The Significance of Localization to the Marketing Strategy of International Companies in Global Business Expansion: A Case Study Of McDonald’s and KFC In China

1.0.          Introduction

            As a result of growing consumerism culture and globalisation, most companies in contemporary times usually focus their growth strategies on targeting foreign markets. This has in itself fuelled further globalisation in modern times. Before venturing into new markets, companies commonly evaluate aspects such as the suitability and demand for their product in the foreign country, as well as the socio-economic and political factors and how they are able to affect their business (Purashraf Yasanallah & VahidBidram, 2012). An understanding of these factors usually influences the specific strategies that different companies operating in different industries choose to use when venturing into the foreign market. According to Baker, (2014) the factors further influence the management approaches and business strategies that businesses chose to adopt when they enter and operate in foreign markets. The author further articulates that there are currently various different strategies that businesses can choose from with regards to penetrating and operating in foreign markets. In the food and beverages industry, the most commonly used strategies include joint ventures, setting up of new independent operations, franchising, and mergers and acquisitions.

It is debatable that currently McDonalds and Kentucky Fried Chicken (KFC) are the largest fast food companies in the globe with regards to profitability and scope of operations (Paik, Kwon, & Chen, 2017). Both companies have operations in various different countries across the globe and it is worth noting that they both engage in different approaches when targeting different foreign markets. These approaches end up impacting on their strategic operations in the different markets. So Hitt (2017) points out that over time it has become apparent that the different approaches that the two companies use when entering foreign markets profoundly affects their performance in the different markets and that their performances vary in the different markets. For instance, there are some regions where McDonalds has positive operations while KFC does not, and vice versa (Lee & Carter, 2012). This prompts the need to identify, analyse and understand the impact of the different marketing strategies of the two different companies and the impact that this has on their performance in the different markets.

This paper engages in a comparative analysis of the marketing strategies adopted by KFC and McDonalds in the UK market. The paper evaluates the strategies that the companies use in the market with regards to how they manage their operations in the market, and the success that their different strategies have. To this end, the paper will evaluate their 7P’s marketing strategies, franchising, and adaptation and standardization strategies that the businesses use in the Chinese market, and the impact that the strategies have with regards to influencing the consumers in the market to purchase their products.  This is an essential aspect of study because the companies record different performance in the Chinese market.

• Research background

The Chinese market according to Dorfman (2014) is arguably one of the most attractive markets in contemporary times. This is due to the positive economic performance and growth of the country’s economy. Furthermore, the country is the most populous country in the world meaning that there is a significant size of consumer market (Chernev, 2014). McDonalds and KFC both realize the significance of the Chinese market and over the past decade they have both been intensifying their activities in the market with the aim of achieving dominance in the market (Kwansa & Parsa, 2010). The companies are currently engaged in cut-throat competition amongst themselves as well as with other foreign and local players in the industry (Wilson & Gilligan, 2013). It is however notable that the consumers have different perceptions towards the companies and this in turn influences their performance in the market (Kwansa & Parsa, 2010). In order to understand the strategies adopted by the companies and their performance, it is first important to gain an overview background of the companies.

McDonald’s is a famous American fast food chain restaurant company that serves over 70 million consumers on a daily basis, making it the largest fast food chain restaurant in terms of service delivery (Dorfman, 2014). The company by the end of 2014 had operations in over 120 different countries and regions (Dorfman, 2014). The most significant fast food product traded by McDonalds in all of its locations is its hamburgers (Dorfman, 2014). The hamburgers are even a part of the company’s logo. With regards to the Chinese market, McDonald has not experienced performance that is as good as that of KFC, yet in the overall global market, it is the leading fast food chain restaurant (Liu, 2008). Kentucky Fried Chicken is also an American based fast food chain restaurant. The KFC’s most significant food brand as its name suggests is fried chicken (Liu, 2008). In terms of global performance, KFC was in 2014 ranked as the 7^th largest fast food chain of restaurants (Dorfman, 2014). The company has operations in about 80 different countries and regions across the globe.

