KFC's Localization Strategies in China An Overview of KFC's Localization Strategies in China Abstract Kentucky Fried Chicken has been

one of the most household international brands in urban China since it opened its first Western-style quick service restaurant in Beijing in 1987. As the present largest fried chicken restaurant company in the world, KFC aims China as the most promising market and succeeds in its localization strategies in the huge China market. The most prominent success of KFC in China is not only the outcome of KFC's persistent tenets "quality, service and cleanliness" but also the achievements of its keen perception of cross-cultural marketing and its understanding of Chinese culture. This essay aims to investigate the process of KFC's entry into China's market and analyze its particular localization strategies towards China. A series of KFC commercials in China would be analyzed from the perspective of cultural values. 1. Introduction There is no doubt that China has become the highest-growth market of Kentucky Fried Chicken. Seventeen years after opening the first KFC outlet in China, KFC has celebrated its 1000th restaurant milestone in Beijing on January 16, 2004 (business wire, 2004). As the Yum! Brands, Inc., the parent company of KFC, states in the 2003 annual customer mania report , "China continues to be our Rising Star, driving double digit sales growth for the fifth consecutive year and record operating profit up over 42% in 2003." The number is the best annotation for the announcement--in the year of 2003 China has accounted for $157 million in KFC's operating profit. The prominent success of KFC in China's market can be attributed to its franchise policy and scientific managerial operations, well known as CHAMPS, which measures operational basics like Cleanliness, Hospitality, Accuracy, Maintenance, Product Quality and Speed. Moreover, the accomplishments are the reward towards KFC's comprehensive understanding of Chinese culture and its excellent localization strategies specifically manipulated to meet the characteristic requirements of the estimated 450 million urban Chinese consumers. In the analysis of KFC's success in China, several questions were generated. How did KFC grab the opportunity to penetrate a huge market known as the fastest growing economy in the world? How does KFC find the balance point between the quick service restaurant and the ancient Chinese culinary tradition with more than 5,000 years history? How does KFC adapt its inherent individualism-driven American culture to Chinese collective community? I would analyze the localization strategies of KFC from a cultural perspective and try to answer the above questions. 2.KFC's Entry into China

In this section, I will present an overview of KFC's overall process of entry into China market. External and internal environment of China would be discussed. 2.1.Open China, New Opportunities The economic reform opened China market to the outside world and improved the standard of living of average Chinese people. In late 1978 China began implementing economic reforms to develop and modernize its economy. The reforms have gradually rebuilt a new economic system, which is referred as a socialist market economy, by lessening the government's control of the economy, allowing some aspects of a market economy and encouraging foreign investment. As a result of the reforms, China's economy grew at an average annual rate of 10.2% in the 1980s and by 10% annually in the period of 1990-2001. This was among the highest growth rates in the world. The increase in disposable income (nearly tripled from 1985 to 1992) has "awakened people's desires for consumption and material pleasure" . China, the world's most populous country with a population of more than 1.3 billion, has become the largest potential consumer market on multinational companies' blueprints for global expansion thus can never be ignored. Economic and social development in the 1980s and 1990s created a huge demand for services. Foreign investors also are entering China's retail trade, and Western fast-food companies such as McDonald's, Pizza Hut, and Kentucky Fried Chicken now have many restaurants in China. 2.2. External and internal environment analysis In this section, I would make a brief review on external and internal environment analysis in China. The SWOT (Strengths, Weakness, Opportunities and Threats) analysis is a detailed and systematic investigation on the marketing achievement of KFC in China. 2.2.1. Opportunities One of the opportunities is, as what I've presented in the preceding part, the growing economy in China. With an average growth rate of 8 percent in GDP, an enormous buying force based on a population of 1.3 billion, the scarcity of United States brand restaurant that only one restaurant for every 5 million people made China the big cake for multinational food industries. The other opportunity, more politically, is the Chinese government has welcomed investment by western investors. Since the poultry industry is one of the top priorities of China's agricultural modernization plans, KFC, as a poultry food chain company, gained a lot of support from the government. 2.2.2. Threats

