Jolibee Foods Corporation Case Questions A. Philipine Succes 1.

How was Jollibee able to build its dominant position in fast food in the Philippines? All started in 1975 as an ice cream parlor owned and run by Tan Family. In 1977 after oil crisis which would double costs and with a well know how of the food business and the market where they were playing in, they saw a good opportunity in fast food (hamburgers) business. In my opinion they were able to build a dominant position due to an effective strategy: 1. Its Five Fs philosophy creates a strong link with Filipinos habits. 2. Filipinos home-style recipe. 3. Close day to day operation management. 4. Good relationship network within the company and with many of the franchisees. 5. An economic and political situation. 6. Internally financed.

1. Five Fs philosophy. Friendliness, flavorful food, a fun atmosphere, flexibility in catering to customer needs, and a focus on families are factors which are part of Filipinos culture. They offer an eat experience that consumers prefer over the competition specially children who loves mascot (Jollibees brand recognition). 2. Filipinos Recipe. Hamburgers had been developed from a Filipinos home-style recipe from Tony Tan's father. Appealing large appetites of Filipinos with perfect balance taste. Management has the ability to understand taste preferences and develop alternatives and work with flexibility in order to fulfill consumers expectations being able to offer tested products which are willing to see in their menus. E.g. Peach-Mango dessert pie, different spaghetti or chicken.

3. Operation Management. The well oiled machine lead to massive efficiencies. Tight operation management enables to have a deep control day to day. This mentioned statement result on Jollibees availability to offer good quality, clean environment at an affordable price, 3 strong factors in the fast food industry to success. 4. Relationship and franchises. Close relationship network within the company due to Tan family members in key position of the organization. Also many franchisees are also part of Tan circle (family and friends). This gives Jollibee the chance to grow with solid responsible partners and create a much better flow of information to manage and learn about the processes. TTC learned also from the international ventures that in the fast food business partner and location are key elements to succeed. Both of them probably got by chance from the beginning of the company due to the fact that they were quite alone in the market, early mover. 5. Political and Economic circumstances. An economic and political event enables Jollibee to build its dominant position by slowing investment of the most important competitor, Mc Donald. Thus, Jollibees quick reaction of compete head to head result on a stronger position with less pressure. They anticipate the coming opportunities and take advantage of the situation. 6. Finance Resources. Jollibees finance internally their growth. This fact help a lot not having interest or debt to repay enable to focus on purely growing. 2. What sources of competitive advantage was Jollibee able to develop against McDonalds in its home market? Completive advantages (CAs) are made by the mixture of resources and capabilities hopefully embedded in order to make them difficult or impossible to copy. Jollibee create several CAs, but there is no doubt about the most important of them: Philippine consumers preferred the taste of Jollibees hamburger by a wide margin. McDonalds had more resources and complex operation systems but plain flavored patties which cant compete with Jollibee spicy taste hamburgers. In order to feat world famous Big Mac, Jollibee launched the Champ a bigger burger for the Filipinos, which was marketed focus on taste and size. Other important CAs are: y Jollibee born in the Filipinos market, creating the industry alone for some years in its homeland without any distance issues. Since Jollibee creates the industry, they of course take the advantage of this. But most important is to work in order to keep the advantage in the time, especially after the arrival of McDonald.
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From the above mentioned status, Jollibee was an early mover in home market, leading to gain best partners and locations, especially during the unrest governance period. As motioned before, TTC learned from the past that partners and location are key success factor in the fast food industry. In the case is mentioned the importance of the ticket of the consumers order factor which is quite important to compete against McDonald. Jollibee understand perfectly the importance of this point and R&D work in a flexible way to cater the taste of local consumers. The better knowledge of Filipinos habits enables to increase appealing core menus. They launch The Champ and several extra menu choices with big success. In the other hand McDonald as a giant hamburger seller, there is a big lack of flexibility to adapt to local preferences. Take advantage of the 83s crisis, with hard investing leading to have more than 30 stores by the end of the third year after McDonalds entry.

All this factors create a solid management, well understanding of the market and consumers taste. With an easy flow of information the learning experience was impressive, leading to create clear and trustful procedures on how to manage a store and the complete chain in very efficient way. B. Kitchners Performance 3. Turning to Tony Kitchners effectiveness as the first head of Jollibees international division: a) Do the elements of Kitchners international strategic thrust make sense? Tony Kichtner (TK) was an Australian manager former Pizza Hut Asia-Pacific area who was hired to operate the International Division (ID) with the objective to become one of the top 10 fast food chains in 2000. He used 2 strategies: y y Planting Flags: be the first mover in markets where there was little or no competition. Targeting Expats: Filipinos in different countries will support start ups as a niche of consumption.

