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    JOLLIBEE FOODS CORPORATION INTERNATIONAL EXPANSION

    IB CASE ANALYSIS

    Submitted To: Prof C.P Ravindranathan

    SUBMITTED BY:Aastha Yadav(01)

    10/25/2010

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    EXECUTIVE SUMMARYJollibee Foods Corporation, a company which started as an ice-cream parlor, now

    has about 1804 stores worldwide under its aegis with total sales exceeding $1

    billion. The company now wants to go for diversification and expansion to

    increase its presence in international markets and compete with global fast food

    giants like McDonalds and KFC. In our analysis of the case we have taken into

    consideration all the aspects needed for an organization to work in a fruitful way

    i.e. Finance, Marketing, Operations and Human Resource.

    Under its belt the company has many famous brands like Chowking, Greenwich,

    Red Ribbon, and Manong Pepe's. Initially the company went for expansion byinnovating new products like Yumburger and Chickenjoy and also by

    acquiring companies like Greenwich pizza and Chowking.

    As the fast food industry is highly competitive they face stiff competition from

    already established players like McDonalds and KFC along with the street food

    that is of much significance in countries like Papua New Guinea and Hong Kong

    where its wants to expands. To face this competition it needs to design a

    strategy that gives it an edge over the competitors. One of the ways can be

    customization of menus so that the services provided by Jollibee attract the

    customers to its stores. Jollibee has tried to do this by making the menu to suittastes of the people living in different parts of the world, e.g. they targeted the

    Filipino expatriate population in US which is in big number. However they need

    to take care of a certain factors like government policies and the stability of

    political system in a country. Also if they can procure raw material at cheaper

    rates and do some technological advancements then that would give them an

    edge over their competitors.

    Because of increasing globalization and improved supply chain, Jollibee has been

    able to reduce its cost. Also, a trend has been that the customers want to eat

    different food and not repeat and Jollibee has an exciting new menu, names and

    flavors. Also they have been able to implement latest of the technologies for theprocessing and cooking of the food in the restaurants which has reduced the

    costs to quite an extent and also people consider it to be more hygienic. These

    decisions are a result of people like Tony Tan Caktiong and Tony Kitchnerwho have helped Jollibee in designing the strategies which have been

    implemented in a proper way and hence have been giving rich dividends and

    profits.

    Now the company wants to enter new markets like Papua New Guinea, California

    and Hong Kong and each market in itself poses a different problem. Papua New

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    Guinea poses a significant problem in the form a high political and country risk

    and also they need to modify their menu according to the taste of people over

    there. In California they have to compete with companies like KFC andMcDonalds who have home advantage and hence Jollibee dont need to

    westernize their products and services and rather concentrate on keeping them

    more Filipino because in that way the people over there will get something new

    and different to eat. They have to very careful over there as it is a much matured

    market compared to the markets in the east where they have been

    concentrating till date. In Hong Kong they need to put in a lot of money to hire

    Chinese speaking staff and establishing the brand over there by taking locals

    into account.

    Jollibee has been spending a lot for expansion as of late as is visible from its

    balance sheet and hence the Earning per Share is also going down. They have

    been consistently increasing their net sales and net income at a very high rate

    along with the number of stores opened. Also the HR of the company has played

    a very important role as is needed to control the organization of the size of

    Jollibee. The recruitment and selection procedure is very sound and the

    organization culture and structure is such that it promotes a friendly

    environment in the company. But HR division also had some issues like giving

    better pays and fast increments to international division employees than the

    domestic employees

    Thus the need is to find a balance between expansion and reduction in cost ofsales. Thus the company should be careful in its expansion plans and should not

    invest abruptly so that it does not go from a cash rich company to a debt

    carrying company. Thus the company must try to develop and exploit its

    strength and overcome its shortcomings.

    In Papua New Guinea, because it would be their first store, hence they will have

    to work and spend a lot for creating the brand and for advertising campaign over

    there. Because they have a very high risk in that market because of the instable

    political situation, hence they can have their franchisees over there that are

    ready to take all the risk as they know the country in and out.

    In Hong Kong the management structure is in a bad shape as there is a lot of

    conflict between the managers in a kiosk and the employees over language and

    pay issues. Thus managers need to motivate the employees to work hard by

    having informal get-together. Also they can have a menu that serves for Chinese

    taste and interests.

