HARVARDUNIVERSITY EXTENSIONSCHOOL STRATEGIC MANAGEMENT E 5000

 
HARVARDUNIVERSITY EXTENSIONSCHOOL STRATEGIC MANAGEMENT E 5000
Andreas Waldert Strategic Management Case Write Up Jollibee Foods Corporation

Harvard University                                        Extension School

               Strategic Management E 5000

                                  Fall 2013

                            Case Write Up

          (Lecturer: Margaret Andrews, Dayna Catropa)

                                      by:

                               Andreas Waldert

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HARVARDUNIVERSITY EXTENSIONSCHOOL STRATEGIC MANAGEMENT E 5000
Andreas Waldert Strategic Management Case Write Up Jollibee Foods Corporation

                                                    Table of Contents:

                                                                                                                          Page:

1. Introduction...............................................................................................................3
2. Early Expansion Attempts.........................................................................................4
3. Evaluation of the Previous Expansion Strategy........................................................5
4. Financial Analysis.....................................................................................................6
5. Overall Issue Identification.......................................................................................7
6. Analysis of Possible New Markets...........................................................................7
   6.1 Papua New Guinea (PNG)................................................................................7
   6.2 Hong Kong (HK)................................................................................................8
   6.3 California............................................................................................................9
7. Selection of New Target Market..............................................................................10
8. References..............................................................................................................11
9. Additional Notes of Author.......................................................................................12
10. Appendixes............................................................................................................13
   Appendix A...............................................................................................................13
   Appendix B...............................................................................................................14
   Appendix C...............................................................................................................15
   Appendix D...............................................................................................................16
   Appendix E...............................................................................................................17

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HARVARDUNIVERSITY EXTENSIONSCHOOL STRATEGIC MANAGEMENT E 5000
Andreas Waldert Strategic Management Case Write Up Jollibee Foods Corporation

1.                                        Introduction

Jollibee Foods Corp, founded in 1975, is a Manila based fast food restaurant chain,
known for its friendly working environment, strong vision and value system which
incorporates - flavorful food, fun atmosphere, flexibility and a focus on family
friendliness. (Bartlett, 2001)

The company centered its value proposition around offering customers a low cost, high
quality product with consistent customer service. (Bartlett, 2001)

This value proposition required the corporation to work efficiently and implement a
smooth operational structure vital for providing consistency of product & service.
The company regards their operational efficiency, reduction of waste, quality service,
standardized products and high staff productivity as core success factors for their
business. (Bartlett, 2001)

It is the aim of this paper to analyze the current position of Jollibee, assess the
environmental influences and success factors and propose a course of action for
international expansion by evaluating possible options with the ultimate aim of selecting
the geographic location with the highest potential for future business success.

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HARVARDUNIVERSITY EXTENSIONSCHOOL STRATEGIC MANAGEMENT E 5000
Andreas Waldert Strategic Management Case Write Up Jollibee Foods Corporation

2.                                  Early Expansion Attempts.

This analysis will provide key success factors for expansion of the chain into other
geographic locations. (Appendix A)
The findings conclude, that mutual trust and control between the franchisee and the
company are vital to successful franchising.
Conflict of interest and lack of trust were prime reasons for failure in three of the four
locations examined. (Bartlett, 2001)
Another vital aspect is the location of the restaurant and its access to high customer
traffic.
In the fast food industry, profitability is achieved by a high volume of customers and
flawless operations management.
In the case of Taiwan, an undesirable location was a prime reason for failure of the
franchise. (Bartlett, 2001)
Additionally, the company needs to implement a stringent control system that is
accepted by the franchisee.
In the case of Singapore, control mechanisms failed and supervisory access to the site
was rejected, ultimately ending in the failure of the franchise.
Brunei in this example has been identified as a successful franchising attempt, since it
avoided all of the previously identified pitfalls.

