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Jollibee - Case Study Analysis

The case gives an idea about how the competition influenced Jollibee's strategy, both domestic and international.
Jollibee ,which was a Filipino chain of restaurants, was forced to change their strategy with the entry of McDonalds in
Philippines, which later transformed the company into a global company .The company faced serious challenges with their
international exposure. The challenges included the conflicts with franchisees/Joint venture and conflicts between divisions.
Another issue that the company faced was the entry into Papa New Guinea, United States of America and expansion plans
in Hong Kong. The company has to consider the financial instability it faces while considering their plans. In the analysis we
have tried to cover the effectiveness of strategies adopted by Mr Tony Kitchner (Former International Division head).
This case analysis report deals with, firstly the key management challenges faced by the company, followed by some
supporting arguments. In the management issues, the report focuses into the conflicting areas or the need to establish a
greater cooperation and coordination between the Domestic and International divisions.
Then, the recommendations regarding what should the company do differently in each of its department like in Marketing,
HR, Finance or Operations, to succeed in its plans of global expansion. Finally, the feasibility of the three decisions that the
new management has taken is also discussed.
We have also tried to analyse the dilemma faced by Mr. Tingzon regarding the opportunities of international expansions to
Papa New Guinea, Hong Kong and USA.
Jollibee Foods Corporation- International Expansion: Case Analysis
a. Industry Analysis
A fast food restaurant or Rapid Service Eatery (RSE) has the following 3 characteristics.
1. It is characterized by its fast food cuisine and nominal table service.
2. It offers limited menu, cooked in bulk in advance, kept hot, finished, packaged to order, and available to take-out, drivethru, and dine-in.
3. It is usually a part of a chain or franchise operation, which supplies standardized ingredients and/or partially prepared
foods and provisions to each restaurant through controlled supply channels.
McDonald's is one of the most famous RSE 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 overwhelming strength against McDonald's.
JFC was founded by Chinese-Filipino Mr. Tony Tan Caktiong (TTC) as the ice-cream parlor at Cubao City in 1975. Gradually, it
grew up to a reasonably large fast food chain in Philippines.
Further, JFC started scouting avenues for expansion internationally. Thus it opened its franchises in countries like U.S.A.,
Brunei, Hong Kong, Guam, Middle East, etc.
Assuming, Mc Donald's was the chief competitor of JFC in Philippines we have made an analysis of the strategies adopted
by both the organizations.
In order to analyze the strategy, we have utilized the following two tools.
a) Four-Tier Structure of Market
b) Type of Glocalization
A. FOUR-TIER STRUCTURE OF MARKET
Khanna & Palepu (2006) introduced the Four-Tiered Structure of Market. They insisted that most product markets
comprise four distinct tires: global, glocal, local, and regional.
In Global segment, products of global quality with global features at global prices are offered. In Glocal segment, products
of global quality with local features (and local soul) at less than global prices are offered. In local segment, local products
with local features at local prices are offered.
STRENGTHS
WEAKNESSES

a. Jollibee was a regional industry leader that had experienced professionals as chief executives of the organization.
b. Proven past performance made dealings with prospective partners easier.
c. Wide variety of products offered in diverse markets.
a. Lacked more effective marketing skills as growth revenues decreased.
b. Lack on in-depth planning and research in the expansion to foreign markets.
c. Poor co-ordination between the national and international units.
OPPORTUNITIES THREATS
a. The promising nature of international markets and also the available potential due to the migration of Filipinos in certain
countries.
b. Being an agricultural country, full integration in sourcing raw materials could be done.
c. For international markets, locating commissaries in the same country through joint ventures could be a potential source
of success for the company. Jollibee could facilitate the technology provision while the partner could formulate the
appropriate modus operandi to sell in the foreign market.
d. For the local market, an increase in the number of commissaries could easily reduce the transportation costs and the
duration of shipments. This would allow the company to concentrate on the quality of products.
a. Competition from both international companies and other local eateries.
b. Political instability in the country threatened JFC as it could hamper the opportunities to convince international investors
and country leaders to allow a JFC entry in their country.
c. Driving Forces
a. Marketing Perspective
Jollibee was able to attain a competitive advantage in Philippines over McDonald's by doing following things:
First mover advantage - Jollibee was the first to enter the market.
a. Marketing Perspective
Jollibee was able to attain a competitive advantage in Philippines over McDonald's by doing following things:
Jollibee was the first to enter the market.
Retaining tight control over operations management, which
Allowing it to price below its competitor.
Having the flexibility to cater to the tastes of its local consumers.
As Jollibee entered international markets, it faced new challenges. The fast food industry is highly competitive and price
wars and marketing innovations are seen frequently. The rivalry is also centered on the key success factors of the industry,
which are good food, good, service and reasonable pricing. Rivals are somewhat equal in capabilities and opportunities,
thus making the competition stiffer. Internationally well-established players like KFC and McDonalds had high brand values
that Jollibee found difficult to compete with. The threat of substitute products is considerable. Local street food and highend restaurants form two ends of a range of substitutes. Potential entrants face entry barriers that will hinder them from
entering the industry. These are the inability to gain access to technology and specialized know-how, brand preference and
customer loyalty, capital requirements, economies of scale, and strategically situated distribution channels.
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."
1. TARGETING EXPATS

