Globalisation versus localization in the first food industry free essay sample

Table of Content Vertical Integration along the Fast-food Supply Chain Creating a Culture for Organizational Excellence Bibliography Web Reference Task:1 GLOBALISATION VERSUS LOCALIZATION IN THE FIRST FOOD INDUSTRY To demonstrate the globalization versus localization of the first food industry its necessary to demonstrate both the terms – â€Å"Globalization† and â€Å"Localization† Globalization can be defined as the process by which markets and productions in different countries are becoming increasingly interdependent due to the dynamics of trade in goods and services and flows of capital and technology. A Globalizing World: Culture, Economics, Politics. edited by David Held Publisher: The Open University Page:92 The practice that makes a product s property suitable for using in different culture, language, political and social environment is known as the products localization. A supply chain is a network of facilities and distribution options that performs the function of procurement of materials, transformation of these materials into intermediate and finished products and the distribution of these finished products to customers. Essentials of Supply Chain Management By Michael H. Hugos, page 3 Now a supply chain could be global when not only its demand side is global but its supply side is equally global as the main efficiency lies in cost efficiency by which the local responsiveness can gain a swift drive, that only can achieved by globalizing the supply system. If analysis take place on basis of base products then it will project the paradoxical balance of globalization and local responsiveness Beverage Fact: Pepsi is still served as most promoted soft drinks in KFC restaurants but Coca-Cola is served as one of the most popular drink in many restaurants of Malaysia, South Africa, Turkey, Romania ,Philippines, Greece, Israel and Sri Lanka. In Peru, the locally popular Inca Kola is sold. Differences could be noticed in many other countrys beverage menu like in Peru local favourite Inca Kola is sold, beer is served as drink in many East European countries restaurant. Globalization: For local demand the supply side of beverage less global, though the integration is quite remarkable to gain globalization approach by supplying international brands like Coca cola and Pepsi with local favourites to increase its value added outlook while supporting global integration. Localization: To attract the diverse test it is more logical to make the supply of beverage local as local responsiveness is vital to increase the exposure of a global supply chain. Globalization versus Localization is a rather paradoxical situation in business environment though sustaining and expanding in a multicultural environment it is must for companies to adopt localisation for better responsiveness. Base products for example: Chicken The supply system for base products like chicken comes from different suppliers across the world. For instance the suppliers of chicken at KFC in West Virginia is Pilgrims Pride. Chicken supplier in Mexico is Tyson Foods. Globalization: The supply structure for base product is fully global to achieve low cost efficiency as farming in the operating country is more convenient, cost effective, and convenient to reach to the finished product. Localization: Though the supply structure of base product is global but it catches local responsiveness when the firming and supply contributing in the operating country’s economics through employment and other financial means. Operational Items : Operational product supply like packaging products come from Indonesian, Singapore. For example Asia Pulp Paper based in Singapore. Globalization: This supply arrangements of KFC is also characterized largely by globalization as it makes the operation more easier and integrated for further explanation Singapore is a port city that could ensure smooth supply all year round. Even politically this country is sound to obtain a flow of production. Localization: This supply arrangement has no or small effect on local responsiveness as KFC use same branding for its packaging (Logo, colour, size) all over the world so not being localized has literally no impact on company revenue. Side Dishes: KFC always adapts the menu that could satisfy international test. There are hundreds different menu worldwide based on different test of different part of the world. For example Asians like spicy food and the chief executive of fast-food giant Yum Brands David Novak, said In Asia, people like spicier foods. We have a Zinger sandwich, a spicy chicken fillet sandwich that is enormously popular. Author: By Kathy Chu USA TODAY Title: Yum Brands CEO takes on the world — a bite at a time http://usatoday30. usatoday. com/money/industries/food/story/2012-02-26/yum-brands-david-novak-global-reach/53260414/1 Updated 2/27/2012 8:02 AM French fries, coleslaw, barbecue baked beans, corn on the cob, mashed potato, bread rolls and American biscuits are very common as a side dish at KFC. But they have different supply to match different test for instance ,Singapore ,Ecuador sell seafood . Meatball sup is sold in Malaysia, whereas ,Asias mostly used food grain rice served as side. Globalization: Since the demand nature of different market is diverse so the supply should be from diverse source that basically highlighted the globalize nature of integration though locally acquired Localization: The supply structure is local in sense of productions such as uses of Asian spices. Though from demand point of view it is attracting local responsiveness. Secret Recipe : The secret recipe was always under limelight as the one of the top most business secretes of the world. To ensure the secrecy KFC use multiple suppliers to process the spices. To understand