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Mcdonalds Have Used Effective Global Expansion Strategies Commerce Essay

The McDonald’s is one of the most thriving global restaurant chains around the world. McDonald’s have used effective global expansion strategies to enter new markets and gain a share of the foreign fast food market. This report presents McDonald’s best practices in the global food industry, international growth trends and challenges.  It will also look at the McDonalds Corporation in relation to its major competitors and analyze how the company has responded to its surrounding environment. In closing, report will look at the prospects for McDonald’s future and it will be clear that McDonalds will be able to maintain its dominant market position. It will continue to be a model that serves as a benchmark for others in the industry. Overall, the report provides an overlook of how McDonald’s creates both customer and brand loyalty for their products and services. This report focuses on McDonald’s international success, challenges and strategies.

Index

1: Introduction -------------------------------------------------------------------05

1.1. Background of the report-----------------------------------------06

1.2. Aims and Objectives:----------------------------------------------06

1.3. Methodology---------------------------------------------------------06

2. Literature review and Analysis---------------------------------------------09

2.1. Environmental factors impacting upon McDonalds--------09

2.2. Strategic analysis of McDonalds--------------------------------16

3. Conclusion ----------------------------------------------------------------------21

4. Recommendations------------------------------------------------------------22

5. Reference:-----------------------------------------------------------------------23

1. Introduction

In the world of globalisation the fast food business is the most dynamic and growth orientated business. And without any doubt McDonald is the leader of all. McDonald’s Strategy is continued growth, providing exceptional customer care, remaining an efficient & quality producer, offering high value effectively marketing. Now McDonald’s is a global scale brand. Since the start of the company in 1973, McDonald’s Corporation began spreading domestically throughout the United States thus establishing its brand recognition. Its initial strategy began by advertising directly to the middle and upper class citizens, as can be seen in countries such as India and China. However, with its many bargain deals on several of its food items, McDonald’s began to cater to several people belonging to the lower class. The key strategic elements that make McDonalds so successful is adding 700-900 restaurants annually, using new menu items, low price specials, extra value meals to promote frequent customer visits, being highly selective in granting franchises, choosing sites convenient to customers, focusing on limited product line & consistent quality ,careful attention to store efficiency extensive advertising & use of Mc prefix, hiring courteous personnel; paying an equitable wage; & providing good training.

Originated in Ray Kroc’s founding principles of Quality, Service, Cleanliness & Value, McDonald’s management has constantly believed in being a leader in issues that affect their customers. This belief is evident in McDonald’s involvement in various community projects regarding education, health care, medical research, and rehabilitation facilities. These activities help the corporation to extend their image beyond fun and entertainment into social responsibility.

Background of the report

The background of this report is to evaluate environmental factor and key drivers impacting McDonald’s success and strategy. The McDonald’s restaurants are operated by MacDonald’s Corp, franchisees, or affiliates under joint venture agreements. At March 31, 2005 there were 18,306 franchised restaurants (generating 60% of 2004 system wide sales), 8,091 company operated restaurants (27%) and 4,111 affiliated restaurants (13%). In addition to the McDonald’s restaurants operating under the same brand name, which is one of the 10 most popular brand names in the world, McDonald’s Corp operates other restaurant chains under its Partner Brands which include Boston Market and Chipotle Mexican Grill. The restaurants operating under these brands are approximately 1,000 and

represent 3.22% of the stores operated or franchised by the company.

(www. Mcdonalds.com)

Aim and purpose of the study

Aim and purpose of the report is to evaluate and analyse the key drivers that impact MacDonald success and strategy, its swot analysis and examine current strategies.

Methodology

Pure research is concerned with the expansion, examination proof and improvement of the research methods and techniques and tools that from the body of research methodology. Examples of clean research include just beginning a sampling method which can be applied to a specific situation; developing a methodology to access the force of the procedures.

Normally research in the social sciences is applied. In other words the experiments, methods, and research tools which is called the research methodology. Research methodology is useful to collect the information in the different aspects of an issue, problems and situations.

Research will carry out mainly, using the qualitative method of research methodology, as the nature of research is based on primary data which will be collected by doing personal interview questionnaires.

Quantitative vs. Qualitative

Quantitative research is based on the measurement of the quantity. It is applicable to phenomena that can be expressed in term of quantity.

