Jollibee – Document

Traced to this seemingly innocuous start, more Han 500,000 Sirs are estimated to exist in the world today. Jolliness's first approach to international expansion came with the hiring of an outsider, Tony Kitchener. Mr.. Kitcheners' aggressive marketing approach strategy, (planting the flag, as it was known) was Just what the company needed in order to bring brand recognition as well as attract future sales. The strategy encompassed expanding to markets with little competition; thereby, becoming a pioneer in that local market. After Mr.. Kitchener first took over the international division, he revamped it immediately.One major move of this overhaul was to fill key staff sections from personnel hired from outside of the corporation and even outside of the Philippines. He noted difficulties hiring more internal recruits because of Philippine managers' resistance to giving up employees and reluctance for Joining an upstart division. Tensions would soon arise due to relations with the Phil ippine- based operations. Some of these early issues may have been attributed to Jolliness's vertical organizational structure where ETC was the chief executive officer with all divisions reporting directly to him.The vertical organization structure ensured Mr.. Caution ad final say on all endeavors but may have led to efficiency issues. Collaboration between employees and managers on company processes such as recipe customization and new market expansion may be stifled in a vertical organization as collaboration tends to occur in a vacuum. Another type of structure that may have proven more robust is the horizontal structure as employees are encouraged to seek solutions and improvements on their own.As a result, the International Division staff reported this Philippine organization bureaucratic and slow-moving (Bartlett, 2011, p. 47). 2. Analysis and Evaluation A. Jolliness's Successful Business Model (#1) There were several contributing factors in Jolliness's rise to a dominant po sition in the Philippines fast food market. Jollied was able to concentrate resources on growth by financing their company from within. This internal growth, absent of debt or the interest of such debt allowed for a dominant position within the industry as well as allowed for suitable location and franchise choice.Additionally, the family demonstrated positive business intellect by hiring proficient supervisors the market. With the late entry of McDonald's into the Philippines market, as well as he aforementioned business knowledge of the Tan family, Jollied was a formidable competitor with an establish presence within the market well on the way to the ability of global expansion. (#1) Jollied continued to use cultural proximity to their advantage and defended their market share with the entry of McDonald's to the Philippines market in 1981.McDonald's, representing an enormous competitive threat with untouchable resource and reputable experience, Jollied relied on their expertise fo r local preferences to cement their continued dominate position. Even with the lower price point, McDonald's traditional menu choices were viewed as unpalatable to the local customer base, causing slower growth for the multinational company then first forecasted. However, by early 1983, McDonald's was able to obtain 27% of the fast food market share with the unexpected of the Big Mac.Jollied Just 5% ahead in market share then McDonald's quickly responded to the Big Mac challenge with the Champ. Jollied felt the bigger, spicier burger would better entice the Filipino preferred flavor for food; as the market research has suggested. The intended triumph of the Champ however was short lived as by late 1983, political hostility awards foreign investors from the backlash of the assassination of a political leader caused economic breakdown. This breakdown caused McDonald's and other foreign investors to slow their intended growth.Jollied preserved its positive perception within the communi ty throughout the downward turn in the economy, continuing to hone their menu choices; all geared towards the local tastes. By 1984, the fascination with McDonald was soon diminishing. At the economic up rise after 1986, McDonald's soon gasped at the growth of Jollied in their absence, now encompassing 31 stores with principal market share. B. Jolliness's First International Division (#2) According to world market reports published by IBIS World, the world's largest independent publisher of U. S. Industry research, the food service sub-sector's total revenue was about $1. 86 trillion in 2012. The global fast-food restaurants industry was estimated to take account for 38% of that revenue which was an annual increase of 3. 2% from the previous year. However, with developing nations accounting for about 83% of total global industry the industry â€Å"is approaching saturation levels in some developed countries due to an oversupply of fast food businesses and extensive franchising, whi ch is contributing to weaker revenue growth and demand in these industries† (Smith, 2012).Therefore growth in developing nations is essential for continued growth in the industry. (#2) Most experts agree that fast food business plans need to resolve around one thing and that is making money. This focus is achieved by focusing on specific areas of the business plan that pertain to the following: having a targeted initial spending plan, a narrow focus on what the company does well, growth as a result of expanding the menu for sales, marketing expansion, and excellent customer service to promote loyalty (Walter, 2010).Jollied succeeded in the Philippines by excelling in each and every one of these areas while focusing on traditional Filipino culture, by serving to the unique tastes of the Filipino consumer. This strategy has allowed the company to grab