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What is a multinational company?
A multinational company is defined as one where regional headquarters are set up in diverse countries. McDonald is a multinational company because aside from its main parent headquarters in the United States of America It has set up regional headquarters in other countries, like Great Britain, Canada, Singapore, India and so on. Such a globalised company has profound effects on the company itself and the host countries. Ray Kroc was the founder of McDonald's which operates over 31,000 restaurants worldwide, employing more than 1.5 million people all over the world. It operates in more than 119 countries on six continents' (Smith, 2004).
McDonald's size, share, growth
McDonald's first international expansion occurred in 1967 when the company opened in Canada. The company's international division was formed shortly after in 1969 and has continuously grown since. Over the years, the international section of the McDonald's Corporation has become increasingly more important to the company's overall success. As of this past year, non-US based restaurants account for over half of the company's $40 billion in revenues. Foreign restaurants now account for about 60% of McDonald's total profits. Currently, McDonald's is the market leader in 96% of the markets they do business in around the world and it is very common for McDonald's to hold over 50% of the fast food market in foreign markets. Unlike the U.S., competitors in the past have not cut into McDonald's market share as easily in foreign markets, although that is beginning to change. In the last ten years, almost 90% of McDonalds' expansion occurred in countries other than the United States. During that time, the 1990's saw an increase in international units from 3,600 in 1991 to more than 11,000 by 1998, largely in Japan, Canada, Germany, Great Britain, Australia, and France. Additionally, the number of international countries nearly doubled from 59 in 1991 to 114 in 1998. The rationale behind these important decisions stemmed foremost from the increasing amount of saturation that had evolved in the United States. This saturation was in the past, and is currently, forcing McDonald's to slash prices and as a result profits in its domestic market. To counter this trend, international restaurants were franchised and invested in. As was mentioned earlier, foreign markets are extremely more profitable for McDonald's than U.S. operations. McDonald's detected this trend early as an opportunity through marketing research and the idea of utilizing the heavily populated areas of focus to cut costs and increase profits. Second, expansion in the U.S. has been taking place for the last 45 years, where it has only been occurring heavily overseas for about 20 years, so there is more business opportunity (Gilligan, Wilson, 2009).
McDonald'sis the ultimate suspicious stock. When the recession put a chill on spending, consumers decided to miss more expensive eateries in exchange for the practicality of the Golden Arches. Or so the reasoning went. In the past few months, McDonald's has struggled a bit in sales, earnings and share price, though it has avoided the tragedy that befell some consumer stocks. The stock is 15% off its 52-week high and has been trending sideways to slightly down for months. Its Relative Strength ranking has fallen to 23, meaning that it has been outperformed by 87% of stocks in the market. Sales have fallen for three straight quarters. The king of the fast-food restaurant industry managed to increase earnings in the low single digits the past two quarters exclusively by cutting costs, which is something a company can only do so much of. In the past year, the company has been expenses money sprucing up its restaurants to draw in more customers. It operates 6,502 of its own restaurants and franchises 25,465 more worldwide. It actually gets more sales from Europe (42%) than from the United States (34%).It still has an extraordinary history of growth, with six straight years of earnings growth. Skeptics have been saying since the 1960s that the market was saturated and there was no more growth in McDonald's. It has an EPS Stability Rating of 4.In the latest quarter, earnings were 97 cents a share, a 3% increase from the year-ago quarter. That matched estimates. Analysts expect 2009 earnings of $3.89, a 6% increase from 2008(McDonald, 2008). A total of 1,113,901,008 shares of McDonald's Common Stock were outstanding and entitled to vote at the Annual Shareholders' Meeting.
STRATEGIC ENVIRONMENT ANALYSIS:
1. PESTEL ANALYSIS
Political & Legal
The international operations of McDonald's are highly influenced by the individual state policies enforced by each government. Any changes in regulations, the imposition of additional regulations, or the enactment of any new legislation under the Obama administration that impacts employment/labour, trade, product safety, transportation/logistics, health care, tax, privacy, or environmental issues could have an adverse impact on our financial condition and results of operations.
McDonald's has the tendency to experience hardship in instances where the economy of the respective states is hit by inflation and changes in the exchange rates. Market leader, Very high target market, Low cost and more incomes, the rate at which the economy of that particular state grows determines the purchasing power of the consumers in that country.
Working within many social groups, Increase employments.
Advanced technology development, Quality standards.
Quality packing, local manufacture using foreign supplies.
Legislation for product, sustained logo
2. FIVE FORCES ANALYSIS
Restaurant industry is highly competitive industry. There are many small fast food businesses in the industry that fight with each other to improve their customer base; McDonalds is not an exception to this. Since its establishment in 1940, MCD has excelled in the sector. Nevertheless, to stay in the competition, it started with McCafé. This helped the company to stay in the business as a major fast food business. Another major step came out when McDonald started Breakfast to compete with the existing business serving breakfast. Hence, this industry is extremely competitive and the MDC should be up to date with customer taste & preferences.
Ease of Entry
Although it is hard to enter the restaurant business, it is hard to establish a distinct brand name. There is a high cost of entry in the market and there are high research and development costs. Large established companies with strong brand identities such as McDonald's do make it more difficult to enter and succeed within the marketplace; new entrants find that they are faced with price competition from existing chain restaurants.
There are many substitutes in this industry. Since there are a wide variety of products that people can choose, they could either be substituted by MDC Burgers, Beverages, dairy products, and others.
Strength of Suppliers
Power of suppliers within the fast food industry would be relatively small, unless the main ingredient of the product is not readily available.
