Global Business Strategy of McDonalds - Research Paper Example

 Abstract McDonald’s Corporation has a chain of fast food restaurants across the globe with its presence in 120 countries all over the world. The organization has its brand image in the food and beverage industry around the world mainly serving fast food items to its customers. In recent years the fast food industry has faced a challenging business environment around the world because of the health related problems which have been observed due to consumption of these fast foods. It has become very tough for fast food companies to survive and maintain their customer base which require a critical and in depth analysis of customers behavior and market to know the expectations of the customers and provide them with the same. Due to this many companies involved in fast food industry has adopted a strategic approach to secure their global market without losing their customer base. The purpose of the work is to identify the various external attributes which have posed impact on the fast food company McDonald’s which has a chain of fast food restaurants operating across the globe. The study consists of analysis of both external and internal environment of the organization which is followed by discussion on the current global strategies of the organization. Substantial emphasis has been given on the alternatives which could be adopted by the organization to meet the present and future challenges and demands posed by the market. The internal and external environment analysis will provide organization with more alternatives to enhance their business operations and meet customers’ expectations. The analysis has considered both the social, cultural, and organizational aspects which have potential impact onto the business operations of the company. Table of content Introduction McDonald’s is one of the leading names in the world of food retail service and has more than 31,000 restaurants around the world. The company has its presence in 119 countries with capability of serving around 50 million customers every day (McDonald’ssIndia, 2009). The company has its maximum emphasis over its bigness, the quality of the product, and on the quantity which is carried by the name of its product. During the year of 1948 the concept of “Speedee Service System” was introduced by McDonald’s which later on established itself as the modern principles for the fast food restaurants (Anonymous-a, n.d.). McDonald’s since its establishment has always insisted on expansion of its business operations both domestically and internationally. The company has initiated and established itself as the leader in fast food services by the continuous efforts which it has made to achieve the excellence in fast food business industry. The company has adopted its way of service according to the changes which are taking place in its customer group in the context of their taste and eating habits. To achieve the excellence in the fats food service the company has always focused on three major factors which is unique to the company. First of those factors is the tasty and high quality fast food of the company which is accompanied by the relaxed and enjoyable environment offered by the company. The relaxing environment of the restaurant company is followed by its unique approach towards the children who have always remained potential customers for the company. In present day condition of the business world the company has faced several challenges which are mostly raised by the society due to health hazards caused by the fast food products. In response to such complains the companies adopted various ways to customize their product as per the requirements of their customers. Specifically the company has brought major changes in its product ranges which offered more healthy food items and included fruits and vegetables into their menu. Another major change brought by the company in the concern for the society was the removal of the option of “Super size”. These initiatives were taken in response to the national health problem of obesity among its population. It was very much understood by the company people that to prevent such kind of threats it has to make some initiative which should focus on the consumer safety from health related issues. Another area of service focused by the company is the hospitality and its fun filled atmosphere to maintain its sales rate and capture the market. The company has always adopted numerous innovative marketing approaches to attract and retain maximum number of customers. To attract children the company has play centers at many of its shops. It has a wide range of products which targets all age groups of people irrespective of their age, class, and tradition. More prominently the company has leaded the fast food services industry in spite of facing numerous challenges from environmentalists to health experts (Anonymous-b, n.d.). Aim of the study The study has been carried out with an intention of gaining knowledge on the current business environment of the global fast food industry and the strategic approach of McDonald’s’s Corporation to meet the challenges of the market and demand and lead the global fast food service industry. In order to have a better approach towards the conclusion both the internal and external environments of the organization have been analyzed separately. The external environment of the organization varies with the location of the business so it needs to be analyzed carefully since different locations will have different external environments. All of the aspects which are influential to the business environment have been considered during the analysis of internal and external environment of the organization. More in depth knowledge regarding the current challenges and threats to the fast food industry remained the subpart of the findings of the study. Identification of different strategies and alternatives could provide substantial support to the business operation in the challenging business environment. Analysis of the internal environment of the organization will provide information regarding the strength and weakness of the company with threats and opportunities for the company which is present in near future. This will also help in identifying the alternatives which are available to the company to bring improvement in its business performance and greater market share. Methodology