jollibee case essay

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Jollibee case study 1. Introduction “Ordinary people with extraordinary achievement” said by Tony Tan Caktiong, the president of Jollibee Foods Corporation. The company started in 1975 as an ice cream parlor, and now it becomes one of the fast-food major from the Philippines. Jollibee had over 223 outlets across the world with annual sales of $7,778 millions (Pesos) dollar by the end of 1997(Bartlett & Connell, 1998). However, the company seems not to be content with current situation, and it is still seeking an opportunity to expand to the global market. This report evaluates the fast food industry as well as Jollibee’s overall status. The report also addresses and defines some relevant issues and problems the company is facing, such as what are the competitive advantage does Jollibee have, what the strategy they have been using for the international market, what are the friction between International division and Philippine company and what the recommended strategies should be implemented to solve the problems. It also suggests Jollibee should not ignore the new opportunity to the American and Hong Kong market, because of a huge potential in future.

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Page 1: Jollibee Case Essay

Jollibee case study

1.   Introduction

 “Ordinary people with extraordinary achievement” said by Tony Tan Caktiong, the

president of Jollibee Foods Corporation. The company started in 1975 as an ice cream

parlor, and now it becomes one of the fast-food major from the Philippines. Jollibee had

over 223 outlets across the world with annual sales of $7,778 millions (Pesos) dollar by

the end of 1997(Bartlett & Connell, 1998). However, the company seems not to be

content with current situation, and it is still seeking an opportunity to expand to the

global market.

 This report evaluates the fast food industry as well as Jollibee’s overall status. The

report also addresses and defines some relevant issues and problems the company is

facing, such as what are the competitive advantage does Jollibee have, what the

strategy they have been using for the international market, what are the friction between

International division and Philippine company and what the recommended strategies

should be implemented to solve the problems. It also suggests Jollibee should not

ignore the new opportunity to the American and Hong Kong market, because of a huge

potential in future.

 Some of the techniques are using to help anglicizing the company and industry, such

as SWOT, Porter’s Five Forces. This may also be a limitation as the evaluation only

covers certain aspects.   

 

 

 

 

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2. Discussion

 2.1 Industry background

It is very important to understand what the Fast food industry it is, before analyzing the

company’s business strategy. In the 1960s, the fast food market starts growing, leading

by some main players such as McDonald’s and KFC. They have successfully provided

a model that the business was aiming to serve quality food at a clean dinning

environment. And it targets the customers who with limited of time and budget.

 

To perform a fast food Industry analysis, it is better to follow Michael Porter\'s five forces

model. This model was created to help the management team to analyze competitive

forces to the company. (Porter, 1990) The five forces that need to be considered in the

model are (1) The threat of new entrants; (2) the bargaining power of suppliers; (3) the

threat of substitute products; (4) the bargaining power of buyers; and (5) The intensity of

competitive rivalry within an industry.

The threat of new entrants is usually known as the market entry barriers. Normally high

barriers to entry will keep potential competitors away from the industry and low barriers

to entry will give enable more competitors to enter into the industry if, especially when

the industry returns are high. (Porter, 1990) In the fast food industry, one of the barriers

to entry is brand loyalty. Brand loyalty is very important in this market. When people are

looking for a quick meal, they always go to fast food restaurant that they familiar with.

Because people know are going to get same quality of food, same taste, and maybe

similar price even at different places. People feel more secure to have meal at a place

where they will have same standards of cleanliness and service. On the other aspects,

a branded restaurant would also take an advantage to choose a premium location

because an excellent location with high volume of traffic is very important for fast food

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industry. There are also other barriers to enter the market, such as huge investment on

premise, equipment, advertising as well as choosing an appropriate manager to run the

store.

The intensity of competitive rivalry refers to all existing firms within the same industry.

There is a huge competition in the market, as driven by lots of competitors, such as

McDonald’s, KFC, Burger King, and etc. there are more than 10,000 stores in about 100

different countries for those famous fast food stores. (Research and Markets,n.d.) A

fierce rivalry between competing companies in the fast food industry defines how they

are fighting to get new customers, in terms of massive advertising, changes of new

products, and the most important is offering a competitive price.

