Jollibee Food Corporation is a Filipino fast food brand that opened in 1975 and has been on the path of expansion since then. IT capitalised on the changes that came its way to fight the competition from brands like McDonalds and KFC. The case highlights the global expansion strategy that they followed backfired due to which they had to consider revamping their strategies. The company has an opportunity in Papua New Guinea, California and Hong Kong but before taking that decision they need to work upon their previous issues to ensure the success in these countries. Till now the firm is being operating in two parallel organisations with no cooperation and coordination among the two which has resulted in chaos and a strained relation between the two. We have through this case analysis provided a complete picture of the Jollibee operations along with the strategies and the way ahead. An analysis presented that the company is currently in between the internationalization and localization strategy. We have recommended the company to follow transnational strategy that would help them achieve an advantage over the competitors.
Industry and Firm level Analysis * INDUSTRY LEVEL ANALYSIS
The fast food industry is basically a very highly competitive market that strives on cost leadership. The industry is faced by both international players who have huge finances The industry faces low margins and experiences profits on the basis of the economies of scale. The key to achieve economies of scale is selecting the right location to attract traffic and a highly efficient operation management. In the fast food industry the product offering are almost the same. So what make a difference are the things like the service, providing extra drinks / any other supplementary product with your main product. The profitability depends on the customer traffic, location, operation management. Expansion happens mostly through Franchisees and Joint Ventures, it is very important to attain Economies of Scale to do well in this kind of industry as the cost of all other things as we all know is just increasing manifold. And even then the consistency in the food quality is one of the major areas of concerns.
* POTTER’S FIVE FORCES
i. Rivalry Among The Competitors: High
As explained in the case the competitor had an advantage in terms of brand name, the profitability, the customer base they had . Also high because of the high standardization in terms of quality, quantity, price, procedures and processes which are similar and there’s competition to get better in these aspects.
ii. Threat Of New Entrant To Industry – Low
* Due to the high tariff barrier and the advantage of economies of scale, differentiation that a firm gets over time. Also in this industry people mostly don’t shift easily due to the taste adaptation and the ability to trust any other brand quality is low.
iii. Threats Of Substitute Product– Low
* Jollibee managed to serve their customers at affordable price, good service and the hence gained a brand name eventually, so the threat of a new substitute is low , again because of the ability or nature of consumers to shift to other brand easily is low.
iv. Bargaining Power Of The Suppliers- Low
* The raw material required for food industry could be sourced from multiple suppliers and the shifting costs are less. v. Consumers Bargaining Power- High
* Company depends on the consumers for its profitable business and the company needs to adhere to the consumer’s tastes, preferences and prices as there are many competitors to whom they may shift to. Also the entrants are expected to be less in number, so it is better to suit the needs of the existing buyers than to stand different from them.
* FIRM LEVEL ANALYSIS
The firm puts the customers as the base of all their operations. The customers should be kept in the minds first and then only any further decisions should be made keeping their needs in mind. The co-ordination between the different teams and the different levels also is considered to be very high. High operational efficiency and a well laid out plan with honesty, integrity as a part of their value system. Feeling of one unit and one family is considered to be their priority as they expanded immensely into various countries and regions. Employees have the art of listening and communicating everything that the customers want.
The mission statement of “we bring great taste and happiness to everyone” showcases its brand as quality based and high in consumer utility. They stand by their tag line and portray their brand in this context.
1) Their aim to become the most dominant, quality oriented, quick service restaurant, the most endearing brand that has ever been.
2) They provide FSC excellence in every moment
3) They will lead in product sales all time
4) They will be within the reach of every Philippine
Thus the 3 B’s helped attain these strategies which are, boost the standards of fast food industry, build brand satisfaction and broaden their reach to customers. SWOT Analysis: Where the opportunity and threats talk about the external factors affecting the firm’s performance and the strengths & weakness about the internal factors of the organisation.
* Understanding about the local tastes and preferences * First mover advantage in the home market as they were well established before the entry of McDonalds. * Highly motivated people in the organisation, they were all ready to take up the risk. * High domestic market share due to selection of the best location that is a result of first mover advantage. * The ability to innovate given the understanding of the local people but only in their domestic markets. * Power to give the competitive fight to the other organisations in the same industry. * Good operations management.
* Diversity in product offering (after the acquisition of Greenwich pizza)
* No consensus between the international division and the home division.
* Lack of communication between the departments
* Bureaucratic structure
* Financial condition for expansion.
* Lack of R&D before expanding internationally along with the fact that the R&D rested with the parent company.
* Biased towards local friends and family while selecting franchisees
* Lack of global brand recognition.
* Acquisition with a brand to get their brand also known amongst people. * Hiring non Philippines managers to get the sense of local adaptation. * Create differentiation by cost advantage or customer experience. * Tap the market with lesser or fewer competition. * Increase the product line to favour the taste of local consumers.
* Big giants like Mc Donald’s and KFC in the foreign markets.
