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International Business Environment

Activities of McDonalds and KFC in emerging economies

Introduction

In current business world, China, India, Brazil, Belgium etc. have vital importance as emerging

economies, as the multinational companies are concentrating their business activities in these

market places (Kose, 2011). In view of Singh (2010) it has become essential for the firms to be

successful in the emerging market for a sustainable growth in the market as the developed

markets are becoming saturated. Organizations like Coca-Cola and Pepsi had realized the

importance of emerging markets in sustainable growth during the period of 1980s. So these

companies were able to enter in to the emerging markets without facing high level

competition. However, fast-food restaurants like McDonalds and KFCdelayed in realizing the

strategic significance of emerging markets, observes Atsmon et al. (2012). Therefore in this

article, the activities of McDonalds and KFC in the rising markets are compared and contrasted.

Further, the article will detail the present accomplishment of these organizations and the

possibility of future achievements.

McDonalds and KFC in emerging markets

According to Kose (2011) the emerging economies are the ones that make advanced

development through rapid industrialization and international investment by creating suitable

economic systems. In the present situation India and China are the leading economies in the

emerging markets.The variables that distinguishes these marketplaces from other developing

markets are the big size and the growing population of these countries, that provide large

potential growth prospects, reviews Anand et al. (2014). Therefore this report will focus on the

performance of McDonalds and KFC in these emerging markets.

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McDonalds and KFC have been following different market entry modes in India and China.

While both opted a Company owned mode for entry in China, in India McDonalds opted 50-50

joint venture whereas KFC opted Company owned mode for entry.

McDonalds utilized joint venture style for entering the Indian marketplace. Through this mode

the firm was able to fulfill the requirements of the Indian customers reports Bhushan (2012).

Whereas KFC entered the Indian marketplace by utilizing company owned businesses. Because

of adopting company owned operations the firm could not last long in the Indian market and

forcefully terminated its operations in India. But in 2004, KFC re-entered the Indian market

through franchising mode of market entry. In the Chinese market both McDonalds and KFC

entered through company owned business, reviews Hu and Xie (2013) and Bhushan (2012). This

is largely due to the insufficient franchising ordinances in Chinese marketplace, reviews

Edwards (2011).Form this it can be understood that the success or failure of the company in

foreign markets largely depends on its market entry mode.

Current achievements of McDonalds in emerging markets

McDonalds in India

McDonald factory outlet in India was started in 1996. Further, the firm had started its

procedure in India 4 years later, after setting an efficient supply system across India. This long-

term preparation was a critical factor for the achievements of McDonalds in the Indian

marketplace. With the support of a strong distribution system, McDonalds was capable

ofexpandingits operations in a more rapid paceacross India. From the report of McDonald’s

(2013), it can be noted that, there is an increase in the number of outlets and now it has 300

outlets in India.

Through two joint venture partnerships, McDonalds had entered the Indian market and the

partnerships was with Connaught Plaza restaurants for north and east India and Hardcastle

Restaurants for west and south India. In 2010 the joint venture relationship with Hardcastle

Restaurants was terminated but continues with the franchise operation, and the other joint

venture has been continuing, reviews Bhushan (2012).

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According to McDonald’s (2013) the McDonalds has been mainly focusing on the adaptation of

local consumer preferences and is successful in the Indian market. In India, majority of the

population are vegetarians and beef consumption is prohibited in many parts of the countryas a

part of religious sentiments. However McDonalds mainly providing beef and pork based

products had introduced new products in India. Through McAlooTikki burger, a pure vegetarian

item, McDonalds was able to lure more vegetarian customers towards them. At Present,

McAlooTikki is the most marketed product in McDonalds’ Indian factory outlets (Bhushan,

2012). This implies that by localizing its products McDonalds has made an achievement in the

Indian marketplace.

By following a dual pricing strategy, McDonalds provides some products (affordability of brand)

at affordable costs and the core products (core value of the brand) at premium cost. It was

revealed from the report of McDonald’s (2013) that the cost of McAlooTikki and Chicken

McGrill are 20-30 rupees whereas the cost of the core branded products of McVeggie and

McChicken burgers are priced at 50-60 rupees.This strategy has helped McDonalds in

addingmorecustomers with distinct price perception.

