Conflict Between Yum! Brands and the Chinese Government which Limited Yum's! Growth in China
Background
Yum! Brands recent explosive growth in mainland China is viewed by many to be an excellent example of how an American company and brand name can successfully enter the Chinese market. The success story is true but if one looks at the steps taken in expanding into China, one would see that this recent success is the result of many years of work and significant financial investment.
Yum! Brands Inc. is the world's largest restaurant operator with over 33,000 outlets worldwide. The company operates five different restaurants, KFC, Pizza Hut, Taco Bell, Long John Silver's and A&W All American Food. The company was formed in 1997 when KFC, Pizza Hut and Taco Bell were spun off from parent PepsiCo creating Tricon Global Restaurants Inc. Since then, the company has acquired the Long John Silver's and A&W All American Food chains placing the company firmly in five different quick serve market segments. After the LJS and A&W acquisitions, the company changed its name to Yum! Brands Inc. Yum! can be considered one of if not the largest competitor in the quick serve restaurant industry. With a market capitalization of over $14B, sales of over $9B, net income over $720M and cash flow over $1.1B for FY2004, the company is a cash generating machine. This cash generation is badly needed. While former parent PepsiCo provided the initial investment and placed the company in its current position, PepsiCo also left the company with a huge debt burden. In 1997, Yum!'s long term debt was $4.7B but through intense growth and the resulting revenue over the past 7 years, that debt has been reduced to j ...