STRATEGY
Case Notes Case Study : Tricon Restaurants International: Globalization reexamined
Table of Content:
Page No:
1. INTERNAL ANALYSIS -Types of resources
3-4
-Strategic Capability Analysis
4
-VRIO Test
5
2. EXTERNAL ANALYSIS
1
- PESTEL Analysis
6-7
- Porter’s Five Force Analysis
8 - 11
3. SWOT Analysis
11 - 12 12
4. Issues 5. Timeline period
12
6. Strategic Choices: Business Level Strategy (BLS) - Porter Generic Competitive Strategy
13
7. Strategic Choices: Corporate Level Strategy (CLS) 14 - 15
- Ansoff Product/Market Growth Matrix 8. Strategic Choices: International Strategy (IS) - Yip’s Global Framework
15
- Porter’s Diamond
16 - 17
- Ghemawat’s Cage Framework
18
9. Entry Mode
19
10. Innovation
19 - 20
1. INTERNAL ANALYSIS TYPES OF RESOURCES: CATEGORIES:
1. Physical
RESOURCES: •
Operating systems (pg 5, para 4)
•
Equipment (pg 5, para 4)
•
Franchise units and Company owned units (pg 2, para 1)
•
Regional infrastructure (pg 12, para 3)
•
Support centers & head office (pg 12, para 3)
2
2. Financial
3. Technological
4. Human Resources
5. Innovation & Quality
6. Management & Leadership
7. Organizational Culture 8. Organizational
•
Factories (pg 12, para 2)
•
Patents / trademarks (pg 2, para 4)
•
Cash Flow (pg 4, para 4)
•
Capital / Equity (pg 5, para 5)
•
Stocks (pg 14, para 6)
•
Assets (Exhibit 7)
•
Investment (pg 4, para 5)
•
Information Technology System (pg 13, para 7)
•
Employees
•
Managers
•
Training program (pg 10, para 2)
•
R&D and Quality Assurance Department (pg 15, para 4)
•
Product Development team (Exhibit 5)
•
Management Team (pg 16, para 1)
•
Management team strategy (pg 5, para 2)
•
Organization culture (pg 1, para 3)
•
Organization’s objectives or goals (Exhibit 8)
•
Organization structures (Exhibit 9)
STRATEGIC CAPABILITY: BUNDLED RESOURCES Financial -Investment, cash flow, equipment, capital / equity Innovation & Quality -R&D and Quality Assurance Department, product development team
+ COMPETENCES
= STRATEGIC CAPABILITY
Launching
of the operational Ability to reposition as a improvement program CHAMPS leader position in oversea (Cleanliness, Hospitality, markets by strengthen its Accuracy, Maintenance, Product customer base and build up Quality, and Speed of Service) its reputation for quality embarking as a simple quality firming its leadership
units and Company owned units,
control check for the food and position in market with the services produced to ensure a standardization of Tricon’s standardization platform, areas of operations worldwide.
equipment
improvement, consistency of the
Physical -Factories, operating systems, Franchise
3
operations and sharing of best practices between brands.
Physical
The
-Support centers & head office, operating
management structure and roles worldwide brand uniformity
systems, Support centers & head office,
enable the control of everything with
Franchise units and Company owned units,
from
Regional infrastructure
business operations that is able to enhancing
Management & Leadership
deal with substantial international operations and profitability
- Management team and strategy
heterogeneity
organizational
arrangement.
emphasis
media
on
local Ability
placement
in
to
achieve
the
effective
and management structure by
franchising that
the
helps
business
to
achieve
economies of scales.
-Organization structures VRIO ANALYSIS: VRIO CRITERIA STRATEGIC
ORGANIS
CAPABILITY
VALUABLE
RARE
INIMITABLE
RESULTS
ATIONAL SUPPORT
Ability to reposition as a leader position in oversea
markets
by
strengthen its customer base and build up its reputation for quality firming its leadership position in market with the standardization of Tricon’s worldwide.
operations
þ
þ
þ
The
It is a standard
Easy to
standardization
model for other
imitate by
helps to enhance franchise competitors to adopt
competitors
and increase in
for the uniformity
as to achieve
customer
standards and mass
uniformity of
satisfaction
production levels as
service
to adherence by
Competitive Advantages (TCA)
other
the brand image
levels.