In view of Sameer and Kaur (2012) McDonalds mainly focuses on attracting kids as they have a

greater influence on the purchasing decision of pizzas and burgers by parents. Based on this

trend McDonalds has implemented a happy meal campaign, through which toys were offered

to children during their visit to McDonalds outlets. Moreover McDonalds has been providing

playing area for children at the restaurants thereby make the visit more joyful.By this strategy

McDonalds identifies itself as a place for fun rather than being yet another restaurant.

McDonalds in China

McDonalds joined Chinese market through business owned outlets and at present about 95% of

outlets in China are business owned. This reveals that just 5% of its own factory stores are

franchises, reviews Hu and Xie (2013) McDonalds usually utilizes franchising with businesses

making 80% of total factory outlets. The primary advantage of franchising is that the firm will be

able to make out large revenue because of the low operation cost (Edwards, 2011). From the

report of China Retail News (2014) McDonalds at present have 2000 factory outlets in China.

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Most of the outlets have been in tier-1 and tier-2 towns, Moreover McDonalds placed itself in

China as a top quality restaurant.

This positioned McDonalds among Chinese youth, as a fashionable restaurant. Because of this

reason the price of McDonalds’ products are higher compared to other restaurants (Hu and Xie,

2013). In order to cater with the requirements of the Chinese customers, McDonalds altered its

product line and launched new items such as green pea pies, rice burgers and Shogun

burger.The advantage of 24*7 hours of service was yet another factor that assisted the

business in accelerating its growth in China, claims Paz (2011). Yet another primary strategy

embraced by McDonalds in China is creating drive-thru factory outlets in collaboration with

Sinopec - the biggest petroleum retailer in China. McDonalds has been assisted by this strategy

in creating many drive-thru factory outlets. Drive-thru factory outlets generate sales that are

greater than conventional outlets because of the reduced cost of operations. As most of the

customers utilizes home delivery channel, McDonalds has an added advantage through the

implementation of its home delivery system.

The McDonalds’ marketing strategy mainly focuses on attracting children. The single child

policy at China enhances the purchasing power as majority of the Chinese family consists of one

child and has a great influence on the purchasing decisions of parents.Thus McDonalds makes

the whole family visit the outlet, by attracting kids. To ensure this McDonalds offers a

distinctive dining experience and high quality customer service. In view of Maidment (2015)

McDonalds’ adopted strategy in United States was different where McDonalds was a choice of

convenienceto its customers.

Current achievements of KFC in emerging markets

KFC in India

Initially KFC could not lure more customers in the Indian market as the firm failed to offer

culturally based items in the Indian market. Due to this reason KFC is now at third-place in

Indian fast food industry. By localizing its goods and strategies nevertheless, KFC saw a rapid

growth in Indian marketplace. In view of Friend (2013) KFC still has a chance to attain the

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market leadership in India, as the fast food is gradually nurturing in India and there is no first

mover advantage here.

KFC reached year-over sales boost of 41% in the year 2012 and year worth growth of 45%. This

is the greatest among fast-food restaurants in India. This assisted KFC in positioning itself as the

third biggestfast-food chain in India, reviews Friend (2013). Despite its gradual entry to the

marketplace, KFC was able to be successful in the Indian market by offering culturally oriented

items which fulfill the requirements of the local customers. This was accomplished through

products and menu localization, pricing strategies, and successful consumer education (Balaji,

2013). KFC has launched more spicy items along with Chicken curry to attract local customers.

Vegetarian food was also released by the KFCin India such as burger patties with potatoand

fried vegetable strips. As over 70% of Indians favortraditional flavor over western flavors, hence

it was essential for KFC to satisfy local customers by providing localized items, reviews Friend

(2013).

For the gradual growth of KFC in the Indian market, the pricing strategy plays a significant

role.KFC had previously placed itself as a special event restaurant and thus the costs were

higher. At present, KFC places itself as a regular restaurant, thus lowered costs to draw more

customers, reports Balaji (2013).The firm has adopted franchise system in India, it was in

connection with the KFC’s international strategy by which the company ownedonly 11% of the

outlet stores (Edwards, 2011).

KFC was able to establish a successful workforce in India by the support of skilled and

hardworking employees.KFC achieved the most trustworthy quick-service restaurant brand

prize, reported by Ferguson (2015). This reveals that KFC has been able to offer quality as well

as qualified customer service in India.