approximately 65% of the market share and become the unquestionable leader competition, most notably McDonald's, since many of th e large corporations largely export a standardized menu to the various consumers of the world. #2) Success in the developing nation the Republic of the Philippines has allowed the Jollied food company the opportunity to expand into other Asian countries to include Singapore, Taiwan, Brunet, and Indonesia. Jollied made its first attempted entry abroad in 1985, with its expansion into the Singapore market through a partnership consisting of Jollied, the local manager, and investors. The partnering was ultimately unsuccessful due to an eventual lack of trust between Jollied and the local manager.This lack of trust began when the corporate investors visited to check the local stores â€Å"quality, cleanliness, and efficiency in operations† and were denied entry by the local store managers (Bartlett, 2011). This led Jollied to revoke the franchise agreement and shut down the Singapore store in 1986. Jolliness's second entry into business abroad occurred with expansion into the Tai wan market with a 50/50 Joint venture. Sales initially boomed, but low pedestrian traffic quickly led to decreasing revenues over time.Day-to-day management conflicts again surrounding trust, and an increase in property market rent, ultimately led to Jollied dissolving the joint venture in 1988. The lessons that can be learned from these first overseas expansions have been highlighted before by Forbes magazine, highlighted observations where to match your approach to your business model and purpose, do efficient homework as well as background research, know when to localize your product, be fully aware of your international brand, and ultimately choose the right partner to do business with.As Todd Rapper, the executive vice president of Multilingual worldwide sales stated, â€Å"a [local business partner] can eliminate overhead costs and risks and can be extremely helpful†¦ However, you lose a great deal of control when you employ a rep [and] that individual and company repres ents you† (Conner, 2012). (#2) Learning from the failures of the past, Jollied is now ambitiously trying to expand into the international market, with a company vision of becoming a global player on the world stage and obtaining a 50-50 split between domestic and international sales by 2020 (Staff, 2013).Through its use of strategic expansion efforts, Jollied hopes to continue to spread the â€Å"Joy of eating, and bringing the best of Filipino family experiences, everything from food to ambiance, to [the world]†. Therefore, when company president Tony Tan Caution (ETC) decided to expand Jollied into the international market in 1993, the big managerial question that arose as how to go about making a local Philippine company into a global brand similar to one of the major players of the international scene at that time such as, McDonald's. To answer this question ETC selected Mr..Kitchener to lead the company in this endeavor, and gave him autonomy in deciding how the co mpany's international operations division used its structure and resources. Mr.. Kitcheners effectiveness as the first head of Jolliness's international division will be evaluated based upon the results that were produced from his business philosophy and leadership style in the areas of revenue growth, cost efficiency, profitability, and market share. It must be noted that market share in itself is debatable as to whether or not it should be the accepted and valid metric of market leadership.As Tom Peters of the In-search-of- measured is not managed, and what is not well measured is not well managed. † Thus, this evaluation in determining Mr.. Kitcheners effectiveness will be based solely upon framing Mr.. Kitcheners management style, which incorporates the elements of context, planning, inputs, processes, outputs, and outcomes with his personal equines philosophy and professional business model beliefs. (#2) Before Mr.. Kitchener began to focus on Jolliness's external busines s environment, he decided to start internally with the company by ensuring his division would be separate from the Philippine branch.While the decision to separate the company's international branch from its domestic branch proved to be beneficial in achieving his short term goal of creating anonymity to readily make the business decisions he felt were necessary, largely his total commitment to this strategy negatively affecting his branch and the company as a whole by having the domestic ND international divisions operating on different visions and unaligned business objectives. Mr.. Kitchener began recruiting experienced personnel to his team who he thought would be able to help him achieve his goals for the company.However, whether intentional or not, his choices created the perception of â€Å"elitism† when â€Å"poaching† the individuals from within the company, and going â€Å"outside the house† for other key team positions. He claimed that greater interna l recruiting had been constrained by two factors: resistance to staffing being poached, and lack of interest. Next, Mr.. Kitchener focused on changing Jolliness's business culture in order to make it look and act like a multinational, not like a local chain.After accomplishing the internal changes he deemed it necessary for Jollied to compete on a global stage. Mr.. Kitchener then focused on the company's external strategic thrust. He did this with the ultimate goal of increasing and building upon the success Jollied had experienced to becoming one of the world's top ten fast food brands by 2000. This was an ambitious goal that he had set for himself as well as the company. The completion of the goal set rested upon a business model consisting of woo main trains of thought, â€Å"targeting expects† and â€Å"planting