Case 3: JOLLIBEE FOODS CORPORATION

1. How was Jollibee able to build its dominant position in fast food in the Philippines? What sources of competitive advantage was it able to develop against McDonalds in its home market? Jollibees effective strategy, backed by economic and political events in the country, enabled the company to build its dominant position in the Philippines fast food industry. Its Five Fs philosophy (friendliness, flavorful food, a fun atmosphere, flexibility in catering to customer needs, and a focus on families) summarizes its strength over its rivals. McDonalds had more money and highly developed systems, but Jollibee was able to compete head to head by capitalizing on its most important competitive advantage: Philippine consumers preferred the taste of Jollibees hamburger by a wide margin. Employing a frontal attack strategy, Jollibee responded to the impressive performance of Big Mac, Mc Donalds largest and best-known sandwich, by introducing a larger burger of its own, called the Champ. Jollibee was able to turn the economic and political crisis in 1983 to its advantage. While McDonalds slowed down its investments in the country, Jollibee benefitted from the Filipinos fervent display of national pride. The company did not just let fortune sit on its lap, instead, it took advantage of the opportunity to broaden its market by increasing its core menu with taste-tested offerings of chicken, spaghetti, and a unique peach-mango dessert pie, all developed to local customers tastes. After three years, Jollibee, with 31 stores, already dominated the market.

2. How would you evaluate Tony Kitchners effectiveness as the first head of Jollibees international division? Does his broad strategic thrust make sense? How effectively did he develop the organization to implement his priorities? Tony Kitchners effectiveness as the first head of Jollibees international division (ID) is, generally, a failure because of the entry strategy he used, and the type of organization he built. Kitchner followed the sprinkler approach, entering many countries simultaneously, because he believes in first-mover advantage in the fast food industry. He initiated rapid expansion in these countries with the expectation that by increasing the number of stores, the franchise could build brand awareness which in turn would positively impact sales. However, his expectation did not materialize easily because only after achieving a certain level of sales could most franchisees afford the advertising and promotion needed to build brand awareness. The other challenge is resource constraints, especially in the availability of ID

staff to support multiple simultaneous start-ups. Despite the problems encountered through this approach, Kitchner still pushed with his rapid expansion. Kotler and Keller (2009) state that a sprinkler approach is applicable when first mover approach is crucial and when a high degree of competitive intensity prevails. The main risk, however, is the substantial resources needed and the difficulty of planning entry strategies into many diverse markets. Kitchner could have been right in choosing the sprinkler approach because of the first-mover advantage in the fast food industry. He was not, however, able to consider the readiness of the companys resources to take on this rapid expansion; hence, the strategy resulted to disappointment. Kitchner felt that the international division needed to be separate from Jollibee Philippines, with a different identity and capabilities. The superior image created by the ID built a gap between them and their Philippines counterpart. The ID wanted to do everything differently. However, the group overlooked the importance of their Philippine counterparts, and the essential role that they will have to play in the international expansion. The ID, despite the expertise of its people, still needs the skills and technical know-how of the Philippine people. The ID needs access to value-chain activities such as R&D and Finance, which are controlled by the Philippine operations. The tension between the two groups hampered the valuable product adaptations, such as menu modification, necessary for the international market to embrace Jollibee. Cooperation between the ID and the Philippine side is essential in the international expansion. Kitchner could have won the support of the Philippine side had he increased communication with them, and allow them to feel that the success of the international division is the success of the whole organization.

3. As Noli Tingzon, how would you deal with the three options described at the end of the case? How would you implement your decision? Noli Tingzon is faced with three immediate growth opportunities that he knew would shape the emergence of future strategy. 1) Papua New Guinea: Raising the Standard The unmet needs of the underdeveloped market in Papua New Guinea represent huge potential market for Jollibee. With only three direct competitors, the company could easily capture the market by presenting a high quality of service and food. The countrys market, however, may not be able to support the target critical mass of 20 stores for new entrants. Although the franchisee emphasized that he is willing to build more stores if necessary and would put up all the capital so that Jollibee would risk no equity in the venture, the low profitability presented by the market should signal the ID that it is not yet the right time to put up a store in the country. Despite the franchisees willingness to take the risks, the international divisions decision should still be in line with the companys thrust which is to

go slower, making sure that each store is profitable so that it would generate money for the franchisee, as well as for (the company). 2) Hong Kong: Expanding the Base Tingzon has to decide whether adding a fourth store in Hong Kong was viable, given the Hong Kong ventures managerial problems. Even if he were to approve the store, he still needs to determine whether to support the menu variations that might complicate quality control. After disappointment from the rapid expansion approach introduced by Kitchner, Jollibees CEO expressed that the company preferred to go slower, making sure that each store was profitable this should also be the thrust of international expansion with the management of Tingzon. With lessons from the past, the company should first ensure that it is able to resolve the issues in the existing stores before thinking of adding a new one. The following facts have to be considered by the company in its Hong Kong operations: 1) Chinese wants to work for Chinese; 2) Chinese customers are hesitant to communicate with non-Chinese crews because of fear of being misunderstood; and 3) a healthy lifestyle is embedded in Chinese culture. These issues, to some degree, are difficult to resolve because they are culture bound. The company cannot change these facts, but it can adjust its strategies to survive and thrive in the market. If Jollibee wants to succeed in the Hong Kong market, it has to adjust it marketing practices. Kotler and Keller (2009) pointed that successful global marketer change their conventional marketing practices. Management style has to match the countrys culture in order to attract potential managers and crews towards the company. Product adaptation is equally important. Jollibee has to alter its products to meet local conditions or preferences. The company cannot force its cholesterol-packed products into a health-conscious market. The proposed expansion to a fourth store in Hong Kong presents an opportunity for increased visibility and brand recognition among locals, but this would not be a viable option until the company has resolved the existing culture-bound issues faced by the existing stores in Hong Kong. 3) California: Supporting the Settlers California offers the most comfortable area for international expansion for Jollibee because it is easier to adjust to their language, laws and culture Kotler and Keller (2009) would call this as psychic proximity. With its Guam experience, the company is now ready to enter the mainland. The taste of Jollibee products appealed to Americans in Guam; this information make the expansion easier because the menu, without changes, will just be transplanted from the Philippines to California. The company, however, should not only rely on this information alone, it needs to conduct a market research to better understand the needs and wants of the potential market. Moreover, Jollibee needs to get partners who are

knowledgeable of the ins and outs of American market operations. It has to assess the capability of the potential Manila-based partners; if they are not familiar with the fast food industry operations in the U.S., it would be better for Jollibee to get a more capable local partner. Being the birthplace of fast food, California presents a large potential market for Jollibee, but at the same time the place also cradles a good number of fast food chains which are potential threats to the entry of Jollibee. What the company can do is to launch intensive advertising campaigns to introduce its products in the market. As a market challenger, it can wage guerilla warfare by giving selective price cuts and intense promotional blitzes.

Reference: Kotler, Philip and Keller, Kevin Lane (2009). Marketing Management, 13th Ed. New Jersey: Pearson Education, Inc.