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Food, Sector

KFC as well as the Global Fast-Food Industry in 2003-2004 Course: MGT 710 [pic] 1 ) Executive Overview This daily news analyzes industry situation of the major U. S.

prêt à manger firms in Latin America in 2004 from the point of view of the APPLEBEES Corporation. By simply analyzing personal, economic, ethnical, logistical, and competitive forces, a potential technique for KFC to successfully establish a strong placement in Central and South usa is suggested. Through a comprehensive analysis, it was determined that KFC should certainly establish wholly-owned subsidiaries in Mexico and Brazil to handle operations in Central and South America, respectively.

After a solid position is made in these countries, KFC should certainly then available franchises in Central America, Argentina, Colombia, Venezuela, and Chile. 2 . Problem 1 ) Expanding into Latin America From 93 to 2002, KFC focused the rooster segment from the U. H. fast-food industry. Their business, however , reduced by 13. 4% more than that ten-year period (Exhibit 4, 553). As the fast-food marketplace matured, companies began to focus on globalization to stay growth. By early 2005, 56% of KFC’s restaurants were outside of the U. S. (558).

Their initial focus was on Mexico, Puerto Potentado, and the Caribbean, where they established dominance among opponents. Their have difficulties was in broadening beyond individuals markets. Inside their attempt to expand into Central and South America, KFC was met with many challenges. Various Latin American markets hadn’t adopted the fast-food concept and preferred a more leisurely dining encounter. The intense competition with major U. H. fast-food restaurants made it incredibly risky to a new industry. The geographic distance in the corporate office buildings made it challenging to control specifications and quality.

To continue progress, KFC will have to develop a strategy to overcome these obstacles and expand in to these markets. 2 . Fortifying position in Central America KFC in the beginning expanded into Mexico, Muelle Rico, and the Caribbean because of geographic closeness and existing political and economic ties to the U. S. These were able to establish dominance in these markets because that they had first-mover benefit and the local cultures acknowledged the fast-food concept. To increase expand in Central America, KFC will need to develop a strategy to leverage their particular strong positions in Mexico and the Carribbean.

They will have to consider factors such as the business design, global the usage, national responsiveness, and excuse risk. a few. Breaking into South usa KFC had attempted to enter Brazil, with limited achievement. Political, economic, and ethnical challenges experienced prevented APPLEBEES from increasing a foothold, and therefore forced these to pull out in the market. Additional countries in South America got little competitive presence, but had significant barriers to entry. In addition , the further away the countries happen to be from the corporate and business offices, the greater expensive and logistically tough the operation becomes.

To these marketplaces, KFC would have to carefully think about its choices to establish a presence and mitigate risk. 3. Research 1 . Sector analysis 1 ) Basic financial characteristics Latin America is home to more than 550 million people. It has an aggregate GDP of more than $4 trillion. Physique 1 demonstrates Brazil and Mexico have highest GDP. However , Argentina, Chile, and Costa Rica have highest GDP per household. [pic] Figure 1 , Latin America GDP (Source: http://en. wikipedia. org/wiki/Latin_America) 2 . Competition Generally, Central America and Brazil are the market segments most permeated by the huge U.

S. fast-food chains. McDonald’s may be the dominant rival in Latina America, with 584 retailers in Brazil, 261 stores in South america, and 203 stores in Argentina. KFC follows with 274 stores in Mexico and 134 stores inside the Caribbean. Burger King operates 163 stores in Puerto Potentado and 154 stores in Mexico. Wendy’s only functions 143 retailers in all of Latin America (Exhibit 6, 559). To assess the competitive landscape, Porter’s Five Pushes model works extremely well, as demonstrated in Determine 2 . For KFC, the highest levels of competitive rivalry will be in Central America and Brazil.

Most of South America, with the exception of Brazil, features relatively low penetration. The threat of new entrants is high within just any marketplace, as all the major competitors are vying for the same marketplaces. The menace of replacement products is also generally high, since prêt à manger chains must compete with founded local restaurants that already cater to the neighborhood tastes and customs. The bargaining benefits of customers can be medium in more developed countries such as Brazil, Mexico, and Argentina where customers are less price delicate.

