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Essay: Globalisation & external factors driving changes at KFC

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Introduction

The economic race between each country caused an enormous changed of global economic growth and caused the formation of globalisation (Underwood, 2014).

Globalisation is a new phenomenon that has become increasingly prominent in the world. It is the basic characteristic of the present age, the economic transformation by which organizations or different associations create worldwide impact or begin working on a universal scale. Globalisation refers to the cross-border movement of goods and capital, experienced a cross-border, local internationalization and globalization of these stages of development. Large scale companies like Macdonald and Stabucks are not any more national firms yet they operate subsidiaries in a lot of countries (BBC, 2014), the business model of these companies are going globalized or multinational.

Globalisation has brought about: International trading, multinational corporations, more reliance on the worldwide economy, freedom of goods, services & capitals between countries and regions (BBC, 2014).

However globalisation has also brought the threat of terrorism (Stibli, 2010), increase in trading competition, income inequality such as transnational company seek profit without development of local needs (Mccubbrey, 2017).

With the improvement of living standards and technology, people in developing countries have more chance to access to global chain stores and international brands.

Globalisation has made the whole world a global village and impacted on the industry such as retail, fashion manufacturing (Management Study Guide, 2017). Food chain retailers have been influenced by globalization and started operating, supplying, outsourcing and expanding their retail shop worldwide. They were also facing the challenges of cross-culture, competition and domestic taste demand.

Company Overview

KFC, derived from Kentucky Fried Chicken, Headquartered in Louisville, Kentucky, United States of America. This is one of the global brands of largest chicken fast food chain restaurant supplying delicious fried chicken in more than 125 countries owned by Yum! Brands Inc. The KFC was founded by Harland Sanders in 1930, created a secret friend chicken recipe which would become very popular and famous in the world (KFC, N.D.).

Typical western companies are expanding their business through selling core products and services, then the headquarters to ensure that the business model is correct. This usually starts with selling goods through one or a few stores for testing market. Once such a model is rooted, enterprise is unwilling to re-explore the new model or market without leaving their home market. KFC is one of the most impressive multinational fast food retailer who is successfully outperformed in emerging market. Over the last three decades of enter emerging market, KFC competes with its competitor such as Mcdonald, Burger King and turned into one of the largest fast food retailer in the world.

Its mysteries marketing strategy has succeeded in positioning in China and around the world (Bell, Shelman, 2011)

1. Literature Review

Globalisation is a process of international integration of the exchange of worldviews, politics, social scenarios, and other cultural elements. The globalization theory emphasize on the growth of the world’s communications systems, international trade, economic and financial flows. In the process of globalisation, there are more countries rely on the world’s situation with regard to the particular aspect international financial system, trade and communication. This includes the market, race, and the integration of science and technology, the extent of its thoroughness has always been seen – a way for individuals, businesses, and nations to reach the world more widely, faster, deeper, and affordable than ever before (Reyes, 2001). The philosophy behind the globalisation is free market capitalism, globalisation means the spread of free market capitalism to every country in the world. Similarly, the countries in the world are becoming more and more closer to each other, that is, we have access to others people, organizations, activities, more and more opportunities through globalisation .

This means that whatever event happened in every corner of the world will soon be spread to the rest of the world (Friedman, 2005).

2. Retailer Going Global

When the economic is declined, retailers will need to seek new market of expansion to survive. For retailers in the home market of developed countries, the pace of development will be slow because (i) The market is saturated. (ii) Retailers use their existing assets to expand globally such as purchasing system, worldwide supply chain network and product’s special feature. Besides that, retailer going global needs to execute more extensive task than what they do in home country, these include diversity, managing business to meet local regulatory and constantly understand the changing behavior of consumers (Kalish, Janiak, Eng, Lloyd-Owen, 2008).

3. The External Factors Driving Changes in KFC

External factors studies and analysis are used to identify the external factors that cannot be controlled by the company management. The entire industry affected by the external factors, not just on the company. PELTLE is one of the best approaches for external analysis. As picture 1 shown, PESTLE are political factors, economic factors, social factors, technological factors, legal factors, Environmental factors (PESTLE, 2017).

Picture 1. PESTLE factors

3.1 Social Factors Driving Changes in KFC

Social factors: Refers to the history of social development, cultural traditions, values, educational level and customs and other factors. KFC is one of the western fast food retailer who facing the local taste and flavor challenge in India. That is because India’s food tastes are as diverse as Indian’s culture, they love to add many types of spicy ingredient to almost every meal which make the food taste are so much different with international cuisine (Stern,2010).

