FACULTY OF BUSINESS, GOVERNMENT & LAW

Assignment Coversheet

Student ID number U3111278

Unit name International Business G

Unit number 6241

Name of lecturer/tutor Dr Michael Corliss

Name of Assessment 1

Due date 16.09.2014

Word Count 10 pages

Student declaration

I certify that the attached assignment is my own work. Material drawn from other sources has

been appropriately and fully acknowledged as to author/creator, source and other

bibliographic details. Such referencing may need to meet unit-specific requirements as to

format and style. I give permission for my assignment to be copied, submitted and retained

for the electronic checking of plagiarism.

Signature of student: ________________ Date: __________

McDonald’s

Introduction

The McDonald's Corporation is the world's largest chain of hamburger fast food restaurants,

serving around 68 million customers daily in 119 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. At McDonald's, they strive to be more than just a restaurant -they're a first job for

many, a community partner, a model for other restaurants around the world, and a company

seeking new ways to fulfill brand promise of Quality, Service, Cleanliness, and Value.

Mission

McDonald's brand mission is to be our customers' favourite place and way to eat and drink.

Our worldwide operations are aligned around a global strategy called the Plan to Win, which

centre on an exceptional customer experience – People, Products, Place, Price and Promotion.

We are committed to continuously improving our operations and enhancing our customers'

experience.

What I am going to cover

In this report we focus how they become a leading fast food chain in the world.

What strategies they have followed to globalize their business?

What makes them the number one brand all over the world?

What policies they are taking to hold their popularity in this competitive market for a

long time?

What types of problems and barriers they are facing in order to survive in this

competitive world?

What roles they are playing in the global pattern of trade?

In this report I am going to provide some examples to reflect their success ,at the same time

with the help of a graph and pie chart I am going to demonstrate their huge growth. In the end

I am going to conclude my report with some findings and recommendation about the

company.

Description

McDonald 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.

But just being McDonald's isn't enough — it's doing a lot, domestically and globally, to stay

ahead. Here some strategies that are keeping McDonald’s are barreling forward. (Bahaudin

G. Mujtaba & Bina Patel of Nova Southeastern University, 2007)

Globalization strategy of McDonald

McDonald’s has developed their unique globalization strategy. McDonald include their four

main characters to make perfect business strategy. The four characteristics are shown as

below-

Think Globally but Act Locally

The main aim of the McDonald’s Corporation is to focus locally with the global strategy. It

always performs and supply all the operation, systems as per the requirement of the local

factors. It always try to be fit in local traditions, cultures, society and political. McDonald’s

Corporation always keeps special factors in mind while making their business strategy. It

always performs as per the requirements of the different markets. McDonald expenses lots of

resources to develop and create its products as pre the local demands and traditions.

However, McDonald has considered that Hindu community does not eat beef as per their

Hindu belief. Therefore, they specially introduced new vegetarian series of the product in

their menu. Also taking Muslim community in focus that Muslims did nit consume poke.

Therefore, they only sell chicken and lamb. (Rodrigo, December 22, 2012)

Pricing:

The other most important feature is their price differentiates than their competitor. This

pricing strategy of McDonald’s corporation is very reliable and unique. While fixing the price

McDonald’s takes some factors in consideration like local life style, income of the family,

location etc.  The time of fixing price for the products, they also focus on the primary target

group of the company, lower and power level. McDonald’s enters in most of metropolitan

city of the country in which it enters. Sometime during period of lean time company offers

discounted price to boost their sell in short McDonald’s corporation believes that to stay

longer life in the market we should have unique pricing policy. (Rodrigo , December 22,

2012)

Advertising/Promotional strategies:

McDonald’s corporation uses more promotional tools to promote their product. Company

offers their product at low price; it gives toys to the children etc. which become the most

successful promotional strategies nowadays. McDonald’s has for decades maintained an

extensive advertising campaign. In addition to the usual media (television, radio, and

newspaper), the company makes significant use of billboards and signage, sponsors sporting

events ranging from Little League to the Olympic Games and makes coolers of The Orange

with their logo available for local events of all kinds. To date, McDonald’s has used 23

different slogans in United States advertising as well as a few other slogans for select

countries and regions. At times, it has run into trouble with its campaigns. (Rodrigo,

December 22, 2012)

Social responsibility:

The other most thing of the Modern business is care of society. Social responsibility creates

positive image in the mind of customer. McDonald’s corporation also believes in betterment

of the society. It took part in social events, sponsored lots of charity shows, monetary aid etc.

