The Influence of Culture on US Fast Food
Franchisors in China
Master Thesis
Advanced International Business and Management (Dual Award) MA/MSc Newcastle University Business School and University of Groningen
Svea Herth
110569031 / S2438887 s.herth@newcastle.ac.uk
s.herth@student.rug.nl
Supervision:
Prof. Dr. Markus Blut (Newcastle University) Dr Rudi W. de Vries (University of Groningen)
i
Abstract
ii
Table of Content
Abstract ... i
Table of Content ... ii
List of Tables ... vi
List of Figures ... vii
Acknowledgments ... viii
1. Introduction ... 1
1.1 Research Aim and Question ... 3
1.2 Conceptual Framework ... 5
2. Literature Review ... 7
2.1 Business Format Franchising ... 7
2.2 Franchising as Internationalisation Strategy ... 8
2.3 Definition of Culture and Cultural Concepts ... 10
2.4 Cultural Influence on International Business ... 13
2.5 Cultural Influence on Franchising ... 14
2.6 Cultural Differences and Similarities between China and USA ... 16
iii
2.7.1 Facts and Figures ... 19
2.7.2 Legal Environment ... 21
2.7.3 Future Outlook ... 21
2.8 Fast Food Industry in China ... 22
2.9 Summary ... 23
3. Methodology ... 24
3.1 Research Approach and Strategy ... 24
3.1.1 Research Approach ... 24
3.1.2 Research Strategy – Case Study ... 24
3.3 The Cases ... 25
3.3.1 Yum! Brands ... 26
3.3.1.1 Kentucky Fried Chicken... 26
3.3.1.2 Pizza Hut, Inc ... 27
3.3.2 McDonald´s Corporation ... 27
3.3.3 Burger King Corporation ... 28
3.3.4 Dunkin’ Donuts ... 28
3.3.5 Papa John´s International, Inc. ... 29
iv 3.4.1 Interviews ... 29 Data Analysis ... 32 3.4.2 Documentary Data ... 33 Data Analysis ... 33 3.5 Limitations ... 34 3.6 Ethical Issues ... 35 4. Findings ... 36 4.1 Interview Findings ... 36
4.1.1 Back End Characteristics ... 36
4.1.1.1 Findings related to Hofstede´s Cultural Dimension ... 36
4.1.1.2 Findings Outside of Hofstede ... 39
4.1.2 Front End Characteristics ... 39
4.2 Findings of the Case Studies ... 40
4.2.1 Yum! Brands ... 41
4.2.1.1 Kentucky Fried Chicken (KFC) ... 41
4.2.1.2 Pizza Hut ... 42
4.2.2 McDonald´s ... 43
v
4.2.4 Dunkin’ Donuts ... 45
4.2.5 Papa John´s Pizza ... 46
4.3 Cross-Analysis ... 46
4.4 Summary of the Findings ... 48
5. Discussion ... 50
5.1 Front End Characteristics ... 50
5.2 Back End Characteristics ... 52
5.3 Summary ... 55
6. Conclusion and Recommendations ... 57
7. References ... 60
8. Appendix ... 71
8.1 Definitions of Types of Franchising... 71
8.2 Yum! Brand´s same-store sale ... 72
8.3 Hierarchy of Cities in China ... 73
8.4 Interview Schedule ... 74
vi
List of Tables
Table 1 Cultural Comparison USA - China ... 17
Table 2 Interview Details ... 31
Table 3 Thematic Analysis ... 32
vii
List of Figures
Figure 1 Conceptual Framework ... 6
Figure 2 Score of Dimensions ... 18
Figure 3 Number of Franchise Systems in China, 2000 – 2010 ... 19
viii
Acknowledgments
First of all I wish to thank everyone who helped me to complete this thesis. Without their continued efforts and support, I would have not been able to bring my work to a successful completion.
I would like to thank my supervisors Dr Rudi W. de Vries and Prof. Dr. Markus Blut for their continuous, invaluable feedback and constructive criticism.
1
1. Introduction
Franchising has become one of the fastest growing business formats over the last five decades all over the world (DiPietro et al., 2007). Franchising businesses generate economic output which growth outperforms the economy as a whole (Dada et al., 2012) and provide millions of people with jobs (DiPietro et al., 2007). It has become popular as an internationalisation strategy as it is seen as less risky than other internationalisation strategies (e.g. joint venture), nevertheless, there are several challenges that franchisors have to manage when internationalising (Croonen, 2010).
There are three types of franchising: product-trade name, business format and business conversion franchising (for definitions see Appendix 1) (Hoffman and Preble, 1991). However, business format franchising is accustomed most frequently with the idiom franchising (Webber, 2013) and for this reason used in this research. Business format franchising is a standardised replication strategy whereby a franchisor owns a complete business format and replicates such by forming alliances with independent business owners (franchisees) who use the format in return for fees (Croonen, 2010). The combination of the business format, its legal aspect and the management of independent business owners is referred to as a franchise system; individual businesses operating under the system are called outlets (Seid and Thomas, 2007).
2 the research is still uncertain and it is not clear what cultural differences in particular influence international franchising. Due to the lack of empirical research it is unclear if the business format can be implemented into a country without making adaptations to the local culture. To analyse possible adaptations of the business format a division of front end characteristics and back end characteristics of the format is made. Front end characteristics are visible and tangible such as the products and style of the store. The different flavours, tastes, styles and consumer habits could impact the standardised product or outlet and adaptation is necessary to obtain the success of the format. Back end characteristics are invisible such as the relationship management between the franchisor and the franchisee. Due to cultural differences the relationship management could be influenced and additional managerial challenges could evolve. Implementing changes in the system or negotiating franchisee agreement conditions for example could be more complex than in the franchisors home country because of a different perception of laws and rules. Therefore the aim of this research will be to get an insight of the influence of cultural differences on cross-border franchising. The focus hereby will lay on American fast food franchise chains operating in China.
The Chinese franchise industry is far from being as saturated as the United States (US), Canada and parts of Western Europe (Alon, 2010). The industry has experienced a fast growth during the past decade and is estimated to grow even further (Zeidman, 2010). More and more Western companies enter China because of the vast market opportunities and it is therefore seen as an admirable industry to study.
The fast food and restaurant industry in China is seen as a favourable industry sector to conduct research in. In the past few years it has seen major growth and is predicted to grow even further (Euromonitor.com, 2013d). In 1987 Kentucky Fried Chicken was the first franchisor ever to enter China, and further US fast food franchisors followed. Hence an industry with mature players but also newcomers, for example Burger King, who only entered in the last decade, can be examined.
