University Paper 2016 Q.P.
Code 795102 International Business
Facts Given in the Case
1. King Food popular in Philippines with the 5Fs
2. McDonald big competitor in international market
3. McDonalds strong points-Operational efficiency, consistency and reliability, uniform
standards of cleanliness and service. Kings Food Weaknesses- Distrust and
mismanagement (Singapore experience)
4. No proper coordination in International Division and Domestic Division
5. Clashes between domestic and international divisions- Domestic unit thought that
international division changed the traditional practices and International division
found that Domestic division is very slow and bureaucratic.
6. Tingzons Dilemma:
New market in Papua New Guinea, pop 5 million franchisee thought king food do
well in this market
Hong kong- Kings menu was not tailored to local tastes and misunderstanding in
approach Chinese manager considered Filipino discipline as lax and arrogant, Filipino
considered Chinese are uncommitted. Chinese manager resigned
Company requires to replace labour intensive operations with equipment in USA.
Question :1 Should Noli Tingzon support planting the flag approach or expand in Hong
Kong, or expand the California operations ?
King Food was able to attain a competitive advantage over McDonalds by doing two things:
(1) Retaining tight control over operations management, which allowed it to price below its
competitor and (2) Having the flexibility to cater to the tastes of its local consumers. While
Australian Head was hired to develop these competitive advantages abroad, his international
strategy of planting the flag and targeting expats was executed haphazardly and
resulted in losses for the firm.
The arrival of Noli Tingzon marks a critical juncture for King Food, where it will begin
entering the US market. As an undeveloped market, Papua New Guinea represents the
best location for King Food to leverage its organizational advantage.
With few
competitors, King Food could easily capture the market and set the standard. However, entry
into New Guinea falls under the legacy of Australian Heads plant the flag strategy and will
unlikely be able to support the critical mass of 3 stores. Although the domestic partner is
willing to front the risks, finance function should be internalized by King Food because
they are crucial to store-level profitability. Since the benefits offered by the local partner are
uncertain and profit potential is low, King Food should not seek to enter New Guinea at this
time.
While the fourth store in Hong Kong represents a valuable learning opportunity, it will
not generate the revenues needed to build a global empire. Catering to the local Chinese
palette would allow King Food to build its competitive advantage by learning to balance
flexibility in menu offerings with consistency across the global brand. Additionally, a success
in cosmopolitan Hong Kong could give King Food the brand exposure it needs to attract
better partners. However, given the staffing issues and uncertainty involving the local
Chinese customer, it would be better for King Food to improve its current operations,
rather than to commit additional resources to a new store.
The California is home to some of King Foods most formidable competitors. As a latemover, it will be difficult for King Food to obtain access to the distribution channels,
suppliers, and store locations which allowed it to become a cost leader in the Philippines.
Given the three alternatives, King Foods most viable option is Californiagiven that it
is able to obtain a partner who can help it overcome the challenges of operating in the US.
Tingzon should only follow through with the Manila-based businessmen if they are familiar
with the fast food industry in the US; otherwise, the company will need to find a local
partner. Additionally, heavy investments will need to be made into IT systems, which will
allow King Food to manage day-to-day operations from their headquarters in the Philippines.
In order to align the goals of the various geographic divisions, King Food should seek to
create two strategic business units (SBU) under the company brand: International and
Domestic. This will allow the International Division to ensure greater coordination across IT
activities, as well as pooling procurement purchases wherever geographically possible. Since
both SBUs will be under the corporate umbrella, this should help to increase cooperation at a
firm-wide level.
In short, Noli Tingzon can support planting the flag approach or targeting expats in
systematic manner to improve conditions in Hong Kong and also necessary to find out
capable local partner for conducting business the United States.
2. Does the Broad Strategic thrust of King Foods make sense for its international
expansion? Explain your position?
Australian Head was hired to build the global King Food brand with the dual goals of
positioning King Food as an attractive partner, while generating resources for expansion. The
thrust was to become a popular brand in the world market. Australian Head implemented a
two-part international strategy which comprised of targeting expats and planting
the flag.
Australian Heads idea of targeting expats (targeting Filipinos located in new markets)
was right for doing penetration in the unknown market.
On the other hand, Australian Heads decision to plant the flag reflected a desire to build an
empire under his leadership, rather than a strategically-sound decision for the firm. Although
he hoped to leverage King Foods competitive advantage by entering new geographic market,
his rapid expansion strategy was unfocused and poorly executed. The unprofitable ventures
in the Middle East could have been easily avoided if Australian Head researched the
market prior to entering. He also neglected to consider the large transaction costs
associated with establishing markets in new countries. His desire to be first-mover in a
number of small, undeveloped markets would not have brought the prestige needed to win the
firm better partners. Planting the flag only showed that King Food knew how to repeat its
success. In order to compete on the level with multinationals, King Food would have to take
its performance to the next step and prove that it could continue to build its competitive
advantage.
Although Australian Head was hired to bring more structure to the International Division, he
failed to build the rapport needed to push forward the divisions initiatives. He began
creating a world-class company by stealing employees from domestic operationsa poor
first impression that lasted the duration of his career at King Food. By setting the stage for
competition, He ensured that his actions, even if they were beneficial for the company, would
meet criticism from the domestic side. He should have recognized that the hostility coming
from Domestic was underscored by a fear that their division would be eclipsed by
International. Rather than cultivate this fear, He should have made it explicit that the
International Divisions success would have reflected on the company as a whole. By simply
increasing communication, he could have enlisted Domestics support in his endeavors.
Under the companys early divisional structure, value-chain activities such as R&D and
Finance were controlled by the Philippine operations. The failure to gain access to these
resources hindered Internationals ability to modify the logo, store layout, and menu
modifications, which were potentially beneficial for King Food.
3. Is the strategy of targeting Filipino expatriates the right one for going international?
Discuss
Australian Heads idea of targeting expats allows the company to ease its transition into an
unfamiliar market. Although there is the risk of targeting too narrow of a segment, King
foodss success in the niche market would allow it generate momentum for the companys
expansion. The concentrated marketing campaign allows the company to generate stable
revenues that can be used to support King Foods entry into other segments, while the
popularity amongst expats could generate publicity and attract walk-in traffic from nonFilipinos. However, targeting expats will only lead King Food to become a global brand if:
(1) King Food correctly targets expats who have a need and want for the product and thus
avoid repeating its mistake, and (2) The company continues to build its competitive
advantage through learning and by appealing to a broader audience.