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HARVARDUNIVERSITY EXTENSIONSCHOOL STRATEGIC MANAGEMENT E 5000
Andreas Waldert Strategic Management Case Write Up Jollibee Foods Corporation

3.                     Evaluation of the Previous Expansion Strategy.

Following, the author will evaluate the expansionary strategy under Kitchner in order to
shed light on the reasons for failure of this strategy.
Kitchner’s initial strategy was aimed at attracting strong franchise partners as well as
building the brand awareness of Jollibee.
In order to achieve those milestones he put a predominant focus on targeting
expatriates as customers in new markets.
Additionally, he incorporated the concept of planting the flag and capitalizing on the
“First mover advantage” into the expansionary strategy.
(Bartlett, 2001)
His goal incorporated making Jollibee one of the strongest fast food brands by 2000.
Kitchner implemented a new process for creating a franchise.
(Appendix B)
The main reasons for the failure of this strategy were interdepartmental conflicts that
arose between Jollibee and its international division, combined with differences in
opinion among Jollibee and the international division with regard to the product
adaptation strategy, the pace of growth and the professional practices employed by
managers of the international department.
(Bartlett, 2001)
His initially successful strategy put too much financial strain on Jollibee.
Jollibee wanted to grow at a slower pace and achieve sustainable results for both its
franchisees and the company. (Appendix C)

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Andreas Waldert Strategic Management Case Write Up Jollibee Foods Corporation

4.                                       Financial Analysis

This analysis will determine the current financial position with an assessment of the
resources required for a potential international expansion. (Appendix D.)

Findings:
Currently, Jollibee foods is in an undesirable financial position.
The author has used three ratios to evaluate the financial position of Jollibee.
Jollibee’s “Current Ratio” of Current Assets to Current Liabilities is 0.80.
This indicates that Jollibee is unable to meet currently maturing liabilities with current
assets (A ratio of 1:1 is required at the minimum).
Jollibee’s Quick ratio is less desirable than the Current ratio.
This method analyzes the ability of Jollibee to meet currently maturing liabilities with the
most liquid assets. Jollibee has a score of 0.0741.
Looking at the Total Debt / Equity ratio, it becomes apparent that Jollibee has a score of
1.943, indicating that Total liabilities are twice as high as Shareholder’s Equity.
This analysis raises the question whether Jollibee is even able to expand.
The company might take on extra debt or shift the debt structure to be more liquid,
however, the author cannot, as of 1996, advise an expansionary strategy until the
financial health of the company has improved. It becomes interesting to see the
development of the ratios over the time period from 1992 to 1996, it is visible how the
situation worsened for Jollibee. (*See additional notes of author*) (Bartlett, 2001)

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Andreas Waldert Strategic Management Case Write Up Jollibee Foods Corporation

5.                                 Overall Issue Identification

The Author has identified the following issues affecting expansionary attempts.

1. Lack of mutual trust and control between Jollibee and its franchisees.
2. Location of the restaurant is critical due to high volumes of customers.
3. Implementation of a stringent control system is vital.
4. Increasing brand awareness is important.
5. Interdepartmental conflicts between jollibee and the international division.
6. Adaptation strategy is viewed as an obstacle to consistent quality.
7. Weak financial performance of Jollibee is hindering its expansion strategy.

                            6. Analysis of Possible New Markets

Following, the author will evaluate the identified options based on indicators for
successful expansion.

                               6.1 Papua New Guinea (PNG)

The option to expand to PNG incorporates access to a market of five million potential
customers.
Competition is scarce, which would enable Jollibee to capitalize on market share.
The competitor has broken ties with its parent company, imiting his potential threat
towards Jollibee. (Bartlett, 2001)
Jollibee would be able to raise the quality in the market, capture market share and raise
the barriers to entry, limiting the threat of future entrants.

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Andreas Waldert Strategic Management Case Write Up Jollibee Foods Corporation

The data also revealed that there are limited expansionary opportunities and the only
option would be to partner up with a petroleum manufacturer and set up restaurants on
his property. (Bartlett, 2001)
The location for the first store has been identified as Port Moresby, which shows little
adequate dining offerings and represents an ideal location for Jollibee to enter the
market. (Bartlett, 2001)
Jollibee’s potential franchising partner would provide the capital required to undertake
the venture, limiting the risk for Jollibee in case the venture proves unsuccessful.
The level of control that Jollibee would possess remains to be seen, since the
franchising partner might demand more decision making authority.

                                      6.2 Hong Kong (HK)

The company has a good success record in that geographic region, however, they
have not been able to successfully appeal to the local customer group, resulting in low
brand recognition. (Bartlett, 2001)
On average, a store in HK generated 571.000 $ in sales in 1996.
Jollibee has difficulties hiring Chinese staff, since, according to the findings, Chinese
employees have a preference of working for Chinese employers.
Additionally Jollibee has experienced grave management problems in HK, which have
resulted in Chinese employees quitting their positions.
(It is important to note that the management problems have been identified as an
important reason for a failed franchising attempt).
Competition in the market of HK is high with international players like McDonalds
dominating the market, this might prove to be a disadvantage for Jollibee when entering
this geographic location. (Bartlett, 2001)
The menu offered at Jollibee stores in HK would have to be adapted to local taste,
possibly presenting a negative impact on quality control and standard of the products
offered. (Bartlett, 2001)
The location of the store would be at a railway station with a low traffic rate of expatriate
customers, forcing the company to generate sales through locals.

