Labour Relations in the Global Fast-Food Industry - Essay Example

International Marketing Introduction In simplest language, international marketing can be defined as a process of planning and executing marketing mix strategies on a worldwide scale to take the advantage of the structural and operational differences between nations to benefit both the individuals and organizations (Onkvisit and Shaw, 2008). The product mix strategies include the product type, promotion strategies and price as well as distribution channels. With the advent of globalization, international marketing became an integral part of the firm’s growth strategy, primarily to increase the profit base and diversify the market risk associated with a concentrated local market (Twarowska and Kąkol, 2013). Globalization has also improved the demand from overseas customers, which is giving to be a lot of incentive to the firms to get lured into the foreign markets. The attitude of the governments in the recent times is fuelling the drive of globalization and multinationals. This paper takes into account one of the biggest international fast food chains, McDonald’s and tries to explain the product mix strategies that it has taken in the expansion to the markets of the foreign countries and the reasons behind them. McDonald’s: Brief Introduction McDonald’s which is one of the leading American restaurant chains, founded in 1940 by Dick and Mac McDonald, has successfully expanded its business through franchising into countries across the continents. The successful company has a wide range of eatables to cope with the evolving taste of the customers. The quintessential product is hamburgers and cheeseburgers. The additional platters include chicken, French fries, breakfast essentials, soft drinks and desserts. The company began to witness worldwide growth and success when Ray Kroc joined the company as a franchise agent and bought the chain from the McDonald brothers. The company has been using its corporate logo since 1968. The boom of the fast food industry began from 1975 when fast food sales in America had soared to 900% from 1975 to mid-2000s. This provided a huge boost to the fast food restaurants to expand chains of outlets across the country. McDonald’s made the first move towards establishing a chain of fast food restaurants through franchising in the 1960s. It was the first restaurant to have introduced the concept of mass food production in the food business and become a market leader in paving the way food is to be marketed, distributed and sold. The fast food industry also depends to a large extent on the supply chain for adequate supply of raw materials. The tight integration of the agents implies that the growth of the fast-food sector chain has deeper resonance on the entire economy (Christian and Gereffi, 2010). Rationale for Internationalization Globalization has hugely increased the number of jobs and working hours in both the developing and developed countries. This implies that demand for quality fast food has also increased to a great extent owing to the young working professionals (Gikonyo and Berndt, n.d.). The successful fast-food chains of the West saw this as a great opportunity to cash on such expansion. Since 1990s, the attitude of the government in the developing countries has been to reduce the market barriers and trade restrictions have made the process of internationalization more convenient process for the firms (Christian and Gereffi, 2010). Mode of Entry It has been observed from the experiences of the leading giants in the fast-food industry that out of the various methods of modes of entry, which includes exporting, licensing, Joint venture, Franchising, Strategic alliance and Subsidiaries (wholly owned or partly owned), fast food restaurants have actively considered franchising as the most convenient method. The experience of McDonald’s reflects the same strategy. Franchising is chosen as the most common mode of entry by the big businesses because the investment burden and the liability of the franchisor are greatly reduced owing to the franchise. Firstly, the franchise greatly reduces the cost of the setting up a business as the company just passes on the trademark to the franchisee. If a company chooses franchising, then the resources, labour, energy and organizational structure remains the concern of franchisee, whereas the franchisor’s worries are reduced. In a franchise, the third party takes the risk and the franchisor can effectively monitor the business reports by maintaining central corporate governance. The other advantages that can be enjoyed are economies of scale, improving brand image for the parent company and overcoming the cultural and linguistic barriers (Royle and Towers, 2002). This was precisely the reason that had led Ray Kroc to buy the McDonald’s restaurant from the McDonald brothers. This has been the standard business model for expansion of business into the countries ever since and the franchise has been a successful venture for McDonald’s. Presently, there is 34000 plus outlets operating in 134 countries. When successful fast food companies penetrate into the economies of the emerging markets, they gain experience, better managerial models and expertise to impact the local food market and the consumption patterns. Marketing Mix Strategies The marketing mix strategies include the product offering, effective pricing of the product and promotion of the product along with the proper integration of the product in the distribution channels. One of the biggest reasons of the meteoric success of McDonald’s is the conscious effort it has taken in the creation of the brand image over the years. McDonald’s in its advertising strategies have primarily targeted