3 which are extending the existing literature and can be used for future research. Furthermore, practical implications and propositions are made which franchise managers could use for future expansions to China. Appropriate modifications of the front end characteristics could be developed and implemented from the beginning to maintain the success of the business format abroad. With a better understanding of the influence of culture on the relationship management, selection of franchisees and negotiations could be adapted accordingly to avoid setbacks. Also, by becoming aware of the influence of culture, the management of already established franchise systems in China could be modified respectively.
In the following, the research aims and objectives will be outlined and main research questions as well as sub-questions, which will help to specify the research, are introduced. The conceptual framework will then give a further overview of the research. In Chapter 2 literature regarding franchising, franchising as internationalisation strategy and culture will be reviewed. An overview of franchising in China as well as of the fast food franchise industry is given. The methodology of the research is outlined in Chapter 3. Research approach and strategies are explained, the data collection process and how the collected data has been analysed is described. The research methodology is critically reviewed and limitations are stated. The findings of the collected data are presented in Chapter 4 and further discussed in Chapter 5. Practical implications and recommendations, managerial as well as for research, are given in the concluding Chapter 6.
1.1 Research Aim and Question
4 relationship management has been confirmed, however, Altinay and Brookes (2012) and Doherty (2009) expressed the need for further research on the cultural aspects on international franchising. Therefore, in this research it is analysed how specific business format franchise characteristics are influenced by cultural differences between the home (franchisor origin) and host country (franchisee country). Auntie Anne´s Pretzels, a franchise system from the US, failed in China and named among others cultural differences as reason for their failure (Langfitt, 2013). Thus, a potential influence of culture on franchising is suspected by the researcher. In this research the focus will be on US fast food franchise chains operating in China. The proposed research question is
How do cultural differences influence the business format franchise characteristics of US fast food franchisors when operating in China?
To answer this question and to specify the research, three sub-questions are asked. The first sub-question addresses standardisation aims of business format franchising. High standardisation is one of the core characteristics of franchising to obtain image consistency and cost minimisation in management and establish a strong system and brand (Kaufmann and Eroglu, 1999). The influence of culture on the standardisation aim will therefore be explored.
1. How is the aim for high standardisation influenced by cultural differences?
5 2. How is relationship management influenced by cultural differences?
Sub-question three is directly connected to cultural theory used in the research. Hofstede (1980) developed in his research five cultural dimensions (see section 2.3); these dimensions will be used to analyse cultural differences in a more comprehensive way. Furthermore, it is speculated that the cultural dimensions have a direct influence on the relationship management. Different perceptions of laws and hierarchy, which are covered by the dimensions, could complicate the relationship. Investigating if one cultural dimension has a stronger impact than the others will help to determine further the overall and direct influence.
3. What is the relative influence of each cultural dimension?
By using sub-questions the research question can be answered in a more specific way and the sub-questions can address distinct literature to which the case studies are compared to. In the following the conceptual framework of the research presented and expected causalities are explained.
1.2 Conceptual Framework
The influence of culture on cross-border business transactions has already been researched and an influence of cultural distance, although with mixed outcome, was evident (Altinay and Wang, 2006; Baena, 2013).
6 to be influenced by cultural differences between home and host country, which represents the independent variable.
7
2. Literature Review
After having developed the research question, the literature review will describe and explain the relevant theories. First, business format franchising is explained and how it is used as an internationalisation strategy is described. Theoretical frameworks of culture are outlined and differences between the two countries included in this research are presented. Literature and research on how culture and cultural differences affect international business as well as franchising is reviewed. An overview of the Chinese franchise industry as well the fast food industry in China is also given.
2.1 Business Format Franchising
Business format franchising is defined in this research as a standardised replication strategy whereby a franchisor owns a complete business format and replicates such by forming alliances with independent business owners (franchisees) who use the format in return for fees (Croonen, 2010). There are several other definitions available; however, this definition was seen as the most applicable in this study. It is widely believed that business format franchising originated in the US in the mid 1800´s, whereas franchising itself has occurred already in ancient times (Webber, 2013). The Singer Sewing Machine Company is seen as the first business format franchise as it franchised its sewing machine repair services to self-employed, licensed engineers (Webber, 2013).
8 The relationship in franchising is unique to other traditional business arrangements models. The key objective of the franchisor is to maintain control over the franchisees and in managing a franchise organisation such control and monitoring is the most essential and one of the core business aspects (Paik and Choi, 2007). The franchisee on the other hand tries to achieve a certain degree of autonomy and therefore is trying to undermine the control of the franchisor (Paik and Choi, 2007). Kaufmann and Eroglu (1999) highlight that often the franchisor has the feeling that “If you give them an inch, they will want a mile” (p. 83) and is therefore not willing to give up control. The franchisor is therefore from the beginning on looking for franchisees who will follow the system as the system will not adapt to them (Webber, 2013).
2.2 Franchising as Internationalisation Strategy
When internationalising a business several foreign entry modes exist including exporting, joint ventures, wholly owned subsidiaries (greenfields or acquisitions) and contractual agreements (licensing, franchising and service management agreements) (Baena, 2013). Franchising has significantly grown over the past two decades and has reached domestic market saturation in the US, Canada and parts of Western Europe (Alon, 2010). Diminishing profits in the home markets and the emergence of newly industrialised countries make internationalisation through franchising more attractive (Baena, 2013). Already in 1969 a survey of the International Franchise Association showed that franchising is used as an internationalisation strategy; the main reason here for were the desire to take advantage of markets with great potential and to establish the company name in markets which will be important in the future (Hackett, 1976).
9 exportable (such as services) an opportunity for market expansion (Aydin and Kacker, 1993). International franchising is perceived as being of lower risk than other internationalisation strategies (Aydin and Kacker, 1993), safe and speedy with a relatively small financial investment abroad (Eroglu, 1993). As further advantages Stanworth et al. (2001 cited in Welsh et al., 2006) list the production of raw materials internally, less sensitivity to political, economic and cultural risks and the familiarity of the franchisees with local laws, business practices and norms, culture and language. Risks in global franchising for the franchisor are seen in possible difficulties to repatriate royalties, protection of copyright and intellectual property, policing quality standards, understanding laws, regulations and business norms, serving the franchisee and terminating contracts and local imitations (Stanworth et al. 2001 cited in Welsh et al., 2006)
Within franchising as an internationalisation strategy there are four different entry modes for franchisors according to Baena (2013), differencing in levels of ownership and control:
1. Direct franchising: Developing an agreement directly with local franchisee. Gives the franchisor the opportunity to enter with low risk. However, difficulties in protecting intellectual knowledge, controlling quality standards and understanding of the local regulation could arise.
