Agency Problem in KFC, Nepal

Business Research Project Report

4/1/2022

Submitted By:
Rakshya Pandit
Sneha Awal
Pratima Aryal
Sangeet Katila

Submitted To:
Apex College
Economics Department
Under the Supervision of
Prof. Bindu Raj Khanal
(Lecturer & Associates in Graduate Programs)
In the partial fulfillment of the requirement for the
Masters of Business Administration (MBA)

Kathmandu, Nepal
 ACKNOWLEDGEMENTS

First and foremost, we would like to express our heartfelt appreciation to Mr.
Bindu Raj Khanal, our research paper supervisor, for his invaluable supervision
and direction in finishing this study. Without his help and a few pointers on how to
write a project report, this research study would not have been completed. We
would like to express our heartfelt thanks to APEX College for allowing us to
complete this research project as part of our Master of Business Administration
(MBA) degree requirements. We were able to broaden our knowledge and abilities
as a result of this research investigation. We also want to offer our deepest
appreciation to everyone who has helped us complete this research project. Their
efforts are much valued and recognized.
 Table of Contents

Chapter 1: Introduction ............................................................................................. 4

1.1 Background of the Study................................................................................. 4
1.2 Introduction of Agency Theory....................................................................... 4
1.3 Introduction to Agency Problem ..................................................................... 5
1.4 Research Objective.......................................................................................... 5
Chapter 2: Agency Problem at KFC ........................................................................ 6
2.1 Introduction to KFC ........................................................................................ 6
2.2 KFC in Nepal .................................................................................................. 7
2.3 Agency Problem in KFC ................................................................................. 8
Chapter 3: Conclusion ................................................................................................ 9
Chapter 4: Summary ................................................................................................ 10
References .................................................................................................................. 11
 Chapter 1: Introduction

1.1 Background of the Study

The study's goal is to identify and comprehend the company's agency

problem, as well as how to solve it. The agency problem can occur in any
business as a result of a disagreement between shareholders and the company's
executive or between employees and management. We chose Kentucky Fried
Chicken for this report (KFC). In this section, we will cover the many sorts of
agency challenges that KFC has, as well as how KFC handles these agency
problems.

1.2 Introduction of Agency Theory

An agency refers to a relationship comprising two parties, where one party, called the
agent, represents the other party, called the principal. An agent is usually hired by the
principal to perform an act or service on his behalf. By implication, the agent doesn't
only use the principal's resources, but also makes decisions with the resulting risks to
be borne by the principal alone.

This makes agency relationships complicated as disputes, disagreements and conflicts

of interests do arise. When the aspirations of the principal and the agent don’t align,
we have a principal-agent problem. This informs the need for a concept like agency
theory to regulate how an agency works.

The agency theory explains how to best organize agency relationships so as to prevent
conflicts and other issues that arise between agents and principals. There are two key
assumptions underlying the agency theory, and they are:

1. Individuals are generally egoists who act in their own self-interests. In short,
both the principal and agent are out for their own benefits.
2. Agents have access to more information and are usually in a decision-making
capacity.
1.3 Introduction to Agency Problem

The agency problem is a conflict of interest that arises when agents do not
adequately represent principals' best interests. Agents are hired by principals to
represent and act on their behalf. Agents are commonly engaged to help
organizations acquire new skills that the owners lack, or to complete tasks for
the firm's investors. The management team of a firm and the corporation's
shareholders symbolize this connection in the business sector. In other
circumstances, the agent is the managing director of an investment business,
and the principals are the investors. It is a very prevalent problem that can be
found in practically every organization, whether it is a church, a club, a
corporation, or a government agency. It is a conflict of interest that occurs
when persons who are interested in duties abuse their power and influence for
personal gain. It can only be resolved if the organizations involved are willing
to do so. Agents are delegated decision-making authority by principals.
Because the agent makes numerous financial decisions that influence the
principal, there may be conflicts of opinion, as well as disparities in priorities
and interests. The interests of a principle and an agent are not necessarily
aligned, according to agency theory. The principal-agent issue is a term used to
describe this situation.
A principal's resources are used by an agent by definition. The principle has
been entrusted with funds but has little or no control over the day-to-day
operations. The agent makes the decisions, but he or she takes little or no risk
because the principal will cover any losses.

