My resolution of the international growth issue faced by NYF in early 2000's.

1. Developing an International Growth Strategy at New York Fries
Raoul Gauthier Individual Assignment 21st
of March 17
New York Fries (NYF) is well-known for its high quality hand-cut potatoes fried in a
non-hydrogenated, trans fat-free, sunflower oil. After having exploited all Canadian’s top-tier
malls, with the exception of Quebec, they had to find and take new growth opportunities as
the original market was saturated. Moreover, the management have seen in emerging
markets a significant international growth opportunity coming from the steadily raise in
purchasing power generated by a favorable economic climate in those countries, and from
remarkable convergence of customer needs through globalization resulting in a greater affinity
for Western culture and food. They believed that they could make the poutine become a
popular dish all around the world.
The company decided to internationalize itself under a master franchise system. It
means that the franchise owners have bought the right to operate NYF in prior agreed
locations/geographical areas. NYF will then get upfront fee and monthly royalty depending
on the turnover, NYF also encourages franchisees to open new local stores by giving back
some part of fees for the next five stores opened. Franchising is a commonly used way of
internationalization because it can provide additional recurring source of income with
minimal up-front investment while lessening the risk compare to the opening of a wholly-
owned branch in new countries. Indeed, franchising is a great way to reduce the risk of
failure as the most qualified and hardest working people generally prefer to invest in running
a business in return for profits rather than taking a salary as an employee1
. Moreover, this
strategy of entry enables NYF to take advantage of franchisee’s local market knowledge
to provide local insight and thus ease and speed up the local establishment. Furthermore, the
managerial complexity of the franchise model is also advantageous as franchisees are
left to manage their franchises on their own. Nevertheless, franchising a business also implies
several drawbacks when rules are not well defined enough.
NYF had experienced growth difficulties in some countries where they had entered
over the years, notably South Korea and Australia. One reason for these failures is probably
the lack of control that NYF had on its franchisees due the distance and the too high level
of trust. Indeed, after signature of the contract, NYF was not allowed to tell franchisees what
to do the way they do with the employees of their wholly-owned stores. Franchisees are
independent businesses that are contractually force to follow predefined rules in order to
maintain a standard level of quality associated with the brand name. Moreover, they have
different goals and sometimes different visions from the franchisors, which can easily
conflict and even lead to legal trouble. Therefore, it is necessary, at the moment of the
negotiation, to clearly state into the franchise agreement all the guidelines and the rules
that have to be followed under the threat of not closing the deal. These rules aim to minimize
the risk of potential brand damage inflicted by licensee’s behaviors. However, the mutual
trust between franchises and NYF is key for the foundation of a long term relationship.
A constant mention of the agreement to determine how the operation should be run, could
negatively impact this trust and thus the future success of the franchisee. This observation
1
nibusinessinfo.co.uk. (2017). Advantages and disadvantages of franchising your business. [online]. Retrieved
15 March 2017.

