In late September, 1986, KFC Hometown Chicken Company began to consider how to hit the most populous China market and explore the huge potential contained in this huge market. Although the prospect is optimistic, many practical problems also make KFC's decision makers feel headache and hesitant. For the world's largest chicken restaurant company, the China market in front of it is completely unfamiliar: can KFC's pure western flavor be accepted by China consumers? Developing China market requires not only technical resources, but also valuable management resources. In addition, it is impossible to remit a large amount of hard currency profits from China, even if it is at a moderate level. Crucially, to enter the China market, it is necessary to choose a specific investment location, which has great uncertainty.
Tony Wang, as the deputy general manager of KFC in Southeast Asia, has undertaken the important task of expanding the China market. As early as 1984, Wang established a joint venture called "Orchid Food" with a local partner in Tianjin, China, which was the first Sino-US joint venture in the restaurant industry in China. This 81-seat restaurant with take-away service was a great success from the first day of its opening, and its operating income was 111% higher than the break-even point.
Tony Wang has always believed that American fast food has great potential in the Far East market. Encouraged by this success, Wang began to consider transferring the concession in the main areas of China to attract his hometown chickens to China. In 1985, Wang wrote to Mayer, the general manager of KFC, trying to convince the other party that now is a favorable time to actively enter the China market.
I am fully convinced that KFC has an absolute competitive advantage over any other American fast food chain stores in entering the China market at present. Although McDonald's hamburger is trying to establish a relationship with China, there is still a long way to go before the supply of beef becomes feasible! On the other hand, the poultry industry, as a priority area in China's agricultural modernization, is strongly supported and encouraged by the government. My opinion is that KFC can open the door to China and establish an indisputable leading position by building a solid poultry supply base.
Meyer is greatly excited about Wang's proposal to introduce KFC into China. Wang himself has a long and successful history in KFC and can be trusted completely. In addition, Wang himself is from China, and he can speak standard Mandarin, which is conducive to negotiation. However, Meyer still has a lot of worries and anxieties about turning the China market, an important market with war significance, into a franchise. Experience in the international market shows that it is seriously dangerous to rely on the concession. Granting the franchise will also jeopardize KFC's ability to develop into other parts of China in the future. Meyer has mixed feelings. The general idea is that the market of China is "too important to be developed as a company's business".
At the same time, Tony Wang is soberly aware that it is impossible to introduce KFC into China only by his own resources. The experience he gained in Tianjin strengthened his conviction that to do business under the banner of KFC, there is no doubt that China employees should make a fundamental change in their work attitude. This change can only be achieved through a time-consuming training program, which means that he has to invest a lot of money before starting business, and he can't afford it all. In addition, Wang is also worried about the cost of preliminary work such as finding partners, negotiating, signing leases and obtaining business licenses. By the late autumn of 1985, Wang Yue realized more and more clearly that "the market of China is too big for individuals".
in April of p>1986, Meyer decided to take action. Reorganize KFC's Southeast Asia regional office and buy all the franchise rights in Singapore. It is operating 29 KFC hometown chicken shops, which will add considerable new management burden to KFC's Southeast Asia regional office. Meyer invited Wang to be the business director in Southeast Asia, and expressed his support for Wang to push forward his China plan according to his best judgment and efforts.
Tony Wang accepted this position, and in the summer of 1986, he set up a KFC regional office in Southeast Asia with its headquarters in Singapore. According to Wang himself, he accepted this position because "it is a personal challenge for him to develop KFC hometown chicken in China". He regards the opportunity to set up the first Western-style fast food restaurant in China as a historic opportunity-both for individuals and for the whole company. He also realized that this adventure may fail because the obvious challenge of this job brings great risks to him personally.
Considering the overall situation of KFC's business in Southeast Asia, Wang began to look at the investment decision in China with a special eye. The single goal of entering the China market must be balanced with other investment opportunities in this region. KFC has great development potential in the whole Southeast Asia. Although the markets of other countries in this region are smaller than all the markets in China, they have been exposed to western-style fast food and have a deep understanding of the demand for KFC products. Compared with China, it is attractive to pursue growth in these markets. Maintaining control over partners and employees is also relatively simple. This will lead to rapid growth and higher investment recovery, and hard currency is also easy to obtain. On the contrary, opening up the China market requires a lot of scarce management resources. The first restriction is that KFC has a limited number of managers who can speak Chinese, and most of them have already made arrangements in Hong Kong and Singapore. Therefore, by the end of the summer of 1986, Wang began to doubt whether putting this part of human resources in China was in the best interests of the whole Southeast Asian region under his charge.
