Describe Pizza Hut and KFC’s investment strategy in Latin America. Latin America was appealing to Yum brands because of its close proximity to the United States, language and cultural similarities, and the North America free Trade Agreement eliminated tariffs on goods traded between the United States. Performing a country analysis was an important part of the strategic decision making process. Yum Brands had to accurately assesses the risks of doing business in other countries and regions in order to make good choices about where to invest.
Expanding to a foreign market was attractive because of their large customer bases and comparatively little competition. Having a separate subsidiary in Dallas, Yum brands international, managed the international activities of all five brands. KFC and Pizza Hut accounted for almost all of the firm’s international restaurants. By Yum brands to expanding further in Latin American countries they advantage of franchising, which allows firms to expand more quickly minimizing capital expenditures and maximize return on invested capital.
This helps because the owners have a deep understanding of local language, culture, customs, law, financial markets, and marketing characteristics. Yum Brands also have a fix cost that could be spread over a large number of units and the company coordinates purchasing, recruiting, training, financing, and advertising. Company owned restaurants also allowed the company to maintain tighter control over product quality and customer service. Yum Brands knew that KFC could have a large success because chicken is a traditional dish in their country. .
Using the country and industry risk categories discussed in the case, compare and contrast Mexico and Brazil as alternative investment locations. What risks are associated with investment in Mexico? In Brazil? What strategies can be used to minimize these risks? Mexico is one of the most attractive investment locations in Latin America having 105 million people. In 1994 the North America Free Trade agreement was signed eliminating tariffs on goods traded in the United States between Mexico.
By 2004 85 percent of Mexico’s exports were purchased by US consumers, and 68 percent of on Mexico’s imports were purchased from the United States. 70 percent of Mexicans lived in the urban areas with a population of 18 million people. Many U. S firms had operations in or around Mexico City, which the fast food industry is well developed in the city. Chicken is a staple product in Mexico and helps explain KFC’s popularity. The fast food chains in Mexico was KFC (274 restaurants), McDonalds (261), Pizza Hut (174), Burger King (154), and Subway (71).
Being a variety of restaurants brings intense competition. Brazil has a population of 182 and is the largest country in Latin America. Brazil is the world’s largest coffee producer and largest exporter of sugar and tobacco. Brazil has a strong industrial power it exports airplanes, automobiles, and chemicals. Brazil is one of the most important emerging markets, along with China and India. The fast food industry is less developed than Mexico. Many restaurant chains such as Burger King, Pizza Hut, and KFC built restaurants in the mid 1990’s but later closed because of poor sales.
Eating customs play a huge role in Brazil, because consumers eat their big meal in the early afternoon, in the evening they have a light meal such as a soup or small plate of pasta. Brazilians rarely eat with their hands, preferring to eat with a knife and a fork. United States was faced with the challenge of changing the eating habits of Brazilians or convincing them the attractiveness of fast food. Yum Brands will have to face difficult decisions surrounding the design and implementation of an effective international strategy.
They will have to plan and continue to be aggressive with investments in its primary market. Yum Brands improving brand equity in other regions where consumer acceptance of fast food is weak and the company has a limited operational capability. Latin America has to be a region of interest due to its geographical proximately to the U. S, cultural similarities, and NAFTA. Country Evaluation and risk assessment would be an important tool to developing and implementing an effective international strategy.