2. directly leads to the second reason of NYF franchisees’ failures in South Korea and in
Australia: the franchisee preliminary selection.
The selection of people with the right competencies and their training will play an
important role in the sustainability of the mutual trust. Often, people prefer franchisee
because it is a proven system with all the training and support from the headquarters.
However, franchisees have to keep in mind that franchising is one of the types of business.
Thus, like every other business, it requires the managers to have good people skills,
marketing, strategic plans, and also experiences. Without theses, businesses and more
particularly franchises - like the NYF’s South Korea franchisee - are more likely to show poor
growth and in the long run to fail.
Directly linked to the preliminary assessment of the potential franchisee fit, Gould did
a mistake when underestimating the importance of fund requested to start a new NYF
shop. People are often making mistake of thinking that having enough fund to buy the right
to franchise is enough, when in reality it is not. Indeed, local economic environment,
competitor and unexpected event might easily drain the costs of franchising. The lack of
fund of the Australian franchisee to open at a strategic location where market is easily
available resulted in poor sales as consumer turned towards other fast food competitors
located at more convenient and strategic places. The error ultimately emphasized that to
qualify the appropriate candidates and to limit the risk related to the lack of financial
resources, NYF needs first and foremost to request a certain minimum of cash and of
equity.
After having faced these issues with their franchisees and having learned from their
mistakes, NYF was again ready to take new growth opportunities and to adapt their strategy
to their new objectives. Even though, a new expansion possibility had been identified in China
and India, and that the eventual internationalization of the SSBC brand was on the table, the
main concern was on the conservation of the brand quality while expending the concept.
Maintaining the premium image in a new market can be though for deferent aspects such as
the culture, the management style, etc. Therefore, NYF should carefully assess the different
markets attractiveness first, define if the brand should adapt itself to local taste and then
choose the right method of entry regarding the strategy chosen.
There is no doubt that China and India are potential market with a growing middle
class, but the culture is tremendously different than previous NYF’s locations. Global
companies, such as NYF, face a strategic question when aiming to enter emerging markets:
What should they do to localize their offerings? Should they review their existing products
just enough to appeal to those new consumers? Or should they rebuild the business model
from the ground up? The first stage to efficiently answer those questions is to learn from
other’s failures and successes. Generally, U.S. retailers and food corporations tend to cling
to what has worked in the past on their local market, but is it the right strategy? Taco Bell2
is
perfect example to emphasize the importance of local tastes. The TexMex fast-food chain did
not adapt its offer and was shut down in China after a five-year experiment. Mexican food did
not appeal to Chinese consumers. On the opposite, KFC build a successful local strategy for
which it rethinks the whole model. The company’s managers worked to tailor the brand so
that consumers would see KFC as part of their community, offering the variety of foods and
the traditional dishes that appeal to Chinese customers tastes. Based on these observations,
NYF should avoid doing the same mistakes and therefore should review its menu to match
local culture whether it decides to enter India or China. The adaptation strategy is also
applicable to the restaurants’ organization and locations. For example, Chinese
2 KFC’s Radical Approach to China. (2011). Harvard Business Review. Retrieved 20 March 2017

3. customers are often shopping in malls in family3
and are less likely to spend a lot of times in
those than western customers4
. Delivering what people want instead of what they might want
is key to success. An advice regarding that strategy should be to adapt toppings, sides
to the local taste as well as the shops to the customers shopping behaviors.
For long time, franchising has been the way of proceeding in fast-food industry,
as it reduces investment costs and risk and enables quick geographic expansion. It works
great when experienced, entrepreneurial candidates are available to manage franchises and
when restaurant operations are relatively straightforward and built around a limited offering of
easy-to-make dishes. Nevertheless, for the reasons previously evoked, this system is not
perfect and would be even more problematic for markets having a strong culture and
low economic freedom.
An other entry mode possible would be a system of joint venture for which risk and
control are split among equity partners. This strategic alliance could be a good solution to
the problems of monitoring and of NYF’s brand maintenance previously encountered, as
the joint venture would be controlled by a board of directors consisting of people from all
partners involved. Furthermore, a joint venture is quick entry mode that potentially generates
higher financial return than a franchise while still having access to a certain market knowledge
from the partner. Even though, a joint venture seems to be a best compromise between a
franchise and a wholly owned venture for highly attractive and politically difficult markets,
such as India and China, some attention points should be carefully assessed. The selection
of the right local partner(s) is the most critical decision for a good joint venture. The
NYF’s partner should be chosen based on its strategic fit with the NYF’s long-term
objectives, its capabilities fit to fill potential gaps such as the problem of local suppliers
and finally its organizational and cultural fit in order to avoid a possible “Death Valley”
period.
Beside of its potential expansion in these new emerging markets, NYF should in
parallel focus itself on the development of the SSBC brand on its original market where plenty
of growth opportunities remain. It will enable the company to keep a balanced portfolio
between cash generation and and cash usage.
In conclusion, NYF will face new customer expectations that could have a significant
impact on its profitability and should therefore adapt itself to its environment. To do so, NYF
should keep a certain level of control over the local shops, through a joint venture, to properly
manage the entrance while keeping the quality associated to the brand. Moreover, a split of
ownership with a local player will ease the process.
3 Here comes the modern Chinese consumer. (2016). McKinsey & Company. Retrieved 17 March 2017, from
http://www.mckinsey.com/industries/retail/our-insights/here-comes-the-modern-chinese-consumer
4 Cai, Y., & Shannon, R. (2012). Personal values and mall shopping behavior: The mediating role of attitude
and intention among chinese and thai consumers. Australasian Marketing Journal, 20(1), 37-47. Retrieved from
https://search-proquest-com.ezproxy.ulb.ac.be/docview/934892241?accountid=17194