Globalization of Service

Service Growth & ExpansionDomestic & International Strategies

• Tricon Global Restaurants– Owns KFC, Pizza Hut, and Taco Bell• Operate in more than 80 countries• Open more than 1,000 stores overseas per year

– Believes business is local• Adapt to local taste• Teriyaki crispy stripe in Japan• Gravy in northern England

Domestic Growth & Expansion Strategies

• Focused service– Service innovation begins• At a single location• With an initial service concept

– Fedex: hub and spoke network for overnight delivery– Walmart: Save money, live better

– Success leads to increased demands• Facility is expanded and personnel are added

– To win as many customers as possible– To add peripheral services

– Risks with a single service location• Captive to the future economic growth of that area• Competition move in

– Advantage• Much simpler management and control

– Successful focused service• Award-winning Chef• Nationally recognized heart surgeon

• Focused Network– Readily accessible to customers is important to

achieve growth• Fast-food restaurants• Retail banking

– Management must ensure consistency of service across all locations• Service quality & costs

– “cookie-cutter” concept of replicating service – Franchising• Facility construction• Operating manuals• Personnel training

– Managing network of service• Communication and control

– Rationalized service concept to managers and staff– Execute service consistently on a daily basis

• Nationally marketing efforts

– Advantages• Ability to reach mass market quickly• Reduce the financial risk of localized economic

downturns

– Risks• Overexpansion• Lost control• The miles of “franchise rows”

– Homogenized the American landscape

• Clustered service– Service firm with large fix facilities• Small colleges expanded into four years regional

university• USAA

– Automobile insurance for military officers– Banking, mutual funds. Auto and homeowners’ insurance, …

• Medical centers

– Risks• Potential loss of focus

– Neglect the core service

• Facility management becomes extremely complex– Hotel serving tourist and business traveler

– Concentric diversification• Synergistic logic around the core service

– Convenience stores» Self-serve gasoline, microwave meals

• Economies of scope

• Diversified Network– Growth thru acquisition• Multisite & multiservice

– Airlines• Hotels, car rentals

– American airlines sold off peripheral service– Japan Rails

Franchising 加盟• Franchising– Replicating a service geographically– By attracting investors• Who become independent owner• Bound by contractual agreement

• Nature of franchising– Franchiser• Guarantee a consistent service

– Standardized in design, operation, and price

• Right to dictate conditions– Standard operating procedures must be followed– Material must be purchased from approved suppliers

– Franchisee• Own the business• Assume responsibility of all normal operating activities

– Benefits to the franchisee• Management training

– McDonald’s offer two weeks training at Hamburger University» Franchisee become prepared to operate a business

profitably» McDonald’s ensures all procedures will be followed

– Subsequent training» Online or traveling consultants

• Brand name– Gain immediate customer recognition– Break-even is reached sooner

– National advertising• Impossible for small business to conduct • Attract customers from outside the immediate

geographical regions

– Acquisition of a proven business• Entrepreneur face high rate of failure• Franchiser has track record

– Selecting appropriate site– Operating a reliable accounting system– Delivery a service already accepted by the public

– Economies of scale• Benefit from centralized purchasing

– Material, equipment

• Issues for the franchiser– To expand rapidly with minimal capital

requirements– Screening potential franchisee• Necessary capital• Competent to run a business

– Franchisee autonomy• Amount of freedom permitted in operation

– Uniform standard of quality– Throughout the entire chain

• Franchiser specifications– Day-to-day operations, price, menu items, …

• Frequent inspections• The right to purchase the outlet for noncompliance

– Franchise contract• Prevent misuse control and power of franchiser

– Specific obligations to franchisee– Ambiguous obligation to franchiser

• Facilitate cooperative relationship• Preserve competitive strength of the entire franchise

– Conflict resolution• How should fees be established and profits distributed• When should facilities be upgraded• How are cost to be shared• How far to saturate a single market

Globalization of Services

• Globalization is more than duplicating service overseas– Federal express• 1988 began international delivery

