The Evolution and Internalization of International Joint Ventures - Case Study Example

JOLLIBEE FOOD CORPORATION (A): INTERNATIONAL EXPANSION NAME: LECTURER: DATE OF SUBMISSION: Issue Identification The Jollibee Food Corporation (A) operates in a highly competitive industry. The food industry has well-developed players which include KFC, MacDonald’s and other small companies. Therefore, the biggest problem comes in designing a strategy that attracts customers to buy from Jollibee instead of competitors stores. The company has successfully customized a menu for some regions to suit taste and preference of a particular market segment. For instance, customization for Filipino expatriates in the US. The customization requires adherence to other factors such as government policies and political stability. The food industry is highly regulated in many countries, and thus any change or introduction of a new food product requires scrutiny before releasing it to the market. The entry to new market increases the risk exposure. The international expansion strategy suggests expansion to international markets such as California, Papua New Guinea, and Hong Kong. The culture is a significant barrier in Hong Kong market, and thus the company requires to investment more in hiring and training Chinese speaking staff (Tacconelli & Wrigley, 2009). Also, the company requires understanding the taste and preference of the locals to produce a customised brand that suits the market. The California market is competitive due to presences of famous brands such as MacDonald’s and KFC. These companies are preferred since they are operating within their domestic market, unlike Jollibee which is in a foreign country. The company does not need to compete with these market giant but create a niche by concentrating on Filipino products. The consumers are adventurous in trying something new, and thus the company can capitalise on their adventure to try new food. On the other hand, Papua New Guinea has greater risk compared to the two markets. The market has experienced high political instability and economic risk. The analysis of the organisation books of accounts shows that earning per share (EPS) has been decreasing due to huge spending on expansion. The expansion not only increases the sales and net income but also increases the risks. For instance, the human resources department has to adopt flexible policies to take care of changing organisational structure and culture. The standardisation of salaries and allowances might pose a challenge given that each market has different economic status (Tacconelli & Wrigley, 2009). The standard of living and minimum wage rate of Philippines is not the same with the US or New Guinea. Therefore, salaries of domestic employees would be considerably low compared to employees in international stores. The management of human capital is crucial to the company’s success. For example, the Taiwan store had conflict over day-to-day management and might have led to store inability to raise the sales to match the increase in store rent. The expansion will increase their cost of operation if employees in the domestic market ask for harmonisation of remuneration. The issue of Jollibee revolves around two issues that are continuing with the blue ocean strategy of “Planet the Jollibee flag” which entails launching its products in a new market without competition and expansion in other markets with stiff competitions (Rothaermel, 2015). The decision requires an intense evaluation to avoid plunging into losses due to unidentified risks and poor strategy execution. SWOT ANALYSIS OF JOLLIBEE FOOD CORPORATION (A) INTERNAL ANALYSIS Strengths The company has a stable financial resource as per the statement of financial position. Market dominance in the local market (Philippine). The acquisition of Greenwich Pizza and Joint Venture with Deli France offers product diversification and thus reducing risk (Steensma, Barden, Dhanaraj, Lyles & Tihanyi 2008). Jollibee enjoys expertise and experience in operating business in international market. The low cost of operations and moderately priced products in the market. The management of the company is efficient and thus reduced wastage. Strong corporate governance. The governance helps in streamlining management and formulation of long-term strategies. Weaknesses: Inadequate rationales in selecting franchisees. Improper inventory control. The record shows that company is slow in converting inventory to cash. Inadequate product advertisement and promotion in the international market to create awareness and remind the potential consumers on the availability of the product in the market. Not well thought of strategies in expanding to the international market. The ‘planet the flag’ was a flawed strategy and increased risk exposure to the company. Lack of creativity to customize their product to suit the taste and preference of citizens of other countries. The company depends more on Filipino products and market segment. The ineffective channel of communication within the organisation. The lack of clear communication resulted in a fight between the two divisions. The international division notes that the Philippine division was more bureaucratic and slow in decision making. The lack of rationales to offer franchise led to biases and top management gave the opportunity of local franchisee partner to relatives and friends. The biases jeopardise the achievement of company goals (Kistruck, Webb, Sutter & Ireland, 2011). The management was not culturally sensitive to gather for international divisions. The high cost of operations and complicated tasks in store operation control due to the diversification of menu. The inefficiency is drawn from the lack of adequate cross-cultural management. The FSM and project manager owned the decision-making process for startups in the international market and thus sidelining the key franchisees who understand the local business environment than them. The locals understand political, economic, social, technological and legal (PESTEL) conditions of their market well than foreigners. EXTERNAL ANALYSIS Opportunities The Jollibee Corporation (A) is presented with some opportunities. Proper capitalisation on these opportunities would greatly boost company revenue and net worth. They include; The new acquisition of profitable food chains in the international market would boost its profitability. The presence in the international market