The importance of the primary narrative and theoretical conjecture

Figure : 3.1

Source: Remenyi, D et al (1998), Doing Research in Business Management

An introduction to Process & Method pp-125, by Sage Publication.

According to Saunders (2000) the research philosophy depends on the way we think about the development of knowledge and this thinking affects the way we do search. Whilst undertaking the research, a clear understanding of research philosophy is essential since it helps the researcher to refine and specify the research methods to be used in a study, that is, to clarify the overall research strategy to be used (Easterby-Smith et al., 1997)

2. Literature review and Analysis

This chapter will provide a detailed literature review. The literature review helped frame the initial focus of this study, as well as focus the data analysis Swanson & Holton, (1997). Literature reviews help researchers limit the scope of their inquiry as well as act as a benchmark for comparison purposes. According to Creswell (2003) literature reviews provide a framework for establishing the importance of the study.

According to Swanson and Holton (1997), Research is a process of a specific type of outcome. Outcomes of research are new knowledge, obtained through an orderly, investigative process. Typically the research process begins with attempting to solve a problem, which is done by asking a question and identifying a solution or, in essence, drawing a conclusion.

2.1 Environmental factors impacting upon McDonalds

McDonald’s is one of most thriving companies in the world today. With its rapid globalization, the firm has been able to expand and maintain numerable growth; as well as continuing to explore with its growth potential in the coming years. From the creation 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. The company’s challenges of providing healthier foods to its patrons have contributed to its financial success, thus enabling loyal consumers. In certain countries, such as India and China, eating at a McDonald’s has become a luxury, primarily among the middle class, who feel a sense of empowerment that they too can afford to eat at quality restaurants. However, as the company continues to settle into its new environments, it will slowly cater to the lower class, as can be seen in the United States. The strategies developed by its experts, thus allows for the company to increase in revenues, quality, and bring about consumer satisfaction.

McDonalds SWOT analysis

Strengths

MacDonald’s has a strong global presence with its nearest domestic competitor being only half its size, McDonald’s is the market leader in both the domestic and international markets. MacDonald’s benefit from cost reduction through economies of scale because of its enormous size and its huge global presence allows it to diversify risk involved with the economic performance of specific countries. In international markets, MacDonald’s is well placed to expand and take advantage of long-term economic growth.

Weaknesses

The food industry is really saturated. As a result of this, MacDonald’s has to deal with the prospect of looming market saturation, which could make it difficult to add new outlets. The market is forecast to grow by around 2% per year.

Opportunities

MacDonald’s sold its Donatos Pizzeria back to its founder in 2003 and discontinued

Boston market operations outside of the US. The company will instead focus on Chipotle

Grill which is the company’s most successful non MacDonald’s branded chain of restaurants. Also to increase profitability the company has slowed its expansion of

McDonald’s restaurants so as to refurbish and change the image of current restaurants and adding new features such as Internet access.

Threats

McDonald’s is exposed to changes in the global economy. The company’s aggressive international expansion has left it extremely vulnerable to other countries economic slowdown. Foreign currency fluctuation is also another problem global companies like McDonalds. The Fast food industry is becoming an increasingly competitive sector. MacDonald’s keeps up with competitors through expensive promotional campaigns which leads to limited margins to gain market share. McDonald’s is attempting to differentiate itself, with new formats and new menu items, but other fast food industry are doing the same too.

McDonalds SWOT analysis shows us that even though there are many threats against the fast-food industry, McDonald’s occupies a relatively strong position in the global marketplace.  According to the five forces model, the strongest competitive force is between rival sellers in the industry.  This SWOT analysis shows the much strength that Mc Donald’s employs to keep itself at the top of the fast-food industry.  Although there are various weaknesses, these can all be turned around following the McDonald’s Plan to Win, which was implemented with the hiring of Jim Cantalupo.  Obviously all fast-food chains are going to have to combat the new consumer health expectations, but we feel that under Cantalupo’s leadership, McDonald’s has a strong enough consumer base to grow in the upcoming years.  The financial analysis shows certain flaws in McDonald’s finances, but these are largely due to the expansionary policy in place in the company. 

