Jollibee: International Expansion

Case 1

Case Study Analysis

In
Fulfillment of the Requirement
for
Ethics and Social Responsibility
Subject

ARABIT, ALMERA A.
CUIZON, JOVANIE M.
GUIBAO, MAYLENE M.
QUINTEO, MERYL J.
TOBIS, KATHLEEN SHEEN T.
VILLA, GEAL CHAYNA REAN S.

Accountancy, Business and Management–12 Finance

March 2018
 Executive Summary

This report is an attempt to analyze the case of “Jollibee Foods Corporation (A)
International Expansion. In this study we have first analyzed the case background so
that we understand the scheme of things. In this section we have laid emphasis on the
inception of Jollibee Foods Corporation, their expansion in various countries like
Singapore, Hong Kong, Brunei, Taiwan, Indonesia, California etc.

Further we have discussed the Strengths, Weaknesses, Opportunities and Threats to

Jollibee in the fast food industry. We have dealt with different problems like the
management issues, the market issues, business expertise, financial resources,
inventory management etc. This would help in better understanding of Jollibee’s present
condition and future sustainability in the modern and fast changing business world.

After the SWOT analysis we identified certain issues with Jollibee which concerned the
Management, business, expansion etc. There were issues like improper utilization of
financial resources, lack of promotional campaigns, communication gap between the
different wings of Jollibee and between the Management and the employees. Keeping
in mind these issues we have come up with a few recommendations. We have
discussed them through Human Resource, Marketing, Financial and Operation
perspective.

Then we have discussed the Strategic decisions with regards to expansion in the future
in California, Hong Kong and Papua New Guinea. We have studied various pros and
cons of expansion in each of the above mentioned countries and reached the
conclusion that California is the most favorable location. The reasons for the location
being that there is a huge Philippine population in Dale City of California which will help
in the establishment of the store. Also they have successfully catered to the taste buds
of the people in Guam which will help them serve the Americans better and thus the
expansion could be a success.

Later we have conversed about the implantation plan and how to go about it.
 Business Landscape
Company History:

Jollibee Food Corporation began as an Ice-cream parlour in the year 1975 and was run
by the Chinese Filipino Tan Family. But later they diversified in to sandwiches when the
1977 oil crisis occurred and the President Tony Tan (TTC) expected the ice cream
prices to soar. The hamburger recipe developed Tony’s Chef Father became famous
and a year later they opened five store in Manila, where the family incorporated as a
Jollibee Food Corporation.

TTC’s vision was to see the employees enjoy while working and are efficient. Jollibee
expanded quickly throughout Philippine financing a growth internally until 1993. Most of
the operations of the business were run by the Tan family and to expert opinion they
brought in outsider especially in the Marketing Finance Department.

Background:

Until 1981 was a smooth sailing for Jollibee, but then came Mc Donalds to Philippines.
But the group was fearless and had confidence in the spicy taste of their Humbugger
which appealed to the Philippines customers.

Slowly Jollibee forayed in to the foreign markets and began with its investment in
Singapore in 1985 in 2088 with the help of some family friends. However the relations
between Jollibee and the local manager started to deteriorate. Their next venture was in
Taiwan again with the help of the family acquaintance, but this also did not last long and
the transaction came to an end on the basis of distrust between the local manager and
Jollibee management in 1988. Brunei was another joint venture that they entered into in
1987 August. Then they forayed in to the Indonesia Market in the year 1998, opening a
store in Jakarta but due to conflicts with the local manager again this store also had to
be closed down.

In 1994 the International Division was created with Tony Kitcher, an Australian native as
the Vice President Kitcher went about differentiating the International Division from the
Philippine part of Jollibee and tried to create a more formal culture for the division.
Kitcher’s strategy on the two themes: 1.) Targeting expats 2.) Planting the Flag

He realized that there are a lot of Filipino expats in Middle East, Hong Kong, Guam and
other Asian Territories and this would provide a good market for Jollibee

The other strategy was to have first mover advantage. They started with planting the
company’s flag in those countries where was no or little competition.

But these strategy had their own constraints. First of all there was a strain on the
resources as they were expanding rapidly and then there was no enough advertising
budget.