2. Master franchising: Contractual agreement with sub-franchisor who has the exclusive right to develop franchises for a particular time in a particular geographical area. The role of the master includes being a sub-franchisor and an empowered franchisee. 3. Joint Venture: Sharing control and ownership to minimise risk and accessing
resources of local companies. Managing the relationship to the partner, however, could lead to difficulties.
4. Direct Investment: Establishing company owned stores or subsidiaries abroad through greenfield or acquisition. Greatest exposure to political and economic risk.
(Baena, 2013)
10 country, becomes an even more complex and complicated task (Paik and Choi, 2007). The franchisor must establish a control system but also has to allow and use the local market knowledge of the franchisee (Tomzack, 2003 cited in Paik and Choi, 2007). Furthermore, he has to decide to which extent local adaptation and therefore less standardisation, should be allowed (Kaufmann and Eroglu, 1999).
2.3 Definition of Culture and Cultural Concepts
The influence of culture on franchising will be analysed in this research, however, culture has been defined in many different ways by anthropologists based on their analysis of ethnological, social, psychological and linguistic data (Browaeys and Price, 2008). A well-known definition which had pervasive influence on research (Jahoda, 2012) is the definition of Kroeber and Kluckhohn (1952) who have listed in their research 160 definitions and derived their own out of them:
“Culture consists of patterns, explicit and implicit, of and for behavior acquired and transmitted by symbols, constituting the distinctive achievement of human groups, including their embodiments in artefacts; the essential core of culture consists of traditional (i.e. historically derived and selected) ideas and especially their attached values; culture systems may, on the one hand, be considered as products of action, on the other as conditioning elements of further action”. (Kroeber and Kluckhohn, 1952, p. 181)
11 • Power Distance – power distribution and inequality in organisations and society,
acceptance of hierarchical structures
• Individualism vs. Collectivism – attitude to people´s time, freedom and privacy; in individualistic societies everyone looks after themselves, in collectivism strong group integration
• Masculinity vs. Femininity – measurement of the extent of masculine values such as assertiveness, competition, success in comparison to feminine values such as relationships, service, solidarity, quality of life
• Uncertainty Avoidance – tolerance for uncertainty, ambiguity and opinions; behaviour towards unstructured situations and risk taking/awareness
• Long term vs. Short term – attitude to time horizons; long term orients towards the future with preference to persistence and saving; short term emphasis only the present (Hofstede, 2001; Browaeys and Price, 2008)
A sixth dimension, Indulgence vs. Restraint, has been added later to the framework and is related to enjoying life, having fun vs. strict social norms (geerthofstede.nl, n.d.). As it has only been added later it is not seen as validated as the other dimensions and therefore not considered in this research.
12 Another cultural framework is formed by the seven dimensions of Trompenaars. Trompenaars (1993) developed dimensions which focus on differences in business cultures and show some similarities to Hofstede´s dimensions. The dimension address:
• Universalism vs. Particularism – rules, deal making focus vs. relationship focus • Individualism vs. Communitarianism
• Specific vs. Diffuse – work and personal life kept separate vs. overlap of work and personal life
• Neutral vs. Emotional – emotional are not shown vs. emotions are openly expressed • Achievement vs. Ascription – “you are what you do” vs. title, power and position
defines your role
• Sequential time vs. Synchronous time – focus on timely order vs. flexible time management
• Internal direction vs. Outer direction – control of environment vs. environment is in control (mindtools.com; Trompenaars and Hampden-Turner, 1997).
Critique towards the model has been expressed regarding its methodology and validity. Participants of the study were employed by different companies; the diverse corporate cultures could therefore have affected the findings (mindtools.com). Hofstede (1996) revisited Trompenaars framework and questioned the statistical validity of five of the seven dimensions; solely Universalism vs. Particularism and Individualism vs. Communitarianism can be confirmed statistically.
13 extensively and showed higher validity compared to other alternative models (Isa et al., 2007). The criticism of Hofstede’s model will be taken into account when discussing the findings of this research in Chapter 5.
2.4 Cultural Influence on International Business
The relevance of culture in international business has become increasingly important in the last two decades (Leung et al., 2005) and the practical and theoretical importance of culture has drawn the attention of many researchers, resulting in many studies. How culture can be operationalised and how culture affects international business topics have been researched (Baack and Baack, n.d.). In particular Hofstede´s (1980) study and development of the cultural dimensions is seen as the initiation of further research (Leung et al., 2005). The cultural dimensions and cultural distance, measurement instrument developed by Kogut and Singh (1988), which is based on Hofstede’s typology, have therefore been the dominant theoretical frameworks (Isa et al., 2007; Baack and Baack, n.d.). The literature regarding the influence of culture on business is, however, mixed. In the following a short review of literature of three research streams regarding the cultural influence and its diverse findings will be given.
The first stream addressed the decision in the internationalisation process on which foreign market should be entered first the cultural distance has been analysed. While some studies find there is evidence that companies first internationalise in countries with a low cultural distance first (Li, 1994), other do not find support for it in their research (Benito and Gripsrud, 1992).
14 Uncertainty Avoidance and Long Term Orientation is high. This effect was not found by other researchers, hence, the impact is not clear (Brouthers and Brouthers, 2001).
Another subject, here seen as the third stream, which has been researched is globalisation, cultural change and the convergence of consumer behaviour. Many authors expect that the consumer needs will in general converge and that this will lead to homogenous consumer needs (de Mooij and Hofstede, 2002). The most famous author is Levitt (1983) who assumed early on that due to new technology the consumer will homogenise and thus prefer standard products of high quality and a low price. His argument was based on the assumption that consumer behaviour is rational; however, the assumption of rationality is often seen as unrealistic and places the consumer outside of a cultural context and a complete convergence is not seen as reasonable (de Mooij and Hofstede, 2002). The allure of Western consumer culture has spread into other cultural societies which now incorporate Western consumer culture into theirs. Yet, local adaptation of many products is still necessary as culture and the consumer behaviour do not converge quickly and fully (Solomon, 2010). Anew, literature and practice show a discordant conclusion.
2.5 Cultural Influence on Franchising
The influence of culture in international business has already been researched, however, there is no consensus on the influence of culture in the literature (Altinay, 2007). Adaption to local culture (e.g. political economy, religion, language, education) may create an additional burden for multinational enterprises (Schwartz, 1999) as cross-border business transaction always involve interactions with different societal value systems (Tihanyi et al., 2005).
15 business partners have an impact on formation and sustainability of strategic alliances (Lorange and Roos, 1993 and Voss et al., 2006 in Altinay and Brookes 2012). Altinay and Brookes (2012) and Altinay and Wang (2006) addressed cultural distance regarding franchising in their research. Altinay and Wang´s (2006) research analysed the prior knowledge and expectations of franchising and showed that cultural differences and diverse business cultures magnify the complexity in franchising relationships. Yet, the influence is very vague and is not further specified.
