The global strategic of McDonalds Essay
The global strategic of McDonalds
The McDonald’s Corporation is one of the most successful global restaurant chains around the world. They have used effective management and global expansion strategies to enter new markets and gain a share of the foreign fast food market. This report presents how McDonald’s has achieved this enormous success, its best practices in the global food industry, international growth trends and challenges, and effect on its operating income and number of increasing restaurants across the globe from their expansion in foreign countries. Overall, the case provides a discussion of how McDonald’s enters into a foreign market and what strategies it uses in order to be a dominant leader in the fast food industry at low cost. This case focuses on McDonald’s international success, and strategies and benefits that it got from the franchise business. Objectives of the Study
The primary objective of the research will be to understand various global business strategies adopted by McDonald. The other objectives are:
To find how these strategies are influenced by the external environment. To find out the growth pace of McDonald around the world.
To study the advantages of Franchise business and its impact on McDonald. Research Methodology
The report is based on exploratory research based on secondary data such as reviewing available literature and/or data. Data Sources
Research Papers and Case Studies: HBR and Other University – Management Institute Research & Case Journals. Articles from Business Magazines: Bloomberg, The Economist, Fortune & Forbes Publications by Global Consulting Firms: Mc Kinsey Quarterly & Other MCK, and O&M Publications International Business References: The McGraw – Hill’s International Business INTRODUCTION
Although there has been considerable examination of the perceived global success of McDonald, I have included in my report, apart from the global strategies McDonald has used in entering new markets and shutting down the rival’s business, how it gained advantage by selling franchise. Knowing the external environment is crucial for the success/downfall of any business corps, how McDonald is impacted due to the several environmental factors across globe. The report throws light on the growth pace of the company right from its birth. It will benefit any reader in understanding McDonald’s success. Through this report, the operating profit of McDonald is highlighted in terms of its franchise business and own restaurants. It also shows the number of increasing restaurants across the continents. The next section incorporates a review of the literature and presents the research problem. Then, the methodology used to conduct the study and the findings are explained. Lastly, the theoretical and practical ramifications of this study are discussed followed by conclusion. Literature Review
Internationalization theory, which is the prominent theory in international business regarding how firms expand overseas, is a behavioral theory that suggests that firms minimize the uncertainty associated with going abroad by doing so only gradually, starting with modes of entry that involve little commitment, such as exporting, and only increasing their involvement in those markets where they have found success (Johansen & Vahlne, 1977 and 1990). This view of international expansion is not inconsistent with the options value approach, where firms also commit resources only gradually and thus have occasion to update their evaluation of different opportunities. Internationalization theory, however, with its focus on risk aversion, also suggests that firms expand abroad only once they have exhausted opportunities within their home market, and that they then expand first in markets that are “familiar” to them, namely markets similar culturally or in close geographic proximity to those they are already in, and that they exhaust opportunities in each market before moving into new ones.
Economic theory suggests instead that the firm will continuously pursue best opportunities across all markets. In 1983, Theodore Levitt published a provocative Harvard Business Review article entitled “The Globalization of Markets”, in which he stated that a new global market, based on uniform products and services, had emerged. He asserted that large scale companies have stopped emphasizing on the customization of their offers to providing globally standardized products that are advanced, functional, reliable and low priced. He argued that informed customers were heading toward a “convergence of tastes”; thus corporations should exploit the “economics of simplicity” and he maintained that the future belonged to global corporations that did not cater to local differences in taste but, instead, adopted strategies that „operated as if the entire world (or major regions of it) were a single entity; such an organization sells the same things in the same way everywhere”. If a company forces costs and prices down and pushes quality and reliability up – while maintaining reasonable concern for suitability –customers will prefer its world-standardized products (Levitt, 1983). “Everywhere everything gets more and more like everything else as the world’s preference structure is relentlessly homogenized”.