Strength of Buyers
Relatively strength of buyers is low in this industry
3. KEY FACTOR OF SUCCESS
The real question, of course, is why has McDonald's been a success? Why is it that so many British will eat at McDonald's today? May be because it's quick, or easy, may be because it's affordable or just because they enjoy the taste. Any one or more of these reasons could apply to any individual or group at any point in time - but all of these reasons go to make up the McDonald's experience. The McDonald's experience is the first and major key to our success.
Q, S, C&V
Many of you will have heard of QSC&V. Now QSC & V is not some kind of secret weapon or some marketing hype that some guy with a pony tail, open neck shirt and gold chains invented to convince us he is worth his stipend.
QSC & V stand for quality, service, cleanliness and value and it is a core part of our business.
Quality means no shortcuts. We must deliver quality products to ensure our customers keep coming back. If people didn't keep coming back, our statistics show that we would be out of business in just two weeks!
Service means beyond of our customers' expectations, each time, every time.
Cleanliness means a facility that you would be proud to call your own
The second major key to our business success is our marketing. We use it to enhance our customers experience, overall perception of McDonald's in the market place.
Community Involvement & Licensees
Other two areas we also regard as keys to our success are our community involvement and our licensees. It is obvious that, whatever we can do for the community that is good for it, will in the long run be good for us. Whether that be McDonald's Junior Tennis and the other sponsorships we are involved in, or the hundreds of educational, environmental, artistic and other programmes that get off the ground every year because of the assistance of McDonald's and our franchisees, we are proud to a part of the USA community. Our licensees are the second last key to success. To be a McDonald's licensee means a total focus on the McDonald's business. We have very high principles and high opportunity.
There is one key factor in our success that I have yet to mention and that is our suppliers. It goes without saying that our suppliers are one of the three stakeholders in the McDonald's system. The corporation and our licensees being the other two, making up what we have traditionally referred to as a three legged bench.
Partnership, What Is It?
The term 'Strategic Partnership' has floated around a lot over the past few years. It goes further than McDonald's of course. The term has become a bit of a trendy one lately so I thought it would be a good idea to explore a little more just what it is that I mean when, as a McDonald's person, I refer to our desire to be in partnerships with our suppliers. Partnership conjures up all kinds of images. We are married to partners, work with partners, and dance with partners and play games with partners. Partnerships are not a panacea for poor management, they are not a substitute for lack of leadership or poor planning and they are certainly not some kind of magic formulae that guarantees success in the market place. Partnerships in business require a lot of work. Partnerships in business relationships are like a marriage. Success and happiness can't be guaranteed. But you can work at it and put in place processes to try and minimise the down side, that's what it is all about, minimising risk and capitalising on strengths for mutual benefit.
Suppliers & the Planning Process
So how do you establish supplier partnerships? The first broad area I want to address is that of planning. If success is our aim then a plan to achieve it is an obvious place to start. More specifically, we need to ensure that our Purchasing, or Supply Chain Management areas have a plan that is aligned with our organisation's direction and that will enable them to manage our supply base to achieve our corporate aims. Four basic questions for suppliers and the planning process are: - Firstly, do we have a clearly stated vision? Does our vision statement clearly outline the future we desire for our organisation? Secondly, we need to have a very clearly defined mission, this is our organisations, or our department's purpose for being, and it defines the business we are in. The third area respect to planning is that of the inclusion of suppliers into our strategic plan. The questions are, are our suppliers a success factor for our business, are they a strategic area in our plan? The fourth question is where are our suppliers' plans at? Have we seen them? Where do we fit in? What opportunities could we are missing?
Managing Supplier Relationships
Having gotten to the point of both having a plan, and one that is hopefully mutually compatible, the next step is to come to terms with what we want to achieve together with our suppliers.
FUTURE CORPORATE STRATEGY
Increase its product line, to have more variety to choose from, to include more deserts and more items like Pizza McPuff. It should continue to provide better and quick service. By lower the supply chain cost so that it helps in cost reducing.
MCD is willing to expand their happy meal choices to attract and retain customers and can also introduction of McCafees serving premium and specially coffees and other beverages and other products such as cakes, pastries etc in the existing McDonald's. Focus on gifts for all generations i.e. youth, kids' especially senior citizen which is a completely new concept. MCD should provide special promotions during festivals. They should increase the space for provision of birthday party areas and try to sponsor college festivals. After analyzing the marketing of McDonald's, it is clear that the company can be said to be `global', i.e. combining elements of globalization and internationalization. McDonald's have achieved this through applying the maxim, `think global, and act locals. In order for the international division of McDonald's to continue the inspiring success that it has achieved in the past, two major areas of concern must be addressed. The increasing level of saturation in most of the major markets around the world and the struggle over autonomy between corporate and the franchises must be addressed with extreme urgency and by allocating the resources necessary.
Although saturation is a growing issue overseas, it was noted earlier that foreign operations are now more than ever, a major element of the McDonald's Corporation business. As a result there is a constant fight over autonomy. The franchises, especially the experienced outlets with over a decade of success, want more autonomy to adapt to local tastes and preferences. The franchises feel that as the market becomes more aggressive, it will be vital for alterations and adaptations to occur faster and easier than they ever have in the past. However, McDonald's corporate is on the opposite side of the issue and is not budging.
In conclusion, the case study is done using a PESTEL analysis, key factor of success and five forces analysis. In this report I also include the size, share and growth of the McDonald's. The McDonald's is one of the most popular fast food organisations in the world. It has maximum sub-restaurant in the different countries, Like Singapore, Japan, Canada, India and soon. The growth ratio of McDonald's is increasing day by day. In the case of Great Britain, McDonald's take the more than 50% market.