Kitchner was responsible for the Franchise Service Managers (FSM) and they acted as
a point of contact between the company and its franchise. Kitchner asked the FSM to
work on the ambience of the store and customize it on the basis of the local consumers
taste to ensure a good local crowd turn up.

Kitchner and Visco (Marketing Director) discovered the Jollibee needed a world
presence and the present logo did not serve the purpose. So they changed the
background from red to orange so that it is distinguished from Coke and KFC and also
added the tag line great burgers, great chicken so that people have a clear identity
about the brand.

They also customized the menu according to the tastes of the local consumers.

But as the international business grew, the relation between the International Division
and the Philippine operations started turning sour. There was lack of coordination and
cooperation between the two groups.

In 1996, TTC realized that he could no longer support Kitchner as the expansion
strategy was costing heavily and they were losing a lot of money. In February 1997,
Kitchner left Jollibee. After Kitchner, Manolo P (Noli) Tingzon took over.

He came with the conclusion that in order for Jollibee to be profitable ot should earn an
annual sales of US$ 8,00,000/-
He wanted to analyze the existing strategies to discover the scope for improvement.
There were conflicting opinions from the staff on Plant-the-Flag. Some thought it was ill
conceived and some thought it was a wonderful way of expansion. He also analyzed
whether targeting expats is narrowing down their scope or image.

Now he is considering the three options for profitable expansion. They are: Papua New
Guinea, Hong Kong and California. Papua New Guinea has no much completion for
Jollibee. In Hong Kong there are several management issues and in California things
seem to be quiet pleasant.
 Firm Analysis

Internal Analysis:
Strengths:

 Leadership in local Philippine market.

 Strong financial resources.

 Expertise in doing business in international markets.

 Well develop operations management capability (ability to provide quality

products at affordable prices).

 Diversity in product offering after the acquisition of Greenwich Pizza and joint

venture with Deli France.

Weaknesses:

 The expansion of business in international markets based on the flawed strategy

of ‘Planting the Jollibee flag’.

 Absence of proper methods to select franchisees.

 Too much dependence of Filipino expatriates and inability to cater to the needs

of the local residents of other countries.

 Weak promotional campaigns in international markets to promote Jollibee as a

global brand.

 Based on the graph: 1 (Refer Appendix), it can be seen that the operating profit

margin is very low over the period from 1992 to 1996. Operating margin is

around 11% to 13% over the years which mean Jollibee could not improve its

operational efficiency.
 Based on the graph: 3 (Refer Appendix), it can be seen that the inventory cycle

of Jollibee is around 25 to 30 days from 1992 to 1996 which is very high for a fast

food business. It means the company is taking longer time to sell its products.

 Based on the graph: 2 (Refer appendix) it can be seen that Jollibee could not

utilize its assets productively as Return on assets had decreased from 28% in

1992 to 17% in 1996. It means that the new stores abroad did not give the

desirable results.

 As per the graph: 4 (Refer Appendix) it can be seen that the average payable

period had been increased from 74 days in 1992 to 111 days in 1996 which

means that they are delaying the payment of suppliers. This can damage the

long term relationship with the suppliers.

 Lack of communication within the organization during the formation of

International Division which led to infighting among the two divisions.

 Bias towards friends and relatives while selecting local franchisee partners.

 Lack of cross cultural management.

 Increased diversity on menu items came at the cost of operating efficiency and

complicated the task of store level operating control.

 The involvement of the franchisees in the important decisions during the startup

was varying from country to country. Most of the decisions were being made by

FSM and project manager.

External Analysis:
Opportunities:

 Untapped locations with fewer or negligible competition from fast food chains.

 Widen product range to include more local foods items.

 Make new acquisitions of profitable food chains in other countries.

 Create differentiation by cost advantage, customer experience etc.

Threats:

 Political stability.

 Competition from local well established food chains.

 Dining habits of local people eg. More preference to dining than fast food.

 Shift of preferences of people to more health conscious items.

 Epidemics like Bird Flu, Mad cow diseases that make procuring of raw material

difficult.

 High set up cost due to high standard of living.

 Reduction in entry barriers like favorable policies, tax incentives etc. lead to

increase in foreign competition.

 Downturn in economy.

 Rise in operational cost like cost of power, labor etc.