will give the company opportunity to expand its products range i.e. Filipino products and those present in the local market. The presence of market niche in the international market i.e. Papua New Guinea shows that the company has little or no competition in the fast food chain industry. The Filipino market is also untapped in the US and thus provides a competing platform with well-established food chains such as KFC. The company has large economies of scale and thus able to produces food at a lower cost. The cost advantage which lowers price and the taste of Filipino in their menu creates unforgettable consumer experience. Threats The markets such California has high competition from well established local chains such as MacDonald’s The consumption behaviour of consumers in local markets i.e. more preference to eating restaurant than buying food from fast food chains. The political instability offers a great threat i.e. political violence and constant change in regulations depending on an alliance with the country of the parent company (Van Der Meulen, 2011). The increased health consciousness and thus shift from fast food to more healthy meals. The change of regulations on importation or local procurement of raw material i.e. Mad Cow and Bird Flu would lead to halt on procurement due to health reasons. The recession in the economy for example due to war would make the currency useless and thus reduce profits. The difference in standard of living poses a great challenge in harmonising prices and making sure that the product remains affordable to the locals. The reduction of trade barriers would attract competition from other foreign companies and thus eat on company market share. Also, increase in restrictions will result to increase in the cost of operation and thus force the company to raise prices. The high prices will not give the company a fair platform to compete with the local competitors. The increased competition and standard of living poses a threat to the company profitability. The increase will result in high operation cost to the company. THE SOLUTION OF PROBLEMS IDENTIFIED The above analysis shows diverse issues that touched various segments of the company. The following are the solution for the identified problems decreasing in level of urgency. The first four solutions are very important since they have adverse effects to the business if not controlled. The last two solutions are provided to assist the company to overcome expansion challenges. The solutions include; The improvement of inventory control: The inventory management should be given first priority since slight inefficiency can considerably reduce profitability of the company. The expansion has increased the complexity of inventory control and thus increased inventory period. The high inventory period is not a good sign for the business in food industry due to perishable nature of the raw material and products (Dant, Perrigot & Cliquet, 2008). The spoilage increases the cost of operation and thus reducing the profitability of the company. Therefore, it is important for the company budget well and matches supply with demand to reduce wastage. The operations of both domestic and international division should be harmonised to enhance uniformity in operational efficiency (Dant, Perrigot & Cliquet, 2008). The department should also devise ways of reducing inefficiencies by employing technology in streamlining the operations. Also, the parent company should involve startup franchise during decision making to avoid miscommunication and increase knowledge on the local market. The involvement in decision making also promote trust among its new partners and thus creating a seamless flow of communication. The inclusion of local food in menu list: The Hong Kong market is not performing well since the products do not fit into the taste and preference of the Chinese. Also, Philippines expatriates in the Middle East were not attracted by Filipino products offered in their chains. Therefore, the company is required to customise their products and include local foods in the international market to attract not only customers who want to consume Filipino products but also their local food (Doole & Lowe, 2008). It should be given priority to bring the franchise to profitability for it to payback invested funds. The creation of an inclusive and clear management structure and franchise framework: The lack of emphasis to create a cross-culture management to gather for stores in the international market led to conflict between the domestic and international division. The issues led to conflict between international division and domestic division. The company should develop a training program to fuse the organisational behaviour and create a common organisation culture (Wang, Zhu & Terry, 2008). Also, the top management should be balanced regarding regions of operations to provide balanced representation. Additionally, the management should detach itself from family and friendship relationship to reduce conflict of interest and inefficiency due to competency issues (Wang, Zhu & Terry, 2008). The team should formulate a franchise framework to guide them in entering into a partnership deal. The partner in Singapore and Taiwan is a perfect example of how failure to detach business from family relation would result to feud. The conditions should be stated during the inception of the venture to avoid such problem in future. Lastly, lack of harmony between international division and Philippine should be solved. The global expansion shifted the attention of domestic operations and thus created discontent of the domestic division. The Jollibee strategy of creating a distinction between international and domestic market seemed not to work but created more division and miscommunication problem. The communication aspect in management is crucial for every company, and it determines success. It is imperative to centralise the management to reduce decision clash (Jenkins, Purushotma, Weigel, Clinton & Robison, 2009). Also, pooling experienced employees to share knowledge and skills plays a great role in creating diversified menu to gather for those areas that recorded low sales on Filipino products. The management clash would negatively impact on future growth of the food chain. Also, it increases inefficiency since communication drives the time required to solve problems and make major decisions. The reduction of cash and cash equivalent to reduce