KFC is a huge multinational firm that was founded in Kentucky in 1964. It currently operates in 74 countries. In1986 the company was acquired by Pepsi co. Inc which later changed its name to YUM Brands Inc (Burroughs, 2008). On the other hand, McDonald Corporation is the largest fast-food chain and started operations in 1948. The chain started its global expansion in 1967 leading to the opening of about 23000 outlets in 110 countries by 1994 (Burroughs, 2008). The company has the largest markets share of eateries in the US and impressive sales revenue. In this paper, I am going to examine why companies employ diverse market strategies and products over different market locations. Regions such as China, the USA, and Australia are going to be considered. Of late, China has proven a lucrative market for Western fast food Chains and these two companies are having a wider market in this region.
Comparison between KFC and McDonalds’s marketing strategy
In 2007, the KFC division in China earned about US$ 2 billion which accounted for about 20% of the YUM Brands globally. This was an indication of the importance of the China market to KFC (Burroughs, 2008). With over 1200 franchises, the company entered China in 1987 and has since then experienced tremendous growth. The company prides itself to be the largest fast-food chain in China today. KFC’s business model in China involves the opening of many branches across China to take service closer to the customer. This was also geared at increasing the company’s market share in the Chinese market. On the other hand, McDonald’s strategy emphasizes building a strong brand for the company by boosting the dining experience. The company has established fewer but larger business outlets that are highly equipped to improve service delivery of customers. This is driven by the desire to generate large profits in the short term.
KFC also unlike Mcdonalds’ runs a more aggressive promotional campaign on television. Unlike the company’s conventional logo, in the Chinese market, the logo was modified to give it an oriental taste as evident from the picture of Colonel Sanders the founder of the advertisements. The marketing strategy was meant to localize the brand to the Chinese market. KFC advertisements suggest that it offers the healthiest fast foods. The ad seeks to convince Chinese consumers that its foods are healthier than its competitors. This idea seems to have worked for the company by increasing its sales revenues.
Part of the corporate strategies of McDonald’s across the 3 markets is the formation of strategic alliances with other corporate organizations. These include Amoco, Wal Mart, Chevron, Disney, and Coca-cola. The important synergies achieved through the alliances have enabled the company to market its product in a more directed and focused way. For example, it operates restaurants in all Wal mart stores hence creating convenience and accessibility to its customers. This has also been replicated in Amoco and Chevron petroleum companies where Mc Donald’s has also established outlets in the filling stations. Another partnership with Disney allows Disney to market its films through McDonald’s.
KFC has established strategic partnerships with Mengniu dairy in China and Nestle Company. The collaborative venture between KFC and Mengniu allows KFC to advertise itself on Mengniu products by printing its logo on them while Mengniu will benefit from the use of its milk products by KFC (Business China, 2007). KFC also continues with its long-lasting partnership with Nestle in a partnership that has produced positive synergies that have produced huge benefits to both companies.
KFC on its part has concentrated on the localization strategy. Indeed, a company wishing to retain a strong brand image and consistency in customer experience must maintain certain standards and practices across its operational units. However, it ought to incorporate some local aspects and features to fit within the local environment. The cultural and business practices for the local environment must be taken into consideration since they influence the consumer’s tastes and preferences.
The product mix of the company should be governed by the individual situation to be effective in achieving the intended goals (Business China, 2007). For example, KFC’s entry into China which is characterized by old and solid traditional cultural practices which govern the culinary habits, tastes, and preferences and practices called for tailor-made solutions for the market. It is this understanding of the local market that delivered instant success to the company. This brought a whole different scenario from the situation in the United States.
Differences and similarities in products
Both companies incorporated an ethnic taste as part of their product marketing strategy in China. For KFC, its great success in China can be attributed to the modification of its product offering to include Chinese cuisine to endear itself to the Chinese market. Some of its popular products include Beijing-flavor chicken wraps and the spicy Sichuan chicken in addition to an assortment of soups, rice, and porridge. According to research by the school of Economics at Fudan University, KFC imports only about 10% of its raw material while the rest is sourced from the local market (Business China, 2007). Another outstanding feature of KFC in China is that it has more customer service staff than a typical KFC outlet in the USA. These are well trained and disciplined to offer quality service to the clients.
The use of different market strategies and product offerings in different countries can be explained by the Global Integration-Local Responsiveness framework. The global integration approach aims at establishing an efficient network of subsidiaries that optimizes the benefits accruing from similarities across different market locations. On the other hand, local responsiveness seeks to respond to the unique needs of the local environment. The two companies operate in diverse markets with complex business environments and cultures which is a catalyst for their local responsiveness. These are intensified by intense competition in the fast-food chains which forces the individual companies to enhance their product proposition. As a result, the companies have had to modify their cuisine to suit the taste and preferences of the respective countries where they are located as evidenced by the adoption of Chinese cuisine in the China market.
Multinational corporations are faced with increased globalization in an increasingly comparative environment. This has led to their adoption of global integration and responsiveness to the local cultural environment. The cultural practices, market environment, and business practices contrast sharply with those of the Chinese market (Luo, 2001). To deal with these diversities, KFC and Mcdonalds’ have developed strategic approaches to respond appropriately to the local environment of their respective market especially in China. This is evident in all aspects of operations ranging from customer service, design of the food outlets, advertisement, and the foods. KFC, as mentioned earlier, has even added an oriental theme in its logo to fit in the Chinese market.
