Monthly Archive: February 2011

Feb
20
2011

KFC’s Recipe for Success – It’s All Local

In 2010, Yum the American parent company of KFC brand expect 36% of their global $2 billion operating profit from their 3700 restaurants in China.  Along with their most dominant brand KFC’s 3200 stores, Pizza Hut China’s 500 stores will eclipse the total earnings of all 19,000 Taco Bell, Pizza Hut, Long John Silvers, KFC and A&W restaurants in the US. “Yum has become the most successful foreign company in China,” says James McGregor, author of “One Billion Customers:  Lessons from the Front Lines of Doing Business in China.“  Yum is now in 650 cities in China and a 40% market share outstripping competitors like McDonalds 16%.

Yum opened their first restaurant in China in 1987. And although they have 3,700 today, Yum’s business plan is to reach 20,000 one day.

This reversal isn’t just happening in the world of fast food.  If you talk to some of the most successful US-based associations who own leading certification products in their profession or industrial sector, you will find that their businesses outside the US are larger and faster growing than in the US.

How do American enterprises succeed in China or for that matter anywhere outside their home market?  Here is the secret recipe from the Kentucky Colonel.

  1. Offer a menu that local consumers want to eat – If you go to a KFC in China, you will see the typical fare but the menu offers local items that are very popular with local Chinese:  “Would you like pork or pickles with your bowl of Congee?” Or you can order a Dragon Twist (chicken wrapped in duck sauce) or spicy tofu chicken.  In fact the menu is dominated by Chinese-styled KFC options rather than McDonald’s ubiquitous burger menu.
  2. Create customer experiences that are locally relevant – Americans wouldn’t recognize a Pizza Hut in China.  They have been designed as sophisticated restaurants for the increasingly affluent and status conscious Chinese.  Here you have over 100 menu items from which to choose that include wine and other high-end dishes.
  3. Hire local managers with the competencies and entrepreneurial drive to succeed – Crucial to Yum’s success has been local teams of managers who know the local scene and can build the partnerships upon which expansion rests and to research, design and deliver the local menus and restaurant experiences that its customers crave.
  4. Seek out the best partners who can create robust channels for your products and services – Yum found a collection of early state owned enterprise partners like the Beijing Corporation of Animal Production, Processing, Industry and Commerce as well as (wait for it)….  Beijing Travel & Tourism.  Bet you would never have thought to combine these two.

American associations are in danger of letting the opportunities for international growth by pass them, because they do not have the proper local market intelligence nor understand the unique needs of the various customer segments they hope to attract to their products, services or membership.  Further, they do not seem to be willing to adapt their value proposition and product portfolio to local market dictates, and seem unable to focus proper resources to adapt these products to local markets and promote, sell and service them with good local partner channels.

These ingredients of success isn’t just a KFC recipe.  It is being applied by other organizations around the world.  It is time for US associations to embrace a similar approach now especially as more and more are finding that their education, conference and publishing products are finding larger audiences outside the US.  The challenge as we presented in an earlier article here on GG is that you can increase market share and product sales only if you have proper market intel, aligned product relevance, and a local means to deliver, market, sell and service.

Please consider joining ASAE and MCI on our return trip to China this year for the upcoming study mission.  See this link for details.

Feb
12
2011

Victory for Egypt’s Professional Class?

These past 2+ weeks I’ve been glued to the excellent evening broadcast coverage on Al Jazeera English of Egypt’s struggle for freedom and democracy.

Apart from how much better the reporting depth and insight versus the news quality among American media outlets, the most enlightening aspect has been just how the anti-government protests were led by Egyptians from the professional classes.   Watch the behind the scene’s report below and you’ll learn that the mass protests had leadership, organization, strategy and tactics that matched wits with the Mubarak regime.

It was a civil engineer and a software executive who were instrumental in organizing street demonstrations and communication outreach via Facebook that turned a small demonstration into a bigger one which only continued to grow.  And it was doctors, lawyers, and labor unions who added their weight to bring even more pressure to the regime.

Egypt’s peaceful revolution was rooted in a desire among many sections of civil society for freedom and the chance to enjoy what we take for granted in advanced economies.  It was certainly not an Islamic revolution, but a revolution of Muslims and Christians seeking to form a more equal society.  In many ways Egypt embodies many of the key global trends that have set the table for trade and professional associations to show the emerging market countries just how important we have been to the advancements in science, technology, medicine, industry, the arts, etc.

So it make you wonder.

  • Why is the “power of associations” little known beyond our home market here is the USA?
  • How much more successful could we be if government and private sector leaders in emerging markets knew more about how associations serve as gatekeepers to the standards, codes and generally accepted practices that make up the DNA of global business and social development in advanced economies?
  • Why is the association community silent in conveying a compelling vision of associations as forums to help build strong industries and professional classes that can supply 21st century jobs from 21st century businesses interconnected by global association communities building, sharing, and learning new ways to grow and strengthen social and economic development?

As the global trends analysis we presented back in December on this blog outlines, the massive youth population, need for good jobs and strong local economies, the ubiquity of technology, and the need for sustainable infrastructure… all offer opportunities for US associations to demonstrate their value.  Value that not only can grow your membership ranks and product sales that help train tomorrow’s professional classes, but also bring social and political stability through the practice of constructive self-government which is the bedrock of pluralistic societies.  US associations are such animals.