the flag†.The expectation at the time was that by expanding the number of stores, the franchise could build â€Å"brand awareness† which in turn wo uld positively affect sales revenue. Ongoing, market entry was accomplished by negotiating a franchise agreement through investment by the parent company. Responsibility for franchise establishment was then handed off to a Franchise Services Manager (FSML). Resources and expertise were provided as needed to start up and manage an offshore franchise until the local manager was able to then manage on their own.One innovation that Mr.. Kitchener implemented to help the transfer of responsibility be a smooth transition was to create a library of promotional photographs, rather than preparing new advertising materials for each new promotion. Mr.. Kitchener was not only concerned with helping the local managers establish the franchise for the company through strong initial support, but was also with the division maintaining proprietary control as well as each franchise maintaining company quality standards. #2) Flexibility to accommodate differences in customer tastes was deemed to be ess ential. Mr.. Kitchener and his team learned that â€Å"mass-based positioning† did not paces to the demands of the local market and after numerous market entry battles, the international team decided that other elements of Jolliness's Philippine business model needed to be modified in its franchise stores overseas. However, when it came to modifying the menus and the product itself tensions arose with the domestic side of Jolliness's operations, resulting in even less cooperation. #2) According to a research report done in the style of David Letterman top ten list, the top ten reasons for why business fail internationally are as follows: 1) â€Å"Nationalities†, 2) Lack of resources and/or budget, 3) Spread resources too thin, 4) Corporate WHQL Control, 5) Inability to localize content, 6) Treat translation of press materials as an administrative task, 7) Unrealistic expectations, 8) Conducting International PR long distance, 9) Lack of spokespeople, and 10) No action behind the words (Hoffman, 2012). Mr.. Kitchener did an admirable Job in making sure he was nationalistic in his approach to the global market.His control over the international division, allowed him to localize the food products. He was guilty of reasons 3, 6, and 7 for Jolliness's failed attempt at international expansion. Having unrealistic expectations was his biggest mistake. In the end, this was the underlying reason for his failure to achieve the company's goals. Jolliness's international division grew rapidly. However, as operations grew, Mr.. Kitchener and his staff experienced problems with the underlying strategy of the division's international expansion plan.They found not all overseas Filipinos were guaranteed potential customers. They also soon found out that only by achieving a certain amount of sales could many of the franchises afford to advertise and build the brand awareness required to meet resource requirements that became constrained by the rapid expansion into new arrest. In addition the international division could not shift responsibility gradually to the franchisee and therefore had to continually bare the majority of responsibility associated that comes along with starting and maintaining new startups.They found that the local store managers were content to let the division do the day-to-day grunt work of everyday planning and routine operations (Bartlett, 2011). Ultimately, the increasing cost of supporting the widespread unprofitable activities, and the continuing friction between the domestic and international side of operations, was unsustainable for Jollied to be able to obtain the company's vision for the future. In 1997, Mr.. Kitchener was replaced with Noel Tinning as the new general manager, International Division, in the hope of creating and implementing a winning strategy for global expansion.Present day, according to Forbes magazine, Jollied was the world's fifth fastest growing restaurant company outside the United State s, earning $102 million and a sock increase of over last year's earnings. A large part of Jolliness's success is due to the development of market leading brands across numerous categories, with experts stating that â€Å"most competitors have single rand's†¦ Having multi-food concepts enables Jollied to capture a bigger chunk of the dining-out market† (Staff, 2013). C. Noel Tension's strategy for three expansion options (#3) Mr..Tinning faced three huge opportunities for Jolliness's global expansion. First, he had to analyze the potential profitability of entering a small market in Papua New Guiana, where there's limited competition. Second, much consideration was needed over the further expansion regarding Hong Gong's Kowloon district, one of care much for the Jolliness's Philippines-based fast food model. Finally, a proposal to cackle the benefits in a U. S. Market by establishing restaurants there, starting in California, expanding quarterly. (#3) Expanding to Papua N ew Guiana brings both potential risks and benefits.The benefits of expanding to Papua include the lack of competition in the market. Papua has only one poorly managed, 3-store fast-food chain, according to Quality Assurance Manager, Gill Salvos (Bartlett, 2011, p. 51). Match the limited market, and the large population of 5 million, makes Papua a very enticing opportunity. Another benefit would be the offer from Mr.. Salvos to front the capital to launch the expansion. Additionally, suggesting co-locating with a major petroleum retailer, where there was a constant customer flow. The risks of expanding to Papua include concern about Government-Business relationships.There seems to be an issue with stability of rules, policies, and regulations. Businesses remain worried