Temporary
×
quality levels
standards and policies of Franchisee
4
Agreement.
þ
þ
×
worldwide brand
It helps to
Competitors need to
It is difficult
uniformity with the
enhance the
have big scale of
to imitate due
effective management
branding image
resources and strong
to the high
structure by enhancing
and helps to
branding to firm its
amount of
the business operations
strengthen the
position in the
resources
and profitability that
company
market.
involved.
helps to achieve
revenue growth.
.
TCA
Ability to achieve
economies of scales.
2. EXTERNAL ANALYSIS PESTEL ANALYSIS EXPLANATION POLITICAL
OPPORTUNITY / THREAT
Not Applicable The
uncertainty
Not Applicable in
currency
fluctuations will affect the overseas franchisee outlets. - (pg 13, last para)
Ø THREAT It can cause instability and uncertainty for the company affecting the market rate return.
Asian Financial crisis and the relying on franchisees for the bulk of system ECONOMIC
Ø THREAT
expansion had caused a drop in the There are negative impacts on the global economics that will affect the business growth revenue growth rate. rate. - (pg 9 , para 3) Developing countries had a much
Ø OPPORTUNITY
lower turnover than in US hence jobs The stability in workforce prevent disruptions to the business operations hence it benefits the position are more secured. company.
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-(pg 12, para 5) Younger Asian consumers tend to eat on premise whereas for consumers in
Ø OPPORTUNITY
Canada, Australia, and the U.S. were By more likely to eat off- premise. SOCIOCULTURAL
local
marketing
campaigns.
consumers’
Ø OPPORTUNITY Through marketing advertising campaigns, it customer base and create a new market share.
TRI product development for KFC had been centralized in Asia due to the TECHNOLO-
large Asian business and availability
GICAL
of some technical resources.
Ø OPPORTUNITY This enables the tapping of product innovation for the business in technology platforms and allows one to keep ahead of the technology advancement
- (pg 15, last para)
pace.
ECOLOGICAL
Not Applicable
Not Applicable
LEGAL
Difference between countries due the of
the
increase the brand awareness that will increase the
(pg 11, para 5)
level
of
franchise shop is suitable or not.
The popularity of satellite TV had the
majority
preferences, it determines if the location of the
- (pg 2 , para 2)
increase
knowing
sophistication
of
Ø THREAT
their It had a great impact on the mergers and
financial intermediaries is a challenge.
acquisitions as company had to adapt accordingly due to the differences.
- (pg 14, para 1) The discipline rule imposed in the
Ø THREAT
franchisees contract that emphasized It will be a challenge for franchise outlets to adapt on the standardization of services and to requirements and may face penalty for any quality level provided by all franchise breaches in its quality standard. Due to the close outlets as to adopt for promote the monitoring and tremendous leeway in structuring uniformity
standards
production levels.
and
mass their operations involved, this increase the chance of having uninterested franchisors.
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Ø OPPORTUNITY
- (pg 15, para 3)
It is able to achieve consistent standards and practices hence creating a consistent image and strengthens brand recognition through worldwide. CONCLUSION:
Macro environment is mildly unfavorable due to threats faced in economics factor. This is due to uncertainty faced in currency fluctuations when venturing into overseas market. Hence, it can cause instability and uncertainty in the business growth rate for the company. However, there are opportunities faced in the franchise of fast food industry. As there is more emphasis placed on the standardization of services quality level provided by all franchise outlets as to adopt for promote the uniformity standards and mass production levels hence it helps to strengthen the brand image and quality level as well.
PORTER’S FIVE FORCE ANALYSIS 1ST FORCE :
EXPLANATION
THREAT
THREAT OF NEW
(with supporting case evidence)
LEVEL:
ENTRANTS Locations and supplies distribution can be easily access but costs may vary for each different country. There are Scale & Experience
economies of scales achieved towards procurement and
Ø Moderate
advertising. -(pg 2, para 4) The high distribution network of franchise fast food supply
Access to supply or distribution channels
chain can be widely accessed, as there is 43% of franchised establishment of fast food outlets in Year 1995.