– First quarterly loss

• Face competitions from DHL, TNT• Unprepared for government regulations

– Took 3 years to be permitted to fly Memphis to Tokyo directly– No package weighing more than 70lbs allowed

• Obsession with tight central control– All shipping bills were printed in English– Cut-off time for package pickup is 5pm

» Spain typically work until 8pm after a lengthy midday break

• Lack of supporting infrastructure– McDonald’s Moscow

» Teach local how to plant and harvest potatoes, tomato

– Most growth opportunities comes from overseas

• Generic International Strategies– Global integration• Economies of scale (commodity)• Opportunity to exploit certain assets (Google search)• Competitive advantage globally

– Local responsiveness• Customization• Government control

• Global strategy– The world is one big market• Doing business

– in a homogeneous way– or integrated across countries

• Ikea• Singapore airlines• Citibank, global retail bank

– Do banking anywhere, anytime, anyway

• Multidomestic strategy– Professional service firm

– Law– Consulting

• Overseas offices– Autonomous units– Serving the needs of local market

• Transnational strategy– Leveraging certain corporate assets• R&D expertise

– Service delivery adapted to local needs• Toy”R”us

– Formula store layout– Centralized procurement– Address local toys tastes

• The nature of the borderless world– Customers worldwide• Aware of the best products and services• Expect to purchase them with no concern over their

national origin

– All firms compete in a interlinked world economy• Five “C” for strategic planning

– Customers• People vote with their pocketbooks

– Price, quality, design, value, and personal appeal

• The availability of information– Empowered customers– Stimulated competition

– Competition• Nothing stays proprietary for long

– Rapid dispersion of the technology available to all firms

• Time & being the first move– Critical to strategy

• Operating globally means operating with partners– A single firm can not be on the cutting edge of all technology

– Company• Variable-cost vs. fixed-cost environment• Service firms are fixed-cost activities

– Huge investments in facilities and equipment– Airlines

» Increasing sales is more important than cost cutting

– Currency• Becoming currency-neutral

– Fluctuating currency exchanges– Hedging & options

– Country• Presence in all Triad regions

– North America, Europe, Asia

• Exposure offset– Economy downturns in one region can be offset by others

• Neutralize competition– Selling in competitor’s domestic market

• Planning transnational operations– Internationalized the elements of strategic service

vision• Cultural transferability• Labor market norms• Host-government policy

– Culture transferability• Balance global standardization with local customization

– Muslim faith does not allow interest charges on loans– Asian does not speak out for potential problems

– Labor market norms• Power distance index

– Degree of equality between people in the society

• Individualism– Degree of society reinforce individual or collective

achievement

• Masculinity– Degree the society reinforce the traditional masculine work

role model

• Uncertainty avoidance index– The level of tolerance for uncertainty and ambiguity within

the society» Low: rule-oriented society» High: accept changes, take more risks

• Long-term orientation– Degree the society embrace long-term devotion to traditional,

forward thinking values

– Host-government policy• Creative discrimination forms

– Banning the sales of insurance by foreign firms– Preferential treatments to local shippers– Restrictions on international flow of information– Airlines landing rights

Global service strategies

• Multicountry expansion• Franchising• Cookie-cutter approach

– Service are routine– Customer-contact operations• Sensitive to local culture• Hire and train locals to handle

• Importing customers– Multiservice single site strategy• Prestigious college• Medical center (Mayo Clinic)• Disney world

– Customer-contact employee• Foreigner language skills• Cultural sensitivities• Accommodation, logistics & transportation

• Following your customers– Follow corporate clients overseas• 陸客團• Serve customers adequately wherever they go

– Weakness• Ignore the vast local opportunities• Competition is free to grow locally

– Straddle• Might lost focus

• Service offshoring– A class of outsourcing

• Back-office operations overseas

• Customer-contact locally

– Dell• Call center to India

– Benefits• Cost saving

– Costs• Training• Instill a cultural

understanding• Adverse employee morale

• Beating the clock– Use time-zone shift to gain competitive

advantages• Able to provide 24-hours service despite the local work

hours closed

– Time compression of the (software) development process

– Electronic means for 24/7 services