the range of secrecy that KFC maintain in regard of protecting it , the bellow report could be an example Colonel Harland Sanders handwritten recipe of 11 herbs and spices was to be removed Tuesday from safekeeping at KFCs corporate offices for the first time in decades. The temporary relocation is allowing KFC to revamp security around a yellowing sheet of paper that contains one of the countrys most famous corporate secrets. The brands top executive admitted his nerves were aflutter despite the tight security he lined up for the operation. I dont want to be the president who loses the recipe, KFC President Roger Eaton said. Imagine how terrifying that would be. So important is the 68-year-old concoction that coats the chains Original Recipe chicken that only two company executives at any time have access to it. The company refuses to release their name or title, and it uses multiple suppliers who produce and blend the ingredients but know only a part of the entire contents. Published: Tuesday, 9 Sep 2008 | 5:17 AM ET By: AP (cited in CNBC) Title: Colonels Secret Recipe Gets Bodyguards http://www. cnbc. com/id/26618866/Colonel039s_Secret_Recipe_Gets_Bodyguards Globalization This blend might be kept secret to attract the global attraction and the product’s indemnified test, in this sense it is globalized as its been the tool for international marketing. It is global in demand’s point of view ,that integrates all other policies of KFC Localization: It is totally a local structure of supply as the production is limited between 2 suppliers to maintain secrecy as well as the one supplier is constantly McCormick Company. Task: 2 Vertical Integration along the Fast-food Supply Chain According to ‘The Economist’ Vertical integration is the merging together of two businesses that are at different stages of production for example, a food manufacturer and a chain of supermarkets. The Economist’ (Mar 30th 2009) Title : Vertical integration Available at: http://www. economist. com/node/13396061 5/4/12 According to Porter, Vertical Integration defines the division of activities between a firm and its suppliers, channels and buyers Mobile Services in the Networked Economy P:35 Jarkko Vesa IRM Press,USA Top of Form So when each member of a supply chain produce different product or service and all those products combined to satisfy customer need then it is vertical Integration. Strategic Alliances In the beginning colonel Sanders’s selling KFC to two Louisville business men and being a good will and public relation ambassador was more a strategic alliance rather than a Merger and Acquisition. The effectiveness of ‘strategic alliances comprise three main factors, these are Whom the alliance is forming with: Partners. Construction of the alliance: Structure of partnership. Managing capability of the alliance: Effective management Again strategic alliance that correlates Vertical Integration could be in a form of Backward or Vertical Integration. Forward Vertical Integration Balance Vertical Integration. If analysis takes place on the first phase of KFC s journey, spatially from 1952 to 1971, then it projects the Forward Vertical Integration. As Harland Sanders has granted franchises to take home retailers, who was engaging in distribution. Again when Harland Sanders sold his business to Jack Massey and Jhon Young Brown, he remained in the strategic alliance as a Good will ambassador and public relation man for the company. As company policy Jack Massey and Jhon Young Brown were keeping up expanding franchises till 1971 that indicates the Forward Vertical Integration tendency of KFC on that particular period, so the main focus was on distributing the product through the franchises and optimizing the revenue. For comprehensive explanation and supporting the above statement that it was a forward vertical integration it is worthwhile to quote the definition of Forward Vertical Integration. â€Å"Forward Integration refers to development into activities which are concerned with a company’s outputs (that is, are further forward in the value system): for a car manufacturer, this might be distribution, repair and servicing. † Exploring Corporate Strategy: Text and Cases Johnson, G. , Scholes, K. and Whittington, R. (2005) 7th Edition, Financial Times Prentice Hall. Page:266 Vertical Integration always natured to establish a firm hold on distribution of its own product that influences its growth and maximizing its profit. So it could be termed as Vertical Integration take place in A company when it controls distribution centres and retailers where its products are sold. According to the case study by Jeffry A Krug KFC expansion during this forward vertical integration was outstanding as franchise was in its infancy at that time and selling own product through retailers was a challenge. The following effectiveness has been marked in the case study as a result : By 1960 Colonel Sanders had granted KFC Franchise to more than 200 take home retail outlets in United States: Start growing as a ready food retailer. He had also established a number of franchises in Canada: Penetration in cross border market step forward in growth. By 1963, revenue toped as $500 million: Increment in Profit range. Sold KFC to Jack Massey and Young Brown Remain as Good will ambassador as well as Public Relations man: Strategic Alliance made and strengthening furthermore the vertical integration. In 1966 KFC listed with New York stock exchange and go public: It shows that the firm’s core competence was outstanding on that particular phase and the SA management capability was in progressive action. That SA team bring KFC 2,450 franchises 600 company owned restaurant by 1971:They accountability, internal coordination and external visibility wise the Strategic Alliance through Forward Vertical Integration was in