McDonalds and KFC: Recipes for Success in China

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Masters of Business Administration

Strategic Management

Time Constrained Assignment

[Exact word count: 3976 words]

Excluding Introduction, Question in text, References, and Conclusion

McDonalds and KFC: Recipes for Success in China

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RDI Student No:

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1.        INTRODUCTION        

a.        CHINA’S ATTRACTIVENESS        

b.        COMPANY BACKGROUNDS        

2.        QUESTION ONE        

a.        BACKGROUND        

b.        Processes        

i.        Is consumer taste similar to that of our home country?        

ii.        Can we procure quality raw materials?        

c.        MY CONCLUSION        

3.        QUESTION 2        

a.        Ansoff Matrix        

b.        Industry Life Cycle        

c.        PESTEL        

d.        Porter’s Five Forces        

4.        QUESTION 3        

a.        BACKGROUND        

b.        Possible Cultural issues and methods of management        

i.        Employment        

ii.        Customers        

iii.        Business partners        

iv.        Corporate Culture        

5.        QUESTION 4        

a.        SUPPLY CHAIN        

b.        LOGISTICS        

6.        CONCLUSION        

7.        REFERENCES        



China’s decision to relax some of its fiscal policies and restrictions towards international business has led to an invasion of its economy by foreign multinationals that aim to get a slice of what the country has to offer. The benefits of doing business in China are immense, there is a large population exceeding 1.3 billion, a booming economy whose GDP rises on an average of 9% yearly, and increased consumer spending amongst its populace due to an economic boom. Foreign quick service restaurant chains such as McDonalds and KFC have been quick to identify and successfully expand their foreign operations into the country.


KFC, also known as Kentucky Friend Chicken is a chain of over 15,500 fast food restaurants. The company was established in 1930 and has expanded aggressively in international markets into becoming one of the largest fast food restaurant chains in the world. 2008 revenues of KFC China were $2,980 million, with operating profits exceeding 20% and annual growth rate of 28% in 2008. KFC has 2,300 stores in China.

McDonalds Corporation is the world’s third largest quick service restaurant chain with over 31,000 stores globally. The company was founded in 1937, and begun its international expansion in 1967. It expanded into China in 1990, three years after KFC, and now has 1,000 stores in the country. Revenues for Asia/Pacific, Middle East and Africa were $7,938 billion inn 2007.


Based on evidence from the case study and other sources, critically evaluate the processes by which quick service restaurant operators can make replication versus adaptation decisions when entering new markets. What do you conclude?



Successful growth strategies for diverse and large multinational organizations depends on how well they can create and grow a large number of similar outlets in all their different geographical locations. For a multinational corporation to gain competitive advantage on an international scale, it must be able to successfully replicate effective practices, products and services (Szulanski and Jensen, 2008). Based on the case study, expansion of businesses into international regions poses huge barriers. Though they may be globally known for selling particular products in several countries, new market entry may be daunting tasks.

The decision therefore is for firms to choose the market adaptation mode that best suits their global strategy and the local market within which they intend to establish businesses. According to the case study, China was a difficult country to invest in for many foreign companies. They had a totally different culture and consumer behaviour. McDonalds and KFC, amongst others faced major hurdles such as a ‘different labour structure, difficulty in recruiting technically competent and culturally sensitive managers…’ The strategic decision therefore was for both companies and international franchisors alike to choose the level of standardisation or local adaptation that they would need to incorporate in their daily operations in order to successfully compete in the market and also adhere to their corporate values, objectives and philosophy.

Zaheer (1995) asserts that the core reason why MNCs exists is in their ability to replicate business practices. Therefore, it is easily understandable why both KFC and McDonalds kept to their core American brand ethos, and also their corporate image that had been successful over many years. Their brand name and a vast majority of their operational processes and products were the same as those sold in international markets. However Kaufmann and Eroglu (1999) depict that the diversity of geographical environment exposes multinational organizations to diverse market conditions; therefore a common uniform framework across all geographical locations cannot work.


Based on adaptation and replication issues raised in the case study and theories regarding strategic decision making, a multinational organization wondering whether to adapt or replicate its products, service or processes should answer the following questions:

  1. Is consumer taste similar to that of our home country?

KFC and McDonalds both had strong global brands that were internationally recognised. Therefore when venturing into China, it was totally logical that they should leverage their products, services and processes. McDonalds chose to have a standardised global menu with local selections. 80% of McDonalds menu was the same as that in international markets, with just a few localised meals being added into the mix.

KFC however portrayed itself as an ‘American brand with Chinese characteristics’, and 40% of its menu consists of localised meals. Its most popular meals had always been localised meals such as the spicy chicken wings, as opposed to the internationally acclaimed Original Recipe chicken. KFC’s strategy worked better than McDonalds, as it was better able to expand its stores and pursue aggressive expansion.

  1. Can we procure quality raw materials?

For McDonalds, everything from procurement of raw materials and preparation of meals were done according to already established manuals, which reduced room for errors and ensured a consistent product, process and service everywhere there was a McDonalds in the world. All items were sourced from global suppliers who had to establish their businesses in China just because of McDonald’s market entry.

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KFC however chose a different approach, its products were sourced locally and not in tandem with international divisions. It set up a joint venture from the start with Beijing Animal Production Company and sourced every other raw food material from Chinese sources. KFC also embarked on a large-scale localization strategy when it set up an R & D team and test kitchen to develop new localised meals for the Chinese market.

Both strategies do seem to have their advantages and disadvantages. Kogut and Singh (1988) found a high correlation between franchises that failed, and their high level of ...

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