Of the two different companies, KFC was the first to venture into the Chinese market. It did so in 1987, and McDonalds soon followed in 1990 (Liu, 2008). With experience and operations that span over 36 years within the Chinese market, both companies have managed to grow into dominance in the Chinese market. McDonalds operates about 2000 restaurants in the market while KFC has over 4000 stores in the market and it continues to expand in the market at a rapid rate (Dorfman, 2014). On average, each KFC store generates revenues of up to 8 million Yuan per year, while McDonalds is able to collect an average of 6 million Yuan (Dorfman, 2014). This is evidence that KFC is able to record better performance in the Chinese market in comparison with McDonalds. This also indicates that the different strategies that have been adopted by the two different companies have been received differently by the Chinese consumers. Towards the beginning of 2017 McDonalds reported that it would be selling its Chinese McDonalds fast food chain restaurant to China CITIC Group (CITIC) (Paik, Kwon, & Chen, 2017). This is one of the reasons that prompt the need to comparatively explore the expansion strategies used by McDonalds and KFC, as well as how they are linked with the local marketing strategies that the businesses adopt with regards to the Chinese market.

1.2.          Research Problem

The Chinese market has become a competitive market for companies that operate in the fast food industry. Some of the reasons why this is so have already been listed in the discussions above. The attractiveness of the market explains why many businesses including foreign based and local companies target the market. Amit (2014) explains that this has led to increased competition in the market and that to achieve sustainable success in the market, most companies strive to adopt strategic approaches that are aim at ensuring that the image and values of the businesses are integrated to the perceptions and preferences of the consumers in the market. The authors further reiterate that to this end different companies have managed to accrue different rates and characteristics of success and performance.

There have been limited studies that have been able to explore and effectively explain the specific impact that different marketing strategies that are used by companies that operate in the same industry have on the consumers in the market. Some studies have attempted to explain the different strategies used by different companies within the same industry, but very few have comparatively analyzed the impacts that the different marketing strategies adopted by the different companies have on their performance. In specific regards, there have been no specific academic studies that have investigated the effectiveness of the marketing strategies that are adopted by different fast food chain restaurants, and how these strategies impact on their performance. This is especially with regards to the strategies that are adopted by foreign based businesses that venture into an attractive market. This study aims to bridge this knowledge chasm through comparatively analyzing the localization strategies that are adopted by McDonalds and KFC in the Chinese market.

1.3.          Research aim and objectives

1.3.1.     Research Aim

The main aim of this research study is to investigate and understand the significance of localization of marketing strategies adopted by foreign companies in local markets. To gain specific understanding of this phenomenon, this study aims to comparatively analyze the localized marketing strategies that McDonalds and KFC use in the Chinese market so as to identify the impact that the strategies have had on the performance of the companies in the market. With this regards, this paper explores the specific marketing strategies adopted by McDonalds and KFC and the benefits and challenges associated with their approaches. The study focuses on using comparative analysis model to determine how the different strategies adopted by McDonalds and KFC affect the performance of the companies. As a result the study relies on qualitative methodology to foster the understanding of the actual strategies used by the different companies as well as the impact of the strategies. The information used in the study is collected through use of primary means. Consumers of both McDonalds and KFC will be contacted by the researcher after seeking consent from both the companies and the consumers. The participating consumers will fill closed ended questionnaires that their awareness of the company’s marketing strategies and how they were influenced to engage in their specific purchasing behavior as a result of the marketing strategies.

1.3.2.     Research Objectives

Based on the above aim, this study’s objectives include:

• To determine the marketing strategies adopted by KFC and McDonalds in the Chinese local market
• To discuss the impact of marketing strategies on performance of KFC and McDonalds in China
• To explore the 7Ps marketing strategies adopted by KFC and McDonalds in China
• Investigate reasons why KFC is more successful than McDonalds in the Chinese market.
• To explain the perception of the Chinese consumers towards the marketing strategies adopted by KFC and McDonalds.

• Research Questions:
  • To determine the marketing strategies adopted by KFC and McDonalds in the Chinese local market
  • To discuss the impact of marketing strategies on performance of KFC and McDonalds in China
  • To explore the 7Ps marketing strategies adopted by KFC and McDonalds in China
  • Investigate reasons why KFC is more successful than McDonalds in the Chinese market.
  • To explain the perception of the Chinese consumers towards the marketing strategies adopted by KFC and McDonalds.

