XAVIER INSTITUTE OF MANAGEMENT &

ENTREPRENEURSHIP

Jollibee Foods
Corporation
International
Expansion
A Case Study

By

Jaspreet Singh-51 Jenkin J S-52 Jnanashankar H-53 Kalyani Burman-57 Kami

:
Contents
Executive Summary............................................................................................... 3
Problem Statement................................................................................................ 4
Human Resource Issues...................................................................................... 4
Operational management issues........................................................................ 4
Financial issues................................................................................................... 4
Marketing Issues................................................................................................. 5
Supporting Arguments........................................................................................... 5
Industry Analysis................................................................................................ 5
Fast food Industry............................................................................................ 5
Porters 5 forces model for JFC.................................................................................... 6
Firm Analysis....................................................................................................... 7
SWOT Analysis of JFC....................................................................................... 7
Alternative Strategies............................................................................................ 8
Choosing the right strategy................................................................................ 8
Existing strategy of Jollibee................................................................................ 9
Recommendations for Decision making................................................................. 9
Papua New Guinea.............................................................................................. 9
Hong Kong.......................................................................................................... 9
California............................................................................................................ 9
Implementation Plan.............................................................................................. 9
Human Resource revamp plan.......................................................................... 10
Operations revamp plan................................................................................... 10
Financial Revamp Plan...................................................................................... 11
Marketing Revamp plan.................................................................................... 11
References........................................................................................................... 11

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Executive Summary
Jollibee Food Corporation is a Filipino fast food retail chain that was started in
1975 and from then on the company was on an expansion trend. It capitalised
the changes in the political scenario in the country and thrived the competition
from global players like McDonalds. It went public in 1993 and has been pursuing
an aggressive global expansion strategy most of which backfired due to the
problems in strategies followed by the company.

The newly appointed International wing chief of the firm is facing the challenge
of making a prudent decision regarding three new opportunities that the firm has
in the offing, namely expansion to Papua New Guinea, Hong-Kong and California.
But before making a move in this direction, the company has to address all the
issues that have been prevalent in the organization for a long time owing to lack
of long term vision and overall integration of the organization strategies. The firm
has been functioning like two parallel organizations with no co-operation and
coordination between the international wing and the domestic wing which has
proved detrimental in various issues that the firm has been facing.

The organization is operating in a highly competitive industry and has to develop

an overall firm strategy to attain sustainable competitive advantage. It is mainly
thriving on Franchising and JVs and needs to define the operating relationships
with the global associates effectively in order to prevent the disputes that have
cramped the firms operations many a times.

For crafting out an efficient direction for the firm, the four strategy model for
international expansion was analyzed and the firm was plugged in to the model
and it turned out that the present strategy of the firm is falling in a grey area
between the international strategy and localization strategy. Our suggestion is
that the firm should adopt a fully fledged transnational strategy so that it can
effectively reap the benefits of cost saving as well as local adaptation and there
by carving a global image for the firm that has impeccable operations, financial
and marketing strategy.

Also, we recommend the firm to go ahead and capture the opportunities in Papua
New Guinea as well as California and hold the fire for some time when it comes
to the expansion plans for Hong- Kong and look for expansion options in
Hongkong only when the prevailing management issues in Hongkong are sorted
out. Also, the implementation plan for revamping the operations of various
functions have been suggested in the main body of report.
Problem Statement
The newly appointed head of International division Mr Manolo .P. Tingzon is pondering into three key
opportunities that the firm Jollibee Food Corporation is having for further global expansion namely
Papua New Guinea, Hong Kong and California. For taking the above decisions the organisation has to
address various issues mentioned below under the various functional heads:

Human Resource Issues

1. Strained International Domestic Relationship: The international and domestic operations
of Jollibee Food corporation lacked cooperation and coordination among them. They had
several issues between them like recruitment, pay structure and issues of menu adaptation.
2. The organisational structure of Jollibee was not supporting it in the international business.
3. Cultural Differences: There were Cultural differences among teams working at domestic end
and at international end which led to disagreement on various opinions. For example the
suggestions from Chinese managers were not considered by management.
4. Management issues at Hongkong: There were many management issues at Hongkong
branches of Jollibee which were affecting its operations, quality and revenue collection. Some
of them are enlisted below:
a. Staffing Issues: Less Chinese staff members leading to reduction in Chinese customers
as Chinese customers were not very comfortable with Philippine and Nepalese staff.
b. Cultural incompatibility among staff i.e. between Chinese staff and Philippine staff
working at Hongkong stores.