Expanding into China occasions a great deal of uncertainty. Opportunities and risks vary widely from city to city and the criteria for evaluating suitable locations remain unspecified. The unstable economic situation through Asia may also affect China over the long run. The complex legal system, problems with source and distribution, an inadequate infrastructure, and lack of local management expertise all present threats. Moreover, KFC's QSC (quality, service and cleanliness) is opposed to Chinese limited exposure to quality products. Competition is increasing from other fast food enterprises: US brands and international firms. Five competitive forces have to be taken into account: 1. buyer bargain power was low in that the size of the market is so large that individual buyers have little impact on competition. 2. Supplier bargaining power is moderate. Since KFC's chicken is provided by local suppliers, it has tried to minimize shortages by using multiple local suppliers. 3. New entrants' threats are moderate. It is reasoned that lengthy amount of time is usually required to set up operations in China. 4. The competitive pressure from substitutes is low. Chicken is a more popular meal than hamburgers in most Asian countries. KFC has the opportunity to offer an American style experience that is different from most other food establishments. 5. The pressure from existing rivals is moderate in that the size of the market allows room for existing competitions to operate without significantly affecting KFC. 2.2.3. Strengths In the mid of 1980, the acquisition of KFC by PepsiCo provides KFC with heavy financial backing for further growth. In terms of the potential of market, chicken is already familiar in China and much cheaper and more widely available than beef. Chicken has long been regarded as a kind of nutritious food which is especially good for the patients, the elders and children. An increase in health conscious consumers also raises the consumption of chicken. KFC devised an additional incentive scheme to encourage worker productivity. KFC's control mechanisms are designed to ensure standard levels of quality, service and cleanliness (QSC) at all of the restaurant's chain stores. This fits the positive image in Asia of American fast food restaurants as famous, air-conditioned, and hygienic. Moreover, KFC has adapted its advertising campaign to suit local preferences, including a Cantonese version of "We do chicken right" advertisements. KFC's success in China can be partly attributed to Tony Wang, who has had a long and productive history at KFC and a proven track record for successful negotiations with the Chinese government. He laid the foundation for KFC to enter China. 2.2.4. Weaknesses The weaknesses on KFC's road to China contain: 1. the government provides much more support for enterprises bringing new technology to China while KFC is more of a service provider dealing with food products. 2. Expansion costs for each new restaurant is high. KFC has also had trouble getting a constant supply of quality chickens from the local

supplier. 3. Human resources management is hard to conduct in China, where family contacts are often used to land highly sought-after jobs. 4. Managerial resources are precious because of the scarcity of Chinese-speaking KC managers. There are also possible conflicts between KFC-appointed managers and local employees. 5. Management practices lead to disputes with Chinese partners. They disagree with KFC's QSC; they believe they understand Chinese customers much better than KFC does and should participate in improving operations; they sometimes felt left out of the decision making process. 3. Cultural Values in KFC's Campaigns in China In recognition of the distinct nature of transitional markets , many foreign companies have sought other ways to compete with domestic offerings by "clothing their brands in local costumes". Localization of language, product attributes, advertising content, and even product meanings" is a common practice adopted by multinational companies in most transitional economies, including in China. Advertising is "one visible aspect of the culture of consumption" and\ "the mark of material goods, the exemplar of new styles of life, the herald of new values." Perception of cultural differences and understanding of host culture are critical elements in a firm's international marketing strategy. This is because cultural values influence and are influenced by advertising . The grow-up processes of consumers in a particular culture are indeed the procedures in which they get accustomed to that culture's values, beliefs, perceptions and norms. Their interpretation to certain advertising is congruent with their mother culture's values and norms. Consequently, the choice of advertising themes used in one particular culture might be limited by the social values and cultural characteristics of the target audience. In this section, KFC's strategies would be analyzed. 3.1. Utilization of Chinese Cultural Symbols In the initial period of KFC's entry into China market, few of Chinese consumers were really impressed with the food itself. Instead, they were more fascinated with the eating experience: the encounter with friendly employees, quick service, spotless floors climatecontrolled and brightly-lit dining areas, and smiling Colonel Sanders standing in front of the main gate (Yan, 1994). Having experienced the initial surprises brought by a neverseen western lifestyle, Chinese consumers have gradually calmed down and their consumption attitudes towards foreign products are getting more reasonable. They are more concerned with the nutrition and tastes of the fast food. KFC, who has taken advantage of McDonald's by offering poultry food which is more acceptable to Chinese people compared with beef, have taken consumers' needs and competition with other brands into account. As a country with the best culinary culture in the world, China was a big challenge for KFC's efforts to cater to the captious palate of Chinese consumers. KFC's product strategies are categorized into two aspects. 1. To meet consumers' desire for novelty by introducing western style products like Mexican Chicken Warp and New Orleans Barbeque Wings. This means can satisfy young consumers who are more open