Ø High
- (pg 2, last para) The competition field is high as there are a number of fast food chains and the differentiation factor is the food taste Differentiation
and quality. Product and services differentiation is low due
Ø High
to the uniformity in their offerings through standardization of services, production processes, raw material quality,
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appearance of outlets, and service levels. - (Exhibit 2 and pg 2 , para 1) There is an easy access of the high distribution of networks and supplies in the fast food industry. Overall, the effects CONCLUSION:
of new entry into each different country may vary due to
Ø Moderate
the difference costs involved hence it can be viewed as a moderate level.
2nd FORCE :
EXPLANATION
THREAT
THREAT OF
(with supporting case evidence)
LEVEL:
SUBSTITUTES There are many substitutes to choose from with a wide range of variety of food choices such as fine dining, Price Performance
Chinese cuisine restaurants, Japanese food restaurant
Ratio
which may offer the same price but with better or lower
Ø Moderate
quality taste. The increase in other food industries will not pose a Extra Industry
significant threat to the fast food industry as there are
Effects
already a number of existing food industries.
Ø Moderate
Due to the high availability of substitutes but will be based CONCLUSION:
on customers’ preference in the food selection had made
Ø Moderate
the threat of substitutes to be determine at a moderate level.
3rd FORCE :
EXPLANATION
THREAT
POWER OF
(with supporting case evidence)
LEVEL:
BUYERS
8
There is a high concentration of buyers as there is an Concentration of buyers
increase consumption of fast foods.
Ø Low
– (pg 3, para 2) There are low switching costs as customers have the right
Switching costs
to choose based on their preference for the foods.
Ø High
Due to the high availability of substitutes and low CONCLUSION:
switching costs involved, the threat level of power of
Ø High
buyers is determined at a high level.
4th FORCE :
EXPLANATION
THREAT
POWER OF
(with supporting case evidence)
LEVEL:
SUPPLIERS There is a high number of suppliers as food supplies and Concentration of suppliers
land can be found on a common basis.
Ø Low
– (pg 2, para 1) Supplies are based on an agreement basis and help to save costs in long term run. There are implications of risks and
Switching costs
high switching costs is involved for the change in
Ø High
suppliers. Overall, there is a high number of suppliers and lack of CONCLUSION:
Ø Low
differentiation among the suppliers’ products.
5th FORCE :
EXPLANATION
THREAT
COMPETITIVE
(with supporting case evidence)
LEVEL:
RIVALRY
9
Due to diversification of fast food industry into twelve categories (see Exhibit 2), intensive competitions are faced Competitor balance
among the competitors in order to be the dominant leader
Ø High
in the market. - (pg 4, para 2) There is moderate growth rate as sales were increasing at only about 5% annually in the United States and limited
Industry growth rate
Ø Moderate
level of internationalization. - (pg 1, last para) Due to high number of competitors and low switching
Exit Barriers
Ø Low
costs among buyers, exit barriers is easy. There is high similarity of services offered by the fast food
Differentiation
chains.
Ø Low
- (pg 2, para 1) Due to a high number of competitors in the industry are all CONCLUSION:
competing for the same customers hence the threat of
Ø High
competitive rivalry is determined at a high level.
3. SWOT ANALYSIS INTERNAL ANALYSIS: STRENGTH:
WEAKNESS:
With a strong financial capital base and a large amount of resources helps to develop an effective The difference in level of sophistication of their management structure that enable the achievement financial intermediaries between two countries of consistency of the business operations and had affected in the ways of mergers and sharing of best practices between brands. The acquisition activities taking place. Diversity in
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emphasis on quality assurance procedures and different
border
countries
culture
and
operational improvement provides an effective path government regulations had to make the to a bigger scale of franchise units, firming its company to adapt accordingly to the required leader position in the market. The emphasis on policies and overcome the cultural differences in human resources and the use of management order to strengthen the business foundation, strategy enable the growth of understanding of the improving the bottom line of business. needs of the customers in the business environment had eventually generate an increase in the business profitability. This had greatly enhancing the branding image worldwide. EXTERNAL ANALYSIS: OPPORTUNITIES:
THREATS:
By concentrating its equity investments in countries Currency fluctuations are always on the move that generated significant profits and reduce the hence it can cause instability and uncertainty for number of primary equity markets enable the the company affecting the market rate return. adequate human capital in the finance function of The unpredictable variations in the economies each major business unit and retain significant market will determine if the global expansion of equity interests. It had aggressively expand its the regional franchise units is in a favorable franchise units and profitably by becoming a position or not. All these are unforeseen superior franchise company with its capital and circumstances hence constant monitoring of the asset structure, reposition as a leader position market is required. worldwide.
