KFC is a growing company that always tries to expand its business size, by the year 2000, the number of restaurant established outside US, where KFC’s headquarter resided, accounted 50% of its total restaurants. Expansion strategy of KFC followed the classic internationalization strategy, which is characterised by (1) expand first to nearest countries (market) from the KFC’s headquarter in US, then (2) as those markets grow, gradually expand into farther markets. This strategy was apparently applied by KFC to maintain the control over its restaurants in another countries while learning, and preparing for further expansion in the future.
This strategy apparently has the advantage of ease of control; according to KFC management, the nearer the country of expansion, the easier the control. Although this idea is sounds good to hear, it also implies the weakness of KFC management, the lack of communication ability; because of this weakness, KFC was afraid of losing the control over its subsidiaries and franchises restaurants. However, this fear is not relevant in this internet age; the fast growing capability of internet makes it easier and easier for managers around the world to communicate and thus, control their subordinates in any other parts of the world.
Another strategy is to establish new smaller headquarters in the region of expansion; for example one headquarter can be established in Latin America or in Asian to control the subsidiaries in the region. This smaller headquarters are, of course, under the direction of KFC’s main headquarter in Kentucky, United States; their primary responsibility is to manage and control both KFC’s company-owned and franchise restaurant. This strategy, I believe, will narrowing the width of span control by the KFC’s management in the main headquarters, thus in the in will ease the control task conducted.
The implementation of the latter strategy must also consider the financial position of the KFC company itself; one time KFC had a difficult periods where it had to closed its restaurants in Brazil because it lacked the cash flow needed to support an expansion program in that market. However, this strategy will show its result in long-term periods, thus, considering this matter and opportunities for expansion, I argue that KFC must first focus its resources to defend its market position in the countries where KFC had already gained superior brand preference such as in some Latin America and Asian counties.
Failure to defend its market because of too much focusing in early entry strategy, will expose KFC to the risk that the existing market will slip away, while the new markets are doubt-able successful. The international markets, though attractive, were also exposing some risks, including political risks, economic risks, competitive risks, and behavioural risk; beside those external risks, KFC were also exposed to the internal financial risk since there were some periods where KFC lacked the financial cash flow needed for expansion.
A strategy had already launched to counter the behavioural risk (risk implied from control over the franchise operations); in Mexico for example, KFC had eliminated all of its franchises and operated only company-owned restaurants, which enabled it to better control quality, service, and restaurants cleanliness. Unfortunately, there are no further explanation in the case about KFC’s strategy to offset the other risks. Therefore, herewith I suggest that some other strategy should also be crafted in order to reduce the risk.
For the time sake, I will limit the discussion of my recommendation only on strategy that I believe, in the long run, has the major impact towards KFC business, the competitive risks. This risk includes the risk derived from rivalry among competitors, new market entrants and new product innovations. KFC’s main business is to sell chicken, this product was actually already become a traditional dish for some part of the world, and even some culinary expertise, in just a matter of time, will probably invent a new recipe that able to compete the taste of KFC fried chicken and wrote books on it.
Consumers will buy the books, and make the fried chicken “ala KFC” by their own, they will not need to go outside, wait for the queue, and to pay more on something that actually they can make. Therefore there is a big chance that consumer will find out that KFC fried chicken is no longer a special menu. The concept of KFC’s original recipe, in my opinion, is only a matter of time before the costumer become bored and leaves the KFC. The key buzzword for overcoming this risk is “differentiation” and develop a sustainable competitive advantage based on the differentiation.
The strategy would have to include product differentiation, KFC should invent a secret recipe that exceeds the taste of any other ordinary chicken and the most important keeping on inventing, to keep up with changing costumer tastes. This strategy requires KFC to pay more focus on its R&D division for invention, and marketing as a means of communicating the differentiation, and of course, secure its trade-secret as tight as possible. When the product differentiation does not act as a major source of attractiveness any longer, KFC should move on to another differentiation, the service differentiation, and/or distribution differentiation.
For example: provide a service that can bind costumers in a long term relationship, such as establishing KFC’s costumer clubs, or even online order-taking; a distribution differentiation can be achieved through, for example distributions via sales agents, such as satay seller in Indonesia; they will fry the chicken directly on costumer order, in front of the costumer itself. To reduce the risk of cannibalism, these agents are hired and managed under one or group of franchise restaurants in one local area.