and acceptable to the foreign flavors. 2. To cater to consumers' taste for traditional Chinese meal by offering Chinese style fast food from time to time, say, Old Beijing Chicken Roll, a wrap modeled after the way Peking duck is served, but with fried chicken inside and accompanied with green onions and hoisin sauce, and Sichuan Spicy Chicken which absorbs the spicy flavor of Sichuan dish. Chinese-style breakfast food, like porridge is also served since Oct 27, 2003 on the breakfast menu of all 59 KFC restaurants in Shenzhen. The breakfast choices are a blend of East and West, ranging from Chinese seafood and chicken congee, Hong Kong milk tea to Western burgers, potato sticks and orange juice (Adler, 2003). This measure can attract older consumers who are fond of Chinese food and in need of the convenience of fast food service as well. Based on its scrutiny and adoption of Chinese traditional culinary arts, KFC has developed a series of products which are specially designed for the tastes of Chinese consumers. Moreover, in purpose of maintaining its image of a U.S. brand and keeping consistent with its globalization strategy, most of KFC's Chinese side dishes are defined as short-term products and would be replaced by new products. To represent the Chinese characteristics and increase the identification from Chinese consumers, KFC absorbs Chinese cultural elements into the arrangements and decorations of its outlets all over China. In 2003, KFC spent 7.6 million renminbi (equal to 900,000 US dollars) to redecorate the flagship outlet in Beijing, which is also the world's largest KFC outlet, with the Great Wall, shadowgraph, Chinese kites and other traditional Chinese symbols. In the Chinese New Year of 2003, all the statues of Colonel Sanders in KFC outlets in China were put on the Chinese traditional suits which are known as "Tang suits". One feature noticeable in KFC's commercials is its preference on the representation of an ancient art form of China-Beijing Opera. It is interesting to find a U.S. fast food brand presents a declining traditional art and attaches pop culture elements with it. One of the commercials depicts a Beijing Opera actor in costume and with make-ups still on his face is about to have his KFC meal (figure 3.1). The second commercial exhibits the contradiction and later harmony of a father and son; the roles of father and son stand for two generations and serve as the distinct incarnations for traditional and pop cultures. The screen is divided into two parts: the father is singing Beijing Opera in the left room while the son is dancing with Hip hop music in the right room (figure 3.2). They finally get to the reconcilement by eating the Old Beijing Chicken Roll served by the mother. The third commercial starts with a background music which merges the Beijing Opera and electronic midi. The three commercials exemplify KFC's efforts to integrate Chinese traditional culture into the modern pop culture. 3.2. Family-group oriented Collectivism involves: the subordination of personal interests to the goals of the group; emphasis on sharing, co-operation and group harmony; and a concern for group welfare (Zhang and Neelankavil, 1997). In KFC's commercials, concepts of family and group are strengthened as an evidence of KFC's adaptation to Chinese culture.

Family, as the key concept and basic unit in a collectivist society, is the representative of Chinese collectivism. Quite different from individualism which concentrates on a selforientation, Chinese collectivism emphasizes on the interdependence among family members and cherishes the unity of family as a whole. 7 out of the 24 commercials are promoting the KFC bucket; among the 7 commercials the selling points of the product were shifted from great value to the communal enjoyment for the whole family, which fits well in the value system of China. The size of the family depicted in the commercials has gone beyond today's Chinese typical nuclear family structure which consists of two parents and one child. Instead, a big family with three generations and relatives was presented to reinforce the concepts of family. In terms of groups, colleagues working overtime together and friends hanging out for fun are the subjects of some KFC commercials. In fact, there are only 2 commercials which portray a single-person setting. The emphasis of KFC's portrayals of groups suggest its adaptation to the host culture. 3.3. Selling to Singletons Since the late 1970s, the Chinese government has taken measures to control the overpopulation which has been a burden of society and severely hindered the economic development. The one child policy effectively alleviates the oversize of population and influences the market structure in China. Some of KFC's commercials represent the concept of singleton family and conform to certain Chinese traditional cultural values. In Shao and Herbig's study of marketing implications of China's 'little emperors'(1994), several aspects of considerable change in the Chinese marketplace caused by the emergence of one child families were covered. For the most part, Asian families prefer to have boys rather than girls; this can be explained by the dominance of agricultural economy for thousand of years. Males worked as labor force and took the responsibilities of sustaining a family living. Although boys are the preferred gender in China, it is not fair to state that all Chinese parents wish to have a male as their only child. While most children in kindergartens or secondary and primary schools in urban China are their parent's only child, many are the apple of their parent's eyes and are known as either "little emperors" or "little princesses." However, it is noticeable that in 6 KFC's commercials which depict children-all are boys. The dominance of gender image of children might be explained from two aspects. The one is family expectations, rooted in the traditional Chinese values, towards children's genders. Despite the rising of women's status in present Chinese society, male is still the dominant gender in social life. Thus, the representation of boys in the commercials suits the traditional expectation of a Chinese nuclear family: a pair of parents and one boy. The other reason is that characteristics of boy can serve better to the representation of fast food culture which values some "male traits" as speed, efficiency and competition. The social expectations towards females are inconsistent with that of the fast food culture. Thus, even though girls are of the same importance as boys as consumer group in market, they are underrepresented in the campaigns.