* Increased in the transportation cost and the raw materials cost
‘* Political instability
* Mismatch in the ideas of the various divisions
* So many failures in the foreign market like that in Singapore , Taiwan
* Catering to a fast food joint as it is needs a very strong convincing power due to the shift to healthy food by many people.
* Entry barriers for them in some countries
* Reduction for barriers in the home country which enabled other big fast food giants to enter into the market.
Jollibee’s strategies were derived from a lot of change drivers that the company faced. 1. The first change driver that brought Jollibee Foods Corporation into proper incorporation was the realization that prices of ice cream would double due to the oil crisis of 1977. This helped them start their own food outlet with homemade hamburger recipe of the Tans’. 2. Kitchner felt the need to increase the pace of the global expansion projects as he felt that visibility was the only way to bring Jollibee into top ten fast food brands. He decided to go about a variety of strategies to do so. He started his plan with targeting the expatriate Filipinos in the Middle East, Hong Kong, and Guam etc. But this strategy failed as he realized that not all Filipinos had same tastes. When this strategy failed Kitchner used the “plant-the-flag” strategy as a part of which he wanted to mark his presence in as many countries as possible. As a part of this they started opening outlets in every country they felt an opportunity.
3. They realized the failure of their joint ventures was due to the lack of support from the parent company. Tony Kitchner implemented a strict control process of the franchises. He appointed Franchise Service Manager’s (FSM) who were the point of contact between the Jollibee and their international partners. He started collecting their sales data everyday not only to analyze the traffic in the outlets but also to provide consultancy to these franchises on how they could improve. For this they also implanted frequent checks that ensured that the standards, quality, hygiene, customer satisfaction etc was maintained. 4. After the criticism of Jollibee’s operations in Indonesia they realized that they need to act as a world class company and not a local company. They started changing the ambience of the outlets in the host country according to the tastes of natives of the host country people. They realized that not all countries like the same type of outlets and services as the Filipinos.
5. One of the elements of their 5F’s was flexibility which seemed to be missing in their operations. Their “proven concepts” of Filipino food in every country seemed to trigger a huge controversy. Kitchner realized the mistake and immediately sorted to rectify it. They started with local adaptation as a part of which they introduced a rice dish in which the gravy changed according to what the people wanted like in those countries like in Hong Kong they served their dish with hot and sour chicken while in Vietnam it was served with chicken curry. This accounted for a very small part of their revenue but this was their stepping stone towards localization. Issues Faced
The key issues faced by the company are listed as follows:
* Strained relation between the domestic and international wings resulting out of their differing opinions. * Following the “planting-the-flag” strategy that led to opening up of more and more of outlets to increase visibility even if they were running huge losses. This involved a huge investment that affected the other markets. * Lack of proper research about the market needs, the type of local needs, the potential market, the customer base and the competition level and their reach. * Inability to attract local managers due to the fact that the brand was less recognizable and also as a result of aversion from the international firms. * Difference in the management style and culture lead to a failure of plenty of Joint Ventures. The main problem was the model followed by them.
* Inability to transfer its success factors in Philippines to other countries. The reason Jollibee was successful in the Philippines was due to the following reasons: * Catering to the local needs by supplying hamburgers that were spicy. * The commendable operational efficiency it practiced in Philippines that require keeping close tab on operations. * Consistent high quality products and maintaining its share in the market. * Its skills in site selection because of its excessive familiarity with the place. * The large number of stores in Philippines enabled it to achieve operational efficiency through economies of scale. * The case makes it evident that there is less market for Filipino-style food that Jollibee has failed to understand. It needs to localize its menu to attract the local customers. Later Jollibee realized the problem and started catering to the local needs for e.g. their rice dish in Indonesia to suit their tastes.
The firm as mentioned in the executive summary was in between the internationalization and localization strategies. We have drawn this inference from the case which mentions that what Jollibee wanted previously following international strategy as they thought they can sell Filipino cuisine in all parts of the world targeting the expatriates. Therefore they felt they were faced with very low pressure for local responsiveness. They failed to realize that this strategy works only in case of MONOPOLY but not in case of firms having strong competition like Jollibee. This strategy failed as Filipino food was not perceived the same way in every country and the pressures for local adaptation increased. Jollibee failed to keep in mind the key “Driver” in the fast food sector is local responsiveness and low cost.
Later in the leadership of Tony Kitchner they felt the need for local adaptation and realized that international strategy would not work for them. Low cost pressure was always there as they were faced with heavy competition. Tony Kitchner bought about localization in their offering thereby forcing them to follow Multi Domestic (localization) strategy but the case mentions they were over-shadowed by local competitors who were providing food for lesser cost and better local adaptation. Therefore looking at the above mentioned points we would recommend that the company should follow a transnational strategy given that they face high pressures of both cost reduction and local adaptation. The following grid gives a diagrammatic representation of the strategies mentioned.