4. ISSUES Staying as an owner of a franchise system, ensuring the company stays profitable and stability growth is essential. It is important to follow current industry trends on a frequent monitoring basis due to the intensive competition field faced. However, what must the company do to stay competitive advantage and maintain its worldwide brand consistent? At the same time, ways on how to maintain the solid infrastructure and ensuring adequate financial capital on hand should be looked into. This will help in strengthening its position as a domain leader in the market and achieve a positive net income figure.
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5. TIMELINE PERIOD The selected time line period will be from Year 1990 to 2000. This is the growth period of fast food industry and the incline of franchise units expanding in overseas market. The case study had generated financial period report during this period as well. It enables us to know on the deployment of types of strategies in helping to achieve the position of dominant player in regional markets.
6. STRATEGIC CHOICES: BUSINESS LEVEL STRATEGY (BLS) PORTER’S GENERIC COMPETITIVE STRATEGIES Tricon had adopted the following generic competitive strategies with the range of domain activities during the selected timeline period as identified below. •
Cost Leadership Strategy
By reducing the number of primary equity markets enable the company to concentrate its equity investments and ensure adequate human capital in the finance function of each major business unit. The wide scale range of factories had marked the low division scale of unskilled labor possible. Food and packaging accounted for a larger share of revenues and costs because of lower sales prices and labor costs. In taking the consideration of the level of food costs that varies in each different country, the selling price will be adjusted accordingly as to ensure the revenue growth of business. •
Differentiation Strategy
The constant emphasis on the quality assurance and the standardization of services had increased the perceived value of their brand or products among the competitors. By customizing the food in each different country to match the tastes and preferences of local consumers cater to the difference of customers’ needs. In order to meet customers' unique buying criteria that vary for each different country, it helps the company to target at a wider range of market segmentation, eventually that helps to expand and increase the market access international boundaries. The implementation of operational efficiency is another factor of the differentiation value as it helps to provide more effective customer services. This had put
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Comment [BT1]: 1995 to 1998
the company to be in an advantageous position as it target more effectively or efficiently than more broadly based competitors. By deploying differentiation strategy helps to build up a strong business, especially in a highly competitive marketplace. Overall, the company had achieved competitive advantage through the use of Business Level Strategy (BLS). This is supported by Exhibit 7, which had showed the increase of sales revenue and decrease of expenditures costs yearly. This mean that the company had deployed an effective business level strategy as to increase the awareness and visibility of the brand which helps to drive the revenue growth rate of business. This had let the business to be in an advantageous position by increasing its customer base. 7. STRATEGIC CHOICES: CORPORATE LEVEL STRATEGY (CLS) ANSOFF’S PRODUCT/ MARKET GROWTH MATRIX Tricon had adopted the following corporate strategy directions with the range of domain activities during the selected timeline period as identified below. •
Market penetration
-
(Case Evidence: pg 3, last para)
This can be achieved by a combination of competitive pricing strategies, advertising, sales promotion. Tricon had collaborated with media icons or events such as Star Wars to promote the existing products. By enhancing the brand awareness will helps to increase the sales volume. Hence, it helps to increase the market share of the current products. •
New products and services
-
(Case Evidence: pg 15, last para)
Developing new products and services provides a means to target new markets and increase market share, eventually that will increase revenue growth rate. TRI had tap into franchisees’ ideas such as for new creation of food products such as crispy chicken. It also fine-tune the recipes accordingly in order meet the required standard of certain countries. Another innovative product is the new heat-retaining delivery pouch from Pizza Hut to keep the foods warm when delivered to customers. By looking into the development of new products and services enable an increase of customers’ satisfaction level towards the brand. •
Market Development
13
-
(Case Evidence: pg 5, para 3)
This involves exploring of new markets for existing products by expansion of existing product lines that will delight customers’ experience. Examples of it are offering new breakfast and lunch food menu selections, providing food delivery services to customers and developing of multi channels brands to gain access to a new market share. This enable Tricon to build the existing market share and increase its customer’s base group that will help in the growing of business. By looking into untapped segments enable them look into product and process developments will help to enhance their market share. Tricon successfully expanded geographically into oversea markets. The opening of franchise support centers in Dallas, London and Singapore had to deal with the substantial international heterogeneity in franchising arrangement. This had gain access to new markets and talent pools that helps to achieve a bigger scale of growth for the business.