In his article, Levitt used a lot of examples that represent the definition of globalization like Coca Cola, Pepsi, McDonald’s; and that made the article even more credible. The business strategy approach to internationalization stressed pragmatism and stated that the foreign expansion decision is contingent on trade-offs between variables like the nature of the market opportunity, ﬁrm’s resources and managerial philosophy (Reid, 1983; Welford and Prescott, 1994). Subsequent studies (Dunning and Bansal, 1997; Dunning, 1988) argued that explanations of a company’s internationalization process should be rooted in economic theory and that the decisions to internationalize and choice of entry mode were motivated by culturally-based ownership, location and internalization advantages. Economic theory was also used to model national attribute conﬁgurations that account for efﬁciency, competitive advantage in certain industries and clusters, enabling ﬁrms to export efﬁciency and enhancing their potential for successful internationalization (Porter, 1990, 1998).
Thomadsen demonstrated that prices at fast food outlets located near other outlets belonging to the same chain often charge high prices to avoid cannibalizing sales between the two outlets. These price differences can be large, with prices at many restaurants 20 percent or higher than they would be if the restaurant owners did not worry about cannibalization. Now he finds that a firm may also charge higher prices when faced with a new competitor or product. He said that product-line expansion would affect profits .He said that when a firm adds products to its line, the profits of the incumbent firms in the market must go down. He used a standard economic model in this study. Consumers have different utility preferences. He explains that some people like one type of food while other people like a different type. There are also variations in location. So model consumers based on preferences, location and other factors likely to affect their behavior.´
He explains that his findings can be generalized to a variety of markets. According to him it is does not necessarily mean that competitors will lose profits and market share. There are conditions in which a new Tide might increase everyone’s profits. Kellogg’s can profit when a new type of Wheaties hits the shelves. And the opening of an Albertson’s in the right location could mean higher profits for a nearby Ralph’s. In fact, retail competition is one of the places where one firm’s expansion is most-likely to increase a competitor’s profits. McDonald’s Corporation
The McDonald’s Corporation is the world’s largest chain of hamburger fast food restaurants, serving around 68 million customers daily in 118 countries. Headquartered in the United States, the company began in 1940 as a barbecue restaurant operated by Richard and Maurice McDonald; in 1948 they reorganized their business as a hamburger stand using production line principles. Businessman Ray Kroc joined the company as a franchise agent in 1955. He subsequently purchased the chain from the McDonald brothers and oversaw its worldwide growth. A McDonald’s restaurant is operated by a franchisee, an affiliate, or the corporation itself. McDonald’s Corporation revenues come from the rent, royalties, and fees paid by the franchisees, as well as sales in company-operated restaurants. In 2012, McDonald’s Corporation had annual revenues of $27.5 billion, and profits of $5.5 billion. McDonald’s primarily sells hamburgers, cheeseburgers, chicken, french fries, breakfast items, soft drinks, milkshakes, and desserts. In response to changing consumer tastes, the company has expanded its menu to include salads, fish, wraps, smoothies, and fruit.
McDonald’s restaurants are found in 118 countries and territories around the world and serve 68 million customers each day. McDonald’s operates over 32,000 restaurants worldwide, employing more than 1.7 million people. The company also operates other restaurant brands, such as Piles Café. Focusing on its core brand, McDonald’s began divesting itself of other chains it had acquired during the 1990s. The company owned a majority stake in Chipotle Mexican Grill until October 2006, when McDonald’s fully divested from Chipotle through a stock exchange. Until December 2003, it also owned Donatos Pizza. On August 27, 2007, McDonald’s sold Boston Market to Sun Capital Partners. Notably, McDonald’s has increased shareholder dividends for 25 consecutive years, making it one of the S&P 500 Dividend Aristocrats. In October 2012, its monthly sales fell for the first time in nine years. BUSINESS STRATEGIES ADOPTED BY MC DONALD
