Global Expansion of Jollibee

Jollibee was founded in 1975 in Cubao, Philippines and the company was incorporated in 1978 (Layug, 2009). Jollibee grew rapidly, offering a menu consisting of mainly Western foods and following a business model that was inspired by McDonald’s. One of the main reasons that Jollibee has become such a success both in the Philippines and abroad is that the company has been able to execute this foreign business model to a high degree of excellence. This essay will analyze the success of Jollibee and make direct comparisons to the business models of Jollibee and McDonald’s to show that much of the success Jollibee has enjoyed relates to following this foreign business model. The essay will break down Jollibee’s strategy into a number of key components to better understand how it has earned its international and domestic success.

History and Mission

Jollibee began expanding shortly after becoming incorporated under that name, and by the 1980s was expanding into nearby international markets such as Taiwan and Brunei. The company has always held an international orientation, has focused on a Western menu, and has undertaken a number of other strategies that mirror those of Western fast food chains. The company has simply adopted the mission of providing Western fast food to Asian audiences. Another mission is to expand the company around the Asia-Pacific region and further into the United States.

From the beginning, Jollibee adopted the McDonald’s tactic of appealing to children, so that it could win customers at an age when they are vulnerable and keep them as they progress through life. To this end, the company settled on a name “Jolly Bee” that was later altered to “Jollibee.” The company based its bee mascot on a cartoon character. Its menu is also based around foods that children enjoy eating, such as fried chicken, hamburgers and hot dogs (Layug, 2009). The company has leveraged this strategy in order to build its appeal, especially in the domestic market. Its success today can be in part attributed to the foundations in laid with the current generation of young adults. They grew up on Jollibee in the late 1970s and 1980s, and now they are bringing their children to Jollibee as well, fueling good potential success for the future.

Jollibee’s early international expansion was focused on markets that ultimately have low growth potential. They used their core strategy to enter these markets and enjoyed some success. This, combined with the perceived saturation of the domestic market, bolstered the company’s desire to expand into larger overseas markets with greater growth potential. The two most important of these are the United States and China. The company’s strategy for market entry and its operating strategy in these two countries are different from its strategy in the Philippines.

Jollibee has been successful in part because it emulated the strategies and many of the tactics of Western fast food companies, especially McDonalds. Similarities can be found not only on the menu but in the marketing approach, the systems used within the company and within the individual restaurants, and the company’s human resources tactics. Where Jollibee has diverged from the McDonalds approach is with respect to its international expansion strategy. Jollibee has avoided direct competition with McDonalds in the U.S. And China both, but this deviation is perhaps not the best strategy for Jollibee to follow.

Operating, Marketing and International Expansion Strategies

There are three key strategies that Jollibee employs that have a direct impact on the company’s success — operating, marketing and international expansion. The operating strategy is based around the standard model of Western fast food chains. When Jollibee began, there were few if any such operations in Asia, let alone the Philippines. That allowed Jollibee to enjoy first-mover advantage in setting up the logistics systems to facilitate not only the fast food business model but the expansion of that model as well. Similar to McDonald’s, Jollibee was able to build strong relationships with its suppliers.

The company has continued to use its strong relationships with local suppliers to deliver competitive advantage. It is important for Jollibee to use its buying power to drive volume discounts in order to keep costs to the customers down. In addition, the company has the advantage of being not only a local firm but the first-mover when it comes to developing relationships with suppliers. Maintaining a supply chain advantage over Western rivals that have now entered Jollibee’s key markets is important. To that end, Jollibee has worked to build relationships with farmers, for example (Lamentillo, 2011). The company has a sophisticated program to give it advantage with local suppliers in the Philippines, known as the JFC Supply Chain Project (Jollibee, 2011).

At the individual locations, Jollibee has been able to successful imitate the operations management of Western fast food companies. Jollibee locations have a similar layout to Western fast food chains, and function in much the same way. Orders are taken at the front, and the food is prepared quickly by a team in the back. The turnaround time from order to delivery is very short, and the prices are kept low as well. One of the most important benefits of franchises is that the company can gain advantage when it has a system that not only works but can easily be transferred from one location to another (Goldberg, 2011). The key to Jollibee’s international expansion, just as it has been the key to international expansion from Western fast food chains, is that it has been able to develop an operating model that can be used anywhere, by anybody.

