Competitive Strategy of McDonalds - Case Study Example

Competitive Strategy of McDonald’s 1. Introduction McDonald’s is one of the largest fast food chain with more than 32,000 outlets across the world. The core values of the company are primarily people-centric and are important and sincere declaration of its objectives and aims. The success of McDonald’s can be contributed to the long term vision and strong belief of the founding members. They have made it the best fast food centre through customer satisfaction and meeting their changing preferences. It provides quality customer service and high quality food at affordable prices that facilitates customer satisfaction at all levels of interaction, meeting their requirements and demands. In the highly competitive environment of globalization, emerging new economies offer huge business opportunities of expansion. Emerging markets are crucial in the era of globalization and can be defined as the new area with high income and where the demand for the product can be created with relative success. The case of McDonald’s would be discussed for strategic growth plan in China, encompassing four areas: business opportunity analysis; environment analysis; comparative analysis; and strategic analysis. 2. Business opportunity analysis McDonald was the first food chain that has truly become global in its operation and values. With more than 32,000 outlets across the world, the success of McDonald’s can be contributed to the long term vision and strong belief of the founding members (McDonald). They have made it the best fast food center through customer satisfaction and meeting their changing preferences. The use of technology and uniformity in its products has been the hallmark of its fast food across the world. The unmatched efficiency in the delivery of its services and the uniform quality of its food has become the unique feature of all its outlets. Indeed, in the current era of changing technology and globalization, ‘organizations must change because their environments change’ (Bateman, 1990). The changing times have made the businesses more competitive thereby making it obligatory for them, as well as for the working force to become more flexible and swiftly adapt to the changing technologies and work environments. China, with its fast developing economy, is a strong emerging market that has tremendous scope for the multinational companies. In the recent findings by Sheer (2000), it is seen that several factors like international trading culture, Chinese values and China’s economical, political and managerial environment are the main proponents of conflicts in business negotiations with China. Thus, while entering into new market, the main hurdle in the establishment of the enterprise was the maintenance of the quality of the fast food and the regular supply of the high quality poultry and other raw food material. The other important factors being the disciplined and trained labor, instilling confidence in its Chinese partners and American counterparts regarding the vast potential for fast food chain, strategic market location for its outlet in an area that would not only attract local population but would also provide foreign tourists with quality American fast food. Last but not the least important factor was creating interest in the new concept of fast food which was hitherto an unknown culture among the Chinese populace. The major concern for financing expansion of McDonald’s interests in China would mainly comprise of finding appropriate partnership with local agents who have strong foothold in Chinese market. Efforts would be made to build trust and understanding among its counterparts by creating extensive awareness and interest in the streets for fast food so that entering into strategic partnership with prospective agents and entrepreneurs becomes easier. Efforts would also be made to involve local entrepreneurs into long-term international trade pact with its overseas branches so that regular inflow of foreign exchange could be maintained. The credibility and its positive image are big assets and therefore, McDonald’s would extend its support for social issues and causes which have considerable impact on the welfare of the masses. The financing strategy of China subsidiary of large multinational companies like McDonald and Starbuck can be adversely affected by the perception of ‘political risk’. Though China has different political leanings but in the recent years, it has opened its domestic market for foreign investors. China, with its fast developing economy, is a strong emerging market that has tremendous scope for the multinational companies. In China, the laws protect domestic retailers. The laws are also complex and non transparent. Therefore, multinational companies need to rapidly adapt to the changing socio-political environment and become flexible in the strategy and approach to effectively penetrate the potential market. 2.1 Risk Management The changing paradigms in the global business environment have brought forth a new set of uncertainties and risks that need to be addressed urgently. While it is good to think that organized structure of business management and operation would be able to tackle the emergency situations, it would be crass bad business sense not to adapt to changing environment of competitive business that is fast incorporating global values. In such circumstances, one cannot discount the unanticipated problems and conflicting issues that might emerge as a result. It has, therefore, become important that business must try to formulate strategies to combat the anticipated and unanticipated risks in all areas of business. ‘In order to manage risk, an organization needs to know what risks it faces and to evaluate them’ (Orange Book, 2004). The risk management is based on evaluating the risks to business on a realistic basis that takes into consideration the areas that are prone to risk and which have the capacity to impact its development. Financial crisis, unethical competitive rivalry, hazardous situations, environmental concern or even terrorist attack are few of the cases that can adversely affect the business processes. Efforts would be made to meet the challenges of the anticipated and unanticipated risks through insurance and control measures. 