Planting Flags Strategy With this strategy TK was willing to create brand recognition. This start ups requires a lot of resources to find out local taste, habits, R&D and marketing. Also for advertising and promotion, a minimum of sales needed to be achieved in order to finance the campaign and create brand awareness. In fact, there were unprofitable ventures in Middle East that could have been avoided by simple market analysis before the launching stores. He also creates the Franchise Service Manager (FSM) in order to support franchiser abroad, but since this strategy was out of control it was quite difficult to give good enough service to all the franchiser simultaneously. There is always some uncertainty in new markets and Jollibee already experienced failures of foreign start ups from the past.
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TK did a frenetic planting on high investment associated with opening of new markets, poorly executed and unsupported by research, completely opposite to the CAs, core strategies and culture of TTC and Jollibee. Targeting Expats Strategy Targeting Filipinos emigrants was an easy way to get a niche in new overseas markets. The risk was to appeal a too narrow segment, but can be a safe starting point waiting for the future expansion of the shops abroad. Plan sound reasonable, especially due to Jollibees deep understanding of Filipinos, but again without research to support new markets entries, they didnt realize that Filipinos abroad were not the same profile that they expected. In some cases taste preferences were different and Filipinos segments were standing on upper or lower ends, none of them the right niche for Jollibee. The complete strategy thrust was unfocused and at some point uncontrolled. Ghemawats CAGE framework (Table 1) is useful to find out all the main issues to take in consideration when starting abroad investing in order to internationalize the organization. All mentioned point, and probably some more specific ones, could have been revised by TK before launching shops in unknown markets. Table 1. CAGE Framework: Country level Analysis

In the meantime TK separates the ID from the rest of the company arguing that for international expansion things should be done different. This approach create deep criticism even hostility from domestic side. This end with lack of support from key departments for abroad ventures, likes R&D and Finance. b) How effectively did he develop the organization to implement his priorities? The International Division was developed quite efficiently and quickly. TK hired several external experienced professional and also take some selected employees from the domestic side. At some point he manage a team of 32 person (use to be only 3) highly focused on the FSM.
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He needs to be separate from the Philippine side so he develops a different identity. In order to do that, he created the dressing code and renewed the offices. TK said from the case: We had to look and act like multinational if we want businessman to invest millions. He also needs different capabilities, thus he start to create a sort of distance with actual CAs of domestic Jollibee. Gradually ID differentiated from the Philippine organization with different operating system, shop design, menus, advertising and even company logo. At some point TK made Jollibee ID looks like a completely different company. All mentioned about the implementation of TK could be quite ok, but he was not considering the readiness of companys resources to take this rapid expansion. His mindset was stuck in the unlimited resources of Pizza Hut. Unfortunately in my opinion TK never understood the Jollibees culture and thats why there was settled an important pitfall between divisions. Is fair to create new capabilities but remember where you come from and protecting current strengths (Voisey Handouts). At the end of TKs period, employees show a clear hostility from both sides and even worse, crucial departments like R&D and Finance stop the support to ID. Communication between them fails dramatically, no cooperation at all. Finally, TK wasnt in line with Jollibees success factors Five Fs and insights learned from the past overseas experiences (Singapore, Taiwan, Brunei, etc) neither TTC thoughts: we prefer to go slower, making sure that each store is profitable, this create good long term relationships. C. Growth Opportunities 4. As Noli Tingzon, how would you deal with the three options described at the end of the case? How would you implement your decision? When Noli Tingzon (NT) took the responsibility of the ID, he was faced with tree good alternatives to grow. The options were Raising the Standard in Papua New Guinea, Expand the Base in Hong Kong or Support the Settler in California. Details and issues per market location: In Papua New Guinea, Jollibee can be the first mover and Plant the flag. There are no fast food places to eat, at least not a high quality alternative. This country with 5 million populations represent a limited option to grow, despite of this, the investment is not that high and is in hands of a franchisee that is willing to finance the project. The question is regarding the number of shops needed to create an efficient operation and advertising. NT knows that for proper management Jollibee needs to run at least 20 stores and costly market analyses to learn how to appeal local customers are needed. Profitability per store is the bigger doubt/risk. Hong Kong is a market that Jollibee is already running since a couple of years and still trying to understand. Although TTCs brother in law is the country manager, there are many operating and cultural issues to solve before opening a new shop. NT must learn about Chinese culture and the proper way to deal with shop managers and staff. Chinese employees dont want to work for
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foreigners and middle management made a massively resign. Also customers dont like English spoken staff. Until now earnings come from expats, since sales are made basically during weekend when Filipinos comes to socialize. Locals rarely visit the shop also because of the healthy lifestyle of Chinese culture which is a contradiction with Jollibees menu. Hong Kong strategy must first be revised as example the brand awareness is still very weak. There is a big opportunity to work hard and learn in order to improve current operation. TTCs long-held belief is that Jollibee could make a wining position in the origin land of fast food. They also had a successful launch in Guam, an American territory. There, Jollibee was able to appeal Filipinos and Americans also and easily with same recipes. It seems that taste preferences are similar for both segments. The starting location supposes to be California, Daly City, which has both large Filipinos and Asian population with important brand awareness. Biggest threats are that could be that Filipinos expats are not as expected (Middle East failure), fierce rivalry with fast food giants in their home land and of course the geographical distance together with several time zones. The Guam experience promotes positivism about potential consumers, also with Hispanic-American segment. Market analysis must be done in order to find opportunities, best location, good partner and understand the unwritten law of this saturated market, as late mover and in a completely new business environment (no experience in Western country before). From all mentioned before, a Country portfolio analysis is a common and pragmatic practice of fast food companies together with the CAGE framework and a brief industry analysis with Porters 5 forces model per location, will give us a good understanding of the different situation and will be very helpful to decide whether to expand in Papua New Guinea, Hong Kong or California (see Table 2). Table 2. Analysis comparing locations and situations.
Papua New Guinea Subtitutes New Entrants Power of Supplier Power of Customers Rivalry / Competition poor substitutes small market, not very interesting difficult to find correct suppliers big power of Customers very little Hong Kong 5 Forces there are "healthier" substitutes some margin to grow there are working already together big power of Customers quite some competition Country portfolio Analysis 1200 millions there is potential, but cultural differences concerned on deep fried food important managerial issues CAGE big big managing issues small different wages California quite a lot substitutes saturated market mature industry, weak power for suppliers Big power of Customers heavy competition