MCD has diversified its locations by operating over 32,500 restaurants in 118 countries, which decreases the company’s exposure to the intensely competitive fast food industry in the United States. Also, MCD serves an average of 68 million consumers each day. This per day figure has increased by $14 million (30%) since 2001 and $2 million over the past year. MCD currently divides its revenues into four segments: the United States, Europe, the APMEA (Asia, Pacific, Middle East, and Africa segment), and other countries (i.e. Canada and Latin America and corporate sales). Almost 65% of MCD sales are derived internationally. MCD focuses both on penetrating emerging markets and expanding in developed markets. SOURCE: McDonalds ANNUAL REPORT 2012
But just being McDonald’s isn’t enough — it’s doing a lot, domestically and globally, to stay ahead. Here are ten strategies that are keeping McDonald’s barreling forward: Focusing heavily on emerging markets
McDonald’s may seem like it’s already everywhere, but it hasn’t quite saturated the world yet. Over the past few years, McDonald’s has made a heavy push toward emerging markets. And not just trendy markets like China and India, but places previously devoid of the Golden Arches, like some African nations. Sales are up 8.1% from last year in Asia/Pacific, Africa and the Middle East. Still, China is McDonald’s most important international front, where it’s battling Yum brands whole heartedly. It plans to have a whopping 2,000 stores there by 2013. McCafé has been a big win
The McCafé has been demolishing expectations ever since the company started revving up its marketing machine for it in 2002. Now, there are 1,300 McCafé’s worldwide in dozens of countries, and it just keeps growing. Its latest moves have been to Ukraine, along with a national rollout in Canada. The McCafé menu has been growing as well, adding non-coffee items like smoothies over the past couple years. Offering a wider variety of food to attract more segments
It’s not just snack foods and desserts that it’s expanding into — there’s a whole lot more. McDonald’s is trying to get more consumer segments to chomp up its offerings by expanding non-traditional menu items, while keeping its core base of burgers-and-fries eaters. Many of the new items help combat McDonald’s ever-present negative image of unhealthiness, though it will likely never shake it fully. For instance, oatmeal has been a big hit for McDonald’s, serving as a replacement for high-calorie breakfast sandwiches. Additional types of salads have worked too, for people looking for a somewhat healthier option. Delivering food to customers in places that demand it
Though not traditional in the US, McDonald’s delivers in many markets around the world, and the company cites it as one of the reasons it has been so successful in those markets. Delivery is a common practice, even for fancy restaurants, in many Asian and Middle Eastern cities, so McDonald’s is just meeting the cultural norms of its surroundings. Making its stores more attractive to get customers in
McDonald’s is improving its physical locations to make them more appealing to customers, and it seems to be working. In China, it’s trying out a “Less is More” concept design, which goes with softer colors and cushioned seats. Also, over 95% of McDonald’s locations have extended their hours now, and it has several thousand stores that are open 24/7. Free Wi-Fi is now available in McDonald’s restaurants across the world, and lately it has made a big push to get flat screen TVs in the stores. It’s even starting up its own TV channel with original programming, called McTV. Increasing its offering of snack items
Americans love to snack on stuff, and McDonald’s has recognized that demand and answered with a plethora of new products. Smaller items like wraps, along with an expansion into desserts (which it plans to ramp up soon), have made their way onto the menu and have done well. Shortening its menu cycle
The most prominent example of this is the McRib, making an unprecedented second national appearance in two years. It took front and center this fall and was incredibly successful, driving a 4.9% gain in same store sales. Special edition McFlurries have been in and out of menus too, along with limited time smoothies. This sort of menu cycle is a move toward a more European model, which swaps out new menu items every six-to-eight weeks, reports Nation’s Restaurant News. Importing more of its successful niche products internationally McDonald’s has an incredible variety of culture-specific food items across the planet, and most wouldn’t stand a chance internationally. But some are winners, and the company has started to test them out in other markets. One example is Australia’s Chicken McBites (think popcorn chicken), which are now being tested in Detroit, Michigan. Then there are full-size wraps, common in Europe, which are being tested in new markets like the U.K. They have so many of these products that some are bound to be hits, it just has to find the correct area to expand them to. Expanding its dollar menu to breakfast