full positive platform. In brief the above Strategic Alliance was a success in regard of all measuring scale of a forward vertical integration starting from business growth to the well designed management capability and most prominent accountability that give the first driving boost to the fast food chain. Mergers And Acquisitions Several mergers and acquisition occurred for the purpose of growth as an fast food chain in KFC. The first merger and acquisition came in 1971 as Brown negotiated a possible merger with Heublein, Inc . The company was in totally different track so those two different entity formed sort of a third entity. It was vertically conglomerate business as the Heublein fails to justify the standard of KFC. With the acquisition of Heublain Inc by Reynolds Industries, Inc in 1982 initiates another merger for KFC and that was a vertically conglomerate policy too , finally when RJR acquired Nabisco Corporation a sort of strategic alliance came up through backward vertical integration . Because of Nabisco Corporation’s business were to serve consumer product and having a fast food chain on the fleet is a further replenishment in consumer centred food business. When Pepsi acquire KFC they already leave behind those products that doesn’t support their consumer product orientated nature of business and create a strong vertical integration system with its product line that includes soft drink, snack food and restaurant. They created a backward vertical integration as the entire products tent to complement each other and each one acted as a catalyst to the increment of sales rate to other. Vertical Integration exists when a company produces its own input (backward integration) Strategic Management: Competitiveness and Globalization, Concepts By Michael A. Hitt, R. Duane Ireland, Robert E. Hoskisson. Online Page:166 The effectiveness mergers and acquisitions through backward vertical integration could be analysed as bellow: Keeping all consumer food product (KFC+PIZZZA HUT+TACO BELL+SOFT DRINKS+SNACK) under one umbrella: variety of option to attract consumer attention, conjoint publicity and labour cost that logically less and maximizing profit. Much stronger hold on franchises: Maintaining standard, cutting labour cost in other word absorbing approach Appointing Pepsi Co Managers rather than KFC’s: Low’ autonomy; ‘High’ synergy Maximizing the sales of soft drinks: Optimize the base products sale. How ‘demographic trends’ and ‘restaurant acquisitions’ have helped KFC to maximise its corporate profitability through low-cost leadership, product differentiation, or market focus Demographic trends: Demographic trends like, rising Incomes ,family splits, increasing Women Employment late Marriage, American rescission in 1970 and fast food as cheap food option, increase the number of people eat outside their home and consequently it boost up the fast-food sells resulting in corporate profitability. Value added food Cutting off low marginal product Accepting vouchers, coupons Discount. Make the portion bigger to offset prise increase Offering two for one special Making Limited time offering. Use of technology These above options help KFC to maximise its corporate profitability through low-cost leadership. The growing health concern issue drive the fast-food industry to think about product variation so that they could attract more consumers and maximize sell. In case study of KFC by Jeffry A. Krug includes NRA statement that Other food items that were growing in popularity were include chicken, hot and spicy food, sometimes wraps and pitas, salads and espresso and specialty coffees. So product differentiation helped to maximize the overall sell and it resulted in corporate profitability. Case study:20 Kentacky Fried Chicken Page:911 By Jeffry A. Krug Cited in: De Wit, B. and Meyer, Strategy Process, Content, and Context International Perspective, 4th Edition, Thomson Learning. Restaurant Acquisitions Reach to large number of consumer One brand influences other to optimize sale of other. With changes of management strategic changes set innovation to product differentiation. For example PepsiCo after its acquisition initiate three pronged distribution of chicken, pizza and under one umbrella As Pepsi co was selling soft drinks and three different style food including KFC the reduce cost in marketing promotions, new restaurant set up and labour as they could sell all under one set up so it reduce cost and helped to gain low cost leadership. These features maximise profitability by increasing sales. Vertical integration through Sales Alliance as well as Merger and Integration helped the fast food industry like KFC to ride on its growth and make a bigger impact on consumer by give them diverse product under one corporate umbrella that causes mostly their corporate profitability. Task:3 Creating a Culture for Organizational Excellence Organizational culture focused on all kinds of privet , public, government organizations, it includes the collective behaviour of people who are part of those organizations and the Organizational Culture reflects the organizations beliefs and habits , , visions, values, systems, symbols, working language. It is also the settings of such collective behaviours and assumptions that are taught to new organizational members as a way of realizing, thinking and feeling. Organizational culture has an impact on the way the members of an organization interact with each other, with clients, and with stakeholders. Culture is also a set of more material elements or artefacts. These are the signs and symbols that the organization is recognized by but they are also the events, behaviours and people that embody culture. The medium of culture is social interaction, the web of communications that constitute a community. Here a shared language is particularly important in expressing and signifying a distinctive organizational culture. Oxford University Press Title: ORGANIZATIONAL CULTURE Available at: http://fds. oup. com/www. oup. co. uk/pdf/bt/fincham/Chapter15. pdf Date accessed:14/4/13 Organizational Purpose is often referred as organizational mission as well The mission tend to guide the actions of the organization, set out its overall target, provide way , and leave impact on decision-making. It provides the settings or frame work within which the companys strategies are formulated. The bellow figure describe the relation between organizational mission and purpose as well as the elements of organizational mission: De Wit, B. and Meyer, Strategy Process, Content, and Context International Perspective, 4th Edition, Thomson Learning. Figure:11. 