OPERATIONS MANAGEMENT

INDIVIDUAL ASSIGNMENT 2:
CRITICAL ANALYSIS ON LOCATION STRATEGY OF KENTUCKY FRIED CHICKEN (KFC)
IN CHINA

BY:
NUR SHAIRAH MOHAMAD TARMIZI

A ) Justification of Case Selection

Kentucky Fried Chicken or KFC is an American�fast food restaurant�chain that

specializes in�fried chicken. Kentucky, it is the world's second-largest restaurant
chain after�McDonald's, with almost 20,000 locations globally in 123 countries and
territories as of December 2015. Its headquarter is in�Louisville, Kentucky. KFC
was one of the first American fast food chains to expand internationally. It had
already opened outlets in Canada, the United Kingdom, Mexico, and Jamaica by the
mid-1960s. In 1987, it became the first Western restaurant chain to open in China.
It has since expanded rapidly in China. KFC had focusing product differentiation as
its competitive advantage with its founder, Colonel Sanders secret recipe. So, how
KFC implant its strategy when it offers western food in a community that values its
cultural dishes? One of the secrets falls upon its location strategy.
All the facility locations selected by the KFC are the state of the art since they
used proper methods for facility location and layout analysis of new or existing
outlets.

B) Case Summarization

KFC had encountered various challenges in setting up its franchises in China

including political, legal, communications, infrastructure and demographic
challenges. Faced with the challenges mentioned, KFC considered deliberately and
carried out a suitable location strategy in Chinese market via the combination of
these factors including proximity to customers, business climate, infrastructure,
quality of labour and others. �
In terms of economic climate, the economic reforms have help China�s economy
developed a lot especially in the coastal provinces of east China, which takes up
nearly two thirds of the country�s GDP. And the government promotion policies for
foreign investment are more favourable in these regions.
Proximity to the customers can be explained as China is one of the country that has
high population and most concentrated in east cost due to historical and
geographical features as the density of the labour force mostly due to the economic
reforms and open door policy which largely enhanced the development speed of these
areas.
The infrastructure building in China has experienced a great growth and expansion
from the early 1980, for instance, the transportation construction including
airports, roads, and railway building has developed tremendously. Thus, it is
crucial for KFC to take the convenience in raw material distribution into
account.�The railway services and highways in China mainly located in the east
coastal regions.
There are more than 800,000 engineering graduates every year in China based on the
official statistics, which builds a solid foundation to make sure the quality of
labour force in China and a large amount of which have been surging into east coast
of China. The benefit of talents could help KFC to alleviate the problem of local
and western difference since they can be one of the operation support force of KFC.
Thus, taken care of the mentioned factors, KFC chose Beijing as its first location
in Asia. At first, as the political and cultural centre, there are a large number
of migrant populations which suggest a large potential consumer population.
Secondly, it is also the educational centre of China with several famous
universities and colleges. Furthermore, Beijing is also a tourist resort with a
stable foreign currency income. These specialties not only have attracted lots of
people surging into Beijing but also accepting the intelligence of the people there
which is important for KFC�s sales. And the first KFC restaurant in Beijing can
also attract a great attention of people all over the country, in which it can
facilitate its future expansion in China�s other places. More notably, KFC�s
location strategies also involves the consideration of the balance between the
risks and opportunities in China�s market, which chose the year 1987 to enter
Chinese market when there wasn�t other strong competitors there.
KFC continues expanding its location to Shanghai since it is the biggest business
market in China and one of the biggest city directly controlled by the central
government. Not only that, it also has a most concentrated public transport system
and frequently held many national events, thus, attracted great many of people to
come there. KFC continued to expand to Guangzhou au and small cities.
For some medium sized cities, KFC has launched its business gradually under the
trend of west development supported by Chinese central government in the 1990s,
such as Chengdu one of the key cities of west development. Due to a series of
special policies for these cities from both central government as well as
provincial governments, foreign invested firms are welcomed by these cities and
enjoyed several favourable policies for their future development.

C) Analysis and Lesson Learnt

KFC China offers important lessons for global executives who seek to determine how
much of an existing business model is worth keeping in emerging markets and how
much should be thrown away. KFC succeeded in maintaining its competitive advantage
of product differentiation, and managed to expand its location across Asia. China
the location strategy is one of the successful story of KFC whereas it is not only
focus on the quality, services and cleanliness; but it also managed to penetrate to
the local culture. KFC had used the �first come first serve� rule to strengthen its
stronghold in china over the years. It could be concluded that, KFC in China
success factors includes its number of outlets, extensive menu (to accommodate the
cultural differences), low price, service or ambiance and taste.
However, KFC are expected to face new challenges in terms of fast food competitors,
cultural acceptance, globalization and food health. Thus, it is recommended that
KFC:
1)Maintain its present business scales in China before it makes proper adjustments
in every corner of its business especially under the attack of global financial
crisis.
2)Since Chinese people become more and more aware of the diet health, KFC in China
had better take this consideration into account. It is recommended to offer more
variety of food with healthy essence, which may not only help it maintain the
existing customers resources but also facilitate it attract more new customers who
have limited meal time but also take care of diet health.
3)Although KFC is famous for its chicken products, it had better develop more short
term substitutes from time to time for the chicken products, which could both
enhance its capacity on defending risks and give a good assurance to the local.

REFERENCES

Bell, D. E., & Shelman, M. L. (2011). KFC's Radical Approach to China.�Harvard

Business Review,�89(11), 137-142.

Leo Paul Dana, (1999) "Kentucky Fried Chicken", British Food Journal, Vol. 101
Issue: 5/6, pp.493-496Ricky (2015). Study of�KFC�s location strategies�in China.

Terrence H. Witkowski, Yulong Ma, Dan Zheng, (2003) "Cross-cultural influences on

brand identity impressions: KFC in China and the United States", Asia Pacific
Journal of Marketing and Logistics, Vol. 15 Issue: 1/2, pp.74-88

Yum! Brands. (2016) Annual Report. https://en.wikipedia.org/wiki/KFC

APPENDICES

KFC LOCATIONS

MAPS OF TRANSPORTATION DISTRIBUTION IN CHINA