McDonald’s fired up a breakfast dollar menu in 2010 as the economy continued to slump, which supplemented its existing dollar menu for its usual fare. It has been working well thus far, capitalizing on Americans’ attraction to the super-cheap in times like these. But even before that, its breakfast business was growing, just at a lower rate than normal. Competitors like Burger King and Dunkin’ Donuts have made their own types of dollar menu, but nobody has had the widespread success that McDonald’s has enjoyed. And it hasn’t been scared to take anybody on
Many of these expansions drew looks from brand new competitors, because McDonald’s was encroaching on their territory. In most cases, McDonald’s leveraged its size and brand to attack head on. McCafé is the most obvious example, and it has performed admirably against Starbucks and Dunkin’ Donuts. Its upcoming expansion into desserts is likely to concern Dunkin’ even more, along with niche dessert chains like Dairy Queen. But there’s plenty of risk in doing this. As it opens itself to more fronts than ever, it has more big, powerful brands breathing down its neck, and even more complexity to worry about in its internal operations. The new strategy
In 2003 McDonald’s switched to generating more sales from its existing restaurants. In 2013 around 90% of the company’s growth is expected to come from incremental sales at its existing restaurants. Capital expenditures for new restaurants decreased $544 million in 2013 because the company opened fewer restaurants and focused on growing sales at existing restaurants including reinvestment initiatives such as restaurant reimaging in several markets around the world. Source: Company’s Financial Report 2012
How it reached to the every corners of the world
In 1940, McDonald’s operated only one QSR but today has restaurants at 33,000 locations in 118 countries. McDonald’s utilizes a variety of international market entry modes for rapid expansion: sole ventures, franchising, master franchising and joint ventures. 15% of McDonald’s branded restaurants are operated as sole ventures. This involves a significant capital commitment but allows the highest degree of control. Most restaurants are operated as franchises, allowing rapid expansion without high capital requirements. Franchising has also allowed McDonald’s to benefit from local knowledge, demonstrated by the menu differences by country. The combination of the master franchisee’s local knowledge and McDonald’s brand and model has been a successful formula, allowing expansion whilst maintaining significant control. McDonald’s has also expanded internationally through joint ventures. Again, this allows for rapid expansion and utilizes the knowledge of firms in closely-linked markets. Since 14 both firms invest equity in the project, there is a lower financial risk for both parties. Using the 7P’s of marketing mix, McDonald earned business success at every part of the globe. Product
McDonald’s strives to offer a standardized service worldwide. However, the company is embedded with an ‘entrepreneurial spirit’ giving franchisees some local control and creativity, providing the service offering is of a high standard. Some of the most famous products including the Fillet o’ Fish, the Egg McMuffin and the Big Mac were created through franchisee innovation. Franchisees are given autonomy to adapt the products whilst the corporation maintains a high degree of standardization through quality control. The majority of well-known products are usually offered in all markets unless they do not suit local customs and religion. For instance, Big Macs are not sold in Indian outlets as the population is primarily Hindu. However, even ‘iconic’ products are adjusted to local taste such as providing spicier food in most Asian countries, allowing the company to overcome a variety of cross-cultural barriers. Price
McDonald’s has positioned itself as a fast-food outlet offering low-cost food and drink. The affordable menu has been adapted worldwide whilst maintaining their core goal of quality assurance. Ongoing innovation has allowed new pricing strategies such as the ‘Dollar Menu’ or its equivalent ‘Saver menu’ in the UK. In response to increasing food costs, McDonald’s opted to increase prices by less than 1%, adopting the change gradually to the menu in order to retain price-sensitive customers (Lockyer, 2011). Place (International Distribution and Supply Chain)
Although McDonald’s product offerings differ between countries, they operate a standardized global supply chain. This lean operation is 100% outsourced with no back-up system. The chain comprises of two tiers. Tier 2 suppliers are primarily food producers, whilst Tier 1 suppliers are processors. For example, a Tier 2 potato farm supplies a Tier 1 processing firm who turn the potatoes into French-fries and potato wedges. Produce is transported to distribution centers before allocation and delivery to individual restaurants. The success of the supply chain is attributed primarily to their commitment to outsourcing non-core activities to expert firms. McDonald’s supplier terms are rigorous; suppliers are expected to be accountable until the food is consumed and the end customer is satisfied.