The research of Altinay and Brookes (2012) showed that cultural sensitivity in franchise partnerships enabled the franchisor to carry out his role more effectively, however, developing strategies tailored to the wants of the franchisees needs would not be sufficient to cultivate the relationship. Time, managerial attention and resources have to be invested to demonstrate the cultural sensitivity.
More focused on the characteristics of franchising such as the store layout is the study of Gordon (1993). His main focus is on the influence of legal protection of culture on franchising and therefore mainly the legal perspective is analysed. However, issues of unwritten cultural laws are identified as well, which show that culture is influencing international franchising operations. The study does not focus on any specific country and only gives a limited amount of examples, hence, further research is needed.
16
2.6 Cultural Differences and Similarities between China and USA
In this research the influence of the cultural differences between China and the USA on business format franchising will be analysed. As outlined in the introduction China was chosen as the host country (franchisee origin) and the US as home country (franchisor origin). Thus, in the following an overview of both business cultures is given and Hofstede´s (1980) cultural dimensions are employed to indicate the cultural differences.
The Chinese culture is rooted in the social ethic of the Confucius doctrine which still has an influence on the common culture and psychology of the Chinese nation (Martinsons and Westwood, 1997). Hence, relationships and harmony are of great importance when making business in China (Browaeys and Price, 2008). Negotiations are group oriented and the interests of all parties are tried to be brought together (Moran et al., 2010). Short conversations about non-business related topics before starting negotiations is a common business courtesy to establish a relationship. As the Chinese culture is a high-context culture, non-verbal signals have to be understood to determine the true meaning of a conversation. Also, in negotiations nothing should be seen as definite before it has not been signed; modifications on an agreement are often suggested last minute.
17 When employing Hofstede´s cultural dimensions clear differences but also similarities become evident (for the definitions of dimensions see section 2.3). A summary of the dimensions applied the US and China is provided in Table 1:
USA China
Power Distance
• Low power distance
• Believe in “liberty and justice for all” • Superiors are always accessible
• Informal, direct and participative communication
• High power distance • Inequalities are acceptable
• No defence against power abuse by superiors
• Aspirations should be within rank Individualism
vs.
Collectivism
• Highly individualistic culture • Loosely-knit society
• Every one shifts for oneself
• Hiring and promoting based on what one has done or can do
• Highly collectivistic culture
• Interest of group is more important than of an individual
• Hiring and promoting is kept in-group Masculinity vs. Femininity • Masculine society • Success driven • “Live to work”
• Strive for monetary rewards
• Masculine society • Success driven
• Work more important than leisure time
Uncertainty Avoidance
• Uncertainty accepting
• Acceptance of new ideas, innovations, willingness to try new things
• Allow freedom of expression • Do not require a lot of rules
• Uncertainty accepting • Comfortable with ambiguity • Adaptable and entrepreneurial • Laws and rules can be flexible,
pragmatism is widespread
Long Term vs. Short Term
• Short term orientated
• Focused on traditions and fulfilling social obligations
• Measurement of performance on short term basis
• Highly long term orientated
• Traditions can be adapted to suit situation
• Investments tend to be long term projects
18 Figure 2 displays the scoring in each dimension of the two countries in comparison. The strong differences in terms of Power Distance, Individualism vs. Collectivism and Long Term vs. Short Term Orientation can be seen clearly. Also, it shows how close the two cultures are when comparing Uncertainty Avoidance, where only the perception of laws differentiates, and Masculinity vs. Femininity where the score difference is only four points, see Figure 2.
It is speculated by the researcher that the differences in these dimension could influence the relationship management. Due to the higher power distance it is presumed that managing franchisees will be less complicated for the franchisor and the franchisor is more respected. Uncertainty Avoidance with laws and rules being perceived as flexible in China on the other hand could lead to difficulties when enforcing the franchise agreement. The high score in collectivism could lead to a better understanding of belonging to a system as group thinking is embedded in the culture. The similarity in being a masculine society and the success drive is speculated to foster franchising. The Chinese tendency to have long term investments in comparison to short term orientation in the US may cause longer franchise agreement length. However, these are only speculations made by the researcher and the conducted research will shed light on these.
Source: Own illustration based on geert-hofstede.com, n.d.
80 20 66 30 118 40 91 62 46 29
Power Distance Individusalsim Masculinity Uncertainty Avoidance Long Term Orientation China United States
Score of Dimensions
19
2.7 Franchising in China
In the following an overview of the franchise industry in China will be given to examine the environment the case companies are operating in. Main facts and figures will be presented as well as the legal environment and an outlook of its future.
2.7.1 Facts and Figures
Franchising was first introduced in China in the late 1980´s by the US fast food companies Kentucky Fried Chicken (KFC) and McDonald´s (Zhiqiong June Wang et al., 2008). The industry has grown ever since and the franchise model has been adopted in a variety of industries in China (Ordish, 2006). Approximately 4500 franchise systems, with over 400 000 franchised outlets were recorded by the end of 2010 (Yigi, 2011). In comparison, in the US, there are over 3000 systems with 900 000 outlets (Dant et al., 2011). Figure 4 shows the rapid growths of franchise systems in China from 2000 to 2010.
Figure 3 Number of Franchise Systems in China, 2000 – 2010
2800 3500 4000 4500 0 500 1000 1500 2000 2500 3000 3500 4000 4500 5000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Number of Franchise Systems in China
20 The main franchise industries in 2009 were retailing (44%), catering (30%) and the service industry (26%) (Research.and.Markets, 2011) A detailed breakdown for the year 2004 is provided in Figure 5. Even though the franchising industry represents only 3 % of the retailing sector in China, it has an economic impact of 63 billion USD. The low percentage indicates that the industry is only at its beginning. In saturated economies such as the US or Australia franchising in the retail sector accounts for 40,9 % and 52,8 % respectively (Dant et al., 2011).