The study has been carried out with analysis of external and internal environment of the organization for identifying the challenges and opportunities which are present in near future. For analyzing the external environment PESTLE analysis has been used which considers the social, economical, political, legal, and environmental, and technological aspects of the system which have their specific impacts on the business environment. The external environment is also referred to as the macro environment which can be analyzed with the help of PESTLE analysis. These aspects are considered in a wider range of environment which has potential power to alter the business environment by influencing the demand for the product made by the customers. The macro-environment has influence over the numerous aspects of the business world such as the changing nature of demand for the products and services, the operational process of the organization to produce the output, availability of the raw materials which are required as an essential part of the product or service, and also the competency levels of the organizations working in same industry. The analytical tool PESTLE helps in analyzing all of the factors responsible for changes in the business performance which are present within the system. The political factors have their role on influencing the business of the industry, while the economical factors can have impacts on the prices of the products and services and their raw materials. The economic factors are also responsible for the increase and decrease of the taxes ad duties which are paid by the customer groups. The social and cultural aspects of the system also have influence on the business operations of an organization. Many regions have customers making buying decisions which are driven by their cultural and traditional values. The technology has always contributed to the betterment of the business environment as it supports the increase in efficiency and effectiveness of the organizational processes. Introducing the computers and information technology has always given companies a competitive advantage in the market (Haberberg & Rieple, 2008). The factors associated with the environment have also been considered as crucial factor for impacting the business processes of an organization. The legal factors are also found to be influential to the business processes of an organization by posing their trade related legalities and regulations. The macro-environment has many factors which are not in control of organizations and are capable enough to influence the business performance of the organization. The forces which are posed by the macro-environment cannot be controlled by the organizations though several multinationals are their which have their own way of analyzing such conditions and adapt according to the location where the company has its business operations. The analysis of the environment at macro level supports the organizations in having their strategy formulation and their move in the business environment. It is very much prominent in big multinationals which have their business operations at multiple locations across the globe. These multinationals performs critical analysis of the location to identify their cultural and traditional values which are required to be identified for the better business operations. Analyzing and providing values to the culture and tradition of the local regions have become more important due to increasing globalization process. The political and legal factors are also very much important in performing the global business operations. It is so because of the variable business and trade policies of different nations where the companies’ experiences difficulties due to variations of their policies and regulations. The economic factors of nations also have role in the global business operations because of the factors such as inflation rate, taxation rate, rate of interest and exchange, the variable prices of share in the stock market, and the rate of growth in the national and international market. This factor also includes the another major problem of the business organizations performing at international level which is the trade barriers posed by the nations to have a control over the foreign investments made by other nations into their domestic market (Allen, n.d.). In analysis of the micro-environment which represents the internal environment of the organizations the SWOT analysis tool is considered as an effective and efficient way of analysis. The SWOT analysis is used by the organizations to plan their marketing approaches and techniques. It mainly emphasizes on the strengths and weaknesses of the organization with respect to the market conditions. The tool is also helpful in identifying the threats and opportunities for the organizations which are possible in future. The process of SWOT analysis involves a systematic analysis of the micro-environment of the organization under which it considers the various aspects of its operational processes. In this analysis the strengths and weaknesses are identified as the factors which are internal to the organization while the opportunities and threats are considered to be external to the organization. In the context of fats food industry the primary strength of the organization remains in the quality and taste of the products offered by the organization. Maintaining uniformity in providing standard quality product helps in establishing better customer base that develop a trust over the standard of quality and taste of the products. In relation to the weaknesses the limited options present in the menu could be one of the major weaknesses. The way of packaging and delivering the product to the customers who uses the take away services of these organizations also helps in creating a better customer base. The longevity of the food items also remain as a major weakness for the organizations as the products offered by them are of perishable kind so they need to be maintained at specific temperature and atmospheric condition to protect them from contamination. The menu design could help the organizations to create new opportunity in the industry with widening of the menu list by adding additional foods and accessories such as sauces and other products. Identification of cost effective packaging techniques which could extend the longevity of the food items could also seem