Legally-signed contracts with suppliers are not used; all deals are made on a handshake because they operate a ‘one supplier – one product’ policy and maintain long-term relationships regardless of the external environmental conditions. McDonald’s has 30 – 35 stock-keeping units at the supply side, creating a streamlined operation. Sole distribution partners are responsible for the entire logistics process in designated geographical areas, whether it be the daily hamburger order, or a replacement appliance. McDonald’s continuously scrutinizes these partners to ensure they are meeting goals and benchmarks to improve efficiency. The ‘pull strategy’ allows individual restaurants to place orders with distribution centers, which then re-issue orders to suppliers who only produce the quantities ordered. This means suppliers hold little surplus stock, optimizing efficiency. Promotion
McDonald’s achieved 6th position on “Best Global Brands 2011” as a result of continuous promotional activities. The iconic “Golden Arches” are used in promotions globally. The “i’m lovin’ it” campaign, launched in 2003 used celebrity endorsement to increase their appeal to younger consumers. Justin Timberlake was used for vocals and the campaign was launched in 86 English-speaking countries and was adapted for non-English speaking countries. Recently, the “what we’re made of” campaign increased transparency and was used to fight against negative publicity regarding ingredients. People
At McDonald’s, service employees represent the brand at the frontline where customers have their first interaction with the organization. It is important that staff give a good impression and therefore, training is of paramount importance. Employees undergo rigorous on-the-job training in customer service, food handling and preparation. In addition, McDonald’s provides opportunities for managers and would-be franchisees to develop and hone their management skills through a dedicated facility – the Hamburger University (HU). HU has campuses worldwide and provides training for employees to improve their proficiency in managing the restaurant. McDonald’s aim is to create a vibrant working environment for staff and managers. This creates a chain effect whereby customers are positively influenced and are more likely to return. To re-create this chain effect in different markets, the recruitment and training processes are standardized globally. McDonald’s is always on the look-out for lively team players who are trained according to guidelines. Process
McDonald’s prepares and serves food rapidly. Strict guidelines and regulations are followed in food preparation to ensure high standards of hygiene and food safety. Customers can usually see the kitchen while being served, allowing transparency, so customers can eat in confidence. Food is mass-cooked and hot-held until service. However, due to the continual stream of customers, it does not deteriorate before consumption. To maintain its foothold as market leader, McDonald’s maintains a high degree of process standardization across all outlets to increase efficiency. This ensures that they have high standards of hygiene and food safety in all outlets. Physical Evidence
McDonald’s has a homogenous ‘look’ across their outlets from décor to staff uniform. Their global re-branding strategy furthers standardization, allowing consumers to areas, there are indoor playgrounds to satisfy customers. The company ensures that all franchisees comply with regulation regarding hygiene to maintain their reputation for cleanliness. Staff training is standardized globally to ensure customers are treated consistently. Advantages of a franchise business and its impact on McDonald Franchising requires less capital than other growth methods
Franchising permits your company to grow with capital invested by individual franchise owners. For the majority of Fran Source clients, the investment required to franchise their business is recouped through the sale of the first two to three franchises. Rapid Expansion
In today’s marketplace, the window of opportunity for a new or unique business concept closes very quickly. Franchising permits multiple units to be opened simultaneously, gaining a foothold over would-be competitors. Market Dominance
Multiple locations increase the company’s competitive advantage over similar type businesses. Franchising puts a “business owner” in charge
Franchising ensures that qualified “managers” are operating additional locations rather than employees. A new business demands a great deal of time, effort and sacrifice. Franchisees are motivated by their ownership of the business and the capital they have invested. Franchise locations may operate better and more profitably than “company owned” units Once again, this is due to the fact that a highly motivated owner is running the business rather than an employee. With their capital at risk, franchisees are much more motivated then employees to perform at their highest levels. Greater Buying Power
Franchisors that purchase products and services for their franchise network can often negotiate volume discounts from vendors and suppliers. Sharing a portion of the saving with franchisees provides higher operating margins and a competitive advantage over other similar businesses. Increased Name Recognition
As additional locations are opened, name recognition increases. In the United States, customer loyalty towards recognized brands is at an all-time high. Consumers typically feel more secure frequenting a business they recognize by name. Franchising permits an individual to benefit from the collective power and growth of the franchise network, which in turn leads to greater name recognition and competitive advantages for each individual franchisee. Increased Advertising and Marketing Budget
Franchisees may be required to contribute a percentage of their gross sales (or a set fee) to an advertising fund administered by the franchisor. This enables the franchisor to advertise in regional and/or national media for the benefit of the franchise network. New revenue streams are created
Franchisors earn revenue from many sources, including:
Franchise Royalty Fees
Advertising and Marketing Administrative Fees
Services provided to Franchises
Sales of Products & Supplies
Sales of Promotional Items
Rebates from Suppliers
Impact on McDonald
The Company’s revenues consist of sales by Company-operated restaurants and fees from restaurants operated by franchisees. Revenues from conventional franchised restaurants include rent and royalties based on a percent of sales along with minimum rent payments, and initial fees. Revenues from franchised restaurants that are licensed to foreign affiliates and developmental licensees include a royalty based on a percent of sales, and generally include initial fees.
