McDonalds Foreign Direct Investment and Distribution strategy - Essay Example

McDonald’s Foreign Direct Investment and Distribution strategy Institution: McDonald’s Foreign Direct Investment and Distribution strategy Foreign direct investment takes place when organizations in a nation purchase ownership of assets, in other nations. This purchase of assets occurs in a manner that allows the foreign company or individual to take charge of the means of production, distribution and other activities associated with goods and services in the foreign nation. This essentially means that a company in the US might buy a production facility, which is used to manufacture products in another nation. Through maintaining ownership of the production facility, the organization from the US is able to control the process of production to guarantee the quality of goods produced, as well as the process used to turn raw materials into end products (Johnson & Turner, 2003). The issue of control is the most pertinent when considering foreign direct investment. This paper will examine McDonald’s foreign direct investment, as well as the company’s distribution strategy, comparing the company’s strategy in Saudi Arabia and other nations. McDonald’s Foreign Direct Investment McDonald’s foreign direct investment focuses primarily on investment in restaurants and the food industry. The company made its foreign direct investment for the long term, with the distinct purpose of making a profit. As a multinational firm, McDonald’s has significant foreign investment assets that comprise of the parent company in the US and foreign affiliates domiciled in host countries. The company has the capacity to derive and transfer its capital resources globally and operate restaurants and penetrated markets in other countries worldwide (Schaffer, Agusti & Earle, 2008). McDonald’s foreign direct investment not only focuses on controlling affiliate restaurants in developed countries, but developing countries, as well. Investing overseeing has generated immense benefits to McDonald’s and its investors. Inward investors continue to gain easy access to markets in foreign countries, particularly since the company’s products can be made using local ingredients. For instance, it makes apparent commercial sense for McDonald’s to set up local restaurants, which make use of local ingredients instead of exporting ingredients directly from the US. McDonald’s establishment of affiliate firms in other nations allows the company to gain access to a vast array of resources, which include among others cheap and skilled labor, as well as local expertise and knowledge inherent in the foreign nation. McDonald’s builds restaurants in other countries thereby exploiting the economies of scope, for instance, spreading costs such as fixed management costs across territories. In addition, McDonald’s also uses affiliates in one country to produce output for other territories. McDonald’s is also able to deter barriers to trade, for instance, quotas and tariffs imposed on companies that trade outside their trading blocs. In essence, McDonald’s success in overseas markets has been based on the firm’s capacity to transfer its capacity rapidly to conduct its entire business system to foreign entrepreneurs (Johnson & Turner, 2003). The organization’s superior knowledge, as well as managing fast food restaurants is transferable to its operations in countries outside the US. McDonald’s Distribution Strategy McDonald’s is arguably the biggest fast food chain, serving nearly 58 million people per day. McDonald’s restaurants, which operate either through franchises or affiliates, acquire revenue from royalties and fees from franchises, rent and sales in the company’s restaurants. McDonald’s focuses primarily on the sale of chicken products, breakfast items, hamburgers, soft drinks, desserts and hamburgers among others. The firm’s distribution strategy takes into consideration the theory of the marketing mix. The company has more than 30,000 restaurants that serve at least 58 million people every day in approximately 121 countries (Schaffer, Agusti & Earle, 2008). McDonald’s restaurants seek to be the originators in the market and establish the brand effectively by heavily promoting its brand, particularly through advertising. This effective distribution strategy helps McDonald’s to develop a strong market share within the fast food global market. McDonald’s has pre-defined the locations for most of its stores to help reach a diverse population (Johnson & Turner, 2003). McDonald’s has an intensive distribution process credited to the firm’s marketing department. McDonald teams up with other renowned brands such as Disney, Coca Cola and Pepsi to fortify its place in the market. McDonald’s sells its products in Disney theme parks and their movies. However, McDonald’s also ensures the price of its products is right, and the quality of its food is superior. McDonald’s delivery channel is ingenious since the firm recognizes the need to work cooperatively with the Disney Corporation and other globally acclaimed brands. McDonald’s in Saudi Arabia Undoubtedly, McDonald’s is the epitome of corporate success as a result of the company’s ability to appreciate and adapt to the market. For instance, when other fast food chains establish franchises in countries such as Russia and fail, McDonald’s delegates its people and succeeds, allowing the organization to own 80% of the Russian market (Hill, 2007). In Saudi Arabia, McDonald’s demonstrates a unique design of all the company’s restaurants, integrating various features of regional and local culture. McDonald’s boosts of an architectural formula for Saudi Arabia that is as standardized as the burgers the firm sells. With profound consideration of Saudi Arabia’s local religion, traditions, culture and ways, McDonald’s architects designed the McDonald’s stores in Saudi Arabia. For instance, not only do McDonald’s restaurants in the nation close five times per day for prayer purposes, the stores are also built to uphold and respect the country’s traditions. McDonald’s foreign direct investment in Saudi Arabia appreciates that Saudi nationals require two restaurants; one for single men and another restaurant for families. References Hill, C. W. L. (2007). Global business today. New York: McGraw-Hill. Johnson, D., & Turner, C. (2003). International business. London: Routledge. Schaffer, R., Agusti, F., & Earle, B. (2008). International business law and its environment (7th ed.). New Jersey: Cengage Learning. Read More