In less developed Latin American countries, however , the bargaining electrical power is high where most customers cannot afford high prices. The bargaining benefits of suppliers is usually medium generally in most countries high aren’t a great deal of imports, yet high in countries like Mexico and Brazil. [pic] Physique 2 , Porter’s Five Forces (Source: http://en. wikipedia. org/wiki/Porter_5_forces_analysis) a few. Factors driving change While Latin American countries become more developed, associated with adopt even more global brands. As the internet penetrates these kinds of markets, users become encountered with global brands.

Cultures set out to change because the world turns into a global industry. While they actually maintain local tastes and values, persons begin to independent from practices and become more modern. As financial systems become more designed, people begin to adopt the on-the-go life-style that we will be accustomed to inside the U. S i9000. As countries like the U. S. travel globalization to foreign marketplaces, trade barriers are often taken out and countries begin to adopt foreign businesses. 4. Family member strength of firms While previously explained, McDonald’s has got the strongest placement with you, 605 shops in Latin America.

KFC follows with 650 shops, followed by Burger King and Wendy’s. McDonald’s is dominant in South America, whilst KFC handles Central America. 5. Rivals’ next moves The most significant acquisition of note can be McDonald’s purchase of Boston Industry in 2150. Boston Industry caters to the growing pattern for healthy fast-food, in addition to the casual, sit-down atmosphere that may be popular in Latin America. While Boston Market would not have any presence in Latin America, McDonald’s may decide to leveraging existing methods to grow there. six. Critical success factors

Every franchise corporations are concerned with standards and consistency among units. Whilst certain elements can differ from region to another, a general standard of consistency is needed with regards to item quality and taste. It is important that assistance and sanitation are maintained to a higher level of quality. Particularly in Latin American markets, the menus may need to be varied and include local flavors. With the great distance between Latina American market segments and corporate hq, effectively performing logistics, division, and procedures is critical to success.

Successfully managing resources and keeping costs low will also be crucial when getting into new markets. With the politics and economical events that may occur, the firm has to be resilient to changes in the economic climate and control regulations. Businesses should seek to establish interactions with neighborhood governments to be able to protect their interests in another country. 2 . Ideal planning for overseas market access 1 . Determining company’s target in international market entrance The first step in growing KFC’s Latina American approach is to recognize the aims for entering new market segments.

Some reasons to enter new markets would be to exploit a great untapped industry, obtain a competitive advantage, protected essential unprocessed trash and division channels, and cutting costs by employing inexpensive labor. Currently, APPLEBEES has a large presence in Mexico as well as the Caribbean. This gives them a launching indicate enter local markets. The nearby Central American countries have a comparatively low existence from the huge fast-food businesses. The Central American location is home to roughly 40 million people. In respect to Figure you, the Central American international locations have a GDP of around $173 billion.

This area has a noticeably sized market, relatively low penetration, and proximity to KFC’s significant presence in Mexico, which makes it ideal for entry. Brazil is the largest and most coveted market in Latina America. Sadly, McDonald’s has a large competitive advantage with 584 retailers. KFC has failed in the past to enter this market, nevertheless the opportunity is still there. Establishing a situation in this market would allow KFC to electricity investments in different South American markets. When they may not be capable of dominate the marketplace, it is a strategic location that will act as the locus for any South American operations.

Spain and Chile have $445B and $161B GDP, correspondingly, making them significant attractive market segments. They also have the greatest GDP per capita in Latin America. While McDonald’s has a relatively strong position in these countries, there really should be opportunity for APPLEBEES to cash in on. Different South American countries, including Paraguay, and Uruguay, Have little competitive presence and a relatively low GDP. These kinds of countries may well not have proper value towards the company. installment payments on your Preliminary nation screening After determining the objectives for every single country, a great analysis of advantages and charm can be performed.

To ascertain national competitive advantages, Porter’s diamond style is used, proven in Figure 3. Mexico, Brazil, Perú, Colombia, and Chile be noticeable as the most designed Latin American countries. This indicates that advanced factor endowments such as system, skilled labor, and technology should be easily available. Demand conditions should also end up being most favorable inside the countries together with the highest GROSS DOMESTIC PRODUCT, as an energetic economy will increase with regard to on-the-go dishes. The most significant supporting industry is definitely the poultry market.