Source: McDonald Annual Report 2012
• Franchised margins
Franchised margin dollars represent revenues from franchised restaurants less the Company’s occupancy costs (rent and depreciation) associated with those sites. Franchised margin dollars represented about two-thirds of the combined restaurant margins in 2012, 2011 and 2010. Franchised margin dollars increased $205 million or 3% (6% in constant currencies) in 2012 and $768 million or 12% (9% in constant currencies) in 2011. Positive comparable sales were the primary driver of the constant currency growth in franchised margin dollars in both years.
Source: McDonald Annual Report 2012 • Company-operated margins
Source: McDonald Annual Report 2012
RESTAURANT DEVELOPMENT AND CAPITAL EXPENDITURES
In 2012, the Company opened 1,404 traditional restaurants and 35 satellite restaurants (small, limited-menu restaurants for which the land and building are generally leased), and closed 269 traditional restaurants and 200 satellite restaurants. In 2011, the Company opened 1,118 traditional restaurants and 32 satellite restaurants, and closed 246 traditional restaurants and 131 satellite restaurants. The majority of restaurant openings and closings occurred in the major markets in both years. The Company closes restaurants for a variety of reasons, such as existing sales and profit performance or loss of real estate tenure.
Source: McDonald Annual Report 2012
Capital expenditures increased $319 million or 12% in 2012, and increased $595 million or 28% in 2011, primarily due to higher reinvestment in existing restaurants and higher investment in new restaurants. The higher reinvestment reflects the Company’s commitment to grow sales through initiatives such as reimaging in many markets around the world. The increase related to new restaurants reflects our commitment to broaden accessibility to our brand. Capital expenditures invested in major markets, excluding Japan, represented about 70% of the total in 2012, 2011 and 2010. Japan is accounted for under the equity method, and accordingly its capital expenditures are not included in consolidated amounts. The Company owned approximately 45% of the land and about 70% of the buildings for restaurants in its consolidated markets at year-end 2012 and 2011.
Source: McDonald Annual Report 2012
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
The Company has long-term contractual obligations primarily in the form of lease obligations (related to both Company-operated and franchised restaurants) and debt obligations. In addition, the Company has long-term revenue and cash flow streams that relate to its franchise arrangements. Cash provided by operations (including cash provided by these franchise arrangements) along with the Company’s borrowing capacity and other sources of cash will be used to satisfy the obligations
Source: McDonald Annual Report 2012
The Company has significant operations outside the United States where it earns over 60% of our operating income. A significant portion of these historical earnings are considered to be indefinitely reinvested in foreign jurisdictions where the Company has made, and will continue to make, substantial investments to support the ongoing development and growth of their international operations. Accordingly, no U.S. federal or state income taxes have been provided on the undistributed foreign earnings. The Company’s cash and equivalents held by its foreign subsidiaries totaled approximately $2.1 billion as of December 31, 2012. The external environment and its effect on strategic marketing planning of McDonald Political/legal factors
Political environment consists of the government activities covering the economy and its subdivisions. Ecological regulation, business margins, tariffs, income tax policy, labor rule and political constancy are some of the main components of it. The safety, schooling, and infrastructure of a nation are also the concern of government. While operating globally, different types of taxes cover up a significant company obligation. Countries with strong consumer protection laws may associate great costs if there is a violation in product quality or service through litigations and lawsuits. For instance, in 2006, a lawsuit against McDonald’s that it misinformed about ingredients of french fries and hash browns. French fries and hash browns are fried in oil consisting of 99% vegetable oil and 1% natural beef flavor. Casein (a dairy product) and wheat bran were partly used to make the beef flavor. But before serving, McDonald’s again fries the potatoes in 100% vegetable oil. Plaintiffs charge that McDonald’s deceived by claiming French fries and hash browns gluten, dairy and wheat free.
