INTERNATIONAL BUSINESS

Jollibee Foods Corporation

International Expansion

Submitted By: Marakani V S Yogesh (87) Md. Zafar Imran (90) Neha Srivastava (100) Nidhi Didwania (101) Noufeera Ashraf (105)

Executive Summary
This report is an attempt to analyze the case of Jollibee Foods Corporation (A) International Expansion. In this study we have first analyzed the case background so that we understand the scheme of things. In this section we have laid emphasis on the inception of Jollibee Foods Corporation, their expansion in various countries like Singapore, Honk Kong, Brunei, Taiwan, Indonesia, California etc. Further we have discussed the Strengths, Weaknesses, Opportunities and Threats to Jollibee in the fast food industry. We have dealt with different problems like the management issues, the market issues, business expertise, financial resources, inventory management etc. This would help in better understanding of Jollibees present condition and future sustainability in the modern and fast changing business world. After the SWOT analysis we identified certain issues with Jollibee which concerned the Management, business, expansion etc. There were issues like improper utilization of financial resources, lack of promotional campaigns, communication gap between the different wings of Jollibee and between the Management and the employees. Keeping in mind these issues we have come up with a few recommendations. We have discussed them through Human Resource, Marketing, Financial and Operations perspective. Then we have discussed the Strategic decisions with regards to expansion in the future in California, Hong Kong and Papua New Guinea. We have studied various pros and cons of expansion in each of the above mentioned countries and reached the conclusion that California is the most favorable location. The reasons for the location being that there is a huge Philippine population in Dale City of California which will help in the establishment of the store. Also they have successfully catered to the taste buds of the people in Guam which will help them serve the Americans better and thus the expansion could be a success. Later we have conversed about the implementation plan and how to go about it. At the end of the document we have attached appendix for the readers facilitation. It contains certain tables and graphs for better understanding of the financials of Jollibee Food Corporation.

Business Landscape:
Company History; Jollibee Food Corporation began as an Ice- cream parlour in the year 1975 and was run by the Chinese Filipino Tan Family. But later they diversified in to sandwiches when the 1977 oil crisis occurred and the President Tony Tan Caktiong (TTC) expected the ice cream prices to soar. The hamburger recipe developed Tonys father who was a chef also became famous and a year later they opened five store in Manila, where the family incorporated as Jollibee Food Corporation. Friendliness pervaded the organisation and become one of the Five Fs that summed up Jollibees philosophy. The others were flavorful food, a fun atmosphere, flexibility in catering to customer needs and a focus on families. Background: Until 1981 it was a smooth sailing for Jollibee, but then came Mc Donalds to Philippines. But the group was fearless and had confidence in the spicy taste of their Hamburger which appealed to the Philippine customers. Slowly Jollibee forayed in to the foreign markets and began with its investment in Singapore in 1985 in 1988 with the help of some family friends. Their next venture was in Taiwan again with the help of family acquaintance, but this also did not last long and the transaction came to an end on the basis of distrust between the local manager and Jollibee management in 1988. Brunei was another joint venture that they entered into in 1987 August. Then they forayed in to the Indonesian Market in the year 1989, opening a store in Jakarta but due to conflicts with the local manager again this store also had to be closed down. In 1994 the International Division was created with Tony Kitchner, as the Vice President. Kitchner went about differentiating the International Division from the Philippine part of Jollibee and tried to create a more formal culture for the division. Kitchners strategy rested on two themes: 1) Targeting expats 2) Planting the Flag But as the international business grew, the relation between the International Division and the Philippine operations started turning sour.

In 1996, TTC realized that he could no longer support Kitchner as the expansion strategy was costing heavily and they were losing a lot of money. In February 1997, Kitchner left Jollibee. Then, Kitchner, Manolo P (Noli) Tingzon was hired as the replacement. Now he is considering the three options for profitable expansion. They are: Papua New Guinea, Honk-Kong and California. Papua New Guinea has no much completion for Jollibee. In Hong Kong there are several management issues and in California things seem to be quiet pleasant.

Firm Analysis:
Internal Analysis: Strengths: Responsiveness to competition (Market sensing capabilities). Advantage in local Philippine market. Strong financial resources. Well-developed operations management capability (ability to provide quality products at affordable prices). Diversity in product offering after the acquisition of Greenwich Pizza and joint venture with Deli France. Weaknesses: Absence of proper protocol to select franchisees in target market (country). Too much dependence on Filipino expatriates and inability to cater to the needs of the local residents of other countries. Weak promotional campaigns in international markets to promote Jollibee as a global brand. Lack of communication within the organization during the formation of International Division which led to infighting amongst the two divisions. Bias towards friends and relatives while selecting local franchisee partners. Lack of cross cultural management.

External Analysis: Opportunities: Untapped locations with fewer or negligible competition from fast food chains. Widen product range to include more local food items. Make new acquisitions of profitable food chains in other countries. Create differentiation by cost advantage, customer experience etc.