According to the USDA, Brazil, Mexico, and Spain have the major poultry industrial sectors in the region. [pic] Figure 3 , Countrywide Competitive Edge (Source: http://www. teagasc. ie/research/reports/foodprocessing/4984/eopr-4984. htm) 3. Risks in foreign markets In all Latina American countries, there is a substantial degree of personal risk, as a result of propensity of corruption and instability in governments. This can be apparent also in the even more developed Latin American countries. Many Latin American countries restrict the import of foreign products, or provide preferential treatment to adjacent countries.

In addition , the distance via existing creation and syndication channels imposes a great risk towards the supply of items to the even more southern countries in the region. One of the many company factors is the shortage of skilled labor and high rate of turnover in Latin American markets. Intended for KFC to achieve any Latina American market, they will ought to increase staff retention through training or perhaps benefits. 5. Capabilities, methods, and expertise needed to succeed in foreign market segments The key success factors had been described in Section three or more. 1 . 6.

It is important to make note of that the farther away the region is by existing trade channels, the more difficult it will probably be for KFC to control top quality, standards, syndication, and logistics. Also, the less created nations will be more susceptible to economical and political events that can devastate KFC’s interest in the industry. 5. Rewarding key achievement factors KFC’s key strength is their particular established prominence in South america. This position delivers many economic and personal benefits as a result of NAFTA treaty. It also supplies them with a strategic position to enter nearby Central American markets.

They do not established trade channels in most of South America, so that it will be tough for them to take care of operations without a strong occurrence in at least one market. This can be a main reason why Brazil can be described as key market to enter. Being KFC is such a large organization within an possibly larger conglomerate of prêt à manger chains, the firm should be able to withstand economic or political changes and a decrease of revenue throughout the development stage. Overall, KFC fulfills the real key success factors in Central America, but actually will need to establish a position in at least one major South American market in order to expand right now there.. Entering the point markets In determining how you can enter the target markets, the level of global the usage vs . countrywide responsiveness should be assessed. Figure 4 shows the various strategies that can be used given the correct level of incorporation and responsiveness. The markets in Latin America should be related enough pertaining to KFC to hold menus, techniques, and criteria consistent around all marketplaces. Pricing and advertising could differ depending on the amount of economic expansion and sales and marketing communications infrastructure in each region.

In addition , KFC would need to put into practice different organization models with respect to the proximity, size of the market, and cultural uniqueness. For this reason, KFC should put into action a transnational strategy that will keep aspects worth considering consistent, but some aspects exclusive between numerous markets. [pic] Figure 4 , Global Integration or National Responsiveness 7. Evaluate and get ranking targeted countries From the examination performed, each Latin American market regarded was placed based on the variables mentioned. By contrasting GDP, geographic proximity, populace, and comparative penetration of competitors, Table 1 reveals the countries scored and ranked. Overall economy |Competition |Proximity |Market size |Presence |Total | |Mexico |12 |12 |13 |12 |13 |62 | |Brazil |13 |13 |7 |13 |4 |50 | |Caribbean |5 |7 |11 |8 |12 |43 | |Puerto Rico |6 |11 |12 |2 |11 |42 | |Central America |3 |9 |10 |10 |9 |41 | |Colombia |10 |5 |8 |11 |6 |40 | |Argentina |11 |10 |3 |10 |4 |38 | |Venezuela |7 |8 |9 |6 |5 |35 | |Chile |9 |6 |4 |5 |8 |32 | |Peru |8 |3 |5 |7 |7 |30 | |Ecuador |4 |4 |6 |4 |10 |28 | |Paraguay |1 |2 |2 |3 |4 |12 | |Uruguay |2 |2 |1 |1 |4 |10 | |Table 1 ” Results of market research 4. Advice 1 . Market segments to enter

In the results with the analysis performed, KFC ought to operate company-owned units in Mexico, Desfiladero Rico, as well as the Caribbean in which it already has a solid position. It may then available franchises in Central American markets to mitigate risk until a very good position may be established, at which point KFC should buy back the successful dispenses. KFC will need to develop a wholly-owned subsidiary in Brazil and aggressively set up a strong establishment. This is not merely one of the most attractive markets, it is also a critical ideal location to be the headquarters of South American operations.