McDonald’s corporation creates huge amount of local opportunity. McDonald’s recruit local

people too, McDonald’s gives equal opportunity to the all employers. It gives chance to local

employer at management position. McDonald’s purchases their raw material from the local

farmers.

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. There are some

reasons why they are all over the world:

Comparative Advantage

They have the comparative advantages because the same type of products they can produce

with a lower opportunity cost than others. Also their strategies help them to make their

service more efficient than other people.

New Trade Theory

McDonald’s has followed the new trade theory, because they have comparative advantage

that helps them produce more products at lower cost than their competitors, may exploit this

advantage, dominate the market, and still eventually benefit the consumer.

First Mover Advantage: McDonald gain popularity just by selling hamburger and

fries which is their core product, they have changed the meaning of “fast food”.

They have introduced different kids and flavor of burger and because of that

McDonald opens their Hamburger University in 1961. In 1968 they have introduced

Big Mac, which became so famous and they got the first mover advantage. Their

first commercial advertisement was a big hit and attract lots of consumers towards

their product specially kids. In 2008 McDonald’s introduces the most

comprehensive global packaging design in the brand’s history.

Specialization: They are specialized in making tasty and quality burgers,

sandwiches, fries and so on at a lower price. They have tons of competitors but they

are not able to beat McDonald as it knows the technique of producing foods with

lower cost .This advantage is coming due to natural factors such as natural resources

and enjoying labor advantage in various countries when producing their products.

Product Differentiate: McDonald continuously and successfully focuses on

differentiating the product, in this competitive market it’s very hard to survive

without differentiating the product. 1968 they have introduced Big Mac, In 1973

they added cheese to the menu, in 1987 they introduced freshly tossed salads. In

2000 fruit n yogurt parfait introduced. In 2001 new premiere lettuce and tomato big

and tasty sandwich launched. In 2006 snack Wrap introduced. In 2009 Mc Cafe

coffees including lattes, cappuccinos and Mochas are added to. In 2010 Mc cafe real

fruit smoothies and frappes introduced.

Investment theory

McDonald's does business in more than 100 countries around the world. They are doing

franchising business around the world such as Canada, Australia, Germany, France,

Sweden Japan, Netherlands and so on. They are following foreign direct investment

method.

They are providing four main benefits of inward FDI for a host country

It brought capital, technology, and management resources to the host country

It has increased job opportunity of that country, it has too many branches where

they need people to operate their business as a result they are hiring local people.

It has increased the level of competition in a market, driving down prices of local

product and international product as well and improving the welfare of consumers

that helps to improve their standard of living.

The benefits of FDI of McDonald for the home country include

They are collecting huge amount of money from their business which indirectly or

directly playing an important role to the growth of their country.

They are getting the opportunity to learn valuable skills from foreign markets that

can be used back to the development of their country.

Eclectic Paradigm

According to Eclectic paradigm, when they enter any new market they have the ownership advantages. As they are doing franchising they have got the internalization advantages because of their comparative advantages. Location facilities sometimes is not in their hand because they don’t do invest on land. But their outlets are still in very good position around the world.

Here is a quick view of McDonald Stages of Internationalization; it represents their journey

of success from beginning to ending:

Different Stages

McDonald’s

Categories of advantages

Ownershipadvantages

Internalizationadvantages

Locationadvantages

Form ofmarket entry

Licensing YES YES NO

Export YES YES NO

FDI YES YES YES

Analysis

1 Jan 2011: McDonalds operates in 119 countries

1 Jan 2010: McDonalds now offers free Wi-Fi in over 11,000 restaurants

1 Jan 2010: 250 Billion Hamburgers served, WOW!

1 Jan 2008: McCafe goes International in over 50 countries

1 Jan 2005: For McDonalds 50th birthday, they open up a super-sized commercial resturant in Chicago.

1 Jan 2003: I'm Lovin' It" - becomes the official slogan/advertising jingle for McDonalds

1 Jan 1988: 10,000th resturant opens up in Dale City, Virginia

Jan 1983: By the end of the year, there are 7,500 stores worldwide. McDonalds is in 32 countries

