case

Case 3-7: McDona KFC: Recipes for S in China

Id's and Ucc. ess

Quick Service Restaurant Giants in the Middle Kingdom In 2008, McDonald's and KFC were the two largest qtack- service restaurants (QSR) in the world, with 31,999 and 15,580 outlets, respechvely1 Both chains were renowned for their broad spectrum of consumers on a global bas:s

McDonald's appeared to be a clear winner m interna- tional expanslon It had over 17,500 international outlets and was the first corporation to set up a solid foundation for international franchising. It spearheaded global expan- sion with :ts first overseas outlet m Canada m 1967, and entered Japan m 1971 2 McDonald's outlets had tremen- dous success in JapanIdesp:te the difference m culÿtre-- with record-breaking daily sales and speed of expansion m the mÿaal stage 3

KFC also started mternahonal expans:on early, opening its hrst overseas outlet in England in 1964 However, it was g:ven a bumpy r:de when :t began to penetrate the market m Asia The Japanese outlets were far less successful than McDonald's and only started to make a profit in 1976, SEX years after KFC entered Japan KFC outlets opened m Hong Kong m 1973 but were all closed down within two years The company would even- tually wm the confidence of Hong Kong customers ten years after :ts first entry In Ta:wan :t exper:enced rela- hvely smoother development, although KFC headquarters was to spend a huge amount of money and effort m order

to get the ownerslup back from its joint venture partners at a later stage 4

It was a totally different picture m China In the 'Middle Kingdom,' KFC was not only recogmsed as the leader m foreign qmck-serv:ce restaurants but was also a sigmflcant player in the Chinese restaurant industry as a whole, alone contr:butmg 1% of the country's total food and beverage mdusÿv revenues m 2005 s In 2005, KFC's outlets m China recorded an average of US$1 2 mflhon m annual sales per store, compared with just US$900,000 for smnlar stores m the US 6 According to the 2008 figures, KFC had over 2,300 outlets m China, with an average profit margin of nearly 20 1%.7

In contrast, at 1,000 outlets, McDonald's presence m China was less than half of KFC's, with an est:mated profit margin s:gnlhcantly below that of its leading com- pehtor Many people attributed KFC's success m China to :ts early entry--three years earher than McDonald's--and :ts natural advantage m menu selechon wluch corre- sponded to the typ:cal consumer's preference for chicken over beef However, were these reasons enough to explain KFC's contmued growth and the extens:on of its lead over :ts rival? How could McDonald's as a latecomer and the second-largest QSR player m China, capltahze upon :ts global dominance and resources to catch up w:th KFC?

Replicate or Adapt?

Tins case was written by Gabriel Szulanska, Professor of Strategy at INSEAD, Welru Chen, Assistant Professor of Strategy, and Jennifer Lee, Research Assoc:ate It :s intended to be used as a basis for class discussion rather than to ÿustrate e:ther effechve or meffechve handling of an adnumstrattve s:tuatlon The authors gratefully acknowledge ftmdmg from INSEAD R&D

The Inherent Challenge for International Franchisors

Internahonal franch:smg :s frequently associated with serv:ce firms, such as hotels, retail outlets and qmck serwce restaurants These hrms often have strongly identifiable

DO 3-88 Corpora|eÿS|ro|eqles

trademarks and try to guarantee the customer a umform and consistent level of service and product quality across different locations and over time. However, the high degree of standardlsed operations makes the replication of the format across diverse markets difficult Differences In things such as mgredlents, labour and physical space can mean slgmhcant modifications to the service formula Consequently, the basic service may be sumlar to that of the home country, but details m the delivery of the service are often altered 8

Many foreign enterprtses found China very different m culture and consumer behaviour Franchise restaurants faced several major hurdles, including a different labour force structure, dffarlculty m recrulKng technically competent and culturally sensitive managers, tough technologacal problems and a less than satasfactory legal environment and enforce- ment 9 So the challenge for international franchlsors hke McDonald's and KFC was to decide whether to comply strictly with their ongmal models, and if adaptation was reqmred, when and how to make adaptations m order to dehver globally consistent standards while catermg to local consumer needs

the franchising model, which had proven to be such a sure path for fast-track growth m the US and Europe is The new Law on Franchise Regulations, passed m February 2007, helped clear up the ambiguity surrounding franchlsor's disclosure duty 16 Thenceforth, the rights of both fran- chisors and franchisees were better protected

Quick Service Restaurant Chains: A New Experience for China

Potential of China's Restaurant Industry

Chinese consumers' spending on eating out had increased tremendously along with the country's economic boom In the past decade Retail revenues of the restaurant industry increased from 5 2% m 1991 to 14% m 2007 as a portion of total retail revenues from consumer goods.1° According to annual statistics from the Mamstry of Commerce of the People's Repubhc of China, the retail revenue of the hotel and restaurant Industry reached 1,235 2 billion RMB in 2007, rep- resenÿng 19 4% growth over the previous year, foreign fran- chises were the mare dlaver of food and beverage revenue growth as foreign direct investment m the hotel and restau- rant industry totaled US$10.4 bllhon, an increase of 25.8% on the previous year.11 China was the world's largest consumer of meat The Economast InteIhgence Umt forecast that annual meat consumption m China would jump from 59 kg per head m 2005 to 74 kg per head m 200912 With US meat consump- taon at 128 kg a head, there seemed plenty of scope for the Western fast-food industry to expand m China 13

Foreign quick service restaurants played a significant role m Chma's restaurant industry The share of fast food m the retail industry was expected to reach 9 3% by 2011 from 74% in 2007 Chma's fast-food Industry was expected to grow at a CAGR of around 25% during 2008-2011.14

The first comprehensive franchising regulations, wtuch came into effect m February 2005, made it easier for foreign fast-food operators to open branches and roll out

Foreign qmck service restaurants began to surface m China with the opening of KFC's first store in 1987, followed by McDonald's entry three years later. The tmung was propi- tious for foreign enterprises as it had been nine years since China embarked upon a pohcy of operung up and reform m 1978 and Chinese curiosity about the West was at a peak

Although GDP growth m China had averaged well over 9% per year since 1978, per capita GDP at the twne of KFC's entry was a mere US$621 05 17 Given the 120 to 130 yuan monthly salary of Beijmg urban residents at that tune, KFC prices were unaffordable to most, but many still flocked to the store to purchase the 12-yuan KFC hamburger or 8-yuan fried chicken The most frequent customers were foreigners hying m China Despite the attractweness of fast food chains, local consumers m those early days could sel- dom afford to eat at KFC, McDonald's or Pizza Hut. Dmmg at these estabhshments was considered such a luxury that some couples chose to hold their wedding banquets there,t8

Behind the 'dream market' with a vast land area and 1.3 billion people, the complexaty of Chma's population, geography and tustory presented major challenges for for- elgn players Population density, economic development and wealth distribution varied greatly from east to west and from south to north Foreign invested enterplises usu- ally focused on the populous, more affluent eastern Ctuna The western legaons were beyond the reach of even domes- tic businesses without an effective nataonal transportation system

Chinese-style fast food had existed plaor to the entry of western quick service restaurants but represented a totally different concept and ambience compared with modern chains Most of the catering umts for Chinese fast food were small m scale, serving pre-made appetazers such as congee, buns and fritters of twisted dough (yiu-tiao). They lacked hmdmg, trained employees and a well-maintained dmmg environment 19 As restaurant staff reqmred at least five years of experience, western food chains could not fred a sufficient number of internal candidates to meet growth- driven demand and had to import skilled managers from nelghbouring markets such as Taiwan and Hong Kong, and even from headquarters m the US

Cÿ 5-7 MÿDonold'ÿ o,,ÿ1KFC PC 3-89

KFC in China

The Very First Western Restaurant Chain Yum!'s KFC brand was the first foreign qmck-servlce restau- rant chain to enter China 20 On 12 November 1987, the first KFC m Chma was offloally opened at Belling Qlanmen, within walking distance of Tlananmen. In 2002, KFC opened the first ever drive-through restaurant m the country:. In 2004, the 1,000th KFC restaurant was opened m China (Beljmg), only a few kdometres from the site of its first restaurant From the beginning of 2005, the Yurn! Chma Division (mdud- mg Mainland China, Thailand and KFC Tmwan), based m Shanghai, reported dtrectly to YumI headquarter mstead of to its mternataonal division, reflectmg Chma's market size, umque strength and tmportance.21 From 1987 to 2005, the number of KFC outlets m China grew by 50% annually, growth wluch was considered exponentaal outside its parent market m the US,22 parttcularly m a country known for Rs culinary soplusticataon developed over thousands of years Today, KFC IS the nturtber one qmck-servace restaurant brand m China. YumY China has more than 2,300 KFC restaurants in nearly 500 citrus m Mainland China (Q3 2008) 23

attractave was the compensataon package that a ratm of 20 to I people apphed for every opening In the end, B-KFC lured those apphcants who were high school graduates, could speak some Enghsh, did not have prewous restau- rant work expermnce, and had demonstrated a wflhngness to work hard 25

A Management Team Familiar with Local Culture

Initial Stage--Replication with Localisation in Mind In 1987, KFC set up a joint venture, B-KFC, with Beqmg Ammal Productaon Company and Bmjmg Tourism Board m order to gain access to better product supply and F&B management authority Sam Kay Soon, a Smgaporean who had held area manager and training officer posRlons wRlun KFC system since the 1980s, was appointed to be ÿts the first general manager, responsible for day-to-day oper- atmns 24 Posflmns below (and including) assistant man- agers were all held by Chinese nationals. The company started using local food mgredmnts from day one Cincken was purchased from Bmjmg Anmÿal Productaon, and pota- toes, cabbage and carrots were all purchased locally. However, cooking eqmpment was mostly amported, such as blenders, heating racks and even cash registers

The first Beljmg outlet represented KFC's largest restaurant worldwide with 1,400 square metres of space allowing for a capacity of 500 seats and considerable office space for B-KFC staff Only four months after open- rag, the Beljmg restaurant had become the lughest-selhng single KFC store m the world

The response to B-KFC's recruitment was over- whelmmg as the base salary offered was set at 140 RMB per month, about 40% more than could be earned by assoemte professors at the country's umversltms at that ttme So

From the beginning, KFC lured ehtes from overseas-- Hong Kong, Tatwan and other Asian countries--some with decades of experiences m the QSR industry, and most with a deep understanding of the language, culture, habits and customs of China. As many of the management team mem- bers were associated with Talwan, they were mcknamed the "Taawanese gang -26

Other than the top management team wtuch was composed of almost all overseas Chmese, KFC was keen on developing local talent from day one The company paid well to hire haghly educated and mottvated restaurant staff, and used Rs training system to develop those staff into future restaurant managers or even chstnct general man- agers. 80% of China KFC's chstnct general managers were uruversRy graduates, some from top schools Thÿs strategy paid off when the company declded to expand aggres- sively after 10 years m China Joseph Han, Operating Vice President of Yumv Brands m greater China from 1996 to 2003, described KFC Chma's people strategy

m China, KFC understands the unportance of peo- ple's talent In the Umted States, m the fast-food chains, zt ÿs very dtfficult to hrre very htgh-quahty peo- ple, espeaally on the cook labour szde So m China, KFC bmlt very aggresswe talent recrmtment pro]ects It went to umversltÿes to hzre umverslty students KFC hÿred management trainees wÿth very quaffed unwer- slty graduates There are a total of 22 branch offices for Yum! Brands m China and the general managers are now already 90% locahsed Those people actually, 20 years ago, started at the restaurants as the cook per- son, or as a management trainee Thzs talent pool has become thetr great asset for the future development 27

Takeoff during Time of Crisis KFC chose to put down roots m big eastern ottes along the coast in the 1980s and to go west m the 1990s Lake many foreign enterprises, KFC's expansion route was from east to west, from Gtaes to towns, and blanketed China with wider coverage by hnkmg outlet presence in cities and towns. Wltinn 10 years of its entry into China, KFC has baslcally covered the mare cities in the populated areas,

PC 3-90 (]o.po.ofeSi.olÿg,es

with only the sparsely populated and low purchasing- powered south-western and north-western dlstncts yet to be penetrated.

During the Asia econonÿe downturn m 1997, KFC faced the challenge of a thmmng bottom line. It had two altemattves, either to cut costs or to increase sales It chose to aggressively expand the number of outlets at a time when most competitors were holding back The same strategy was apphed m other times of cnsls, for example, during the SARS epldenuc m 2003--that year KFC added more than 300 new outlets, even more than m the previous year.28

Menu Selection--an American Brand with Chinese Characteristics

Self-Developed Logistic and Distribution System Along with the aggressive expansion plan, a well-connected supply chain was needed before any new KFC outlet could be opened m any city KFC expected to estabhsh a logistics system to supply neighbourmg KFC outlets If it took more than one day to reach any new KFC restaurant, the loglshcs team would start finding a new warehouse closer to the outlet

What was different about the global KFC system was that YumI Brands estabhshed its own loglsttcs system by working closely with local partners rather than simply outsourcmg its supply to a third party KFC estabhshed the "STAR System" for its China partners, and supphers who passed the STAR test could also easily achieve nahonal ISO9002 and HACCP29 cerhflcatlon Ytun! Brands later consolidated a separate supply system m China-- which saved the company nearly 100 mllhon RMB m costs m 1998.30 It set up Asla's largest loglstlcs and dlstri- buhon centre m Beljmg m October 2004 for its groups of restaurants m China, a move that was the first and only for YumI Brands Global compames, and which allowed another 10% cost reduchon 31 Warren K Lm, Vice President of YumI Brands Greater China from 1997 to 2000, later recalled that he was challenged again and agam by head- quarters on the decision to invest m its own warehouse, logistics and distribution system, which didn't exist m other parts of the world where Yuml Brands was present.