Recommendations:

The weaknesses of Jollibee (as mentioned above) section have been addressed in
detail as relevant to different functions.
Strategy:

 Jollibee’s strategy of ‘Planning the Jollibee Flag’ for entry in new markets was
narrowly focused on absence of competition. They were expanding too fast
without giving a thought to alternative strategies to be adopted in case their food
items are not accepted by the locals. So, entering a new market various other
factors like demographics, local dining habits, per capita income etc should also
be considered.
 Jollibee should have proper procedures to select franchisees to evaluate their
suitability for the company. Various factors like their financial background,
previous business ventures etc should be checked even if they are Filipinos,
friends and relatives.

Marketing:

 As seen in the market in Middle East, all the Filipino expatriates were not
attracted to their offerings. Also, in Hong Kong, the standard menu was not
attracting the local Chinese customers. This shows the pressing need for Jollibee
to customize their menu to include local food items.
 Jollibee should identify the right communication channel to promote its brand
cost effectively with optimum results to promote itself as a global brand.

Finance:

 Synergy is utmost importance for success of any joint venture. Differences in

management style and culture between the firms may pose serious problems
that make it difficult to create synergies, which ultimately lead to poor financial
performance.
 There has been a year on year increase in cost of sales from 13% in 1992/93 to
46% in 1995/96, however sales during 1995/96 has only increased by 24%.
Suitable ways must be found in order to decrease cost of sales.
Year on Year Sales Cost Increase.

1992/93 1993/94 1994/95 1995/96

Year
46% 34% 28% 13%
Percentage Increase

 Cash on hand is continuously increasing which is very positive sign however

EPS has decreased 19% from 1994-96 largely on account of a bank loan.
Therefore the cash at hand should be put to better use and help ensure early
payment to loan.
 Based on the financials, Jollibee has a good cash position so it should use the
cash to pay its suppliers regularly which will build a long term relationship with
the suppliers.
 Twenty four stores in foreign counties account for roughly US $9 million in sales.
Present cash flows indicate that paying off debts will not be difficult however they
must slow down their expansion plans.
 Opening new stores requires a lot of financing. Therefore once a store is opened
one must give it time to grow and generate sustainable profits before it is used to
finance the opening of a new store. Moreover opening multiple stores at the
same time will hurt the bottom line and will increase debt and failure of such
stores may take several years to recover the investment. This will help Jollibee to
improve its asset utilization.

HR:

 The international division was distinct from the Philippine counterpart.

The look of international department was distinct from the Philippine counterpart.
They tried to distinguish it so that the international department is not conceived
as simple and basic and in order to give it a more international look. This
approach of being different created hostility. Here there was a communication
gap. The need for the international department should have been communicated
properly and portrayed as a part of the Jollibee family. The HR department
 should have convinced the domestic division to be more accepting about the
international department.
 Mixing of friends and family with business:
It is to be noted that the Singapore and Taiwan partners were family friends and
yet they could not sustain the relationship. The pros and cons of the relationship
were not well evaluated before the venture began. The terms and conditions of
any business relationship should be explicitly stated to prevent any mistrust and
conflict in the future.
 Lack of Cross Culture Management:
There was a lack of training in cross cultural team management which resulted in
clashes between the workers of different cultures. A proper training program on
cross culture behavior and management should be developed for the employees
of the international division.

Operations:

 R&D to focus more on finding methods to customize local food to fast food
production techniques.
 Involve franchisee in all the decisions during the start up to increase trust
between the company and the franchisee and also to gain from his knowledge
about the local area.
 Strategic decisions: PNG, Hong Kong or California

a.) Papua New Guinea

Pros:

 First mover advantage

 Jollibee would risk no equity

 Stores at service stations

Cons:

 The failure of the previous fast food chain in the country might linger in the minds

of the customers. To overcome, Jollibee might have to do enough branding to

convince the customers.

 The target market is also smaller compared to Philippines. Hence the profile

potential is very low.

 Opening up of many stores, to cover franchises’ costs, requires huge

investments and therefore the loss would be high, if the business fails.

 Local player has not been developed and it does not have brand equity in PNG.

 Since no previous experience in this market, uncertainty of the acceptance of

Jollibee food items by locals.

b.) Hong Kong

Pros:

 Earlier presence in the country will help Jollibee in speedier setting up of

business in HK. It already had 3 stores in Hong Kong.

  It also provides JB an opportunity to learn from the mistakes of other franchisee

units.

