Introduction

No business works in isolation. A business is surrounded by many things. This is called

business environment. It is a combination of many forces that act on a business like

political, legal, social forces.

This report consists of analysis of a business environment and changes in this

environment of a multination Company McDonalds corporation. McDonalds is the fast

food chain of restaurants. It is one of the largest companies in food industry. It was

founded in 1940 in California by two brothers as a small restaurant. With time it grew

into multinational company and became leader in this industry.

Executive Summary

This report contains the analysis of McDonald’s business Environment. It starts with

defining the micro and macro environments. It moves on with the explaining the macro

environment as economic, technological, demography, legal, political, ethical and

environmental environments of McDonalds. It also contains SWOT analysis of

McDonalds.

McDonalds and its Business Environment

It has restaurants in 119 countries and serves around 47 million customers daily in world.

Its 31, 00 restaurants employees 1.5 million people in whole world. A McDonald's

restaurant is operated by franchisee, an affiliate, or the corporation itself. Its 70 percent

restaurants are franchisee, only 15 percent are company operated. The corporation's

revenues come from the rent, royalties and fees paid by the franchisees, as well as sales in

company-operated restaurants. McDonald's primarily sells hamburgers, cheeseburgers,

chicken products, french fries, breakfast items, soft drinks, shakes, and desserts.

Every business has two types of environments micro and macro.

Microenvironment:

Microenvironment consists of stakeholders which effect the decision making process of

the business directly. It mainly consists of suppliers, distributors, customers, competitors

etc. Though microenvironment is not fully controllable but it can be controlled to some

extent.

Suppliers: For McDonalds suppliers are those organisations which provide raw material

to prepare fast food. Some of the suppliers for McDonalds are Nestle, Quaker, and Coca

cola. Suppliers are important as they can supply high quality products. They do it

according to the volume in demand. They could effect the performance of McDonalds

where it need to quickly switch the quantity according to demand.

Competitors: In food industry McDonalds is well established name. It has few

competitors like YUM, Burger King etc. But still need to formulate strategy to be in the

top most companies in food industry.

Customers: Customers are most important in every business. Full efforts are done to

appeal the customers. McDonalds keep forming new strategy for increasing its customer

base and retaining old customers.

Microenvironment: Microenvironment of a business is much larger and uncontrollable.

It consists of those factors which affect the decisions and strategies of business and can’t

be controlled like legal, political, social etc.

Generally PEST theory is used to analyse the microenvironment of business.

Political: Since McDonalds has its business in many countries, it has to follow the

government polices and rules of country of operation. It is highly influenced by

government policies.

Economic: Economic environment affects McDonalds a lot as sometimes it has to go

through the hard time due to inflation etc. Also if economy grows purchasing power of

people increases which becomes beneficial for it.

Social: It creates jobs in society. Also McDonalds is works with many social groups.

Technological: As technology is advancing it is taking full advantage. Efficiency is

increasing due to technology. It is selling more products through its website.

Change Management

Change is ever persistent. Changes occur due to the situations, events etc. Some of the

reasons for changes are technology, customer choice, Competition, Economy etc.

Organisations have to cope with the changes. Change could be negative or positive. They

should be able to manage changes. Change management is the approach which deals with

the change systematically. It is about how an organisation can gain sustained success and

remain competitive for a long time.

McDonalds is focusing on the Asian markets as there is much scope for growth.

McDonald's opened its first drive-through restaurant outside Beijing as part of the tie-up

that the world's biggest restaurant operator hopes will power its expansion in China.

McDonald's already has about 785 outlets up and running in China and plans to have

1,000 restaurants selling its brand of American food by the 2008 Beijing Olympics. Over

half of that potential market is represented by the dominant economies of Asia Japan,

China and India where the prospects for McDonald's look especially strong in the decade

ahead.

One critical task for McDonald's is finding new menu items that not only thrive in one

market but can be exported to others around the company's global system. For instance,

spicy chicken fillet, onion and garlic mayonnaise sandwich that debuted in the Middle

East a few years back is now popular in Malaysia and South Africa.

To help make that happen, McDonald's last year opened a food studio in Hong Kong run

by a chef and a team of nutritionists to dream up new products.