KFC in China

KFC at present has around 4,200 shops in China and utilizes around 250,000 workers and about

40% of the market share, reviews Brady (2013). By the adoption of five effective strategies, KFC

was able to accomplish the business achievement in China. The absorbed strategies are:

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Brand’s adaptation to the cultural background:

KFC has succeeded in transforming itself in to a brand among Chinese local customers by

providing items with more varieties and traditional meals. The large floor space in the

restaurant helps to accommodate families as well as large crowd in the restaurant. KFC

provides over 50 products in China compared to 29 in the United States. The products contain

rice meals, spicy chicken, egg tarts, soy milk drinks, fried dough sticks , fish and shrimp burgers

and traditional items especially congee(Zhou and Zhang, 2012).

Speedy expansion:

Unlike its rivals who restricted their businesses to tier-1 and tier-2 cities in China, KFC has

embraced a strategy to follow accelerated growth throughout the country, and also it has

commenced activities in tier-4 and tier-3 cities in China. Through the speedy expansion,

company expects to accomplish the economies of scale. (Brady, 2013)

Establishment of logistical network:

Logistics and transportation has a significant role in providing quality food to the Chinese

customers where food safety is of a major concern.As a result of insufficient accessibility of

present supply system in China, KFC has formulated its own logistical system. This network

further helps ineasy accessibilityof smaller towns (Tse, 2010).

Employee enrichment:

The work force lacked vital abilities when KFC began its operations in China. As quality

customer service was of great concern, it was an important issue for the organization. To

handle this problem, KFC has created a stringent and effectual training course that churns away

around 100 supervisors and 30,000 staffs per year (Tse, 2010)

Guarding against criticism:

A serious criticism is being faced by KFC in United States in connection with high carbohydrate

and high-fat contents in its products. In order to overcome this issue, the firm has embraced a

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strategy of marketing nutritional products as well as standard products in the Chinese market

(Brady, 2013). All these variables reveal that, by the adoption of localization of all aspects of

KFC’s operation, it has accomplished a successful business in the Chinese marketplace.

Company owned operations:

Over 90% of KFC outlets in China are owned directly by the company. That is in marked

comparison with the US business of KFC where the company possesses just 12% of factory

outlets. This strategy permits the firm to get close control on the business activity in the

marketplaces (Zhou and Zhang, 2012).

Comparing and contrasting the operations of McDonalds and KFC in emerging markets

The aforementioned details reveals that the localization of products, market entry mode,

distribution network, strategic positioning, pricing strategy, marketing strategy, etc. have a

great influence on the operations of McDonalds and KFC in the emerging markets specifically,

India and China.

One of the main factors that can be disclosed from the discussions is that McDonalds and KFC

were not able to make use of their most favoured ways of market entry in China and India.

Zhou and Zhang (2012) record the tremendous achievement of KFC and McDonalds could be

connected directly to the success of franchising.

Initially both KFC and McDonalds were compelled to embrace other modes of market entry as

both countries restricted franchising operations. This resulted in KFC and McDonalds in utilizing

business owned functions to enter in the Chinese market, reviews Edwards (2011). However,

McDonalds employed joint ventures while KFC employed business owned strategy to enter the

Indian marketplace. As these firms own majority of the factory outlets, the manner of business

of McDonalds and KFC hasn't transformed.Moreover both McDonalds and KFC were focusing

franchising system in China market place to enhance the market share. KFC has more

franchisees with a lead of 15% as compared with the 5% of franchisees to McDonalds. In

contrary, KFC is getting disassociated with its normal mode of operation to pursue franchisee

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operations in India, whereas McDonalds has taken one of the joint venture to franchisee mode

(Edwards, 2011).

The discussion also shows, theachievements in the emerging market by McDonalds and KFC

may be associated with the effective distribution system set up by these companies. KFC is

rolling out the second-largest distribution system in China and thus has the opportunity to grow

to inaccessible locations in the country (Brad, 2013). However, McDonalds put in place a

distribution chain and a supply system in India within a time period of four years before starting

its very first factory outlet. This exceptionally efficient supply system was the key factor for the

achievement of McDonalds in Indian market, reviews McDonald’s (2013). However McDonalds

was unable to establish an effective distribution system in China as their operations were

restricted to tier-3 and tier-4 cities in China (Quanfucius, 2015).