When the situation was unclear, Wang decided to conduct a more comprehensive and thorough investigation of the China market. The first question he faced was: Where should the first KFC store be located? This decision will have a dramatic impact on future profits, further development in other areas of China, and the determination to invest in management resources, and all other extremely important considerations related to whether or not to do it.
Wang first thought of Tianjin. Through his earlier experience, Wang has established a very friendly relationship with the Tianjin municipal government. In addition, Tianjin is one of the three municipalities directly under the central government. However, he also saw several weaknesses in Tianjin. First of all, Tianli lacks convenient grain-fed broilers. KFC's experience in Hongkong shows that China consumers pay great attention to the freshness and delicious taste of food, which is even more important for a product that China people are not familiar with. Another problem is that western tourists generally don't frequent the city. Although Wang predicts that the main sales revenue will be the soft currency-RMB, part of the hard currency sales revenue is also very important for remittance of profits and purchase of important inputs such as chicken wrapping materials, packaging, promotional materials and so on. Finally, and perhaps most importantly, Tianjin may not be the base for KFC to explore the national market in the future. The city does not have the image and influence needed for this grand plan. Geographically, Tianjin is usually regarded as the gateway to Beijing.
then, what about other site selection schemes-Shanghai, Guangzhou and Beijing? Let's do it one by one.
Shanghai is the largest market in China, with more than 11 million residents, more than 9,111 factories and the busiest port in China. Shanghai is the most prosperous business center in China. The total industrial output value accounts for 11% of the whole country, and foreign trade exports account for 17% of the whole country. It is one of the municipalities directly under the Central Government.
Shanghai has a long history of communication with the west. In the middle of the 9th century, Britain forced China to sign the treaty of nanking, and Shanghai became one of the five trading ports. Western commerce and culture had a strong influence on Shanghai. After the liberation of Chinese mainland in 1949, Shanghai has always maintained its interest in international business and trade. Nowadays, Shanghai has built a variety of western-style hotels and commercial facilities, making it an ideal tourist destination for foreign tourists.
the obvious advantage of Shanghai is that it is easy to obtain sufficient supply of broilers with good quality here. Through the establishment of joint ventures, Thailand's Zhengda Group has established 11 feed mills and poultry breeding bases in Southeast Asia, which can supply broilers to Shanghai. KFC's Southeast Asia office has a good relationship with Chia Tai Group and is currently negotiating with a branch of the company to sell the franchise in Bangkok.
Although Shanghai has always been a major commercial center, its noise and pollution make tourists feel depressed. For KFC, the actual population of the host city is important, but it is less important than the size of the potential customer base. Although Shanghai can provide KFC with the news propaganda it craves, it still needs to show that there are enough foreign exchange receipts to finally demonstrate the rationality of the investment. The concern here is whether western businessmen will be attracted by KFC's hometown chicken, or whether they can visit KFC more often than going to more modern restaurants. Obviously, no one knows the answer.
Guangzhou is another option. It is located in the southeast of China, near Hongkong. As one of the 14 coastal open cities in China, Guangzhou became a special economic zone with preferential foreign investment in 1984. In this way, Guangzhou has been granted more autonomy in approving foreign-funded projects, reducing taxes and encouraging technological development. By the end of 1986, about $6 billion had been invested in these coastal open cities. Three of China's four special economic zones are located in Guangdong Province, which are specially designed and established to attract foreign investment. Guangzhou is a place frequented by western businessmen, and it is also a good place for tourists to take a day trip from Hong Kong. The distance between Guangzhou and Hong Kong is less than 1.21 kilometers, and the road and rail transportation are very convenient. Doing business in Guangzhou is easy to get the service provided by KFC's Hong Kong office. In addition, China people in Guangdong are more familiar with western management practices and western culture. Guangdong and Hong Kong speak the same Cantonese, and there is little difference. The preliminary investigation shows that it is not difficult to find a sufficient source of broilers.
Beijing is the most worthy place to visit. Beijing has 9 million residents, the population of which is second only to that of Shanghai. Beijing has been the political and cultural center of China since the 3rd century. The unified use of Beijing time throughout the country is a sign of the city's authoritative position. Beijing has a well-developed underground railway and expressway system, as well as an international airport with air conditioning, escalators and corridors.
