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Effects of Cultural Differences in International Business and Price Negotiation

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Introduction

Culture is the collective programming of the mind that distinguishes the member of one category of people from those off another-Geert Hofstede Different countries have different cultures. Knowing the various culture helps a business to gain competitive advantage in future and become market leader. Different cultures influence thinking, consumption standard of living pattern of an Individual and behavior. Therefore understanding of cultures across countries will help business remove all the barriers. Core areas in which culture effect International business are:

  • Communication: Different countries have different languages. In India people are ready to learn English for faster communication but country like China, promote their own language. Therefore for effective business understanding this barrier is important
  • Etiquette: Different country have different workforce norms. Like for example in abroad using names title is not important. But in India it’s considered disrespectful, if name titles like sir or madam is notused. Therefore balancing between both the cultures is important.
  • Hierarchy In organizational Structure: To maintain a flat or horizontal structure is an important business decision.
  • Cost: For countries like India cost play an important role. High cost will lead

Pestel Analysis Of Kfc In India

  • Political: India is liberally opening doors for international fast food joints. FDI is making it easier for MNCs and global companies to enter into India.
  • Economic: A growing middleclass population withincreasingpurchasing power is only making India an attractive place for investments and expansion hubs for global companies.
  • Social: Housewives are becoming working women. Most Indians are vegetarians, so the menu was to change drastically.
  • Technological: Enough technologies are available in India. It has eventually become the IT hub in the world.
  • Legal: Franchising models are strongly available and are successfully working in India among the restaurant industry. It is a trend and KFC also follows the same.
  • Environmental: Environmental activists are against killing of animals like PETA and that can create trouble. This will be a problem and will have a negative impact on the operations of KFC.

KFC Pricing Strategy And Negotiation

KFC adopted local country strategy where it ensures following the menu and prices as per the country which is not same with other places and country. KFC entered global market initially using price skimming method where target customer was upper class and upper middle class people. Later on KFC focused on understanding the needs of local customers and created menu which served the interests of lower class people too. In India large segment of people are middle class people so people have options here at Rs69 and also high priced product too. In India combo cost Rs 299 but in Malaysia pricing of combo is 659 ringgit. So we can see a great difference in pricing strategy of KFC around the globe.

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Different factors affecting pricing decisions of KFC are:

  • Per capita income of consumer: Per capita income of different group of people is different. While pricing of product KFC tried to understand income so that it can keep product prices as per market demand. Earlier KFC focused on keeping product prices only for upper class later with introduction of meals,it focused on lower segment too
  • Consumer behavior: We see that KFC has priced product likeRS69, Rs299 which shows us KFC tries to follow psychological pricing. KFC tries understanding behavior of different customer which plays important role in pricing decision and promotion offers. KFC have come up with Wednesday offers for Indian customers knowing people like offers and therefore pricing has been done accordingly
  • Geographic differences: Initially KFC focused on urban areas as target group as target group was upper class people. Geographic location also plays important role in pricing decision as it determines the cost of raw materials and other implicit cost which lead to determine price of product can be lowered or not.
  • Competition: KFC competitors are Mc Donald, pizza hut. So when these company reduce price KFC also reach to changes and keep prices of product low or come out with new offer. This vary around the global countries and competition is different and mindset of consumer is also different. To sum up, KFC follows cost based pricing where it considers all above factors and also cost incurred. Depending on which prices of products is set, due to which we find different prices for different product.

Why KFC Is Different Across The Globe?

KFC across different countries are different because it have adopted local country strategy where it tries to adopt strategy depending on the consumption pattern of that country. Points on which KFC is different across globe

  • Price: While analyzing the prices menu of KFC in different countries prices vary a lot. Along with prices promotional offers too vary. In KFC India meals can be purchased at Rs 229 but in other countries prices are very different than in India
  • Food menu: KFC take into consideration the consumption pattern of the local customer while design its menu. While analysis menu we found that there are several products which have different India flavors food in the menu which is not available anywhere outside India.
  • Customer segmentation: KFC as names suggest focused on non veg product. But in India KFC also has veg products like Veg zinger, paneerzinger to attract vegetarian customers too. India has a sizeable number of vegetarians. Therefore catering to their need was also very important for KFC. This is how it’scustomized itself around the globe depending on the behavior of the customer. Out of all the difference one similarity which KFC focused is red color and design of its fast food restaurant which helped people connect to KFC emotionally and create brand loyalty for the same.

Conclusion

The increased competition amongst the independent owned restaurants has made them purchase most of their stocks from cheap and unsanitary dealers which in turn reduces the cost of operation which gets reflected on the final price presented to the customers. As a result price have become a key competition aspect in the industry which is making the marketing cost of the franchised restaurants go up as they aim at securing and expanding their customer base. It was also realized that customer service is a key factor in securing a competitive advantage in the fast food industry, therefore after sale service are set in place to secure customer loyalty, customer comfort ability is also set on place by refurbishing restaurants to the taste of customers.

We see that there is adequate justification for franchising by KFC. This is because a greater proportion of the respondents (86%) indicated that they prefer franchising to all other joint ventures, 90% reported that they were involved in all decision making processes of the franchise. With the efforts of service and retailing enterprise Franchising Strategy is used for global expansion. The benefits of Franchising Strategy includes less cost incurred as compared to licensing, no compromise on product quality, goodwill and the franchiser just has to expend only the resources to recruit, train, and support franchisees. But there are challenges which the companied should keep in mind which includes not maintaining quality control, do not exhibit strong commitment to consistency and standardization leading to loss of company’s goodwill.

Recommendations

  • The best solution for KFC to solve the problem of high competition is to expand into international market.
  • KFC needs to compete at non price strategies such as service and variety of menu as well as needs to differentiate its products.
  • To survive in case of price wars KFC may want to reduce its cost.
  • The management needs to have a positive rethink towards the use of franchising.
  • The management needs to have the right resources as the success of a business or strategy depends primarily on the value judgment, energy and skill of its top managers.
  • In order to enhance the performance of top management and all employees in the fast food franchises strategic training is recommended.
  • To synergies, restructure, re-engineer and reposition its operations, the top management should undertake a comprehensive study and adoption of strategic management in all and every aspect and areas of its concern which may enhance competitiveness and performance.
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