INTERNATIONAL BUSINESS: McDONALDS
Category : Mcdonalds Case Study
McDonalds is one of the best-known brands worldwide as McDonald's continually aims to build its brand by listening to its customers and identifies the various stages in the marketing process. The expansion strategy of McDonalds is integrating the market identifying customer needs and requirements and meeting these needs in a better way than competitors. In this way a company creates loyal customers. McDonald's has the power to expand its market as the number of target customers is increasing and always growing with positive buying decisions of such products as McDonald's establishes a prominent position in the minds of customers around the globe.
International expansion is fast becoming a priority for companies of every size and the decision to extend operations beyond domestic borders is not without challenges players who have successfully entered foreign markets. Expanding internationally is one way to offset these competitive pressures by broadening the potential universe of customers, companies also broaden their revenue sources. Globalization can enhance a company's long-term survival as well. Companies that expand into international markets lessen their dependence on a single country's economy. ( 2000 ) There is no single international expansion strategy that is universally effective, companies that develop successful strategies tend to adopt the following best practices. McDonalds embrace the local culture and blend their corporate identity with it, rather than imposing it on the culture. Expanding the market need to maintain a consistent corporate identity, but need to adapt to local tastes, customs and needs as McDonald's adapt its winning formula to different cultures. (, 2000 )
In discussion, the skills in marketing communication is a crucial factor for McDonalds international expansion most to the Asian countries in a way is that provides the most effective results. For example, TV advertising makes people aware of a food item and press advertising provides more detail as supported by in store promotions to get people to try the product and a collectable promotional device to encourage them to keep buying the item. A thorough understanding of what the brand represents is the key to a consistent message as the more McDonald's knows about the people it is serving the more it is able to communicate messages which appeal to them. In terms of market entry and development, the fact that McDonalds restaurants in the UK are a wholly owned subsidiary of the McDonalds Corporation in order to control quality, (, 1986) McDonalds in the UK initially developed the market through joint ventures with suppliers and through opening its own outlets and only when quality and reputation were established, did it begin to grant local franchises to expand in the international market and internationally, McDonalds is as big as some countries and is growing at a phenomenal rate. ( 1986)
The strategy of the fast food giant is to serve customers where they live, shop and play. McDonalds's international strategy is to focus on high-profile CBD locations in new markets that it penetrates. ( 1986) The business is doing well and in many cases exceeds initial expectations in terms of turnover and profitability. McDonalds has no plans to diversify its range of restaurants being the most recognized brand in the world has its advantages as the group's marketing strategy is to leverage the name internationally for its worth. (1986) McDonalds obtains much of its required funding from multinational and local banks. The corporate policy is to finance themselves in the currency in which they sell their hamburgers whenever possible helping franchisees obtain funding. McDonalds' largest markets and the market is growing rapidly and still protects itself by monitoring of its international markets and hedging where appropriate in financing market entries strategies is one challenge through identifying market opportunities, packaging, price points and distribution channels. ( 2003)
McDonalds has adapt menu selections to local tastes and import nearly its goods, until it can build supply chains locally. ( 2003) Some companies find that selling single-serving sizes works well in countries with low per-capita incomes. As Faced with increasingly intense competition in the United States, McDonald's Corp. (MCD) is increasingly relying on its international operations for the majority of its profits and the bulk of its new-store openings. McDonald's, which reaped nearly 60 percent of its overall operating income outside the United States in 1996, has restaurants in 103 countries. (, 2003) McDonald's, the international market, where it has more than 9,000 restaurants, represents an open field compared with the United States and after establishing a presence in many international markets including a foothold in places like India, where it sells lamb and vegetarian sandwiches, and China - McDonald's has taken the lead from its global competition. ( 1996) Thus, driven by the key strategies of quality, service, cleanliness, and value, McDonald's has achieved international success and growth, with more than 15 000 restaurants operating around the world in 80 countries, including nearly 500 stores. ( 1996) McDonald's growth is fuelled by a number of factors as marketing, store development, convenience, customer service, value and others. ( 1996)
Marketing drives people in McDonald's restaurants, and plays an important role in encouraging trials by consumers, and a fun and memorable in-store experience. But McDonald's sustained growth is built on repeat business, repeat visits. If McDonald's did not ensure repeat business, they would be out Of business in Australia in just two weeks. The key determining factor in ensuring repeat business is the delivery of consistently safe, high quality, fresh hot food which satisfies customers' quest for taste and substance. A major part of that delivery is the performance of McDonald's employees who are the face of the organisation, and who actually deliver the food fresh, hot, and tasty to the customers. ( 1987) McDonald's strict adherence to the highest operational standards, and an ongoing commitment to training, ensures that this important part of the equation will continually ensure complete in-store customer satisfaction on every customer visit. McDonald's reputation is at stake every time a McDonald's crew employee serves a customer. As McDonald's grows, the world becomes smaller with the proliferation of mass media and explosion of information technology. More and more people have access to a wider range of media and listening to news concerning McDonalds. (, 1987)
The process of penetrating and developing an international market is a difficult one, which McDonalds may identify as an Achilles’ heel in their global capabilities. In fundamental terms, entering a new country-market is like a start-up situation, with no sales, no marketing infrastructure in place and little or no knowledge of the market. Despite this, McDonalds Corporation usually treats the situation as if it were an extension of their business, a source of incremental revenues for existing products and services. The company can pursue such new business opportunity with a focus on minimizing risk and investment advocated for genuine start-up situations. ( 1999) Next, from a marketing perspective, as McDonalds may possibly break the founding principle of marketing that they should start by analyzing the market and only then, decide on its offer in terms of products, services and marketing programs and see international markets as opportunities to increase sales of existing products and that McDonalds can better adopt a sales push rather than a market-driven approach. The company enter new country-markets through the indirect channel of a local independent distributor in few other multinationals will not know their costs as well as their operating profitability in the markets and it is a fact that McDonalds are also altering the way they enter and penetrate new international markets, the mixed results as remain a challenging phase of internationalization. (, 1999)
