According to ball et als (2012, p.8) International business is business whose activity are carried out across national borders. In terms of Yum! Ease of doing business internationally, three different frameworks will be use which is PESTEL framework, to analyse Yum! Brands market decision in terms of environment; Porters Five force to help portray the Uniqueness of the market and Porters Diamond to demonstrate Yum! Brand mode of entry. The environment is what gives organization their means of survival, it create opportunity and its present threat
Porters Five Forces-
Internal Rivalry-(High) the fast food restaurant is highly competitive and is market is somewhat concentrated which increase rivalry within the industry, according to the case study McDonalds hold the highest market share in USA follows by Yum! Brands Corporation. Though Yum! Brand is trailing behind McDonalds, its currently dominating Chinese, Africa and India by applying market mix of standardization and localization. According to Yum! Brands, China expanded the KFC and Pizza Hut menus to include new daypart and a wider range of product offerings designed for Chinese consumers. Yum! Brands also maintain a leadership position within its product segment in terms of different brands in different market.
KFC is the first to enter China Market, following the opening of Beijing’s Tiananrnen Square in 1987, and marked the introduction of western style fast food, Pizza hut is the first restaurant chain to bring Pizza, western casual dining and pizza delivery. According to these facts, it’s apparent that Yum! Is facing a less competition in China market.
However, Yum! Brands do contend with new waves of competitors in the Chinese market but Yum! Brand adaptability and innovative skills in creating bread pudding and ice cream cake desserts that can’t be duplicated gave them an edge above other competitors during tea time. Supplier power- (Low) Supplier power is likely to be high where there are concentrated suppliers and high switching cost, in the case of Yum! Based on its brand name and economic of scale it has relatively power over its supplier. Yum! Brand has over 500 suppliers in china that covers all of the company’s restaurant needs.
Because of the nature of the fast food supply industry, price must remain relatively competitive or Yum! Brands can easily substitute away from any supplier that chooses to raises its input price. Supplier in this field is not very concentrated. Buyer Power (Low/Moderate)-To some extent, there is buyer power in the fast food industry. The consumer targeted by Yum! Brands can easily switch to another restaurant or coffee shop if the needs are not met or the product price is too high.
The switching cost for buyer is zero especially in regards to numbers of restaurant that are readily available, but Yum! Have been able to manage that by been sensitive to customers’ needs and want. Taken for example Yum! Innovative concept developed in response to growth in number of western style coffee shops in the country by introducing a daypart, Tea Time menu from 2-5pm that includes coffee, teas, appetizers and desserts.
Also Yum! Noticed that the biggest daypart eat out is breakfast , but most people buy their food from booths, retailers and street stall based on familiarity with the food and low price. According to Yum!, they capitalised on the trend of eating out at breakfast and lowered its prices to be more competitive with street vendors , and also build the menu around traditional menu that consumer are familiar and convenient with.
Entry (Moderate) – Entry could be very difficult in restaurant industry, in terms of barriers, the cost of green investment and additional cost from food purchase and labour. Considering this Yum! Brands went Yum! Brand went into franchising and joint venture and partnership in China, India and Russia, Brazil, diffusing the cost to individual franchisees. According to Yum! “Franchise business is a great business, it is highly lucrative because we collect franchise fees and we don’t put capital in it. Taste of customer could also serve as barrier, for Yum! In the course of establishing a brand name in China encounters a customer taste for traditional cuisine and a different eating habits .
Yum! Rose to this challenge has introduced its own brands of Chinese style dining to capture this market. Also the religion practise in Indian has an influence on their eating habits as they don’t take beef, Yum! Stepped ahead of this challenge by using chicken potatoes as alternative. Yum! State that Taco bell Indian uses potatoes as meat replacement in its burritos and hard shell tacos, and offered meatless quesadillas and nachos topped with n=beans and onions instead of beef at pizza hut.
The last that will be taken into consideration is Government regulation and labour union that varies across countries, which can serve as barriers to entry taken for example Chinese Government requirement that KFC to go into joint venture and it has to be somebody approved by the Government. This system is also similar in Brazil, where the labor law is so active and any company has to go into local partnership. According to Yum! When the company initially entered Brazil it operated its own stores instead of finding a local partner and soon faced lawsuits for violating the country’s complicated labour laws. Mode of Entry
This section will talk on how Yum! Brand internationalise into other foreign countries and their driving force. Yum! Brands enter into foreign countries using both Non Equity mode of entry Equity base mode of entry –This is when a company wishes to enter foreign markets through non equity based methods like franchising, Licensing, exporting. Franchise In the case of Yum! Brands, it entered into foreign market (China, India Africa) through franchising, this approach really helps them not to share risk, capital cost and green investment cost, labour cost etc.
Yum! Brand in its report stated that franchise business is a great business; it is highly lucrative because we collect franchise fees and we don’t put capital into it. According to Ball (2012) Franchising permits the franchisee to sell products or services under a highly publized brand name and a well proven set of procedures with a careful developed and controlled marketing strategy.
Equity base mode of entry –This when company decide to make a Foreign direct investment (FDI), Yum! Brands draw heavily on Joint Venture- According to balls a joint venture may a corporate entity formed by an international company and local owners. Yum entered into most of foreign market through Joint venture, According to the case study Yum! Brands entered China market through the use of joint venture, Yum! Also use joint venture for its expansion in Beijing and Shangai with multiple partners.
Having local partners help to minimise risks related to capital, law, economic, management, and marketing and increase probability of success in unknown territory .In Brazil and Russia Yum! Went into local partnership with Brazil Fast food Corp –owner of the bob hamburger chain to get acquainted with the market and getting experience before the full start of the business. Wholly owned subsidiary- Is a company that wishes to own a foreign subsidiary outright way. In this case Yum! Use acquisition in Russia by acquiring Rostik’s a fried chicken chain
Courtney from Study Moose