The discussions also disclose that both McDonalds and KFC have been employing products and

promotions in the emerging markets through adopting the localization strategy (Hu and Xie,

2013). The key examples of localization of items are: in India, McDonalds launched McAloo

Tikka and KFC offered Curry Chicken. On the other hand McDonalds and KFC also launched

localized products in the Chinese market.Friend (2013) records that failure of KFC to

accommodate its offers in Indian marketplace proved to be a primary cause of the first

drawback confronted by KFC in India. So that it could be surmised that localization of goods is

crucial factor in the emerging markets.

Brand positioning has been recognized as a vital variable that aids the growth of fast-food chain

in the emerging markets. In India and China, both McDonalds and KFC have been adopting

different positioning strategies to attract more customers and further to enhance the market

share (Zhou and Zhang, 2012). For instance, McDonalds places itself as a top quality restaurant

where kids are provided toys, scholarship for studying etc. There are specific areas for kids to

play in the restaurant. Because of this reason the items belongs to higher price category,

reviews Sameer and Kaur (2012).

A similar strategy has been utilized by McDonalds in the Indian market. In order to fulfill the

requirements of the rich and the middle class customers McDonalds in India adopted two price

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strategy (Sameer, and Kaur, 2012.). However, KFC places itself in Indian marketplace as a

regular restaurant which supplies quality service at reduced costs, reviews Friend (2013). These

variables reveal that the choice of price strategy and positioning also affects the expansion of

fast-food restaurant chains in the emerging market.

On the basis of the aforementioned details, it may be surmised that emerging markets is

distinctive from each other hence companies cannot flourish in these markets by embracing a

tailor-made strategy. In view of Hu and Xie, (2013) it was essential for the organizations to

localize and adapt suitable strategies which enable the firms to be successful in the emerging

market.Additionally, it may be inferred that building powerful distribution system is also the

most crucial element for fast-food restaurantsin the emerging markets.

Potential for future sustainable success for McDonalds and KFC in China and India

While Indian marketplace has been triumphed by McDonalds, KFC has made bigger

achievements in the Chinese marketplace. McDonalds and KFC has a great concern in these

emerging markets, as its operations are largely company owned, reviews Hu and Xie (2013) and

Bhushan (2012). For example, McDonalds is operating 5% of its outlets in China through

franchisees and KFC by 15%. However in India all the KFC outlets are franchisees whereas 153

outlets of McDonalds are operating through the joint venture system. Both McDonalds and KFC

should decrease the amount of company-owned outlets and have to widen the business

through franchisees in order to sustain in the emerging market place. From critiquing the

current situation, it may be comprehended that KFC has a more powerful position than

McDonalds in this regard.

Raising the number of factory outlets is just another crucial factor for attaining lasting success

in emerging markets (Kose, 2011). KFC has about 300 outlets in India and 5000 outlets in China.

However, McDonalds has just 2000 factory outlets in China and about 300 outlets in India,

reviews Maidment (2015). This reveals that, in china KFC has efficiently utilized its distribution

system to widen its operations in tier-3 and tier-4 cities. On the other hand, even-though

McDonalds having an effective distribution network in India, it could not expand the number of

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outlets. Because of the legal battle between McDonalds and Connaught Plaza, one of its joint

venture partners, for sole ownership of operations, the growth of McDonalds in India is slow

paced.It has adversely affected the growth rate of McDonalds in Indian market place, reviews

McDonald’s (2013). KFC has taken advantage of this scenario by raising revenue and its market

share in the Indian market. McDonalds has additionally confronted significant health issues in

Chinabecause one of the vendors usedthe expired meat in various items. This also developed a

negative impact on the performance of McDonalds in China (Chibber, 2014.). This reveals that

KFC has a stronger stand compared to McDonalds in the Indian and Chinese market place for

attaining sustainable growth in the future.

Conclusion

The activities of McDonalds and KFC in emerging markets such as China and India were

analyzed in this report.The evaluation of KFC and McDonalds in China and India shows that

variables like product localization, distribution network,market entry mode;pricing and

positioning strategies etc. affects the growth of the organizations in the emerging markets. It

had been likewise understood that McDonalds achievement in India and KFC's achievement in

China could be connected right back to the powerful distribution system created by these

corporations in India and China respectively. The investigation additionally mentions thatKFC is

in a stronger stand as compared to McDonalds to attain future growth in thesemarketplaces.

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