Issues and Controversies in Management Project - McDonalds - Case Study Example

Corporate Social Responsibility In the era of globalisation and the internationalisation of business, the assumption of a corporate social responsibility reputation can facilitate entry into foreign markets, just as it can contribute to the increase in existing national and global market shares (Bos, Shami and Sadat, 2006). This is especially true of multinational entities as they are popularly perceived of as impersonal and exploitative businesses, whose only motive is profiting from, rather than contributing to, their environment/community. By projecting an image of corporate social responsibility, corporations can negative the aforementioned negative perception and, in the process, solidify customer loyalty, entrench themselves within their community and expand their market shares (Bos, Shami and Naab, 2006; Bowd, Bowd and Harris, 2006). McDonald's evidences the validity of the stated. Renown for its corporate social responsibility record in its home country, and owing a sizeable percentage of its market share to this, upon expansion into foreign markets, McDonald's exported its CSR principles along (Bronn, 2006). Hence, in the 32 of the countries in which it operates, it has over 200 Ronald McDonald Houses, charity organisation which support underprivileged children (Bronn, 2006). It has also embraced environmentalism and committed itself to green practices, publicly acknowledging its responsibility towards the preservation and conservation of an increasingly fragile environment and ecosystem (Paton, 2007). Operating on the basis of these and other practices designed to underscore its commitment to CSR, McDonald's has successfully entrenched itself in the communities within which it operates. Indeed, a significant part of its market success and ability to penetrate the barriers to foreign market entry are a direct outcome of the fact that it projects an image of a company which wants to give, not just take, from its community (Paton, 2007). Ethics Corporate ethics, albeit strongly related to CSR, has the potential to act as a hindrance to penetration into foreign markets, even as it promises to increase a firm's competitive strength. As Verschoor (2001) points out, ethics tend not to be universal and this means that, upon internationalisation, it is imperative that multinationals acquire an understanding of the ethical systems particular to the foreign markets in question and adhere to them. For instance, in some cultures, gender segregation is an inviolable ethical principle, with the implication being that foreign entrants should adhere to this practice. In others, child labour is not viewed as unethical and the employment of children may be interpreted as the extension of assistance to an impoverished family. However, since this last is not viewed as an ethical practice and its implementation as universally unethical, not to mention a violation of international law, multinationals who engage in this practice may irreparably damage their market standing. This means that in designing their ethics guidelines, companies must create a fine balance between international and national ethical systems. McDonald's has managed to achieve this balance. On the one hand, it adheres to universal ethics guidelines which dictate the imperatives of fair wages, non-discriminatory labour practices Royle, 2005) and quality goods from suppliers (Verschoor, 2001). On the other, it respects the cultural ethics of its host environments whereby, for example, it does not employ women in its restaurants, in concession to the segregation precept, although it does in its offices (Heck, 2003). The point here is that upon entry into foreign markets, the company does try to embrace and adhere to local ethical precepts, even as it abides by international ones, so as to facilitate entry and acceptance. Branding Competitive advantage is a critical determinant of successful entry into foreign markets and of surviving the challenges of globalisation and realising its promises. Branding is a managed process to serve consumers, create identity for goods and services, and differentiate goods and services from competitors (Kapferer, 1997; Kotler, 1988). Branding is a powerful means for creating competitive advantages in marketing corporations, products, and services. The ability to create value by developing and maintaining the attributes that appeal to consumers emotionally has become a main focus of branding (Knowles, 2001). Therefore, branding refers to the process of transforming functional assets into relationship assets (Knowles, 2001) or the process of adding meaning to consumer products (Aaker, 1991). Added to that, branding is a powerful means of differentiation, and differentiation is a significant competitive positioning strategy (Pappu, Quester, and Cooksey, 2005). Berry (2000) notes that "a brand reduces customers' perceived monetary, social, or safety risk in buying services, which are difficult to evaluate prior to purchase" (p. 128). McDonald's, as several marketing and branding scholars have emphasised, has pursued a highly successfully branding strategy (Hein, 2005; Holt, 2002; White, Frazer and Meriless, 2007). It has centralised its