KFC has followed the prmople of menu locahzahon, striv- ing to become an 'American brand with Chinese character- 1sties' since its entry33 Even m the earhest days, KFC Chma's most popular items were the spicy ctucken wings and spicy chicken thigh burger, rather than its signature Colonel Sanders Original Reope ctucken

Large-scale menu locahsatlon started m 199834 when a local food R&D team and a test ÿtchen were set up in Shanghai Since then, KFC has introduced many Chinese 1terns onto their menus Preserved Slchuan pickle and shredded pork soup was one of the first. The soup proved a success, and mushroom rice, tomato and egg soup, and Dragon Twister (traditional Peking chicken roll) were soon added to the menu KFC also serves packets of Happy French Fry Shakes that contain beef, orange and Uygur barbecue spices 35 Clunese con- sumers received those locahsed food 1terns very well While some global compames might have second thoughts about launching a food 1tern containing bones for farmly consumers, as it rrught potentially create food safety concerns, KFC's chicken kebab is made of soft bones and meat (see Exhibit 1), and has become one oF the most popular items among children and teenagers Chinese consumers can find preserved egg with pork porridge, egg and pork floss roll, and Hong Kong milk tea for breakfast, egg and vegetable soup as a side &sh, Dragon Twister for a mare meal, and Portuguese egg tart for dessert on the menu

In an interview, Joseph Han talked about why KFC China was deterrnmed to provide a locahsed menu, one of the keys to successfully penetrating into fourth and fifth her ohes m rural areas

What we faced m China were an mefficzent and frag- mented dzstrlbutlon network, an inadequate hÿghway system, local protectlomsm that lead to fragmentatzon m the supply chain, and rater-provincial trade barrÿ,'rs such as excesswe tolls In such an mfrastructure- def!cÿont market enwronment, &rect control over supply storage and &stnbutÿon complements KFC' s rapKl growth strategy, alIowmg KFC to penetrate new markets further, sooner, faster, at lower umt cost than ÿts competltors 32

I think McDonald's and KFC do bring m the dmmg enwronment, and they bring m their working concept to change people's hfestyle But product-wÿse, you can see Chinese are st#l Chinese When Chinese students go to the Umted States to study, they stdl choose the kind of food they feel ÿs close to their hfe Even though they admire the Western hfestyte, I think they stÿll need tlme to change their &etary habits. Especlally breakfast In the three meals, breakfast ÿs usually cooked by your mother Yore mother always cooks tra&tÿonal food So that's why now even McDonald's m China created zts own breakfast menu Everywhere m the world you don't change, but when you came to China and In&a, I can guarantee you have to change, because maybe you can change younger people's lÿestyle, but you cannot change some of thezr &etaÿy habits 36

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China KFC China Print Advertisement

Chicken Kebab--"Bone and flesh Relations"

KFC China TV Advertisement

:xh]bÿ 1 KFCAdvertlsement

Franchised or Not?

KPC's aggressive expans:on through franclusmg chd not get off to a good start m China. In 1993, zt signed :ts hrst reg:onal franch:se agreement for the X:an area m the northwest of China w:th a Talwanese entrepreneur 37 This served the purpose at that tLme for KFC China headquar- ters to focus on more strateg:cally n-nportant coastal c:hes However, due to a slower-than-expected development pace m Xlan, KFC China had to go down the same path as m Tmwan during the 1990s, launch new outlets separately and

independently from those operated by the franctusee, and finally bought back restaurant ownerstup m Xlan

The KFC team m China dec:ded not to autho:se any franctuse agreements w:th entrepreneurs m any city or region to avo:d makmg the same rmstake as m Tmwan or Xmn, no matter how small or remote that city or region rrught be In August 2000, KFC authonsed the hrst mchwdual fran- ctusee m Changzhou By paying a one-hme transfer fee of 8 nulhon RMB, the frandmsee could own an operaÿng KFC outlet wlmch was already m profit. The frandusmg strategy was lmuted to townstups with a population of between

PC: 3-9,2 Corporate 5troteq,eÿ

150,000 and 400,000, and which achmved more than 6,000 RMB m per capita annual consumption 38 By the end of 2007, there were 228 franchmed KFC outlets, 8 7% of its total num- ber of outlets m Chma 39

McDonald's in China

Entry into China

suppher set up a branch m Guangzhou m 1997 m order to sattsfy McDonald's retention to source locally, and 100% of its facility and eqmpment were imported from overseas Likewise, the global supphers of McDonald's buns and sea- soumgs had all set up branches m China to strengthen the supply chain network for McDonald's m China 44

Why did McDonald's msmt on bringing their global partners to Chma? Peter Tan, former Semor Vice President and President of McDonald's Greater China, summed it up

On 8th October 1990, nearly three years after KFC set up its first outlet near Tlananmen Square, McDonald's opened Its first outlet in China in Shenzhen4° and it was warmly welcomed by the local consumers. It continued to extend m the southern cities of China, and m April 1992, the Golden Arches could finally be seen m McDonald's Wangfujmg outlet m Beljing This outlet was formed with an unhsted investment unlt of the Bel{mg mumclpal government. Overtaking the Moscow outlet m sÿze, it became the largest McDonald's restaurant in the world, attracÿng 13,000 cus- tomers on its very hrst day41

By September 2003, McDonald's had 566 outlets m 94 citrus across 19 provinces and China had become McDonald's ffurd largest Asmn market behind Japan and Austraha In 2004, China became one of its top ten markets-- making the country McDonald's Corp's fastest-growing market worldwide 42

However, although the number of McDonald's out- lets was on a par wlth that of KFC m the ftrst six years after its entry, it had started to lag behind KFC since 1997. While KFC celebrated the opening of its 1,500th outlet m China (Shanghai) m 2005, McDonald's had around 600.43 What had McDonald's done chfferently m China to explain this?

McDonald's m Chma today reflects the attitude that they are a global brand, hence the need to set standards that are globally conststent, be it m Oakbrook, USA, or Xÿan, China McDonald's ÿs saying that "we are m thÿs emerging country, but because zoe are a global brand, we need to gme them first world standards ' McDonald's had fewer than five chzcken supphers up m the northeast, and the reason for thls ÿs that McDonald's is very concerned about quahty consistency 45

Consistent Global Supply Chain Partners

Catching Up with Cautiously Aggressive Expansion Although McDonald's came m late, its expansmn m China was still aggressive, especially m the earher years Its strat- egy was to start m the foreign influenced and economically affluent southern cities and then expand to cÿtms m north and central China.

However, compared with KFC, McDonald's did not successfully penetrate as many thtrd and fourth tier otles as its rival (see Exhibits 2 and 3) By September 2003, McDonald's had 566 outlets m 94 citrus across 19 provinces The bulk of the restaurants were concentrated m over 40 otles on Chma's east coast where incomes were lÿgher The bulk of McDonald's sales m Chma came through its restau- rants m Beijmg, Shanghai, Shenzhen and Guangzhou In

McDonald's developed its supply chain partners along with its global business growth. HAVI Food, its global logistics partner, would enter any new market to invest and set up the logmtics system even before the first McDonald's outlet opened m that market In China, HAVI Food also estabhshed a logistics centre exclusively for McDonald's, and there were three major dmtnbutlon centres 1987

1989 m Beljmg, Shanghai, Guangzhou, and satelhte dispatch 1992 centres m other smaller citrus. 1993

McDonald's also trmd to work with its global food supphers as much as possible. There were 43 supphers for 1994 McDonald's m China, 70% of wkuch were tts global part- 1995 hers For example, J R. Sÿmplot Co., which supphed frozen 1996 French fries to McDonald's, had founded a joint venture 1997 company m Beÿjmg in 1993, surveying the varmtms of potatoes before McDonald's entry, McDonald's vegetable