8. STRATEGIC CHOICES: INTERNATIONAL STRATEGY (IS) YIP’S GLOBAL FRAMEWORK The drivers of internationalisation under Yip’s Global Framework had help the company to expand into oversea markets can be identified below. 1. Market Drivers The main factors affecting market drivers can be identified below. •
Transferable marketing
-
(Case Evidence: pg 11, last para)
Comment [BT2]: ??? No evidence of transferable marketing
Marketing schemes, advertising campaigns, strategies can be geographical transfer with little adjustment. Tricon will hold a quarterly brand board meeting attended by all marketing managers worldwide for marketing updates and strategies. This enables the use of uniform marketing strategies getting to a worldwide brand uniformity that will drive to market globalization. •
Global customers and channels
- (Case Evidence: pg 3, para 2) Due to increase demands on fast food and an easier access to distribution network of
14
franchise of fast food supply chain, an opportunity had arisen for Tricon to expand into overseas market. With the diversified global distribution channels emerged, it helps to satisfy an increasingly global customer base and target similar customer needs. To the extent of global channels are developed and employed, the faster the pace of industry globalization. •
Similar customers’ needs
This refers to the common needs of customers in different countries despite their difference in cultures and traditional preference. Food taste, quality and price are what customers always look out for. With similar needs, it enable a standardized approach of the development of business strategy when venturing into oversea markets in order to meet the customers’ needs. 2. Cost Drivers The main factors affecting cost drivers can be identified below. •
Scale economics
- (Case Evidence: pg 14, last para) Tricon had opened franchise support centers in Dallas, London, and Singapore in order to deal with substantial international heterogeneity in franchising arrangement. With the increasing scale, operational is at a much efficiency level. By serving global market, it helps the firm to gain much greater economies of scale. •
Differences in countries costing
- (Case Evidence: pg 2, para 1) Supplies and labor costs are relatively lower as compared in some countries hence it helps to reduce costs for the firm. For example, cheese prices are at a much lower price in New Zealand and lower labor costs in Far East had make it to be a less expansive place preparation of chicken. Entering into globalization benefits the firm with such a favorable cost condition and availability of labor at a reasonable cost. 3. Competitive Drivers The main factors affecting competitive drivers can be identified below. •
Competitors’ global strategies
- (Case Evidence: pg 6, para 3)
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There is a high number of competitors had approached entered into some foreign market hence Tricon faced an intensive competition when expanding its business to overseas market. Competitors such as Macdonald and Telepizza had retain a much large market share and had an advantage in negotiations with suppliers and channel members. This had put Tricon to be in a disadvantageous position and had to come out with more effective global strategies to tackle against the competitors.
PORTER’S DIAMOND The key home advantages that had help the company to expand into overseas market can be identified below. •
Factor conditions
- (Case Evidence: pg 2, para 1 to 3) When entering into global markets, it is dependent on the foreign countries for their resources, labor and land for their business operations. The high availability of food supplies and land rental for shops provide a favorable condition for the company to venture into global markets. In additional, some locations are capable of generate adequate traffic drive the potential for sales volume profitability of the business. Food supplies and labor cost were relatively low in some countries are an effective cost measures for the business. With a standardized infrastructure supported by the franchisor, it had make the firm to be easily adapt to the new environment that constitutes all of the favorable conditions. •
Home demand conditions
- (Case Evidence: pg 3, para 3) The local customization of product lines was given variations in the food taste to meet the different needs and cultures of each global country. For example, no pork burger served in Muslim countries, lamburgers to be serves in Hindus countries, global and spicy taste quality in South African countries. By meeting the local customer needs and wants, it helps the firm to gain in more market share, price realization, and achieve a competitive position.
16
•
Firm strategy, industry structure and rivalry
- (Case Evidence: pg 9 , last para) The existence of huge number of competitors improve Tricon’s ability to develop and sustain a competitive advantage over the competitors. Due to a large number of dominant players in the market, Tricon decided to concentrate its equity investment into some countries that generated significant profits as to maintain the stability of the revenue growth rate. At the same time, this ensure an adequate amount of human resources and financial capital in each business unit.
