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By:
Jaspreet Singh-51 Jenkin J S-52 Jnanashankar H-53 Kalyani Burman-57 Kamini Sharma-58
Contents
Executive Summary................................................................................................................................. 3 Problem Statement ................................................................................................................................. 4 Human Resource Issues ...................................................................................................................... 4 Operational management issues ........................................................................................................ 4 Financial issues.................................................................................................................................... 4 Marketing Issues ................................................................................................................................. 5 Supporting Arguments ............................................................................................................................ 5 Industry Analysis ................................................................................................................................. 5 Fast food Industry ........................................................................................................................... 5 Porters 5 forces model for JFC .......................................................................................................... 6 Firm Analysis ....................................................................................................................................... 7 SWOT Analysis of JFC ...................................................................................................................... 7 Alternative Strategies ............................................................................................................................. 8 Choosing the right strategy................................................................................................................. 8 Existing strategy of Jollibee ................................................................................................................. 9 Recommendations for Decision making ................................................................................................. 9 Papua New Guinea.............................................................................................................................. 9 Hong Kong ........................................................................................................................................... 9 California ............................................................................................................................................. 9 Implementation Plan .............................................................................................................................. 9 Human Resource revamp plan .......................................................................................................... 10 Operations revamp plan ................................................................................................................... 10 Financial Revamp Plan ...................................................................................................................... 11 Marketing Revamp plan .................................................................................................................... 11 References ............................................................................................................................................ 11
Executive Summary
Jollibee Food Corporation is a Filipino fast food retail chain that was started in 1975 and from then on the company was on an expansion trend. It capitalised the changes in the political scenario in the country and thrived the competition from global players like McDonalds. It went public in 1993 and has been pursuing an aggressive global expansion strategy most of which backfired due to the problems in strategies followed by the company. The newly appointed International wing chief of the firm is facing the challenge of making a prudent decision regarding three new opportunities that the firm has in the offing, namely expansion to Papua New Guinea, Hong-Kong and California. But before making a move in this direction, the company has to address all the issues that have been prevalent in the organization for a long time owing to lack of long term vision and overall integration of the organization strategies. The firm has been functioning like two parallel organizations with no co-operation and coordination between the international wing and the domestic wing which has proved detrimental in various issues that the firm has been facing. The organization is operating in a highly competitive industry and has to develop an overall firm strategy to attain sustainable competitive advantage. It is mainly thriving on Franchising and JVs and needs to define the operating relationships with the global associates effectively in order to prevent the disputes that have cramped the firms operations many a times. For crafting out an efficient direction for the firm, the four strategy model for international expansion was analyzed and the firm was plugged in to the model and it turned out that the present strategy of the firm is falling in a grey area between the international strategy and localization strategy. Our suggestion is that the firm should adopt a fully fledged transnational strategy so that it can effectively reap the benefits of cost saving as well as local adaptation and there by carving a global image for the firm that has impeccable operations, financial and marketing strategy. Also, we recommend the firm to go ahead and capture the opportunities in Papua New Guinea as well as California and hold the fire for some time when it comes to the expansion plans for HongKong and look for expansion options in Hongkong only when the prevailing management issues in Hongkong are sorted out. Also, the implementation plan for revamping the operations of various functions have been suggested in the main body of report.
Problem Statement
The newly appointed head of International division Mr Manolo .P. Tingzon is pondering into three key opportunities that the firm Jollibee Food Corporation is having for further global expansion namely Papua New Guinea, Hong Kong and California. For taking the above decisions the organisation has to address various issues mentioned below under the various functional heads:
Financial issues
For the long term success of any firm, it is highly imperative to have a stable and prudent financial management system. The focus should be on a strategy that takes the long term as well as shorter objectives of the firm in tandem. As identified from the case, the following are the noteworthy financial aspects of the firm: 1. Company revenues, net income, operating income, and royalties and franchise fees have been increasing rapidly for the period under consideration. 2. Inventory turnover has improved showing an improvement in working capital management over the years. The aforementioned aspects have put the company in a better stead. But, there are a few other facets that create concerns:
1. Accounts receivable as a proportion of Sales has increased over the years. 2. Long term debt outstanding has increased dramatically and the servicing of the same has put a pressure on the solvency position of the company. 3. Cost of sales has increased over the years. This is a natural fact, but the alarming part is that the growth in cost of sales has been much higher than the sales itself, putting a pressure on the margins of the company. 4. 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. As evinced by the statement made by TTC in late 1996, this has put a serious pressure on the financials of the firm and the firm did not have the financial muscle like global giants to go for the loss-leadership strategy. Thus the budget allocation and management was in a grey area.
Marketing Issues
1. Choosing which international markets to target first and decide on an optimal strategy to enter these markets. 2. Identifying target segment in each country. 3. Choosing a core competency. 4. Deciding to what extent the standard menu can be modified to suit taste of local consumers.
Supporting Arguments
Industry Analysis
Fast food Industry The fast food industry has a lot of unique characteristics:
1. Quality of food and time of service is of utmost importance 2. Each firm in the industry has a standard set of cuisine. The menu is limited and items are
cooked in bulk in advance, kept hot, finished, packaged to order, and available to take-out, drive-thru, and dine-in.
