To analyze China's attractiveness for both companies in late 1980s, we will first analyze the market opportunities.
When KFC and McDonald's tried to enter the Chinese market in 1980, the country was an emerging one. Like an emerging country, China presented lots of opportunities. The growth was, for example, important – an average of 9% per year –. It is “thanks to” this high growth that both companies wanted to penetrate the market. Moreover, the size of the market was big – approximately 1.3 billion Chinese people.
The quality of demand was also interesting insofar as Chinese people were (and still are) the largest consumers of meat worldwide. Moreover, there was rapid expansion in the middle class especially in the big cities. In the countryside and small cities, the low end segment was large. Despite the economic boom, Chinese people had very low income, so in 1980, consumption of fast food was not a feasible option for all.
The entry objectives of KFC and McDonald's are primarily to capture a new market and develop their business. Actually, with the development of China, a significant rise of general consumption and GDP (9% per year and it has remained constant); it is an excellent opportunity for the restaurant companies to enter the market.
The potential of China's Restaurant Industry is a key attractive factor: “Retail revenues of the restaurant industry increased from 5.2% in 1991 to 14% in 2007”, “China was the world's largest consumer of meat!”. Finally, from a demographic perspective, China was very interesting insofar as it is a large area with a very high number of inhabitants.
[...] Organization of the value chain and type of global actors: Here is the value chain organization of KFC: Raw materials/ Production/ Marketing Distribution/ Services Procurement logistics sales Equipment: - Local - local - Limited Adapted and imported production advertisemen franchisee differentiate K - Staff: Chinese ( local t - d offer of F and Singaporean focus on well-connected products C - Food: local the local supply chain suppliers for local aspect: - Local purchases local partners ( local product, & ( local local menus ( local The value chain organization of McDonald's: Raw materials/ Production/ Marketing Distribution/sales Services Procurement logistics D imported production advertiseme partners. [...]
[...] In the actual context, to differentiate itself from other rivals, the brand and the brand image play an essential role ENTRY OBJECTIVES The entry objectives of KFC and McDonald's are primarily to capture a new market and develop their business. Actually, with the development of China, a significant rise of general consumption and GDP per year and it has remained constant); it is an excellent opportunity for the restaurant companies to enter the market. The potential of China's Restaurant Industry is a key attractive factor: “Retail revenues of the restaurant industry increased from in 1991 to 14% in “China was the world's largest consumer of meat!”. [...]
[...] In the future, the objective for the both companies is to develop the fast food retail industry which is expected to increase new potential consumers) RESPECTIVE STRATEGIES As China was an emerging country, both fast-food restaurants had the same positioning strategy in this attractive market. Here is the value proposition: Value attributes: KFC is a global differentiator with attributes such as performance, quality, service, and customization. KFC adapted to the main local menus (introduce lot of Chinese items such as soups, rice, mushrooms, etc.). [...]
[...] In 2007, KFC had 228 franchises, accounting for of the total number of fast food outlets in China BUSINESS MODEL We are aware of the immense success enjoyed by KFC in China. The author wonders if, in using the Chinese KFC business model, this success can be emulated in USA (in order to compete with McDonald's). I feel this is not a likely scenario. KFC's success in China depends on the culture of the country. Indeed, Asian people, and more particularly Chinese, are the leading consumers of chicken in the world. [...]
[...] Competition To examine the competition, we will study the Porter's 5 forces + The intensity of competition for KFC (the first on this market) is low while that of McDonald's is in the middle. In 1980, quick service restaurants (or fast food) were almost non-existent. The threat of new entrants is low. It is very hard to penetrate the market. Indeed, the entry barriers are high: opening a fast food outlet requires a high capital of investment. The bargaining power of suppliers is either medium or high. [...]
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