XAVIER INSTITUTE OF MANAGEMENT & ENTREPRENEURSHIP
Jollibee Foods Corporation International Expansion A Case Study
By:
Jaspreet Singh-51 Jenkin J S-52 Jnanashankar H-53 Kalyani Burman-57 Kamini Sharma-58
Contents Executive Summary................................................................................................................................. 3 Problem Statement ................................................................................................................................. 4 Human Resource Issues ...................................................................................................................... 4 Operational management issues ........................................................................................................ 4 Financial issues.................................................................................................................................... 4 Marketing Issues ................................................................................................................................. 5 Supporting Arguments ............................................................................................................................ 5 Industry Analysis ................................................................................................................................. 5 Fast food Industry ........................................................................................................................... 5 Porter’s 5 forces model for JFC .......................................................................................................... 6 Firm Analysis ....................................................................................................................................... 7 SWOT Analysis of JFC ...................................................................................................................... 7 Alternative Strategies ............................................................................................................................. 8 Choosing the right strategy................................................................................................................. 8 Existing strategy of Jollibee ................................................................................................................. 9 Recommendations for Decision making ................................................................................................. 9 Papua New Guinea.............................................................................................................................. 9 Hong Kong ........................................................................................................................................... 9 California ............................................................................................................................................. 9 Implementation Plan .............................................................................................................................. 9 Human Resource revamp plan .......................................................................................................... 10 Operations revamp plan ................................................................................................................... 10 Financial Revamp Plan ...................................................................................................................... 11 Marketing Revamp plan .................................................................................................................... 11 References ............................................................................................................................................ 11
2
Executive Summary Jollibee Food Corporation is a Filipino fast food retail chain that was started in 1975 and from then on the company was on an expansion trend. It capitalised the changes in the political scenario in the country and thrived the competition from global players like McDonalds. It went public in 1993 and has been pursuing an aggressive global expansion strategy most of which backfired due to the problems in strategies followed by the company. The newly appointed International wing chief of the firm is facing the challenge of making a prudent decision regarding three new opportunities that the firm has in the offing, namely expansion to Papua New Guinea, Hong-Kong and California. But before making a move in this direction, the company has to address all the issues that have been prevalent in the organization for a long time owing to lack of long term vision and overall integration of the organization strategies. The firm has been functioning like two parallel organizations with no co-operation and coordination between the international wing and the domestic wing which has proved detrimental in various issues that the firm has been facing. The organization is operating in a highly competitive industry and has to develop an overall firm strategy to attain sustainable competitive advantage. It is mainly thriving on Franchising and JVs and needs to define the operating relationships with the global associates effectively in order to prevent the disputes that have cramped the firm’s operations many a times. For crafting out an efficient direction for the firm, the four strategy model for international expansion was analyzed and the firm was plugged in to the model and it turned out that the present strategy of the firm is falling in a grey area between the international strategy and localization strategy. Our suggestion is that the firm should adopt a fully fledged transnational strategy so that it can effectively reap the benefits of cost saving as well as local adaptation and there by carving a global image for the firm that has impeccable operations, financial and marketing strategy. Also, we recommend the firm to go ahead and capture the opportunities in Papua New Guinea as well as California and hold the fire for some time when it comes to the expansion plans for HongKong and look for expansion options in Hongkong only when the prevailing management issues in Hongkong are sorted out. Also, the implementation plan for revamping the operations of various functions have been suggested in the main body of report.
3
Problem Statement The newly appointed head of International division Mr Manolo .P. Tingzon is pondering into three key opportunities that the firm Jollibee Food Corporation is having for further global expansion namely Papua New Guinea, Hong Kong and California. For taking the above decisions the organisation has to address various issues mentioned below under the various functional heads:
Human Resource Issues 1. Strained International – Domestic Relationship: The international and domestic operations of Jollibee Food corporation lacked cooperation and coordination among them. They had several issues between them like recruitment, pay structure and issues of menu adaptation. 2. The organisational structure of Jollibee was not supporting it in the international business. 3. Cultural Differences: There were Cultural differences among teams working at domestic end and at international end which led to disagreement on various opinions. For example the suggestions from Chinese managers were not considered by management. 4. Management issues at Hongkong: There were many management issues at Hongkong branches of Jollibee which were affecting its operations, quality and revenue collection. Some of them are enlisted below: a. Staffing Issues: Less Chinese staff members leading to reduction in Chinese customers as Chinese customers were not very comfortable with Philippine and Nepalese staff. b. Cultural incompatibility among staff i.e. between Chinese staff and Philippine staff working at Hongkong stores.