Figure 4 Per cent of Franchise Systems in Industry Sector 2004
31,6% 8,6% 6,9% 3,1% 5,8% 2,5% 1,0% 4,7% 8,1% 6,6% 2,2% 14,4% Restaurant 31,6 % Convenience Store 8,6 % Education 6,9 % Real Estate 3,1 % Clothing 5,8 % Pharmacy 2,5 %
Household Electric Aplliances 1,0 %
Car Service 4,7 % Home Decoration 8,1 % Beaty & Fitness 6,6 % Bookstore 2,2 % Other 14,4 %
Source: Own illustration based on Zhiqiong June Wang et al., 2008
21 2.7.2 Legal Environment
In 1997 the first Chinese Franchise law, the Regulation on Commercial Franchise Business, was established by the Ministry of Internal Trade, which included guidelines on protection of intellectual property, copyrights and trademarks (franchise.org, n.d.). Even though the law was not comparable to Western franchise laws and only described how franchising works, it was very important to reduce the emerging fraud (Zhiqiong June Wang et al., 2008; Hughes, 2011). In 2004 the “Franchise Measures”, a new franchise law, was introduced. Under these measures it was “required to that all franchisor must have had at least two company owned operations in China for at least one year before commencing franchising” (Zeidman, 2010). Hence, only by partnering with a domestic franchisor with an export and import licence it was possible to enter the market (Ordish, 2006). The new law barred a large amount of all franchisors worldwide to enter China and slowed down the development of the franchise industry. With the new “Franchise Regulation” from May 2007 this law was no longer effective and foreign franchisors are now able to franchise directly into China (Zeidman, 2010). The 2007 “Franchise Regulation” is still in place; however, other laws and regulations affecting franchising such as intellectual property protection are complex and very complicated, therefore special attention has to be paid (Alon and Bian, 2004).
2.7.3 Future Outlook
The franchise industry in China shows great potential for the future. The Chinese franchise industry is far from being saturated with only 3% franchised of the retail sector and only averaging 43 outlets per system compared to 540 in the US; potential for growth is therefore given (Zeidman, 2010).
22 Liberalisation of the market and the development of private Chinese companies and capital also provide a solid base for further franchise businesses (Zhiqiong June Wang et al., 2008). However, the lack of management skills and missing skilled professionals to open as business could slow down the franchise industry (Alon and Bian, 2004).
2.8 Fast Food Industry in China
The fast food industry in China has seen a major growth over the past few years and has remained strong despite the economic slowdown (Euromonitor.com, 2013d). A revenue of 94.2 billion USD is estimated to be generated in 2013; 2008 to 2013 the industry has been grown by an annual revenue growth rate of 13 % and reflects the strength of the industry (ibisworld.com, 2013).
The main competitors in the industry are US owned companies such as Yum! Brands (KFC, Pizza Hut), McDonald´s and Subways, however, there are also local competitors who serve Western fast food, e.g. Dico´s and Hua Lai Shi Catering Management and Service Co Ltd (Euromonitor.com, 2013d). The majority of the companies in the industry (82 %) are small and independent standalone businesses who serve traditional Chinese-style fast food (Euromonitor.com, 2013b); only 7000 out of almost 2 million businesses belong to 130 large franchise or chain operators (prweb.com, 2013).
An increasingly fast paced lifestyle is making fast food more popular; take away meals are seen as more convenient, hassle free and also inexpensive (Euromonitor.com, 2013d). The preference for eat-in, which accounted for 82 % of fast food sales in 2012, has now seen a decline and take-away and home delivery have increased (Euromonitor.com, 2013d). KFC and McDonald´s have quickly picked up on this trend and do now offer home-delivery (Devaney and Stein, n.d.).
23 particular has been affected by this issue when in the end of 2012 an excessive level of antibiotics was discovered in their poultry products (Baertlein, 2013); as a result the sales of all Yum! Brands in China dropped tremendously (see Appendix 2) (Economist.com, 2013). Establishment of strict supplier management and the usage of local-sourced products is on the rise amongst fast food franchisors to minimise risk of food safety issues (Euromonitor.com, 2013d).
Nevertheless, the development of the fast food industry is expected to stay dynamic with a value growth of 7 % (Euromonitor.com, 2013d). The market is far from being saturated and further expansion in tier one (four largest Chinese cities with highest income) and also lower tier cities (11 largest Chinese cities with high income) is driving growth. More detailed information about the tier cities in China is attached in Appendix 3. The food safety concern of the consumer is also believed to trade up consumers to chained and branded outlets as they believe more attention to food safety is paid by them than small stand alone outlets (Euromonitor.com, 2013b).
2.9 Summary
To summarise, business format franchising has become an attractive internationalisation strategy (Baena, 2013) and is seen as less risky than other internationalisation strategies (Aydin and Kacker, 1993). The influence of culture on internationalisation and international business has become a more and more relevant and researched topic in the last decade (Leung et al., 2005). However, the influence of culture on international franchising has been a neglected theme.
Clear cultural differences between China and the US, outlined with the help of Hofstede´s dimensions, are suspected to influence front and back end characteristics of franchising when entering China. The fast food industry in China is seen as a favourable industry to conduct research in as it is growing and has a promising forecast for the future.
24
3. Methodology
The methodology chapter will now present the research approach, strategy and the two data collection methods used (interviews and documents). Ethical issues and limitations of the research which occur through the chosen approach will also be outlined.
3.1 Research Approach and Strategy
3.1.1 Research Approach
There are two approaches in academic research which are the deductive approach on the one hand and the inductive approach on the other. In this research an inductive approach is used. In the inductive approach a general conclusion is drawn from a finite number of observations (Adams et al., 2007) and an understanding of how humans construe the world can be developed (Saunders et al., 2008). Deductive research is often associated with natural science but can also be used in social science. Hypothesis and theories are developed and then tested when conducting the research (Saunders et al., 2008). Due to the limited research regarding the influence of culture on international franchising an open research question is asked to understand the nature of the problem better. Furthermore, in this research culture is analysed and conclusions will be drawn from a number of observations; hence, an inductive approach is most suitable for this research.
3.1.2 Research Strategy – Case Study
The research strategy depends on the research questions and objectives outlined in the introduction as well as the amount of time, knowledge and other resources available (Saunders et al. 2009). Several research strategies are recognised, such as survey, case study, experiment, action research or ethnography.
25 they were implemented and what the outcome was. Thus, to answer the open research question and examine the decisions franchisors have made when entering the host country, a case study approach is seen as the most suitable.
By using multiple case studies, contrasting cases can be chosen and a quasi-experimental design is implemented. For this study six cases were chosen which have all entered the same host (franchisee) country. As already introduced in the introduction, the franchisor country has been chosen to be the US and as the franchisee country to be China. The two countries are seen as culturally very different (geert-hofstede.com, n.d.). By choosing two countries with strong differences the influence can be analysed and examined better than between countries with a similar culture. Furthermore, a multiple case study approach with six cases enables to compare the different cases with each other to analyse differences and similarities between them. The comparison will help to determine the investigated influence of culture on the franchise systems. Due to the time constraint of this research, researching and analysing six cases in depth is seen as the most doable.