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Andreas Waldert Strategic Management Case Write Up Jollibee Foods Corporation

The company would have to become appealing to the locals population and adapt the
product to suit the taste preferences of the local HK customer base.

                                       6.3 California.

By entering California, Jollibee would compete in a market, regarded to be the
birthplace of modern fast-food. (Bartlett, 2001)
Fierce competition prevails in this market, however, if Jollibee is able to defend itself
and the offered value proposition, the potential future gains and consequently acquired
market share would be highly beneficial. (Bartlett, 2001)
Jollibee foods has been successful in the past in markets such as Guam, where the
company managed to appeal to American customers as well.
The proposed restaurant location in California has been identified as Daly city, an area
with a high Pilipino concentration. (Bartlett, 2001)
The menu would not have to be adapted to local preferences and the company’s
strategy would firstly be aimed at attracting Pilipino customers, then other Asian
customer groups, ultimately hoping to attract a Hispanic demographic.

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Andreas Waldert Strategic Management Case Write Up Jollibee Foods Corporation

                               7. Selection of New Target Market.

In order to select the appropriate market for international expansion, the author has
evaluated each geographic region based on a set of KPI’s which will give an indicator of
the likelihood of success for the company. (Appendix E)

Findings:

Jollibee should focus on expanding to Papua New Guinea. The company is currently
not in the financial situation to expand to the U.S. which would incorporate large
investment sums.

HK cannot be seen as a viable option either, since managerial conflict and lack of brand
recognition and brand acceptance would hinder the success.

It is the opinion of the author that Jollibee should expand at a rate that is not harming
the company financially.

The proposed country would require no capital investments from the side of Jollibee
and shows a positive competitive situation - i.e. no dangerous competitor present.
In order to beat the competition in California or HK, Jollibee would have to incur heavy
costs which at their current position is not advisable.

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Andreas Waldert Strategic Management Case Write Up Jollibee Foods Corporation

                                       8. References

Bartlett Christopher, 2001, Jollibee Foods Corporation (A): International Expansion,
Harvard Business School Press, Boston Ma

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Andreas Waldert Strategic Management Case Write Up Jollibee Foods Corporation

                               9. Additional Notes of Author
(This is not part of the assignment anymore, however, due to its relevance I would like
to address a few important aspects, not mentioned in the case that I find valuable.)
I have argued that Jollibee is not in the financial position to undergo an excessive
expansionary strategy.
However, to make a sound recommendation I would have liked to undertake an
Investment Appraisal Process Using the NPV (Net Present Value method).
This methodology would have given me valuable insight into the financial viability of
each alternative. In order to conduct it, I would have needed the incremental cost
associated with the project over a period of time as well as the initial investment cost for
each project.
Secondly, I would have needed the potential Future Cash inflows of all investments over
the same time period.
Knowing the cost of capital, I could then discount the net cash flows for each year back
into the present and offset them with the initial investment.
I had difficulties basing my evaluation simply on the case information, since that
information wasn't clear cut and quantitative enough. Especially considering the weak
financial position of Jollibee, a more focussed approach to the financial aspects would
have benefitted this assignment.

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Andreas Waldert Strategic Management Case Write Up Jollibee Foods Corporation

                                      10. Appendixes

                                         Appendix A

(Bartlett, 2001)

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Andreas Waldert Strategic Management Case Write Up Jollibee Foods Corporation

                                         Appendix B

(Bartlett, 2001)

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Andreas Waldert Strategic Management Case Write Up Jollibee Foods Corporation

                                          Appendix C

(Bartlett, 2001)

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Andreas Waldert Strategic Management Case Write Up Jollibee Foods Corporation

                                         Appendix D

(Bartlett, 2001)

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Andreas Waldert Strategic Management Case Write Up Jollibee Foods Corporation

                                 Appendix E

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Andreas Waldert Strategic Management Case Write Up Jollibee Foods Corporation

(Bartlett, 2001)

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