Jollibee Case Essay Example

it when seen in public – an operations and marketing strategy which supported an increase in brand recognition and foundation for dominant market share.

Another success factor in building the Jollibee Empire in the Philippines was that the company financed their growth internally. This alleviated the burden of debt and interest and Jollibee was able to focus more resources on growing. The Tan family retaining control of the Jollibee company was essential to maintaining their dominant position. The family was open to learning and brought in key managers whose expertise would complement the family’s experience.

In 1981 McDonald’s entered the market, representing a large potential competitive threat from a new market entrance. Although McDonalds’ wherewithal to conduct a competitive rivalry was superior in resources and experience, Jollibee sought to use cultural proximity to their advantage and defended their market share with a larger, main hamburger that was considered better tasting according to market research. Seeing as how Jollibee established itself in the Philippines before McDonald’s moved in, Jollibee was able to shape the expectations and preferences of their consumers by using local resources and the understanding of their people, giving them a significant advantage against any competitor attempting to come into the market.

And, since McDonald’s hamburger patties were seen as plain, and Jollibee’s was geared for a spicy taste which their consumers grew fond of - one which would appeal to their consumers’ larger appetites. Also, McDonald’s massive internal economies of scale may have drawn down costs significantly in comparison to Jollibee, but the founded Jollibee consumers of the Philippines care not about costs implied to McDonald’s, so much as they

are concerned for the taste of the actual burger. Furthermore, with McDonald’s being such a giant conglomerate, it made little to no effort attempting to adapt to the preferences of the locals. Jollibee, on the other hand, adapted its menu accordingly, and took into account the needs of the people. Forces outside Jollibee’s control also helped improve the company’s position when political instability created a hostile environment for foreign investors.

While being exposed to competition from McDonalds, Jollibee took the initiative to benchmark, replicate, and improve upon McDonald’s successful operating model, which enabled them to become more competitive through improved management efficiency at the store level making them more competitive domestically. And, with McDonald’s temporarily out of the picture, they took advantage of broadening the menu to attract more

consumers and loyalty, road the national pride instilled by the assassination, and by the time McDonald’s tried coming back to expand, Jollibee already had established a total of 31 stores and dominant presence. They also gained knowledge necessary for expanding to other countries.

2. How would you evaluate Tony Kitchner’s effectiveness as the first head of Jollibee’s international division? Does his broad strategic thrust make sense? How effectively did he develop the organization to implement his priorities? We believe Kitchner was unable to gain the solid footing he was looking for during his expansion efforts primarily because he didn’t do a very good job of determining what it was going to take to be successful in those new countries. His primary ideas of “targeting ex-pats” and “planting the flag” were bold and decisive in their design, but Kitchner needed to take it a

step further to see if those ideas were sustainable.

Kitchner’s background with another highly recognized brand (Pizza Hut) probably did him a disservice in his thinking since Jollibee did not have the worldwide brand recognition that Pizza Hut had - a key factor in the success (and failures) of Jollibee and a battle he wasn’t used to fighting. In reference to Ghemawat’s “Distance Still Matters” article, Kitchner would have been wise to take a deep-dive into the four dimensions of “distance”: cultural, administrative, geographic, and economic. He would have seen that Jollibee had a more difficult task infiltrating different countries than just creating the Jollimeal.

Jollibee had a definite competitive advantage when comparing their decision to expand internationally according to Porter’s “5 Forces Model”. They obviously targeted countries with little or no rivalry among competitors and tried to manage the threat of possible entrants. Where they fell short was in their lack of understanding of local substitute products as well as the way they managed the Franchisee relationship with the parent company. We believe that if they had truly adopted a more of a “partnership” arrangement with their local owners and managers, they may have been more successful in their long-term objectives. As evidenced in the case, Kitchner was slow to adopt a local attitude and culture until it was almost too late in many instances.

Entering 8 new national markets in a two year time period is extremely audacious and costly. TTC’s comment that “We preferred to go slower, making sure that each store was profitable so that …This creates a good, long term relationship” makes sense strategically. Considering the difficulties

large corporations like McDonald’s and KFC have penetrating foreign markets, it would have been prudent to open one or two national markets at a time and analyze and learn from those endeavors. Despite small earlier attempts that taught some lessons, more could have been learned by launching the International Division at a more sedate pace.

The development of the International Division was organized efficiently and rapidly. Adding external professionals for marketing, finance, quality control, and product development helped keep innovative ideas churning. Unfortunately, the division that arose between the domestic and the international side demonstrate a lack of communication and bitter feelings about “poaching” and other key issues. The oversight and support of franchises and overseas location was masterful but more attention should have been given to culturing and supporting the local talent, which was deemed so crucial to the success of these operations.

As mentioned in the article “Going Global: Lessons from Late Movers,” the international division manager tried to reinvent the company’s business. He overemphasized the differences in the overseas markets, isolated his overseas managers from the successful Philippine organizations, and systematically differentiated his operating systems, store design, menus, advertising themes, and company logo and slogan. He would have been wise to incorporate the Jollibee company philosophy into his division to foster the camaraderie that was sorely lacking.

3. As Noli Tingzon, how would you deal with the three options described at the end of the case? How would you implement your decision?

Noli Tingzon took on the role of General Manager of the International Division in July 1997. He was faced with three options for immediate growth that

would shape the company’s future international strategy. The options were Papua New Guinea: Raising the Standard, Hong Kong: Expanding the Base, and California: Supporting the Settlers. Tingzon had learned the importance of selecting a collaborative operating partner, choosing good locations, remaining flexible to address cultural distance issues, and the need for profitability. Tingzon received conflicting advice from different people within the organization on the best approach to proceed with Jollibee’s international strategy from continuing the aggressive “Plant the flag” strategy to a more risk adverse “Expanding share in a few countries strategy.” We recommend Tingzon operate somewhere between the two recommendations and apply lessons learned from Jollibee’s prior international endeavors. Each foreign expansion opportunity must be thoroughly evaluated to ensure a high likelihood of market and financial success.

