Challenges and Impact of International Trade Theories and Foreign Direct Investment on KFC

This report covers the all the challenges that are faced by KFC and the impact of international trade theories. Along with that there are various foreign direct investment policies that impacted the company and helped it to gain competitive advantage.

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International Business

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Table of Contents
Introduction................................................................................................................................2
Potential future challenges of KFC............................................................................................2
KFC has been impacted by theories of international trade........................................................6
KFC is impacted by foreign direct investment..........................................................................8
KFC gains competitive advantage...........................................................................................10
Conclusion................................................................................................................................11
References................................................................................................................................12

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Introduction
The success story of KFC starred from the dream of a man who loved cooking which
has now captured every corner of the world. It is one of the biggest franchises and the first
franchise of the company started in 1952 in Utah. In today’s world it is boosted to around
18,000 outlets in more than 120 countries. The revenue of the company has exceeded to
around 10 billion dollar. This report covers the all the challenges that are faced by the
company and the impact of international trade theories. Along with that there are various
foreign direct investment policies that impacted the company and helped it to gain
competitive advantage.
Potential future challenges of KFC
KFC is a multinational company which was known as Kentucky fried chicken
company. It is a chain of American fast food products and is famous for special fried chicken.
It is the second largest restaurant chain and is widely spread in more than 123 countries. It
was founded by Colonel Harland Sanders. It has various potential challenges that are faced in
the global business environment. The major challenges that are faced is as the list of living is
increasing and consumers are not spending much on these industries. The competition in the
market is also a threat as it impacts the overall economic balance of the company
(Bucktowar, Kocak & Padachi, 2015). The cost of products and services are increasing day
by day which leads to struggle in terms of income. The morale of staff is also degrading these
days which leave the customers unsatisfied and demotivated. Thus it is important for KFC to
adapt to recent consumer needs so that they guarantee success (Harrington, Ottenbacher &
Fauser, 2017). To overcome all the barriers advances innovation and use of technology
should be adopted.

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Now, some of the challenges that are faced by KFC are listed. The challenges are faced in
terms of cultural, political, economic, technological, competitive and physical barriers.
 Cultural- The cultural challenges that is faced by KFC is due to the diversity in
different cultures. The market behaviour of the company changes with the country.
There are some countries in which beefs are illegal thus it is not adapted thus it affects
the sale of the company (Dash, 2016). In India KFC have several problems as non-veg
are not consumed much. The cultural issues arise due to sub-culture and social class.
In India KFC has faced many problems as there were many protests against it like
ethical treatment right against protection and also ill treatments of birds were the
issues. It faces issue opening up a new branch in foreign country that follows entirely
different culture. It is important to meet all the legal right that is protecting animals
(Harrington, Ottenbacher & Fauser, 2017). The other challenge that was faced in terms
of diverse culture is taste of the people.
 Political/Legal- The journey started with the name Kentucky fried chicken which is
presently known as KFC. The name was just changed to remove the guilt from the
name that was faced by some of the customers. The political and legal factor of the
company was affected as they were caught while selling some unhealthy products. The
political issues arrived as people needed to compromise on the quality (Harrington,
Ottenbacher & Fauser, 2017). There were some legal issues like advertisement of fast
food are banned that directly affects the sale of the company. The political reforms of
the company are affected by the trade relations with the company. The business
strategy of the company need to be changed so that they make progress. They are
deliver hospital meals that has helped in increasing the sale of the company (Dash,
2016). There are various legal government stabilities and legislations that affect the

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political factors of the company (Abdelgawwad, 2018). The taxation policy also
impacts the sale and there is also ease of initiating a business.
 Economic- the economic factor of the company is directly linked with the income of
the employees that KFC is planning to target. The challenges that are faced in KFC are
income. At initial time KFC target the audience who were finical good that belongs to
upper class family. This was not successful as it was limited to some group of
population. To increase the overall sell it changed the strategy in recent years and
planned to target people of mass market by introducing different meals (Dash, 2016).
They modified the prices of meals so that middle class people can be part of it. The
success of an organisation completely depends upon the sell thus consumption of
products and services affect the economic behaviour (Crittenden, Crittenden &
Pierpont, 2015). KFC for its better growth analysed the market so that strategies could
be made. The decisions were made regarding the consumption behaviour. The
important factor that affects the economic conditions is payment methods. Thus all the
payment methods are available so that its adds up flexibility to customers. Thus
change of economy also leads to crises in the company (Bhanot, 2015). Nowadays
people are more diet conscious thus KFC need to work on healthy food products.
 Technological- the issue that is faced by KFC is use of new technology. The
technological factors are changing day by day thus with introducing new technology
easy adaption should be done by the company. The technology used by KFC also
requires talented staff so that they can work on that technology easily and adapt to
changes accordingly. The cost of using new technology is also high thus it should be
maintained. KFC uses stock of machinery to run their business effectively that
requires cost (Hille, Shahbaz & Moosa, 2018). The maintenance of such machinery
requires talented staff thus good amount of capital formation need to be made. KFC