1 Jan 1981: McDonalds restaurants 1st time in European countries.

1 Jan 1980: McDonalds celebrates its silver (25th) Anniversary

1 Jan 1978: 5,000th resturant opens up in Kanagawa, Japan

1 Jan 1975: The first real Drive-Thru was created

1 Jan 1968: 1,000th Resturant opens up in Des Plaines, Illinois

1 Jan 1965: To celebrate its 10th year, McDonalds goes public and sells it first stock at $22.50

11 Oct 1963: 500th resturant opens up in Toledo, Ohio.

1 Jan 1960: Ray Kroc Purchases the McDonalds empire for $2.7 million dollars

1 Oct 1958: 100 millionth hamburger sold and multiple stores opened.

1 Jan 1954: Multimixer Ray Kroc becomes McDonalds's Nationwide franchising agent.

1 Jan 1949:It opened again as McDonald the patato chips replaced by French fries.

1 Jan 1948: they shut down their restaurant for three months

1 Jan 1940: Dick and Mac Mcdonald Bar-B-Q restaurant open

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. (Company’s Financial Report, 2012)

McDonald's Sets New Welfare Policy

Hamburger giant McDonald's Corp. has announced a new global policy for its suppliers using

antibiotics in food animals.

The new policy prohibits direct suppliers from using growth promoters in food animals after

2004. McDonald's global poultry supply comes from direct-relationship suppliers who

control the use of antibiotics in production, and who have facilities specifically dedicated to

producing products directly for McDonald's. McDonald's beef and pork suppliers are

considered indirect suppliers. (Joe Vansickle, Senior Editor, 2013)

Standards of Business Conduct for Employees

Each year McDonald's employees certify that they have read and will abide by our Standards

of Business Conduct. Employees also complete regular training on the Standards, anti-bribery

laws, and various other laws, regulations and company-specific policies. In addition,

McDonald's and its employees in all countries must comply with the U.S. Foreign Corrupt

Practices Act (FCPA).To ensure compliance, McDonald's has adopted a Global Anti-

Corruption Policy, which contains guidance for employees on all applicable anti-bribery

laws, including the FCPA. (About McDonald’s, 2014)

Barriers of McDonald's

In a recent call with investors and analysts, CEO Don Thompson revealed the four biggest

issues facing the brand

Quality of Product: By focusing on the low price strategy, they are sacrificing the

quality of product which is one of the main purposes of a fast food company that they

are ignoring.

Poor Customer Service: McDonald's drive-thru wait times have gotten worse over

the years, in-part because of an increasingly complex menu. Thompson acknowledged

this problem and said that the company was sending corporate representatives in for a

"service reset."

Unhealthy Product: Thompson is aware that many view McDonald's as unhealthy

junk food. This problem has been exacerbated by a food factory scandal in China.

Weakness and Threats

Negative publicity

Unhealthy food menu

Mac Job and high employee turnover

Low differentiation

Saturated fast food markets in the developed economies

Trend towards healthy eating

Local fast food restaurant chains

Conclusion

Findings

Political/legal factors: Political environment consists of the government activities

covering the economy and its subdivisions. McDonald's as a food provider is much

more affected by these political, legal and customers safety issues. Differences in

individual country‘s government policies extremely influence McDonald‘s

international operation. Favourable and stable political situation, legislation, legal

procedure and sustained use of logo are just an indispensable part of the business

success.

Economic factors: Economic expansion, the rates of interest, exchange and inflation

comprises the overall economic environment. This cost of capital often fluctuates with

the movement of interest rates. 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.

Product lines and pricing: McDonald's first and foremost sells hamburgers, french

fries, soft drinks, breakfast items, various types of chicken sandwiches and desserts.