to be a potential opportunity for the fast food organizations. In context of threats for the organizations operating in the fast food business increasing level of competition is very much obvious since numerous companies have entered into the business of fast food services across the world. Another major threat for the companies’ could be the highly volatile prices of the raw materials required for the products. Recent hikes in the prices of the raw materials could influence the price of the product which is paid by the customers. This increase in the prices of the food items could influence the sales performance adversely impacting on the sales mix in the operations of the companies. The analytical tool of SWOT is a comprehensive model though which all of the aspects of an organization can be considered to be analyzed for strategic planning and control. The organizations operating in the fast food industry need to have a very extensive use of marketing concept so that they can have the maximum market share with maximum revenue generation. The SWOT analysis provides substantial support to the marketing plan of the organization (Davis, 2008). The SWOT has a very crucial role in the strategic planning of any organization which has desired to lead the industry in which it is operating. Macro- and micro- environmental analysis of McDonald’s The detailed analysis of the organization will be done by analysis of the macro and micro-environment of the organization. The macro-environmental analysis of the organization has been done through the PESTLE analysis and the micro-environmental analysis of the organization has been carried put through the SWOT analysis. Macro-environmental analysis of McDonald’s – PESTLE Analysis Political Factors The company has to work under intense political pressure since the health related issues have been raised by many of its customers around the world. Due to its unhealthy diet practices many nations have raised this issue which in return drove the company to take firm initiatives towards the issues. Some public pressures were also increasing on the company due to the health related issues associated with the food products (Anonymous-c, n.d.). The food products were proved to create numerous health related issues such as clogging of the arteries and high cholesterol level. The food products offered by the company are found to be a potential source of saturated fat and carbohydrates which resulted into heart related problems (Robbins, 1989). The health departments and political bodies related to such activities protested the company’s products and their consumption in the past which still exist at many of the regions. Economic Factors The company has a world wide chain of restaurants in more than 119 countries from which the company has maintained a very impressive balance of the accounts receivables (Ferris & Petitt, 2002). Some other factors which are required to be considered by the company are the economic stability of the nations where the company has its business operations. The recent economic recession has alerted many organizations because during this period the rate of credit loss increases with an increased volatility of the asset values. Though the sources of economic risks over the organizations varies with the type of industry in which they are operating. The prices of raw material also get influenced due to several economic movements so the company should also consider the prices of raw material and plan according to the available economic conditions of the locations (Colquitt, 2007). The rate of inflation and movements in the monetary policies of nations also poses impact over the business operations of these organizations around the world. Social and Cultural Factors The social and cultural factors are required to be considered under the analysis which will help the organization in determining the most suitable approach to be adopted to have a greater market reach. These cultural and traditional values are reflected over the feeding habits of the people belonging to those geographical locations. The taste and preference of the food items changes with the locations which is required to be identified by the organization since it has global presence of its business operations. Each of those locations has their own distinguished cultural and traditional values. The life style and trends are also helpful in analyzing the customers’ behavior over the products. Acquiring the knowledge over the cultural and traditional values provides competence to the business which is very evident from the McDonald’s’s operation in the French market where the company has over 900 outlets of its own (FREEZE, 2002). The company has seen a protest in French market which resulted into “Anti-Fast Food Movements” and the company was blamed for influencing the Parisian Pop Culture (Bedoya, 2003). The company has also faced difficulties in performing business operations in Asian countries such as India where the company is required to identify its cultural values and proceed accordingly (Kulkarni & Lasser, 2009). Technological Factors The technological factors are very much essential in transforming the business operations with enhanced productivity and profitability to meet the future demands and expectations of the customers. In relation to this the company installed the wireless technology to provide more cleanliness and modern look to the environment of its stores. The company has maintained its leading position in the global market with 33% of share and it can retain its position by introducing several technological improvements into their operations of retail outlets. Introducing new technology could be beneficial for both the production process of the organization as well as the system of taking customers’ orders. The company is required to take great care of its customer’s service operations because the company was rated lowest in terms of its customer service capability and the ratings were below than that of their internal revenue service. McDonald’s has to be very much careful in improving their quality standards related to their customer services attributes (Pae et al., 2005). Legal Factors The legal factors which have affected the business operations of McDonald’s are mainly trade related issues which the company has faced numerous times. The company has faced a legal problem due to its registration and its trademark which