SWOT Analysis and Grand Strategies

Source: P. Wright, C.D. Pringle, and M.J. Kroll, Strategic Management, 2nd ed. (Boston: Allyn and Bacon, 1994),

Competitive Forces

The quick-service sandwich industry faces competitive pressures from a number of forces.  The major competitive threats originate from competing sellers in the industry as well as firms in other industries that offer substitute products.  McDonald’s main competitors within the quick-service sandwich industry are continually deriving new strategies through offensive and defensive tactics in order to gain customers and market share.  In 1989, Wendy’s implemented the 99 cent value menu as an offensive strategy to gain customers looking for a quality product at a value price.  In response, McDonald’s and Burger King took a defensive approach and also instituted a value menu in their respective stores so that they wouldn’t lose market share and customers to Wendy’s.  Firms in the quick-service sandwich industry are constantly jockeying for better market position through offensive strategies and in response to these strategies, other firms will take a defensive approach to guard against that offensive move made by the rival firm.

 

Forces in the Industry Analysis

Source: Based on M.E. Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors

Substitute Products

In addition to competition from rival sellers in the industry, sandwich firms also face intense competitive pressure from firms in other industries selling substitute products.  The substitute products for the fast-food industry are probably some of the most diverse in the world.  These substitute products may include products purchased from the local grocery store, food from sit-down restaurants, or delivery foods such as pizza.  The primary issue with these substitute products is that they are readily available to the customer and the customer tends to view them as being comparable or better in terms of the quality of fast-food products.  Another issue that faces the fast-food industry is the availability of products that cater to the health-conscious lifestyle.  The majority of the public tends to view fast-food restaurants as primarily serving foods that are high in fat content and unhealthy and as a result they are likely to look elsewhere for a healthy alternative.  In response to the product offerings, buyers also exercise a great deal of bargaining ability through their purchasing power.  While fast-food products may not always be associated with health and quality, fast-food restaurants to possess a major advantage over firms selling substitute products through the price of their products and the quick, convenient service. 

New Entrants

The threat of potential new entrants and the bargaining power of suppliers is not a significant competitive force in the fast-food industry.  Occasionally, new entrants will come along and compete with firms in the fast-food industry and offer substitute products.  However, in order to compete on a large scale, it will require a great deal of capital to invest in real estate and build physical restaurant locations.  In addition, the market is already so saturated that the new competitor might find it difficult to establish a customer base and become profitable.  Suppliers in the fast-food industry do not have substantial bargaining power due to the fact that firms in the fast-food business tend to purchase their materials from various outlets.  One company might purchase their meat supplies from a couple different meat manufacturers, then purchase their dairy needs from a number of different dairy companies, and also purchase their bakery products from a variety of sources.  Since the fast-food firms divide their purchases among a diverse array of suppliers, the suppliers tend to have little or no bargaining power or leverage since there are multiple suppliers for the same products. 

Driving Forces 

There are a number of driving forces which have molded the current state of the fast-food industry.  In the beginning, fast-food companies typically focused on being the low-cost provider and sought to expand into as many markets as possible.  As these national brands have grown, the markets they are competing in have become overly saturated with restaurant options.  As a result, the fast-food industry has begun to focus on the needs of the customer.  The buyer has a great deal of leveraging power due to the fact that if they are dissatisfied with one brand they can easily switch or purchase from an alternate brand with little or no monetary repercussions.  The fast-food firms have implemented strategies to improve the quality of customer service and the cleanliness of the restaurant locations in order to please their customers in hopes that they will become a repeat customer. 

Health Factor

All fast-food hamburger chains, McDonald’s included, are forced to respond to the shift in customer preferences from high-calorie burger and fries to healthier items such a deli sandwiches and baked potatoes. All the chains are expected to be struggling for several years to come to meet new consumer health expectations without compromising the original menu items.

McDonald’s customer service and opposing points  

As years have progress many issues have arisen for McDonald’s but the greatest is probably its poor customer service. A customer service index done in 2003 found that McDonald’s has the lowest the customer service ranking in the fast food industry and is ranked even lower on customer service than the IRS. One reason for this is a high employee turnover rate. McDonald’s has the highest employee turnover rate among its competitors. Another contributing aspect to the poor customer service is slow service at the drive-through window. McDonald’s currently ranks fifth in speed at the drive-through window and 19th in accuracy. If you compare its speed and accuracy to its competitors and keep in mind that McDonald’s generates 60 percent of its revenue from its drive-through and assume it is losing one percent of revenue for every six seconds that its behind, than McDonald’s is loosing approximately 97,000 dollars annually.

