The international trade theories implemented by KFC - Essay Example

Table of Contents Introduction 2 International Trade Theories 2 (a) Cultural Factors 3 (b) Political Factors 3 (c) Legal Factors 4 (d) Economic Factors 5 Foreign Direct Investment (FDI) by KFC 5 Risk Associated with KFC performance and Strategies 6 4 P’s Framework of Marketing Mix by KFC 8 Strategies Adopted by KFC 10 References 12 Introduction Kentucky Fried Chicken (KFC) is one of the most renowned brands in the segment of fast food chain restaurants in the international market. It was started in 1930s in Southern USA as a small franchisee business by Colonel Harland Sanders. Presently, it has 13,000 restaurants in all over world. The three most important success factors including service, quality and relaxing atmosphere make KFC to be a market leader. This paper intends to evaluate the international trade theories implemented by KFC along with its Foreign Direct Investment (FDI) strategies in order to expand its business activities in the international market. Furthermore, it measures the risks associated with the performances and strategies of KFC in its business environment. In addition, the paper will focus on assessing the 4 P’s of marketing mix strategies undertaken by KFC in order to survive in the marketplace for long-term period. International Trade Theories The exchange of goods, services and capital across international boarder and/or territories is widely referred as international trade in the modern business environment. In the similar context, international trade theory emphasises on understanding the traditional influences over particular businesses in order to appreciate international trade that in turn provides assistance to improve the welfare of countries in terms of economic aspects (Ajami, 2006). It is in this context that the factors which are considered to be of utmost significance by KFC in its international trade theories include cultural, political, legal and economic factors. (a) Cultural Factors The attitudes, beliefs and values of a society are considered as cultural aspects of that country. A culture can be treated as one of the strongest influencing factors in terms of conducting international trade between two different countries (Hodgetts & et. al., 2005). For instance, KFC is engaged with many countries including China, Mexico, Latin America, and US among others in terms of trade. These countries are different from each other to a large extent with regards to language barrier, ethnicity, religion and organizational culture among others. In addition, it also implemented the strategies focusing on merger and acquisition with three different companies operating in different market segments as well as in different regional sectors. This kind of extensive difference within the organisational culture in turn tends to increase the perplexities amid the interdependent relationship of various industrial participants. Therefore, with an intention to conduct a business in international market, KFC must take significant remedial measures such as downsizing and laying-offs in order to deal with these difficulties regarding cultural aspects. (b) Political Factors Political factor includes the aspects such as tax policies, labour laws, tariffs and trade restrictions among others through which the government of a country interfere in the international trade procedures. In relation to these factors, organisations are quite likely to face the challenges in terms of grouping or managing the widely diversified workforce encouraging the sharing of common values and principles (Hodgetts & et. al., 2005). Hence, KFC can be observed to often undergo the threat related to the political aspects of a country when diversifying its strategic procedures in the international market. However, KFC was beneficial in conducting its business in Latin America as this country allows free trade agreements in its political environment. This in turn assisted the organization to reduce its operating costs and enhance its profitability. (c) Legal Factors It is worth mentioning in this context that the legal aspects of a country can create substantial impacts over the demands, production costs and operational activities of an organization in its business environment. It fundamentally includes consumer law, employment law, discrimination law, antitrust law and health as well as safety law among others (Hodgetts & et. al., 2005). With regards to this, KFC might face challenges in terms of quality control due to its franchising strategy. It creates a geographical distance between headquarters and foreign franchisees raising the threat regarding its quality aspect due to the influence of time inefficiency and cost inefficiency of the distribution channels. (d) Economic Factors The developmental activities of the countries vary from each other due to its level of economic development, economic performance as well as economic potential among others. With this concern, an organization should understand the economic environment of those countries in which it aims to operate its business activities. The major economic factors which needs to be considered includes interest rates, inflation rates, economic growth rates and exchange rate fluctuations of a country in order to conduct international trade by an organization (Hodgetts & et. al., 2005). With due consideration to this aspect, KFC focuses on varying strategies based on varying economic conditions of its target markets. For instance, in small countries like that of Dominican Republic, Grenada, Bermuda and Suriname, KFC operates its business activities with the help of franchisees as the economic structure of these countries are less complex. On the contrary, KFC has to operate in larger markets such as Japan, China and Mexico with the assistance of company-owned restaurants as the economic factors are quite stable in these countries while it tends to be comparatively more fluctuating in other countries. In addition, KFC emphasised on controlling the product and service quality in these countries in order to take advantage of the economies of scale. Foreign Direct Investment (FDI) by KFC Foreign Direct Investment (FDI) is considered as a process through which an organization invests its money in other countries with the assistance of different strategies including participation in cross-border management, transfer of technology and joint venture among others. With this concern, KFC focused on joint ventures such as mergers as well as acquisitions with three different companies including Heublein Incorporation, R. J. Reynolds Industries Incorporation, and PepsiCo Incorporation. This in turn led the organization to take over the highest market share in US fast-food industry. On the contrary, KFC also operated its business activities with the help