McDonald's Expansion Strategy

McDonalds is using the multidomestic strategy in India as it requires high level of differentiation and responsiveness. This can be seen from the case such as the use of local suppliers, local management and local adaptation of menu and price.

McDonald’s entered the India market through joint venture with two local entrepreneurs. This move clearly shows that McDonald’s would like to make use of their local partners’ knowledge to develop strategies to cater to the market and to build up favourable relationships with the government. This also clearly show that McDonald’s focuses on local adaptability rather than global integration.

Most of the Indians are either Hindu or Muslims or vegetarians; as a result, many of them do not eat pork or beef. Therefore, McDonald’s did not introduce beef products to India. Instead, McDonald’s customised their menu to attract the Hindu, Muslims and Vegetarians by introducing mutton-based burger and vegetarian burgers. The local adaptation of menu is due to huge differences in culture and preferences.

Price is a sensitive issue as on the average, each household spends above 50 percent of income of food and beverages. Also, more than 70 percent of the population earn less than $2,000 annually; therefore the usual pricing used in other countries would not be affordable to the middle-class households in India. Hence, to make the products affordable to them, McDonalds’ lowered their price.

Effectiveness of Multidomestic Strategy

McDonald’s strategy in India is effective to a large extent. The success can be classified into three categories – customer satisfaction, enhanced goodwill and lower production cost.

Customer Satisfaction

It is very important to understand the religion of Indian consumers. Most Indians are Hindus, Muslims and vegetarians, in order to avoid hurting religious sensibilities of Indian consumers; McDonald’s introduced the mutton-based burger and vegetarian burgers. The high degree of adaptation to the local taste instead of offering pork and beef leads to higher acceptance rate among the Indian consumers. There is a major shift in social values since the mid 1980s, where more Indians are exposure to western value. The young and rich also embraced the spirit of American culture. This growing acceptance towards American culture coupled with the willingness to replace their beef-based products generates greater customer satisfaction, which in turn leads to higher purchase intentions.

The affordable prices and value-ladder strategy are used to ensure affordability which increases their customer base. Indians are very price sensitive therefore these strategies used help to increase customer satisfaction. The lower price does not affect McDonald’s overall performance, as the high volume of sales will compensate for the low price. McDonald’s uses the family-centric and child-centric strategies to increase customer satisfaction. McDonald’s concentrate on the children as their main consumers as they are the centre of the universe in the Indian family system. By introducing activities such as children’s parade help to attract children. Other than that, Indians believe in fate therefore they introduced the instant scratch-and-win to attract the Indians. Again, these adaptations to the Indian’s culture help to generate costumer satisfactions. The high level of customer satisfaction will enhance brand loyalty therefore threat of new competition and rivalry will be substantially lower.

Enhanced Goodwill

McDonald’s understand that it is very important to build up their brand and reputation so as to strengthen brand name and generate positive political capital (support from government for expansion strategy). Therefore, McDonald’s started a series of corporate social responsible (CRS) activities by sponsoring events related to children (their main customer). For instance, they sponsored the Blue Dot (supports educational programs for the girl-child) which generated a lot of goodwill. This also draws attention from the various politicians and community organisations and earned support from the government too.

McDonald’s employed the joint-venture strategy to stress on local management which is welcome by the government as this will assist in their local economies. Besides, the employment of local people generates quality and long-term employment opportunities for the Indians. This helps to improve their economies situation and hence welcomed by the government and therefore more government support received.

Lower Production Costs

The multidomestic strategy usually does not allow the development of economies of scale and thus more costly, however McDonald’s managed to overcome this issue through its efficient supply chain management and used of local suppliers. Indian has relative high import tax and foreign exchange fluctuations. To reduce the costs, they used the raw materials from local suppliers. McDonald’s transferred its state-of-the art technology to India to meet the various regulations. They work closely with the suppliers to ensure the greater yield of agricultural products, quality and deliver on time. The various investments made to improve the supply chain helps to set up a reliable distribution channel which becomes a valuable resource for McDonalds’s. This not only helps to lower production costs in long term but also create competitive advantage. McDonald’s have two distribution centres in Delhi and Mumbai, to reduce the opportunity and transaction costs, they will only open up new outlets within a 500-km radius of it main distribution centres which lead to lower cost.

Conclusion

Overall, the multidomestic strategy is highly effective. The key to the success is the constant innovation of new products, good management and adaptation to local culture. However, McDonald’s need to constantly improve and adapt to the changing local environment in order to sustain competitive advantage by using this strategy.