 

The Bargaining power from the buyers is one of the forces that influence the industry.

Here the buyers refer to those who are ordering fast food at the local restaurant. And

therefore each buyer in himself, usually does not have much bargaining power over this

industry. They are going to the resturant and just ordering and paying for a noraml size

meal, for only a limited scale. However, be aware that the customers do have option to

choose a place to buy their fast food and this is where their power exists. Since the

industry is full of all different kinds of fast foods and with different brands, then the buyer

can actually buy similar products from different resturants, in considering of their taste,

presference, and demands. Then the buyers could choose their preferable products and

maybe convice their friends to do the same. This is the situation where buyers have

power to influnce the market. On the other hands, the suppliers for the fastfood industy

is also an important force, such as the suppliers for soft drinks. The Vital suppliers

usually play a very dominated role in the industy, such as the Coca-cola and Pepsi who

are the ones have the ability to match the needs of golbal fast food industy. There are

also some other small suppliers with few bargaining power over the industy, since all

their products can be easly replaced.  

 

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Within the fast food industy, the threat of substitute products arise from those different

types of foods or services to which customers can turn to satisfy their same needs or

demands. The main resaons people choose fast food because it is convenient, clean,

and with best value. therefore, an example of substiute products are those frozen food

in the supoermarkets. The Frozen Reheatable food offers a strong competitve thereats

against the normal fast food, because it provides a similarity needs and taste. However,

the fast food sells not only the food but also offers an image and expereice while people

are having meal in the store.

 

However, the porter’s Five forces model is not suffcient to explain the whole fast food

industy, there are also lots of uncertianty in the future. One of the biggest chanallage is

that people may change their preference and perceptions to this industry. The primary

purpose of industry analysis is to identify and determine the critical success factors for

the business.

 

 

2.2 Company Anaysis  

Jollibee was funded in 1975, and starts as an ice cream parlor. Soon after the oil crisis,

the

company deceide to make some home-style hamburger, and this was quickly accepted

by the Filipino. Jollibee quickly expanded throughout the Philippines over last 20 years

and was first time listed on the stock market in 1993. In order to describe a clear

situtation of Jollibee, a traditional SWOT analysis is applied (Appendix 1) and it will

helps determining the critical issues and generating a recommendations for action.

 

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Jollibee faced its first serious combat in 1980s, facing the McDonald’s. However, the

company, as a host player, initially secured its dominant position in the market with Five

F\'s: flavor, fun, flexibility, family atmosphere, and friendliness(Bartlett & Connell, 1998).

This philosophy fit with the habits of local customers and enabled the firm\'s success

and expansion in Philippines. There are two main resaons for Jollibee to attain a

competiive advanatege when against with McDonald’s. Firstly, the company has taken a

first-mover advanatage as Jollibee has been in the market for more than 5 years before

Mcdonald’s deceided to enter the market. Secondly, the company took the local

advantage and focus more on the doemistic market. it operated more flixble to cater to

the tastes of its local Filipino.

 

 

A first-mover advantage is defined as an advantage gained by the initial occupant of a

market segment. The advantages incudling Technological Leadership, Preemption of

scarce assets and Switching costs.(Robert M. 2003) In 1975, Jollibee started the fast

food business in its home contry, the Philippines. Therefore, it has an advantage to

choose the best location with high traffics and potentials. It is very important for a fast

food business choosing a premise that is convenient and with intensive traffic. In

addition, Jollibee, as a technological leader, knows more about the products and

operation in Philippines. Therefore they can take overall control from supplying of raw

materials, making of the food, and sell the products. It results a more effciency in

operating the business. With a closer distance to the target market, Jollibee could

control its brand image, and select an approrate franchisee in order to maintain the

quality of its products and services. Further more, the Switching costs is an advantage

for Jollibee when customers face some loss in turning to the compititor’s products. For

example, local people prefer to eat spicy burgers at Jollibee, compare with a plain beef

burger at McDonald’s. the local people are used to have such taste and they know they

will get similar food at Jollibee, but uncertian with McDonalds.