about the stability of the rules, instituted by the government. According to local analysis there's a perception of risk while doing business in Papua New Guiana. Another risk is political uncertainty. According to rep orts, during the asses, businesses in Papua experienced a great amount of instability because of frequent changes in overspent. This led to erratic and frequent changes in policies that a negative impact on the private sector (Holder, P. And Barker, P. , 2007). #3) Expanding current business further in Hong Kong is an exciting proposition, considering the potentially large market there. Mr.. Conation's brother-in-law saw instant success when he opened the first store in 1996 (Bartlett, 2011, p. 51). However, one issue with the Jollied Corporation is its narrowed market†¦ Targeted Filipino audience. The Hong Kong base relied on Filipinos living there to bring in enough business, which at stores close to major hubs where Filipinos gathered, worked out. The problem was with restaurants that were not in close proximity of these hubs; they had to rely on the local Chinese population.Other problems with the Hong Kong market included a rigid menu, which was slow to change, due to Joll iness's vertical organizational structure where all changes had to be staffed to leadership. The benefits of doing business in Hong Kong include low salaries and profits tax rates. Additionally, capital gains are not taxed. The country is bilingual, which would ease business communication, and assist with new staff training efforts. (#3) Challenging McDonald's in its home market is a daring, but potentially refutable endeavor. Mr..Tension's approach to expanding Jolliness's franchise to America could bring much respect for the rapidly expanding company. Just like opening a new franchise in Papua, and expanding operations in Hong Kong, there will be risks and benefits. The biggest risk†¦ Known for its golden arches, McDonald's. However, McDonald's would not be the only major competitor facing Jollied. America is the birth place of fast food. Several other competitors such as Burger King, Kentucky Fried Chicken (KEF), and Pizza Hut had permeated the market as well. Concerns over increasing obesity rates in recent years, also came as concern when expanding to America.Policymakers are developing new regulations on restaurants in an effort to fight obesity. For example July 2008, Los Angels lawmakers banned the more than 500,000 residents (Anderson, 2006). The incredible amount of money Americans spend towards fast food is a definite plus to expansion consideration to the United States. Consumers spent about $110 billion on fast food in 2000, which increased from $6 billion in 1970 (Closer, 2001). The National Restaurant Association forecasts that fast food restaurants in the U. S. Will reach $142 billion in sales in 2006, a 5% increase over 2005 (Closer, 2001).Bottom line, fast food is big business in America. As a fall-back, the West coast has a significant Filipino community, and other ethnic groups which are attracted to Jolliness's menu. Finally, the strong interest from local investors and Mr.. Conation's willingness to crack this market make it an attra ctive investment. D. Noel Tension's way-ahead for Jolliness's international success (#4) Mr.. Noel Tinning, has some very difficult decisions to make for the international expansion of Jollied. Fortunately, he has a great team that is well- versed at conducting risk analysis assessments, and the training under Mr..Kitchener o work with the corporation's FSML to hammer out details of a franchise expansion. It's important to capture that â€Å"quick-win† when tackling any business endeavor. The quick-win in this situation would be to improve and expand upon existing markets in Hong Kong. Hong Kong has one very successful restaurant. Recruiting Chinese employees, and rotating them through the Central district restaurant to receive training, will assist in their success. Additionally, bringing in the new employees will assist in identifying/diversifying menus for local palettes. #4) To garner any kind of profit, Jollied would have to quickly add three to four tortes to be competi tive and cover costs. The GNP in both countries, per capita, is about the same at $2,500 (Bartlett, 2011, p. 51). In the Philippines there are over 900 restaurants serving 75 million people. The PANG population is 5 million people. Starting out with three to four stores, under Mr.. Salvo's capital, will be a good gauge as to whether the company attracts the local interest. The plan is for a Joint venture with local service stations.If the effort is equitable, further expansion from the three or four stores to 20 stores is a plausible business venture. #4) Supporting operations in a small remote market will require effective communication from the main hub to the forward operating location. To ensure success, the FSML will be imperative in developing the team and monitoring sales, customer traffic, and any supply hold-ups. To assist in attracting the local populace, managers should recruit team members from the host country. This will help with any language barriers, and could be an effective marketing strategy.Finally, give managers at the remote market greater flexibility to make decisions without having to use the vertical staffing process. Being able to respond quickly to local crisis, will empower managers, and ensure the new market doesn't miss a beat. (#4) One of the â€Å"Five Ifs,† is catering to customer needs. If Jollied wants to expand its opportunities in Hong Kong, it must customize to local tastes. One of McDonald's global operation attributes is the ability to adjust menu in accordance with local tastes, and even customs, such as its operations in India where it only offers a vegetarian menu.Developing less fatty menu alternatives will be