Operational management issues In Jollibee Inc, several disputes where rising in operational management due to the following reasons, Improper co ordination between the parent company and the international operations lead several disputes in franchising, menu card (standardization) and absence of research and development centre as such to scan the taste buds of localities of individual regions. 1. When Mr. Kitchner was as a change driver for international operations, he gave responsibility of running day today activity of the store to an individual person for every store called FSM. This lead to an incongruent strategy alignment between the parent company and franchises. 2. Menu card standardization was absent which essential in a global food chain to give customer the same level of satisfaction no matter whichever store he steps in. 3. Research and development privilege was wholly vested with the parent company.
Financial issues For the long term success of any firm, it is highly imperative to have a stable and prudent financial management system. The focus should be on a strategy that takes the long term as well as shorter objectives of the firm in tandem. As identified from the case, the following are the noteworthy financial aspects of the firm: 1. Company’ revenues, net income, operating income, and royalties and franchise fees have been increasing rapidly for the period under consideration. 2. Inventory turnover has improved showing an improvement in working capital management over the years. The aforementioned aspects have put the company in a better stead. But, there are a few other facets that create concerns:
4
1. Accounts receivable as a proportion of Sales has increased over the years. 2. Long term debt outstanding has increased dramatically and the servicing of the same has put a pressure on the solvency position of the company. 3. Cost of sales has increased over the years. This is a natural fact, but the alarming part is that the growth in cost of sales has been much higher than the sales itself, putting a pressure on the margins of the company. 4. The global expansion of the company has been extra-rapid and made in haste to capture the market as a part of the “plant the flag” strategy. As evinced by the statement made by TTC in late 1996, this has put a serious pressure on the financials of the firm and the firm did not have the financial muscle like global giants to go for the loss-leadership strategy. Thus the budget allocation and management was in a grey area.
Marketing Issues 1. Choosing which international markets to target first and decide on an optimal strategy to enter these markets. 2. Identifying target segment in each country. 3. Choosing a core competency. 4. Deciding to what extent the standard menu can be modified to suit taste of local consumers.
Supporting Arguments Industry Analysis Fast food Industry The fast food industry has a lot of unique characteristics:
1. Quality of food and time of service is of utmost importance 2. Each firm in the industry has a standard set of cuisine. The menu is limited and items are cooked in bulk in advance, kept hot, finished, packaged to order, and available to take-out, drive-thru, and dine-in.
3. Profitability is dependent on high consumer traffic, location of stores and tight operation management.
4. Firms mostly operate through franchisees and expansions of critical mass is required to achieve economies of scale
5. Highly capital intensive. 6. Chain wide consistency and reliability are major factors of success 7. Number of competitors is very high. McDonald's is one of the most famous fast food joint in the world. McDonald's became No.1 in every country of more than 100 countries in the world except Philippines where JFC has been 5
overwhelming strength against McDonald's. In 1981, JFC faced serious challenges from McDonald’s when they entered Philippines which forced JFC to change their existing strategy of targeting only the domestic market with a standard local fare.
Porter’s 5 forces model for JFC
Threat of new entrants to Industry- LOW High entry barriers in the form of brand preference of consumers, technological know how, access to strategic locations and distribution channels, capital, economies of scale etc.
Rivalry among Competitors: HIGH Rivalry stems from Price wars, marketing innovations, good food, good service. Most rivals are equal in capabilities and opportunities which make competition stiffer
Bargaining power of suppliers: LOW
Threat of Substitute PRODUCTS-LOW TO MODERATE. Products from local street food is a threat but Jollibee has advantages in terms of brand name, superior service and reasonable price Bargaining Power of Consumers: VERY HIGH
Strong relations with existing suppliers, trade restrictions for imported raw materials, food standards etc. limit power of suppliers
Consumer traffic and loyalty determines profitability of firm
6
Firm Analysis SWOT Analysis of JFC Weakness •Lack on in-depth planning and research in the expansion to foreign markets. • Financial Constraints for expansions •Rift between international division and Home division - no consensus could be reached •Lack of global brand recognition •Beuracratic structure.lengthy process for approvals to be sanctioned •Over reliance on the Filipino market ( targeting the expat strategy)
Strengths Speed and timeliness of deliveries because of the locations of the commissaries. Portfolio can serve various segments of the market and pass the winning culture of Jollibee on the other business units. Highly motivated and well-trained personnel Good operations management High domestic market share Quality consistence in terms of taste and availability Responsiveness to competition Innovative receipies e.g. rice based meal
SWOT
Opportunities
Threats
The potential for international markets and the migration of Filipinos in certain countries.