Threats: Dining habits of local people eg. More preference to dining than fast food. Shift of preferences of people to more health conscious items. High set up cost due to high standard of living. Rise in operational cost like cost of power, labour etc.

Industry Analysis The fast food industry being a service industry has many unique features: a) The service is equally important as the recipe at the food joint. b) Consistency in quality is utmost requirement though quality is heterogeneously (every consumer has different taste) determined. c) Firms mostly operate through franchisees and expansions of critical mass is required to achieve economies of scale Porters Five Forces Model: 1. Rivalry Among Competitors: HIGH Reasons: a. Every competition be it based on quality or responsiveness, it boils down to price only. b. Most of the capabilities of firms are imitable. c. Information about competitors (supply chain, pricing) is readily available. 2. Threat of new entrants in the Industry: LOW Reasons: a. Access to strategic locations and distribution channels, capital, economies of scale etc. are limited due to usually oligopolistic market. b. High entry barriers in the form of brand preference of consumers, c. Requires decent amount of customer taste know-how. 4

3. Bargaining Power of suppliers: LOW Reasons: a. Low switching cost. b. Supplier liability on quality is high. c. Different supplier provide same quality but yes quality could be an issue 4. Bargaining power of Buyers: FIERCE Reasons: a. Competition among service provider is high, so option for buyer is huge in number. b. Sales are the ultimate parameter representing all the capabilities and efficiencies. 5. Threat of Substitutes: LOW Reasons: a. Restaurants or products from street food could be substitutes but they have different target segment.

Change drivers:
Business opportunities in other Asian countries motivated Jollibee Foods to go offshore. Market expansion to make more profits was the driving force for going international. McDonalds success story was also a lucrative model for Jollibee. Tony Kitchner was the pioneer of international expansion of Jollibee. He followed the strategy of planting the flag and also targeted expats. He took efforts to build brand awareness abroad. To make Jollibees international presence distinct, its logo was redesigned. These elaborate expansion strategy of Kitchner led Jollibee to incur more losses than the profit which it would make by overseas sales and franchising fees. In the wake of serious profitability issues and management conflict, the strategy of Jollibee had to be redesigned. This redesigning was pioneered by Noli Tingzon. He framed the strategy required to achieve economies of scale and took steps needed to implement it.

Key Management Issues:

The Jollibee Foods International faced many problems by 1997, when Kitchner left. Kitchners international expansion strategy of plant the flag left Jollibee in a wreck. Cultural Differences: Cultural differences existed among teams working at

domestic and at international centres. There was conflict of opinion on various issues. For example the suggestions from Chinese managers were not considered by management in Hong Kong were looked down upon by the Philippinos. Strained International Domestic Relationship: The organisational structure of Jollibee was not supporting it in the international business. The international and domestic operations of Jollibee Food Corporation lacked cooperation and coordination among them. They had several issues between them like recruitment, pay structure and issues of menu adaptation. Operational management: In Jollibee Inc, several disputes where rising in operational management due to improper co-ordination between the parent company and the international operations. Several disputes in franchising, menu card (standardization) and absence of research and development center as such to scan the taste buds of localities of individual regions. Profitability issue: A stable and efficient financial management system is very essential for the success of any firm. The focus should be on a strategy which focuses both on long term objectives while accomplishing the short term goals as well. The global expansion of the company has been extra-rapid and made in haste to capture the market as a part of the plant the flag strategy. This put a serious pressure on the financials of the firm and the firm incurred losses. Jollibee due to its small strature could not sustain the losses for long time. Also, the accounts receivable as a proportion of Sales, long term debt outstanding and cost of sales increased over the years. Market decision: Choosing which international markets to target first and decide on an optimal strategy to enter these markets was difficult. Also, deciding to what extent the standard menu can be modified to suit taste of local consumers to capture the market was crucial.

Theoretical Models

First mover advantage: When a firm or a company launches a product or service in a market devoid of players in that particular product or services segments then the firm which launches products or services first will have the first movers advantage. Jollibee had a first mover advantage in Philippines and Brunei, as the competitors like McDonalds in this market posed very less competition, as they know the local preferences and tastes of the people, they targeted places where the competition is less, the differentiation in their product offerings enabled them to attract customers. Jollibee also had a complete control over all its outlets by which they practiced a very efficient operations and they offered an excellent customer service. Local Adaptation: Jollibee first tried to enter countries like Singapore and Taiwan and failed because competitors in these markets are very strong, the operational efficiency of Jollibee in these countries is very less and the quality of the food products they are selling is not up to the mark when compared to the competitors. The company didnt perform enough research to know the local tastes and preferences of the people. This created a gap in their strategy to enter these markets and gain a decent market share. Standardisation vs. Customisation: Standardisation was followed in Philippines and Brunei and they were to reduce the prices significantly and provided food products at a less price when compared to competitors. Customisation of the food was also done by the Jollibee Dubai, Indonesia and Guam and this enabled them to develop a new recipe which they started using as a standardised offering in their menu. In this its a combination of standardisation and customisation which enabled Jollibee to create a menu which was accepted in different countries.

Learning from Experience: Jollibee learned from its mistakes in countries like Singapore, Taiwan, Indonesia and Dubai. They then adapted their strategy according to the needs, preferences and tastes of these countries and this led them to gain a good market share in these countries. Operations in different countries made Jollibee to learn from its mistakes and enabled them to change its functions, products and services according to needs of the customers.

Strategic Decisions and Plans

Jollibee had a lot of things going for them and some other things that they constantly had to tighten the strings on. Mainly in terms of choosing the location and the right partner, Jollibee was known to falter. Now, Jollibee has the opportunity to enter three new markets. We can further analyze on what Jollibee ought to do in these markets.

1. Papua New Guinea We can notice that Jollibee has immense potential in this particular market. As the market there is untapped and the only competitor there is an unorganized, poorly managed, three store fast-food chains due to which Jollibee can easily have a first mover advantage. The only area of concern is that, to recover the set up costs, it is essential for the firm to at least set up 3-4 stores at Papua New Guinea in the initial years, but Tingzon feels its unlikely that this country will be able to support so many stores due to their economic concerns. Also since Jollibee has had no prior experience, there is a sense of uncertainty about acceptance of their products by the locals. So the company should go for Papua New Guinea, but proper background research about the prospective partner, customers as well as assessment of the credibility of future prospects in that country needs to be analyzed.

2. Hong Kong Currently all the three stores established in Hong Kong are facing a lot of management issues as mentioned in the problem statement. Especially the Chinese managers and the Filipino are at logger heads, due to which it is very hard to recruit the Chinese and the stores are mostly run by Filipinos. This in turn affects the customers as they do not understand English very well and feel embarrassed to come to a store which essentially deals in English with its customers.
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Moreover, the management at Jollibee are being very rigid about the menu which needs to be changed to suit the Chinese customers. They need to customize it to bring in more customers and improve their branding in the existing stores. Even the major dominance of McDonalds is a huge deterrent in this market. Hence it is required that first these management issues must be sorted out rather than putting additional resources into expansion plans. Even though the new location for the store is really well thought out, they should not enter into it unless they manage to solve their staffing issues, improve their brand and customize their menu a tad bit to suit local needs, considering this new place will largely bring in local crowd.

3. California California expansion seems to be a good option for several reasons. United States is the largest fast food market in the world. They discovered from their outlets in Guam that there were many elements of their restaurants that appealed to Americans. Moreover their labour-intensive techniques could be replaced by different and new equipments, that equally was low cost and adaptable. At California, they have a large and diverse population who like experimenting food of different cultures, hence would be more receptive of their menu. They also had great support from Filipino-Americans. The diversity of the area allows Jollibee to broaden its nice to include the Asia-Hispanic segment without having to make major changes in their menu. But Jollibee has to understand that they are vying to enter the mother-land of McDonalds and since they are late movers, they might face difficulty to gain access to distribution channels, suppliers and store locations. Logistical problems and time zone difference would put constraints in rendering support from the headquarters in Philippines. So, the company has to start with focusing on both the Filipinos as well as local people and design the menu that would help build and maintain the brand identity. They need to cater to the local interests and concentrate on expanding their base.

Apart from these markets, Jollibee ought to realize that by going by their strategy of targeting those countries which has Filipino Expats might relatively limit their markets. They need to retain and expand their non-Filipino customer base through improving quality, consistency and customization of menu to suit country needs.

Implementation Strategy:
1) The company should consider increasing depots domestically and in other countries. This will have following advantages Fresh food Good quality Could avoid high shifting costs from Philippines to other countries

2) They should maintain market dominance in international markets by tailor made ads, PR articles; good promotional plans in getting newly introduced products known and focusing on pushing products, getting it known and creating loyal customers. 3) The company culture should be communicated to new business units and Research and development for new products should be improved. 4) Jollibee should take small steps to align its strategies and structures according to macro environment rather than taking aggressive steps. Learning curve and experience from different markets should be utilized. Resolving internal conflicts, a focussed vision for the company should be made.

5) The company can adopt a new strategy of investing in countrys local fast food chain and open and introduce own fast food chain in selected areas where there are potential markets. The 100 restaurants can be met by investing in a foreign company that has an established reputation in its home country and have penetrated other countries and then there are JFC owned restaurants opening in parallel to this investment. This will assist JFC in understanding the market it wanted to enter. The food preference, which is a main issue in opening a local food chain in a foreign market, can be taken in-depth. It can also learn and manipulate the spending pattern of the natives.

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