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As mentioned above, another resaon that Jollibe dominated its position to compete with

McDonalds is that company has benefited from a few local advantage. The Porter’s

diamond of Naitonal competitive advantage describes the facts. From Porter’s theory,

he beilieves that success in international trade comes from the interaction of four

country and firm specific elements: Factor conditions, Demand conditions, Related and

supporting industries, and Firm strategy, structure and rivalry.(Porter,1990) Philippines

is a small contry but with large population, of different races. The western culture in

Philippines is very popular and the local people are kind and hard working. This is a

local factor that influnces Jollibee’s business philosophy, and therefore encourages the

company to deliver quality food and freiendly services consistently and efficiently. Local

demand is another critical condition that Jollibee considered well. The local Filipino

prefer large appetites with strong taste, such as spicy sauce. In order to compete with

the Big Mac, Jollibee quickly introduced a Champ Burger with larger size and taste with

local flavor. In terms of brand image, Jollibee emphysiz on promoting its Joy Bee with

fun atmosphere, and focus on famlies. This helps to attarct children from Philippine

famliy, and of course to provide best value of food is another selling point. An instable

business environment in Philippines helped to slower the investment from overseas.

The Philippine government somewhat offered a protection to the local company. An

expample is the economic and political crisis stoped foreign investors, inculding

McDonald’s, expanding its business activties in Philippines. Nevertheless, the main

resaon that Jollibee has estbalished a dominate position is it focus more on the local

market, and provides suitble meal to the domestic market. Jollibee reacts more flexible

than McDonald’s, it changes its menu quickly to satisfy the local customer’s needs. On

the other hands, McDonald’s applied more to the Global Strategy at that time. It is a

strategy that the firm views the world as a single marketplace and its primary goal is to

create standardised goods and services that will address the needs of customers

worldwide. About the local knowledge, Jollibee knows better than McDonald’s, such as

the Filipino prefer rice than chips.

 

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Further more, during that time, Jollibee was able to go ahead by using riding a wave of

national pride and again tailored their menu, adding "taste-tested offerings of chicken,

spaghetti, and a unique peach mango dessert pie, all developed to local consumer

tastes" (Bartlett & Connell, 1998). These were the sources of competitive advantage for

Jollibee winning the battle against McDonald’s by 1984.

 

 

2.3 Problems and issues

In 1994, Tony Kitchner was employed as a professional manager to operate the

International department, since the company had decided to put more recourse on its

international business. During his time, there was great expansion and increase in the

company’s international side. He used a “plant the flag strategy” to expand Jollibee’s

chain stores in overseas, and he saw all the expatriate Filipinos as a potential Niche

market. This is another strategy from Kitchner, named “Targeting Expats”. In addition,

he also made some internal changes to help implement all the business plans. Kitchner

start recruiting people for the International operations, such as marketing, Finance,

Quality control and product development (Bartlett & Connell, 1998). One of his

reformations on employees is to ask them wearing ties, as to provide a more

professional image on Jollibee’s international side. During his time at Jollibee, Kitchner

manage to increase the franchise stores up to 205 by 1997(Bartlett & Connell, 1998),

however, with more than 30 employees in his group (Bartlett & Connell, 1998). 

 

Kitchner believes that company should take a first mover advantage in the fast food

industry and therefore began to “plant the Jollibee flag” in countries where with few

competitors. With this strategy, Kitchner was hoping to build brand recognition.

Unfortunately, the risk exists at the same time when the company decided to become a

first investor in the market. There is always uncertainty in the new market, and the

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company needs to spend lots of resources to find out what the local tastes are, and how

to localize the menu to suit its habit. Jollibee, as a pioneer company, has to spend huge

money in lots of areas, such as R&D, buyer education, infrastructure development,

marketing, and even staff training. An even worse case is that in some of the new

countries, the franchise could not afford an expensive advertising before they achieved

certain level of sales. All these negative are defined as First Mover Disadvantage

(Robert M. 2003). On the other hand, the experience in Middle East shows that there is

few potential on the overseas Filipinos, because of different eating preference.