    Opening a store in California would be the most challenging as they would have

    to face an increasingly mature customer and also compete with giants like KFC

    and McDonalds. But the high density of Filipino population in the state would

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    help them a lot as they would like the original Filipino food. Also setting up joints

    in US would give them a global recognition.

    Other recommendations include:-

    1. Heavy investment in IT infrastructure

    2. Having two different SBU for international and domestic markets

    3. Having high level of menu customization

    4. Having joint ventures with local dealers when entering into international

    markets

    5. Use the cheap labour available in home to produce low cost raw material

    to bring down the costs

    PROBLEM STATEMENT

    Jollibee after venturing into the fast food business wanted to expand their

    presence in international markets. Here it was confronted by two major issues:

    Whether to go ahead with its blue ocean strategy of plant the flag and

    keep on expanding its presence in diverse geographical locales which

    would lead to extensive customization of menu and other operationalchanges or concentrate on consolidating its existing businesses and focus

    on making the business profitable and have a centralized operational

    model

    If Jollibee chooses to continue with its strategy of expanding its business

    base into potential markets then it will have to decide upon the future

    markets where it can enter taking into consideration the different pros and

    cons. The markets in consideration are Papua New Guinea, Hong Kong

    and California.

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    BUSINESS LANDSCAPE ANALYSIS

    1. PORTERS FIVE FORCES MODEL:

    Fig1: Porter`s five forces model

    Fast food industry is highly competitive. Industry rivalry Jollibee has had to face severe competition within the

    fast food industry. The source of rivalry mainly stems from price wars and

    marketing innovation. Some of its major competitors being multinational

    giants like McDonalds KFC as well as cheap local fast food chains

    operating in countries like Indonesia.

    Threat of substitutes It is low to moderate. The substitutes range from

    local street food to high end restaurants. However, street food is

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    Bargaining power of suppliers

    Bargaining power of buyers

    Threat of substitutesThreat of new entrants

    Industry rivalry

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    unhygienic, whereas in restaurants the service was not quick. Hence,

    service and cleanliness was an advantage for Jollibee.

    Threat of new entrants There exist quite a few barriers for newplayers intending to enter the bandwagon. Hence there is a lower threat of

    these. Entry barriers are:

    Inability to gain access to necessary technology and specialised

    know-how

    Brand preferences among the customers for already established

    names.

    Customer loyalty

    Capital requirements

    Economies of scale

    Distribution channels Bargaining power of buyers The bargaining power of customers was

    quite high. The customer first policy of Jollibee shows it all. At the same

    time although they had other options available like McDonalds and KFC,

    the extent of customisation of menu provided by Jollibee attracted

    customers to its stores.

    Bargaining power of suppliers The bargaining power of suppliers was

    low. Though some raw materials are imported, the countrys stock of

    technically skilled people was an advantage. Moreover, Jollibees policy of

    training the staff at every location makes it feasible to hire even non-

    technical staff.

    1. ANSOFFS MATRIX

    Fig 2: Ansoff`s matrix

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    In the Philippine market, Jollibee started off with market penetration.

    Later, due to competition from multinational giants like McDonalds, it

    resorted to the product development strategy.

    In the context of its international operations, Kitchers approach of

    targeting expats and plant a flag was primarily a market

    development strategy. They wanted to target the Filippino expatriates

    with the local Filippino taste. Through expansion in international markets,

    Jollibee has been able to spread its risks.

    Jollibee has devoted a considerable amount of resources in identifying the

    consumers taste and preferences as well as in the R&D, manufacturing

    and marketing of new products. It has extended its product line to include

    all the market segments. Existing products are improved and re-launchedwith a local touch. Thus, diversification has been a major (rather the

    primary) factor in Jollibees success, especially offshore.

    INDUSTRY LEVEL ANALYSIS

    1. SWOT ANALYSIS:

    Strengths

    Understanding local tastes

    Quick service

    Affordable prices

    Strong quality control

    Competent/well-trained staff

    Opportunities

    Growing nuclear families

    Growing urban lifestyle

    More disposable income

    Weaknesses

    Weak brand name

    Financial constraints

    Confusing logo (logo signified

    a toy chain or candy store)

    Threats

    Increasing consciousness about

    healthy diet

    Opposition on non-vegetarian

    items from organisations like

    PETA, NGOs, Religious

    organisations

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    Availability of healthier options

    like Ready-to-eat food

    1. PEST ANALYSIS:Political Government policies and regulations may hamper the future

    prospects of the fast food industry in certain countries.

