Case Study

LOCATION, LOCATION, LOCATION

Adapted from: The Colonel Marches Through China

The volume of China's fast food market estimates to exceed $29 billion US dollars, and as one of the fastest growing economies of the world, we can expect this number to increase. But who has the bigger piece of the pie in the fast-food market? You can probably guess the answer by looking around in one of China's major cities. Tasty Fried Chicken (TFC) dominates the fast-food market in China leaving Mac's Burger following closely behind. Operating in 450 cities in China, TFC has more than 2,000 outlets at the start of 2010 and outnumbers Mac's Burger two to one.TFC's China business alone generated $2 billion in revenue in 2008. TFC's success is accomplished by its strategic approach to location selection.

One of TFC's advantages in dominating the fast-food market is its ability to localize its menu to the tastes of its consumers in China. TFC was able to recognize that chicken is more popular than beef for Chinese consumers. Second only to the United States, China is a world leader in poultry production. Therefore, it was able to defeat Mac's Burger standard general beef menu. TFC is still able to keep its identity by offering classic dishes as the TFC Bucket, but in addition, it offered items such as the Old Beijing Chicken Wrap, egg tarts, rice congee, egg and mushroom soup, pumpkin porridge, Beijing chicken rolls, and Chinese deep-fried twisted dough sticks to name a few. This strategic move to offer items catered to the taste of the Chinese proved success. The theory of TFC's willingness to 'become more Chinese' in taste, appearance, and style gives TFC the edge over the competition.

Critical to the success of TFC is the availability of suitable local suppliers.TFC took a different approach by seeking out and partnering with local Chinese suppliers. Because there were possible political risks and the culture was unfamiliar, TFC engaged with reputable local Chinese partners. It was critical that each of their outlets maintain sufficient supplies and evade political risks. TFC partners with local suppliers such as Jade Manufacturers and Beijing Producers to ensure adequate supplies of poultry in each of TFC's operating restaurants. Having an extensive supply network and also being a supplier for smaller restaurants allows TFC to take in a larger share of the market's revenue.

TFC has a major presence in Chinese cities including: Beijing, Shanghai, Guangzhou and Guangdong. TFC's strategy was to first start building in locations with less risk such as near ports or metropolitan areas. After starting in Beijing, TFC focused on populated coastal areas and then moved to more remote areas. Other factors involved when selecting other locations are the accessibility and the communication systems and transportation service. Also taken into account are the market size, government policies, local taxes, labour costs, and favorable labour supply.

TFC is now the world's largest chicken restaurant company. TFC continues dominate the fast-food industry in China. Its continued success relies heavily on their global strategies implemented. With the rise of competition, it is important for TFC to remain flexible, foster local partnerships, and wisely choose location in order to expand.

Questions

1.Explain the main factors that established the feasibility of TFC expanding its chain of restaurants into China?

2.Describe the possible challenges/ potential problems that TFC may have faced once making the initial decision to operate in China?

3.Outline the importance of adapting to the Chinese market (cultural norms)?

4.What do you think are the possible reasons behind the strategy to initially target coastal areas?

5.Identify possible political risks that arise from a business venturing into new international markets?

6.Provide recommendations for TFC