it uses to symbolize its existence (the golden arches or the letter ‘M’). The trademark of the organization is used only by the company and its franchised branches all over the world. The company had a major conflict with other business organizations during 1993 in South Africa where it has observed an unauthorized usage of its trademark by other organizational bodies without the proper consent of the company (GROSSKOPF, 1996). Some other legal problems faced by the company have been majorly due to its unhealthy food products which causes heart related problems and obesity. The product named McDonald’s’s Hamburger was replaced by many of its customers by Chicken McNuggets which was later on found to contain double the amount of fat compared to the McDonald’s’s Hamburger. This raised many issues in the social system which resulted into lowering of sales rate of the organization (Mattis, 2004). Environmental Factors The environmental factors have became capable of influencing the business operations of McDonald’s after the identification of numerous environmental loss which are caused due consumption of natural resources by the company as its raw materials. In context of that the company has huge requirements of paper for its plates and cups required to serve the food items to their customers. Other major usage of papers in the company is for the paper napkins and for the packaging purpose. The company has faced criticism to its environmental policies during the period of late 1980s because of is polyester clamshells containers which had surrounded the environment. To solve the problem the company replaced CFCs which are used in clamshell production by another weaker chemical HCFC-22 for its clamshell production. It was observed by the experts that the CFC has an adverse affect over the ozone layer and causes its depletion. Apart from these several other issues were raised by the Citizen Clearinghouse for Hazardous Waste (CCHW) which established a ‘Ronald McToxic Campaign’ which provides the pickup services to the clamshells by delivering all of them to the Oak Brook Headquarters. The company has also observed several other types of environmental criticism at different locations of its business operations (Svoboda, 1995). Micro-environmental Analysis of McDonald’s – SWOT Analysis Strengths of McDonald’s McDonald’s Corporation has its strength in the menu which it offers to its customers and the best feature of the menu is its uniformity and emphasis on providing low priced food products to its customers. It offers food products which consists of breakfast items and also includes heavy meals which could serve as a lunch for its customers. The company has continuously worked on introducing new products into its menu after the decision taken up by the management to develop new menu which could provide more number of choices for its customers. This will also help the company in increasing its sales growth rate. The uniformity of the services and standard at all of its outlets around the world has also proved to be a major strength for the company. In this concern the company is very much selective in choosing their franchise for their product selling. The company has always tested new food items which are included into their menu as an ongoing process where the newly introduced food items are sold for a limited period of time to analyze the customers’ response towards the product. An obvious strength of the company is its global presence while it also dominates its domestic market by having its competitors as half of its size in the domestic market. Not only in domestic market but the company has also developed itself as a leader in the international markets where it has placed itself to receive maximum advantage of long-term economic growth of the locations. The possession of real estate asset is yet another major advantage of the company. Most of its outlets around the world are located at places which are recognized and have high traffic density which provides its customers the ease of accessing the outlets. The brand image which the company has created in the past has proved to be additional support for the organization which gives an identity to the organization in the international markets (Orji et al., 2005). Weaknesses of McDonald’s The increasing level of saturation in the industry has led the company to confront the challenging situation. Due to the increased level of market saturation the company experiences difficulties in opening more number of outlets in order to protect its markets segments. The rate of increasing saturation in the market has been recorded as around 2% every year. The continuous increase in the competition level of the industry has resulted into numerous companies operating in the fats food industry. This increase in the number of competitors have impacted the sale volume of the company and also reduced the revenue generated by the organization. This is an affect of continuous increase in the price competition among the various organizations operating in the fats food industry. The company has been found to be weak in the context of product innovation which refers to the reduced level of innovation is there in the organization for product development. The company initiated the method of product innovation by launching its product Chicken McNuggets during 1983 after which the company did not made any significant innovation into its product range. Despite of such condition the company has always tested its new salads and sauces on its customers. Opportunities for McDonald’s The opportunities available for the company is mainly concerned with its expansion to other locations where the company is planning to start its business. During the year of 2003 the company McDonald’s sold its Donatos Pizzeria to its founder and along with that the company also stopped its business operations of Boston market which were taken up outside the US market. The company found its opportunity in its non McDonald’s chain of restaurants named as Chipotle Grill which was supposed to be the most successful brand of restaurant chain which is not originally belongs to McDonald’s. The company utilized this opportunity as to increase its revenue and profitability by lowering the expansion rate of McDonald’s restaurants and focused more on developing new features and concepts which will give a separate identity to the restaurants. To give an entire