image as a good corporate citizen, a company which embraces local ethical systems and an outlet for families which, in comparison to competitors embraces health and vegetarian foods and has created children's menus based both upon concern for their wellbeing and family budget (Hein, 2005; Holt, 2002; White, Frazer and Meriless, 2007). This is the image which McDonald's seeks to project through its branding strategy. Sustainable Development McDonald's operates in over two dozen third world countries and as a Western multinational corporation, has often been accused of exploiting labour and the environment and, as such, of observing practices which are antithetical to the principles of sustainable development (Bron, 2007). McDonald's has repeatedly refuted these accusations and affirmed its commitment to sustainable development (Bron, 2007). Good corporate citizenship is partially predicated on commitment to the stated and, in turn, directly impacts upon corporate market performance, competitive advantage and capacity for successful entry into new markets. While it is evident that McDonald's had not, in earlier years, paid much heed to the principles of sustainable development, it now does. As Kincheloe (2002) reports, the company has adopted a green focus whereby, not only does it contribute to the preservation of the environment but, it further ensures that its suppliers adhere to the same. Added to that, it highlights the imperatives of investing in host economies, of extending job-skills training, of opening up economic opportunities for host country citizens and of facilitating the transfer of technology and knowledge to the third world countries within which it operates (Kincheloe, 2002). Whether or not these claims will withstand close critical scrutiny is undetermined but what may be affirmed is that, assuming the aforementioned is true, McDonald's positively contributes to sustainable development. Corporate Strategy Chandler, Jr. (1962) argued that managerial considerations of efficiency and competitiveness determined the organisational structure of leading American enterprises in the early twentieth century (Chandler, 1962). Porter concurred, asserting that effective corporate strategy hinges on corporate managers direct and organise their enterprises based on what they have reason to believe to produce competitive comparative advantage over their competitors (Porter, 1985). Such a process of strategic decision making by firms determines organisational change at the industry level (Porter, 1985). The implication here is that result-oriented corporate strategy should evolve from the organisation's objective, has to realistically consider the limitations of corporate resources, must coordinate between a corporation's various interests (departments, companies, etc.) and should focus on the centralisation and reinforcement of the company's comparative/competitive advantage. Proceeding from the above stated, it is important to note that McDonald's corporate strategy adheres to the foregoing recommendations. As Kaufmann and Lafontaine (1994) assert, headquarters keeps a tight control over the organisation's various franchises, ensuring that they adhere to corporate quality standards and function as an asset to, rather than a liability upon, the company. This does not mean that the company imposes a specific management paradigm and organisational structure on its many franchises, as it allows for adaptation to local environment, but that it sets the standards and guidelines for the stated through management training programmes, among others (Dos Santos Silva and De Azevedo, 2007). Hence, one of the keys to McDonald's global success is a clearly defined corporate strategy which, although imposed upon all franchises, allows for flexible adaptation to cultural and market environments. Comparative Advantage Within the context of an intensely competitive national and international market, especially as relates to the fast food industry, comparative advantage assumes unique importance. It does not simply signify a differentiation between an organisation and its competitors, as in McDonald's and Burger King, for example, but is a testament to the advantages that the one has over the other. Comparative advantages is not limited to more competitive prices but competitive prices for comparable quality and a better, overall, customer experience (Olivia, Day and MacMillan, 1988; Grant, 1996). McDonald's, as may have been inferred from the foregoing, does not simply operate in an intensely competitive environment but one in which there are countless substitutes. Better tasting food, a wider range of menu item choices and highly competitive comparative prices, among others, are simply not enough to propel the organisation in front of its competitors (Kincheloe, 2002). Indeed, to do so, it is imperative that it create/innovate a comparative advantage and this is what McDonald's has done. It has created comparative advantage through vegetarian, children and health food menus, through commitment to corporate social responsibility, through the embrace of green principles and, through continued responsiveness to nascent and emergent market demands (Kincheloe, 2002). 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