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uses advanced technology to gain the analyses of competitors. The reason behind
success of KFC is using online ordering apps and advanced payment methods. It also
allows staffs to track their orders, know about the hot deals and new meal offers. The
advanced technology allows customers to search for all the nearby stores and gives the
chance to customers to become reliable (Hille, Shahbaz & Moosa, 2018). The
technology is also used for advertisement of the company so that customers become
aware about all the services and also increases overall sale.
 Competitive- KFC has many competitors all over the world. Some of the competitors
are McDonalds, Subway, Dunkin Donuts, Subway, Starbucks and many more. The
challenge faced by KFC due to competitors is that they are selling same kind of stuff
in comparatively lower price. Thus selling the products at lower price is a treat for the
organisation (Hille, Shahbaz & Moosa, 2018). The cost of the company is high thus it
is not possible to sell the products with good quality at fewer prices. The competitors
may steal the selling strategy of the company that could act as a hindrance. The
challenge of KFC is due to increasing options in the market and also building brand
loyalty. The main issue faced by KFC is due to the competition of Chinese market. It
is also affected due to some food safety scandals faced by the company. The western
brands like McDonald and Starbucks have expanded in the market that has led to
stiffer competition. The sales growth of the company is affected by the sale of other
companies (Helpman & Razin, 2014). There are many companies which are selling
same services thus it has become difficult for KFC to stand out among all.
 Physical/Natural- The Company faces various physical and natural issues. The
physical issues are caused because of some faults in machinery. KFC uses machines in
a large scale thus if some defect occur in the machine a lot of maintenance cost is
required. There is some natural disaster that also affects the cost of the company

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(Slideshare, 2017). There are chances that food products gets expired, some of the
products can be preserved while some cannot be. This leads to issue and also loss in
terms of cost.
 Demographic- The Company faces various demographic challenges that are due to
diversity in culture. The making of paper from the company affects the deforestation
rate which is a criminal act (Slideshare, 2017). Tough KFC has responded to this issue
as one country stopped buying the products which was the loss for an organisation.
The long term changes in fertility and mortality of the population is reflected due to
age. There are demographic changes due to different regions. The demographic
challenges are due to migration of people. Some of the challenges are also faced due
to high prices of the meals and services that are not affordable by middle class family.
These issues impact the overall sale of the company and that impacts the success ratio.
KFC has been impacted by theories of international trade
There are various theories related to international trades thus these theories impact the
overall success rate of the company. There are various theories like mercantilism, absolute
advantage, comparative advantage, factor proportions theory, international product lifecycle,
new trade theory and national competitive advantage (Simone & Sabbadin, 2017). In this part
the focus is thrown on two theories that are comparative advantage theory and international
product lifecycle.
 Comparative advantage- This theory throws light on all the ability on the price of
the products as comparative to other companies. The price of the goods and services
should be low as comparative to its competitors. It helps in managing the economic
sector of the company with other. KFC has been impacted by this theory as before the
company used to sale products and services that could be afforded by only high class

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people. Wherein some other competitors like McDonald use to sell products which
were affordable by average class family (Simone & Sabbadin, 2017). KFC made use
of this theory as it suggested that company should offer lower opportunity cost so that
all the resources should be used and cause benefit to the company. The trade of the
company is also increased in different countries at lower cost so that the overall cost
is increased (The balance, 2016). The competitive advantage of the company also
affect globalization ratio. The factors that affected comparative advantage of the
company are the factor of production. The quality of the products as compared to
other companies is the main factor that affects the success. Other challenges in
comparative advantage are exchange rate that is due to the exchange of currency that
might because goods cost at cheaper rate. The production of KFC is also affected by
the mobility in other country. There might is possibility that company A is selling the
same product at lower cost as comparative to KFC (Kraak, Englund, Misyak &
Serrano, 2017). Thus to make sure that sell of the company is maintained for that the
sale of the products should be at lower cost of other companies.
 International product lifecycle- This theory is also related to economic theory and
observes the complete pattern of international trade. This theory has various stages;
first stage is related to the labour that is linked in making of the product. The second
stage involves delivering the product in the market. In case of KFC the company
carries out the life cycle in a manner starting from introduction, growth, maturity,
saturation and decline (Kraak, Englund, Misyak & Serrano, 2017). The company was
impacted by this theory as it first detecting the response of customers and then tries to
increases the sale accordingly. The sale of the company was affected by the
competitors that attracted the customers with their lower price. The volume of sale of
the company as increased by lowering the price and increasing the sale (Zindiye &

