Effects of Cultural Differences in International Business and Price Negotiation

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 to lower sales. So proper strategy need to be adopted before entering into the market
• Belief: Different countries have different believes and values. Respecting each countries value is very important for businesses. Not looking into cultural differences can be a big mistake for business. For example Nike found that Air written in Arabic pattern on their shoes looked like Allah logo due to which product failed[image: Image result for nike allah shoes]Different companies around the world have adopted different techniques to adopt cultural differences in their functioning and are running successfully are:
• Mc Donald: Mc Donald adopted as per culture of different country. For example the vegan options in the menu along with low cost aloo tikki burger is only available in India and not in other parts of the country. Along with it,it adopted to different consumption pattern of customer due to which MC Donald is successful all over the world today and earning high revenues.
• Coke: Coke is multinational company of American corporation. Coca cola connect to emotional belief of people and today is one the leading market player in carbonated soft drinks segment. For further research analysis we would take example of Kentucky Fried Chicken to understand impact on price negotiation and cultural differences in International Business.

KFC – Kentucky Fried Chicken

KFC, otherwise called Kentucky Fried Chicken, is an American cheap food eatery network that has some expertise in singed chicken. Headquartered in Louisville, Kentucky, it is the world’s second-biggest eatery network (as estimated by deals) after McDonald’s, with very nearly 20,000 areas internationally in 123 nations and domains as of December 2015. KFC (Kentucky Fried Chicken) was established by Colonel Harland Sanders, a business visionary who started offering fricasseed chicken from his roadside eatery in Corbin, Kentucky, amid the Great Depression. Sanders recognized the capability of eatery diversifying, and the principal “Kentucky Fried Chicken” establishment opened in Salt Lake City, Utah in 1952. KFC was one of the primary drive-thru food chains to extend universally, opening outlets in England, Mexico and Jamaica by the mid-1960s.

All through the 80s, KFC experienced blended achievement locally, as it experienced a progression of changes in corporate possession with next to zero involvement in the eatery business. In the mid 1970s, KFC was sold to the spirits merchant Heublein, which was assumed control by the R. J. Reynolds nourishment and tobacco combination, which later sold the chain to PepsiCo.

The first Indian KFC outlet was opened in Bangalore in June 1995. The first outlet however experienced challenges in form of protest against globalisation and also protests by local farmers. The challenges reached a critical stage in August 1995, when the Bangalore outlet was more than once attacked. The outlet was shut on September 13, 1995 by local authority, who claimed the organization utilized unlawfully high measures of monosodium glutamate (MSG) in its nourishment. The outlet re-opened a couple of hours after the fact as the aftereffect of an interest by KFC to the Karnataka High Court. Today, There are 350 KFC outlets in India. The company has adapted the standard KFC offerings to Indian tastes also the company has customised the deliverable in menu according to the local taste.

Business Model of KFC’s Entry in India

KFC was the first fast food multinational to enter India, after the economic liberalization policy of the Indian government in early 1990s. KFC received permission to open 30 new outlets across India. KFC opened first fast food outlet in June 1995 by targeting upper middle class population. After being acquired by PepsiCo, PepsiCo planned to open 60 KFC and Pizza Hut outlets in the next 7 years in the country. The mode of entry used by KFC in India was the Franchise Business Model majorly.

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 middle class population with increasing purchasing power is only making India an attractive place for investments and expansion hubs for global companies.
• Social: Housewives are becoming working women and are moving out of kitchen to offices. A lot of 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’s Business Model

KFC’s Business model is the same across the world. Eleven percent of outlets are company owned, while the rest operated by franchise holders. KFC follows the Franchise Business Model majorly. The franchisor is KFC Corporation (KFCLLC) whose parent is YUM! Brands, Inc. KFC Outlets prepare and sell chicken, snackables and other approved menu items using the certain trademarks and trade secrets owned by KFC Corporation. The Franchise Agreement grants franchisees a license to use:

• Certain KFC trademarks, trade names, service marks, logos and commercial symbols the franchisor periodically authorizes, including the “KFC” and “Kentucky Fried Chicken” marks;
• The proprietary business formats, methods, procedures, designs, layouts, standards and specifications the franchisor authorizes, solely in connection with the operation of the Outlet.

Porter’s Five Forces Competition

Porter’s Five Forces Model has the ability for systematically diagnosing the competitive pressures in a market and assessing how strong and important it is. To determine the competitive intensity and attractiveness of the market, Michael E. Porter’s five forces is important. This model also shows the affect of the five forces in the competitive environment of a business.