new look to its restaurant the company used internet technologies which helped them in expanding the features offered by the restaurant brand. By involving more information technology tools the business operations of the organization improved significantly with more efficiency and effectiveness. The company has not yet entered many locations where it can have potential customer base such as Latin America, several regions of Asia, and several European regions. These potential market locations could be very useful opportunity for the organization. Increasing trend towards healthy food product have posed numerous threats for the company but it could also be taken up as an opportunity through which the company can introduce its health friendly food items such as the fruit salad and fruit and yoghurt mixed parfaits which it introduced in the market during 2004 helped the organization to draw many foreign customers. Threats for McDonald’s The major threat for the company is due to its global presence which has made it very much vulnerable to the economic crises which could be faced by the nations where the company has its business. This is a major reason which indicates that the company is most vulnerable to the economic movements of the nations where the company has its business operations. The fluctuations in the value of the currency also pose numerous threats towards the company due to its global presence. The lowering level of margin due to cost incurred through expensive marketing campaign for product promotion has became a major threat for the company. The reason behind the costly marketing campaign is the increasing level of competition in the fats food industry which ahs seen a level of saturation in the recent past years. The company has adopted strategy which shows the attempt the organization to change its format and entire menu to attain the differentiation level which it has planned. But unfortunately most of its competitors have followed its strategy as a result of which they also have tried to have makeover of their brand and product ranges. One major threat for the company as well as for the entire fast food industry is the increasing concern for the health related issues which are found to be caused due to intake of such high fat and carbohydrate contained food items (Orji et al., 2005). Current strategies of McDonald’s In the context of strategy for the product sell the company has emphasized on making partnership and franchise for spreading their product and covering maximum potential geographical locations for business operations. The sales revenue generated by the company receives almost 60% of the total sales value from its franchises across the world. To perform its intense marketing function the company has adopted strategy named as “Plan to win” strategy which mainly emphasizes on five critical success factors which are people, product, place, price, and promotion. Out of these five factors the factor associated with the people signifies the employees working at McDonald’s. This particular strategy for human resource has helped the company to manage their workforce during the busy periods. The company also has a motivational approach towards its employees since it always recognizes the outstanding and exceptional works. It also appreciates them with proper rewards and benefits to the performer employees. To resist the increasing level of competition and protect its market share the company has acquired many small fast food chains such as Boston Market, Chipotle Mexican Grill, and Donato’s Pizza. These acquisitions have helped the organization in expansion of the business and more market area coverage to improve the sales growth in the long term. In relation to giving value to the local culture and tradition the company has adopted strategy to attract maximum local customers by offering many food items of local flavors to them. The company has focused more on providing food items at a convenience of low prices which also provides its customers a cheap and low cost alternative to several national brands of fast food companies (Pae et al., 2005). The company has also initiated environmental strategic moves under which it has focused on having a sustainable environmental growth and development. It has emphasized on the recycling of raw material for paper cups and plates, and paper napkins. The company has also worked for protection of ozone layer from depletion (Svoboda, 1995). Conclusion McDonald’s Corporation has been observed at both macro and micro level has revealed numerous facts about the core competencies of the organization. The discussed SWOT and PESTLE analyses have been indicating that the company possesses al most all of the required features to be a market leader. The study also concluded the company us very much concerned about its threats and opportunities which are present in different forms and different contexts. It has adopted numerous approaches to meet the challenges present in the market. The company has simultaneously performed exceptionally well in terms of business in US and around the world at different market places. The company could retain its leading position provided it can avert the challenges posed by the society in terms of environmental and public health. These issues indicate that the company has to be very much proactive in the near future to hold back its top position in the fats food industry. Recommendations The company has already grabbed the leading position in the fast food industry around the world with 33% of market share. At this point the company has many advantages over its competitors such as Burger King, and many mores. The company should try to retain its management approach and improve their market prediction capability and be more proactive. This will always benefit the company to retain its top position in the industry. It should try to enhance its competencies by adding information technology into its business which could result into better business performance. Another major point of focus for the company is its customer service which has been observed to be a sub graded quality of performance. The company should try to redesign its customer service approach with more emphasis on the training and development of its customer care employees. References Anonymous-a. (n.d.). FAST FOOD ADVERTISING Fast Food Industry History. 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