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Donga, 2017). Then later the product were modifies according to the needs so that
new customers get attracted. Thus KFC worked on the policy of low production cost
and high demand of products.
Thus KFC was impacted by this as initially they started by importing the products and
services only in their home country. The late maturity was done by exporting the products
and services in those countries that have competitors. The sale decreases in the developing
country as it remains viable (Kraak, Englund, Misyak & Serrano, 2017). Thus theory is
helpful as it tells the entre cycle between the launch of the product in the market to actual
withdrawal of the product. The sale of the product will depend upon the trust that is gained.
KFC is impacted by foreign direct investment
KFC became the fastest international food chain producer that gained the market
value. The company started in one country but it expanded widely from one country to
another. It proved to be beneficial for the company as it reduced the effects of politics. KFC
was impacted in a positive manner as it helped in stimulating the countries development. The
trade of the company also becomes easy as their presences in the international market helped
in increasing their sale. It is beneficial for employees also as it boosted up the vacancies and
also created new opportunities in the market (Dhingra, Ottaviano, Sampson & Van Reenen,
2016). Thus it helped in boosting up the economy. The company was affected by it due to

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foreign direct investment by getting tax incentives. It also allows the resources to get
transferred as different countries get knowledge about new technological skills. It also
reduces disparity between the revenue rates and the cost. This helped KFC to make
production cost to be similar with the cost of competitors. The workforce productivity of
KFC also increased in the target country because of the facilities and equipment’s provided.
One of the major benefits through foreign direct investment is increment in income. The
income of the target country increases as the number of job vacancies also increases (Iqbal,
Ahmad, Haider & Anwar, 2014). Thus it can be clearly stated that foreign direct investment
proves to be beneficial as it enhances the global economy and help the business to run
effectively regardless race, colour or competitive advantage. It helps the products to get
popular in the foreign market easily (Ukessays, 2017). When KFC decided to invest in
another’s country it helped to expand the financial sector and promoted the success to next
level. It also helped in analysing the future growth by monitoring the market stability
(Success story, 2016). Thus these days for every company foreign direct investment has
become an accessible option to gain global economy. It is true that foreign direct investment
carries out risk thus to became important for KFC to hire a financial expert who is familiar
with all the policies that are required for working in international market. It provides a
précised and clear view of economic landscape in the targeted country (Harrington,
Ottenbacher & Fauser, 2017). It helps in boosting up the goodwill of the company as it
increases the satisfaction among the people. The foreign direct investment also helps in
increasing the sale and growth of the company (Success story, 2016). The company analyses
the market demand and works accordingly. The market behaviour of the company changes
with the country. The political issues arrived as people needed to compromise on the quality.
There were some legal issues like advertisement of fast food are banned that directly affects
the sale of the company.

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KFC gains competitive advantage
KFC tried to gain competitive advantage by manipulating various factors.
 International financial markets- KFC tries to change the set of rules and asserts of
the company to meet the international markets. The financial history of the company
owns about 39% of the market share than it expanded with time (Viner, 2016). It
targeted the market of Brazil and tries to remove the gap between rich and poor by
adding new items in the menu list. KFC become popular in the international market
because it targeted middle class people also and it added the items of vegetarian in the
list (Zhu, Anagondahalli & Zang, 2017). It is true that KFC manipulated the financial
market in such a way that more audience and customers are engaged with the
company.
 International monetary system- The rules and procedures defined to exchanging
currencies fall under this system. KFC didn’t manipulate in such case as it expanded in
almost all the company without comparing the currency exchange benefits (Viner,
2016). It covers the fundamentals of exchange rate policies along with the functions
like efficient distribution of resources, increased specialty in production based on
comparative advantage and the diversification of risk (Zhu, Anagondahalli & Zang,
2017).

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Conclusion
From this report it can be concluded that KFC is one of the multinational company
who is trying to gain benefits in the market. There are various issues behind the success of
KFC in the market. There are various potential challenges that are faced by the company in
terms of cultural, political, legal, demographic, economic, technological, and physical as well
as competitors in the market place. These challenges act as barriers in the growth thus to
overcome that various policies are undertaken. The impact of international trade theories on
KFC is also discussed. There were theories that helped KFC to gain importance in
competitive world. There are various companies that act as a competitor by selling the same
products as lower price or with better quality. Thus it worked on maintain the entire product
life cycle of the product. There are companies that invest their growth in foreign companies
to enhance their trading experiences. KFC is one of the companies that were impacted by
foreign direct investment. Apart from this the report also covers the strategies how KFC
gained competitive advantage in the market. There were various factors which got
manipulated like international financial market and international monetary system impacted
the growth of KFC. This report covers the complete analyses of the company KFC.

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