KFC and GDP per Capita Growth in China
China started using the “Open-Door Policy” to encourage FDI inflow in the late 1970s. The Communist Party enshrined the policy in the countries constitution. The open-door system is the reason allowed KFC to move to China. KFC entered China in 1987 following the friendly policy. FDI in China increased from USD 920 million to USD 4.37 billion between 1983 to 1991 (Xinhua, 2019). Before the open-door policy, China used to be a closed economy. People ate at home or in socialist canteens instead of eating out (Thomas, 2018). KFC saw an opportunity when the government loosened its control and encouraged foreign investment. The Chinese government has continued open policies that have helped the growth of FDI. As the economy of China grew, household incomes have also grown, increasing the number of KFC customers. According to
Jacobs (2019), KFC stores increased proportionally to the growth in GDP per Capita to reach 5000 stores in 2019.
KFC and GDP per Capita Growth in China
Diffusion of innovation
Meyer (2015) argues that FDI can promote the diffusion of innovation. As companies establish to spread their operations abroad, they spread new technologies and ideas. FDIs that develop businesses in China have introduced new innovations that have been adopted by firms. KFC, as an FDI, entered the Chinese market as a pioneer of the fast-food industry in the country. The company entered the Chinese market as a new and modern restaurant offering American foods. Many Chinese were eager to try American food. KFC’s expert knowledge in managing fast-food was transferred to Chinese restaurants (Shenkar, Luo, & Chi, 2014). It became an example of how local fast food companies can offer quality customer services in a clean environment. The is an estimated over 128, 000 fast food restaurant today as people changed in favor of non-staple foods.
Fast food market in China growth and projected growth (Wang et al., 2016).
Competition
As the emerging market matures, the competition increases, forcing the FDI to adjust its business strategy. The early 2000s saw many other American brands such as McDonalds and Pizza Hut enter the market with a similar offering of burgers, fries, donuts, and chicken (Wang et al., 2016). Apart from Western brands, Asian restaurants such as Malan Noodle, New Asia, and Yonghe King have also been increasing. Local companies could also copy KFC’s business model. KFC had to abandon the homogenization model in China and serve more Chinese dishes. The localization strategy is the primary reason KFC outperformed McDonald’s in China despite McDonald’s being the largest restaurant chain back in the US (Starvish, 2011). KFC used the US fast-food model and adapted it to serve the needs of Chinese customers (Liu, 2008). Apart from the American fried chicken, KFC serves various local dishes such as egg tarts, congee, and the “Dragon Twister” (Jacobs, 2019).