attractive in the Hong Kong market, and may also work in the U. S. As well due to greater concerns Eng in building their confidence in the company. Finally, by baking foods instead of frying them, the company will be saving money. Frying is more expensive than baking because of the oil requirement and ad ditional gas/electricity it takes to heat the oil. Jollied would be catering to local palettes while saving money, by reducing it fried food menu items. #4) Understanding and properly managing cultural differences in the workplace, especially in foreign environments, is essential to business success. When domestic companies hire foreign professionals in an effort to enhance their competitiveness in international markets, a lack of understanding may arise which may lead to an atmosphere that is not conducive to the business environment. As is the case in this situation where Chinese workers were calling the Filipinos worker's discipline lax and their style arrogant; and the Filipinos saw the Chinese managers as uncommitted.To handle this problem Jollied should solicit outside help, a third party, that specializes in helping corporations manage cultural differences. Even though this may be an expensive proposition, it could be billed as a necessary start-up cost that was essential to the process of transitioning the franchise into a sustainable operation. Once implemented, the company would establish feedback options for the employees in order to gauge the effectiveness of the program.It would also see what steps could be taken to create a do-it-yourself mediation communication tool for each individual employee. This tool could be used whenever the need arose, to limit and diffuse future staffing conflicts. (#4) While at face value the Philippine to Asian to Hispanic entry strategy appears to be positive strategic plan. This being said, Jollied also must consider to the company as a whole. The extensive stretch in current resources and failing stores abroad could destroy even the most perfect strategic plan to enter the US market.Discounting the current failures within the company however, this entry plan could place Jollied in a unquestionable positive standing to enter the US market, Just as it succeeded in the US territory of Guam. The positive lessons learne d within the Guanine market can easily transfer into the US; within the area of San Francisco and San Diego, where the Filipino expects surpass those of others demographically, giving Jollied the perception and insight it requires to expand to Asian-Americans, hen acquire Hispanic traffic in order to broaden to other populace within chosen markets. #4) If chosen to enter the US markets it will be imperative for Jollied to control the expansion while supporting the existing locations. This control and support can be established, in the beginning, by transfer current Jollied management to the US market, as it has been done in the past. The careful selection of local franchises will be imperative to Jollied successful growth within the US market, as the consumer perception must be one of consistency in regards to price, selection and customer revive.The experienced management style will permit the local management to fully understand the culture of the company while Jollied management continues to take in the local culture; working together to build a solid foundation to grow from. While the initial foundation is critical, the ongoing support is never the less vital to the company's success, particularly in regards to gaining market share in the birthplace necessary prerequisite for all locations as well as ongoing training for not only the local workers but Jollied core team as well.This training will eliminate the possibility f postulated theories of the direction of the company in addition to reducing the prospect of Jollied losing control to outsiders as it once did when choosing to bring in Tony Kitchener; in turn this will reduce the risk of company divide between Jollied core team and the international department. Jolliness's continued success relies on its ability to learn as well as grow its own business. The alternative is the failure to comprehend what is taking place within its own walls and therefore losing control of the business they have fought to build. . Recommendations The previous material illustrated successes and mistakes of the Jollied Corporation. USSR growth in developing nations was highlighted for its importance to continued growth in the industry. Jolliness's ability to maintain its superiority in its home market was explored, and keeps its closest competitor, McDonald's, at bay. Mr.. Kitchener was responsible for building an elaborate International Division, and some of its initial success. Unfortunately, his approach didn't quite match the vision of the company, and may have lead to more strife than success.His departure opened the door for Mr.. Tinning, who was immediately faced with three huge challenges of improving upon existing markets, and moving into new ones. The three opportunities were explored, with Hong Kong determined to be the relatively safest challenge to undertake. The Hong Kong market was deemed a possible quick-win situation because of the existing successful restaurant. Host country recruitm ent could help in developing a menu that fits the local customer base better.Having a staff made up of both Filipino/Chinese employees would help with any language barriers that may be preventing new customers from choosing Jollied over other options. Finally, Jollied could improve business communication and decision making by adjusting its organizational structure. It was noted that menu adjustments with the Hong Kong market took an incredibly long time to be addressed due to the vertical organizational structure of the company. All decision-making has a centralized flow to ETC.