Operational management issues

In Jollibee Inc, several disputes where rising in operational management due to the following reasons,
Improper co ordination between the parent company and the international operations lead several
disputes in franchising, menu card (standardization) and absence of research and development centre
as such to scan the taste buds of localities of individual regions.

1. When Mr. Kitchner was as a change driver for international operations, he gave responsibility
of running day today activity of the store to an individual person for every store called FSM.
This lead to an incongruent strategy alignment between the parent company and franchises.
2. Menu card standardization was absent which essential in a global food chain to give customer
the same level of satisfaction no matter whichever store he steps in.
3. Research and development privilege was wholly vested with the parent company.

Financial issues
For the long term success of any firm, it is highly imperative to have a stable and prudent financial
management system. The focus should be on a strategy that takes the long term as well as shorter
objectives of the firm in tandem. As identified from the case, the following are the noteworthy
financial aspects of the firm:

1. Company revenues, net income, operating income, and royalties and franchise fees have
been increasing rapidly for the period under consideration.
2. Inventory turnover has improved showing an improvement in working capital management
over the years.

The aforementioned aspects have put the company in a better stead. But, there are a few other facets
that create concerns:
 1. Accounts receivable as a proportion of Sales has increased over the years.
2. Long term debt outstanding has increased dramatically and the servicing of the same has
put a pressure on the solvency position of the company.
3. Cost of sales has increased over the years. This is a natural fact, but the alarming part is
that the growth in cost of sales has been much higher than the sales itself, putting a
pressure on the margins of the company.
4. The global expansion of the company has been extra-rapid and made in haste to capture
the market as a part of the plant the flag strategy. As evinced by the statement made by
TTC in late 1996, this has put a serious pressure on the financials of the firm and the firm
did not have the financial muscle like global giants to go for the loss-leadership strategy.
Thus the budget allocation and management was in a grey area.

Marketing Issues
1. Choosing which international markets to target first and decide on an optimal strategy to enter
these markets.
2. Identifying target segment in each country.
3. Choosing a core competency.
4. Deciding to what extent the standard menu can be modified to suit taste of local consumers.

Supporting Arguments

Industry Analysis

Fast food Industry

The fast food industry has a lot of unique characteristics:

1. Quality of food and time of service is of utmost importance

2. Each firm in the industry has a standard set of cuisine. The menu is limited and items are
cooked in bulk in advance, kept hot, finished, packaged to order, and available to take-out,
drive-thru, and dine-in.

3. Profitability is dependent on high consumer traffic, location of stores and tight operation
management.

4. Firms mostly operate through franchisees and expansions of critical mass is required to
achieve economies of scale

5. Highly capital intensive.

6. Chain wide consistency and reliability are major factors of success

7. Number of competitors is very high.

McDonald's is one of the most famous fast food joint in the world. McDonald's became No.1 in
every country of more than 100 countries in the world except Philippines where JFC has been
 overwhelming strength against McDonald's. In 1981, JFC faced serious challenges from
McDonalds when they entered Philippines which forced JFC to change their existing strategy
of targeting only the domestic market with a standard local fare.

Porters 5 forces model for JFC

Threat of new entrants to

Rivalry among Industry- LOW
Competitors: HIGH
High entry barriers in the
Rivalry stems from Price form of brand preference of
wars, marketing innovations, consumers, technological
good food, good service. know how, access to
Most rivals are equal in strategic locations and
capabilities and opportunities distribution channels,
which make competition capital, economies of scale
stiffer etc.
Threat of Substitute
PRODUCTS-LOW
TO
MODERATE. Products
from local street food is a
threat but Jollibee has
advantages in terms of brand
name, superior service and
reasonable price
Bargaining power of
suppliers: LOW
Bargaining Power
Strong relations with of Consumers:
existing suppliers, VERY HIGH
trade restrictions for
imported raw Consumer traffic and
materials, food loyalty determines
standards etc. limit profitability of firm
power of suppliers
Firm Analysis
SWOT Analysis of JFC
Strengths
Speed and timeliness of deliveries
because of the locations of the
commissaries.
Portfolio can serve various segments of
the market and pass the winning
culture of Jollibee on the other business
units.
Highly motivated and well-trained
personnel Good operations
management
High domestic market share
Quality consistence in terms of
taste and availability
Responsiveness to competition
Innovative receipies e.g. rice
based meal
SWOT
Opportunities
The potential for international
markets and the migration of Filipinos
in certain countries.
Impart global culture by hiring non-
phillipine managers
locating commissaries in the same
country through joint ventures
could be a potential source of
success for the company
Weakness
Lack on in-depth planning and
research in the expansion to foreign
markets.
Financial Constraints for expansions
Rift between international division
and Home division - no consensus
could be reached
Lack of global brand recognition
Beuracratic structure.lengthy
process for approvals to be
sanctioned
Over reliance on the Filipino
market ( targeting the expat
strategy)
Threats
Tough competition from from both
international companies and local
small-hold SMEs in the food industry.
Rapid expansion plan may backfire
Phillipine division might
slow their implementation
Increase in transportation costs and
the prices of transported materials and
products.
Alternative Strategies