Now is the time to be active and engaged in this new world that is rapidly changing before our eyes.  Associations can play a historic part as they have in the US since the days of De Tocqueville or not…

Feb
02
2011

Legal Issues That Are Important To Any International Strategy

No question the world is shrinking as associations and non-profits are realizing the importance of looking outside the borders of North America for growth. While most organizations are either studying those opportunities now or are at least considering the possibilities of looking globally for such opportunities as membership, product distribution, and meetings, many are hesitating because they just do not know all the intricacies of growing outside the US. The good news is there is more and more help on the way!

An article appeared recently in the ASAE Association Law and Policy section e-newsletter by Jefferson C. Glassie, partner at Pillsbury Winthrop Shaw Pittman LLP, in Washington, DC outlining 10 legal items that are critical to any association working on an international or global strategy. There is no question, going it alone can be a tedious and difficult process, but associations can reduce risk and bypass some of the hassle seen as a barrier to entry into an international market by choosing the right local partners to navigate these waters and make the entry into markets outside the US a faster process as well.

Just look at the above chart from the World Bank representing the relative complexity of starting a business in different countries.  India, for instance ranks 134th or there are 133 easier countries to establish a new office presence than India.    According to the World Bank, India continues to lag well behind other Asian markets as a friendly place to open and run a business. It takes…

  • 12 procedures to start a business (versus regional average of 7.8)
  • 56.5% income per capita – the minimum capital an entrepreneur has to deposit before starting a business (versus regional average of 50%).
  • 195 days required for an entrepreneur to deal with construction permits (versus 168 days)
  • 2143% income per capita – the costs to deal with construction permits. (versus 168%)
  • 8.0 legal rights index score (0-10) – weaknesses in collateral and bankruptcy laws that can facilitate lending by protecting the rights of borrowers and lenders (versus 6.1)
  • 6.0 investor protection index (0-10) – the extent of disclosure, extent of director liability and ease of shareholder suits (versus 5.3)
  • 258 hours – required for an entrepreneur to pay taxes (versus 218)
  • 63.3 total tax rate – that an entrepreneur is required to pay as a percentage of profit (versus 35.4)
  • 8 documents – required before an entrepreneur can export (versus 6.4)
  • 7.0 years to close a business

So it is particularly useful to understand some of the key points raised by Mr. Glassie in his article and I would highly suggest that anyone that is a member of ASAE and interested in more details read the article fully.  He says:

  1. Trademarks- the very first step an association or nonprofit needs to take before moving forward internationally is registering their name and acronyms in the countries that they are considering doing business. In the US entities do not have to be registered with the US Patent and Trademark Office, but this not the case in most other countries in the world.
  2. Copyright- an association’s content and knowledge really is the core of the organization. While copyright infringement is a real problem since the advent of the internet, associations still need to take proper care to protect this highly valuable resource. There are issues on both sides too. Associations need to make sure they have the right to publish materials that members have created. At the same time, associations need to take proper actions to insure their copyrights are not infringed upon by others, including international audiences. Simply requiring permission or stating the use of the content may be enough to protect copyrights around the globe.
  3. Certification- as many associations rely heavily on their certification programs to sustain the organization, opening those certifications up to an international market is not as easy as just allowing those outside the US to take the certification test! While an association could opt to do this, in most cases it really is an effort in futility as the impact on the local audience of the countries looking at the certification may be of no value. Without practical value, certification will never appeal to an audience. Creating localized certifications is the ideal.
  4. Overseas Offices – no question having an actual presence in a country or countries is the perfect step in assuring an international presence and success in a world market. There are many rules and regulations governing opening offices and it varies by country. Some being extremely complicated like China, while others especially in EU countries may be much easier. Knowing all the rules and limitations of operating an office or hiring staff internationally is critical. Missteps in this process could completely derail an association’s best global strategy!
  5. Taxes-just as taxes and nonprofit status is very important here in the US, the same holds true in every other country around the world. Associations looking to conduct business outside the US must understand and follow all the rules and policies of taxation. Besides the VAT (value added tax) which most associations are aware of, there can be many other taxes that fall into the “withholding” category.
  6. Contracts, Litigation/arbitration- contracts are vitally important to any organization conducting business anyplace in the world. The terms and conditions that are used when conducting business in the US are for the most part the same in every other country. However, it may be necessary to add additional clauses to protect both parties, especially in the areas of litigation or contract disputes.
  7. Antitrust- all countries have antitrust laws and it is incumbent upon the associations working in an international environment to know the local laws and abide by them. Getting sidetrack by an antitrust violation can be the end of an international initiative.
  8. Export Controls and Embargoes- an association needs to be aware of any US policies in place for conducting business outside the US. While most know of the trade embargoes with Cuba and Iran, there are other countries with similar embargoes that may not be as well known. It is also important that associations know the rules surrounding individuals from these countries becoming members.
  9. International Lobbying- just as there are very specific rules in the US for lobbying, the same holds true on most other countries as well. Part of a true global strategy will include lobbying in non US governments so associations that will be going in that direction definitely needs to know how to go about the process and the regulations surrounding lobbying.

Here on GrowGlobally you can find further insight in some of the key areas for basing a sound international strategy:  market research to assess potential and select markets, business planning to develop the right models for operating in a region, case studies for various associations and their efforts to grow market share and product sales.  For instance, you will find this partner due diligence checklist for selecting the right local partners to open regional markets from an earlier article by my colleague Peter Turner.

Theresa DeConinck