KFC in China (1) KFC was the first western style fast-food restaurant to begin operating in China. 1988 marked the year of the first KFC outlet opening in Beijing. Back than many experts doubted whether the expansion into Communist China would ever justify itself, from the economical point of view. It is not a secret that the private ownership is banned in this country, thus leaving a very little chance for any considerable profit to be made, on the part of Western investors. Brian Caplen in his article Kentucky Hatches its Chickens in Beijing explains how KFC managed to cope with the biggest risk of all a metaphysical incompatibility between a Communist doctrine and the spirit of commercial enterprise: In order to cope with the significant political risk of investing in China, a local joint venture partner will share this risk. There is always a risk of domestication measures imposed by the host government, often leading to major financial losses for the foreign investor. By having a 55/45 joint venture agreement, this risk is potentially eliminated, since only 55 percent of operations are domesticated (Caplen).
From the contemporary point of view, it appears that making KFC restaurants in China instantly profitable, had never been an original intention, on the part of franchise management. This was more of a strategic move, where the real purpose had an advertisement nature. The 1988 was also the year when McDonald’s opened its first restaurant in Soviet Union, even though the prices there had to be artificially maintained at very low level. Therefore, we cannot seriously suggest that the KFC management was undertaking a significant risk, while opening its first restaurant in China. It would be much more appropriate to think of it as a long-term investment, which never yields an immediate profit, within a short period of time. As for now, there are 1000 KFC restaurants in China and many economists suggest that it is only the matter of time, before KFC oversees operations will become more profitable than in United States.
... and profits. The first challenge KFC China may face in relation to its localisation strategy is the risk of a backlash. ‘A ... (Li 2004). By expanding, KFC China can increase the likelihood of long-term success. ‘KFC China will experience diminishing returns if it ... Crawford (2013) observe that KFC have hired local managers who understand the Chinese consumer, the restaurant trade and Western business ...
(2) If I was Chief Financial Officer of KFC and if I was being asked what would be my foremost concerns, related to finding finances to provide the expansion of the franchise into China, my answer would be quite simple. In order to come up with expansion finances, KFC would have to eliminate the excessive items from its U.S. menu, like chicken popcorn. This would immediately result in making its operations more efficient, thus enabling KFC to earn more money. Nevertheless, in the long run, it would negatively affect KFC image, among the consumers. Still, the practice shows that there is simply no way to reverse the decrease of KFC popularity in America, since more and more people prefer eating a healthy food, while fried chicken can hardly be considered as such.
That is why, the expansion into China, on the part of KFC, is not only the attempt to boost up its profits, but only the way to save the franchise, as we know it. As Chief Financial Officer of KFC, I would definitely approve spending money on international expansion, particularly into the Asia, where the healthy eating has never been the issue, among people. Conclusion The alleged risks of KFC expanding into China were intentionally over-exaggerated, to divert people’s attention from the fact that KFC is rapidly losing the competition to its main rivals. The numerous advertisement campaigns, which were meant to improve KFC’s image, among Americans, turned out to be an utter failure. The only way to maintain KFC’s vitality, was to expand into the foreign markets. This was being done without even slightest degree of relying on luck. The risk was minimal, if it ever existed in the first place.
Bibliography: Caplen, B. (1988, February).
Kentucky Hatches its Chickens in Beijing. Asian business. Vol. 24.
... others, it needs 11 plants and chicken which is just born 7 weeks. As KFC just entered China, it’s really hard ... competent and motivated KFC managers who spoke Mandarin Chinese and preferably some English. Even in Singapore and Hong Kong these people were hard ... division found it difficult to match the expansion plans of its main competitors. KFC responded to these problems by improving staff ...
p. 17. Chong, W. And Xiaoyi, S. KFC Pulls Food After Contamination Scare. (March 3, 2005).
Retrieved August 31, 2006 from http://www.chinadaily.com.cn/english/doc/2005-03/1 7/content_425958.htm Yin, J. American Popeyes Runs after McDonald’s and KFC in China. (February 19, 2001).
People’s Daily Online. Retrieved August 31, 2006 from http://english.people.com.cn/english/200102/19/en_ 62734.html.