3.3 The Cases
26 3.3.1 Yum! Brands
Yum! Brands is a quick service restaurant company, owning the three restaurant systems Kentucky Fried Chicken, Pizza Hut and Taco Bell. In total there are ca. 39 000 outlets in 120 countries of which approximately 20 % of restaurants are company owned, 80 % franchised or licensed (Yum! Brands Inc, 2012b; yum.com, n.d.-a). In China only KFC and Pizza Hut are present who have a combined market share of 39 % and earn 50% of the total revenue of Yum! Brands. For 2013 it was planned to open 700 new outlets, increasing the number of outlets to over 6000 in China.
3.3.1.1 Kentucky Fried Chicken (KFC)
KFC was founded in 1930 by Colonel Harland Sanders in Kentucky, at that time it was called “Sunders Court & Café”. After developing a unique recipe in 1940, the Colonel started to franchise his business in 1952 by travelling around the country to cook batches of chicken for other restaurants. Also, the first franchise was opened in Salt Lake City by granting the right to use the unique recipe. By 1960 a system consisting of 190 franchisee with 400 outlets in the US and Canada was established (kfc-ng.com, 2013). Over the years the system has constantly grown and now has ca. 18 200 outlets worldwide.
27 3.3.1.2 Pizza Hut, Inc.
Pizza Hut was founded in 1958 by Dan and Frank Carney in Wichita USA. Already, within the founding years the first franchise outlet was developed. Later, in 1973 the first overseas outlet opened in the United Kingdom. Over the years the system has grown and operates currently through over 14000 outlets.
The first outlet in China was opened 1990 and by the end of December 2012 987 new outlets in over 225 cities were built (Euromonitor.com, 2012; yum.com, n.d.-b). Even though 90 % of international outlets are franchised or licensed, in China Pizza Hut has only 1 franchised outlet.
3.3.2 McDonald´s Corporation
McDonald´s was founded in 1940 by Dick and Mac McDonald´s in San Bernardino, California. For the first eight years the restaurant was full service, in 1948 the brothers decide to downsize the menu and only offer a self-service drive through. In 1955 the first franchised outlet opened in Plaines, Illinois, ten years later there were over 700 McDonald´s restaurants throughout the US. The first international outlets opened in 1967 in Canada and Puerto Rico, today, McDonald´s is located in 119 countries and has ca. 34 500 outlets of which 27 900 are franchised (McDonald´s, 2012; aboutmcdonalds.com, n.d.).
28 3.3.3 Burger King Corporation
Burger King is a fast food hamburger chain, with emphasis on flame broiled beef burgers, was founded in 1954 by James McLamore and David Edgerton. To expand their business across the US Burger King started franchising in 1959; only four years later, in 1963, the first international restaurant opened in Puerto Rico. Today the system operates approximately 12 900 outlets in all 50 states of America and 73 countries around the world. 96 % of outlets are owned and operated by franchisees, 4% are company owned (Burger King Worldwide, 2012).
Burger King entered China in 2005 and first only had company owned outlets. In June 2012, however, a joint venture with Cartesian Capital Group was entered and exclusive development and sub-franchise rights for China were granted. With 86 outlets by end of 2012 Burger King is only a small player in China. In order to expand further, future plans are to open 1000 new outlets between 2012 to 2019 (bkchina.cn, 2013; Euromonitor.com, 2013a; Helen H. Wang, 2013)
3.3.4 Dunkin’ Donuts (subsidiary of Dunkin’ Brands)
Dunkin’ Donuts is a baked goods and coffee chain which was founded 1950 by Bill Rosenberg in Quincy, Massachusetts. In 1955 the first franchised outlet was opened; nowadays the system includes ca. 7280 domestic and 3173 international outlets in 32 countries. Dunkin’ Donuts international outlets are 100% franchised, domestic outlets 96, 6 % franchised.
29 3.3.5 Papa John´s International, Inc.
Papa John´s was founded in 1983 by John Schnatter in Jeffersonville right after he had finished his business degree. For the first year it was a delivery only operation but already in 1984 he opened his first Papa John´s restaurant and in 1998 the first overseas outlet opened in Mexico (papajohnschina.com, n.d.). Today it operates in 35 countries and has 3200 domestic and 959 international outlets. 80 % of the domestic outlets are franchised and except for China, all international outlets are franchised.
The Chinese market was entered in 2003 and 180 outlets of which 48 are company owned (77 % franchised) have been developed (Papa John´s Inc, 2012a). The franchised outlets are mainly operated by the master franchisee RCS Group Co. Ltd based in Shanghai (jljgroup.com, 2008) and represent 32 % of the total of international sales (Euromonitor.com, 2013f). To keep their market position in China further expansion through franchised units is planned (Euromonitor.com, 2013f).
3.4 Data Collection Methods
To achieve the objectives and aims of the research and to answer the research questions, the data collection methods interviews and documentary data have been used. Details are described in the following.
3.4.1 Interviews
30 discussed. In semi-structured interviews a list of themes and questions is covered which gives the researcher the opportunity to vary the order in which questions are asked and more questions to get a deeper understanding can be included where required (Saunders et al., 2008). For this research the use of semi-structured interviews is applicable and beneficial because the interviewees’ experiences and work background does vary. The interview schedule, designed with help of the literature background and suitable to address and answer the research question, is attached in Appendix 4.
In total four interviews have been conducted with franchise and food concept development experts and consultants. The interviewees have been chosen due to their working and living experience in China, experience in franchising and restaurant development. They have been contacted via e-mail, their company homepage or the social media platform linkedin.com. Additionally, all of the six case study companies have been contacted several times, however, none was available to be interviewed for this research. Nevertheless, the extensive experience in international franchising and food service system of the remaining interviewees provided the researcher with valuable and sufficient knowledge to answer the research question.
31
Current Position Experience Date of Interview Length of
Interview Interviewee 1 President of a
franchise consultancy firm and franchise information
website
• Over 35 years of experience as franchise executive and franchisee
• Establishment of franchise concept
• Developing and licensing franchise in Europe and Asia • Franchise book author
19.09.2013 31 Min.
Interviewee 2 Owner of a restaurant consultancy service
• Over 40 years work experience in the food and beverage industry
• Food concept designer of large theme park in Hong Kong
• Designing efficient and very high volume quick service restaurants
08.10.2013 21 Min
Interviewee 3 International franchise consultant,
author and speaker
• Over 40 years of experience in management and leadership within the franchise real estate industry • Founder of a franchise consultancy firm
• Highly experienced in developing franchise present in China
• Franchise book author and international speaker
21.10.2013 42 Min.
Interviewee 4 CEO and founder of a leading business
consultancy firm based in the US and
China
• 30 years business experience in Asia
• 15 years business experience in quick service, casual dining and franchising
• Former Board Member of KFC Japan • Frequent Contributor, Bloomberg TV Asia
23.10.2013 54 Min.