While McDonald’s feels positive about its newly implemented changes the critics are rather skeptical. It was stated that long-term they believe that it will be tough to sustain growth and margin expansion. Specific concerns include McDonald’s ability to maintain it current level of product innovation and competitors’ ability to copy those ideas. The critics even went as far to question if McDonald’s recent improvement was more of a reflection of the market and the dollar rather than its newly implemented strategy. In response, McDonald’s officials stated that they will need to deliver on their stated goal of sustaining increases in sales and operating income. Following with the most significant question of weather or not the new changes will sufficiently provide McDonald’s with core competencies necessary to build a sustainable competitive advantage in the global fast-food industry.

2.2 Strategic analysis of McDonalds

McDonald’s Global strategy

McDonald’s already holds a strong position in the global economy.  It is recommendation that they decrease expansion in the almost saturated domestic markets, and continue their expansion in foreign countries, such as Asia, and the Pacific.  Companies generally expand into foreign markets in an attempt to gain new customers and capitalize on core competencies.  McDonald’s core competency is that they are able to produce and sell quick and cheap food to a large number of customers.  With this concept, they have been able to expand into other countries, and they currently are the largest global fast-food chain in the world.  Since they already hold this lucrative position, they should continue expansion in an effort to drive out competition.  One strong recommendation would be for McDonald’s to expand into emerging markets.  Since they focus on low-priced food, it is likely that many could afford their products, and therefore, McDonald’s could expand into a stronger company.

Politically Sensitive Strategy

One of the company’s major concerns was to develop ways to avoid political confrontation with the Indian government. The other major concern was to be careful of the religious sensitive in India. Almost 80% of Indians do not eat beef, and over 150 million Indian Muslims do not eat pork, therefore, instead of supplying the normal Big Mac, which consists of beef, the company developed the Maharaja Mac that is made of two lamb patties. Other foods were also added to the non-standardized menu including McAloo Tiki Burger, and other common Indian dishes.

Emphasis on Local Management

Throughout the world, McDonald’s prides itself in hiring locals, specifically management in order to gain acceptance into the country by its citizens. The emphasis is based on the “think global, act local” theme of the company. For instance, the company decided to establish two joint ventures with two local entrepreneurs in New Delhi, who were selected to manage the fast food restaurant. This strategic move allowed the company to gain easy access to the bureaucracy associated with the country’s government.

Employment Opportunity

Foreign enterprises are often reluctant to hire locals in their companies, specifically at the managerial positions, however, McDonald’s research concluded that in order to survive the brutal Indian government, it would have to hire locals as cashiers, cooks, managers, etc., as well as provide jobs for the country’s agricultural workforce. In fact, McDonald’s outsources its products to several Indian companies throughout India. This provides evidence to the Indian government that McDonald’s is not only customer friendly, but also employee friendly.

Environmental Friendliness

In order to achieve a positive reputation, as well as follow local and national policies of a country, McDonald’s tries to establish services that are environmentally friendly. India is an example where the company provides financial contributions and sponsors several community related activities in order to promote environmental protection. This is primarily seen within schools; thus indicating that the company also supports local schools.

Corporate Citizenship

In order to better its reputation, this multinational firm gives back to the local citizens in all countries it operates. For example, the company provides several financial donations to local organizations. This is one way to encourage consumers to eat at its restaurants, as it is an incentive that is used to spread the name.

Diversification

One strategy that McDonald’s as well as many of the other fast-food chains have embraced is that of diversification.  We feel that McDonald’s should continue this trend.  With the large health-craze hitting the United States, many restaurants have to change to healthier, higher quality menu items.  The fast-food industry is no exception.  Healthier burgers, low-fat salads are all popping up on menus across the country.  We feel McDonald’s should continue its diversification and incorporate more healthy foods, including low-carb burgers and fries.  If McDonald’s is able to stay ahead of the competition in this aspect, they will have a strong competitive advantage over such companies as Wendy’s and Burger King. 