    Economic Availability and affordability of the factors of production

    particularly land and labour. Differentiation of products, distribution

    channels etc.

    Social Customer preferences, fast-paced lives

    Technological Technological up-gradation is a necessity in achieving

    the economies of scale. Technology like automated assembly line will

    ensure more consistency in the products offered. Touch-screen menu will

    eliminate the need for personnel to take down orders from customers,

    thus saving a lot of time and cost.

    COMPANY ANALYSIS

    Jollibee is a fast-food restaurant chain based in the Philippines. It also includes

    many popular brands like Chowking, Greenwich, Red Ribbon, and Manong

    Pepe's. Since its inception, Jollibee has become an increasingly profitable fast-

    food chain with 686 restaurants in the Philippines and 57 in other countries

    employing 29,216 workers. Including all its brands, JFC has 1,804 storesworldwide and total sales of more than US$1 billion as of December 2008.

    The Jollibee mascot was inspired by local and foreign children's books. Jollibee

    created the product names "Yumburger" and "ChickenJoy". The company was

    incorporated and leased a house on Main St. in Cubao, Quezon City as the first

    headquarters. Lumba (supporting consultant) formulated a long-term marketing

    strategy that is listing up a number of consumer promotions and traffic building

    schemes.

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    The commissary system is responsible for the value adding processes done to

    produce genuine Jollibee products. Being part of the value chain, the

    manufacturing process is highly technology dependent to ensure that the food isconsistent to Jollibee standards and is produced safely and cheaply without

    sacrificing the quality.

    The key to handling the complex commissary operations is state-of-the-art

    automation, computerization and continuous improvement in manufacturing

    equipment and processes. Jollibee's automated operations not only cut

    production time and ensure consistent quality from batch to batch but also

    ensures food safety by minimizing handling and maintaining the highest

    standards of cleanliness.

    Expansion and acquisitions

    The company acquired 80% ofGreenwich Pizza in 1994, enabling it to penetrate

    the pizza-pasta segment. From a 50-branch operation, Greenwich has

    established a strong presence in the food service industry. In early 2006, Jollibee

    bought out the remaining shares of its partners in Greenwich Pizza Corp.,

    equivalent to a 20% stake, for P384 million in cash.

    In 2000, the company acquired Chowking, allowing Jollibee to be part of the

    Asian quick service restaurant segment. In 2007, Jollibee acquired the Chinese

    fast-food chain Hongzhuangyuan. On October 19, 2010, it has been announced

    that Jollibee intends to acquire a 70 percent share of Mang Inasal, a fast-rising

    fast food chain specializing in barbecued chicken.

    Jollibee purchased 70% ofTaipei restaurant Lao Dong in June and Chun Shui

    Tang tea house in 2006. In 2004, Jollibee acquired Chinese fast food chain

    Yonghe Dawang for $22.5 million. Jollibee entered into a joint-venture contract

    with US-based Chow Fun Holdings LLC, the developer and owner of Jinja Bar

    Bistro in New Mexico, in which Jollibee will have a 12% stake for $950,000.

    On August 26, 2008, Jollibee formally signed a P2.5 billion ($55.5 million) deal

    with Beijing-based Hong Zhuang Yuan through its wholly owned subsidiary

    Jollibee Worldwide Pte. ltd. The sale is subject to the approval of China's Ministry

    of Commerce.

    On October 2010, Jollibee acquired 70% of Mang Inasal, another Filipino food

    chain, for P3 billion ($68.8 million). Currently the largest fast-food chain in the

    country, it also has locations in the United States, Saudi Arabia, Hong Kong,

    Vietnam, Malaysia, Indonesia, Dubai and Brunei

    EXTERNAL ENVIRONMENTAL FACTORS-which are acting asdriving force for growth of Jollibee