There are a large number of migrants in Beijing, and there are potential customers. Beijing is also the education center of China and the gathering place of institutions of higher learning. All these factors have caused a large influx of people and people's intellectual enlightenment, which is extremely important for KFC's RMB sales. Beijing is a must for western tourists who yearn for the Forbidden City, the Great Wall and the Ming Tombs, which means that KFC will have a stable foreign exchange income. Therefore, if we start from Beijing, it will undoubtedly attract people's attention, and it goes without saying that the people in power agree. This will contribute to the further development of other cities in the future.
Beijing can provide a considerable advantage for a company eager to expand its business nationwide. According to the preliminary investigation, there are several poultry breeding bases in the suburbs of Beijing. However, from the political and operational aspects, choosing Beijing may be more risky than choosing several other cities. A successful and eye-catching business will increase the possibility of government intervention.
Wang is an adventurous person, and he knows the extent of risks. He also knows that the location of the first branch is properly chosen. Can greatly reduce the risk of entering China. What can't be decided is whether several low-risk schemes are worth carrying out. To this end, it is necessary to compare the possibility of reducing risks with the potential benefits that may be obtained through investment. Wang was sure that Meyer would have no objection if, after careful consideration, he suggested that KFC should postpone the plan of beating China at present. Wang also realized that since there are no other competitors in China, now is probably the best time to take action. In fact, even if the address of China branch has been selected, it may take several years to negotiate before opening. Delaying time is tantamount to giving up the market to others, which is the biggest risk. The challenge to Wang is to balance the possible risks and benefits. It is simply too difficult to accomplish something in a city managed by an administrative agency that is difficult to understand and cooperate with.
The implementation progress of the new restaurant reservation is in chaos due to the indefinite delay in finding a store location and obtaining approval. A project can only be launched after being approved by numerous government agencies that make rules and regulations. In addition, Wang is very skeptical about whether employees in China can be motivated and motivated to implement KFC's quality, service and cleanliness standards, which the chain store requires its restaurants around the world to provide to customers. It's the last moment to decide whether to do or not to do the project. Although Wang is interested in the huge potential of China market, he also knows that many people have failed in similar adventures.
KFC's history in the international market is mixed. The company established its first Far East branch in Japan in 1971. However, in most years of the 1971s, KFC's international business suffered from the disharmony between local managers and company employees. Managers in the host country often feel that the employees of the company are too keen to exert controls that are incompatible with the cultural traditions of the market in which they are located. In addition, the rapid growth of the company in the 1971s mainly depended on the sale of franchise, which was even more difficult to control. In 1975, faced with the serious decline in the business performance of domestic and foreign branches, KFC began to implement a long-term strategy of "returning to the basic purpose", emphasizing the quality, service and cleanliness (QSC) norms of all KFC branches around the world. The business outside the United States has been strengthened by building an autonomous international business department at the company's Louisville headquarters. At the beginning of 1982, the business situation changed dramatically. KFC was acquired by the tobacco magnate R·J· Renault. With the strong support of Renault, KFC's international business expanded even faster. By 1983, its international business department had established five autonomous regions, and Southeast Asia was one of them. The growth of business in this area is related to the dietary tradition that people in this area like to eat poultry products. In fact, Southeast Asia is the only region in the world where KFC's market share exceeds McDonald's. By 1986, KFC had established 112 branches in Southeast Asia, with an annual sales income of $53 million. Recognizing that developing the central market needs strong management as the backing, Wang insisted that the company increase its financial support for this area. This request was strongly supported by Meyer. He knows that KFC needs to have more branches not only in Southeast Asia, but also in other parts of the world.
Based on a strengthened regional organization, Wang began to consider and evaluate various options for choosing investment sites in China. This investigation and evaluation process is carried out city by city. Because we can't find any reliable market information that determines market demand and pricing basis, the decision of choosing investment location is more complicated. Since there is no local peer as a guide, the decision of investment location is mainly to pursue the greatest long-term influence on the company's future entry into a wider China market. Considering Beijing's modern hotels, large floating population and national image, Wang decided to take Beijing as a starting point for the time being. Another major advantage of Beijing is that the municipal government has the same autonomy as the provincial government. Investing in the municipality directly under the Central Government means that it can reduce one level when dealing with the huge government system. The process of finding potential local partners began after the intentional selection of the first branch of KFC in China in Beijing.