3. Profitability is dependent on high consumer traffic, location of stores and tight operation
management.
4. Firms mostly operate through franchisees and expansions of critical mass is required to
achieve economies of scale
5. Highly capital intensive. 6. Chain wide consistency and reliability are major factors of success 7. Number of competitors is very high.
McDonald's is one of the most famous fast food joint in the world. McDonald's became No.1 in every country of more than 100 countries in the world except Philippines where JFC has been 5
overwhelming strength against McDonald's. In 1981, JFC faced serious challenges from McDonalds when they entered Philippines which forced JFC to change their existing strategy of targeting only the domestic market with a standard local fare.
Rivalry among Competitors: HIGH Rivalry stems from Price wars, marketing innovations, good food, good service. Most rivals are equal in capabilities and opportunities which make competition stiffer Threat of Substitute PRODUCTS-LOW TO MODERATE. Products from local street food is a threat but Jollibee has advantages in terms of brand name, superior service and reasonable price
Threat of new entrants to Industry- LOW High entry barriers in the form of brand preference of consumers, technological know how, access to strategic locations and distribution channels, capital, economies of scale etc.
Bargaining power of suppliers: LOW Strong relations with existing suppliers, trade restrictions for imported raw materials, food standards etc. limit power of suppliers
Bargaining Power of Consumers: VERY HIGH Consumer traffic and loyalty determines profitability of firm
Firm Analysis
SWOT Analysis of JFC
Strengths
Speed and timeliness of deliveries because of the locations of the commissaries. Portfolio can serve various segments of the market and pass the winning culture of Jollibee on the other business units. Highly motivated and well-trained personnel Good operations management High domestic market share Quality consistence in terms of taste and availability Responsiveness to competition Innovative receipies e.g. rice based meal
Weakness Lack on in-depth planning and research in the expansion to foreign markets. Financial Constraints for expansions Rift between international division and Home division - no consensus could be reached Lack of global brand recognition Beuracratic structure.lengthy process for approvals to be sanctioned Over reliance on the Filipino market ( targeting the expat strategy)
SWOT
Opportunities
The potential for international markets and the migration of Filipinos in certain countries. Impart global culture by hiring non-phillipine managers locating commissaries in the same country through joint ventures could be a potential source of success for the company
Threats
Tough competition from from both international companies and local small-hold SMEs in the food industry. Rapid expansion plan may backfire Phillipine division might slow their implementation Increase in transportation costs and the prices of transported materials and products.
Alternative Strategies
Choosing the right strategy
When analyzing the case study it is clear that Jollibee Inc has higher pressure to respond to local wishes in Philippines due to the entry of global giants like McDonalds. This is due to the fact that Jollibee had a strong presence in Philippines but at the same it should tackle the adaptation pressure from McDonalds. This is also supported by the fact that Jollibee was franchising their brand to foreign countries on very strict terms which do not allow any changes to the menu. According to the grid below this would mean eliminating the international strategy and the global strategy. Now analyzing the strategies which require standardization (provides cost benefits) and differentiation, the transnational strategy is applied by large firms such as car manufacturers, they have to adopt the cars to local wishes or they will not sell. The Multidomestic strategy often involves having very different lines of products, yet there is no real cost pressure. Both strategies perfectly align to Jollibees business model, so the four grid model is used for evaluation in the sense that Jollibee is correctly placed in the vertical axis of the model. On the horizontal axis Jollibee has two distinctly different moments. During the expansion plans to become a multi domestic the company enjoys low responsiveness pressure because the target segments are expats and Hispanic population. Once it is established the company is in need to adopt the local taste buds so there is an increase in the responsiveness consideration. Since Jollibee needs to maximize return on investment after establishment, it has to follow a transnational strategy to keep the competition at the bay and tackle the competitive pressure.
The above diagram describes the four strategies which a firm needs to follow for international expansion depending upon the market requirements, pressure from competitors, firm specific motivation driven by firms core competencies. The proponents of the model have suggested that the strategy of a firm should evolve over time among these four strategies to be in better stead in facing global competition.
Hong Kong
Currently all the three stores established in Hongkong are facing lot of management issues as mentioned in the problem statement hence it is required that first this management issues must be sorted out rather than putting additional resources in expansion plans.
California
California expansion seems to be the 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. They have a large and diverse population who like experimenting food of different culture. They also had great support from Filipino-Americans. So, the company has to start with focusing on both the Filipinos as well as local people and design the menu that would help maintaining the brand identity along with catering to the local interests. To put it simple and straight, Company needs to adapt a trans-national strategy.
Implementation Plan
It is the very evident that transnationational is the only way forward for jollibee, When going for multidomestic as a strategy only a certain amount of flexibility and autonomy be provided to partners. This becomes more of an arms length dealing, trust was lacking in the relationships. A holistic co ordination is required to transfer core competencies or to pursue experience curves and location economies. Which is possible only in a transnationational entity. This smooth transition can be enabled by inter unit co operation, decentralizing the organizational structure and following a 9
geocentric approach. Also to implement this strategy and carry out expansions following schemes of actions must be taken in various functional departments.
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References
International Business, By Charles W L Hill and Arun K jain (McGraw Hill Companies), 6th Edition
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