International Expansion

International Expansion EXECUTIVE SUMMARY Jollibee was able to attain a competitive advantage over McDonald’s by doing two things: (1) Retaining tight control over operations management, which allowed it to price below its competitor and (2) Having the flexibility to cater to the tastes of its local consumers. While Tony Kitchner was hired to develop these competitive advantages abroad, his international strategy of “planting the flag” and “targeting expats” was executed haphazardly and resulted in losses for the firm. His eventual dismissal was largely due to his inability to manage intra-firm tensions. The arrival of Noli Tingzon marks a critical juncture for Jollibee, where it will begin entering the US market. The key to Jollibee’s success in Daly City will be its ability to find a local partner that can leverage its organizational advantage, while navigating the challenges of conducting business in the United States. I. Creating Competitive Advantages in the Filipino market Jollibee’s success in its home market developed as a result of its ability to better meet the needs of the Filipino customer. Although its success was mediated by the political and economic crises of 1983, Jollibee was still able to deliver a product that was both cheaper and better tasting than that of McDonald’s. The ability of Jollibee to adopt its menu to local tastes, as well as the “5 Fs” of its operations management are two organizational capabilities that led the company to develop a competitive advantage over McDonald’s. The ability to push forward the Champ burger highlights another source of competitive advantage that was recognized by Tom Kitchner: flexibility. As one of the “5 Fs,” flexibility was an asset that Jollibee, could leverage more easily than McDonald’s. As a younger company, Jollibee has the ability to adapt its menu items without jeopardizing its brand image. It also has -2- the advantage of having a flatter organizational structure that allows it to respond to changes in the market more quickly. It is important for the company to recognize flexibility as a competitive advantage, since it will become a foundation for Jollibee’s international strategy. Yes but with a lot of difficulties... not much “flexibility” after all.. Tight operations management and the flexibility to adapt to local tastes increases the wedge between customer willingness to pay and supplier opportunity cost. These savings in cost are then passed onto the customer, who is also receiving a product that better meets his or her needs. The ability of Jollibee to continue creating value for its customers by leveraging these activities will be the key success factor for its international expansion. The brand name at home was achieved also through some trade barriers that helped JB a lot! II. Tony Kitchner’s International Strategy Tony Kitchner was hired to build the global Jollibee brand with the dual goals of positioning Jollibee as an attractive partner, while generating resources for expansion. In order to become one of the “top 10 fast food brands in the world,” Kitchner implemented a two-part international strategy which comprised of “targeting expats” and “planting the flag.” Kitchner’s idea of “targeting expats” allows the company to ease its transition into an unfamiliar market. Although there is the risk of targeting too narrow of a segment, Jollibee’s success in the niche market would allow it generate momentum for the company’s expansion. The concentrated marketing campaign allows the company to generate stable revenues that can be used to support Jollibee’s entry into other segments, while the popularity amongst expats could generate publicity and attract walk-in traffic from non-Filipinos. However, “targeting expats” will only lead Jollibee to become a global brand if: (1) Jollibee correctly targets expats who have a need and want for the product and thus avoid repeating its mistake in the Middle East, -3- and (2) The company continues to build its competitive advantage through learning and by appealing to a broader audience. On the other hand, Kitchner’s decision to “plant the flag” reflected a desire to build an empire under his leadership, rather than a strategically-sound decision for the firm. Although Kitchner hoped to leverage Jollibee’s competitive advantage by entering new geographic market, his rapid expansion strategy was unfocused and poorly executed. Ok but planting the flag had also significant FMA!! (lack of competitors) The unprofitable ventures in the Middle East could have been easily avoided had Kitchner researched the market prior to entering. Kitchner also neglected to consider the large transaction costs associated with establishing markets in new countries. Kitchner’s desire to be first-mover in a number of small, undeveloped markets would not have brought the prestige needed to win the firm better partners. “Planting the flag” only showed that Jollibee knew how to repeat its success. In order to compete on the level with multinationals, Jollibee would have to take its performance to the next step and prove that it could continue to build its competitive advantage. Yes, this phrase needed to be unpacked a bit more... IV. The Breakdown of the Organization Although Tony Kitchner was hired to bring more structure to the International Division, he failed to build the rapport needed to push forward the division’s initiatives. Kitchner began creating a “world-class company” by stealing employees from domestic operations—a poor first impression that lasted the duration of his career at Jollibee. By setting the stage for competition, Kitchner ensured that his actions, even if they were beneficial for the company, would meet criticism from the domestic side. Kitchner should have recognized that the hostility coming from Domestic was underscored by a fear that their division would be eclipsed by International. -4- Rather than cultivate this fear, Kitchner should have made it explicit that the International Division’s success would have reflected on the company as a whole. By simply increasing communication, Kitchner could have enlisted Domestic’s support in his endeavors. Under the company’s early divisional structure, value-chain activities such as R&D and Finance were controlled by the Philippine operations. The failure to gain access to these resources hindered International’s ability to modify the logo, store layout, and menu— modifications, which were potentially beneficial for Jollibee. Kitchner fostered tension within the organization and it was ultimately this contribution that led to his dismissal. VI. The Question Facing Noli Tingzon: Papua New Guinea, Hong Kong, or Daly City As an undeveloped market, Papua New Guinea represents the best location for Jollibee to leverage its organizational advantage. With few competitors, Jollibee could easily capture the market and set the standard. However, entry into New Guinea falls under the legacy of Kitchner’s “plant the flag” strategy and will unlikely be able to support the critical mass of 20 stores. Although the domestic partner is willing to front the risks (finance and location contracts), these functions should be internalized by Jollibee because they are crucial to store-level profitability. Since the benefits offered by the local partner are uncertain and profit potential is low, Jollibee should not seek to enter New Guinea at this time. While the fourth store in Hong Kong represents a valuable learning opportunity, it will not generate the revenues needed to build a global empire. Catering to the local Chinese palette would allow Jollibee to build its competitive advantage by learning to balance flexibility in menu offerings with consistency across the global brand. Additionally, a success in cosmopolitan Hong Kong could give Jollibee the brand exposure it needs to attract better partners. However, given the staffing issues and uncertainty involving the local Chinese customer, it would be better -5- for Jollibee to improve its current operations, rather than to commit additional resources to a new store. The United States is home to some of Jollibee’s most formidable competitors. As a latemover, it will be difficult for Jollibee to obtain access to the distribution channels, suppliers, and store locations which allowed it to become a cost leader in the Philippines. Additionally, aside from its experience in Guam, Jollibee does not have any real experience operating in a Western business environment. On the other hand, Daly City represents a market with huge profit potential. The diversity of the area allows Jollibee to broaden its niche to include the Asian-Hispanic segment and to do so without having to make major adjustments to its menu. Although its experience in Guam is no guarantee of success, it provides a platform from which the country can build its competitive advantage by learning to adapt its menu for the tastes of mainstream America. Given the three alternatives, Jollibee’s most viable option is Daly City—given that it is able to obtain a partner who can help it overcome the challenges of operating in the US. Tingzon should only follow through with the Manila-based businessmen if they are familiar with the fast food industry in the US; otherwise, the company will need to find a local partner. Additionally, heavy investments will need to be made into IT systems, which will allow Jollibee to manage day-to-day operations from their headquarters in the Philippines. In order to align the goals of the various geographic divisions, Jollibee should seek to create two strategic business units (SBU) under the company brand: International and Domestic. This will allow the International Division to ensure greater coordination across IT activities, as well as pooling procurement purchases wherever geographically possible. Since both SBUs will be under the corporate umbrella, this should help to increase cooperation at a firm-wide level. -6-