Global integration on the other hand has been tried out successfully by the two companies in the Australian and the US market which share similar cultural and business practices. These have been made possible through the development of strong synergies between the head office and the subsidiary managers in the respective countries. Almost similar systems of service delivery, outlets design, management systems, and diets have been adopted by the two companies in both markets.
Competitions among the companies, increased use of technology, and aggressive advertisements have become the driving forces behind the global integration of the operations of the MNC’s in the two markets.
While the major preposition of KFC consists of chicken nuggets and fries, McDonald’s product offering is mainly made of hamburgers and fries. These form the major areas of competition between the two companies in the different markets. However, the competitiveness of McDonald’s in China is stifled by the fact that the product proposition favors KFC since many Chinese consumers prefer fried chicken to hamburgers. This gives KFC a cut above the competition since it is its major area of specialization. KFC has also succeeded in designing more China-specific foods on the menus as opposed to McDonald’s thus raising its leverage in the market over the competition. All this is guided by the need to localize its products to the local environment.
The Role of the government and other regulatory institutions
The purpose of the government in this business is to provide a regulatory framework to provide a guideline for conducting business. The governments in the different countries exercise some form of control and influence on the type of policies and practices adopted by the companies in the respective countries. For example, following concerns of the abuse of animal rights by Mc Donald’s, the government agencies and animal rights activists in the United States applied pressure on the company to treat animals in a more humane way leading to the restructuring of its animal farms across the world.
The government encourages the development of the industry by playing a complementary role in the industry. It provides the necessary infrastructure hence reducing the cost of doing business in the country. Governments also encourage multinationals to invest in a country by giving special incentives to foreign direct investors and also providing a suitable working environment in form of security to MNC’s, information and advice on investment opportunities, and providing important linkages. It also ensures that there is a favorable political environment suitable for doing business.
Some governments are however more restrictive than others. For example, the Chinese government is more protective of the Chinese culture and as a result has more stringent measures regarding types of food, business practices, and production standards. This is as opposed to the Australian and United States market that have fewer operational restrictions on standards and practices. The controls imposed on multinationals in China have the effect of influencing such activities as an advertisement due to high levels of scrutiny of the content.
Source of innovations and marketing strategies for MNC’s
As a result of the localization, the subsidiaries managers in the local market are given some level of autonomy to study the local market and analyze its requirement. They can carry out an environmental assessment and evaluate the nurture of the market to develop products and policies that suit the local population’s needs.
Following this, the KFC Company as well as the MacDonald Company both have been able to come up with innovations and strategies that have enabled them to grow on the market in various regions.
Human Resource in McDonald’s and KFC
KFC and Mcdonald’s are managed in China by a local management team. This enables the companies to get a closer understanding of the Chinese culture and business practices. Initially, there had been very few experienced staff in China and so the companies shopped for management from Taiwan which had a higher-skilled human capital. Upon the rise of a sizeable group of skilled and experienced staff in China, more and more Chinese people were recruited into management. To date, KFC has a wider pool of Chinese people in management than McDonald which was slow in the uptake of the Chinese staff into top management.
The organizational structure of McDonald’s and KFC in China
McDonald’s staff consists of franchise owners who run the individual franchises, the company corporate employees, and the restaurant workers. The restaurant workers form the bulk of staff in the company. Most of the restaurant workers work on a part-time basis. Going upwards on the chain of command are swing managers followed by assistant managers. Each restaurant is managed by a restaurant manager. This management approach is the same all over its market locations including in the Chinese market. However, there is a slight difference when it comes to job training of Chinese staff which is a little bit inferior relative to the US. Managers and crew members in the US are taken through the Hamburger University unlike in China where there is in Hamburger university. This is meant to maintain consistency in management (Anon; Human resource management in McDonald’s). KFC operates under a similar model to run its operations globally.
The role of the WTO and regional trade agreements in influencing MNC activity
The world Trade Organization and the regional trade agreements facilitated trade activity among Multinational companies. For example, reduction of tariffs affected locations by making production less expensive in those locations hence causing the relocation of MNC’s to those areas. The WTO and GATT for example encouraged the development of robust infrastructure, heavy domestic savings, and the development of human capacity which has a huge multiplier effect in such countries as China. As a result, there was an increased attraction of foreign direct investment in the country thus stimulating the present high growth of the economy.
Firms use different market strategies to offer a product on the market across different geographical locations. This is this calls for the firms’ need to localize their strategies and products to appeal to the regions in question. Both KFC and McDonald’s have used diverse approaches across their market locations in China, Australia, and United States. However, the need for global integration and maintenance of the company brand has ensured that key management structures and standards have been maintained.
Amon, (2005) Marketing Analysis – KFC. Web.
Anon, (not dated) Human resource management in McDonalds. Web.
Burroughs, T. (2008) KFC vs. McDonald’s. Web.
Business China, (2007) Going Local. FutuVision Media Ltd. Web.
Luo, Y. (2001) Determinants of local responsiveness: perspectives from foreign subsidiaries in an emerging market [Online]. Journal of Management, Cengage learning. Web.