Kentucky Fried Chicken is the world’s most global fast-food chain in terms of national vs.
international proportion of its restaurants. Forced by competitive overcapacity, a stagnant labor
market and an aging U.S. consumer group that had acquired a different taste, KFC expanded its
foreign activities swiftly during the 80s-90s. Building on the experience it had acquired in it’s lowscale
international ventures it had started in the 1950s, Tricon Global Restaurants (that besides KFC
also holds Taco Bell and the Pizza Hut) became the largest ‘off-shore fast-food chain’ at the start of
the 21st century.
The case has two parts: one concerning KFC’s history and place as a business unit of various
conglomerates in the American market, the other of KFC’s strategy in Latin America, in the case
focusing on Mexico extensively. It ends with three options that the writer proposes for the design of a
Latin American strategy for KFC over the next twenty years.
Case Questions
1. What does KFC’s foreign market portfolio look like? Focus on Mexico, Puerto Rico, Peru,
Venezuela, Brazil and Chile, and KFC’s position vis-à-vis McDonalds, BurgerKing and Wendy’s.
2. How would you describe KFC’s international strategy? Which cross-border synergies does KFC
reap and how locally responsive is the company?
3. What strategy would KFC follow if the company were to fully embrace the global convergence
perspective? And what strategy would they follow if they reasoned from an international diversity
perspective?
4. What is KFC’s current international management approach? Which international integration
mechanisms does KFC’s management team employ and how do they use these?
5. What do you think should be KFC’s strategy in Latin America? How would you manage KFC
internationally?
2. How would you describe KFC’s international strategy? Which cross-border synergies can KFC reap and how locally responsive is the company?
KFC’s international composition provides an exemplary mix of international entry strategies. The
company enters a foreign market either by a greenfield entry by establishing a company-owned
foreign subsidiary (21 %) or by a joint venture (10 %) (figure 10.2 in the book). However, in most of
the cases, KFC expands it global franchise-network (69 %). In Latin America, KFC illustrates this
mix, too. The entries into Mexico and Puerto Rico, accessed firstly because of their geographical and
social proximity to KFC’s home country, were established through company-owned subsidiaries,
where small markets in the Caribbean were opened up by franchisees. The country differences in
KFC’s distribution channels have effect on the way the company is able to reap cross-border
synergies between it’s Latin American country units and its local responsiveness in each country. An
interesting discussion point here would be why: in general, franchisees are less able to build on global
synergies yet are more locally responsive, where more integrated company-owned subsidiaries
provide more means for the corporate center to capture cross-border synergies yet could be less
receptive to country-specific demands. This is illustrated by the case example of Pepsi interfering in
KFC’s franchise operations in an attempt to capture more synergies, and the resistance of the
franchisees that followed.
First, the teacher can handle the synergies that KFC can capture by using the business model tool
from Chapter 5. When handling this question, figure 10.5 (‘forms of cross-border synergies) can be
used as a slide template. Cross-border synergies can be reaped by leveraging resources, integrating
activities and aligning positions.
The resources KFC can leverage are mainly intangible. Students could come up with the following
examples:
Relationships: Connections and bargaining power with suppliers; especially with the soft drink
manufacturer (which would probably be a global brand: PepsiCo);
Knowledge: Marketing know-how, expertise in customer service, embedded food preparation
techniques, advertising insights, supply and stocking management intelligence;
Capabilities: Preparation skills, service abilities, purchasing capabilities, interior decorating
competences;
Attitude: The ‘Colonel Sanders home-cooked Kentucky Fried Chicken’ service and style-mindset.
The following activities hold possibilities for cross-border integration:
Operations: Packaging of food and drinks, sharing of other materials (napkins, ketchup containers
etc.), food preparation (standard recipe and assembling handbooks);
Outbound logistics: Distribution standards, maybe even shared physical distribution, for instance
in the Caribbean;
Marketing and sales: Some advertising could be typically conducted from the US-based head
office or a sub-regional office;
- Service: Service standards, uniforms, restaurant interiors;
- Procurement: Purchasing lists, supplier selection criteria, supplier contract standards;
- Human resource management: Recruitment processes, training programs, function profiles,
- payment schedules;
- Research and development: This would typically be centralized in the US;
- Infrastructure: Financial systems, internal accounting and reporting standards, quality criteria and programs.
Position towards cross-border customers: KFC having the same brand, image and menu in every
country could be very appealing for tourists and business travelers;
Position towards cross-border competitors: Global rivals dominate the international fast-food
business, so to be able to deal with these competitors some sort of global positioning towards
them should be established.
Secondly, it is inevitable that KFC has to deal with certain country-specific characteristics. Judging
the amount of franchisees (69%), KFC seems fairly responsive to local conditions and demands.
Actually, the foremost reason for KFC to have franchises in some countries is that these are ‘owned
and operated by local entrepreneurs who have a deeper understanding of local language, culture,
customs, law, financial markets, and marketing characteristics’. In order to illustrate the demand for
local responsiveness for KFC, examples are given for the fairly diverse countries that were analyzed
in question 1, as well as some examples that are taken from the case. The following is based on the
possible country differences as mentioned in the textbook.