Choosing the right strategy

When analyzing the case study it is clear that Jollibee Inc has higher pressure to respond to local
wishes in Philippines due to the entry of global giants like McDonalds. This is due to the fact that
Jollibee had a strong presence in Philippines but at the same it should tackle the adaptation pressure
from McDonalds. This is also supported by the fact that Jollibee was franchising their brand to foreign
countries on very strict terms which do not allow any changes to the menu.

According to the grid below this would mean eliminating the international strategy and the global
strategy. Now analyzing the strategies which require standardization (provides cost benefits) and
differentiation, the transnational strategy is applied by large firms such as car manufacturers, they
have to adopt the cars to local wishes or they will not sell. The Multidomestic strategy often involves
having very different lines of products, yet there is no real cost pressure. Both strategies perfectly
align to Jollibees business model, so the four grid model is used for evaluation in the sense that
Jollibee is correctly placed in the vertical axis of the model.

On the horizontal axis Jollibee has two distinctly different moments. During the expansion plans to
become a multi domestic the company enjoys low responsiveness pressure because the target
segments are expats and Hispanic population. Once it is established the company is in need to adopt
the local taste buds so there is an increase in the responsiveness consideration. Since Jollibee needs to
maximize return on investment after establishment, it has to follow a transnational strategy to keep the
competition at the bay and tackle the competitive pressure.

The above diagram describes the four strategies which a firm needs to follow for international
expansion depending upon the market requirements, pressure from competitors, firm specific
motivation driven by firms core competencies. The proponents of the model have suggested that the
strategy of a firm should evolve over time among these four strategies to be in better stead in facing
global competition.
Existing strategy of Jollibee
Jollibee entering the markets without any clear cut idea, since Mr. Kitchner strongly believe in
gaining the first mover advantage, Jollibee is expanding into the markets where the competitors little
are no presence, to plant the flag without any long term perspectives. The companys strategy can
be more identified with the international strategy where the locus of power lies with the parent
company in the Philippines. With much of happening in the international arena too. After Kitchners
got hired, he encouraged localization by separating international business completely from the
domestic ones.

Recommendations for Decision making

Papua New Guinea

As evident from the data given in the case, it is quite evident that the company is having
immense opportunities in Papua New Guinea. As the market there is untapped and the only
competitor there is an unorganized and unprofessional local company, Jollibee can literally
get a first mover advantage. So the company should go for Papua New Guinea, but proper
background research about the prospective partner as well as assessment of the credibility of
the fundraising proposed needs to be carried out.

Hong Kong
Currently all the three stores established in Hongkong are facing lot of management issues as
mentioned in the problem statement hence it is required that first this management issues
must be sorted out rather than putting additional resources in expansion plans.

California
California expansion seems to be the good option for several reasons. United States is the
largest fast food market in the world. They discovered from their outlets in Guam that there
were many elements of their restaurants that appealed to Americans. They have a large and
diverse population who like experimenting food of different culture. They also had great
support from Filipino-Americans. So, the company has to start with focusing on both the
Filipinos as well as local people and design the menu that would help maintaining the brand
identity along with catering to the local interests. To put it simple and straight, Company
needs to adapt a trans-national strategy.

Implementation Plan
It is the very evident that transnationational is the only way forward for jollibee, When going for
multidomestic as a strategy only a certain amount of flexibility and autonomy be provided to partners.
This becomes more of an arms length dealing, trust was lacking in the relationships. A holistic co
ordination is required to transfer core competencies or to pursue experience curves and location
economies. Which is possible only in a transnationational entity. This smooth transition can be
enabled by inter unit co operation, decentralizing the organizational structure and following a
geocentric approach. Also to implement this strategy and carry out expansions following schemes of
actions must be taken in various functional departments.