2.2 Tentative Funds requirements and financial planning The tentative funds requirement would be partially met by the Local Development Agency, Bank and personal contribution. The tentative expenditure details are as under: 2.3 Fixed startup cost (tentative in $) License and registration 5,000.00 Infrastructure, Coffee machine, furniture, other machines and décor etc. 2,50,000.00 Brochure printing 5,000.00 Total 2,60,000.00 Recurring Cost (tentative in $) Wages (for 9 people) 1,50,000.00 Electricity and Water charges 20,000.00 Rental 10,000.00 Gas 5,000.00 Chicken, vegetables, meat, oil etc. 15,000.00 Marketing 25,000.00 Contingencies 2,000.00 Total 2,27,000.00 2.4 Future prospects Through strict financial control and quality service, success of McDonald’s outlet would be ensured. It is anticipated that with innovative market strategy that is designed to add value to its business, one would be able to exploit the huge potential that has yet to be tapped, through segmented market strategy. 3. Environment analysis The contemporary business environment is fitting example of changing market imperatives where macro environment elements have significantly influenced the market strategy for global business entities. Marketing comprises micro and macro economic factors. The micro economic factors like price, products etc. are directly under the control of the organizations and can be manipulated to suit the market conditions. The six macro environment factors, on the other hand are elements that are external but have major impact on the industry performance: economic; demographic trend; changing socio-cultural paradigm; developing new environmental compulsions; advancing technology; and political environment of the region. 3.1 Economic It is a very important factor because the market is driven by the demand and supply that is mainly dependent on the buying capacity of the consumers. In the current environment of recession, the market conditions have become more stringent and customers have become more cautious. Thus, the developing economies like China, where the impact of recession has not been considerably less visible, offer huge opportunities for McDonald’s to expand its business interests. 3.2 Demographic These are vital ingredients of market and have huge cascading effect on the market imperatives and organizations. The demographic changes vis-à-vis population size, age distribution, gender ratio, income group etc. have massive influence on the changing consumer preferences and thereby on the economy. Kotler et al(2007) emphasize that in the fast changing global business, demographic compulsions have significant impact on market position and therefore, they need to become intrinsic part of the market strategy of the industry. Since marketing primarily deals into products and services that benefit people in some way or the other, people become the most important factor in the market strategies. McDonald’s would need to localize their products as per the demands of the local people. 3.3 Socio-cultural paradigm In the contemporary environment of globalization, the world is increasingly moving towards multi-cultural society.. In the recent years, China too has undergone tremendous change. Taking cognizance of the social values and customs, while evolving one’s business strategy, is intrinsic to the success for a firm. The socio-religious culture of the community has strong impact on the attitude and consumer behaviour of the public, which has direct affect on economic transactions of the company. It is therefore vital that needs and concerns of the community, within which the firm intends to operate, be studied in detail so that sensitive public issues are not violated. 3.4 New Environmental compulsions and nature The fast depletion of natural resources and worsening environment brought about by the advancing technology has become a great concern for the environmentalist and people at large. The deteriorating environmental conditions have resulted in rapid climate change and natural disasters like global warming, tsunami, hurricanes like Katrina etc. The present lifestyle is not conducive to sustainable development and there is urgent need to promote environment conservation and preservation as a means to safeguard our natural resources. McDonald’s must also ensure that environmental conservation, health and saving energy become intrinsic part of its operation. 3.5 Technology The advancing technology has been a boon as well as a bane for current generation. While it has greatly facilitated communication and increased business opportunities across the world, it has also created a wide spectrum of factors that are detrimental to the environment. The by products of technology like Carbon emission, radiation etc have become a big threat to the environment. Hence, judicious use of technology and using it to the advancement of environment has become strong motivation for the people. McDonald’s greatly facilitates environment conservation and preservation and therefore, has a big chance of success. 3.6 Political environment The non market factors have direct and indirect impact on the overall performance and operation of the firm. These factors are highly relevant when the business interests are global (Baron, 1995, p2). They are the socio-political environment within which the industries have to operate and broadly comprise of the government regulations, laws and other imperatives which have direct consequences for people. Hence, the industry needs to be aware of the legal framework as well as the laws that directly impact its operation in the country. The Chinese laws regarding environmental paradigms are stringent and industries must ensure that they conform to the country specific paradigms. 4. Comparative analysis Porter’s five forces model of industry competition are highly relevant for McDonalds also (1980). The advancing technology has narrowed the knowledge frontier amongst the organizations, necessitating innovative approach that would provide their goods and services with differentiating elements to give them cutting edge leverage. Analysis and identification of the changing trends of the customer requirements are important ingredients to gain leverage against their rivals (Grant, 2007). In such a scenario, the five forces analysis of producer business becomes critical factors of competitive advantage which are: industry rivalry; bargaining power of suppliers; bargaining power of buyers; competition from substitute; and threat of entry. The industry rivalry amongst the fast food centres is important criteria for introducing cutting edge differentiating element in the products to gain leverage. McDonald’s strategy to customize its products as per the changing requirements of the people has been its major strategic win. Apart from this, the various franchisees and outlets of McDonald have also introduced local products to cater to the local demand. There is also uniformity in its quality of products and services across the various outlets. Thus