•Tough competition from from both international companies and local small-hold SMEs in the food industry. •Rapid expansion plan may backfire • Phillipine division might slow their implementation •Increase in transportation costs and the prices of transported materials and products.
•Impart global culture by hiring non-phillipine managers • locating commissaries in the same country through joint ventures could be a potential source of success for the company
7
Alternative Strategies Choosing the right strategy When analyzing the case study it is clear that Jollibee Inc has higher pressure to respond to local wishes in Philippines due to the entry of global giants like McDonalds. This is due to the fact that Jollibee had a strong presence in Philippines but at the same it should tackle the adaptation pressure from McDonalds. This is also supported by the fact that Jollibee was franchising their brand to foreign countries on very strict terms which do not allow any changes to the menu. According to the grid below this would mean eliminating the international strategy and the global strategy. Now analyzing the strategies which require standardization (provides cost benefits) and differentiation, the transnational strategy is applied by large firms such as car manufacturers, they have to adopt the cars to local wishes or they will not sell. The Multidomestic strategy often involves having very different lines of products, yet there is no real cost pressure. Both strategies perfectly align to Jollibee’s business model, so the four grid model is used for evaluation in the sense that Jollibee is correctly placed in the vertical axis of the model. On the horizontal axis Jollibee has two distinctly different moments. During the expansion plans to become a multi domestic the company enjoys low responsiveness pressure because the target segments are expats and Hispanic population. Once it is established the company is in need to adopt the local taste buds so there is an increase in the responsiveness consideration. Since Jollibee needs to maximize return on investment after establishment, it has to follow a transnational strategy to keep the competition at the bay and tackle the competitive pressure.
The above diagram describes the four strategies which a firm needs to follow for international expansion depending upon the market requirements, pressure from competitors, firm specific motivation driven by firm’s core competencies. The proponents of the model have suggested that the strategy of a firm should evolve over time among these four strategies to be in better stead in facing global competition.
8
Existing strategy of Jollibee Jollibee entering the markets without any clear cut idea, since Mr. Kitchner strongly believe in gaining the first mover advantage, Jollibee is expanding into the markets where the competitors little are no presence, to “plant the flag” without any long term perspectives. The company’s strategy can be more identified with the international strategy where the locus of power lies with the parent company in the Philippines. With much of happening in the international arena too. After Kitchners got hired, he encouraged localization by separating international business completely from the domestic ones.
Recommendations for Decision making Papua New Guinea As evident from the data given in the case, it is quite evident that the company is having immense opportunities in Papua New Guinea. As the market there is untapped and the only competitor there is an unorganized and unprofessional local company, Jollibee can literally get a first mover advantage. So the company should go for Papua New Guinea, but proper background research about the prospective partner as well as assessment of the credibility of the fundraising proposed needs to be carried out.
Hong Kong Currently all the three stores established in Hongkong are facing lot of management issues as mentioned in the problem statement hence it is required that first this management issues must be sorted out rather than putting additional resources in expansion plans.
California California expansion seems to be the good option for several reasons. United States is the largest fast food market in the world. They discovered from their outlets in Guam that there were many elements of their restaurants that appealed to Americans. They have a large and diverse population who like experimenting food of different culture. They also had great support from Filipino-Americans. So, the company has to start with focusing on both the Filipinos as well as local people and design the menu that would help maintaining the brand identity along with catering to the local interests. To put it simple and straight, Company needs to adapt a trans-national strategy.
Implementation Plan It is the very evident that transnationational is the only way forward for jollibee, When going for multidomestic as a strategy only a certain amount of flexibility and autonomy be provided to partners. This becomes more of an arms length dealing, trust was lacking in the relationships. A holistic co ordination is required to transfer core competencies or to pursue experience curves and location economies. Which is possible only in a transnationational entity. This smooth transition can be enabled by inter unit co operation, decentralizing the organizational structure and following a 9
geocentric approach. Also to implement this strategy and carry out expansions following schemes of actions must be taken in various functional departments.