Table 2 Interview Details
32 Data Analysis
To analyse the collected data of the interviews a thematic analysis was employed. Thematic analysis is seen as a foundational method for qualitative data by which patterns and themes within the data are identified, analysed and reported (Braun and Clarke, 2006). To prepare the data for the analysis the interviews were transcribed and the six steps of thematic analysis by Braun and Clarke (2006) and were followed (see Table 3).
Phase Description of the process
1. Familiarizing yourself with your data:
Transcribing data (if necessary), reading and re-reading the data, noting down initial ideas.
2. Generating initial codes: Coding interesting features of the data in a systematic fashion across the entire data set, collating data relevant to each code. 3. Searching for themes: Collating codes into potential themes, gathering all data relevant to
each potential theme.
4. Reviewing themes: Checking if the themes work in relation to the coded extracts (Level 1) and the entire data set (Level 2), generating a thematic ‘map’ of the analysis.
5. Defining and naming themes:
Ongoing analysis to refine the specifics of each theme, and the overall story the analysis tells, generating clear definitions and names of each theme.
6. Producing the report: The final opportunity for analysis. Selection of vivid, compelling extract examples, final analysis of selected extracts, relating back of the analysis to the research question and literature, producing a scholarly report of the analysis.
Table 3 Thematic Analysis
By using this method mentioning of cultural influences on characteristics of franchising were filtered out and several themes were organised. Themes were for example the dimensions of Hofstede. The method is applicable to highlight similarities and differences across the interviews and case companies (Braun and Clarke, 2006) and a categorical analysis of the influence was therefore executed by using this method.
33 3.4.2 Documentary Data
As second data source documentary data was used. Hereby a large set of qualitative and quantitative data about the cases was collected. Quantitative data was used to evaluate performance; qualitative data to analyse the management of the “standardisation vs. local adaptation” decision. The data was constructed by using documents and records such as academic journals, books and e-books, company reports and websites, online newspapers and databases. All sources were accessed through the internet and university and public libraries.
One of the main advantages of using this method is that documents can easily be accessed at low cost and a wide range is available online and offline. As the internationalisation process is stretched over a longer time period, documentary resources were the most appropriate; the sources can facilitate studies over a lengths of time and it is possible to obtain information which could not be obtained by questioning or from observation (Thomas, 2004).
Data Analysis
34
3.5 Limitations
The chosen research strategy, sources and analysis have limitations which could have influenced the validity, generalizability, reliability and credibility of the research. By using a case study strategy only six cases were analysed and generalizability is therefore arguable. The six cases have included fast food franchisors originating from the US entering China; fast food franchisors originating from other countries were not analysed and also no comparison to entering a different country than China was carried out. Furthermore, the research is focused on one industry type and it is therefore debatable if the findings are transferable to other industries.
Moreover, secondary data was collected which gives a limited view of the research topic and as the data found in secondary literature was initially collected for a different research objective the data cannot be completely adopted for this research. Variables, definitions and the aggregations meet the requirements of the original research but may not be suitable for this research (Saunders et. al 2009). Furthermore, it is not guaranteed that the researcher found the data which is needed through inaccessible documents or inconsistent recording; also, documents often do not reflect the current status and progress of research and can be out of date. This risk was minimised by only using current documents and various data sources.
When using explanation building to analyse the data a common problem is that the researcher might slowly drift away from the original topic (Yin, 2009). The researcher has minimised this risk by clearly sticking to the aims and objectives and checking throughout the analysis to stay focused.
35 Another limitation of the interviews is that a limited number was conducted and validity and generalizability is restricted. Only four interviews were conducted which included franchise experts, a food system developer and franchise consultants. No representative of the case study companies was interviewed which limits the findings of the interviews as they do not provide information directly related to the case companies.
The main limitation of the thematic analysis is that it has a limited interpretation power and the analysis can be descriptive (Braun and Clarke, 2006). Therefore, additional attention was paid to analysing and not just describing the data. Depth to the analysis was added by comparing the findings to existing literature as well as introducing propositions in the discussion chapter which derived from the analysis.
3.6 Ethical Issues
Ethical issues are often seen in regard with medical or natural science, however, the consideration of upcoming ethical issues in the research process is in a business research important, too (Hussey and Hussey, 1997).
In this research ethical issues could have arisen when conducting the interviews. To avoid any ethical issues, the interviews were conducted following the research governance and ethics of Newcastle University (ncl.ac.uk, 2012). The interviewees had full consent over the purpose and content of the research and were able to ask the researcher for further details. When contacting the interviewees it was made clear that their participation is voluntarily and that the interviews will be recorded. The recordings were treated with confidentiality and no personal data of the interviewees was exposed.
36
4. Findings
After having outlined the methodology in the previous chapter, now the findings will be presented. First the data of the interviews with franchise experts will be highlighted. The influence of Hofstede´s cultural dimensions on the back end characteristics will be presented as well as the expert opinions on the front end characteristics. Secondly, the findings of collected secondary data for each case will be shown and analysed. Front end characteristics in the US and China are presented and it is outlined which have been adapted to local culture and also what has been kept standardised. The cases will then be compared to each other to highlight similarities and differences which have emerged. Further discussion of the findings, and implications they could have, can be found in Chapter 5.
4.1 Interview Findings
The interviews have been used to discuss back end characteristics from an expert’s point of view and will be presented first. The importance of adaptation or standardisation of front end characteristics was questioned as well and is also outlined.
4.1.1 Back End Characteristics
4.1.1.1 Findings related to Hofstede´s Cultural Dimension
To present the findings of the back end characteristics the cultural dimension framework of Hofstede has been applied.
37 Due to the higher power distance the franchisor is regarded higher in the hierarchy. Therefore, it was experienced by the interviewees that the Chinese franchisees are more reluctant to challenge and question particular activities and strategies or tactics implemented by the franchisor than franchisees from the US or other countries. As a result management of the relationship between franchisor and franchisee was less complicated.
However, it was also stated that the hierarchical system is not evident in business transactions such as franchising where a contractual agreement exists. The hierarchical system was regarded to be applicable within organisations and families but not in franchising.
The second dimension, Collectivism vs. Individualism was not seen as influential by the interviewees. No differences in the relationship management of Chinese and US franchisees were experienced and the collectivistic thinking did not contribute to a better understanding of being part of a franchise system. Furthermore, the classification of the Chinese culture to be collectivistic was seen as outdated and hence not influential:
“[…] collectivism is not there anymore. […] there are a lot of selfish and individualistic business men in China. “(Interviewee 2)
The Masculinity of the culture, the success drive and entrepreneurial behaviour was affirmed to influence franchising. First of all, the Chinese were seen as very entrepreneurial and success driven which in the opinion of the interviewees can foster franchising. Secondly, it was stated that franchising presents a great alternative to starting an own business and enjoys great popularity.
