When entering a foreign market companies are often faced with a choice of whether to keep their business model or develop a new one, which is more likely to succeed in this particular country, but requires more work and resources. The companies often prefer to first test their approach on a smaller scale and, if the test results are not alarming, stick to the selected business model. The companies abandon potential benefits for the sake of choosing a business model they are sure works well.
The great example of a company, which pays a lot of attention to locale is Nestle, and the good marker of their success is that consumers often believe that they buy goods made by the local company when, in fact, it is a wise country management.
The KFC in China is another example of a successful start on a foreign market in a country with emerging market. With one new restaurant opening each day, the company is aiming at opening 15000. The principles of the new business model developed by KFC and how they are connected with the Western way of doing things are examined in this article.
As with all multinational companies, KFC was on a path of trial and error at the time China opened its market for foreign companies. However, local management has quickly acknowledged that they had to undertake radical steps in order to form a strong position for the company on the market and merge it with Chinese culture, making an emphasis on promoting a brand as a part of a rapidly developing country. This vision has been synthesized to five main concepts:
-promote and develop the brand in a way, so it becomes a part of Chinese culture;
-expand into small and mid-sized cities;
-set up solid supply and logistics;
-focus employee training on customer service;
-abandon franchising restaurants in favor of owning them.
As a part of their strategy of tailoring the restaurants to local tastes, KFC varied the spiciness of their food in different regions of China and also developed a much more aggressive marketing approach then, for example, in the US, introducing nearly 50 new products per year compared with 1-2 in the US. The restaurants are also twice as big compared to the US because they are more focused on inviting visitors.
Since no proper supply chain was established in China, the company had to develop its own network of suppliers and set up transportation and warehouses. It was an expensive endeavor, but vital for quickly expanding into Chinese market.
When it came to staffing the restaurants, KFC management was faced with a national issue in China, which is its less communicable people. In order to teach the employees proper customer service, they often had to be taught the basics of human interaction first. At the moment hiring and training new staff is a limiting factor for the company’s further expansion, because a reasonable amount of time is spent on training and preparation of the newly hired staff.
They way KFC is established in China now illustrates how important it is for a company to assess its goals prior to entering the foreign market. If a company seeks for a quick profit, there is no need to go local, on the other hand, if it aims for a long-term presence, it is necessary to adopt the local vision and hire local managers who know the region well.
The CEO of Heinz on Powering Growth in Emerging Markets
The Western countries, on which Heinz was focused at first, differ greatly from the emerging markets the company set out to conquer later: China, Indonesia, India and Russia all presented different challenges for the management. Nevertheless, they present big opportunities for the companies looking to expand and reach new markets because of the rapid developing nature of their economies.
The business model developed in Heinz is based on the concept of the “Three A’s”. The company’s former CEO and now chairman Bill Johnson believes that this strategy is the key to succeeding on emerging markets.
The notion of applicability of the product is important because one has to clearly define what kind of products can succeed in a particular region. The demand in non-Western countries is quite different compared to the Western Europe or the US, therefore, it is wise to study the local market and figure out where the product could possibly fit or what changes to it would be required in case the company decides to enter the market.
The second concept the Heinz business model is based on is availability. It is important to know proper ways to distribute the product in different regions. In case of Western business model the main channels of distribution would be global stores like Walmart, but such retail networks may simply not be available in a non-Western country. Heinz studied consumers’ shopping habits and preferences and tailored company’s selling policy accordingly.
The third and the final “A” is affordability. It is best illustrated with comparison of Western and non-Western countries. In the West people are used to sizes or recipes which may be considered luxurious or impractical in India or Indonesia. Heinz overcame this issue by offering products, which are convenient to use in a particular region, often creating specifically tailored products.
One more “A” was added later, which stands for affinity, meaning that the company strives to develop a connection with all its employees, and make them feel close to the company and its values. According to Bill Johnson, the heavy reliance on local managers, who are part of the country, nation and culture, helps greatly with this task.
The important part of the Heinz strategy is that the company aims at the highest level of diversity it can achieve, lowering the risks, which are inevitable when entering a new market. By spreading all the risks equally between different countries, Heinz is managing to secure itself both politically and financially.
The strategies KFC and Heinz adopted in the emerging markets are highly flexible and are aimed at providing the consumers with the products of the brand, which are relevant for a particular country, region or social class. Instead of reaping the immediate benefits after entering the markets, both companies opted to create a long-term brand presence, so their business model was not focused on expecting the profit until the brand is properly established. This could be called a disadvantage, because of the time and resources needed to secure and hold a strong position, but this is ultimately the right decision to make when making investments into an emerging market.
Works cited
"KFC’S Radical Approach To China". Harvard Business Review (2011): n. pag. Print.
"The CEO Of Heinz On Powering Growth In Emerging Markets". Harvard Business Review (2011): n. pag. Print.