However, these lawsuits have cost a huge for paperwork, diagnosing customers, court and legal fees and also the market image of McDonald’s goodwill. So it is very clear that McDonald’s as a food provider is much more affected by these political, legal and customers safety issues. On the other hand, health experts and consumer advocates blame McDonald’s for contributing to health issues of heart attacks, diabetes, high cholesterol and obesity. Countries with flexible consumer safety laws are a source of extra provision for McDonald’s. Differences in individual country’s government policies extremely influence McDonald’s international operation. Favorable and stable political situation, legislation, legal procedure and sustained use of logo are just an indispensable part of the business success. However, McDonald’s is proved adequate in favorable legislations and right use of logo. Economic factors:
Economic expansion, the rates of interest, exchange and inflation comprises the overall economic environment. They extremely affect a business’s function and core decisions. Cost of capital is the main determinant of a business escalation and growth. This cost of capital often fluctuates with the movement of interest rates whereas exchange rates affect the cost of exporting and price of imports. McDonald’s practices hardship in countries that is hit by inflation and fluctuations of exchange rates. As a market leader, McDonald’s most often focuses very high target market which works as an additional advantage as these markets are rarely unstable. The major portion of their cost comes from gas prices as their main transportation system to move 100% of the products runs by gas guzzling trucks. The purchasing power of consumers is determined by the economic growth of the particular state. For instance, in Pakistan, McDonald’s food prices are at higher rate than the local restaurants always. But majority of the Pakistani’s live in the middle class group who obviously consider McDonald’s as unaffordable at regular basis. For this tendency of people and economic downfall of recession, McDonald’s profit might have declined if people continue to consider it as luxury. Product lines and pricing:
McDonald’s first and foremost sells hamburgers, french fries, soft drinks, breakfast items, various types of chicken sandwiches and desserts. In most
markets, McDonald’s also offers salads and vegetarian items, squashing and other unique local products. Soup type products are served only in some selected countries like Portugal etc. And for this special deviation from its standard menu helps McDonald’s to be popular among the countries other than its homeland. Sometimes this difference is employed either for regional food taboos and religious prohibition like the one in India as no beef is served there. In India, non-vegetarian menu contain s chicken and fish items only. This strategy is also used to serve food with which the local people are much familiar such as McRise in Indonesia.