For example, companies will have an opportunity to increase prices and gain more profits if the rivalry is weak. While, companies would compete in prices if there is a strong competition, which might result in a price war. Due to the reduction in the sales margins, the result of this would reduce or limit profitability. There are some factors that effects the companies Rivalry Against Existing Competitors-

• Price is an issue for undifferentiated product
• Number of competitors and size of competitors
• Demand Conditions

Threat of Entry from New Competitors

It depends on the existing entry barriers and reaction from the existing players. Existing Entry barriers are

• Economies of Scale-The threat of new entrants can be reduced because most of the established companies in the industry have economies of scale advantage. For eg- PepsiCo has improved its economies of scale within its business operation by adopting the dual branding strategy. Hence, by increasing its menu offerings this will enable KFC to improve its customer base. This will help KFC to reduce the threat of new entrants as they will not be able to compete in the market and hold high cost disadvantage compare to the already established firms.
• Government regulations-This makes it difficult for new competitors to enter the market.
• Brand Loyalty-Brand loyalty is the only identity here for the presence in the fast-food industry. All the fast-food chains like KFC, McDonalds, Pizza Hut, etc have their strong customer base. And one more important thing in this fast-food industry is the taste of the food, which is a matter of habituation. For the taste of the brand, there is a natural loyalty. Hence, the loyalty of the brand is high.

Bargaining Power of Buyer:

• Those who purchase raw material for suppliers
• Those who use the Products (end users)In the beginning, the bargaining power of the industry like KFC will be high. As KFC is a single company including others is small in number and big in size, which gives them the ability to bargain for price reduction as they purchase in large quantities from suppliers. KFC is a multinational company, it has large internal cash flows that allows it to invest in cheap and in less risky countries like Asia, Latin America. As a result, the suppliers would be threatened and forces to reduce their prices which gave them advantage to reduce their production cost and grape more market share. On the other hand, the power over fast food companies and force them to reduce their prices remains with the individual customers.

Bargaining Power of Supplier

The bargaining power of supplier could be very strong, if we assumed that the buying companies are not important for the supplier as its business probability doesn’t depend on them. Therefore, he could set his own terms and offer them to the buying companies and if they refused to approve on the terms, the suppliers could go to other buying companies in the industry such as McDonalds if KFC refused the terms. From the above mentioned, it can be said that, to reduce prices or improve quality, the buyer could not force the supplier.

Threat from Substitute Products

The existence of substitute products acts as a strong competitive threat for companies as it restricts its ability to increase prices and boost revenue. On the other hand, if a firm’s products have fewer substitutes in the market, it would have a good opportunity to reflect its prices and gain more profit. How KFC is different? The USP of KFC is life tastes better with KFC. Positioning of KFC is the unique taste of product that it isn’t only fried chicken but it sell service and satisfaction of customer, For example KFC designs consumer delight.

KFC adjusted new store for the higher expectation of consumer because they don’t want to be only quick and delicious but they want to get experience; part from, Brand as a product as a person but including the Brand as an experience together. Such as the KFC restaurant on Floor 6 of Central World was revolted a new store and image that it is modern and friendly with opening music of Beyonce which was purchased copyright from the music camp. That it show global Brand’s KFC. Design for various groups of customers. 4-seat, approximately 160-180 seats emphasize of the diverse group of clients. That it can be calm zone for customer.

• Dining Zone is a zone for customers who require a formal dining. Dining zone consist of a square table, a white lounge chair that it is benefit for family group.
• Snacking Zone is a zone for customers who want a light Meal or sit waiting for an appointment to taste water, the French fried. This zone is the chair form of the Red Lounge Chair that feels relaxed and comfortable.
• Big Group Dining Zone divided 2 type to support clients with fellow teen favorite, designed by students at Consumer Insight behavior often land a seat with table book bag sack. First, it designed a table and chairs Satun high white to feel like a table in Canton here. Another option is a small table and Satun. Brown placed beside the counter.
• Outdoor Zone is a zone that is not in the Global Manual but created a need to own in Thailand by the nature of the Cafe Outdoor; Stainless-frame chair, backrest and seat on a wooden table. In addition, combining with wood floors that feel all the warm comfortable when we look with potted tree hazel. He set a high bell square can be found outside.
• Booth Zone seats as the train bogie for Teen group and students who would like to Private Space. However, materials made using both a table and chairs, beautiful floors also focus on the benefits of durability and wear care.