Tricon Restaurants International: Globalization Re-examined

Tricon Global Resturants is the biggest franchised company of fast food restaurants consists of Taco Bell,
Pizza Hut, and KFC. Under the CEO, Mr Novak appointed Mr Peter Bassi to be in-charge of Tricon
Restaurants International for its operations. Despite being the biggest franchised company, there is a
need to consolidate and standardize Tricons operations worldwide. Not only that, Mr Bassi needs to work
on focusing on the company efforts on a few key markets.

PESTEL Analysis
( K = Key

O = Opportunity

T = Threat )

Political
O1: Free trade agreement allows the suppliers and buyers to trade freely. (Exhibit 11) This had made
trading easy between countries and United States (US) as the trading barriers reduced which will attract
players to be in the industry.
T1: There is protection keep on the prices of dairy products by the governments resulting in the higher
cost to purchase. (Pg 2) This will cause the buyer require more money to purchase and the profit margin
is reduced.
T2: Political Volatility (Pg 13) such as the crime and corruption level in the Mexico and Europe is not
stable which will prevent franchisers to venture in as there is danger and risk involved.
KT3: The level of sophistication of financial intermediaries (Pg 14) is not same throughout the
global. Different countries have different transaction costs which will impact the buyers decision
on purchasing the restaurants.
Economics
T4: Taxes are not the standard across the countries (Pg 14) which can affect the companys earning.
O2: The price of raw material and acquiring ingredients varies across countries. (Pg 2) This gives the
company an alternative to get the raw material which can increase the profit margin due to buying at low
cost.
O3: Low labour cost. (Pg 2) This enables the company to hire manpower at a lower cost and maximize
the profit.

KO4: Fast food industry had consists 60% in the global food sales (Pg 1) which made them
attractive. Also, the industry expected a 20% growth in China and Mexico. This had shown that the
fast food industry is worth venturing it.
T5: Fluctuation of the currency and country risk premia (Pg 13) is risky so companies need carefully
planning before decide to invest in hedging. It can results in losses than done nothing.
T6: Financial crisis happened (Pg 14) will result in the company not able to get loans from the bank thus
not able to finance franchisee business.
Social
O5: There is high fast food consumption (Pg 3) due to working adults. This is because households in US
usually had two working adults who do not cook in home. It results in potential growth in the industry.
O6: Customers experience (Pg 3). People in China want to explore the US fast food and are attract to
the American style hence go patron the fast food.
O7: Product customization available in the local market for the country. This made it special and
exclusively to the specific country only.
Technological
O8: There is information technology systems used for reporting purposes. (Pg 13) This had made the
financing function to be standardized and easy for the company to understand the financial report for
decision making.
O9: Local R&D adapts to local performance for non-core (Exhibit 12) so that there is creation of new
flavours which can attract more consumers and remain competitive in the local market at the same time.
Ecological
Not applicable (NA)
Legal
T7: Local health & safety standards (Pg 15) will increase the cost to customize in different country.
T8: Regulation on the advertising content (Pg 4) will be varies as there is cultural differences. It makes it
hard to the companies to convey messages to the consumer due to the limitations.
T9: There is regulatory barriers (Pg 11) implement on transporting live birds across national borders is
restricted so the fast food industry needs to purchase locally in their country.

Conclusion: Overall, the marco-environment for the fast food industry is highly favourable due to the
potential economic high growth with potentially revenue of 20% annually in China and Mexico. Also, the
global food sale of 60% comes from the fast food industry show that the market is attractive. Economic is
the most dominant factors. However, the company needs to innovate and overcome the financial
intermediaries so that can secure the buyer.

Porters Five Force

Threat of entrants (New players in industry)
Low threat from new entrants as new players entering the fast food industry need to have a certain level
of scale and experiment e.g. McDonald which has one outlet for every 23,000 customers, (Pg 4) in order
to survive this industry. Product differentiation is important in order to distinguish itself from the
competitors. New entrants will struggle to highly differentiate their products and do well. Not only that,
they may face competing with established players who have on-site premises and off-site premises.
Strong retaliation against the new entrants can be expected as 60% of global fast food sales come from
fast food chain. (Pg 1) There is a fight to take over McDonald as it is the most profitable fast food
company (Pg 4) in the industry. Also, new entrants will need to comply the food regulations and labour law
when dealing with food and manpower. New entrants would have a hard time to access supplies as the
existing established players have already build up the network with the suppliers e.g. McDonald (Exhibit
5) thus lower priority will be given from the suppliers and other distribution channels.
Overall, the threat is low as the new entrants will need to have a good connection and network with the
suppliers and at the same time, need to attract consumers to patron.