Exhibit 2 KFC's penetration in China in the first ten years

Year of Entry Coverage

Beljmg Shanghai Nanjmg Suzhou, Hangzhou, Wuxÿ, Guangzhou, Qmgdao, Xÿan (franchised) Fuzhou, Tlan]m, Shenyang Chendu, Dahan, Wuhan Shenzhen, Xmmen Changsha, Chongqmg

Source. Warren K Lm, KFC m China--Secret Recipe for Success, John WHey & Sons (Asm) Pte Ltd, 2008

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Exhibit 3 McDonald's penetration in China in the hrst 10 years

Year of Entry Coverage

1990 Shenzhen 1992 Belling 1993 Guangzhou 1994 Tlanjm, Shanghm, Nangjmg, Wuhan,

Chendu, Chongqmg 2001 Xlan

Source McDonald's and KFC edited by B Q Chen, China Economy Pubhshmg, 2005

September 2003, it was reported that McDonald's planned to open 100 new stores per year m China over the next cou- ple of years. A majority of the proposed outlets would be opened in developed markets such as Belling, Shanghat and Guangzhou The remainder would be located m Inner Mongoha and other less developed regions of China The company also planned to expand m Western China 46 By January 2007, McDonald's had penetrated into more than 120 cthes across Chma,47 and m November 2008, it hnally crossed the 1,000 outlets threshold, with plans to add another 175 m 2009.48

However, unhke KFC, McDonald's dad not take bold steps m expanding its territory m China The number of outlets m China began to dwindle from 2002 onwards In order to strengthen its foothold m Ctuna, McDonald's moved its Asia headquarters from Hong Kong to Shanghaÿ m January 2005, slgnahng its deterrrunahon to intensify its aggressive expansion m China

taro pies, which also became popular McDonald's grad- ually recogmsed the importance of catering to local con- sumers' tastes Jeffrey Schwartz, newly-appointed President of McDonald's China m 2005, said that 80% of the menu m China would be the same and the other 20% would be allowed to be different m order to reflect regional tastes. He also said that McDonald's would open outlets m more areas m the future to make McDonald's food accessible to more customers 51

McDonald's detail-oriented approach was also extended to their China operations Every aspect of food preparation was done according to the operating manual Packaging such as Happy Meal boxes and apple pie wrap- pers were produced to exactly the same global standards In an interwew, Peter Tan commented on the balance between production renovation and global consistency.

For a global brand to maintain brand consistency, zt zs zmportant to ensure that the zcon products remain an mtegraI part of the menu offering But then the ques- tion arises as to how you penetrate into emerging coun- tries where you need to balance between what the brand stands for versus local tastes That's where I think prod- uct mnovatlon done strategÿcally plays a wtal role 52

Today, McDonald's menu m China has grown to include foods tweaked for local tastes to satisfy consumers, such as spicy chicken hllet and pineapple sundae Some of the menu ideas, such as the corn cup developed m China, have been exported to other markets around the world. However, according to CEO Jeffrey Schwartz, the hamburger and fries Western-style are still at the heart of the Ctunese menus 53

Franchised or Not?

Standardised Global Menu with Local Selections

McDonald's was known for ÿts quahty of food and consis- tency m food preparation processes In order to maintain quahty and consistency, McDonald's tmposed standarchsa- tlon m three domams--mgre&ent procurement, food preparation and food quahty The same conslstency could be seen m their food menu; Big Mac remained their signa- ture product, although chicken varieties were added to smt local consumers' tastes and accounted for an estimated 60% of food sales m McDonald's China 49

The McDonald's menu m China was essentially the same as m the US Its use of local food selection was apparently not as varied as KFC's However, not content to lag behind KFC, McDonald's introduced Vegetable and Seafood Soup and Corn Soup m 2004,s° and other Chinese-style menu Items such as red bean sundaes and

McDonald's has always been a franctusmg company and franchisees have played a slgnlheant role m its success About three-quarters of McDonald's outlets worldwide have been franchised.54 However, due to amblgmty m Chma's legal enwronment, up until 2003 McDonald's China had estabhshed all of its 566 outlets by joint ven- ture or sole proprietor, rather than usmg its global fran- ckuslng model It announced m 2003 that it would open ten franctÿsed outlets m China by June 2006, wlth a loy- alty fee of 2.5 to 3 2 mflhon RMB The reqmrements that mdlwduals must meet before being granted a francÿse were the same m China as they are worldwide The hrst pilot franchise was launched m Tÿanjm m September 2003 The hcence was awarded to Meng Sun on the basis of her business acumen and understanding of the Tlanjm market 55 In 2007, McDonald's had fewer than 0 5% outlets m China that were franchised56 while the percentage was 78% worldwide.57

PC 3-94 Corporate StPateq,es

The Challenges Ahead KFC

McDonald's

2004 was a year of tragedy and loss for the company The CEO who had put McDonald's on the road to revltalLza- tlon, Jim Cantalupo, died on the eve of the company's global convention His successor, Charhe Bell, was chag- nosed with cancer soon after taking the helm He resigned m November of that same year, and passed away m January 2005 s8 The China management team saw a tugh level of turnover McDonald's Greater China Presldent, Peter Tan, left m June 2005 I-:hs post was filled by Guy Russo, who was originally Presldent of McDonald's Austraha In October the same year, the Managing Director of McDonald's North region and the General Manager of McDonald's Beljmg both left the company59

Despite the general perception that McDonald's would try to catch up with KFC m China using franctusmg, a report m 2007 revealed that they were cautious about franchises Chma Vice President, Gary Rosen, commented "The franchise business reqmres a lot of effort and right now we have other pnonttes m China" The company would open at least 100 new stores m the country annually and half of them would be wholly owned drive-through outlets 60 McDonald's took a strategic move to link with Chma's SmoPec m 2006, giving McDonald's the rights to bmld drive-through outlets at the off company's 30,000 gas stations 61 Up until November 2008, it owned 81 drive- through restaurants m China Another expansion d_trectlon for McDonald's China was to convert its restaurants Into 24-hour operattons By the end of 2008, 80% of its 1,000 out- lets m China already prowded serwce round the clock 62 All these efforts were consistent with its global strategy of making McDonald's a convement choice for customers.63

We have a business model of getting better versus get- tmg bÿgger It's not about how many restaurants you have, zt" s about how many restaurants that serve your customers well It's not about how bzg, ÿt' s about how good and how you run your business 64

Despite its success m China, KFC Global was strugghng to overcome weak performance m the homeland Data showed that m 2008 Yum's overall second-quarter proht rose 4%, it achieved 38% growth m operating proht m its China diwslon and 18% growth m Its international dlvlslon. These hgures offset a 12% drop m US operat- ing profit for that quarter. YumI CEO, Dawd C Novak, singled out KFC in the US as "our only major soft spot."65

On the road of aggresslve expansion, KFC Chma ran up against the issue of consumer confidence m its food safety standards Sudan I, a red chemical dye thought to cause can- cer, was discovered m two products sold m China" KFC's New Orleans Roast Ctucken Wings and New Orleans Roast Chicken Legs 66 KÿC took the dishes off the menu, but Chinese consumers were still angry because a large amount of the consumptxon was made by children 67

Other Competition Burger King, the second-largest Umted States hamburger cham, entered China m 2005, planning to open ten stores m China m 12 months with a wew to participating m the large and fast-growing eating out market 68 It signed a regnonal franchisee agreement with a company m Fujlan, a popu- lous province m southern Chma, m order to expand its territory

Faced with increasing competition, how could McDonald's strengthen its position m Ctuna? Should it aggressively increase its number of outlets by taking bold steps hke KFC, or gradually expand its presence by strictly following its global strategy and procedures? Could KFC sustain ÿts leading edge while ensuring expansion and quahty at the same trine? Would the success of China KFC be carried over to ItS US base and bring changes to the business model m order to compete with McDonald's Global?

--Jeffrey Schwartz, CEO, McDonald's China, 2008

McDonald's and KFC Worldwide

35,000

30,000 - v% 'ÿ 2s,ooo-

0 20,000- vÿ o

15,ooo-

-ÿ lO, OOO - z

5000 -

O-

31999

66 -- 31377

22928

/ 15580

6ooo/ _- 7oo 16ÿ7300

710 ÿ'-/ .... 200 ÿ 500 ...ÿ-I-..Iÿ/3400

J -- ÿ -- 400 6OO IUUU ' ' ' ' ' ' ' ' 952 1955 1960 1963 1965 1970 1980 1990 1997 2000 2005 2006 2007 2008

Year

I--ÿ--KFC--ii--McDonald%l

Exhibit 4 Historical Store Count

Source McDonald's and Yum webslte Various press releases and web arhcles

Exhibit 5 KFC Top 25 Markets by Unit Count

For FullYear 2007

2007 Top 25 Markets United States China Mainland Japan Canada Great Britain Austraha South Af-nca Malayma Mexico Thailand indonema Phthppmes Korea Talwa_n

Saudl Arabia New Zealand Puerto Rÿco Poland Eoÿ'pt

Singapore Hong Kong France Germany Spare India

KFC 5,273 2,140 1,152

720 664 559 479 402 323 314 300 165 158 138 97 95 86 83 81 70 69 57 51 47 31

Source www yann corn

PC 3-95

PC 3-96 Co,.po.otÿ Sf,,,:,teq,es

Exhibit 6 Yum Worldwide System Units

Year end 2008 2007 2006 2005 2004 2003

Company Owned 7,568 7,625 7,736 7,587 7,743 7,854 Franctusees 25,911 24,297 23,516 22,666 21,858 21,471 Licensees 2,168 2,109 2,137 2,376 2,345 2,362

Total (a) 36,292 35,345 34,595 34,277 33,608 33,199

Year end 2008 2007 2006 2005 2004 2003

United States

KFC 5,253 5,358 5,394 5,443 5,525 5,524 Pzzza Hut 7,564 7,515 7,532 7,566 7,500 7,523 Taco Bell 5,588 5,580 5,608 5,845 5,900 5,989 Long John Silver's 1,022 1,081 1,121 1,169 1,200 1,204 A & W 363 371 406 449 485 576

Total Us 19,790 19,905 20,061 20,472 20,610 20,822

International 2008 2007 2006 2005 2004 2003

KFC 7,347 6,942 6,606 6,307 6,084 5,944 Pizza Hut 5,026 4,882 4,788 4,701 4,528 4,357 Taco Bell 245 238 236 243 237 247 Long John Sÿlver's 38 38 35 34 34 31 A & W 264 254 238 229 210 183

Total International 12,920 12,354 11,903 11,514 11,093 10,762

China 2008 2007 2006 2005 2004 2003

KFC 2,980 2,592 2,258 1,981 1,657 1,410 Pizza Hut 585 480 365 305 246 204 Taco Bell 0 2 2 2 1 1 A&W 0 0 0 0 0 0

Total China (b) 3,582 3,086 2,631 2,291 1,905 1,615

(a) Includes unconsohdated affihates (b) Includes East Dawrung umts for China

Source wwwyum corn

Case 3-7. MÿDo°oIÿI'ÿ o.d KI=C PC 3-97

Exhibit 7 Yum China Division Operating Results (in nuUions)

2001 2002 2003 2004 2005 2006 2007

Company sales $569 $722 $871 $1,082 $1,255 $1,587 $2,075 Franchise and hcence fees 18 22 30 38 41 51 69

Revenues 587 744 901 1,120 1,296 1,638 2,144

Food and paper 244 289 331 401 454 562 756 Payroll and employee benefits 61 77 93 125 167 205 273 Occupancy and other operating expenses 179 217 275 337 415 497 629

Company restaurant expenses 484 583 699 863 1,036 1,264 1,658

General and admtmstrattve expenses 46 51 62 80 92 119 151 Frand-use and hcence expenses

Closures and Lmpairment expenses 6 6 6 4 7 6 7 Other (income) expenses (12) (16) (27) (32) (50) (41) (47)

524 624 740 915 1,085 1,348 1,769 Operatmg profit $63 $120 $161 $205 $211 $290 $375

Company sales 100% 100% 100% 100% 100% 100% 100% Food and paper 42 9 40 0 38 0 37 1 36 2 35 4 36 4 Payroll and employee benefits 10 7 10 6 10 7 11 5 13 3 12 9 13 2 Occupancy and other operating expenses 31 5 30 1 31 5 31 1 33 1 31 3 30 3

Restaurant margin 14 9% 19 3% 19 8% 20 3% 17 4% 20 4% 20 1%

$ $ $ $ $ $ $ Company sales 569 722 871 1,082 1,255 1,587 2,075 Franchisee sales 328 397 510 619 665 840 1,098

System sales growth Local currency 17% 25% 23% 23% 11% 23% 24% US dollars 14% 25% 23% 23% 13% 26% 31%

Sollr¢e wwwyuÿn Corn

PC 3-98 Co.poÿafe 5tÿ.tcq,es

Exhibit 8 Yum U.S. Division Operating Results (in millions)

2001 2002 2003 2004 2005 2006 2007

Company sales $4,287 $4,778 $5,081 $5,163 $5,294 $4,952 $4,518 Francl'use and hcence fees 540 569 574 600 635 651 679 Revenues 4,827 5,347 5,655 5,763 5,929 5,603 5,197

Food and paper 1,225 1,346 1,463 1,546 1,576 1,399 PayroU and employee benefits 1,313 1,479 1,576 1,573 1,600 1,489 Occupancy and other operating expenses 1,100 1,189 1,303 1,333 1`385 1,340 Company restaurant expenses 3,638 4,014 4,342 4,452 4,561 4,228

1,317 1,377 1,221 3,915

General and admmmtrahve expenses 418 469 469 501 536 546 Franctuse and hcence expenses 49 39 16 19 26 23 Closures and unpatrment expenses 27 23 16 14 46 37 Other income 6

4,132 4,545 4,843 4,986 5,169 4,840

Operating profit $695 $802 $812 $777 $760 $763

510 29 14

(10) 4,458

$739

Restaurant margin 15 2% 16 0% 14 6% 13 8% 13 8%

Company same store sales growth 1% 2% 0% 3% 4%

SOURCE ÿVWlirylllÿ COlÿl

Company sales $4,287 $4,778 $5,081 $5,163 $5,294 $4,952 $4,518 Franctuse sales 10,309 11,061 11,257 11,724 12,428 12,804 13,304

100% 28 2 301 271

14 6%

0%

Company sales 100% 100% 100% 100% 100% Food and paper 28 6 28 2 28 8 29 9 29 8 Payroll and employee benefits 30 6 30 9 31 0 30 5 30 2 Occupancy and other operating expenses 25 6 24 9 25 6 25 8 26 2

100% 29 2 30 5 27 0

13 3%

(3)%

C,:1s,ÿ3-7: MÿDo,,olJ'ÿ ÿ,,,,:1 KFC PC 3-99

Exhibit 9 Yum Division Historical Sales Gÿowth (in %7 Eÿibit 1ÿ McDonald's Number of Restaurants Top 25 lÿl*dl[lÿ.ÿt ÿDÿ/ UllI[ g.OUll{

CHINA DMSION (Mawland China, Thailand, KFC Tatwan)

2008 2007 2006 2005 2004

1st Quarter 28% 19% 14% 26% 17% 2nd Quarter 28% 19% 29% 2% 34% 3rd Quarter 23%0 25% 11% 20% 4th Quarter 30% 23% 6% 21% lÿullYear 24% 23% 10% 23%

U.S. COMPANY SAME-STORE 2008 2007 2006 2005 2004

1st Quarter 3% 2nd Quarter 4% 3rd Quarter 4th Quarter FullYear Source wwvcylzra corn

-6% 4°/o 4% 3% -3% 0 5% 2% -1% -2% 4% 4% - 1% - 2 % 4% 2 % -3% 0 4% 3%

1st Quarter 9% 10% 6°/o 7°/o 5°/o 2nd Quarter 8% 11% 8% 6% 6% 3rd Quarter 11% 9% 4% 9% 4th Quarter 9% 11% 4% 6% uIIYear 10% 9% 5% 6%

2004

INTERNATIONAL DIVISION (Excludes China Dlvlslon)

2008 2007 2006 2005

(at year-end 2007 and 2002) 2007 2002

Total 31,377 31,108

Umted States 13,862 13A9t Japan 3,746 3,891 Canada 1,401 1,304 Germany 1,302 1,211 Umted Kingdom 1,191 1,231 France 1,108 973 England 1,019 1,055 China Mainland 876 546 Austraha 761 726 Brazil* 551 584 Spare 378 333 Mexico* 364 261 Italy 361 329 Talwan 348 350 Phlhppmes* 273 236 South Korea 233 357 Sweden 230 245 Netherlands 220 220 Poland 213 200 Hong Kong 207 216 Russla 189 94 Argentina* 183 203 Malaysia 176 149 Austria 163 157

*Developmental Lxcensee market as of December 31, 2007

Source wwwmcdonaids corn

PC 3-Ioo Coÿpo.ÿtÿSÿ.oteg,eÿ

2007 Revenues by Segment $Million

2007 Restaurant Numbers by Segment

097

7,938

$3,599

13,862 6,480

I Iÿ U S. [] Europe [] APMEA rq Other Countraes & Corporate I

10.0%

8.0%

6 0%- Io

40% 2 0%

0 0%

[]US

Europe

[] APMEA [] Other Countnes &

Corporate

[] Total

2005 4 4% 2 6% 4 0% 5 3%

3 9%

i 2006 5 2% 5 8% 55% 9 4%

5 7%

2007 4 5% 7.6%

10 6% 10 8%

6 8%

I[ÿ U S [] Europe [] APMEA [] Other Countries & Corporate [] Total I

Exhibit ÿ 1 McDonald's Fmancfal Results bySegment APMEA Asla/Pactfic, Middle East andAfnea

Source wwwracdonalds corn

Sales Increase % by Segment

Coÿ 3-?. MÿDo,,olJ'ÿ o,d KFC PC 3-1ol

McDonald's and KFC China 2,500-

• ÿ 2,000 ,Ca

0 1,500 o

1,ooo E = 500z

2300

1500 911 ./ 100(] ,ÿ,ÿ4r,1 ooo

876

1 1 16 100 500 546 566 600 0 i i i i i i I ' '1 ÿ i i L i i

Year

I-ÿ ÿ -'- ÿD°ÿa'ÿ" I

Exhibit 12 Histoncal Store Count

Source McDonald's and Yurn webmte Various press releases and web arlades

PC 3-102 Corporate ,S|ÿateq,es

Exhibit 13 Comparsion of McDonald's and KFC in-store Menu

China

McDonald's KFC

Main Meal

Big Mac Double Cheese Burger Hamburger Cheese Burger Beef 'N' Egg Burger MeSplcy Ctucken Burger McCtucken Burger Fillet-O-Fish Vegetable Beef Burger McSplcy Chicken Twister Curry Ckucken Burger Terlyah Ckucken Burger Double Mala Chicken Burger Spicy Teriyaki Chicken Burger

Buckets of Chicken New Orleans BBQ Ctucken Burger Splcy Ctucken Burger Crispy Ctucken Burger Garden Crmpy Ctueken Burger Cod Fish Burger Mexican Ckucken Twister Dragon Twister Spicy "Sahva' CA'acken Burger

MeNugget McSpley Chicken Wings Sweet Corn m a Cup French Frees

Side Dishes/ Light Snacks

Corn on a cob Mashed Potato Egg 'N' Vegetable Soup Vegetable Salad Corn Salad Carrot Bread Roll Chicken Kebab French Fries Clÿcken Nuggets Popcorn Ctueken New Orleans BBQ Clucken Wings Original ReQpe Ckucken Spicy Chicken Wings Cod Fksh Sticks

Breakfast

Big Breakfast Pancake Cheese'N'Egg Burger Pork McMuffm Orange Imce Fresh Milk

Crispy Ctucken Burger (wlth egg) Cheese'N' Egg Burger Pork'N' Egg Burger Beef'N' Egg Pomdge Ctucken'N' Mushroom Porridge Preserved Egg'N' Lean Pork Porridge Egg'N' Pork Floss Twister Egg'N' Pork Twister Shnmp'N' Egg Twÿter Hong Kong Milk Tea Shrimp Spring Roll Orange Juice

Dessert

Sundae (Chocolate/Pineapple/Strawberry) Ice Cream Cone (Vanflla/Chocolate/Mÿed/Crunchy) Malkshake (Chocolate/Strawberry)

Portuguese Egg Tart Sundae Ice Cream Cone Coffee/Irish Coffee Lemon Cola Pomelo Honey Tea

Shaded areas local specaahtles

Source' McDonald's and KFC China webslÿes

PC 31104 Corporole,Slrolÿ,es

Appendix: KFC and McDonald's Global Milestones

KFC At the start of the Great Depression m 1930, FIarland Sanders opened l-us first restaurant m the small front room of a gas station m Corbm, Kentucky. He was made an hon- orary Kentucky colonel six years later m recognition of his contribution to the state's Cmslne. The Orlgmal Recipe chicken, which was deep fried m a pressure cooker with 11 herbs and spices, was created in 1940 In 1969, the Kentucky Fried Chicken Corporatton was hsted on the New York Stock Exchange. In 1986, PepsiCo, Inc acqmred KFC from RJR Nabisco, Inc, and 11 years later, m 1997, PepsiCo, Inc announced the spin-off of its qmck service restaurants-- KFC, Taco Bell and Pizza Hut In 2002, the world's largest restaurant company changed its corporate name to Yuml Brands, Inc In adchtlon to KFC, the company owns A&Wÿ All-American Food® Restaurants, Long John Silver's®, Pzzza Hut® and Taco Bell® restaurants.

Yumÿ Brands tried to wm back ownership in the Greater China area by launching new KFC outlets m Talwan m tandem with Birdland's operations, untd finally m 2001, Blrdland agreed to sell its KFC outlets m Taiwan to Yuml Brands These experiences m Asian markets prepared YumI Brands for its entry in 1987 into the largest and most exciting market m the world--China 7o

McDonald's

Management Philosophy KFC's parent company, Yuml Brands, runs a multt-brand strategy and m proud of its customer focus approach Its restaurant management philosophy is surnmarlzed by the acronym "CHAMPS"--cleanness, hospltahty, accuracy, maintenance, product quahty, and speed After the first suecessfiJl ten years, Yuml began looking to sustain long- term growth, especially on an international level According to the Yum! 2008 management presentatnon, its four key growth strategies are to build leading brands m China m every szgruhcant category, drive aggressive rater- national expansion and build strong brands everywhere, dramatically unprove US brand positions, consistency and returns, and drive industry-leading, long-term shareholder and franchisee value 69

KFC's penetration of Asm started with Japan m 1970. In 1984, it entered Talwan, awarding the franckuse to a joint venture company formed by two Japanese comparues and a local entaty A year later, it re-entered Hong Kong after a 10-year gap, by giving franchise rights to B1rdland, which later acqmred the franchisee m Talwan. From 1996 to 2001,

International Expansion

The McDonald's concept was mtroduced m Southern Califorma by Dick and Mac McDonald m 1937 In 1953, the McDonald brothers franchised their restaurant to Neff Fox, the first franctusee. The second McDonald's opened m Fresno, Cahforma--the first to feaktre the Golden Arches design The fast-food idea was modff{ed and expanded by their business partner Ray Kroc, of Oak Park, lllmols, who later bought out business interest of the McDonald broth- ers m the concept and went on to found McDonald's Corporation m 1955 In 1965, McDonald's went pubhc with the company's first offering on the stock exchange Twenty years later, m 1985, McDonald's was added to the 30-company Dow Jones Industrial Average.

The signature product, the Big Mac, was added to the product hne m 1968 and was the brainchild of Jim Delhgattl, one of Ray Kroc's earhest franctusees Another popular product--the Happy Meal--has been makmg chtl- dren's vislts specml smce 1979 71 McDonald's has become a global phenomenon, with more than 31,000 outlets operat- ing m over 100 countries today

Management Philosophy Like KFC, McDonald's values were consumer driven. Its

principles were summarized by QSCV Quahty, Service, Cleanness and Value McDonald's was also known for the conslstency of its procedures and quahty, and its powerful global marketing campaigns Its recent advertising campaign "i'm lovin' it',TM launched m every country m the world by September 2005, featured sports, entertamment, music, and fashion Pop 1cons such as Justin Tnnberlake, Destiny's Child, and Wang Lee Horn for Area were central to the campaign

McDonald's was also known for its detail-oriented insistence on food preparation Fred Turner, Senior Chamnan

Coÿ 3-7 MÿDo,olJ'ÿ ÿ,J KI=C PC 3-1o5

of McDonald's, developed the first operations manual m 1957. By 1991, it counted 750 detailed pages, setting out exact cooking ÿnes, proper temperature settings, and prease por- tions for all food 1terns For example, French fries were to be 9/32 of an inch, to ensure quahty and taste, no products were to be held more than 10 minutes m the transfer ben 72

Peter Tan, former Semor Vice President and Premdent of McDonald's Corporation Greater Chma, attributed McDonald's success to the fact that it prowded consmtency, convemence m terms of locatton, and good pricing. Great advertmmg, great taste m signature products such as Big Mac and French fries, and retad excltement such as Happy Meal promotions also played tmportartt roles.73

International Expansion

In 1967, the first McDonald's restaurant outside the Uruted States opened m Richmond, British Colunxbla. In 1971, the first Asian McDonald's opened m Japan, m Tokyo's Gmza dmtrmt. Although McDonald's opened its first outlet m greater China m Hong Kong as early as 1975, and Tmwan opened its first McDonald's m 1984, the hrst Mainland China McDonald's outlet was only introduced m October 1990 in Shenzhen On 23 April 1992, the world's largest McDonald's opened m Beljmg, China wffh over 700 seats 74 In 1994, McDonald's made an hmtoncal debut m Kuwait Qty, and m 1996 the fast-food giant entered India

Bibliography 1 Transcript. Intervlav wzth Joseph Han, former Operatzng Vÿce Preszdent ofYumI Brands,

greater China, 2 November, 200Z 2 Transcrzpt. Interwew wlth Peter Tan, former Semor Vzce Presldent and President of

McDonald's Corporatmn, Greater China, 20 March 2008 and 18 July 2008. 3 KFC m China Secret Reczpefor Success, by Warren K. Lm, 2008, John Wiley & Sons

(Asm) Pte Ltd 4 McDonald's and KFC, edited by B Q Chen, China Economy Pubhshmg, 2005. 5 Globahzatmn of Serwces" Some lmphcatmnsfor Theory and Practzce, Yatr Aharom, Lflach

Nachum Roufledge, 2000. 6 Kentucky Fried Chicken m China, Professor Allen J Morrmon and Paul W Beam.mh,

lhchard Ivey School of Business, The Umversffy of Western Ontario, Verslon(A) 1993-08-18 www mcdonalds com.7

8 wwwyum corn 9 Shantel Wong, McDonald's China Development Co, Advertming Age, January, 2004

10 KFC and McDonald's--a model of blended culture, China Today, June 2004 11 Hamburger heaven, Economast, February 2005 12 McDonald's Chzna Development Co, Advertmmg Age, 00018899,1/26/2004, Vol 75,

Issue 4 13 McDonald's considers reform to adapt to Chinese tastes, Xmhuanet, November 9, 2005. 14 Fast Food Dommatmn, Chinese Internattonal Business, April 2007 15 Adapt Franchme to Chma's Sozl Chma's Regulatmns on Franchise m the Past Ten Years, The

Illmom Business Law Journal, 29 March 2007 16. McDonald's m Chzna, ICFAI Business School, 2003 17 McDonald's enter into puzzledom, what's ÿts outlet'ÿ December 2005, Chinese and Foreign

Corporate Culture. 18 McDonald's, Harvard Business School Revmw. April 3, 2008. 19. SW China begins dmlogues wzth UK on food safety, People's Daffy online, March 23, 2005 20 Franchzsmg Opportumtles m Chzna for Amerzcan Fast Food Restaurants, Zerong Yu, Karl

Tltz, Area Pacific Journal of Totmsm Research, Volume 5 Issue 1, 2000 21. 2007 Natmnat Econonuc and Socml Development Statistic Report, Mlmstry of Commerce,