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    http://en.wikipedia.org/wiki/Greenwich_Pizzahttp://en.wikipedia.org/wiki/Greenwich_Pizzahttp://en.wikipedia.org/wiki/Chowkinghttp://en.wikipedia.org/wiki/Chinahttp://en.wikipedia.org/wiki/Mang_Inasalhttp://en.wikipedia.org/wiki/Taipeihttp://en.wikipedia.org/wiki/Tea_househttp://en.wikipedia.org/wiki/Yonghe_Dawanghttp://en.wikipedia.org/wiki/New_Mexicohttp://en.wikipedia.org/wiki/Beijinghttp://en.wikipedia.org/wiki/Mang_Inasalhttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/Saudi_Arabiahttp://en.wikipedia.org/wiki/Hong_Konghttp://en.wikipedia.org/wiki/Vietnamhttp://en.wikipedia.org/wiki/Malaysiahttp://en.wikipedia.org/wiki/Indonesiahttp://en.wikipedia.org/wiki/Dubaihttp://en.wikipedia.org/wiki/Greenwich_Pizzahttp://en.wikipedia.org/wiki/Greenwich_Pizzahttp://en.wikipedia.org/wiki/Chowkinghttp://en.wikipedia.org/wiki/Chinahttp://en.wikipedia.org/wiki/Mang_Inasalhttp://en.wikipedia.org/wiki/Taipeihttp://en.wikipedia.org/wiki/Tea_househttp://en.wikipedia.org/wiki/Yonghe_Dawanghttp://en.wikipedia.org/wiki/New_Mexicohttp://en.wikipedia.org/wiki/Beijinghttp://en.wikipedia.org/wiki/Mang_Inasalhttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/Saudi_Arabiahttp://en.wikipedia.org/wiki/Hong_Konghttp://en.wikipedia.org/wiki/Vietnamhttp://en.wikipedia.org/wiki/Malaysiahttp://en.wikipedia.org/wiki/Indonesiahttp://en.wikipedia.org/wiki/Dubai
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    INCREASING GLOBALIZATION: Sourcing beef materials from Brazil and

    locating in foreign markets both introduce the company to global developments

    such as crude prices and tariff and non-tariff barriers that changed howoperations continued. The forging of tastes of the global market was an

    opportunity. This was possible because of the increasing trend of migration and

    the trend for global trade and investments.

    INDUSTRY PROFITABILITY

    Minimizing the company's operating cost by creating an efficient production is

    one way to increase its profitability. This was done by adopting new technologies

    speeded up the company's operation.

    This in turn greatly helped the company to capitalize on economies of scale. The

    same concept forced other players to innovate and cause changes in theindustry.

    INTEREST OF THE BUYERS FOR DIFFERENTIATED PRODUCTS

    Across the seas, there is only one use for Jollibee products, that is, to be eaten. It

    was found in due course of time, a need has to develop for new products that

    can appeal to different interests. The development of the 'need' is a major driver

    of change in the industry. Right now, in the local market, as Jollibee do, they

    continue to add new products to their menu, still maintaining the pinoy taste

    that they have patented.

    KEY DRIVERS AND ISSUES BEHIND THE DIFFERENT

    DECISIONS TAKEN

    1. Tony Tan Caktiong

    Expanding into fast food: The oil crisis of 1977 increased the

    production cost and also decreased people`s spending power. As a result

    they were unwilling to spend on non essential items of consumption. This

    acted as a positive reinforcement for TTC`s decisions.DANGER: McDonald`s after tasting success in different parts of the world

    and especially after being successful in Canada, which has a huge Asian

    population, turned its focus towards the Asian Tigers in the early 80`s.

    Philippines was the natural target as it is the third largest English speaking

    country in the world. Flanked by the Pacific Ocean and the South China

    Sea, its strategic location makes it a critical entry point to some 500

    million people in the ASEAN marketoffering vast trade opportunities

    and an ideal base for business.

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    However to counter this Tan took a leaf out of the Chinese military

    tactician Sun Tzu and flew to US to learn more about his future enemy.

    Returning to the Philippines armed with first-hand knowledge of what amajor American fast food chain looks like, Tan reinvented his store using

    everything he had learned in the US. He introduced a friendly cartoon

    mascot, bright and cheerful uniforms for the staff, a child-friendly

    ambience, a menu of deep fried favourites, and the belief that theres no

    such thing as too much marketing.

    Going international: This was a strategic move by TTC possibly looking

    at the geographic spread of Filipinos around the world. There are around

    8.7-11million overseas Filipinos worldwide representing 11% of the

    population of Philippines. Most of them work as doctors, physicaltherapists, nurses, accountants, IT professionals, engineers, architects,

    entertainers, technicians, teachers, military servicemen, seafarers,

    students, caregivers, domestic helpers and household maids making them

    a good target market for Jollibee.