Differences in market structure: KFC deals with globally present as well as locally based
competitors in a different way in each country. For instance, in Mexico KFC has to deal with
McDonalds, Wendy’s and Burger King, as well as native ‘El Pollo Loco’, where in Brazil it has
only one international rival McDonalds, with a powerful local competitor ‘Habib’s’;
Differences in customer needs: For instance, KFC’s customers in Puerto Rico are mainly tourists
with an American taste palate, where Chilean customers will mainly be locals with different
preferences. Worldwide, KFC is relatively more successful in Asia and Latin America where
chicken is a traditional dish, in South America usually combined with rice and beans (or beans
and rice, which is totally different);
Differences in buying behavior: If this depends on income, there should be distinct differences
between, for instance, Chile and Peru. On the global level, the European attitude towards take-out
and over-the-counter fast-food differs from the American stance;
Differences in substitutes: In Mexico, there’s a taco-stand on virtually every corner of an avenida–
in Chile, people would probably eat chili-con-carne sitting down in a restaurant rather than having
to eat the slush with their fingers;
Differences in infrastructure: One of the key issues KFC will have to deal with when entering or
expanding in a certain country is the location of a new restaurant. KFC would have different
establishment criteria for a restaurant to be located in the relatively insecure downtown area of
Caracas then for a location in the tourist center of Puerto Rico;
Differences in supply structure: For instance, supplies for the Puerto Rican tourist center
restaurant will be far easier to obtain than the goods for the Caracas eatery in Venezuela, which
should be far more expensive, if even available. Also, in Mexico KFC has one sole supplier for its
chicken (Tyson Foods), which does not have to be so in other countries;
Differences in government regulations: Chilean government policy is very open for foreign
companies, with some saying that it even matches western industrialized countries in this respect.
Peru, on the other hand, is renowned for it’s bureaucracy and eroded public institutions.
3. What strategy would KFC follow if the company were to fully embrace the global convergence perspective? And what strategy would they follow if they reasoned from an international diversity perspective?
From question 2, awareness was created for the countervailing pressures of the demand for global
synergy and the demand for local responsiveness. Question 3 is aimed at creating awareness that these
express themselves in two underlying viewpoints at both sides of the paradox of globalization and
localization. In question 5 students will have to congregate these two extremes. Where the former two questions were intended to test the students’ analytical abilities, this question will inspire the more
creative students; it asks them to exaggerate their own perspective and the opposing perspective on
the international context. The latter could provide foundation for a debate during class. The following
serves as an example for the answers they will give; they will probably come up with other ideas, too.
If Kentucky Fried Chicken would totally adopt the global convergence perspective in its international
configuration, the company would view the world as one global village, without any of the local
differences as mentioned with the former question. In other words, every business model on the
country level would have a similar profile with respect to its resources, activities and offerings, in
order to totally capture potential cross-border synergies. Most resources could be reallocated to the
U.S. (f.e. centralization of all new product development factories) or replicated throughout the world
(f.e. marketing know-how is copied in every single country). Furthermore, by integrating all activities
scale advantages are reaped (f.e. centralization of all operational activities; even food could be prefabricated
in a couple of regional centers) or location advantages are harvested (f.e. moving all
purchasing activities to one country where suppliers offer the best price). Probably closest to KFC’s
current way of doing, the company would have the same customer position in every country (f.e. the
same Original Recipe Chicken, service - in English - and restaurant interiors; even the background
music would be the same everywhere). Additionally, the company would assume it would meet the
same rivals around the world; therefore, its competitive position would be identical in each country.
On the other hand, if Kentucky Fried Chicken would totally adopt the international diversity
perspective, it would behave the opposite. There would be no strategy based on capturing crossborder
synergies; instead, local responsiveness would be fully emphasized. Consequently, for every
example above a counterexample could be given. Hence, decentralization of all production facilities,
marketing know-how that differs totally in every part of the world, decentralization of operational
activities, single purchasing centers in every country, different products and services in every market
and a different positioning towards local rivals would be examples of KFC’s characteristics then.
4. What is KFC’s current international management approach? Which international integration mechanisms does KFC’s management team employ and how do they use these?
The first part of this question refers to reading 10.4 (Bartlett and Ghoshal), as well as the main text in
the textbook. KFC’s organizational model is closest to a coordinated federation. The relations
between the country units and the corporate center are closer then the weak links characteristic of a
decentralized federation, yet not as tight as a centralized hub or an integrated network. This also
comes forward in the mix between company-owned subsidiaries and franchises. Flows between
headquarters and the units are mainly knowledge-based, concerning norms on systems and processes
that are largely formally controlled. In managing it’s international (Latin American) portfolio, KFC
uses a mix of the three integration mechanisms as mentioned in the textbook. Here, examples are
only taken from the case text; the teacher can also choose to make this a hypothetical question, asking
the students to assign the integration mechanism(s) best suited for the type of synergy as discussed in
question 2.
Standardization: norms are set to control quality, service and restaurant cleanliness
Coordination: fixed costs are spread by coordinating purchasing, recruiting and training,
financing and advertising
Centralization: in the late 1990s, KFC refocused on introducing a variety of new products and
menu items. Research and development will be located in it’s home country, the U.S., where
(extensive) testing also takes place.