of franchising across the international boundaries. It often tends to create difficulties for the organisation in controlling the quality aspects of its products as these subsidiaries are located far away from the headquarter which may increase the time and cost inefficiency of KFC’s distribution channel. With this concern, KFC introduced its subsidiaries in the market of China, Japan and Mexico, as these countries are economically stable in comparison to other countries and thus can be regarded beneficial in terms of resource allocation as well as efficient management of the overall distribution channel (OECD, 2002). Risk Associated with KFC performance and Strategies KFC applies varying strategies which are often influenced by the implemented international trade theory as well as its FDI initiatives. For instance, it has been observed that KFC is involved with franchising method in order to expand its business activities in the worldwide context. With regards to this, the business activities of KFC is influenced in terms of quality control as these franchisee units are far away from the headquarter which increase the transportation cost of the company. Moreover, KFC might have to undergo a level of risk if it desires to diversify its business operations in Latin America and other similar countries as the operating costs in these countries are comparatively high with other countries due to the legal environment of that country. However, the political and economic conditions of these countries are highly unstable which in turn might create various risks for KFC. 4 P’s Framework of Marketing Mix by KFC Product KFC is known in the marketplace for its fried chicken. The demand of market is varying according to consumer preference. With an objective to increase the level of customer satisfaction, KFC introduced a range of food items through extensive research and development initiatives aimed at improving its service quality. However, KFC misplaced its market share due to the huge competition with Boston in the US market. KFC was still preferred to introduce the varieties of chicken segments in its menu. On the contrary, Boston was engaged with chicken products as well as other varieties of stuffs including vegetarian section in its menu for the consumers. Therefore, the market was in favour of Boston rather than KFC. With this concern, KFC decided to launch a new product range for its targeted consumers including nutrition factor, vegetarian food and beverages as well other Italian along with Mexican food items in its menu. Price The pricing strategy of KFC in terms of urban ad semi urban areas is largely dependent upon the variety of influencing factors including demographic, economic as well as geographic factors. For instance, in smaller and price concerned markets such as Dominican Republic, Grenada, Bermuda and Suriname, KFC charges the price relatively low compared to the markets where the economic growth rate is very much stable like that of Japan, China, Mexico and US. Place The market of US has been profitable for KFC. It was the greatest destination in order to operate its business activities as most of the people represents single-person household and prefer to take their food outside. Furthermore, Americans were also quick to accept the fast-food concept. However, KFC failed to operate in German market, as the people of this market were not quite comfortable to take the counter service at the initial stage. At this point, McDonald’s had great success in Germany as it made varieties of changes in its menu card according to the tastes and preferences of the customers. Promotion In the year 1991 KFC changed its logo in US from Kentucky Fried Chicken into KFC in order to alter its corporate image as a fried chicken chain. It is well known fact that KFC is primarily associated with chicken based products. However, throughout 1980s, consumers instigate to demand healthier foods, greater varieties and superior services. With this concern, KFC suffered from various difficulties due to its limited menu and inability to bring new product ranges in the marketplace to a certain extent. Strategies Adopted by KFC KFC has many competitors in the chicken segment that includes Boston, Popeye’s Famous Fried Chicken and Church’s Chicken among others. However, KFC adopted various internal as well as external strategies according to the situation that it faced in its business environment in order to attain sustainable growth. The market was flooded with the fast-food chain restaurants which in turn influenced KFC to limit its price increases and thus enhance the product quality simultaneously. With this concern, KFC reorganized its US operation in order to trim down the overhead cost and enhance effectiveness with the assistance of a few of the strategies which includes KFC’s crew training programme and operating standards. In addition, it put emphasis on improving customer service to a significant extent along with the supreme quality products for its valuable customers in order to gain competitive advantages. In the similar context, KFC also implemented the ‘Re-Franchising Strategies’ for all the companies that are owned in Mexican units in order to reduce the risk associated with the political and economical factors. Furthermore, KFC decided to cancel all the franchisees of Mexico and sell off all company units in Mexico with a purpose to decrease the currency rate exposure in the Mexican market. In addition, KFC also faced difficulties regarding the workforce, as high absenteeism, low job retention and poor punctuality created a few dilemmas for the organization that in turn forced it to close the operating activities in Mexican units. Conclusion and Recommendations With regards to the above case study, it has been observed that KFC faced great challenges in terms of international trade as well as in its FDI strategies. However, it continuously maintained its brand image in the emerging marketplace by adopting different strategies according to the situation that included re-franchising and selling of a few of the units in Mexico. Thus, KFC should build control over its franchising strategies as it can create difficulties for the organization regarding the quality aspects. Moreover, KFC should make alterations in its menu card including vegetarian food items and other similar aspects in order to satisfy its customers to the highest possible extent. References Ajami, R. A., 2006. International Business: Theory and Practice. M. E. Sharpe. Hodgetts, L. D. & et. al., 2005. International Management: Culture, Strategy and Behaviour. Tata McGraw-Hill Education. OECD, 2002. Foreign Direct Investment for Development: Maximising Benefits, Minimising Costs. Overview. [Online] Available at: http://www.oecd.org/dataoecd/47/51/1959815.pdf [Accessed March 23, 2012]. Read More