Individual market Grow potential External (Industry) Internal (Jollibee)

5 millions there is potential, but low revenues no fast food industry financing partner who take the risk

260 millions there is big potencial, fast food culture well known and mature sector replicate Guam success

Cultural distance Administrative distance Geografical distance Economic distance TOTAL ANALISYS

medium no info medium different wages, no fast food industry

small small, Guam works ok big including several time zones different wages

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NT must also keep in mind all learned success factors from the past applicable to decide whether to open shops in any of the different alternat ives. From previou s quest ions we have: y y y y y Find proper partners abroad. Choose good locat ions. Remain flexible to culture differences. Grow slow and profitable. Get good enough support from domest ic side.

Priorities given the tree alternatives: first California (USA), then Papua New Guinea and finally China. Daly City presents lower risk and slight changes in the current operation. From Voiseys handouts, lessons learnt very applicable to this case: y y y y y y Firms should internationalize first to countries that present fewer barriers to the successful exportation of its competitive advantage. Managers may act as creative social entrepreneurs, finding unconventional options for transforming the structure of demand in foreign locations. Managers must understand their firms present and future strategic taks, demands and it administrative heritage. Creativity and strong (semi-local) management can yield results far better than would be expected by a simple market analysis. There is no single best global strategy for a given industry what makes sense for one company may not be true for other. Quickly learn the unwritten and unspoken rules of the game.

Some recommendations for effective implementation in America. y y y y y y y y y First of all ID should learn from TK failures and improve relationship within the organization to gain sufficient support. Support decisions on research. Investment in technologies for remotely operation controlling and cooking facilities. Distance and expensive labor environment are important threats. Flexibility in menus to cater not only Philippines. Appeal Americans and Hispanic segments is important to materialize growth desires. Find committed franchisee, experienced in the local industry and with long term goals. Find locations that will secure tickets and traffic. Reach critical volumes as soon as possible to be able to advertise, promotion, proper operation and overall benefits of economies of scales. Keep quality, hygiene and price level. Create a flow of knowledge management in order to generate a continuous improving cycle.

Hong Kong and Papua New Guinea business are not options to forget. Especially Hong Kong, which requires a deeper and complex customize operation but if well implemented, could be the beginning of a huge success in the giant Chinese market.

References Ghemawat, P. (2007) Redefining Global Strategy crossing borders in a world where differences still matter, Boston: Harvard Business School Publishing Corporation.