People's Repubhc of China, http//provmcedata mofcom gov.cn/commumque/ drop aspÿpld=43705

22 Rzvals to feel bzte from Buÿger King, Janet Ong, June 28, 2005, Bloomberg 23 McDonald's Corporatmn (Abridged), Harvard Business School, Rev. June 16, 2005

PC, 3-106 Co.poÿate Siÿafeq,es

24 Yum Brands CEO says poor performance at KFC, tugher costs have taken 'fun'from US busz- ness, Bruce Schrelner, July 17, 2008, Canadian Business Onhne

25 China Fast Food Analysts, Just-food corn, Aroq Ltd, 2007. 26 McDonald's opens lOOth China store, sees 175 more m 2009, http.//www forbes corn/

feeds/afx/2008 / U/14 / afx5693724.ht1-n1 27 McDonald's Growing m China, Lm Jm, China Daily, 2008-09-08 10 27, http://www

chmadatly corn en/bizchma / 2008-Og / O8 / eontent_7007412 htm 28. Fast food nation, Drag Qmg-Fen, China Daffy, 30th June 2008

End Notes

1. www.mcdonalds com, www.yum corn, end of 2008 data 2. www.mcdonalds.com 3 McDonald's and KFC, edited by B.Q. Chen, China Economy Pubhshmg, 2005 4 Warren K Lm, KFC m China--Secret Recipe for Success, John Wiley & Sons (Asia) pte

Ltd, 2O08 5 Ibld 6. Hamburger heaven, Economzst, February 2005 7. www.yum.com, Q3 2008. 8 Ymr Aharom, Lalach Nachum Routledge, Gtobahzatwn of Services Some Imphcatlonfor

Theory and Practice, 2000 9 Zerong Yu, Karl Tltz, Franctusmg Opportumbes m China for American Fast Food

Restaurant, Asza Pacÿc Journal of Tourism Research, Volume 5 Issue 1, 2000 10 China National Statlshcs Bureau, 2007. 11 2007 Natmnal Econonÿc and Social Development Stahstics Report Mlrustry of

Commerce, People's Republic of China, http//provmcedata mofcom gov en/ commumque/dasp asp?pld--43705

12 Op Clt Hamburger heaven 13 lbld 14 China Fast Food Analysis, Just-food corn, Aroq Ltd, 2007 15. Fast Food Domination, Chinese International Business, April 2007 16 Adapt Franchise to Chlna's Soft Cluna's Regulations on Franctuse m the Past Ten

Years, The Ilhnoÿs Business Law Journal, 29th March 2007. International Monetary Fund--2008 World Economic Outlook Fast food nation, Drag Qing-Fen, China Dady, 30th June 2008. Op Cxt KFC in China--Secret Recipe for Success. Ibld

17 18 19. 20. 21. 22. 23 24

www.yum corn Op Clt KFC m China--Secret Recipe for Success www yum corn Kentucky Frmd Chicken m China, Professor Allen J Morrmon and Paul W. Beamlsh, Ihchard Ivey School of Business, The University of Western Ontario, 1993

25. Op Cit Kentucky Frmd Ctucken m China. 26 Op Cit KFC in China--Secret Recipe for Success 27 Intervmw with Joseph Ha.n, former operating Vice President of YumT Brands, Greater

China, 2 November, 2007 28. Op Clt KFC China--Secret Recipe for Success. 29. Hazard Analysm and Critical Control Points, a systematic preventive approach to

food safety and pharmaceutical safety The Food and Drug Adrngustratlon (FDA) and the Umted States Department of Agriculture (USDA) use mandatory juace, seafood, meat and poultry HACCP programmes as an effectwe approach to food safety and protecting pubhc health

30. Op Qt KFC m China--Secret Recipe for Success 31 Ibld

Cc,ÿ 3-7.. MÿDo,,,:,Id'ÿ onJ KI=C PC 3-107

32. Intervmw with Warren Llu, former Vice President of Yum! Brands, Greater China, 30 January, 2009

33 Op Clt KFC m Chma--Secxet Recipe for Success. 34 Ibld 35 Op Clt KFC and McDonald's--a model of blended culture 36 Op Clt Interwew with 5oseph Han 37 Op Clt KFC m China--Secret Reape for Success 38. Op Clt McDonald's and KFC 39 wwwyum corn 40. Op Qt McDonald's and KFC 41 Op Clt. McDonald's m China 42 Shantel Wong; McDonald's Chma Development Co., Advertlsmg Age, January 2004 43 McDonald's enters into puzzledom, what's its outlet? December 2005, Chmese and

Foreign Corporate Culture. 44 Op Qt McDonald's and KFC 45. Interview with Peter Tan, former semor v, ce president and premdent of McDonald's

Corporalaon, Greater China, 20 March 2008. 46 Op Clt McDonald's m Ctuna 47 McD's Preps for China Drive-Thru Boom, The Associated Press, January 19, 2007 48 McDonald's opens 1,000th China store, sees 175 more m 2009, Thomson Financlal

News, http://www forbes com/feeds/afx/2008/ll/14/afx5693724.html 49 Op Clt McDonald's m China. 50. Op Clt. KFC and McDonald's--a model of blended culÿre 51. McDonald's considers reform to adapt to Chinese tastes, Xmhuanet, November 9, 2005 52 Op Clt Interview with Peter Tan. 53 McDonald's Growing in China, Lm Iie, China Datly, September 8, 2008, http'//www

chinadafly.com cn /brzcluna / 2008-og / o8 /content_ 7007 412 htm. 54 Op Qt McDonald's m Chma 55 Ibid. 56 McDonalds's goes slow m China francNsing, InteÿwtlonaI Herald Tribune February 7,

2007 57 McDonald's Corporation Annual Report 2007. 58 McDonald's, Harvard Business School, Rev April 3, 2008. 59 Op Clt McDonald's enters into puzzledom, what's its outlet? 60 McDonald's to issue franctuse hcenses slowly, Shenzhen Da@, February 9, 2007 61 McDonald's Press Release, December 10, 2005 62 http.//www.mcdonalds com.cn/news/news content aspx?1d=123 63 McDonald's CorporatmnAnnual Report 2007 64 McDonald's growing m China, China Da@, September 8, 2008. 65. Yum Brands CEO says poor performance at KFC, higher costs have taken "fun" from

US business, Bruce Schremer, July 17, 2008, Canadmn Business Onhne. 66. Stricter standards needed, Lm Jie, China Da@, 2006-03-16 http//www chmadally

com.cn/btzchma/2006-O3 /16 / content_539721.htm. 67 SW China begins daalogues with LrK on food safety, People's Dady Onhne, March 23,

2005 68. Rwals to feel bite from Burger King, Janet Ong, June 28, 2005, Bmomberg 69 Presentations for Investor and Analysts Conference, May 2008, wwwyum corn 70. Op Cit KFC m China--Secret Reclpe for Success. 71. www mcdonalds corn 72 McDonald's Corporation (Abridged), Harvard Business School Rewew June 16, 2005 73 Intervlew with Peter Tan, former semor vlce presldent and presldent of McDonald's

Corporation, Greater China, 20 March 2008 74 McDonald's In China, ICFAI Business School, Case Development Center.