Therefore, he fails to implement the “Targeting Expats” strategy. Kitchner did not ignore

the importance of localization, in terms of tastes, customer preference and cultural

difference. He hired 32 employees in his division to help each franchise store in different

countries, in order to find out what the local customer needs and what is their

preference. Kitchner felt that Jollibee needed to present itself as “world Class, not “local”

(Bartlett & Connell, 1998). As a result, he decided to change company’s logo, store

design, advertising, and even the food package. Gradually, Kitchner has built his own

empery, and viewed itself as a collection of relatively independent operating division.

Naturally, he has applied a Multidomestic Strategy for Jollibee entering international

market. This is a strategy that the firm focus more on each specific domestic market,

and trying to meet the needs of local customers. It is normally adopted by the

companies who are selling brand-name, thereby ensure that local customers are still

paying premium price so that to cover the all heavy cost. However, Jollibee sells only

fast food, and this somewhat confused its brand image. 

 

As one of the important divisions in the company, Kitchner was always seeking a

support from the company start building his own international group. He has employed

32 staffs internally and externally to fit into his division, including both functional position

and operational side, such as the Franchise Services Manager (FSM). As the division

expand and fast growing, the local Philippine staff saw them as new comes and became

more offensive with the international department. On the other side, the employees from

International division found the local department bureaucratic and slow -moving. As the

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conflicts rose, the support and coordination between the two groups are getting worse.

The International Operation received little support from the local Philippine company, in

terms of R&D, marketing and sales. By the end of 1996, the international division

became less efficiency, and non-profitable due a loss from several international stores.

The company has to shrink the international operation, including Toni Kitchner. 

 

 

2.4 Recommendations

In the wake of Kitchner’s leaving, Jollibee is facing a big challenge to reform the

international division and trying to recovery from his awful performance. Tingzon, as a

new manager of Jollibee international, starts from a precarious position. It is

recommended that the first job is to resolve all the problems within the department, and

trying to minimize the cost of operation. The cost of sales increased dramatically from

last few years (Bartlett & Connell, 1998), while Kitchner managed to open 24 new stores

in 10 different countries. It is more important now for the company to slow the

expansion, as it requires more financial investment and increase the debt. Jollibee

needs to be more patient and give some time for the existing stores growing and turning

to profitable.     

 

Nevertheless, opportunities immediately strike Jollibee. There are some options to open

new stores in Papua New Guinea (PNG), Hongkong and United States. (Bartlett &

Connell, 1998) All these investment seems to be attractive and positive. With providing

information, the California expansion seems to be the best option to go. Firstly, there

are millions of people living the city, and with a large number of Filipino. This could

minimize the risk of not having enough sales at beginning, so that not to worry about

cover the cost of operating the business. Secondly, doing this business in the States,

will gain a World Wide Learning. After all, this is the birth country of fast food, with all

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the competitors like McDonald, Burger King, KFC…etc. Nonetheless, to successfully put

a footprint on this country will help Jollibee to develop its brand recognition, and

therefore improve its international reputation. The company could also learn from this

experience, and transfer this learning to its operation in the other countries. It is highly

recommended to put this significant investment into the US market and it is an

opportunity not only provides extra sales but also with good learning.  

 

Set up the fourth store in Hongkong is another good decision, because Jollibee has

already made some success in the market. The loyal Filipino customers contribute great

sales for Jollibee in Hongkong. However, before any new investment, it is important for

Jollibee international resolving the issues with Chinese employees in Hongkong stores.

The problem is that all Chinese managers resigned because they like to work with

Chinese. A solution would be having a Philippines born Chinese to manage the shop

because they know Philippine culture and still cope with the local Chinese. An additional

challenge is that Jollibee Hongkong needs to tailor its menu to fit with local dining habit.

It is not enough to serve only the expatriate Filipinos with increasing cost of sales,

promotion and advertising. There is no controversy that weather should open an extra

store in Honkong or not, because a victory in Hongkong will lead Jollibee to an immense

market, the Mainland China.   