RECOMMENDATIONS AND CONCLUSION
McDonalds should not adhere to some mismatch between expectations and situational requirements stems from a failure to follow in international operations the marketing strategy process that is probably established in the core domestic business as the company have direct participation in the market and through a controlled marketing subsidiary having ample control over strategic marketing and its success to think thoroughly about how the business will develop over several years. While it is true that distinctive characteristics of an international marketing situation demand a different approach to marketing as it is not a reason for McDonalds standards in marketing management to be relaxed. In strengthening international expansion strategy of McDonalds market it is crucial to examine some unique international marketing challenges and discuss phases of the process of market entry and development, including the following: ( 1995)
Ø The objectives of market entry, which will have implications for the strategy and organization adopted
Ø The choice of market entry mode like McDonalds form of marketing organization through which the company participates in the market. Particular attention will be paid to the low-intensity modes of entry as favored in market entry situations
Ø The marketing entry strategy, with a particular focus on the lessons learned from the strategies of other established multinationals in emerging markets and framework for evolution of international marketing strategy
The distribution unit in the country-market as a wholly-owned subsidiary, has to manage a strategy for growth and be judged on organizational criteria including feasibility, level of desired risk, supportability and control issues with the implementation of preexisting marketing strategies such as communication platforms and target customer selection. ( 1995) Indeed, it is usually impossible to separate the process of market development from the process of organizational development. It is possible to identify commonalities across companies in this process of internationalization and so to describe the usual evolution of international marketing strategy. ( 2001) The framework has to begin by recognizing that different objectives for market entry may produce quite different outcomes in terms of entry mode and marketing strategy. McDonalds enter international markets in following standard market entry and development strategy because of its increasing commitment pattern of market penetration, in which market entry is via independent partner to a directly controlled subsidiary of building a business in the country-market as quickly as possible but nevertheless with a degree of patience produced by the initial desire to minimize risk and by the need to learn about the country and market from a low base of knowledge. ( 2001)
The fundamental reason of McDonalds for entering a new market has to be potential demand but it is common to observe factors driving investment and performance measurement decisions as it will change the calculus of the market entry mode decision. Thus, internationalization can help the company achieve greater economies of scale as the company may seek to exploit a distinctive and differentiating asset with adaptation to local markets, which would undermine scale economies from replication of the winning model. McDonalds must retain some control, so it may enter markets with relatively high-intensity modes as either in franchising or licensing business models suited for the rapid replication of businesses through expansion of units as centered on protected assets as expansion operations will consist of a patchwork of country-market operations that are pursuing different objectives at anytime. It is better that McDonalds would adopt different entry modes for different markets and have a template that is followed in every markets as starts with market entry and a distribution channel respectively. However, since McDonalds will have involvement in elements of the marketing plan, including how much to spend on marketing, distribution arrangements and service standards, it should be noted that effective control over marketing operations is impossible without timely and accurate market information of market participation, involving investments in local executives, distribution and marketing programs. ( 2004)
The market entry mode decision relevant for McDonalds should consider serving an international market through export agents is attractive in that it offers both low financial risk and access to substantial local operating knowledge. It is particularly suitable for the company to acquire better experience adopting international operating functions as the level of control is likely to be quite high, given that internationalization has occurred in the context of a preexisting interorganizational relationship and establish a service operation for the customer’s local operations. In addition, further expansion beyond the entry account may prove to be hampered by the fact that the products sold to that account were customized to the client in question and therefore not immediately transferable to the wider market. Henceforth, McDonalds franchising is an explored entry mode in international markets, but it has been used as a rapid method of expansion within major developed markets in America and UK as franchising is suitable for replication of a business model or format, such as a fast-food retail format and menu. Since the business format and the operating models and guidelines are fixed, franchising is limited in its ability to adapt, a key consideration in employing this entry mode when entering new country-markets. McDonalds is far from being a global seller of American-style burgers, but it offers considerably different menus in different countries and even different regions of countries. ( 2004)
Furthermore, one drawback of franchising is the difficulty of adapting the franchised asset or brand to local market tastes even experienced corporations as McDonalds which have managed to thrive on trade-off and taken several decades and some false starts to get to this point of advanced practice. Clearly, the franchising organizations allocate larger marketing budgets from central funds, it remains true that local marketing plays only a limited role in the replication strategy for which franchising is best suited. Moreover, licensing is a common method of international market entry for McDonalds with a distinctive asset, which is a key differentiating element in their marketing offer. ( 2004) Thus, licensing is a practice not restricted to international markets licensing its products to manufacturers and marketers while it focuses its own efforts on its core competencies of food production and distribution and offers an effective way of entering foreign markets because it can offer low-intensity mode of market participation and adaptation of product to local markets. The major advantage of licensing is that, despite the low level of local involvement required of the international licensor, the business is essentially local and is in the shape of the local business that holds the license to move on to new services that retains competitive advantage.