Human Resource revamp plan

Balance between centralization and decentralization of power: Jollibee should allow
certain level of decentralization of power for its franchises in other countries for operating
decisions related to product, marketing and human resource management. Also certain
number of R&D centres could be opened in other countries to facilitate localization of
some products. At the same time decisions regarding overall firm strategy, financial
decisions and quality control must be taken care by headquarters in Philippines.
Reforming Organisation Structure: Jollibee should adopt an organisation structure
which enables it to transfer its core competencies and global learning across the stores.
Also it should support value creation activities in the value chain for more efficient
operations. One of such kind of structure is flexible matrix structure which provides a
common vision and culture. This structure will enable the cooperation and coordination
among domestic and international operation units.
Training: In order to facilitate co operation among units the staff members who are
required to coordinate with other units must be given training on cultural differences and
adaptability in workshops. By adopting this practice Jollibee would support its staff to
understand the cultural diversity among nations and different market needs.
Hongkong Management issues: Hongkong management issues can be sorted by
adopting above mentioned strategies. Certain level of decentralization of power will
enable the managers at Hongkong stores to take decisions on various aspects of product,
operations and marketing as per the local requirement. The staff members who are trained
in culture diversity workshops must only be sent from Philippines to Hongkong for
supporting the operations and training of locals. Also there must be recruitment drive to
hire local Chinese managers with attractive compensation. This will enable hiring of
Chinese crew members and hence increase in customer traffic. Also initiatives like team
work and cultural diversity workshops must be conducted to increase compatibility
among Philippine and Chinese workers. This plan would enable Jollibee to implement
operation, marketing and quality control mechanism effectively and enhance the market
share.

Operations revamp plan

Polycentric establishment of research and development centre. The flag can be planted in
regions where people have similar taste buds as strategic business units (SBU). So that the
menu can be varied according to regional taste.
Once the company starts to follow transnational strategy, location economies and operational
efficiency should be taken into consideration so as to reap the benefits of both cost structure
and differentiation.
Lessons learned should be internalized, so that lack of operational efficiency problems as in
Singapore, transparency issues as in Taiwan can be avoided in the future international
expansion.

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Financial Revamp Plan
Slow down the global expansion to sustainable levels. This means that the international wing
should slow down a bit and the domestic wing should buck up a bit so that the entire
organization can move ahead together. The financial management should be done effectively
so as to provide enough budgets for the R&D and associated activities that are needed for the
global expansion.
Also sufficient funds should be made available for the marketing and positioning activities for
these are highly imperative in creating an identity for the firm and thereby helping in capture
the market.
Opening multiple stores at the same time will hurt the bottom line and will increase debt.
Even for a global giant like McDonalds, it took 20 years for their international operations to
account for 50% of total sales. Also, they must reduce cost of sales. This can be done by
devising a proper strategy of global expansion that can reduce cost and bring in economies of
scale.
Also the relations with franchisees and other associates should be clearly defined and the
degree of control of the financials should be clearly defined to avoid future confusions. The
ramifications of poor relations are clear in the closing down of many franchisees abroad.

Marketing Revamp plan

Jollibee had been following the first mover strategy under Mr. Kitchner and had concentrated
on Planting the Flag i.e. opening a lot stores in countries in a short span of time irrespective
of financial constraints. Jollibee should instead follow a differentiated strategy wherein it
should target those markets with high potential with an economy similar to that of Philippines
like Papua New Guinea and observe the first mover strategy to capture these markets first.
For established market with high potential such as USA, Europe, it should go for joint
ventures and acquisitions with established firms in these nations.
The focus target segment in every country has been expats from Philippines which has been
largely successful. But it should not exclude the local populace of the host nation. Its
marketing initiatives should target the local populace and it should position itself as a global
fast food brand which offers exotic Filipino cuisine for everyone.
Its core competency should be authentic Filipino fast food with good service and quality
The menu of Jollibee should have a mix of standard food items as well as items specific to a
host nation. To achieve this, they should set up R&D divisions in each country and come up
with new dishes to cater to local consumers like McDonalds which came up with Mc Aloo
Tikki Burgers for India and which was a big hit.

References
International Business, By Charles W L Hill and Arun K jain (McGraw
th
Hill Companies), 6 Edition

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