McDonald’s offers several flavors of Mcflurry ice cream from a mix of M&Ms to Oreo cookies. Much is talked about McDonald’s pricing strategies and its menu price differes in different countries. Also the higher price in the local restaurants very often becomes burden for the customers. For instance, when monthly income of key city inhabitants in China just ranged from 120 yuan ($17.54) to 130 yuan then Big Mac of a 10 yuan and a 5 yuan double-cheese burger were not reasonable for the majority. So it is a threat for McDonald’s where other competitors are focusing much on it to grab more customers. So McDonald’s can develop a good, healthy and affordable range of snacks for people who can’t afford a full meal. Customer’s preference:
With a brand value of $49.5 billion, McDonald’s has grown 49 percent in worth and now is the most favored brand in the fast-food group. McDonald’s innovative choice and giving importance to the people’s ever-changing demand with due progress, technology and development is the key to McDonald’s present situation. Now a day fast food cafes are becoming the dining hall of the majority for superior child-size menus, playing grounds and impulsive branding crusades. Competitors:
One of the environmental factors surrounding McDonald’s is the fierce competition from the competitors. There is an intensive price war, extreme battle of innovations, breakthrough and serious promotions and advertisements. Different competitors in the global fast food industry are now just going mad about increasing competition that led to aggressive pricing strategies amongst the large brands. Competitions also pushed them to increased menu diversification, product developments for increasing sales and market share and at least maintaining current market share. Social factors:
Population growth, career opportunity, cultural distinctiveness, health of the masses and social security build the ground of societal factors. McDonald’s food products demand and its operational strategies differ greatly to cope with the movement of these factors. At the time McDonald’s started in Pakistan, fast food was not very popular to Pakistani people. With the passage of time and the changes of the eating habits and lifestyle, fast food got its acceptance. McDonald’s also keeps providing Halal food to consider the religious and cultural issues. But at times anti American feeling and prohibition of American goods affects McDonald’s. McDonald’s customized its menu in accordance of the Pakistani tastes. McDonald’s does not offer bacon in Pakistan as people do not eat it. Increasing employment through joining with many ethnic groups and the alliance certification program with a cup of tea for everyone at 1200 McDonald’s in UK are also some mentionable social duties by McDonald’s. In 1974, McDonald’s established a charity house named Ronald McDonald House that helped over 10 million people since incorporation. Technological factors:
Technological factor’s main elements are R&D, computerization, technology motivation and technological change rate. Technological movements affect expenditures, excellence, and innovation and machine made food is more hygienic. McDonald’s employee’s quick service and quality food standards are the result of its high-tech operating procedure. Customized database management system and computers and smart cashiers are used in McDonald’s to speed up serving and operating excellence. McMommy Blogging Society:
In December’ 2007, McDonald’s opened up its kitchens to the group of mother bloggers to report allegedly unedited findings on McDonald’s website and on blogs in the Internet. McDonald’s goal was to make their cooking processes more transparent. It kicks out stories of fattening, unhealthy food rumors in books like “Fast Food Nation” and movies i.e. “Super-Size Me. “McDonald’s equipped six mothers chosen from 4000 applicants with laptop computers to record their impressions of its operations over the next few months. Nothing like this has ever been done on the internet by a fast food company before. Hamburger University:
Hamburger University was founded in 1961 at a McDonald’s restaurant in Elk Grove Village, Illinois. Now it stands in a suburb of Chicago at 2815 Jorie Boulevard in Oak Brook, Illinois. It has 30 resident professors and more than 70000 managers have graduated from here. Today Hamburger University has 19 full time intercontinental coaches to educate apprentices of more than 119 countries. It comprises 13 teaching rooms, 12 interactive group rooms, a 300 seats lecture theater, and 3 kitchen labs. It has professional translators who can lecture in 28 different languages. Over 5000 students attend there each year and employees obtain 32 hours of training in the first month. With a “McDegree”, graduates get jobs in special labs to invent new ways to enhance menus in an efficient way and keep the same superior healthy taste of its products worldwide. Conclusion
McDonald’s is one of most successful companies in the world today. With its rapid embracement of globalization, the firm has been able to expand and retain numerable growth; as well as continuing to explore with its growth potential in the coming years. From the beginning of the company’s development in the United States, to its spread in England, Australia and more recently India and China, the firm has been able to provide a variety of hamburgers and other foods to its consumers. From the Big Mac, to the Maharaja, the company’s successive strategies, specifically with heavy research and development have allowed it to fulfill the tastes of locals in every country it operates. Its leaders in all of its major departments have established prices worldwide in all types of currencies, making its foods affordable for customers of all classes.
McDonald has adopted differentiation and cost leadership strategies. In terms of differentiation, the firm attempts to be diverse from its competitors by adding something to its product that will provide a unique value to its customers, achieved through well-designed and managed marketing activities resulting in a perceived superior quality product and high brand image and recognition. Further, cost leadership is achieved, not only through economies of scale but also through learning, knowledge and experience in production and operational processes and through effective/efficient distribution networks and manufacturing systems.
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