liquidity risk: The cash and cash equivalent have been increasing from 1992 to 1996 which makes the company more liquid. The company needs to put the cash in use to reduce exposure to liquidity risk. The increase might have resulted in inconsistent EPS for 1994/1995 and 1995/1996 since the money is not put to good use to generate enough income to repay the loan. However, the company can use the cash in settling suppliers regularly to build long term relationship. A good relationship helps a lot during periods of low supply of raw material and gives the company a better bargain of a fair price (Tacconelli & Wrigley, 2009). Intensify the advertisement: Additionally, the Jollibee should invest in advertisement and promotions in the international market to create awareness and boost its sales. The effective position of the product helps in developing the product as a global brand and thus able to compete with other global brands such as KFC (Tacconelli & Wrigley, 2009). The employment of advanced technology and streamlining operations to reduce cost: The Jollibee Company has consistently recorded increase in the cost of sales from 1992 to 1996. The cost of sales in 1992/93 was 13%, and it recorded 46% increase in 1995/1996. The finance department should work in reducing the cost by streamlining operations to avoid wastage and employing current technologies which are known to cut on cost and increase accountability. The formulation of clear frameworks to help in guiding merger and joint venture agreement to minimise conflict: The joint venture deal with Deli France creates a synergy which is of great importance to business expansion and diversification. The creation of joint venture requires the two companies to have clear framework to merge its operations well to reduce issues of management conflict, financial and confusions in day to day operation. The successful merger would result to increase in sales, reduction in cost and increased profitability due to increase in market share and gaining of economies of scale. The intensification of investment on market research before entry to a new market: The international market has reacted in various ways from the entry of Jollibee to their markets. Brunei and Guam recorded the highest sales according to 1996 records. On the other hand, United Arab Emirates recorded the least. The ‘Planting the Jollibee Flag’ strategy was not well evaluated. Therefore, research and development team should investigate and come up with techniques of producing local food that can be sold in these chains to give the consumer a wide variety of products. Lastly, the team should come up with strategies for evaluating the franchisees to ensure that the partner brings value to the company. The checks should include an emphasis on financial experience from previous business and financial stability of the partner. IMPLEMENTATION OF IN INCLUSIVE AND CLEAR MANAGEMENT STRUCTURE AND FRANCHISE FRAMEWORK The first concern is lack of representation of international and domestic division in decision making. The domestic division were complaining of not being consulted on expansion of international division. The implementation of inclusive participation in management will entail creating a strategic committee with 50/50 membership representation of international and domestic division. The committee will charged with responsibility of formulating strategies, weighing strategies upheld by board of directors and making sure the same is communicate to other employees of respective division. Also, the current management system used to integrate international and domestic division will have interaction platform for employees in all stores to interact, share knowledge and challenges. The platform categorises employees by seniority and department to increase relevance of communication. Lastly, the franchise framework will take the following format and shall be upheld without any favour; Parameters Rationale Financial requirement and start-up cost: Franchisees are required to pay initial capital of 45% from non-borrowed fund to reduce exposure to credit risk. The initial minimum capital is $450,000 but subject to increment depending on economic condition of the market. Service fee: The franchise should pay 3% monthly fee based on sales performance. Rent: The Jollibee controls the rented stores and thus franchisees should pay fixed monthly rent to the company. Non-Financial rationale Good management skills: The franchisees should be able to show ability to effectively manage the operation of the store. Proper financial management and good credit: The franchisees should demonstrate proper understanding of financial statements and good credit history to reduce mismanagement of finance. Exceptional customer experience: The franchisees should demonstrate willingness to offer exceptional customer experience as a way of selling Jollibee as a world renowned brand. Significant business experience: The franchisees should show a record of past business experience. It ensures that the partner will not collapse. The implementation will reduce conflict of divisions and ensure execution of well-thought of projects due to increase in scope of decision making. Also, communication will improve the quality of customer service, conflict resolution, increase expertise and achieve high employee satisfaction. The framework on franchise will eliminate award based on relationship but only through merit and thus increased efficiency and profitable stores in Jollibee portfolio. REFERENCE: Steensma, H. K., Barden, J. Q., Dhanaraj, C., Lyles, M., & Tihanyi, L. (2008). The evolution and internalization of international joint ventures in a transitioning economy. Journal of International Business Studies, 39(3), 491-507. Kistruck, G. M., Webb, J. W., Sutter, C. J., & Ireland, R. D. (2011). Microfranchising in Base‐of‐the‐Pyramid markets: Institutional challenges and adaptations to the franchise model. Entrepreneurship Theory and Practice, 35(3), 503-531. Jenkins, H., Purushotma, R., Weigel, M., Clinton, K., & Robison, A. J. (2009). Confronting the challenges of participatory culture: Media education for the 21st century. Mit Press. Dant, R. P., Perrigot, R., & Cliquet, G. (2008). A cross‐cultural comparison of the plural forms in franchise networks: United States, France, and Brazil. Journal of Small Business Management, 46(2), 286-311. Van Der Meulen, B. (2011). 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