Defend strategy

The purpose of this strategy is to make it harder for challengers to gain ground and for new firms to enter. A fortify-and-defend strategy works well with firms that have already achieved industry dominance. Since McDonald’s is already the industry leader in the fast-food market, they can opt for a number of tactics using this strategy to maintain their industry position. They can continue their expansion tactics by continuing to open more stores around the world. This expansion would help defend against and help to discourage smaller companies from increasing their market share. In addition, they can also elect to invest capital in R&D to aid in developing new technologies for their operations. These new technologies will help them remain cost-competitive and technologically progressive.

Recommended strategy for McDonalds

The main goal of the stay-on-the-offensive strategy is to be a proactive market leader. The principle of this strategy is to continually stay one step ahead of your competitors and force them to play catch up. McDonald’s is already the industry leader in the fast-food industry with a market share of 33 percent compared with the number two chain in the industry, Burger King at 13 percent market share. They can stay out front by implementing technological improvements in their restaurants to enhance the production methods or to improve the ordering process of the customer. In addition, they can also introduce new or better product offerings to satisfy the needs of their customers. The best approach that McDonald’s can take through this strategy is to improve their customer service. McDonald’s customer service ranking was the lowest in the fast-food industry and was even lower than the Internal Revenue Service. To improve upon this substandard attribute, McDonald’s should revamp their training process for newly hired employees and introduce new educational modules for currently employed personnel.

Training and learning

McDonalds should put more emphasis on training of its employees as part of their strategy of growth.

Training and learning is the main tools for HR to prepear management for any upcoming change in the organization. According to Beardwell and Claydon (2007) the role of formal training in organisation today appears to have declined significantly. Firstly, the speed with which skills requirements change in some sectors means the formal time consuming, to deliver efficiently as required. Secondly, the growing recognition of Human resource development as a tool to achieve competitive advantage has raised awareness of the need of the embrace learning as a central strategic concern and to be part of the culture of the organisation. Employees, employers, managers, leaders, government, European and international bodies, customers and Human resource development specialist consultants all of them needs more training for the future.

Equal opportunity

Equal opportunity, means changing workplace behaviour in the areas of discrimination, sexual harassment and affirmative action to ensure that all employees have equal access to fulfilling and productive working lives. Wright,N (2003)

3. Conclusion

In analyzing McDonald’s, the strengths, weaknesses, opportunities, and threats were inevitably explored to better understand the current situation. This SWOT analysis shows us that although there are numerous threats against the fast-food industry, McDonald’s occupies a relatively strong position in the global marketplace.  According to the five forces model, the strongest competitive force is between rival sellers in the industry.  This SWOT analysis shows the much strength that Mc Donald’s employs to keep itself at the top of the fast-food industry.  Although there are various weaknesses, these can all be turned around following the McDonald’s Plan to Win, which was implemented with the hiring of Jim Cantalupo.

 McDonalds has adopted many strategic changes during its business cycle. McDonald’s business will continue to thrive as long as the core competencies are recognized and never forgotten.  With every issue and challenge the corporation faces, it has the opportunity to improve itself and prove itself to the public, shareholders, and stakeholders.  With every battle conquered, another one rises and with a secure mission and vision in mind, the corporation should never stray too far from the roots and success of the company. The recommended strategy will strengthen this plan because it is doing what McDonalds does best and more so.  Despite the downturn the company has seen, the general impression we receive from McDonald’s financial situation is that the company is slowly climbing out of a low period and making a turnaround.   We must never forget the key success factors of the business which really makes the business for what it is today, including franchises that offer quick, efficient service in a clean friendly environment.

4. Recommendations

Team building

Team building is crucial for any individual McDonalds store for improvement of their sales figure and as a whole for the organization. If the organizations have the proper team than they can face all sorts of challenges, they can achieve the competitive advantage, and organizations can maximize their profit.

Sustainable growth

Managers and employees of McDonalds need to put more effort about the sustainable growth. In this constant changing world of organizational dynamic only sustainable companies will survive. McDonalds should have concern more on their product and the way they produce it , and environmental issues.

Total quality management

Total quality management is the key of the success in the development path. If everything is done by as they planned, than they will the quality in every field of the organisation.

The reason behind is, why researcher is emphasizing on these studies, because after covering these factors managers, employees and organisations will get the continuous development path.

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