 Location advantage (one of the busiest in Hong Kong).

Cons:

 The other franchisee units had a lot of management issues.

 It did not have a global image there, as it employed local Chinese employees

with no English speaking skills.

 Jollibee failing to change the menu items to cater to the local needs of the

customers.

 Managerial problems (conflicts between Chinese and Filipino staff) led to uneven

product quality.

 Kowloon district had fewer Filipinos so new store would have to depend on locals

but already some issues were going on so Chinese did not use to prefer coming

to Jollibee stores and Jollibee strategy was to cater to the expats of the

Philippines.

 Dominant presence of McDonalds.

c.) California

Pros:

 Availability of different equipment to compensate for comparatively high labor

costs.

 Presence of Filipino population. (California having more than 1 million Filipino

populations’ provides a huge opportunity for JG.)

  The diversity of the area allows Jollibee to broaden its niche to include the

Asian-Hispanic segment and to do so without having to make major

adjustments to its menu.

 Already success in Guam (only 1 store and revenue is 1771202). Its menu

also appealed to Americans as well so they don’t have to do many variations.

Cons:

 Country of origin of McDonalds. Though JB’s items appealed a few

Americans customers, competing with McDonalds for market share poses a

big risk.

 As a late mover, it will be difficult for Jollibee to obtain access to the

distribution channels, suppliers, and store location.

 Logistical problems (12 hrs by plane & 8 time zones away) would put

constraints in rendering support from the headquarters in Philippines.

Alternatives and Recognition

Alternative 1:

Base on the above analysis, Jollibee should go ahead with opening their new store in
Daly City, California. Daly City’s large Filipino expatriate population will be helpful in
supporting the business initially. Also, Jollibee’s successful venture in Guam will come
in handy to cater to the local U.S. people. The option of adopting cost effective process
instead of labour intensive methods are used elsewhere will help in making a cost
differentiation against their competitors.

Alternative 2:

In Hong Kong, the company should concentrate on the existing 3 stores first before
opening a new fourth store. Jollibee will have to customize its menu in japan in order to
attract the Chinese population. Also, the conflict between local Chinese managers and
Filipino managers has to be resolved. Jollibee can give the entire Chinese operation to
the local franchisee and FSM being the contact point between the franchisee and the
company. In the presence of a domination player like McDonald’s in the market, Jollibee
can learn its techniques of catering to the local tastes and try to make the existing
stores less dependent on Filipino expatriates.

Alternative 3:
In Papua New Guinea, in spite of negligible competition the market, the small population
of 5 million is not attractive enough to put in a substantial investment to set up at least 5
stores which will be needed to recover the set up costs. Jollibee also does not have
enough understanding of the tastes of the locales. Though the franchisee is ready to
undertake the equity costs, sole dependence on him can be risky as already seen by
their ventures in Singapore and Taiwan. Here, the company has to conduct a detailed
market study to understand the local food habits, reasons for the failure of the
Australian franchisee, the perception of people towards fast food etc. Only after this
factors can it take an informed decision.
Implementation Plan

With the respect to the other available options, Daly City, California, is comparatively
the best option. The criteria for choosing the franchisee should also be such that each
franchisee should be evaluated based on various criteria, even in case of a potential
Filipino franchisee, so that in the end the franchisee who shares the most number of
common values with Jollibee is selected. The key to Jollibee’s success in Daly City will
be its ability to find a local partner who should not only be able to work with the
international Division but also design a business model that would address issues like
personnel management, recruiting of managers, language barriers, customization of
menu items and branding which were the key factors that resulted in the success or
failure of Jollibee in other countries.

In a market which dominated by McDonalds, marketing should be given more priority

and franchisees should not associate achieving target sales with promotional activities.
The strategy of Filipino-Asian-Hispanic-Mainstream will be difficult to implement, mainly
if Jollibee continues with its policy of ‘standardization of menus’. The variety in menu
should not be at the cost of ‘poor operational efficiency’. If Jollibee has long term plans
with USA it can also set up a R&D department in USA for customizing the menus. The
pricing strategy should also be such that it is priced competitively with respect to
McDonald’s.

Overall, the strategic decision that is to be made is not only about choosing from the 3
available options but also learning from their earlier mistakes in other countries,
changing their business policies and adapting to the dynamic environment of the
business.