In situations in which McDonalds strategy is adopted and rapid expansion of the business is a priority, they are highly suitable and the extent to be underutilized and it is clear market entry strategy are interrelated as expansion ways can run counter in entering the market with essential experience in the demonstration of emerging markets. (, 1986) Since, McDonald’s cannot export its product to all markets of countries, it can choose among different modes of operation in each market, some of which involve a higher degree of commitment of resources than others. In particular, it can open a subsidiary that franchises directly or enter into a joint venture with a local partner as well as establish a master franchising arrangement whereby the master franchisee owns and operates the outlets in his territory or finds franchisees to do the same. While the level of investment that McDonald’s commits to these markets differs across these different governance modes as McDonald’s exerts significant control over the number of outlets and the growth in the number of outlets in each market. Thus, internationalization theory implies that familiarity will be the driving factor in determining where McDonald’s will expand abroad, it is useful to discuss further the factors that economic theory instead suggests might enter into a firm’s decision to expand abroad. McDonald’s may not fully internalize the cost of expansion in a master franchise context, such a contract usually stipulates a development schedule that states the number of outlets to be opened at different points in time, McDonald’s can still control the expansion path in such markets. ( 1986)
Moreover, McDonalds potentially internalizes the cost of rapid development in master franchise contexts as much as they do under joint venture or even direct franchising (, 1987; 1992) In that sense, McDonald’s can still control the expansion path in such markets. Moreover, as tight development schedules impose higher costs on the master franchisee, they will not be willing to pay as much for a contract that requires them to expand very rapidly relative to one where they can expand more slowly. In conclusion, the notion that McDonald’s expanded abroad because it had saturated its home market. Instead, consistent with traditional profit maximization arguments for a firm with market power that faces numerous market opportunities and limited resources that it allocated resources to achieve growth across many highly desirable markets as it enters those markets with the most promising culture positively related to a country’s market potential, there are factors that affect entry and expansion differently. Therefore, it is worthwhile considering how service chains expand abroad and going beyond just entry to gain further insights in the process and hurdles involved in international market expansion respectively.
Factors influencing to the entry mode choice
Despite having a pragmatic recognition of the uniqueness of the international marketplace, there has been agreement over the exact nature of distinctiveness to the valid observation that market expansion of McDonalds in a single country, takes place in an environment of increased complexity and uncertainty, in areas as varied as consumer behavior and government regulation. There suggests that characteristics in international operations while they may not establish international marketing as a separate theoretical subdomain of marketing, nevertheless have a great bearing on managerial decisions. During the years after market entry, the rate of change in the country-specific marketing capability of the firm is likely to be greater than the rate of change in the market environment, and firm effects may dominate market effects in shaping strategy. This is particularly important given the business context, in which the generation of new business is of prime importance rather than efficiency in managing a relatively stable business and results in entering the market via a partnership with a local distributor or other marketing agent rather than via a directly controlled marketing unit and sequence of changes to the marketing strategy. Thus, an executive responsible for a country in which McDonalds participates only for revenue generation and not for production is managing country-level trends in the economy and marketing decisions such as the product range or price level.
The greater the number of national markets in which a company participates, the more likely it is to seek to manage them as an aggregated network rather than as independent units. Marketing strategy decisions in one country-market may in this case be made against extra-market criteria. For example, McDonalds price levels may be set to minimize the difference among markets and to maintain a price corridor rather than purely to reflect local market conditions because of the increasing globalization and their consequent opportunities to integrate national operations. As discussed, it is possible that McDonalds may be participating in the market simply to learn and it may tolerate low profitability, while others are pursuing more conventional profit maximization goals. It is important for McDonalds to use some of national distribution channel for an international corporation that is responsible not just for the traditional distribution functions but it is some branch of the company in that country with an exclusive agency for the territory and responsibility for marketing strategy.