GHEMAWAT’S CAGE FRAMEWORK Case Evidence:
Actions Taken:
Certain foods cannot be served due to The local customization of product religious reason in some countries. For lines was given variations in the Cultural
example, pork cannot be served in food taste to meet the different
Distance
Muslim countries.
needs and cultures of each global
-(pg 3, para 3)
country. -(pg 3, para 3)
Taxation policies varies for each different The firm will work with tax country and complex process on how to authorities to ensure a legally
Administrative and Political Distance
repatriate money from a country.
process on repatriating funds back.
-(pg 14, para 2)
-(pg 14, para 3)
Challenges are faced for managing the Functional area heads in each worldwide operations for standardization geography reported to each General in performance.
Manager
to
responsibility
ensure of
worldwide performance
operations monitoring. -(pg 9, para 4) Global procurement of food supplies Food supplies are sourced locally to Geographical
ingredients and other essential supplies ensure freshness. This helps to save
Distance
such as packing materials to each country time and costs. is time and cost consuming.
17
-(pg 10, last para) Cross border managerial mobility was Labors (example: operation outlet limited to high levels of management staffs,
managers)
are
sourced
Economic
hence there is limited of availability of locally as to have a better gasp of
Distance
human resources.
the local environment and the
-(pg12, last para)
customers’ needs. -(pg12, para 5)
9. ENTRY MODE Tradability High Broad
Export
Competitive Advantages Narrow
License / Franchise
Low Wholly Owned Subsidiaries Joint Venture
Tricon is using franchise entry mode into foreign markets. It is an emerging country multinational company as it had generated worldwide sales from their operating restaurants. There is a high and adequate available amount of resources globally as food ingredients and lands for the shop. It had developed a high distribution network of franchise fast food supply chain over the years. Franchising permits the company to grow with capital invested by individual franchise owners. This will helps to shoulder some of the high expenditure costs such as land rental which provides an effective cost cutting measure. With a large numbers of competitors in the emerging economics had created a challenge for the firm to enter into a new market. Hence, by setting up multiple locations tends to increase the company’s competitive advantage over similarity of services in the fast food industry.
10. INNOVATION The possible key innovation dilemma faced by the company is identified below.
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•
Product innovation or process innovation
-
(Case Evidence: Pg 9, last para)
Innovation is critical to sustain business competitive and improving the product quality and services offered to customers. In the past years, new flavors of the food had been launched in order to delight customers’ experience. However, the costing of Research & Development (R&D) is high and this will affect Tricon’s profit margin as they are facing a negative figure of net income. This had let Tricon to face a dilemma option if product innovation can be processed or not. Solution from Tricon: In Year 1998, Tricon decided to concentrate its equity investments in countries that generated significant profits and reduce the number of primary equity markets enable the adequate human capital in the finance function of each major business unit. It had spent on product developments that were earmarked mostly in United States (U.S) as U.S had maintained the stability of revenue growth for the business. Setting up “R&D and Quality Assurance” department, which will be performed by the company own employees within its internal R&D function, will look into product development as well. It also made some attempts to tap into franchisees’ ideas about product innovations (e.g. Crispy Chicken in Malaysia). By relying on internal resources, it helps to save cost and avoid competitors’ free riding on basis. Influence on the Strategic Choices: Innovation dilemmas will affect the strategic choices that the firm had adopted. It is dependable on the variables such as market conditions, costing, environment factors and the area of competitors’ field to make a strategic decision. Due to limitation of product development outside the United States, this will increase the chance of small new entrants entering into more foreign markets with more innovative products. As a result, the firm needs to address the market and customers’ acceptability, availability of resources when launching innovated product or process in its business. Recommendations: Tricon can consider incorporating technology use into its innovation product or process
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development. Opportunity for new products arises from developments in technology and this will reduce labour and materials costing in long term run basis. Such examples are using computerization and mechanization of necessary systems and processes such as using tablets or other electronic devices for food orderation and preparation. With the implementation of innovative technology, it helps to create innovative business ideas that benefits the business growth and expansion. At the same time, one need to be diligent in monitoring the variations changes and demans in market for business survival in the market.
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