 1% of thecountry's total fod outlets in China recorded an average of US$1.2 m In 2008, McDonald's and KFC were the two largest quick opectively Both chains were renowned and beverage industry revenues in 2005. In 2005, KFC s appeared to be a clear winner in inter annual sales per store, compared with just US$900, service restaurants (CR) in the world, with 31, 99 and for their broad spectrum of consumers on a global basis. national expansion. It had over 17,500 international outlets similar stores in the US According to the 2008 f e first corporation to set up a solid foundation FC had over 2.300 outlets in China, with an average In contrast, at 1,000 outlets, McDonald's presence in profit margin of nearly 20.1%.7 spearheaded global expan- sion with its first overseas outlet in Canada in 1967, and for international entered Japan in 1971.2 McDonald's outlets had tremen- China was less than half of KFC's, with an estimated profit te the difference in culture margin significantly below that of its leading competi- dous success in Japan-despit the initial stage tor. Many people attributed KFC's success in China to its early entry-three years earlier than McDonald's and its natural advantage in menu selection which corresponded with record-breaking daily sales and speed of expansion in KFC also started international expansion early, open ing its first overseas outlet in England in 1964. However to the typical consumer's preference for chicken over beef it was given a bumpy ride when it began to penetrate the However, were these reasons enough to explain KFC's con- market in Asia. The Japanese outlets were far less success tinued growth and the extension of its lead over its rival? ful than McDonald's and only started to make a protit largest QSR player in China, capitalize upon its global in 1976, six years after KFC entered Japan. KFC outlets opened in Hong Kong in 1973 but were all closed down within two years. The company would eventually win the confidence of Hong Kong customers ten years after its first entry. In Taiwan it experienced relatively smoother devel- pment although KFC headquarters was to spend a huge mount of money and effort in order to get the ownership ack from its joint venture partners at a later stage How could McDonald's as a latecomer and the second- dominance and resources to catch up with KFC? Replicate or Adapt? The Inherent Challenge for International Franchisors International franchising is frequently associated with ser is case was written by Gabriel Szulanski, Professor of Strategy vice firms, such as hotels, retail outlets and quick service INSEAD, Weiru Chen, Assistant Professor of Strategy. and restaurants. These firms often have strongly iden s for class discussion rather than to illustrate either effective trademarks and try to guarantee the customer a uniform neffective handling of an administrative situation. The authors and consistent level of service and product quality across efully acknowledge funding from INSEAD R&D; different locations and over time. However, the high

Explanation / Answer

Answer

VRIO analysis for McDonald's

Rarity

Company has its operational structure of increasing the business through franchise. It is a very successful in terms of providing franchise at different market but operational management original ideation of different franchise based operations are in hand of 50 management authorities which is followed by very strict company rules for operating franchise in different regions. This type of approach enables McDonald’s to maintain its Idea at a rare position and to increase the overall efficiency of the organization.

Value

McDonald's is highest valued brand in its Fast Food Industry. It is very successful in holding a very high value in accordance to its overall brand image across globe. McDonald's has successfully implemented itself as a settled brand across different part of the globe & operating in multinational structure. It is very successful in exploitation of the resources at local region where the companies operating which directly increase its overall brand image. Company adaptability as well as providing services adapted to the specific region of operation has also increase its value as a company in specific market segment.

Limitability

Organizational structure of McDonald's is not a difficult to imitate but the imitation of the products provided by the company is very hard as they have secret formulas in world which is not disclosed to anybody copying the product range of McDonald's is not possible which makes it very hard to imitate.

Organization support

McDonald's is very highly implemented into operating structure of different regions. It is always ready to exploit more & more of resources as well as to increment the organization structure. It is one of best companies for providing support to its organizational franchise structure operations.

VRIO analysis for KFC is as follows

Value

Company has a very high value in international as well as national market. Kentucky Fried Chicken is second name of fast food in chicken industry. Its overall approach of providing best quality food to customer while having almost 20000 outlets across globe and increasing its brand identity in Asia Pacific has been the most value incremental strategy.

Rarity

Company was very rare at very beginning as it initiated a whole new platform for fast food in chicken industry.

Limitability

Kentucky Fried Chicken is extremely hard to imitate as their products are totally secret & recipe is one of best kept secret in world. KFC's operational structure is already copied by many firms but copying products is not possible as it is a very highly guarded secret for organization.

Organizational support

KFC also acts with help of franchise. It is having one of best organization support structure & provides very strong support to its overall franchisees across globe

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