    Going against McDonald`s: Tans friends and associates warned him

    that his store would be eaten alive, unless he considered selling his

    business to McDonalds, or be its franchise holder. However Jollibee

    succeeded in positioning itself firmly in the Philippine market before

    McDonald came in. In addition to the special understanding of the Filipinopalate, this national favourite had also mastered the countrys culture and

    lifestyle. Theyd succeeded in capturing the youth demographic with in-

    store play activities and a cast of captivating characters. Their mascot

    with orange jacket and the blonde spaghetti-haired girl are better known

    and loved in the Philippines than Ronald McDonald. In fact by the time

    McDonalds came in the local franchise already had nine branches

    1. TONY KITCHNER

    Separate International division: Having spent fourteen years in suchan eminent position in a pioneer in fast food like Pizza Hut, its all but

    obvious that Kitchner would look for autonomy to operate. This brought in

    international practises in the company mostly borrowed from the western

    culture (wearing ties etc). This is quite natural considering Tony is from

    Australia. However the culture change wasn`t in sync with Jollibee

    Philippines operations, neither was the culture change delivering on the

    international fronts

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    Plant the Jollibee flag strategy: This was conceptualised to tap

    markets with potential and which has not yet been captured by theestablished players. However somewhere down the line the actual

    philosophy was lost in a ego battle as to how fast Jollibee can establish

    itself in the international market and in doing so prove themselves to the

    Philippines business. Also Tony tried to apply Pizza Hut`s strategy to

    Jollibee. Now there was a couple of major areas which differentiated Pizza

    Hut from Jollibee:

    Pizza Hut was already well established and had no shortage of

    funds

    Pizza as a product per se doesn`t need so much of modifications

    and customizations-its a Italian food and people who like it like itfor what it is. However Jollibee is positioned as a fast food chain.

    So it has to adapt according to the definition of fast food in

    different markets. This would have required to expand slowly which

    they didn`t leading to a strain in the financials which eventually led

    to souring of the relationship with the Philippines division.

    NEW MARKET ANALYSIS AND RECOMMENDATIONS

    PAPUA NEW GUINEA: Marketing to the populace here will be of major challengeas it is one of the most diverse countries of the world with over 850 languages

    being spoken by a population of just seven million. 85% of the people here

    depend on agriculture for livelihood. At the brink of Papuan independence in

    1975, there were 40,000 expatriates (mostly Australian and Chinese) in Papua

    New Guinea.

    Taking into account these factors the marketing strategy should be adapted to

    communicate to the predominantly rural and heterogeneous crowd. PNG follows

    recognition of bonds of kinship with obligations extending beyond the immediate

    family group. Thus Jollibee should position itself as a place to bond over food

    rather than the functional qualities of Champ, Jollimeal etc. Also PNG will require

    major customization of the menu as it was required to serve a crowd which was

    a mixture of Australians and Chinese. The operational aspects will also have to

    be tweaked around to incorporate more equity participation from the company

    so as to help develop the market first and then go into product development.

    The price point will also have to be adapted to cater to a larger population in

    PNG. It`s doubtful whether it will be able to support the 20 stores plan of Jollibee.

    However this can be achieved if they take over the existing operations and

    business of the Australian Chicken restaurant chain.PNG meanwhile was going

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    through a civil war through 1990s and only post 1997 it tried to restore peace.

    Considering the high risk involved from both a target market perspective and

    political instability we would suggest that Papua New Guinea will not be a viablemarket

    CALIFORNIA: Having successfully established themselves in Guam, a territory

    of the US, Jollibee have fair enough knowledge about the US customer`s food

    habits and preferences. California is a good choice as it is the most populous

    province in the US. A highly diversified economy of California makes it less

    vulnerable to environmental risks. In 1997 the GDP for the state was

    approximately one trillion. Annual growth rates in 1998 and 1999 averaged 7.75.

    Also Dala City in California has a large concentration of Filipino with one of thehighest concentration of Filipino expatriates. All these favourably weigh in favour

    of California.