Marketing strategies imitate those of Western fast food outlets. Marketing to children is a primary tactic of Jollibee. The name of the company, along with its cartoon mascot, appeal directly to children. The menu also appeals to children. In addition, Jollibee restaurants are designed to cater to families. They are plastic and easy to clean, with open formats that allow for families to interact with one another, and that discourage adults-only dining. The use of mascots to attract young children has been a staple of McDonald’s promotions for decades. Jollibee also seeks to attract children by means of hosting children’s parties, founding the Jollibee Kids Club and the Jollibee Kid’s Meal and other promotions (Inquirer.net, 2011). These programs mirror those of McDonalds, which hosts children’s birthday parties, supports children’s charities and has enjoyed tremendous success marketing to children with the Happy Meal.

The underlying strategy is that when children want to go to a certain restaurant that is child-friendly, their parents will go so the whole family will eat. Additionally, those children will grow up as customers, so the tactic in essence builds customers for life, starting at a very young age. While this tactic has come under fire in the West for its cynicism (Melnick, 2010), such controversy has yet to translate to the Asian market, and has failed to harm fast food business in North America either.

Another element to the marketing strategy is that the company wants a strong distribution presence. In fast food, distribution is essentially the location of the restaurants. Fast food chains typically operate with saturation distribution — there are many locations and they are relatively close to together. For Jollibee the base strategy with respect to distribution is to focus both on domestic and international expansion. The company has consistently opened new restaurants, growing its distribution area as the Philippine economy has grown. The company has ensured that it has a presence in major shopping areas and malls, to reach the greatest number of people.

The international expansion strategy is an outgrowth of the distribution strategy. The company first expanded internationally in the 1980s to relatively nearby locations such as Taiwan and Brunei, but has since built its profile in other Asian countries and expanded to the United States. The Philippine economy remains highly tied to overseas remittances (Flores, 2009) so for the company to succeed in the long-run it must focus on international expansion as a means of growing its business. For the franchisor, such expansion not only builds the global strength of the Jollibee brand, but it also brings valuable foreign exchange to the company from the new franchise owners.

The company currently uses franchisees to help it expand rapidly overseas. As of 2010, overseas growth projections are for around 100 new stores overseas, bringing the international component of the business to 25% of revenues by 2013 and 50% by 2017 (GMA, 2010). The company is focused on the U.S., China, Vietnam and the Middle East. The push to enter the U.S. market came when there were fewer new countries in Asia deemed worth entering. Jollibee knew that it would eventually build out its operations in Asia, but was facing more intense competition. There was an interested franchise owner in California. Jollibee knew the California market was essentially saturated with fast food chains, but that it also had a strong Filipino population that would support one of their own companies coming to the U.S. This was the way for the company to enter the U.S. market, where growth potential was high if it could outcompete some of the other fast food chains. The U.S. operations are still growing rapidly and the company is beginning to expand outside of its Southern California base.

The company views international expansion as key to maintaining growth. It feels that the Philippine market has seen its best growth. While there are still opportunities, they are tied to the strength of the local economy, and this in turn is largely tied to the global economic situation as the Philippine economy is fueled by overseas remittances. The company has felt that the domestic market is reaching a saturation point, and this has driven expansion into other Asian nations. China was targeted, for example, specifically because of the size of the market. There is seemingly no end to growth opportunities in China.

Whereas many expansions have been with the Jollibee brand and fast food format, the company has chosen a different means of entering the Chinese market. In China, Jollibee has over three hundred locations, but most of them are using local names and serving Chinese food. The company operates two brands, Yonghe King and Hong Zhuang (Montecillo, 2011). This method of operating in the Chinese market stands in contrast to the company’s approach of emulating the tactics of Western fast food chains. Companies like KFC and McDonald’s have made few concessions to local taste, rather they have asked the local population to adapt to them rather than the other way around. Jollibee’s use of Chinese names and Chinese food means that it has chosen to operate as a franchise chain in China, but that it does not necessary see a future in burgers and hot dogs there.

