Global Expansion of McDonald’s essay

Global Expansion of McDonald’s essay

Introduction

All across the world, it is common for companies to look for new ways of expanding and trying to enter new markets which will guarantee profits in various ways (Deresky, 2006 p.30). Different strategies which can be used for international expansion are usually critically analysed by managers of the companies. Companies look for expansion for various reasons, all of which can be either proactive or reactive. Such reasons include inter alia; potential opportunities, an increase in global competition, needs of the customers, declining foreign trade barriers, and when there is an increase in expenses in the domestic market. Mc Donald’s is one of the companies which looked to expand beyond its borders and has subsequently become among the most successful companies when it comes to implication of international strategies (Deresky, 2006 p. 45). This paper is mainly aimed at discussing the expansion of the McDonald’s.

Company Overview

McDonald’s was started in the year 1995 by a visionary who goes by the name Raymond Kroc (McDonald’s: The Ray Krok Story, 2010-2011 p. 1), and has since been the most renowned fast food franchise across the globe. A research study shows that McDonald’s is currently serving above 60 million consumers in more than 117 countries each and every day (McDonald’s: The Ray Krok Story, 2010-2011 p.2). The company is recognized across the whole world and this gives it a global brand value. The revolution of McDonald’s in America is directly credited to Kroc as he made it the most recognized icons in the industry of fast foods.

To facilitate the expansion despite there being an increase in regulations, McDonald’s employed a strategy that involved green and clean environments, the American origin as well as controlled standardized products. As a result, there was increased localization which led to and increase in localization of the brand which subsequently led to redoing the whole model to make it appealing especially to local people. This particular strategy contributed to the turning point for McDonald’s but can potentially lose the equity of their brand in the future coming days (McDonald’s Fact File, 2007 p. 12). Consumers identify with McDonald’s and it is not just  recognized in the United States but also in other foreign countries which is a result of the fact that McDonald’s respects beliefs,cultures, likings and most of all markets of other countries despite the fact that they have an American base (McDonald’s Fact File 2007 p. 13).

McDonald’s revenue

McDonald’s reached the peak of its revenue in the year 2013, over the past nine fiscal years which was 28.11 billion U.S. dollars. Since this peak, the revenue has gradually been decreasing year after year over the last three years till it hit 24.62 billion U.S dollars in the year 2016 which was less than that generated in 2011. This contributes to a percentage of 32 percent revenue that comes from McDonald’s in the U.S.  The global sales kept on rising by 3.7 to 5.5 percent.

Comparison of International Sales

In the past three years, McDonald’s has recorded 24.1 billion which is 34%  revenue from the U.S, 9.6 billion which is 40% from Europe, 5.1 billion which is 21% from Asia/Pacific, Middle East and Africa while other countries made 1.3 billion which is 5%. Over the past 10 years, U.S sales have increased by 4% annually while other states have been recording an annual increase of 6%.

Franchise Model

McDonald’s has a franchising process of a strategic network (Hitt, et al., 2010 p. 15). A great percentage of its restaurants are run by franchisees. All the restaurants across the world are centrally controlled at the headquarters. There is a standard set of procedures that are followed across all the restaurants in terms of value propositions and quality of service, all of which are controlled at the headquarters to create and maintain value for the entire chain of restaurants (Hitt, et al., 2010 p.18).

Strategies for Expansion in Different Countries

McDonald’s has made sure to employ different strategies in different countries such as China, South Africa, Brazil, Saudi Arabia and India, in accordance with their cultures, beliefs, likings and market trends. For example, in China, their menu was customized by adding a flavor of the Chinese native taste such as the teriyaki burger, and in India aloo tikki, paneer burgers and the Maharaja Mac. In Saudi Arabia, they respect the Islamic culture by not serving pork as well as closing the restaurants five times a day to give chance for prayers. Some outlets in some cities exclusively serve Muslims only and are operated by Muslim staff only (McDonald’s Fact File, 2007 p.10). Satisfying consumers’ needs by customizing products is considered to be a key factor when making a global expansion plan.

McDonald’s Strengths and Weaknesses

            Analysis of a firm or company is carried out internally to establish and understand the current as well as potential strengths and weaknesses in comparison to its competitors. This gives the company a competitive advantage which is sustainable (Deresky, 2006 p.14). The strengths of McDonald’s include but are not limited to; corporate social responsibility, innovation, marketing, and adaptability, while its weaknesses can be narrowed down to; currency fluctuations, franchisees challenges and customer service.

McDonald’s Organizational Structure to Support the International Strategy

            In terms of implementing a global strategy and having a centralized and organized structure, McDonald’s stands out among most companies and sets out an example which is exemplary. This is as a result of the fact that McDonald’s is served by the same set of suppliers and there is uniformity in all its restaurants which add up to 31,000 in over 120 countries (Hebert, 2011 p.16). In addition, McDonald’s successfully manages and satisfies it’s ever changing customer needs and demands by combining both formal and informal forms as well as centralized and decentralized structures.

Recommendations

McDonald’s has a tremendously huge potential to spread out to areas especially BRIC countries which are centers for numerous opportunities for growth and research. They should additionally focus on reaching out to even more sections of the society and this can be achieved by putting focus on both high and low populated areas. Another strategy that could work for McDonald’s expansion plan is including add-ons to their restaurants such as internet, bakery or coffee shops especially in high metropolitan cities, For example how they have a tie up with T mobile for hot spots in Germany. They can also look to diversify into other ventures still in the food industry just like the McDonald’s Hotel in Zurich.

The McDonald’s goals for the future should include employing certain important health aspects that will help in controlling increasing weight issues among children that are brought about by high consumption of fast foods. They should work on increasing the nutritional value of their food (Consumer Lifestyles- Australia, 2009). They should also work on their customer service to increase consumer satisfaction especially at the counters to reduce long queues.

Conclusion

Despite the existing threats and weaknesses, McDonald’s have managed to successfully put in place and employ international strategies which include making use of customization as well as localization to fit into foreign countries while at the same time maintaining its American origin which is achieved through having the centralized procedures. Even though it is quite a challenge, the managers have managed to keep up with the pace balancing the operations and processes of centralizing and decentralizing, as well as keeping the organizational structure in synchrony with the strategies used to beat its McDonald’s competitors. A combination of all these has made McDonald’s a strong player and subsequently the number one brand in the fast food industry.

References

Deresky. H. 2006 “International Management” Managing Across Borders and Cultures 5^th            Edition.

McDonald’s : The Ray Kroc Story, 2010-2011

McDonald’s Fact File, 2007, 2007.

Hitt, M.A., Ireland, R.D., & Hoskisson, R.E. 2010. “Strategic Management”: Concepts & Cases Competitiveness And Globalization. Wall Street Journal 8th ed. Canada: South-Western.

Hebert, L.J Jnr, 2011 “Cosmopolitanism in the age of Globalization” Consumer Lifestyle-             Australia.