    The marketing strategy will have to be adapted radically to market to the

    predominantly urban California crowd. Jollibee will have to in particular focus on

    the product features, packaging, sales promotion etc. to adapt to Californian

    market. New age tools like web marketing, promotions via TVCs, magazines,

    flyers etc will have to be integrated in the entire marketing plan. This has to be

    supported by sufficient branding exercise to break the clutter and position itself

    differently compared to the incumbents (McDonalds, KFC etc). Instead of trying

    to westernise its offerings it should position itself as an authentic oriental Filipino

    fast food chain. They won`t be able to break the clutter if they dish out the exact

    same items that McDonalds or KFC offer-they have the first mover advantage

    here and also a greater brand equity in their backyard. A service oriented

    architecture and good supply chain mechanism are required to support the

    highly competitive market in California. Also they will have to adhere to FDA

    norms and come up with the required ecolabelling practises and composition

    specification standards. Their communication strategy must also take care of the

    following features which are radically different from eastern cultures:

    Individualistic western vs Collectivist eastern culture Low power distance of west vs high power distance of east

    High risk taking of west vs low risk taking of east

    Going ahead as a JV with the Manila based business man may dilute the risk of

    Jollibee but it should look at favourable partners in US to succeed. According to

    us this is a market with high risks but also which offers a very matured market

    and fast food awareness is arguably the best in the world...fast foods Silicon

    Valley. So Jollibee as a fast food chain will get to learn a lot from this location

    which can help it better run its overall business.

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    HONG KONG: Its one of the freest economies in the world and maintains a

    highly developed capital economy. Between 1961 and 1997 Hong Kong's gross

    domestic product grew 180 times while per-capita GDP increased 87 times over.

    It is in all respect a very international province with very high foreign

    investments and is consistently ranked very high in the Ease of Doing Business

    Index.

    Given such a scenario it should be very profitable to be a part of the booming

    economy. However right after it got independence from the United Kingdom in

    1997 it was severely hit by the Asian financial crisis. Also given that 95% of the

    population are Chinese complicates matters. To market to the dominant Chinese

    population Jollibee will have to modify its offerings. At the same time it shouldget more local staffs in the operations and have a Chinese at the helm. It will

    need to pump in lots of money to survive in the face of the financial crisis and

    also to build a brand amongst the locals. So it will first have to market to the

    locals and have an internal branding exercise for their employees to

    communicate their preference and interest of working with the locals and be

    responsive and sensitive to their culture. However considering the rigid

    organisational structure and attitude of Jolibee it looks highly improbable that

    they will tamper with their menu which rules out this option.

    OUR HYPOTHESIS:Although Jollibee`s market share and sales wereincreasing because of internationalisation of its business yet it was

    becoming less profitable because of such ventures. This can be proved

    by a financial analysis of Jollibee:

    FINANCIAL ANALYSIS OF JOLLIBEE:

    Jollibee is on an expansion spree, especially in the last 3 years

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    (1994,1995, 1996). One of the hidden reasons which is supporting Jollibee

    is almost constant exchange rate (shown in Fig-1)

    Fig-3 Fig-4

    In the first glance at the balance sheet it might be alarming to see that

    the Earnings per share of the company is decreasing from an increasing

    trend (Fig-2), but it is perfectly fine as the company expanded a lot in the

    years 1995 and 1996 (refer Table-1).

    Year

    Company

    owned

    Each

    year

    Franchis

    es

    Each

    year Total

    Each

    Year

    1992 25 4 89 9 112 13

    1993 30 5 96 7 124 12

    1994 44 14 106 10 148 24

    1995 55 11 113 7 166 18

    1996 84 29 124 11 205 39

    1997 96 12 134 10 223 18 Table-1

    There is a big jump of company owned stores from 5 to 14 in the

    year1994 and in 1995 again they expanded by another 11 stores. Even

    the Franchise number increased considerably during these years.

    When we looked into the sales and net income of Jollibee for the past

    years the data looked encouraging.

    Fig-5 Fig-6

    Both sales and Net income were increasing at a CAGR of 31.6% and

    31.5% respectively. But when we looked deep into the financials it is not

    all that good, from 1995-1996 Total sales of the company increased by

    about 24.4%, but the cost of sales increased by a staggering 46.2%. Along

    with this the debt of the company increased a lot too, sum of advances

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    and prepaid expenses almost doubled compared to the previous year.

    This situation can further be proved by looking at the current ratio of the

    company:

    Fig-7

    Current ratio of the company is falling drastically for the last two years,

    which is alarming.