In Papua New Guinea, there was virtually no fast food or decent places to eat. A poorly managed 3 store fast food chain had recently severed ties with an Australian chicken franchise. The original plan that Tony Kitchner had proposed was to open just one store in the capital city of Port Moresby. Noli Tingzon believed that one store would only cover the costs to develop the market in New Guinea and that at least three or four stores needed to be opened. In comparison there are 1200 fast food outlets in the Philippines which has a population of 75 million compared to the goal of 20 stores for 5 million people in New Guinea. The GNP per capita of USD 2500 was the same in both countries. The potential franchisee was willing to open five stores and would even put up the capital. The benefits

of opening the stores in New Guinea are first-mover advantage, franchisee would put up the capital, Jollibee would not risk their equity, no competition, and putting fast food at service stations would create a constant flow of customers.

The risks of opening the stores in New Guinea are the taste of the product may not appeal to consumers, another fast food chain may enter market before brand preference and loyalty can be established, and cultural differences may be difficult to overcome. Our recommendation would be to enter into a franchise agreement with Gil Salvosa, because the benefits outweigh the risks. The implementation would include drawing up a franchise agreement with Gil Salvosa, finalize the locations of the five stores and as The Soft Skills for Global Managers says it best “Among the rarest of traits is the ability to balance the need for consistent corporate practices with the need for regional uniqueness.”

Opening a fourth store in Hong Kong seemed like a bad idea. There were many operating and cultural distance learning issues that needed to be resolved including difficulty in retaining Chinese staff and appealing their product offerings to locals. Jollibee also experienced uneven product quality and weak brand recognition in this market. Tingzon needed to reevaluate the Hong Kong strategy and resolve all existing issues first before considering opening a fourth store. Resolving these issues would require much collaboration with Jollibee’s domestic division. The benefits of opening a fourth store in a busy intersection would enhance Jollibee’s visibility and brand recognition among the locals, which could lead to further expansion. The downside to a new store would be revamping the menu,

cultural issues, and staffing problems. Our recommendation would not be in favor of opening the fourth store in Hong Kong because the risks of not being successful are too great. The decision to open a fourth store in Hong Kong may be revisited at a later date.

It was TTC’s dream to open Jollibee stores in McDonald’s backyard and having already achieved success operating stores in Guam, an American territory, expanding to California seemed like a no-brainer. California has both a large Filipino expatriate population and Asian population. However, with any expansion opportunity, Jollibee must thoroughly assess market potential (Possible store locations, sales forecast, cultural distance issues, and potential partners) before making a decision. If the results of the analysis indicate California is a good expansion opportunity, we would recommend Tingzon move forward with opening one store in California first to pilot the appeal of their existing menu offerings and assess whether the U.S. market can be supported from the Philippines, which is 12 hours by plane and 8 time-zones away. The benefits of Jollibee entering the market in California would be to offer a substitute product and competition to the other fast food chains, create

brand loyalty among the Filipino and Asian customers, and open the door to further expansion in California. The risks are fierce competition in the fast food marketplace and the taste may not appeal to Americans other than the Filipino customers. Our recommendation would be to open a store in California. Implementation would include determining the best location to open the first store, finding a suitable franchisee, employ local expatriates, and as the brand preference and loyalty occur,

expand to other areas of California.

4. Check the Jollibee website to update the case information. Also, check and see how your answer to the question #3 above might be affected by your update. Tingzon and TTC ultimately agreed to move forward on all three projects. They determined that the Hong Kong and U.S. projects were of major strategic importance while “the New Guinea proposal, while not strategically vital, was judged to have enough momentum and commitments behind it that it should probably continue, although worth minimal support.” Based on his analysis, Tingzon rejected the “plant the flag” strategy out of concerns that it spread resources too thinly and didn’t allow for enough control over franchise operations. He reorganized Jollibee’s international operations and changed the focus to slow growth in a few key, high potential markets. This philosophy is consistent with that of CEOs of other global companies including Ethan Allen’s CEO Farooq Kathwari. Kathwari contends that too rapid a global expansion can devastate a company. Tingzon seems committed to sustainable growth.

According to the corporate website, Jollibee International currently has over 50 locations in Brunei, Hong Kong, Vietnam, Saudi Arabia, Qatar, and U.S. There are now a total of 26 Jollibee stores in the U.S. including 9 stores in Northern California, 15 stores in Southern California, one store in Las Vegas, and one store in New York. According to Jollibee’s website, the company has modified its global strategy and stopped international franchising temporary.

The California franchise has been a success. Since opening the first U.S. store in Daly City in 1998, the company has expanded their U.S. presence to a total

of 26 stores. The company has the advantage in the California market because there are a lot new immigrants entering the state with 80,000 Filipino migrating per year. Jollibee currently has only one Hong Kong store located in Central, implying that at least two Central stores have been closed since 1998 in addition to the Kowloon district store. Finally, there is no Jollibee presence in Papua New Guinea indicating that efforts to expand to this country were not successful.

Tingzon’s strategy of “focus” seems to have been successful in developing the most promising markets. Given the advantages of 20/20 hindsight, he would have been wise to invest fewer resources in Hong Kong and Papua New Guinea while remaining focused on California and the U.S. Overall, however, Tingzon’s focus on sustainable growth has helped position Jollibee as one of the largest global fast food chains.