Statement of Methodology

For this study, the qualitative research methodology was selected as the main methodology approach for the study. This is because this study is a sociological study.  Influenced by the research topic, objectives and questions, this study aims to collect information that is obtained from primary research methods. Specifically, the information will be collected through use of open ended questionnaires which will be filled by KFC and McDonalds consumers. According to Khan (2011) consumers are selected as the main target consumers for a research paper because they are the ones who are influenced to purchase the products and services offered by KFC and McDonalds through the marketing strategies that are used by the businesses.

As part of the qualitative methodology approach, this paper explores the current marketing strategies that are used by KFC and McDonalds in China. In line with the research objectives and research title, the paper engages in the descriptive research design. This research method approach is effective for the research as it helps in exploring the trends associated with the marketing strategies adopted by KFC and McDonalds.  Kumar (2015) importantly notes that descriptive research design is an appropriate research design because it explores the nature in which the phenomenon exists without influencing any variables. This is to say that the descriptive research design purely collects, analyzes and presents information in the precise manner which it exists, thus it presents information accurately. Creswell (2014) articulates that the limitation of the approach is that it does not fully explain why McDonalds and KFC use the specific strategies that they do, or why the strategies affect the company in the manner that they do.

Influenced by the qualitative methodology and the descriptive research design, this study also uses the phenomenology approach. Saldaña (2016) postulates that the phenomenology approach focus on collecting data from primary sources to explain the nature of specific phenomena. The author adds that the approach has been proven to be a very effective research method when it comes to exploring theories and validating their usefulness with regards to the research phenomena being investigated. The significant challenge with the approach is that it is highly dependent on existing information that can be obtained from participants who are directly affected or directly affect the research phenomena. This means that the approach does not promote deductive reasoning. However, this limitation is according to Creswell (2014) mitigated for this study because the purpose of the study is to explore an existing phenomenon in its natural setting, hence the appropriateness of the descriptive research design.

To gain deeper insight on the impacts of different marketing strategies that are used by foreign markets in a particular local market, this study uses case study research design.  The appropriateness of KFC and McDonalds as the preferred case study for this paper which focuses on comparative analysis of their strategies and performance is fostered by the fact that they both focus on using localisation marketing strategies (Saldaña, 2016). Furthermore, the businesses are headquartered in the United States and they are regarded as the largest Fast Food chains in the world. Both businesses are influenced by the mantra of think global and act local, for the different markets that they operate in. The difference however is that their understanding of the market is different and as a result they use different strategies (Paik, Kwon, & Chen, 2017). The companies use adaptation and standardization approaches in their localisation strategies, however they do it differently. This is because McDonalds is more focused on setting up its independent operations through its direct foreign investment, while KFC is more focused on franchising and joint ventures in the foreign markets.

China on the other hand has been selected as the preferred foreign market destination due to its huge population of over 2 billion people and its growing economic performance (Paik, Kwon, & Chen, 2017). These are attributes that result in the countries being an attractive market for companies that trade in consumer products. China is again selected as the case study market because though it is the largest fast food chain restaurant in the world, McDonalds has been unable to gain competitive advantages over KFC in the Chinese market, and it recently announced that it would be exiting the market. This prompts the need to investigate its marketing strategies and performance in the market, and how they compare to those of KFC.

The case study research design according to Lapan, Quartaroli, and Riemer (2012) is limited by the fact that the collected information about McDonalds and KFC may not be an accurate representation of the marketing strategies that other companies within the industry use in the market. Furthermore, it may not accurately portray the strategies that the two companies as well other companies use in other markets (Khan, 2011). In line with the descriptive and case study research designs, the study focuses on using primary data collection methods, particularly questionnaire survey to obtain accurate first hand data about the marketing strategies adopted by McDonalds and KFC in the Chinese market, and the impact that the strategies have.

The selected participants in this research will be accessed through the two companies. Consent will be obtained from the management of the businesses, before consent is again sought from the managers of the specific stores that will be targeted. Finally, consent will be sought from the participants before information is collected from them. The survey questionnaire will be conducted physically at the various locations of the stores. The main challenge with this approach is that some of the consumers may not be cognisant of the marketing strategies of the two companies or how they are influenced by the strategies. This limitation is however limited by the fact that secondary research approaches will also be used in the collection and analysis of information pertaining to the marketing strategies of KFC and McDonalds and their impacts. The secondary information will be collected from peer reviewed journals, academic books and the publications of the two companies under investigation.