    RECOMMENDATION:

    Primary aim of Tingzon is to find a fine balance between the expansion

    and reduction in cost of sales of the company. If we look at cash in hand,

    the company is in a stable position.

    Opening multiple stores at the same time will increase the operating

    income and thus reducing bottom line of the company, it is better if they

    look into one market at a time instead of being greedy.

    From a stable position the company shouldnt go into debt, with

    differences in the internal departments it is better if Jollibee is cost

    conscious and careful in its expansion plans in the coming years.

    HR PERSPECTIVE

    The Human Resources has played a significant role in the success of

    Jollibee. The HR practices prevalent are very powerful.

    Strengths

    To start with, the Five Fs in Jollibees philosophy are very strong,

    particularly fun atmosphere and friendliness in the organisation. Having

    an open and friendly culture is a hygiene factor which goes a long way in

    retaining employees and facilitating high productivity.

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    The recruitment and selection procedure prevalent in Jollibee is very

    stringent thereby ensuring a service-oriented staff. In any store of Jollibee,

    the store managers are the key to motivate and control crew members.They facilitate efficient use of their time which not only enables faster

    service but also reduces the number of crew members needed.

    In both the Domestic as well as International division of Jollibee, a lot of

    focus is given on training, which is a prerequisite in an industry as

    competitive and dynamic as a fast food industry. For every new store that

    it opens in every new market, Jollibee conducts extensive training

    programs for the local store managers and crew members with a view to

    impart necessary skills that may be different from the domestic

    requirement.

    Flaws

    Having said all this, however, there exist a few loopholes in the

    organisation. For example, when President and CEO, Tony Tan Caktiong,

    decided to create a distinct International Division, the need for this

    change was not communicated clearly to the domestic Philippine

    management. This led to a sense of uncertainty among the Philippine staff

    resulting in their indifferent attitude towards the newly created division.

    Such differences led to a lack of coordination between the two divisions.

    The most significant difference between the domestic and international

    divisions HR was that the practices and procedures followed in domestic

    division were very conventional; while those in the international division

    were more professional and modern in accordance with the requirements

    of an international operation. For example, VP of International Operations,

    Tony Kitchner, created a more professional work atmosphere by

    introducing a dress code in his Division. Also, the Philippine organisation

    was considered bureaucratic and slow-moving by the modernInternational Division.

    Because the two divisions did not get along well, personal issues also

    started cropping up like early promotion and better pay and benefits to

    the International Division staff. One of the major reasons for such a wide

    pay gap could be that Tony Kitchner had hired new managers for

    marketing, finance, quality control and product development. These new

    managers were all experienced outsiders; hence it required better perks

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    to retain them. On the other hand, the Philippine management primarily

    consisted of the Tan family members.

    WAY FORWARD...

    While entering into any new market, Jollibee should capitalise on its

    strengths and should try to overcome its shortcomings.

    The issue of lack of coordination between the two Divisions occurred due

    to the difference in culture and HR policies. However, with the arrival of

    Manolo Tingzon, General Manager, International Division, the tension

    between the divisions might cease because(1) he is a fellow Filipino who

    has worked for U.S. fast food chains in Philippine, and is hence moreaccepted by domestic division; and (2) he was a management trainee in

    Jollibee for 10 years, and hence is believed to be familiar with the

    organisation culture.

    Papua New Guinea

    Since this would be its first store in Papua New Guinea, Jollibee will have

    to incur huge expenses in terms of conducting market research about

    consumer preferences, hiring competent staff and its training. Thus, there

    has to be availability of sufficient funds to carry out an effectiverecruitment drive across the franchisee, right from Franchise Services

    Manager (FSM) to the crew members.

    Hong Kong

    Jollibees existing stores in Hong Kong are already struggling with

    management issues. Instead of aggravating the differences between the

    Chinese and Filipinos, the Store Managers are required to motivate the

    staff to achieve a common goal. They should strive to create a friendly

    and harmonious work culture within their stores. A few retentiontechniques can be applied like organising informal get-together of all the

    staff members. This way, people from both the regions can mingle with

    one another outside the work environment and may try to resolve their

    personal differences themselves.