it has become the first food chain that has adopted global values in its operation and values. This is one of the major motivating factors for McDonald to be highly innovative in its products and development processes. McDonald produces quality and customized products at relatively low cost and therefore it has been able to bargain with its customers. The quality and creative input within the product gives huge advantage to the suppliers and puts one in a bargaining position. The bargaining power of buyers is also reduced when there is short supply of quality goods which have great demand. In the case of McDonald, the buyers increasingly prefer them because of their quality products which are distinctly differentiated from their rival through variety, customization and uniformity of state of the art service. The technological advancements have brought forth an explosion of information that is easily accessible to public through the internet and other media like television, radio, mobile phones etc. The competition from substitute become highly likely and the company needs to adopt innovative approach to its marketing. McDonald has successfully met this aspect by evolving flexible strategies like customized products and introducing elements of surprise within the products as well within the marketing of the products and services. Last but not the least is the threat from new entrants of the business. The globalization has provided facilitating grounds for new entrants and therefore, the existing firms must ensure that speed and flexibility become intrinsic part of their strategy. They become extremely important ingredients for the products so that the organizations can timely and efficiently meet the fast changing preferences of the customers. McDonald has competently used the concept and at the same time, it has also revamped the ambience of McDonald’s outlets to promote its image of a lifestyle brand. Indeed, it continuously strives to meet the challenges of the changing preferences of the customers through new products and services. 5. Strategic analysis McDonald’s corporate strategy mainly relies on creating value through customer satisfaction. It has been able to gain effective leverage against its rivals by exploiting its internal resources which are: brand equity, quality products and exemplary service. It has evolved into the best fast food centre through customer satisfaction and meeting their changing preferences. The use of technology and uniformity in its products has been the hallmark of its fast food across the world. The unmatched efficiency in the delivery of its services and the uniform quality of its food has become the unique feature of all its outlets. They provide quality food at low prices and give ‘value’ to the customers. Indeed, McDonald is the first food chain that has truly become global in its operation and values. The managerial leadership realized the importance of identifying the changing eating habits and accordingly introduced changes within its products. The burgers have been its main products that it has maintained by customising it as per the preference of the customers. It has also introduced wide variety of salads and healthy food in its menu while at the same time, localizing the products by adding local flavour. They differentiated the products by customising it according to the demands of the customers. The use of technology and uniformity in its products has been the hallmark of its fast food across the world. The unmatched efficiency in the delivery of its services and the uniform quality of its food has become the unique feature of all its outlets. The training of its workforce is intrinsic part of organization’s culture that greatly facilitates delivery of its goals and objectives by creating best fast food centre through customer satisfaction and meeting their changing preferences McDonald’s corporate strategy is intrinsic part of its growth. The organization’s plans and actions in promoting its business goals are aligned to its values. The expanding market of McDonald’s reflects the values of McDonald’s fast food chain as the world is fast moving towards a multicultural environment that has shrunk the world into a small global village. McDonald has consistently fulfilled the people’s changing requirements vis-à-vis fast food which meets with their fast paced lifestyle by adopting a rationalized approach in its work culture. In the recent years, McDonald’s has made considerable efforts to incorporate its values in its actions and plans. While providing a high quality of services in the area of fast food and beverages, its leaders have ensured that the company fulfils its social accountabilities through very measures of employees’ welfare schemes, environmental concerns and charitable works in the various areas of public interests. The core values of the company are designed to meet the needs and requirements of the customers through well planned strategy which would help fulfill the long term vision of the organization. Indeed, the sensitive and focused approach of the organization, in dealing with the various aspects of the environmental features, has become the most crucial factor while implementing their business strategies and plans. The success of McDonald’s can be contributed to the long term vision and strong belief of the founding members in making it the best fast food center through customer satisfaction and meeting their changing preferences. While they have included nutrition and well being in their plans and actions, diversifying their product lines to target senior citizens has been a brilliant move. They have already made a niche market in catering to the preferences of the youngsters and now introducing monthly breakfast schemes in select outlet has made it popular amongst the senior citizens also. 6. Conclusion It can thus be concluded that the emerging new paradigms in the global business are not only innovative in content but they also offer huge business opportunities for all. Indeed the macro environmental factors have become critical in the contemporary times and provide the world with a wide scope of business expansion across the globe. In the contemporary environment, accountability and environment compulsions have become critical to the survival of the human race and therefore, necessitate genuine efforts to promote accountability in one’s action. (2989) Reference Bateman, Thomas S., and Carl P. Zeithaml. Management: Function and Strategy. Homewood, IL: Irwin, 1990. Baron, David E. Integrated Strategy: Market and Non Market components. California Management Review. 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