“[…] they are very entrepreneurial, very aggressive, very willing to take risks and start their own business.[…] franchise exhibitions are swamped with young people” (Interviewee 3)
The Highly competitive behaviour between the franchisees was also reported by one of the interviewees; the competitiveness even led to a physical fight between franchisees.
38 the two remaining dimensions Uncertainty Avoidance and Long Term vs. Short Term Orientation.
The strongest influence was seen in the Uncertainty Avoidance dimension regarding the assumption that in the Chinese culture rules and laws can be seen as flexible. Franchisees cheating on the franchisor were no exception and was hence seen as a major problem. Strong opinions were hereby expressed by the interviewees. Cutting corners and cheating on the franchisor was stated to be normal in China. From the interviewees experience not taking an opportunity to cheat on the franchisor when by cheating more money can be made was seen as stupid. Furthermore, it was expressed that Chinese franchisees are actively looking for ways to cheat or bypass the franchise agreement.
The three interviewed franchise experts expressed, that the enforcement of the franchisee agreement and the existing franchise laws are very important, however, the underdeveloped legal system and corruption is seen as hindrance to actually do so. Furthermore, due to the concern of being cheated on, finding trustworthy franchisees and business partners was reported to be very difficult and a high degree of ownership when entering China was recommended by the interviewees.
Full control over the supply chain and tight control over the franchisee by constantly monitoring, frequently visiting the franchisee and less accountability of the franchisee, were recommended by the interviewees to prevent fraud.
In correlation with the “bending the law” component it was also mentioned several times by the franchise experts that franchising is difficult in China because the concept of franchising and paying for intellectual property was not understood by the Chinese, which in turn leads to fraud.
39 quick money additionally shows that the long term orientation is not present in a franchising context.
4.1.1.2 Findings Outside of Hofstede
Outside of Hofstede’s dimensions three interviewees recognised a cultural difference which influenced franchising, in particular the negotiation of franchisee agreements. Negotiating fees and royalties took in their experience a much longer time than when doing business with Americans. However, it was not associated with any difficulties when doing business with Chinese. An aspect which lead to more complications was seen when after negotiating for a longer period of time and being at the closing stage of the agreement, the majority of the Chinese negotiating partners tried to re-negotiate the terms or completely withdrew from the deal. The interviewees emphasised in particular on the withdrawing from almost closed deals and saw this as a very difficult aspect to deal with and also found this behaviour highly frustrating.
4.1.2 Front End Characteristics
The interviewees have also been questioned about the front end characteristics of franchising and its standardisation or adaptability in China.
40 stolen. Hence, registering both, English and a Chinese version, of the logos and slogans is crucial.
Regarding adaptation of the product, in the case of this research food, was most crucial and all interviewees agreed that “Food definitely needs to be adjusted to the local taste “(Interviewee 2). Even though Western food is also sold in the outlets, the interviewees stated that Chinese food is still preferred. Introducing Chinese dishes to the menu was seen as important as well as modifying existing dishes by using different flavours and seasonings.
Furthermore, adjustments regarding the interior and the inside appearance of the outlets to the Chinese consumer behaviour was recommended. The outlets should be larger with bigger, cushioned seating areas as the Chinese consumers tend to stay for a longer period of time in the restaurant than US consumers. Also, the restaurants are used for family gatherings and other meetings because it is rarely possible for them to entertain and accommodate people at their own house due to a lack of space.
Another point made here was that visiting a Western Restaurant is also a status symbol for Chinese customers. Tidy and clean inside, as well as an inviting design was recommended.
“They require a beautifully designed store, […], a lovely table and chair, a lovely booth; they absolutely require that before they go in a restaurant.” (Interviewee 4)
4.2 Findings of the Case Studies
41 4.2.1 Yum! Brands
4.2.1.1 Kentucky Fried Chicken (KFC)
USA
The menu of KFC in the US is based on fried or grilled chicken pieces which are sold in a bucket. Four chicken sandwiches are available and a small selection of side dishes and desserts; furthermore, there is a pot pie and a mashed potato dish available which are marketed as “Classics” (kfc.com, 2013).
All service systems are available and it can be pre ordered over the internet or via phone. The KFC logo features the founder Colonel Sanders, the company’s colours are red and white which are reflected in the appearance of the outlets.
China
KFC has adapted very strongly to the Chinese culture and is perceived as an “American company with Chinese characteristics” (Cho, 2009).
The menu is highly adapted to the Chinese consumer; offering rice dishes, soup and Peking duck flavoured wraps (fcyouhui.com, n.d.). The menu is extended to approximately 50 items compared to 29 in the US, to offer the customer a greater variety of Chinese dishes in addition to Western burgers and sandwiches (Bell and Shelman, 2011). Because of its highly adapted menu it is even argued that the offer of more Chinese dishes than Western ones is undermining KFC´s American identity (Lin, 2013)
Like in the US, eat-in, take away and delivery is available in most KFC´s in China, an online ordering system has also been set in place (Jargon, 2011; fcyouhui.com, n.d.).
42 a special mascot for children Chicky the Chicken is promoted on kids meals (kfckids.com.cn, 2010).
4.2.1.2 Pizza Hut
USA
Pizza Hut in the US offers pizza, pasta dishes, different types of chicken wings and a small variety of side dishes and desserts. In total there are approximately 30 dishes available (kfc.com, 2013)
The classic service systems of take away, ordering and eat-in are available. Eating-in or dine-in as mentioned on the corporate website is less available and mostly offers a buffet (pizzahut.com, 2013b). A catering service is available to serve larger groups at home (pizzahut.com, 2013a).
The logo of Pizza Hut is a red hat which is also often represented as the roof of outlets; the red is also used on the company website and can be seen as the main colour scheme.
China
Like KFC, the second Yum! Brands brand Pizza Hut has been strongly adapted to the local environment. Whereby Pizza Hut in the US represents a quick service restaurant in China it is positioned as a casual dining restaurant (Shen, 2008; Helen H. Wang, 2012) which is also expressed through the menu.
Approximately 106 items are available on the menu, which include wine and steak, in order to emphasise a higher class dining experience. Furthermore, the menu adapted to the local tastes and flavours; spicier pizza topics are available as well as octopus pizza and Chinese style rice and noodle dishes (Euromonitor.com, 2013f; pizzahut.com.cn, n.d.). The drinks selection and desserts are localised, too, bubble tea and green tea flavoured desserts are available (pizzahut.com.cn, n.d.).