Recommendation:
"Targeting expats" will only lead Jollibee to become a global brand if:
a. Jollibee correctly targets expats who have a need and want for the product and thus avoid repeating its mistake in the
Middle East.
b. The company continues to build its competitive advantage through learning and by appealing to a broader audience.
2. PLANT THE FLAG
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. 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.
Recommendation
Market research prior to entering new markets will help in avoiding the unprofitable ventures as in the Middle East. In order
to compete on the level with multinationals, rather than just being a first mover, Jollibee would have to take its
performance to the next step and prove that it could continue to build its competitive advantage.
b. Financial Management Perspective
Jollibee's sales, net income, operating income, and royalties and franchise fees has been increasing rapidly for the period
under study. The total number of stores increased 65% to 205 from the end of 1993 to the end of 1996. By 1996, sales had
increased to 8.57 billion which translates to a market share of more than 50% among all hamburger fast food chains. Total
assets increased over 230% in the same period. Moreover operating income increased about 114% while net income
increased over 100% during the same period. These increases are dramatic. Significantly Inventory decreased from about
11.5% in 1992 to just 7.5% in 96. This implies that less of the current assets were tied up inventory. During the same period
the trade accounts receivables has increased from 8.4% in 1992 to 12.7% in 1996. Jollibee was able to compensate for this
increase by corresponding increase in sales and hence this need not be a cause of concern.
On the other hand, all is not well with the financials of Jollibee. There was 28.9 million pesos of long-term debt outstanding
at the end of year 1996. Cost of sales has increased each year with an increase of about 46% from the end of 95 to the end
of 96. But during this same period, total sales only increased about 28.7%. This escalation in the cost of sales must be
brought under control
Accounts payable and accrued expenses increased by about 156% from 94 to 96. In addition, earnings per share decreased
19% to 0.68 pesos per share from 94 to 96. Jollibee has debt and some financial instability; however it is not something
they can't overcome. They have 24 stores in foreign countries, which account for roughly $9 million in sales. This is an
encouraging sign as far as Jollibee is concerned and they will be able to pay off their debts and loans.
One thing they should consider doing is slowing down expansion. Jollibee should consider opening a store and giving it time
to grow and turn a profit before it finances the opening of a new store. Opening new stores requires a lot of financing. They
must study markets to determine a location, buy furniture, purchase kitchen appliances, and train new managers and
employees. Opening multiple stores at the same time will hurt the bottom line and will increase debt. It took McDonald's 20
years for their international operations to account for 50% of total sales. Also, they must reduce cost of sales. During the
period under study the cost of sales has increased at a faster pace than the sales increase, which is not acceptable.
The company has good internal financial resources but a certain code should be maintained in the relationship with the
franchisee. Also, the allocation of the financial resources needs to be done wisely and judiciously. This is where there has to
be collaboration between the marketing and finance department. The feasibility (financial) of opening up a new store needs
to be studied before going ahead with the decision.
c. Operations Management Perspective
From the very beginning Jollibee Foods Corporation had focused on delivering quality food and service at an affordable cost
to the customers. This had been possible only due to excellent operational control.
They enjoyed a dominant position in the fast food market in Philippines until McDonalds entered the market. To take on
McDonalds, they focused on their main asset, their knowledge of taste and preferences of the local population. This
strategy paid off initially but slowly McDonalds caught up. To maintain their market share and counter the growing
popularity of McDonalds Big Mac sandwich they came up with their USP, a large hamburger named Champ which contained
a wide hamburger patty as against Big Mac which had two small patties.