    California

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    Being able to successfully run a store in California would be a significant

    milestone in the growth of Jollibee. However, it will not be a cake walk. So

    far, Jollibee has been banking on its human capital. But in order tosucceed in this market, it needs to upgrade its technology as the labour

    cost is enormously high in this part of the world. Thus, having

    sophisticated equipments and cooking devices is a necessary and not

    sufficient condition to be at par with competition. In order to make a

    mark, Jollibee needs to invest heavily on promotional campaigns and

    meanwhile, needs to keep doing what it is best at modifying the recipe

    to prepare exactly what the consumers wanted.

    EXPANDING OPERATIONS

    Papua New Guinea

    Using of blue ocean strategy Jollibee can take over the Australian chains market

    share with quality improvement. With very few competitors, Jollibee could easily

    capture the market and set the standard that would block new entrants for time

    being.

    But the operational cost being very high including set up cost have no guarantee

    that will be able to allow expansion in future in a new market. At the same time

    the franchisees are also ready to provide full financial support to reduce

    Jollibees risk and also they have made a treaty with a petroleum retailer for

    combined operations.

    PNG was about to receive $350 million from many lenders including Australian

    Govt, Japanese Import Export Bank , etc for infrastructural development which

    may allow the organization to get support in developing fast food in the nation.

    Moreover abundant natural resource based industries (palm oil processing,

    tourism coffee, cocoa, coconuts, palm kernels, tea, sweet potatoes, fruit,

    vegetables, poultry, pork) will allow cheaper raw material and decreasedependency on external suppliers.

    Hong Kong

    Expanding to fourth store in Hong Kong is not an issue of financial terms but

    more of manpower requirement (Chinese) and also of local perceptions related

    to food. Chinese are very health conscious and also have a liking for rice and

    steamed food items also. Hence if the menu can be customised in a way it suits

    the Chinese people and not only Philippines taste. Perhaps Chinese employee

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    people not getting interest in the operations might be as they feel alienated to

    the food.

    Quality and promotional strategies must also be taken into consideration and

    can centralise to main office or FMSes before opening the next store in Hong

    Kong. Large working population and importance of the Kowloon can also give

    branding and high sales opportunity to Jollibee.

    California

    Entering into this market will bring a high branding opportunity although it mayface tough competition and high cost being part of States. But looking at the

    high immigrant Pilipino population the sales may be largely supported by their

    tastes.

    With a franchising partner ready to serve as an investment of about 40% the

    starting operation may be easy but still the presence of global competitors like

    Mc Donald may hinder as the entrance as Jollibee was not having such a global

    brand name.

    Well connected with international air and sea routes the state can provide fast

    and effective logistics (examples:-Los Angeles International Airport and SanFrancisco International Airport are major hubs for trans-Pacific and

    transcontinental logistics)

    RECOMMENDATION FOR OPERATIONAL UTILIZATION AND

    IMPLEMENTATION STRATEGIES

    Looking at the situation there is a need of heavy investments into IT

    systems, which will allow Jollibee to manage day-to-day operations from

    their headquarters in the Philippines and also help in collection real time

    sales and inventory data across the organization.

    Moreover there is a need to clearly divide the organization into two

    strategic business units (SBU) under the company brand (International and

    Domestic) in order to align the goals with respect to the various

    geographic divisions. This will allow the International Division to ensure

    greater coordination across IT activities such as ERP at global level, as well

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    as pooling procurement purchases wherever over wide geographical

    areas.

    A clear distinction of responsibilities, resource sharing and area of control

    between the SBUs will help to increase cooperation at a firm-wide level.

    High level of menu customisation is needed in stores which cater to non

    Philippines customer. Countries like China where the expected taste varies

    according to local needs customization will be highly helpful. Competitors

    like Mc Donalds China division also taken menu customization into

    consideration.

    Philippines is an agricultural nation hence Jollibee was able to integratesourcing of raw materials especially imported beef patties could be a

    solution till world transportation and sanitary issues does not affect the

    operations.

    For international markets, locating commissaries in the same country

    through joint ventures could be a potential source of success for the

    company. Jollibee could provide the technology while the partner deals

    with appropriate techniques to sell in the foreign market. This will bring

    down the logistic cost of importing to many nations far from domestic

    sources.

    Use of Hub and Stake model will help faster turnover of logistics and

    reduction in cost. Formation of hubs will also help in achieving economies

    of scale in transportation and warehousing of raw material, thus

    optimising the supply chain value.

    For the local market, an increase in the number of commissaries could

    potentially decrease the transportation costs and the duration of

    shipments. Allowing the company to focus on the quality of product only.

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