Once a strong location is established in Brazil, KFC should available franchises or perhaps joint-ventures in Colombia, Spain, Venezuela, and Chile. Presented the comparatively low scores, KFC should never consider increasing further in Peru, Republic of ecuador, Paraguay, or Uruguay. Although KFC already has procedures in Peru and Republic of ecuador, they are not really strategically important and should end up being closed or perhaps sold if they are not constantly profitable. 2 . Strategy for access 1 . Corporate strategy In the corporate level, KFC ought to focus on developing wholly-owned subsidiaries to act while the local headquarters in Mexico and Brazil.

This could allow APPLEBEES to centralize control over specifications, quality, method, and syndication within individuals regions. This tiered framework would decrease the burden on KFC’s U. S. company management and offer more specialized attention to all those local markets. To counter regional events that may impact all of Latin America, KFC should also consider entering marketplaces in Asia and europe. If an economical catastrophe were to hit Brazil, for instance, markets in all close by countries can be severely affected as well. The Yum!

Organization should also consider strategies to broaden its other brands into Latin America too to leveraging KFC’s achievement. The multibrand strategy that is so effective in the U. S. may well prove good in Latin America as well. 2 . Business strategy At the business level, KFC will need to develop aggressive marketing strategies in countries exactly where competitors include a strong occurrence. In Brazil, for instance, KFC will have to very battle McDonald’s to gain market share. In less developed countries, KFC will need to enter carefully and give attention to mitigating risk.

KFC will need to leverage all their strong global brand and target the younger generation. Through internet marketing, KFC must be able to reach the young, modern day generation which has a higher approval for the fast-food unit. KFC should implement a transnational approach in Latin America. When quality, support, and items should continue to be consistent during Latin America, KFC should certainly develop unique strategies for advertising, pricing, and business types in every region. KFC should start company-owned stores in substantial growth markets and your rest with franchises or joint-ventures till a strong position is established.

In high expansion markets, company-owned businesses will allow fixed costs to be pass on across multiple restaurants, eventually allowing for affordable prices and improved margins. Franchising would leverage the expertise of neighborhood entrepreneurs with understanding of the area customs, vocabulary, and sales strategies. This would help to mitigate the chance of entering unidentified markets. several. Functional strategy Regional franchises should program with the wholly-owned subsidiaries in Mexico and Brazil. These kinds of subsidiaries would control administration, distribution, requirements, quality assurance, and advertising because of their associated dispenses.

The Central and Southern American subsidiaries should give attention to developing close ties with the governments in their regions. They should lobby to eliminate trade boundaries between countries in order to reduces costs of distribution. They should also focus on developing ties with the neighborhood communities to acquire acceptance from local traditions. KFC ought to develop specific marketing campaigns for each region, with regards to the similarities in culture. They need to focus on concentrating on the fresh, career-minded market through website marketing.

Depending on the way of life habits of those individuals, they have to also focus on them through appropriate media advertising. five. Conclusion APPLEBEES is one of the dominating players in the global prêt à manger industry. They may have sufficient solutions to release an intense strategy into Latin America. By leveraging their solid position in Mexico, APPLEBEES can effectively establish a strong position in Central America. By outsourced workers management of Central American firms into a wholly-owned supplementary in South america, KFC should be able to streamline procedures and maintain control over franchisees.

Though it will be challenging, establishing a foothold in Brazil is usually KFC’s greatest strategic means to fix entering South America. By aggressively marketing the younger demographic, KFC should be able to gain a considerable business, even though McDonald’s maintains the dominant situation. Once they had been successful in Brazil and a wholly-owned subsidiary is made, KFC will then begin to expand further in to South America. Simply by implementing this kind of general approach and responding to the elements and dangers discussed in the analysis, APPLEBEES should be able to gain substantial market share and carry on and grow the firm.