Once Jollibee Food Corporation was well established in Philippines, TTC's decision to expand overseas was a good bet. But
due to their inexperience and wrong choice of partners they suffered losses in their initial foreign ventures. In Singapore
there were too many partners thus hindering smooth operation.
In Taiwan there were disputes over management of local operations. In a franchise arrangement standardisation of
operations is the most essential factor. But in this case the local partner was objecting to the presence of company
employees.
ISSUES- HIRING OF AN OUTSIDER:
Hiring a professional as Vice President of international operations was a wise decision. But he did not get adequate support
from the company management to implement his ideas.
Going in for franchising was a good decision because they lacked huge resources to open and run their own stores
everywhere. Kitchner implemented a good strategy of assigning the responsibility of opening of new stores to a Franchise
Service Manager. Thus FSM became the point of contact between the local partner and the company. This helped avoid
disputes of management of local stores. FSM was also responsible to send the weekly data of store sale to the company.
This helped them to monitor the performance of each of their stores.
But as the international operations grew, disputes arose between the parent company and international operations on
various issues such as varying the menu according to local taste, company logo etc.
RECOMMENDATIONS:
International operations should be completely separated from domestic ones.
Strategy of varying the menu to local taste should be implemented.
Smooth supply chain management system should be put in place to increase efficiency and productivity.
In case of expanding the menu, economies of scale and operational efficiency should be kept in mind.
Some items which increase inefficiency should be removed from the menu.
d. HR Perspective
Regardless of location or culture, effective customer brand loyalty can be developed through human resource departments
and the company's personnel. The most significant difference between domestic and international human resource
management (HRM) seems to be that with domestic HRM there is a common standard practice that most companies are
familiar with, whereas with international HRM, there are a variety of different laws and business practices that international
companies have to consider. The similarities between these two types of HRM can be found on a more practical level of
managing employees. Both serve to fulfil the goals, needs of employees, and to ensure that they have the necessary
resources to successfully complete their duties.
The first step to successful International HRM is an understanding of cultural differences and developing appropriate means
of addressing these differences
Jollibee ensures that it provides top-notch services in all its outlets. Jollibee's success can also be attributed to its
organizational culture depicted through "fun and friendly environment". Through stringent
recruitment and selection procedures, Jollibee ensures a service-oriented staff to man its outlets. Willing to pay aboveaverage compensation, Jollibee ensures loyalty among its staff members and this translates into better service
performance and dedication toward serving the customers. Training programs equip its staff with the necessary skills
needed to better perform their tasks. By hiring professionals to devise strategies for its store operations, Jollibee is able to
create a working environment that boosts high standards of professionalism and service excellence.
However, there are other problems that Jollibee faces in the international expansion of its business. Thus we have analysed
the case under the following heads:
1. Polycentrism at Jollibee
2. Tony Kitchner's Kafkaesque Desires
1. POLYCENTRISM AT JOLLIBEE
The Jollibee Corporation follows the polycentric approach in partnerships. A polycentric approach recruits host country
nationals to manage subsidiaries while parent country nationals occupy key positions at corporate headquarters. The
Jollibee corp. has taken this a step further, and most of the key positions are held by family members. The cost of value
creation could be greatly reduced using this method, and cultural imbalances can be reduced to a great extent.

But this approach at Jollibee was perhaps not carried out effectively at Jollibee. The Joint Ventures at Singapore, Taiwan and
Indonesia are case in point. The parent Filipino management at Jollibee was very keen on imposing themselves on the host
management. Conflicts arose on day to day management issues. Jollibee could operate properly in Brunei as there was a
silent partner. When going for Polycentric partnership as a strategy it is only imperative that a certain amount of flexibility
and autonomy be provided to partners. Trust was lacking in the relationships forged. The coordination required to transfer
core competencies or to pursue experience curves and location economies was lacking. Instead of the formation of a
transnational entity, what resulted was the formation of independent federations, trying to resist parental control.
Three Options for Expansion
Papua New Guinea- Raising the Standard
New Entrant into 3 store fast food chain
Tingzon offered to put up all capital required
Hong Kong- Expanding the Base
3 Store already established, possibility of a 4th one.
High volume with Filipinos but not with residents (Chinese)
4th store location high traffic but few Filipinos
California-Supporting the Settlers
Success in Guam led them to believe US had potential
Food Appealed to Filipinos and Americans
Decided on Daly City-Large Filipino population
Plans to appeal to Asian Americans and then Hispanic Americans
Recommendations
PAPUA NEW GUINEA: There are five million people in Papua New Guinea with extremely limited fast food options. Jollibee
can come in and set a high standard, attract many customers, and scare future investors away. However they would have
to quickly add three to four stores to be competitive and cover costs. There was also question as to whether the area could
handle 20 stores. Either they will get the first mover advantage or they will sustain huge loss. 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.
HONG KONG: In Hong Kong, Jollibee are located near a very densely populated area, which has a very loyal Filipino
customer base. These people gave them great business on the weekends, but sales fell off during the week because the
local Hong Kong people rarely frequented the Jollibee establishment. Also, there were tremendous problems with the
Chinese stores. All of the managers resigned and many employees quit because the Chinese like to work for Chinese. There
was obvious friction between the Chinese and Filipino's. 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 for Jollibee to improve its current operations, rather than to commit additional resources to a new store.
CALIFORNIA: It will be a very good idea to target the Asian community living in U.S and California is the best place to start
from. The intense competitive atmosphere of US fast food market will provide Jollibee tremendous opportunity of global
learning. Furthermore, they also discovered that there were many elements of their restaurants that appealed to
Americans. Similarly, there was great support from Filipino-Americans. Likewise, Jollibee was going to expand throughout
California before it moved east. They were determined to gain recognition. Another helpful aspect is the diversification of
America. In any given city a person can find Chinese, Italian, Greek, Spanish, Japanese, American, German, Polish, Indian,
and other ethnic restaurants. Americans like to try food of different cultures and there is no reason to believe that we will
not try Filipino food. There is very little reason to believe that Jollibee cannot successfully enter the fast food market in the
United States. But on the other hand, 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.

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