When going for multi-domestic as a strategy only a certain amount of flexibility and autonomy be provided to partners. This becomes more of an arm’s length dealing, trust was lacking in the relationships. A holistic coordination is required to transfer core competencies or to pursue experience curves and location economies. This is possible only in a transnational entity. This smooth transition can be enabled by inter unit cooperation, decentralizing the organizational structure and following a geocentric approach. Also to implement this strategy and carry out expansions following schemes of actions must be taken in various functional departments.
1. Operations Plan
* Waste reduction (TQM) and Standardization of food items will further help in cost reduction. * Smooth supply chain management system should be put in place to increase efficiency and productivity. * The flag can be planted in regions where people have similar taste buds as strategic business units. So that the menu can be varied according to regional taste. * Once the company starts to follow transnational strategy, location economies and operational efficiency should be taken into consideration so as to reap the benefits of both cost structure and differentiation. * Lessons learned should be internalized, so that lack of operational efficiency problems as in Singapore, transparency issues as in Taiwan can be avoided in the future international expansion.
2. Financial Plan
* The relations with franchisees and other associates should be clearly defined and the degree of control of the financials should be clearly defined to avoid future confusions. The ramifications of poor relations are clear in the closing down of many franchisees abroad. * The financial management should be done effectively so as to provide enough budgets for the R&D and associated activities that are needed for the global expansion. * Sufficient funds should be made available for the marketing and positioning activities. * Opening multiple stores at the same time will hurt the bottom line and will increase debt. A Cost benefit analysis approach should be used.
3. Marketing plan
* Market research prior to entering new markets will help in avoiding the unprofitable ventures as in the Middle East. In order to compete on the level with multinationals, rather than just being a first mover, Jollibee would have to take its performance to the next step and prove that it could continue to build its competitive advantage. * The focus target segment in every country has been expats from Philippines which has been largely successful. But it should not exclude the local populace of the host nation. Its marketing initiatives should target the local populace and it should position itself as a global fast food brand which offers “exotic Filipino cuisine” for everyone.
* Its core competency should be “authentic Filipino fast food with good service and quality” * The menu of Jollibee should have a mix of standard food items as well as items specific to a host nation. To achieve this, they should set up R&D divisions in each country and come up with new dishes to cater to local consumers like McDonald’s which came up with vegetarian burgers for India and which was a big hit. * For expanding the menu, economies of scale and operational efficiency should be kept in mind. Items which increase inefficiency should be removed from the menu. * Jollibee should follow a differentiated strategy wherein it should target those markets with high potential with an economy similar to that of Philippines like Papua New Guinea and observe the first mover strategy to capture these markets first.
4. Human Resource plan
* Jollibee needs a strong corporate culture, and informal management networks to assist in coordination and control. It also needs to understand local cultures before expansion. All this can be achieved through a proper emphasis on Management Development. An effective MDP can build a unifying corporate culture by socializing new managers and partners into the norms and value systems of the firm. * Jollibee should allow certain level of decentralization of authority for its franchises in other countries for operating decisions related to product, marketing and human resource management. Also certain number of R&D centers could be opened in other countries to facilitate localization of some products.
* In order to facilitate cooperation among units the staff members who are required to coordinate with other units must be given training on cultural differences and adaptability in workshops. By adopting this practice Jollibee would support its staff to understand the cultural diversity among nations and different market needs. * Jollibee should communicate the company culture through company conventions to ensure that the company interests are achieved. * Localized training approach should be used to make employees outside Philippine as part of the organization.
At the end of the case we see that currently they are faced with three key decisions about venturing into three different markets. We give our viewpoints as to which markets would be feasible for entry and on what scale.
I. Papau New Guinea:
The market as described lacks a decent outlet to eat at. Given the opportunity described by very low or probably nil competition it is recommended that Jollibee open an outlet there. It will advisable for Jollibee to open a few outlets in order to test the feasibility and the demand in the market. If the response of the local public is positive they can slowly increase their outlets.
II. Hong Kong:
According to exhibit 10 we can see that Hong Kong is second in terms of the per store sale value ($ 571120). This reflects that there exists a huge market for Jollibee in Hong Kong but before setting up another store at Hong Kong they need to resolve their issues there. Their main problem there is inability in attracting local managers. They need to resolve their manpower issues before opening another outlet to ensure that their brand name does not get spoiled because the managers had to pay more attention to the quality issues in the dearth of labour which of the lack of quality which left them less time to concentrate on formulating short term. These factors could tarnish their image in the market. Therefore, first step would be to rectify these problems and then improving the status of the existing outlets. When they feel demand is rising tremendously they can set up more outlets there.
Their venture in Guam was a success showing that the food was liked more by Americans based there. Their work at Guam gave them an idea of how to work in America. They can use their learning’s from Guam and implement them better in California to be successful. A small market research before the venture would be suggested to get an idea of the local needs and the potential in the market. Their plan of entering a market with high Filipino population with less number of competitors, Daly City, could be advantageous for them. From that market they would slowly venture into other areas after gaining a share in Daly City.
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