Also in contrast to the company’s tactics in other foreign markets, Jollibee has engaged in acquisition as a means of entering the Chinese market. The company usually expands by seeking franchise partners in target markets, and then licensing the name and operating systems to those operators. This allows the local operator to focus on building up the local market. One recent activity has been to purchase a third restaurant brand in China, San Pin Wang, a fast food noodle chain. Using acquisition gives Jollibee properties and an established brand in China, allowing it to build its presence in that market more quickly. However, it is difficult to determine the rationale for forgoing the use of the Jollibee name and business model in any new market, much less a market as important as China. This strategy is especially confusing given that China has proven a fruitful market for firms selling Western-style fast food.

The decision to expand into China in a different manner than the company’s other international expansions has both pros and cons. In favor of such a strategy is that the company can move quickly, establishing a large network of outlets. Income is income — it need not be tied to the Jollibee brand. In addition, building out a presence quickly is important in such a large and rapidly growing market. Other competitors, both Western and Asian, are actively building out their presence in China as well. Jollibee will not enjoy first-mover advantage, but the more rapidly it can get up to speed in China the better position it will be in for future growth and also for the future establishment of the Jollibee brand there.

However, using different brands and formats is not typical for international expansion of fast food chains. McDonalds — the company Jollibee emulates — does not use this tactic. Neither does Yum Brands, which operates Pizza Hut and KFC in China. These companies have used their substantial capital generated in Western markets to finance expansion in China. Those companies have business models that have been proven everywhere they have gone, and China was not an early stop for either firm. For Jollibee, China is the second-largest market and comes fairly early in the development of Jollibee’s international presence. As a result, the company may feel the need to utilize a different strategy. In addition, Western-style fast food is still a novelty in China. Noodle chains such as Ajisen and other fast food chains serving Chinese food are experiencing rapid growth as well. Jollibee may mimic the strategies of major Western chains, but it has historically avoided direct competition with them. Even in the U.S., Jollibee is clustered around areas with high concentrations of Filipino-Americans and in the domestic market the company was able to succeed by enjoying first-mover advantage. The strategy in China appears to follow an interpretation of this pattern — building out store numbers away from direct competition with McDonalds and other Western chains that can outcompete Jollibee.

Competitive Strategies

Michael Porter explains competitive strategy for corporations in his theory of generic strategies. Firms succeed when they have one of these strategies, and a failure to effectively operate with one will lead the firm in a position of not being able to meet market needs in a profitable manner (QuickMBA, 2010). In the United States, fast food companies adopt the cost leadership strategy. This means that they target a broad market and do so with a low cost strategy. In order to execute this strategy, the company needs to have a product/service with a broad appeal. It also needs to have sufficient economies of scale to achieve a low price point. This is why, for example, saturation distribution is a tactic commonly employed by firms in the industry.

The dynamics of this competitive strategy are slightly different in Asia, in particular the Philippines. Jollibee realized that it could not be a true low-cost provider, because it could not undercut the price of typical street food in the Philippines (or most of its other Asian markets). As a result, it adopted a differentiation strategy. The broad target market allowed Jollibee to utilize saturation distribution but with limits — it needed to stay in areas where consumers could afford the cost of its meals. This also gave Jollibee some flexibility with respect to building low-cost into its supply chain. While building out the supply chain, if low cost was not possible it was not going to adversely affect the firm’s generic strategy. Instead, Jollibee differentiated itself by being family-friendly and by offering Western menu items.

That Jollibee has needed to utilize a differentiation strategy means that when the company decided to expand overseas, it would need to follow that strategy in other markets as well. In most Asian markets, the competitive conditions are similar to those of the Philippines so the differentiation strategy was a natural choice. In the United States, the company would be competing in the fast food sector, which emphasizes the cost leadership strategy. This presented a unique challenge. To this point, Jollibee has wavered somewhat, and remains focused on the differentiation strategy by operating mainly in areas with high Filipino populations. In order to move more strongly into the U.S. market, however, the company is going to have to improve its supply chain and be a low cost provider. Its price points are within that range already, but it needs to establish itself more clearly as either a low cost or differentiated provider.