1.4 Research Objectives

The following are the study's key goals:

•To be aware of the agency's issue.
•To be aware of real-world examples of agency issues.
•To figure out what kind of agency problem KFC had and how it happened.
•Understanding how to deal with such agency issues.
 Chapter 2: Agency Problem at
KFC

2.1 Introduction to KFC

KFC is a fast-food restaurant chain that specializes in chicken. KFC

(Kentucky Fried Chicken) is the world's second largest restaurant chain, after
McDonald's, in terms of sales, and the world's most popular chicken brand, with
over 19,500 locations in over 115 countries and territories. KFC's menu has
expanded to include grilled chicken, chicken strips, chicken sandwiches, hot
wings, and desserts in addition to its famed Original Recipe pressure fried chicken
("11 herbs & spices") and side dishes. During the Great Depression, "Colonel"
Harland Sanders launched KFC in Kentucky in 1930. Pete Harman created the first
Kentucky Fried Chicken franchise in Salt Lake City, Utah, in1952, and introduced
the "Bucket O'Chicken" in 1957.

Harman is also responsible for the slogan "it's finger-lickin' good." Yum!
Brands, which also owns Pizza Hut and Taco Bell, owns KFC Corp., which is
situated in Louisville, Kentucky.
Yum! Brands is one of the world's largest restaurant brands, with about 42,000
outlets in over 125 countries and territories. KFC franchisees have had the choice
to co-brand with Taco Bell or Pizza Hut over the years. The KFC system feeds
more than 12 million consumers every day, according to company estimates.
Although the stores do offer in-store eating, the majority of purchases are taken
out or to-go. Yum! Brands stated in 2015 that KFC would begin delivering in
2016, further extending its client base.
KFC claims that more than 1854 million people view a KFC commercial at
least once a week, indicating that the company engages in intensive marketing to
keep the brand in consumers' minds. KFC was also one of the first companies to
embrace social media to attract and engage customers. The Yum! Value Network
provides ongoing support to KFC franchisees, including brand recognition,
customer attraction, competitive advantage, franchise value system, multi-unit
growth, economic stability, community giving back, development expertise,
access to financing, solid business support, quality onboarding and training, a
reliable supply chain, and return on investment.
 Founded 1952
Corporate Office KFC’s Corporate
P.O. Box 725489 Atlanta, GA 31139
Industries Food, Chicken, Multi-Units, Woman Based

2.2 KFC in Nepal

Under the umbrella of Ravi Kant Jaipuria's RJ Corp, Devyani International

announced the introduction of KFC and Pizza Hut outlets in Nepal in 2009. This
was Nepal's first global restaurant chain. RJ Corp. is the largest bottler of Pepsi
brands in India and Nepal, as well as the largest Yum franchisee in India, operating
Pizza Hut and KFC. Devyani International, in partnership with Yum Brands, the
world's largest restaurant corporation with five dynamic global brands and 35,000
locations in 105 countries, is pleased to enter the Nepalese restaurant sector and has
ambitious development and expansion ambitions.
In 2009, they opened their first two stores on Durbar Marg, believing that
Nepalese consumers are ready for an international dining experience. According to
RJ Corp executives, Nepal is a potential market for these companies, and their
arrival would improve the Nepali economy by providing jobs for people. The
launch of these stores will provide Nepali customers with their first taste of an
international food chain on their own soil. They've promised a flurry of
announcements and product releases in the near future, making this a thrilling
moment for customers. NMB Bank Limited is Devyani International's financial
partner in introducing Pizza Hut and KFC to Nepal.
Devyani International has been running two restaurants in Durbar Marg
since 2009, following the establishment of KFC in Nepal. It opened two more
locations in Tripureshwor's Blue-Bird Mall in 2012. Prior to its shutdown, it
employed 155 people. According to Santosh Jha, financial director of Devyani
International Nepal, the daily turnover from the four restaurants was roughly Rs 1
million.
2.3 Agency Problem in KFC

In August of 2012, KFC ran into an agency issue. After a three-point

agreement between the employees and the management, outlets of multinational
fast food giants KFC and Pizza Hut reopened on September 17, 2012. KFC, Nepal's
largest fast-food brand, had been shuttered for more than a month. Devyani
International, a subsidiary of Varun Beverages that owns KFC and Pizza Hut
restaurants in Nepal, wrote to authorities on August 14, 2012, announcing the
immediate closure of all four KFC and Pizza Hut shops in the capital. "Some
personnel have physically attacked and threatened to kill senior management in
order to disrupt operations," the letter stated. RJ Corporation, an Indian
multinational, owns Devyani International. Several conflicts and a controversy
plagued it during its tenure. KFC and Pizza Hut locations were forced to close due
to disagreements with labor leaders.