In the first quarter of 2007, McDonald's is launching a menu item in Australia aimed at

kids called Pasta Zoo, in which the pasta is shaped like little animals. The Hong Kong

food lab is working on pasta dishes targeted at adults.

Whether it's new menu items such as these in Australia, or gas-station-and-restaurant

combinations in China, Mickey D's is pulling out all the stops to keep its momentum

going in Asia.

Economic Environment

A business is affected by the economy of the country of operation. For example as

recession griped the whole world into its clutches most of the business suffered loss.

Same is true for McDonalds. As unemployment increased during recession its sales also

went down in October 2009 in USA. People have reduced their visits to fast food

restaurants as a result of decreased earnings. It sales dipped in late 2009 but in January it

global sales according to reports was not slowing down as compared to other businesses.

In 2008 when whole world was worst hit by recession it continued to grow its sales and

made robust earning the early part of the year. Thought sales in USA, the country of its

origin was not as high as international sales but still its performance was better.

In 2007, its growth was according to expectations. It kept making progress in the

Asia/Pacific, Middle East and Africa group. It global sales was up by 7%. Thus it planned

to open many new restaurants in these areas. Similarly in 2006 and 2005 its performance

was unto mark.

For growth it makes strategy for its existing restaurants, opening new restaurants and

improving international profitability. It tries to achieve economies of scale in individual

markets to increase the profitability. It keeps adding the new restaurants through

franchisee.

Technological Change and its impact

Technology plays very important role in the success of a business. As technology

changes and become advances organisations has to adapt that otherwise they can be

lagged behind by competitors. Right form supply of raw material, manufacturing and

marketing it has big role for organisation. If we talk about McDonalds technology has

improved the efficiency and sales of company. Technology makes order processing

faster. It facilitates faster and hygienic packing. Technology also makes supply chain

efficient by easy management of inventory and easy payments for their suppliers and

other vendors.

When lot of orders comes at peak times then every second counts. Technology has made

it more accurate and faster to process orders with new technology such as digital wireless

headsets, customer order displays, and timer systems. This helps to detect the any mistake

in order before it reaches the customer. The computer checks the missing items in the

order quickly which enables it to increase the customer satisfaction. Weighing the order

checks that an item is missing in it. Thus technology helps to improve the accuracy and

customer satisfaction.

Other important use of technology is in marketing the products. Their key tool for

marketing is advertising on televisions of its products. Adopting the new technology is

always costly affair, but there are many benefits of it.

Socio Cultural Environment

Since this company is form food industry it relates to the food habits of society. The food

habits of the population where it operates influence the business very much. It has to

adapt according to the society and its culture.

When it was started in USA it has image of serving American style hamburgers. There it

became very popular. Then with time it moved to other countries. For example when it

opened its restaurant in Japan it didn’t do well in beginning. The reason was the food it

was serving. Initially it had the same menu as it was serving in America. The staple food

for Japanese is Rice. They didn’t feel full till they have rice in their meal. So, later on it

added dishes like fired rice, rice burger, and fried egg burgers to its menu in Japan. Other

cultural difference was like customers were expected to stand in the restaurant which they

didn’t like. The first restaurant in Japan didn’t have the tables and chairs but in later ones

they added tables and chairs where customers could sit.

Like in India when it opened its restaurant it removed beef and pork form its dishes. It

used two separate kitchens for vegetarian and non vegetarian food. As 40 percent of the

population is vegetarian it introduced vegetarian burger in the menu.

So, above two examples explain that it has to change the menu and serving style

according to culture and society.

Demography and impact due to Demographic Changes

Demographics are the characteristic of the population like literacy rate, average age,

income, gender, race etc. demographics influences because that decides the buying

behaviour of customer. A company has to decide the target market which is much

affected by the demographics.

McDonalds target market is young people and children. This is reflected by strategy of

serving toys with the meal. About income, it targets the middle income people who are

not able to spend a lot on the food and also don’t want to compromise with the taste. This

helped it a lot in recession.

Demographics are different for different countries. For example in most of the developed

countries age structure is changing i.e. birth rate is decreasing. This is making more

people in population old. This means McDonalds have to make its strategy according to

these changes. One of the step in this direction is it has started offering free tea and coffee

to 60 plus age group. This will attract more customers of old age. Earlier it had the image

of serving food for young people like to eat quickly, but as more population growing old

it is changing according to that.