China is Jollibee’s other major hope for international expansion. Again, its chosen strategy is a little bit unclear. Noodle shops are anything but differentiated in China. The company cannot undercut the street vendors. Thus, Jollibee’s brands in China might give it a presence, but they do not fit anywhere on the generic strategies matrix. This calls into question how effective the market entry to China will be in the long run. Splitting the business between three brands further dilutes any hope of being truly differentiated. Growth appears to be the primary motivator for entry into the Chinese market (Montecillo, 2011), but without clear differentiation, Jollibee is neither following the model laid out by McDonalds nor is it setting itself up for long-run success. When growth comes from acquisition, the price paid for market entry is theoretically equivalent to the existing business of those locations — value only occurs when the business grows from that point onward.

Organization

Jollibee has a top-down structure that relies on heavy guidance for head office. This guidance includes everything from competitive strategy to the “training kitchen” used to help employees learn about the Jollibee way of food preparation. Such control is typical of the fast food industry, so in that way Jollibee is emulating the industry best practices of firms like McDonalds. Centralized control allows Jollibee to adopt its systems and techniques across multiple markets. There is little difference between a store in Manila or Los Angeles, for example. The main exception is the Chinese strategy, where the company is not taking advantage of the Jollibee brand, systems and expertise. The company uses local partners to approach local markets, allowing it an advantage when dealing with difficult local governments (especially in places like China and Saudi Arabia).

Recommendations

There are several recommendations that would facilitate more effective international expansion. The first is that Jollibee needs to adopt its brand and core competencies to its target countries. While it generally does so in its smaller markets, like Brunei or the KSA, it is not doing this in the United States or China, the two markets with the greatest potential. The company has attained nearly a 30% market share in the Philippine fast food industry because it has a differentiated offering, economies of scale and was able to build a brand using first-mover advantages (Erdralin & Castillo, 2001). It will not be able to enjoy first-mover advantage or have a differentiated offering in the U.S. Or China, both of which have tremendously intense competition in the fast food industry.

Therefore, Jollibee needs to re-evaluate its market entry strategies in both countries. In the United States, the company needs to decide if it is going to be a low-cost provider or a differentiated provider. At present, it is focused on a narrow demographic subset of the population, and this will constrain growth. It can follow its current policy until it has established itself in all Filipino communities in the U.S. (and Canada). This will allow it to build its supply chain and local operating knowledge, perhaps allowing it to pursue a cost leadership strategy in the future. Alternately, it may find that the local market would be more receptive of a Filipino fast food chain if it had more Filipino food offerings. Western food is not a source of differentiation in the West, and this is the major flaw in the company’s strategy — it is not sufficiently differentiated enough to pursue that type of strategy.

In China, the company has even greater opportunity. Its market entry strategy of acquisition is sound, as it is important to grow quickly in the Chinese market. However, Jollibee must understand that its current brands are selling Chinese food in China. Again, this is not differentiated. Such a strategy can be done successfully, as the Japanese chain Ajisen shows, but ultimately, this is not the strategy that Jollibee followed in its homeland nor is it the strategy used by McDonalds overseas. In addition, running noodle shops does not leverage Jollibee’s core competencies, systems, the knowledge of its staff or anything else that the company has used to succeed domestically. Jollibee needs to dramatically rethink its strategy in China — buying growth might look good in the short run but in the long-run Jollibee needs to do something that cannot be easily replicated by competitors.

Conclusion

Jollibee has been wildly successful in the Philippine market, and moderately successful in its overseas expansions. In smaller nations where it has used its core brand and systems, the company has enjoyed success. In larger countries, Jollibee’s strategy has allowed it to build out a network of locations, but there is tremendous growth potential that is at risk because the company has deviated from its successful domestic strategies. When McDonalds goes overseas, there is no deviation from the strategies that made it successful in the United States. This allows the company to flourish in foreign markets. Jollibee used its version of the McDonalds strategy to dominate the domestic fast food market in the Philippines. It needs to stick to that formula for success when it goes overseas. This means differentiated menu items in the United States, and it means using the Jollibee brand and menu offerings in China. Doing so will play to the company’s strengths, and allow it to grow more rapidly — and more profitably — in the U.S. And China in the future.

References

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