McDonalds Global Expansion

McDonalds Global Expansion Companies all over the globe are looking for expansion and ways of entering new markets which are profitable through different entry modes (Deresky, 2006). Managers look at different strategies that can be used to expand internationally (Deresky, 2006). There are many reasons for companies to go global or expand overseas. There are reactive and proactive reasons for the same. Increased global competition, customer needs, potential opportunities, declining foreign trade barriers, increasing expenses in domestic markets are some of the reactive reasons for companies going global. To achieve economies of scale, expanding base for growth and profits, cost savings, access to different resources are some of the proactive reasons for companies going global (Deresky, 2006). An example of a company which looked to expand beyond its borders is McDonalds, one of the most successful companies in terms of implying international strategies successfully. 2.0 Company Overview McDonalds, the most renowned fast food chain of the world, started in 1955 by a visionary named Raymond Kroc (McDonalds : The Ray Kroc Story, 2010-2011). Kroc played a significant role in revolutionizing the fast food industry in America and currently Mc Donalds is serving over 60 million customers in over 117 countries on a daily basis (McDonalds : The Ray Kroc Story, 2010-2011). The company has a global brand value and worldwide recognition. It is one of the most widely recognized icons of the world in the fast food restaurant industry. By reaching saturation levels in the United States, McDonalds looked to expand internationally amidst increasing regulations. But they approached with a strategy by controlling standardized products, clean and green environments and American origin. With experience, localization started increasing and the entire model was redone to appeal the localites of the foreign country. This strategy has been a turnaround point for McDonalds but it has thed potential of losing brand equity in the future (McDonalds Fact File 2007, 2007). Inspite of an American base, McDonalds respects the markets, cultures, beliefs and likings of other nations. Customers identify with the brand name and the Golden Arches are recognized not only in America but in foreign countries as well (McDonalds Fact File 2007, 2007). 4.1 Franchise Model: McDonalds franchising process is that of a strategic network (Hitt, et.al 2007). Around 85% of the restaurants are operated by franchisees. McDonalds follows a standardized set of procedures across all its restaurants in terms of quality, service, cleanliness and value propositions. Basically, the central control is in its headquarters where different financial and strategic controls are used to create value for the entire network (Hitt, et.al 2007). 5.0 Expansion Strategies in Different countries 1. CHINA: The strategy used by McDonalds in China is quite different from the way the restaurants are otherwise managed in the United States. The prime reason for the success of McDonalds in China is the involvement of McDonalds to adapt to Chinese Culture. Local people manage the operations in McDonalds in China, thereby reaching out in an easier way to the locals of the country. Additionally, the managements ability in Europe slowly changed the taste of the Asian consumers towards fast food which is an unusual aspect of the Chinese culture. Locals in China responded positively to the fast food concept of McDonalds thereby making the investment in China a successful one. Some of the other ways the approach in China was different as compared to the United States was that McDonalds customized the menu by adding teriyaki burger which gave locals the flavour of their native food taste (McDonalds Fact File 2007, 2007). Customization of products to suit local needs is a key factor that sh ould be considered in the global expansion plan. 2. South Africa: A relatively unique strategy has been used by McDonalds to serve customers where they can enjoy their meal while shopping and playing. This approach is used in highly populated areas with busy lifestyles of South Africa. Additionally, the drive-through approach works well in the South African region. Therefore, there are superior number of drive-through as compared to Australia and United States. This particular facility gives McDonalds an upper hand in South Africa. The base of the approach is to provide comfort to the customers in shopping malls, towns and other areas. Different marketing strategies are used to attract people from different sections of the society. The returns for McDonalds in South Africa have surpassed the initial targets of turnover and profits. With over 90 branches in South Africa, employment opportunities are high for local people and are expected to rise. Furthermore, McDonalds is currently using the vertical integration approach to improve its productivity with efficient software packages. All these factors contribute to the high revenues and with advanced software systems; the aim is to enhance bottom line as well ((McDonalds Fact File 2007, 2007). 3. Brazil: McDonalds opened its first branch in Brazil in 1979. The franchise model has been successfully used in Brazil and the management team has been praised for consistent performance and high standards of quality. One of the accolades received by McDonalds in Brazil is the Hallmark of Quality. One of the challenges that exist for McDonalds in Brazil is bankruptcy because of which it is difficult to meet the expenses on a monthly basis. Inspite of the fast growth in Brazil, franchisees have difficulty in reducing costs ((McDonalds Fact File 2007, 2007). 4. Saudi Arabia: Another example of adaptation to the local culture is the way McDonalds has managed the business in Saudi Arabia. McDonalds closes five times in the day for prayers and they do not serve pork to respect the Islamic culture in Saudi Arabia. There are some exclusive outlets of McDonalds in the Holy City of Makkah which serve to Muslim customers only with only Muslim staff in every department ((McDonalds Fact File 2007, 2007). 5. India: The approach to adapt locally to the country has been a highlight for McDonalds success. In India, the menu is highly customized to suit the Indian tastes and this justifies the inclusion of aloo tikki and paneer burgers. The Big Mac becomes Maharaja Mac in India and another highlight of the menu is having separate vegetarian kitchens with separate utensils and cooks. This feature has been particularly taken care off for making sure that the needs and requirements of the vegetarian population are fulfilled ((McDonalds Fact File 2007, 2007). 