2, Page:598 From the very beginning KFC‘s purpose or mission was to delivery quality food while doing business. For achieving this purpose colonel Sanders, The other purpose was to diversify the fast-food industry by introducing chicken as a substitute of Hamburger. KFC’s culture is largely connected to its quality controlled food and in its innovation. And KFC’s purpose is to spread the product so that it could gain more revenue . It took strategy like franchising when the idea of franchising was in its infancy to full fill the purpose. The above statement is indicating the KFC culture in which new companies that by different time acquire it or merge with it has to fit. KFC’s culture is interesting for many reason like its selling, marketing trends, its being highly quality conscious, and its changing management trends with each handover to different companies. For example Colonel sanders was highly concern about the quality of his product so he build a culture of being strict with the foods quality. And it is been maintaining till date. If we analyse the scenario after the sale of KFC to Heublein and R. J. Reynolds we got the evidence of Sanders being worried about the quality. Sanders began to complain of the companys declining food quality to the media. He point out several faults. That resulted in clash between him and Heublein and R. J. Reynolds. As a goodwill ambassador he tried to convey the quality ensuring culture of the company . Again Pepsi culture has got a clash with KFC culture, because of the alteration of KFC manager with Pepsi Co managers, and conflict between KFC and Pepsi Co corporate cultures created a moral problem within KFC. So the overall discussion shows that since KFC’s culture in itself was so strong and well developed that the other companies that joint with it has to adopt it’s culture or at least has to made some sort of correlation . The Ability Of KFC To Create A Culture For Achieving Organizational Excellence In Today’s Rapidly Changing Fast-Food Industry. Over the last 2 decades people became more conscious about their food habit and for a large number of variety people has several options. Over more if a company fail to hold its organizational excellence by providing better service, value added product, diversification in product selection then it soon lose its attraction and that results in closure of the company. KFC has established its own culture to survive and expand in today’s rapidly growing fast food market by ensuring things like service quality and adoptability in different demographic atmosphere. For example in current fast food market the most concerning matter is obesity. Scientist, nutritionist pointed their finger to fast food industry for the increasing problem of obesity. But Yum! Brands is taking initiative so that they could practice the best possible way to fight back in favour of their consumers. As ‘The Economist’ published ‘Jonathan Blum, who was appointed Yum! Brands’ chief nutrition officer in March, says he is systematically reviewing the company’s restaurant offerings for what he calls its three pillars: choice, transparency and nutritional content’ The Economist Food companies play an ambivalent part in the fight against flab Dec 15th 2012 |From the print edition Date accessed: 5/4/12 Available at: http://www. economist. com/news/special-report/21568064-food-companies-play-ambivalent-part-fight-against-flab-food-thought Local essence and non local corporate revenue gaining drive of first food industry comprise a critically strategic reciprocity in companies like KFC from the days of Colonel Sanders. The case study says that, more than 50 percent of KFC restaurant located outside of its mother country USA and it is fact that franchises made up most of KFC’s off-shore restaurant base. While globalising with a basic product like ready food localization is equally important when it is expanding on an international platform. And if we focus globalization versus localization of a Supply chain food retailer then certain strategies will come up as a driven force behind the process. Food retailers like KFC has gone through various strategic steps like merger, acquisition that sometimes vertically integrated to achieve its object of being global and being responsive towards local demographic trend. And they have practiced a remarkable culture that uplifts their organizational purpose over their journey. Apart from this its adaptation in different demographic trend, its value driven nature and its service providing standard reinforce KFC to achieve organizational success. KFC takes on account to integrate their activities to manage the pressures of Globalization versus localization. They emphasis a lot of their culture and strive through till date to pursue their purpose. Whenever they penetrate a new market they imply a outstanding strategy to hold the market. Several merger and acquisition link up KFC to big brands and with time it placed itself as a prominent global food brand that thrive in local basis as well.