Shao and Herbig point out some important implications as purchasing power drastically increases in China. As Chinese per capita income has risen and fertility declined, Chinese parents' love and money have focused on a single child, resulting in unique social and economic implications such as the perilous 4-2-1 indulgence: four grandparents and two parents indulging one child. The parent generation most of whom having experienced the Cultural Revolution, 1966-1976, a time of torment, persecution and chaos, make efforts to satisfy their children's requirements and live their dreams through their children. Today nearly half a family's income is spent on its children. These expenses are often regarded as an investment by parents who hope that their children will become healthy and wise. Parent's expectation on children and desires to improve children are highly valued by KFC and a series of measures have been taken to meet the requirements of parents. Print advertising and pamphlets promote the KFC kid package by claiming the rich nutrition necessary to children's development. Combos for kids employ toys as selling points. Exclusive regions with toys can be found in any KFC outlet in China. Employees would take care of the children on the playground so parents can concentrate on their own meal. At specific time in a day (i.e. at noon) female employees nicknamed Sister Qiqi would teach children present to dance or sing English songs. Children are encouraged by parents to join the games because it's regarded as a good way to improve children's sociability and intelligence. In Shanghai, KFC heavily promoted birthday parties (Davis & Sensenbrenner, 2000), and hosting children's birthday celebrations have become a tradition in KFC. During the party KFC employees in cartoon customers play games with children. Children would be asked questions to test their common sense and those children who won would be rewarded. Beside above, KFC has built up its public image by sponsoring education. A 10-year-long project beginning in 2002 annually offers 5,000 renminbi (602 US dollars) for each poor student, who can apply for the aid year by year from the first term until graduation. The stipend totaling 38 million renminbi (about 4.5 million US dollars) is the largest commonweal fund jointly set by the China Youth Development Foundation and the multinational company in China so far. Meanwhile, China KFC will launch work-study programs in the local KFC restaurants for the aided students (People's daily, 2003). Besides the socioeconomic change in parent's consumption for children, one inherent advantage for KFC in China children market is its U.S. origin. It is widely known that Chinese parents crave foreign-made items for their children. Parental desires to shower their sole offspring with items they can be proud of could lead to a strong demand for Western name-brand products and services. 3.4. Emotional Appeals in KFC's campaigns The emotional/rational framework has been studied extensively in the marketing and advertising literature. Rational advertising stems from the traditional information processing models of decision making in which the consumer is believed to make logical and rational decisions. Such approaches are designed to change the message receiver's beliefs about the advertised brand and rely on their persuasive power of arguments or reasons about brand attributes. Such appeals relate to the audience's self-interest by

showing product benefits (Kotler and Armstrong, 1999). "Examples are messages showing a product's quality, economy, value or performance" (Kotler and Armstrong, 1999). In contrast, emotional appeals are grounded in the emotional, experiential side of consumption. They seek to make the consumer feel good about the product, by creating a likeable or friendly brand; they rely on feelings for effectiveness. According to Kotler and Armstrong (1999), "Emotional appeals attempt to stir up either negative or positive emotions that can motivate purchase... communicators also use positive emotional appeals such as love, humor, pride and joy". Albers-Miller and Stafford's study (1999) examines advertising appeals for services and goods across four different cultures: Brazil, Taiwan, Mexico and the USA. The results of a content analysis indicate that the use of rational and emotional appeals differs across both product type and country. It is suggested that culture appears to play a significant role in the use of emotional and rational advertisements for services, and anthropological measures of culture provide some insight into the differences in emotional appeals. The commercials of KFC have also resorted to the emotional appeals as advertising appeals. The Chinese virtues and emotions as patriotism, respects to the elder, cherishing the young, sincere friendship and romantic love are the major subjects of KFC's campaigns. One remarkable example is KFC's emotional appeals strategy by supporting China men's soccer team in the World Cup of 2002. During the promotion for World Cup combo, costumers are free to select a miniature of a soccer star with a purchase of the combo. Along with the world stars as David Beckham, Rivaldo, etc, two Chinese soccer players' miniatures are consumers' favorite. In this case, the patriotism aroused by the China men's soccer team's debut in the history of World Cup was fully employed as an emotional appeal. Another special example is KFC's commercial for its commonweal fund aiming to help students in poverty finish their education. In the 90-second-long commercial which is seemingly more like a social responsible advertising, a girl's voiceover tells a story of her own. "It's at the age of 10 that I had my first KFC meal. At that time I didn't expect that KFC would change my life later. Having won the Dawn Scholarship from KFC, I made my dream of going to college come true." Then a series of flashbacks reflecting the girl's experience as an employee at KFC were presented. The whole commercial doesn't portray any images of KFC products but "a spirit encouraging all the people." In this case, the love between people works as emotional appeal to arouse consumers' resonance.