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Case 2: KFC in China

Source: Peng M.W, Global Business

Kentucky Fried Chicken (KFC) is one of the world's largest fast-food chains, with over22,000 restaurants in 130 countries. KFC's fanciest restaurants are in China,characterized by cashless stores, individualized menus, and localized food itemsanchored by artificial intelligence (AI).Starting in 2017, KFC has teamed up with Baidu"China's Google"to developfacial-recognition technology that can be used to predict customers' orders. "The AI-enabled system can recommend menu items based on a customer's estimated ageand mood," according to a press release from Baidu. A female customer in her 50swould be offered "porridge and soybean milk for breakfast," and a male customer inhis early 20s would be offered "crispy chicken hamburger, roasted chicken wings, andCoke for lunch." A reporter went to try the smart restaurant by herself. She stood infront a touchscreen order machine, which first scanned her face. She was read asbeing female (correct) and in her 30s (only a decade off). On this basis, she wasrecommended a chicken hamburger meal. If she had visited any KFC in China earlier,the machine would also tailor the recommendation based on her previous preferences.If she did not agree with the suggestion, she could click through some alternatives. Inother words, the machine showed her a shorter menu. Once happy with the order, shecould pay with her mobile phone at the machinewith neither cash nor credit/debitcardand collect her meal moments later at the counter. Overall, such digitalizationwas about convenience, providing faster and easier services.Dealing with a classic dilemma of convenience versus privacy, some customersinitially had goose bumps when having a machine capture data about them. However,when they lined up in front of the counter in the traditional way, they could see thosebrave ones who dealt with the machine received their meals faster. The side-by-sidecomparison convinced many customers to try the AI-enabled machineafter all, theycame to a fast-food restaurant looking for fast service.By 2019, hundreds of KFC restaurants in China were equipped with such AI-enabledmachines. China's largest fast-food chain, Yum China Holdings runs over 8,400 KFC,Pizza Hut, and Taco Bell restaurants, as well as their cousin East Dawning, which onlysells Chinese fast food. In comparison with customers elsewhere, customers in Chinaare uncommonly tech-savvy and ready to try new thingsand also indifferent abouttheir privacy. For all Yum China Holdings restaurants, 86% of transactions werealready cashless and about half of the orders were placed via mobile app or digitalkiosk. Leveraging such big data from the more than 180 million Chinese who belongto KFC and Pizza Hut loyalty programs, the AI would customize a menu for each dinerbased on preferences and local tastes. During its first year, the AI-powered menu already boosted the average per-order spending by 1%the equivalent of about $840million worth of fried chicken each year.In their homeland, McDonald's routinely beats Yum Brands, and KFC (a part of YumBrands) is struggling. But in China, McDonald's 1,000 restaurants are no match to themuch larger number of KFC, Pizza Hut, Taco Bell, and East Dawning restaurants.Yum China is endeavouring to maintain its dominance and repel renewed attacks froma newly aggressive McDonald's (under Chinese management since 2017) and localfast-food operations eager to eat Yum China's lunch. The AI-powered menu andincreasing automation will help boost sales and outcompete rivals. "We need to stayahead of the clear trend in digital development," Yum China's CEO Joey Wat said."That's the future."Yum China was spun off from parent Yum Brands in 2016. A key reason for the spin-off was that headquarters executives sitting in Louisville, KentuckyKFC's homestatehad a hard time keeping up with all the developments in China. So far, KFCand Yum China have succeeded in the local experiment of leveraging AI to improveservice and boost sales. Can Yum Brands as a multinational leverage this experienceand disseminate s uch capabilities in presumably advanced economies wherecashless payment is rare and concerns about privacy are more sensitive?

Question 5 :

Although marketing and supply chain management used to operate separately,today their boundaries are blurred. International business is also faced with manybusiness risks. With this context, discuss:

a) Currency risk is the potential for loss associated with fluctuations in foreignexchange movements. With majority of their sales in international markets,how could the company deal with foreign exchange risks? (5 marks)

b) One of the leading debates in marketing and supply chain management is theeffectiveness of using a market orientation vs relationship orientationapproach. Which approach do you think KFC uses in China? Can thisapproach be used in other international markets? (5 marks)