Threat of Substitute (Restaurant food and home-cooked food)

There are virtually substitutes for the fast food since fast food can be replaceable by home-cooked food
e.g. Italy and France (Pg 3) or restaurant food. These substitutes are competitive as it is easily obtained
and available in terms of quality and location. Price/performance for substitutes is poorer for consumers
as they are might not be able to purchase food at a lower price with faster speed due to the processing
time. High extra industry effects as there is customization of food for the local market to accommodate to
the taste of the consumers. (Pg 3)
Overall, the threat is moderate to high as there are choices for the consumers to select and customization
of food is available and to their tasting as specially created.
Power of Buyers (Consumers of fast food)
Low concentration as there is more buyers compared to the companies selling fast food. (Exhibit 2) There
is a number of consumers who rather buy fast food than cooking in home for consumption in US as the
households had only 2 adults. (Pg 3) Also, the buyers purchase at a lower quantity per person. It is simple
for the buyers to switch from fast food to restaurant food. There is no backward integration as the buyers
are unlikely to set up a fast food company in the industry because of capital requirements needed.

Overall, the threat is moderate as the consumers can switch from fast food to others without incurring any
cost anytime.

Power of Suppliers (Suppliers for food products, packaging and day-to-day operation supplies)
Low concentration of suppliers as there are other vendors for the fast food chain can select to purchase
for the same raw material. As the suppliers not dominating the supply, there is more competition between
suppliers. It will result in their bargaining power thus, offering discount for the buyers. High switching cost
involved if the buyers will suffer loss when changing a new supplier. It makes switching hard as the
buyers clients may have preference to the particular product of the supplier e.g. KFC selling Pepsi drink.
Suppliers have the possibility to have forward integration as they own the raw material and are able to
produce the product using it. However, they might not have the skills and knowledge to produce the
exactly same products as the fast food chain.
Overall, the threat is moderate high as the suppliers has the supplies that is necessary for making the
food products.

Competitive rivalry (McDonald, Burger King, Domino, Tricon)

There are existing strong competitors such as McDonald and Burger King. (Pg 4) Both are the biggest
players in the fast food industry. The industry growth rate is good as the global fast food sale accounted
for 60%. (Pg 1) High fixed cost as there is competitor such as McDonald who own land and lease land
whereby it can manage its cost spending. The exit barriers are high as it is difficult to dispose or to sell the
assets.
Overall, the threat is high because there are strong competitors in the fast food industry.

Conclusion: Based on the Porters five analysis, the fast food industry is attractive even though there are
threats from the strong competitors, low new entrant threats due to large experience and scale required.
Also, moderate power of buyers due to the switching costs.

Internal Analysis
Strategic Capabilities
Resource

Resources

Competencies

Strategic

Type of

Category
Finance

R1: Large financial

C1: Able to provide

Capability
SC1: Capability to

Capabilities
Strategic

Resources

capabilities

training for the

ensure employees

(Tangible)

(Operating profits of

employees

are skilled to handle

$1028 million, Net

the production

Income of
$445million - Page

C1+C2+C3

Human

8)
R2: CHAMPS

C2: Regular check to

Resource

Programme and

ensure the high

(Intangible)

mystery shoppers

service and operation

standard performance
is maintained among
all franchisees,
anywhere (Page 10)

Physical

R3: 29,000 factories

C3: Production across

Resource

around the world

product lines

(Tangible)

making our product

internalized for

with unskilled labour

consistency

- Page 12
Reputation

R4: Well-established

C4: Attract customers

SC2: Capability to

(Intangible)

brand

to franchise

integrate local

Human

R5: Team of

C5: Manage cost of

Resource

unskilled workers

labour so that to

talents to venture

(Tangible)

maintain cost of

Management

R6: TRICON had

production
C6: Management

and Leadership

one of the most

positions in each

(Intangible)

respected

country tend to be

management teams

filled from within the

in China (Page 12)

country

into each
geographical
market successfully
C4+C5+C6

Strategic

Human

R7: Trained

C7: Able to customize

SC3: Capability to

Resource

specialists for R&D

products to

diversify product

(Intangible)

(Page 15)

accommodate to local

range and expand

market needs

globally by

Strategic

franchising
Physical

R8: Franchise

C8: Able to deal with

Resource

support centers in

substantial

(Tangible)

Dallas, London, and

heterogeneity in

Singapore

franchising

C7+C8+C9

arrangement
Financial

R9: $20 million

C9: High investment in

spending per year

product and process

on R&D at facilities

development

in Louisville,
Kentucky, in Dallas,
Texas, and in Irvine,
California

Strategic Capabilites

VRIO

Competitive Advantage

SC1: Capability to

Value: Yes. With skilled knowledge, the employees are able

ensure employees are

to handle the production process.

skilled to handle the

production

Competitive Parity

Rare: No. With financial support, the companies can send

their employees for training.
Inimitability: Organization Support: CHAMPS program are in placed to
ensure the employee practice the learning.