In respond to the local customer’s demand, KFC adapted localization strategy to suit consumer needs. KFC turned out an excluded yet wide-ranging vegetarian set menu to meet existing demand. However, customers can act freely according to their own preferences, KFC has responded to customers’ choices by setting up branches in India and points out that there were countless opportunities in developing countries. In order to achieve next level, KFC even kept isolated cooking areas for non-vegetarian and vegetarian dishes (Sundbom, Thome, 2014). By divided the kitchen into different section, there will also be more policy and procedure added to the restaurant, increased of man power, separated cooking ware for vegetarian and non-vegetarian kitchen. All of the above processes are require policies and procedures to monitor.

3.1.1 Recommended Strategy

Marketing Mix is the set of tactical marketing tools that the company blends to produce the response it wants in the target market and it consists of Product, Price, Price & Promotion (Kottler, Armstrong, 2014). Promotion refers to the various strategies and ideas implemented by the marketers to make the end-users aware of their brands. To achieve a better result, the company could adapts Promotion strategy to convey the information about how they separate cooking section for vegetarian and nonvegetarian food via advertising channel such as television, hoardings, posters and etc.

This approach might looks insignificant, but it can practice to differentiate the good from the great. Through this special cooking method, KFC keeps on passing on the message that it watches over its client’s affinities and culture. Clients sense this pleasure, and return back with more business for the firm.

3.2 Political Factors Driving Changes in KFC

Political factors: ‘Marketing decisions are strongly affected by developments in the political environment. The political environment consists of laws, government agencies and pressure groups that influence or limit various organizations and individual in a given society’ (Kotler, Armstrong, 2014).

In 1996, a serious warning issued by the president of Karnataka Rajya Raitha Sangha (KRRS) who alleged that KFC’s food contain of monosodium glutamate which is more than the allowable limit. This issue thus leads to a series of political protest and it was ordered closed shop by the local health official in Bangalore (White, Michael, 2009).

There were mainly two factors which were anti-global sentiment and food healthy concern that triggered the political movement. KFC was totally underestimated the deep hatred feeling against the multinational company. KFC should take into consideration that political climate at that time, they would have seen it would have been wise to wait for the right timing before the acceptance of the consumer at this region, this was due to lack of study of local culture and customer needs. The company moved in too early which given the wrong message that the company was sweeping in like other big foreign companies with dollar signs in their eyes.

3.2.1 Recommended Strategy

To improve a better situation of anti-global sentiment and food healthy issues, the company could adopt the study of consumer behavior approach and market

segmentation to the India market start from Bangalore. The study of consumer behavior refers to the study of how individuals, groups and organizations choose, buy, use and dispose goods, services, ideas or experiences to meet their needs and aspirations (Kotler, Armstrong, 2014). The company can start off with a small food tasting booth at the crowded place such as shopping complex or hypermarket in order to gather more market field information about what the consumer needs, flavor and sensitive information on fast food meal at this area through food sample tasting and survey form. Market Segmentation is the process of dividing a large market into different segments or by considering customer need and demands. KFC can use demographic segmentation divide the consumer group based on Age: 10-60, Gender: Male and female, Family size: 1-2, 3-4, above 5, Income: High, Mid, Low and lifestyle.

With the above information the company can further decide what is the better design, price, product and serving to the targeting group. As compare to the street food, KFC provides clean and comfort environment, better quality and unique cooking recipe thus this would attract middle and high income group of customers.

3.3 Technological Factors Driving Changes in KFC

One of the common problems that fast food retailer facing is the menu, a diverse selection or a few selection menus will affect the customer needs, always keep the menu size checked to ensure it fulfill customer choices because the people need to know what is the unique selling point and proposition of the restaurant. Usually a large menu set will take longer time to order due to the food require more ingredients, more variety of choices on the menu would require longer time for preparation (Restaurant Engine, 2015).

KFC facing the challenging business environment around the world. The group operating 842 restaurants in the United Kingdom, all restaurants have standardized IT infrastructure systems including kitchen video systems, PoS tills (PoS tills is a intelligent retail supply system that is designed for retail industry, the key features is easy operating, it doesn’t require operator have so much technical knowledge for operation, the system can completely managing the shop operating function and web process order), key networking features, multiple peripherals and other IT systems.

With the rapid development of IT system, the company facing the challenges that need to upgrade IT systems to achieve business operation benefits, for example to speed up customer service, counter long queue problems and the incorporation of others restaurant operations. KFC appointed the vendor to manage and integrate the service across the country within a specific schedule daily before the restaurant open. The vendor responsible for project planning, purging of site information identified with hardware requirement, configuration, warehousing, co-ordinations, pre-setup and establishment of EpoS system (ISG, N.D). The disadvantages of using EpoS system are some of the items must be key in manually to the billing system, this requires much more time consuming than barcode system. For example re-ordering of new types of products, if a product is obsoleted and the shop do not want to keep stock anymore then need to do it manually remove from the system, if the system is not updated regularly, it may suffer from memory loss and slow response, and may calculate billing wrongly. The systems require regular update, maintenance and license which can be very costly. The company management will need to prepare more training for the new on-board staff (Keenan, 2014).

3.3.1 Recommended Strategy

The need for updated technology is critical to large retailer business operations, through a series of technology system project reformation, the implementation of new ways to improve the speed of customer service, the quality of customer experience and business cost savings.

By adapting the new payment system such as Apple Pay, Samsung Pay, Android Pay available at drive through, shot and online purchased. This is part of the update to link the mobile payment infrastructure and it is expected to speed-up customer service, especially more and more locations switch to less time consuming payment system.

Speedy service is the main factor in fast food retailer, the entire industry chain evolve from the simplified menu into the use of new technology to ensure that customers get food as soon as possible. There will be fewer sales and unhappy customers if the fast food service slow down. Adding a new app will avoid customers long queue at the counter because they can pay in advance at the designated counter to pick up their pre-orders item. This can be seem very effective when a customers are planning to purchase big orders to take home for lunch and dinner during busy hour.

With the emergence of new technologies, the retail industry is facing more and more request from demanding consumer. Adopting new technology system helps KFC

embed a culture of new concepts, executing with successful concepts, and quickly reduce actions that are clearly ineffective. When the implication of systems to decide which new concepts and products should be introduced at the same time, testing and learning is becoming a successful way for KFC enterprise’s culture.

3.4 Economic Factors Driving Changes in KFC

‘Market require buying power as well as people. The economic environment consists of economic factors that affect consumer purchasing power and spending pattern’

(Kotler, Armstrong, 2014).The marketing executive must always keep updated about the information of market trends, consumer spending patterns in the country or international market.

The fast food industry contributes $570 billion worldwide and the employment force in US about 4million. The industry is expected to grow at around 2.5% in the next few years, there are many trends that affect the fast food industry. The economic recession affected the consumer spending patterns of the fast food industry to a certain extent, due to this reason most of the restaurants offered cheaper choices in the menu (Pratap, 2016). China’s GDP slowing down to 6.9% in 2016 third quarter, Yum’s CFO said to investors that China’s financial market volatility, Chinese’s Yuan currency devaluation and overall economic conditions deteriorate caused the Pizza Hut business in bad condition (Wong, 2015). Economic volatility and devaluation of currency cause the difficulty of business forecast and share price dropped. According to (Swanson, 2015) and (Fox,2015), the Chinese currency devaluation and investors exaggerating have caused 9% shares price dropped and 10% of the share sold of parent company. In 2015, YUM’s China is responsible for the company 35% operating profit of fiscal year 2015, if the sales is recovered it would account 40% operating of fiscal 2016.

3.4.1 Compartmentalize Economic Risk

In 2016, Yum’s announced the separation of China business in order to focus on its capital structure and risk strategy. The spin-off company will operate as the franchisee business model of Yum’s China. The restructuring was mainly due to the currency factors and sales dropped in China, refer to Pic 2 for reference.

Picture 2. Yum’s store sales in China (Wong, 2015).

There are several advantages by adopting franchising business model: (i) Protection of its parent company share price from the impacts of foreign country economic factors such as currency of sales revenue. (ii) Minimizing capital expenditure on foreign assets and risk (Weinland, 2016).

4. Conclusion

KFC and Mcdonald apply a strong idea that would make them become very influential global firm. The management employed international manager to run the company that owed by worldwide shareholders, selling products globally. Today’s both companies share are not performing well over the past decade. Yum’s share price have fallen 20% and that was at the peak in 2012. In 2016 Yum detached its China business. In early 2017, Mcdonald sold its majority shares of China business to local firm. There are particular reason behind this, the world is losing its trend towards globalization.

Although the multinational company occupy 2% of the job worldwide, they also account for 50% of international trading of supply chain and the major shares market and assets.

According to (The Economist, 2017), ‘the globalisation’s trend is faded. In 2016, crossborder investment fell by 10-15%, the share of cross-border supply chains has declined since 2007, refer to picture 3. The figures shows that The sales and profit from the overseas decreased, the declined of investment related to GDP, weakness of currency, investors, the HQ countries and the host countries that received investment’.

Many of the global firm’s return of equity fallen and fail to achieved 10% target, refer to picture 4, the only gained segment is on the technology sector. The indications show that the multinational company is retreating from the global market.

Picture 3. Share of export and foreign direct investment (The Economist, 2017).

Picture 4. Comparison of ROE of multinational firm and local firm (The Economist, 2017).

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