children along with the parents to increase the attractiveness of the brand. A great portion of the revenue of the firm is used in the marketing strategies to enhance its brand image. McDonald’s uses five P’s in its marketing strategy. They are product, place, promotion, people and place (Brown, 1991). Product: Product is the chief source that will lure customers to buy the item. It is the value that the consumer gets in exchange of his money. However, when a parent company chooses to establish its product in a local market of any host country, it must clearly consider which products are acceptable or unacceptable in the local culture. Again, each product for a company has a specific life cycle as the taste and preferences of the consumer’s changes over time. The marketing strategy of the firm changes according to the stage that the product is in. This implies that a newly launched product will have a separate marketing strategy compared to a product which is in the matured or declining stage (McDonald’s Corporation, 2008). Launching a new product involves investment of resources and advertising on a large scale. Pricing: The country and the characteristics of the demographics play a very significant role while pricing the products. If the country is not a very affluent one, then the pricing strategy should be accordingly moderated. The disposable income of the middle-class and other targeted age-groups should be properly considered while setting the prices. The teenagers and college students cannot afford to spend a lump-sum amount on the meals offered by restaurants. Again, a businessperson visiting the store, for the purpose of a quick lunch in the afternoon, wants quality food for the price he pays. This means that the pricing of the products must be done in a way to include the differences in the target age group of customers. The country wise variations are again important as the purchasing power and standard of living varies across the borders. The threat of the competitors is also to be considered while deciding the prices. It must be mentioned here that very low pricing strategy to undermine competitors can also be an erroneous choice. Too low a price might get the customer thinking that the quality of the product is poor and then the customers might prefer other brands as they have other options available to them. Promotions: In this era of fast technological growth, advertising using all possible, popular mediums is extremely important for the growth of a company in building its image. The quality of food is definitely important but along with that, the entire package becomes important when a company is trying to attain a global image. Active advertising through television, internet, radio, cinema, fliers and banners are common modes used by most of the companies. Using vibrant and cheerful colours becomes an important strategy to attract children and adults alike. As a part of this strategy, McDonald’s have teamed up with production houses like, Dreamworks, to cash on the rising popularity of Toy Story and Shrek movie series. Inclusion of popular culture has a great potential of driving the enthusiasm among kids and the parents are left with little choice other than visiting the stores with the children. McDonald’s has actively involved the use of toy characters to make the experience of visiting the stores an entertaining one, along with the primary purpose of serving food. Place: Place becomes important in the context of sales because the rise in sales of the products only becomes possible when the products are effectively placed in the distribution channels of the economy like, popular shopping malls or busy parks and roads. The chief idea is to make the food available to the people like, near the office buildings or other places outside schools or inside the college campuses, which will allow the customers to easily access the products. People: As has already been discussed, the people of the country becomes extremely important when deciding the range of products and the targeted customers, as this will vary from country to country depending on the cultural and linguistic differences. Advertising The advertising of the brands is of high importance when it comes to positioning them in foreign countries. As McDonald’s has been operational across various countries, so the advertising adopted by it has differed accordingly. The works of Sandler and Shani (1991) are useful in this context. The differences between the USA and China have led the management to formulate different modes of advertising. Television as a mode of advertisement is not very popular among the Chinese, unlike America, which made McDonald’s come up with magazines and newspaper advertisements to capture the Chinese market. The brand image has widely relied on its advertising strategy based on entertainment along with eating and maintaining quality of its products (Vignali, 2001). Marketing Strategies in socio-cultural factors The cultural, political and legal factors of the country become important when the country chooses a new destination. Prior to the period of 80’s it was believed that marketing strategy across the borders of the home country should be treated according to the country where the multinational company wishes to establish itself. However, in practice it has been observed that McDonald’s has benefited more from the concept of local considerations when it considered expansion (Vignali, C., 2001). This is because the social and cultural factors of a country shape the way people eat and what they consider as ethical and unethical. The interaction of these factors on the consumer behaviour can be explained in the following diagram. Figure 1: Influence of Culture on Consumer Behaviour (Source: Zhou, L. and Zhang, Q., 2012) Social Factors: The success of McDonalds was largely based on the boom of population of children in the 1960’s. There was also a significant increase in the number of teenagers in the same period coupled with an increase in the labour force participation of females. The changing demographics of the country had provided McDonald’s with a large supply of customers who depended on a restaurant supplying fast and inexpensive food these segment of the population. The advent of 1970’s and 1980’s had witnessed McDonalds the rising wave of globalization. This made McDonalds take this opportunity and spread the American lifestyle to the developing countries. A large part of their success can be attributed to this factor as well. An important challenge that was faced by McDonalds in this conjecture was the social factors of each country it wished to expand. The solution came in the form of franchising the business models to the local entrepreneurs who had the best understanding about the social factors needed for consideration in each country. During the matured drive of globalization in 1990 and 2000 McDonalds largely focused on its corporate image and launched the campaign “Fast and Convenient”. This also required the company to update itself according to the emerging food trends of each country depending on the impact of globalization. The rising importance of austerity in Europe had led the company to come up with high quality coffee and health drinks in the continent. The robust growth of China also prompted the company to expand more outlets there. (Moudoukoutas, P., 2012) Cultural Factors: The cultural differences of the Asian counties compared to the countries of the west have led McDonald’s come up with products in the menu that does not come in conflict with the countries of the eastern world. A few examples in this regard can be useful. The company stopped serving burgers with cheese in Israel as the consumption of meat and dairy products are against the religious practice of the country. In India, the cultural divide between the Hindus, the Muslims and the Jains forced the company to modify the products it serves. A comparison between fast-food industry in USA and Korea has revealed that the Korean customers are more affected in their decisions towards choices of fast food restaurants by the courtesy of the employees and the cleanliness of the ambience of the place than the Americans (Min and Min, 2013). Distribution Channels The factors which determine the decision of distribution channels are the product characteristics, the company characteristics including financial and marketing policies, the characteristics of the consumers and political and legal factors. These play a significant role in affecting the sales of a product. The distribution channel becomes important because achieving cost leadership not only requires economies of scale and efficiency in production and operational processes, but also demands effective establishment of these channels (Vrontis, 2008). McDonald’s have opened outlets in retail giants like, Wal-Mart and Toys R Us, in order to expand its base of customers and make its products available to everyone visiting these places (Kotler, 2008). The network partnerships enhance the sale of both the partners and promote mutual trust. Conclusion and Findings This paper has made a detailed study of the biggest fast food restaurant chain in the world, McDonalds’s. The products that are sold by McDonald’s and the marketing mix strategies adopted by the company in its expansion across the countries and continents has been discussed in details. The above study has led to the key findings: It was observed that franchising is the dominant mode of entry that has been used by the corporation. The marketing mix analysis have revealed that McDonald’s has followed the theory of Ohmae (1989) which stated that the best way for a multinational to expand is to think global but act local. This policy is somewhere between both globalization and internationalization. The brand has taken into consideration the social and cultural differences when it began expanding beyond America and this has contributed hugely in the success of the company and catapulted it to the largest selling hamburger chain store across the world. Reference List Brown, S. W., 1991. Service quality: Multidisciplinary and multinational perspectives issues in organization and management series. Maryland: Lexington Books. Christian, M. and Gereffi, G., 2010. The Marketing and Distribution of Fast Food. [pdf] Center on Globalization, Governance & Competitiveness. Available at: [Accessed 19 December 2013]. Gikonyo, L. and Berndt, A., n.d. Critical success factors of a fast food franchise system entering the Kenyan market. [pdf] University of Rochester. Available at: [Accessed 19 December 2013]. Kotler, P., 2008. Principles of marketing. New Delhi: Pearson Education India. McDonald’s Corporation, 2008. Marketing at McDonald’s. [online] Available at: [Accessed 19 December 2013]. Min, H. and Min, H., 2013. Cross-cultural competitive benchmarking of fast-food restaurant services. Benchmarking: An International Journal, 20 (2), pp.212 – 232. Moudoukoutas, P., 2012. McDonald's Winning Strategy, At Home and Abroad. [online] Available at: [Accessed 2 January 2014]. Onkvisit, S. and Shaw J., 2008. International marketing: strategy and theory. London: Routledge. Royle, T. and Towers, B., 2002. Labour relations in the global fast-food industry why franchising is important? London: Routledge. Twarowska, K. and Kąkol, M., 2013. International Business Strategy - Reasons And Forms Of Expansion Into Foreign Markets. [pdf] ToKnowPress. 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