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. Much is talked about McDonald‘s

pricing strategies and its menu price differs in different countries. Also the higher

price in the local restaurants very often becomes burden for the customers.

Customer’s preference: With a brand value of $49.5 billion, McDonald‘s has grown

49 percent in worth and now is the most favoured 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.

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. McDonald‘s also keeps providing Halal food to consider

the religious and cultural issues.

Technological factors: 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.

Mc Mommy 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 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.

Recommendation:

Introduce healthy products

Improve their customer service

Offer quality product

Bibliography

•Rodrigo, December 22, 2012, Analysis of Globalisation Strategy in McDonalds,

http://writepass.com/journal/2012/12/what-is-globalization/

•Kim Bhasin, Dec. 14, 2011, This Is How McDonald's Plans To Take Over The World.

http://www.businessinsider.com/mcdonalds-strategies-success-2011-12

•Ashley Lutz, Aug. 6, 201, McDonald's CEO Reveals the Brand's 4 Biggest Problems

http://www.businessinsider.com/mcdonalds-ceo-on-company-strategy-2014-

8#ixzz3Cn0VOSD2

•Bahaudin G. Mujtaba & Bina Patel of Nova South-eastern University, 2007, McDonald’s

Success Strategy and Global Expansion through Customer and Brand Loyalty, Journal of

Business Case Studies – Third Quarter 2007.

•Demetris Vrontis & Pavlos Pavlou, The external environment and its effect on strategic

marketing planning: a case study for McDonalds, J. International Business and

Entrepreneurship Development.

•The McDonald‘s Franchise Agreement, A Partnership approach to business, The Irish Time

2000.

http://www.business2000.ie/pdf/pdf_2/mcdonalds_2nd_ed.pdf

•This Is How McDonald's Plans To Take Over The World, Business Insider , 2011

http://www.businessinsider.com/mcdonalds-strategies-success-2011-12?IR=T

•The New York Times, How McDonald‘s Came Back Bigger Than Ever, Magazine issue

2012

http://www.nytimes.com/2012/05/06/magazine/how-mcdonalds-came-back-bigger-than-

ever.html?pagewanted=all&_r=0

•Forbes 2012, McDonald's Winning Strategy, At Home And Abroad

http://www.forbes.com/sites/panosmourdoukoutas/2012/04/20/mcdonalds-winning-strategy-

at-home-and-abroad/

•Global Research-Center for research, The Globalization of ―Fast Food‖. Behind the Brand:

McDonalds

http://www.globalresearch.ca/the-globalization-of-fast-food-behind-the-brand-mcdonald-s/

25309

•Dr. Ajai Prakash & Dr. V. B. Singh, Jan - Jun 2011, Asian Journal of Technology &

Management Research, globalization in food business: strategies of adaptation to local needs

and demands.

http://ajtmr.com/papers/vol1issue1/GLOCALIZATION%20IN%20FOOD

%20BUSINESS.pdf

•IBIS World Industry Report 72221, Fast-food fallout: Health-conscious and cash Poor

consumers serve as an industry challenge

http://virtualbutterfly.files.wordpress.com/2010/04/72221-fast-food-restaurants-in-the-us-

industry-report.pdf

•Gerhardt, Steve(Tarleton State University), Dudley Dan(Tarleton State University) &

Hazen, Samuel(Tarleton State University), Journal of Management and Marketing Research,

―Franchising and the Impact of McDonald‘s

http://www.aabri.com/manuscripts/11910.pdf

•CNN Money 2011, Why McDonald's wins in any economy

http://management.fortune.cnn.com/2011/08/23/why-mcdonalds-wins-in-any-economy/

•Mc Kinsey Quarterly, 2012, The Globalization and franchising of McDonalds

http://www.mckinsey.com/quartelyreport/marketing/the-globalization-and-franchising-of-

mcdonalds-marketing-.php

•Leadership- McDonald website

http://www.mcdonalds.com/us/en/our_story/leadership.html

•McDonald Annual Report 2012, 2006, 2008- About McDonald

http://www.aboutmcdonalds.com/content/dam/AboutMcDonalds/Investors/Investor

%202013/2012%20Annual%20Report%20Final.pdf