 

Another investment option is from New Guinea, a new country to Jollibee with 5 million

people, but with limited fast food choices. However, it is suggested that company should

make a conservative investment. It is a question that whether a few stores in PNG

would cover the operating cost or not. This is a typical Kitchner ‘s strategy that we are

about plant a new flag in a country we know few about it and with thousand miles away.

We have to consider carefully if we can manage the store effectively and economically

before putting money in the pool.

 

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In order to implement all the plans and decisions, the international division needs to be

reformed. The international operation should become a department not only operating

the overseas franchisee, but also coordinating with the Philippine company. It is critical

for the Philippine company to understand the international strategies and its decision, so

that they could provide efficient support to the division. It is also important for both

domestic and international departments share the resources and cooperate with each

other, and therefore serve the world market together as a common goal.

 

 

 

 

 

 

 

 

 

 

 

 

3. Conclusion

 

Page 12: Jollibee Case Essay

There are lots of augment on Jollibee’s future strategy, whether should keep following

the niche market “targeting expats” and “planting the flag. In fact, with these strategies,

the ex vice president, Kitchner, did make some success. During that time, 205 stores

were set up across 10 counties in the world. However, there is no absolute strategy

should be applied, and it is recommended the company should keep “planting the flag”

but with a conservative pace, otherwise It will become too ambition to grow. Especially,

facing with some new investment opportunities, Jollibee is suggested to start a business

in California as its first priority, with lower risk and changes in operation. The target

market at beginning is still the expatiate Filipino. However, the strategy “targeting

expats” for niche market is limited in long term. A Multidomestic strategy is

recommended for Jollibee dealing with international market. The strategy suggests that

a company should attempts to combine the benefits of global scale efficiencies, with the

benefits and advantages of local responsiveness. (Ghoshal & Nohria, 1993, p.27) An

opportunity to expand its Hongkong business encourages Jollibee to customize its

products and services to the local market, and eventually helps Jollibee become a

Multinational Corporation world wide. The pain teaches, as the company should learn

from the previous mistake. It is always a challenge for company keeping a balance

between external expanding and its internal organizational ability. A strategy plan will

fail if this exceeded company’s capability.

 

 

 

 

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4. References

 

Bartlett, C.A., & Connell, J. O. (1998). Jollibee Foods Corporation (A): international

expansion. Boston: Harvard Business School Publishing.

 

Bartlett, C.A., Ghoshal, S., & Birkinshaw, J. (2004). Transnational management: text,

cases, and readings in cross-border management (4th ed.). Boston: McGraw-Hill Irwin.

 

Fisher, G., Hughes, R., Griffin, R., and Pustay, M. (2006). International Busness:

Managing in the Asia-Pacific (3rd Ed.). Pearson Education Australia: Frenchs Forest,

NSW.

 

Grant, Robert M. (2003). USA, UK, Australia, Germany: Blackwell publishing.

 

Michael E. Porter, (1990)The competitive advantage pf nations, Harvard Business

Review

 

Ghosha & Nitin Nohria, (1993) Organizational forms for multinational corporations

 

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Research and Markets. (n.d.). Fast food and quickservice restaurants-industry profile.

Retrieved 27 March, 2008, from http://www.researchandmarkets.com/reportinfo.asp?

report_id=448696&t=d&c

 

Agri-Food Trade Service (n.d), from http://ats-sea.agr.gc.ca/general/home-e.htm

 

 

 5. Appendix 1

Strengths, Weaknesses, Opportunities and Threats (SWOT) Analysis

Strengths Weaknesses

Flexibility on changing the menu to fit with

local taste

Costs of customizing the products is

relatively high, financial pressure

FSM helps developing a new store and

provide professional consultancyOver staffing at international division

Different types of products with more flavors Uneven quality on its products

Opportunities Threats

There are more countries to establish

Jollibee fast food storeUncertainty in the new market

Improve and customize the products Cost and quality control on new products

Distinctive from other traditional burgers, or

fast food productsExisting competitors

Non- Filipino customers Macroeconomic environment

(SWOT) Analysis

 

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