Director of Devyani International Rohit Kohli told national daily Republica that
union leaders at KFC and Pizza Hut had crossed lines on the subject of pay at
different times. "KFC and Pizza Hut employees earn roughly Rs 24,000 on
average." "However, they demanded more," Kohli explained. "We had no choice
but to withdraw from Nepal as a result of this." "KFC and Pizza Hut might never
return to Nepal," he added.

Because the management was pursuing action against the lawbreakers who
threatened to kill the managers, the matter took nearly a month to resolve. It also
demanded a promise from the workers that they would not engage in such
aggressive behavior in the future. After taking action against 22 employees who
assaulted a business senior manager, the firm's management opted to reopen the
stores.
 Chapter 3: Conclusion

It is unavoidable for employees and management to clash. Conflict exists in

every institution. There is no such thing as a conflict-free organization. If managed
effectively, conflict may be an opportunity for the company. The proper handling
of conflict always results in great consequences for the company. Conflict should
be seen positively by management, and it should be resolved as quickly as feasible.
The study's goal was to learn more about the agency problem, how it occurs in
organizations, and how companies deal with it. We used the example of KFC to
better understand agency issues. We learned that the agency problem relates to
conflicts between employees' and supervisors' interests.
It occurs in any business when management fails to meet the needs of
employees. In 2012, KFC encountered the agency dilemma as well, as the
company was unable to meet various demands from its employees. As a result,
there was a confrontation between employees and management at KFC in Nepal.
It had to incur many losses as a result of the agency difficulty.
 Chapter 4: Summary

The dispute between employees and management can cause the agency
problem to occur in any firm. The agency problem may disrupt an organization's
operations, leading to significant strikes and other damaging actions, as well as the
organization's demise. As a result, management should solve agency issues as soon
as possible and strive to meet the true expectations of employees appropriately.
This can aid the organization's long-term survival, preserve excellent ties between
management and employees, and foster a calm working environment.
Employees should be able to legally demand the items they require. As a
result, the agency problem might be remedied by collective bargaining based on
employee desire. When management is unable to meet the demands of employees
by raising their salaries, the firm should give additional benefits to them. This
might encourage individuals to think ethically and stay on the job.
Another option for resolving this sort of agency problem in any business is
to enlist the assistance of experienced diplomats. This can assist in resolving
agency issues with minimal or no damage.
 References

Business, R. f. (2021, 12 25). KFC Corporation - Company Profile, Information, Business

Description, History, Background Information on KFC Corporation. Retrieved from
Refrence for Business:https://www.referenceforbusiness.com/history2/99/KFC-
Corporation.html

CHEN, J. (2021, 12 25). Corporate Finance & Accounting. Retrieved from

Investopedia:https://www.investopedia.com/terms/a/agencyproblem.asp

KFC, Pizza Hut closure against Labour Act: Employees. (2021, 12 25). Retrieved from
Nepanomy:https://nepanomy.com/kfc-pizza-hut-closure-against-labour-act-
employees/

Kumari, R. (2021, 12 25). KFC Story: History, Challenges and Current Status. Retrieved from
analyticssteps: https://www.analyticssteps.com/blogs/kfc-startup-story-history-challenges-
and- current-status

LEWIS, A. (2021, 12 25). KFC Facts You Never Knew. Retrieved from
delish:https://www.delish.com/uk/food-news/a32473585/kfc-
facts/

Lewis, D. (2021, 12 25). 15 Finger Lickin’ Good Facts About KFC. Retrieved from Facts
site:https://www.thefactsite.com/kfc-facts/

Mankiw, N. G. (1998). Principles of Economics. Boston: Cengage.

Singh, R. (2021, 12 25). KFC Interesting Facts | Unknown Surprising Facts About KFC. Retrieved
fromStartup Talky: https://startuptalky.com/kfc-interesting-facts/

yum. (2021, 12 25). kfc. Retrieved from Yum:

https://www.yum.com/wps/portal/yumbrands/Yumbrands/company/our-
brands/kfc