Anther example of impact demographic changes is about the income of the people.

McDonalds is growing faster in developing countries where income of people is

increasing as economy is developing. There more young people in the population and

earning more, which enables them to spend on fast food and eating out more often.

Legal and Political Environment

A business has to work according to the government policies and rules. As it is operating

in 119 countries policies in every country are different rules and regulations. These

policies might be related to business, food, hygiene etc. For example, McDonalds has to

follow the hygiene and cleanliness rules established by government in all countries.

McDonald’s business is influenced by government policies according to fast food

regulations.

The political environment influence according to factors like political stability of country,

policies for business for foreign companies, flexibility in rules for international trading

etc. This affects the profitability of the company. There are different rate of tax in every

country and different types of taxes imposed. These days most of the government are

controlling the fast food business due to related health problems.

If McDonalds is earning profits, government also expect benefits like tax and

employment. There are rules for the employing people for example in United Kingdom it

is about minimum wages. All the restaurants operating in UK has to pay minimum wages

decided by government to its employees. It should be able to protect its workers by

giving genuine compensation expected by the employees to become successful.

Ethical and Green Environment

McDonalds is always been criticised due to unhealthy image of fast food. It also copes

with the ethical issues like ill treatment of animals, exploitation of children, and

destruction of rainforests. It ruins the image of its business. There many researches which

says that fast food is not healthy especially for the children and lead to obesity and other

heart diseases. It suffered loss due to these issues many times. For example in 2002 it

went under crisis. Its share price declined and profits went down by 70 percent.

On the other side it is also participate in the conservation activities of environment. It

uses the environmental friendly fuel and methods for its products. McDonalds also

created a task force with the help of anther non profit organisation working for

environment to protect it. It works for reducing and recycling the waste.

McDonalds SWOT Analysis

The anther theory which analyses the environment of a business is SWOT analysis.

SWOT stands for Strengths, Weaknesses, opportunities and threats. Strengths and

weaknesses are related to internal environment whereas opportunities and threats are

related to external environment. Any business before launching new product or moving

to new area must do this analysis to predict the success.

Strengths:

McDonalds is a strong brand name. It is easily recognised by everyone. It has firm

position in the market and is global brand.

One of its strengths is that it is huge company with 31, 00 restaurants all over the

world.

Being big its profits are also high and have good scope of experimenting with new

strategies.

According to Forbes Magazines it one of the most liked food service organisations.

Weaknesses:

There is lot of price competition in the market for food products.

There are many competitors coming up due to large profits and are lowering its

position.

Its earning is mainly dependent on the disposable income. If the budget it

threatened, people use their money elsewhere. It has been accused of serving

unhealthy food.

Opportunities:

It keeps lunching innovative products like ‘Supersize’.

It is using its environmental activities as marketing strategy. For example it is

advertising with its green packaging solutions.

It can introduce healthy and low calorie burger for heath conscious customers.

It can provide more upscale restaurants with more facilities and entertainment which

attract more people

Threats:

More dining restaurants are forcing it to decrease the price of its burger as they have

started to offer the burgers.

Society is becoming more and more health conscious and avoiding fast food. It has

been sued many times for unhealthy food and spreading obesity in America.

Competitors like Taco Bell, KFC, Starbucks and Burger king.

Other threats are related to the economic situations like current recession which has

affected the revenues of this company.

Conclusion:

McDonalds is growing at a fast pace form in spite of many hurdles in its path. Beginning

with one small restaurant in USA it has become a multinational company. This is due to

its well formed strategy and ability to implement the strategy. It keeps coming up with

new ideas to attract the customers. It also adapt according to the social and cultural

change in the society.

Thus business has to work in its internal and external environment. To make progress and

sustained success it has to clearly understand and analyze both the environments.

References

http://www.businessweek.com/magazine/content/09_47/b4156032714278.htm

http://seekingalpha.com/article/116480-what-recession-mcdonald-s-continues-its-global-

growth

http://bucknellorgtheory09.wordpress.com/2009/05/07/mcdonalds-in-beijing/

http://bucknellorgtheory09.wordpress.com/2009/05/07/cultural-differences-mcdonalds-

in-japan/

http://www.bignerds.com/papers/22822/Mcdonalds-Swot/