Human Resource revamp plan
Balance between centralization and decentralization of power: Jollibee should allow certain level of decentralization of power for its franchises in other countries for operating decisions related to product, marketing and human resource management. Also certain number of R&D centres could be opened in other countries to facilitate localization of some products. At the same time decisions regarding overall firm strategy, financial decisions and quality control must be taken care by headquarters in Philippines. Reforming Organisation Structure: Jollibee should adopt an organisation structure which enables it to transfer its core competencies and global learning across the stores. Also it should support value creation activities in the value chain for more efficient operations. One of such kind of structure is flexible matrix structure which provides a common vision and culture. This structure will enable the cooperation and coordination among domestic and international operation units. Training: In order to facilitate co operation among units the staff members who are required to coordinate with other units must be given training on cultural differences and adaptability in workshops. By adopting this practice Jollibee would support its staff to understand the cultural diversity among nations and different market needs. Hongkong Management issues: Hongkong management issues can be sorted by adopting above mentioned strategies. Certain level of decentralization of power will enable the managers at Hongkong stores to take decisions on various aspects of product, operations and marketing as per the local requirement. The staff members who are trained in culture diversity workshops must only be sent from Philippines to Hongkong for supporting the operations and training of locals. Also there must be recruitment drive to hire local Chinese managers with attractive compensation. This will enable hiring of Chinese crew members and hence increase in customer traffic. Also initiatives like team work and cultural diversity workshops must be conducted to increase compatibility among Philippine and Chinese workers. This plan would enable Jollibee to implement operation, marketing and quality control mechanism effectively and enhance the market share.
Operations revamp plan
Polycentric establishment of research and development centre. The flag can be planted in regions where people have similar taste buds as strategic business units (SBU). So that the menu can be varied according to regional taste. Once the company starts to follow transnational strategy, location economies and operational efficiency should be taken into consideration so as to reap the benefits of both cost structure and differentiation. Lessons learned should be internalized, so that lack of operational efficiency problems as in Singapore, transparency issues as in Taiwan can be avoided in the future international expansion.
10
Financial Revamp Plan
Slow down the global expansion to sustainable levels. This means that the international wing should slow down a bit and the domestic wing should buck up a bit so that the entire organization can move ahead together. The financial management should be done effectively so as to provide enough budgets for the R&D and associated activities that are needed for the global expansion. Also sufficient funds should be made available for the marketing and positioning activities for these are highly imperative in creating an identity for the firm and thereby helping in capture the market. Opening multiple stores at the same time will hurt the bottom line and will increase debt. Even for a global giant like McDonald’s, it took 20 years for their international operations to account for 50% of total sales. Also, they must reduce cost of sales. This can be done by devising a proper strategy of global expansion that can reduce cost and bring in economies of scale. Also the relations with franchisees and other associates should be clearly defined and the degree of control of the financials should be clearly defined to avoid future confusions. The ramifications of poor relations are clear in the closing down of many franchisees abroad.
Marketing Revamp plan
Jollibee had been following the first mover strategy under Mr. Kitchner and had concentrated on “Planting the Flag” i.e. opening a lot stores in countries in a short span of time irrespective of financial constraints. Jollibee should instead follow a differentiated strategy wherein it should target those markets with high potential with an economy similar to that of Philippines like Papua New Guinea and observe the first mover strategy to capture these markets first. For established market with high potential such as USA, Europe, it should go for joint ventures and acquisitions with established firms in these nations. The focus target segment in every country has been expats from Philippines which has been largely successful. But it should not exclude the local populace of the host nation. Its marketing initiatives should target the local populace and it should position itself as a global fast food brand which offers “exotic Filipino cuisine” for everyone. Its core competency should be “authentic Filipino fast food with good service and quality” The menu of Jollibee should have a mix of standard food items as well as items specific to a host nation. To achieve this, they should set up R&D divisions in each country and come up with new dishes to cater to local consumers like McDonald’s which came up with Mc Aloo Tikki Burgers for India and which was a big hit.
References
International Business, By Charles W L Hill and Arun K jain (McGraw Hill Companies), 6th Edition
11