6.0 Organizational capabilities Organizational capabilities look at a firms ability to manage resources in order to gain sustainable competitive advantage (Hitt, et.al 2007). The internal analysis of the firm are carried out to understand its strengths and weaknesses either which are existing or are potentially going to exist in the future as compared to its competitors (Deresky, 2006). 6.1 Strengths of McDonalds 1. Adaptability: It is one of the major strengths of McDonalds. Customization of activities and menu to suit local needs is the single most factor contributing to its success. This takes care of blending with the local culture and values of the foreign country. McDonalds is an example of a company which is centralized in its core but still customizes the menu and the operational activities for local needs. 2. Innovation: With wide variety of options available from snack wraps to coffee to burgers to McCafe, McDonalds is very innovative with reference to its products. Also, the processes or the way every country operations are managed are innovative in a way that they are suited to fulfill the local needs. 3. Corporate Social Responsibility: McDonalds has programmes for having a better society. Some of the programmes they have are the greener than ever programme; recycle, renew programme; animal welfare program to name a few. McDonalds believes in having sustainable supply chain consisting of 3 ES: Ethical Responsibility, Environmental Responsibility and Economic Responsibility (Sustainable Supply Chain, 2010-2011). 4. Marketing: The McDonalds logo is a popular one amongst children and adults all across the globe. This compliments the marketing efforts which are carried out through market analysis thereby giving positive returns to McDonalds. 6.2 Weaknesses: 1. Customer Service: Long queues, insufficient employees at the counters are frustrating for customers and many times the employees are rude in terms of their behaviour with customers. 2. Currency fluctuations: When companies go global, there is always a risk associated with currencies as they keep fluctuating based on the markets. This can cause difference in planned returns for McDonalds. 3. Franchisees Challenges: There is an increase in the fee that franchisees have to pay to McDonalds thus resulting in selling of the businesses and dissatisfied franchisees. Additionally, it is important to understand the opportunities and threats that potentially exist for McDonalds to consolidate its global position in the fast food industry. 6.3 Opportunities: 1. Expansion: Even though it serves over 60 Million people on a daily basis that accounts for just about 1% of the worlds total population. There are a lot of emerging markets particularly in the BRIC countries such as Brazil, Russia, India and China. 2. Increase in fast food category: Based on statistics from Euromonitor, there is a growing demand for fast food. For example: In Australia, sales of fast food grew by 7% in terms of value in 2008 to reach A$ 10,921 Million. This demand is increasing due to stressful lifestyles and constant time pressures (Consumer lifestyles- Australia, 2009). 3. Growing need for drive through facilities: Drive through facilities is highly visible in South Africa. They can look at expanding these facilities in other parts of the world with dense populations. 6.4 Threats 1. Competition: With globalisation and increased number of companies looking to expand internationally, it is a challenge for McDonalds to keep up to or enhance its already existing powerful status in the market. 2. Unexpected circumstances: Uncertainties such as natural calamities, unexpected diseases can affect the smooth flow of activities for McDonalds in terms of procurement of goods and food contents which can decline the sales drastically. 7.0 Organizational Structure to support the international Strategy While understanding the organizational capabilities and the external environment, it is crucial to understand the organizational structure of McDonalds. McDonalds sets an exemplary example of a company which implements global strategy and a centralized organizational structure. With operations in over 120 countries and a huge number of 31,000 restaurants, McDonalds procures its food and packaging from the same set of suppliers. It shows the uniformity of a branch in United States and India. The decision making takes place centrally in the United States (Hebert, 2011). In terms of the way McDonalds organizational structure is oriented, it is relatively organized in terms of how the growth and expansion takes place internationally. But to fulfill the ever changing customer demands and customization strategies in every country, the structure needs to be a combination of centralized and decentralized forms. It also means the structure is relatively a mix of formal and informal forms which is quite a challenge to manage successfully. 8.0 Recommendations As described in the above sections, McDonalds has huge potential in global markets to venture out in different areas specially the BRIC countries. As these cities are the centre of research and growth opportunities, McDonalds should focus their internationalization in these areas much more than they are currently doing. McDonalds should focus on high and low areas of population, reaching out to more and more sections of the society. Joint ventures can be taken up with established companies in foreign countries with inclusions of coffee shops, bakery, internet access add-ons in all high profile metropolitan cities McDonalds currently have restaurants. For example in Germany, McDonalds has a tie up with T mobile for hot spots. McDonalds should work on increasing these facilities in a lot of high profile, metropolitan cities across the world. McDonalds can look at diversifying into other areas of food industry for example; McDonalds Hotel in Zurich is a distinctive venture. The road ahead for McDonalds should be to increase the nutritive value of the burgers and look at certain health aspects to control the increasing waistlines among children because of high consumption of fast foods especially burgers (Consumer lifestyles- Australia, 2009). They should look at improving their customer services at the counters by avoiding long queues and providing high levels of customer satisfaction. 9.0 CONCLUSION McDonalds is the number one brand in the fast food industry. They have successfully implemented international strategies where in they have used localization and customization processes to adapt to the foreign countries along with maintaining its American origin by having centralized procedures as well. The organizational structure is in sync with the strategy used by McDonalds to be ahead of its competitors. It is challenging for managers to consistently keep in pace with the right balance of centralizing and decentralizing the operations. Even though weaknesses and threats exist, the strengths and opportunities make it a strong player in the market in the fast food industry.