SC2: Capability to
integrate local talents to
venture into each
geographical market
successfully

Value: Yes. Out

Competitive Parity

Rare: No. With financial support, the companies can hire the
talents.
Inimitability: Organization Support: Yes. Company hire the local in the
local market so that there is a better understanding of the
local culture.

SC3: Capability to
diversify product range
and expand globally by
franchising

Value: Yes. Able to increase brand presence globally.

Rare: Yes. Can increase to the leading position amongst
other strong competitors.
Inimitability: No.
Organization Support: Yes. The management team support
for the expanding in overseas by franchising.

Strength (S)

Temporary Competitive
Advantage

Worldwide recognized brand

R&D Innovation (Exhibit 12)

Potential growth in the global fast food sales (KS)

Strong financial

Customized local products in the different countries

CHAMPS program (Pg 10)

Weakness (W)

$4.6 billion debt incurred after the spinoff (Pg 1)

Hard to standardize the operation across worldwide (Pg 1) (KW)

Lacking of focus on the key markets (Pg 1)

Opportunities (O)

KO4: Fast food industry had consists 60% in the global food sales (Pg 1) which made them
attractive. Also, the industry expected a 20% growth in China and Mexico. This had shown
that the fast food industry is worth venturing it.

O6: Customers experience (Pg 3). People in China want to explore the US fast food and are
attract to the American style hence go patron the fast food.

O2: The price of raw material and acquiring ingredients varies across countries.

O8: There is information technology systems used for reporting purposes. (Pg 13) This had made
the financing function to be standardized and easy for the company to understand the financial
report for decision making.

Threat (T)

KT3: The level of sophistication of financial intermediaries (Pg 14) is not same throughout
the global.

T1: There is protection keep on the prices of dairy products by the governments resulting in the
higher cost to purchase. (Pg 2)

T4: Taxes are not the standard across the countries (Pg 14)

Strong existing players in the fast food industry

Different countries had different law and regulation

Conclusion: Tricons key strength lies in the potential growth in the global fast sales. With the 60% global
food sales, it is an opportunity to Tricon as they can attract the segment. Coupled with its CHAMPS
program, it can take advantage of opportunities to attract more consumers with its good food and good
service. The key weakness is hard to standardize the operation across worldwide as different country
might different cultures and regulations. Threats come from the different level of sophistication of financial
intermediaries.

Issue #1: How can Tricon standardize the operation across worldwide yet staying to comply the law and
regulation in each different country?
Issue #2: Given the level of sophistication of financial intermediaries, how can Tricon overcome it to stay
focus on the key markets?

Internationalization Drivers of Tricon

Key Market Drivers

There is a presence if similar customer needs and tastes. Tricon had fast food chains located in
globally which stimulates the demand for it. The potential growth in China and Mexico is
estimated to reach 20% yearly, showing presence of global customers. With transferrable
marketing, it enable Tricon be marketed successfully across the world.

Key Competitive Drivers

Key competitors like McDonald and Burger King are internationalized and may able be using one
countrys profits to cross subsidies operation in another. Hence, the presence of globalised
competitors increases pressure for Tricons international.

Cost Drivers
Taxes are different in each country hence Tricon can take advantage of the varies taxes. Besides
that, price-sensitive items were different in the country e.g. cheese (Pg 2) Tricon can cut cost by
exporting from New Zealand.

Government Drivers
There is free trade agreement between countries and US. It will reduce trade barriers for Tricon
which benefit Tricon for cutting down the material and labour costs.

International Strategies
Tricon is currently adopting multi domestic strategy. With its R&D in-house, Tricon can research on each
countrys local taste preference and customs before innovating on its food menu items or opening up a
store in the local market. Also, Tricon filled up its management position in the specific country by hiring
people within the specific country. In this way, it will cater to the best needs of the local markets as they
understand the culture and customers. These can result in maximize local responsiveness.
Recommendation
R1: Tricon to have regular check on the standard across the international and using the IT systems to do
the recording so that it is easier to monitor.
Strength: CHAMPS program (Pg 10)
Opportunities:

O8: There is information technology systems used for reporting purposes. (Pg 13) This

had made the financing function to be standardized and easy for the company to understand the financial
report for decision making.
Strategic Options: Strength to tap on Opportunities
Applying SAFe to R1,
Suitability:
Acceptability:
Feasibility:
eValuation: