International Business Strategie of McDonalds in Action - Coursework Example

International Business Strategies in Action Table of Contents 0 Overview 3 2.0 Objectives of McDonald’s to enter into China 3 3.0 Situational Analysis: PESTLE Analysis of China 5 3.1 Political Environment 5 3.2 Economic Environment 5 3.3 Social Environment 6 3.4 Technological Environment 7 3.5 Legal Environment 7 3.6 Environmental Factors 7 4.0 Industry Analysis: Porter’s Five Forces Analysis 8 5.0 Cultural Analysis 9 6.0 Core Competencies of McDonald’s in China 10 7.0 Mode of Entry of McDonald’s in China 10 References 14 Bibliography 16 1.0 Overview The purpose of the paper is to analyse and critically evaluate the entry strategies adopted by McDonald’s in its process of internationalisation. As stated by DeWit & Meyer (2010), the strategic decision of internationalisation considered by a company is highly influenced by its organisational purpose and the external factors within the business environment of the company. With the concern, the paper will tend to evaluate the entry strategies of McDonald’s in the Chinese economy in early 1990s (Ko, 2008). Hereby, significant consideration will be provided to the objectives of the company along with the business environmental analysis of China, and the mode of entry adopted by McDonald’s to enter the market. 2.0 Objectives of McDonald’s to enter into China McDonald’s decided to penetrate the Chinese fast food market in the year 1992 by establishing the company’s store in Shenzhen and later in Beijing which was the world’s largest fast food retail outlet owned by the company (Jenkins, 2008). The objective of McDonald’s in expanding internationally was evidently to attain competitive advantage in the international market gaining the opportunities rendered by other economies such as China. For instance, China has been witnessed to be one of the fastest growing economies in terms of population, customer demand and technology since the 1990s (Chen & Wang, 2001). It is in this context that DeWit & Meyer (2010) stated the organisational purpose or mission to play a significant role in influencing the internationalisation strategies of a company. The organisational purpose of McDonald’s is depicted through its mission statement, i.e. “Plan to Win”. Through its mission statement, the company has always focused on deriving superior customer satisfaction, sustainable growth, along with the continuous development of its operations and enhancement of customers’ experiences as competitive advantages (McDonald’s, 2011). However, in relation to McDonald’s entry in China, the prime objective of the company can be witnessed to attain a competitive advantage in terms of differentiation with due concern to the increasing competition of the global market. For instance, McDonald’s in its entry strategies fundamentally focused on the consumer demand of China in relation to American fast food items with the sole intention to differentiate its products from that of its competitors not only in the Chinese market but in the global market as well (Luo, 2000). Therefore, it was quite likely that the entry strategies adopted by the company were likely to be influenced by the external environmental factors of the then Chinese economy. 3.0 Situational Analysis: PESTLE Analysis of China 3.1 Political Environment In the early 1990s, the political system of China was recorded to be under significant change from the Confucian statecraft towards Marxism point-of-view. It was during this period that the Chinese economy was concentrating on mobilisation and was opening up to the external world that in turn gave rise to various political issues (Shambaugh & Et. Al., 2000). 3.2 Economic Environment China’s growth during the period was observed as outstanding in the global market. During the 1990s, China witnessed rapid growth in terms of its Gross Domestic Product (GDP) earning as depicted in the chart below. Figure 1. China’s GDP in 1990s Source: (Flores & Et. Al., 2003). However, the GDP growth rate of the economy was observed to be highly fluctuating during the period that revealed China’s economic environment to be growing but unsustainably (Flores & Et. Al., 2003). The fact can be apparently witnessed from the chart below: Figure 2. GDP Growth Rate of China in 1990s Source: (Flores & Et. Al., 2003). 3.3 Social Environment Influenced by the changes in the political and economic structure of the region, the social factors were also observed to be fluctuating and unstable to a large extent creating cultural barriers against modernisation and mobilisation (Shambaugh & Et. Al., 2000). 3.4 Technological Environment Contribution rate of technological progress of China in ‘average annual growth rate’ was recorded to be 19.85% from 1978 to 1995. This was certainly a considerable progress witnessed by the economy that in turn fuelled up its growth prospects (Zhao & Fan, 2008). 3.5 Legal Environment In the 1990s, the legal environment of China was highly influenced by the political fluctuations and social changes. For instance, with the shift of social consideration from Confucianism to Marxism, the legal reforms in the country were also transforming providing better opportunities to the Foreign Direct Investments (FDIs) by supporting international expansion of various global companies (Laprès & Yuejiao, 2008). 3.6 Environmental Factors In relation to the environmental factors, the economy focused on advanced policies during 1990s to control the environmental impact of business sector. In this regard, the environmental policies of the economy during the period concentrated on enforcing rules to control the organisational operations in the region (Niu & Harris, 1996). 4.0 Industry Analysis: Porter’s Five Forces Analysis Source: (Jenkins, 2008; Luo, 2000). 5.0 Cultural Analysis Cultural factors along with the socio-economic elements are considered to have a strong impact on the organisational success in relation to its international expansion. The factors can be regarded as quite significant for McDonald’s as the company primarily focused on attaining customer preferences in China. According to the Geert Hofstede’s Cultural Dimensions, China’s social ambience is considered to be highly influenced by the power distance index. This indicates that China’s society considered rigid hierarchy in terms of power distance with little scope for in-formalism. However, the socio-economic culture of China was based on low individualism that depicts Chinese customers’ preferences to be highly influenced in group. Masculinity, uncertainty avoidance and long-term orientation are considered quite high that indicates towards effective brand loyalty along with increasingly competitive consumer buying behaviour in the Chinese market (ITIM, 2009). These factors can be well identified from the graphical representation below. Figure 3. Cultural Dimensions of China Source: (ITIM, 2009). 6.0 Core Competencies of McDonald’s in China McDonald’s in its expansion to China gained various advantages with the virtue of its core competencies. Its chief core competency was its emphasis on the aspect of quality of services rendered to the ultimate customers. In relation to its expansion to China, McDonald’s focussed on its competitive advantage of serving its ultimate customers with unique and typical American fast food items at a superior quality (Luo, 2000). Therefore, the core competencies of McDonald’s, in expanding internationally to China, was its uniqueness and quality assurance in relation to serving the ultimate customers in its target market. 7.0 Mode of Entry of McDonald’s in China McDonald’s inaugurated its first store in Shenzhen, China in the year 1990. It is worth mentioning that McDonald’s was planning its international expansion in the Chinese market for a considerable time period. The strategic leaders of the company initially focussed on analysing the growth trend in the Chinese market along with its future prospects in relation to fast food retailing. The prime consideration was to identify the customer preferences in terms of tastes, prices and lifestyles (Han, 2008). McDonald’s provided significant consideration to customer satisfaction as well. For instance, McDonald’s stores in Shenzhen had sitting arrangements and other similar aspects designed according to the Chinese people’s height and body weight (Han, 2008). The objective behind this strategy to customise the restaurant settings according to the customers’ comfort was to enhance customer satisfaction and attain superior customer preference through quality services. Within two years, the company inaugurated another store in Beijing in the year 1992 that was recognised to be the largest store of McDonald’s in the world (Luo, 2000). Considering the then social configuration of China, the economy was increasingly emerging as an open economy attracting FDIs from the western developed economies that in turn influenced the socio-cultural environment to a large extent (Shambaugh & Et. Al., 2000). It is due to this reason that preferences for western culture was increasing significantly in the Chinese market. The statement can be evidently supported by the fact that at the first day of the inauguration of McDonald’s store in Beijing, more than 30000 customers were recorded to be served with McDonald’s products (Luo, 2000). In this context, three approaches can be witnessed apparently considered by McDonald’s in its process of expansion to China. For instance, the company concentrated on Shenzhen for its instigation in the Chinese fast food market due to the fact that the place was located in the border of China and Hong Kong that rewarded the company to attract customers from both the regions. This also facilitated the competitive advantages of McDonald’s in terms of differentiation as well as cost leadership (Jenkins, 2008). However, certain flaws were also identified in McDonald’s internationalisation strategies in China. For instance, the company focused on serving beef burgers initially to the ultimate customer group, ignoring the fact that Chinese customers mostly preferred chicken burgers than beef. This in turn hampered the sustainable growth of the company to an extent in its initial growth in China (Han, 2008). It is worth mentioning that McDonald’s since its establishment in China focussed on continuous development in terms of service quality and diversification to attain the competitive advantages with regard to cost leadership as well as differentiation. The strategies adopted by the company also proved to be effective in China assisting McDonald’s to attain its prime objectives of quality and customer preference (Ko, 2008). References Chen, S. & Wang, Y., 2001. China’s Growth and Poverty Reduction: Trends between 1990 and 1999. Policy Research Working Paper. DeWit, B. & Meyer, R., 2010. Strategy: Process, Content, Context, An International Perspective. Cengage Learning EMEA. Flores, T. & Et. Al., 2003. Productivity Growth in China, 1961-1999. China Project. Han, J., 2008. The Business Strategy of McDonald’s. International Journal of Business and Management, Vol: 3, pp. 72-74. ITIM, 2009. Geert Hofstede™ Cultural Dimensions. China. [Online] Available at: http://www.geert-hofstede.com/hofstede_china.shtml [Accessed August 3, 2011]. Jenkins, J., 2008. Cooking Up a Recipe for Effective Leadership. Case Study/McDonald’s in China, Vol: 28. Ko, S., 2008. McDonald’s: Is China Lovin’ It? The Asia Case Research Centre. Laprès, D. A. & Yuejiao, Z., 2008. Introduction. Legal Reform. Luo, Y., 2000. How to Enter China: Choices and Lessons. University of Michigan Press. McDonald’s, 2011. Student Research. Our Company. [Online] Available at: http://www.aboutmcdonalds.com/mcd/our_company/mcd_faq/student_research.html#1 [Accessed August 2, 2011]. Niu, W. & Harris, W. M., 1996. China: The Forecast of its Environmental Situation in the 21st Century. Journal of Environmental Management, Vol: 47, pp. 101–114. Shambaugh, D. & Et. Al., 2000. Is China Unstable? Assessing the Factors. ME Sharpe. Zhao, G. Q. & Fan, H., 2008. Economic Growth for China and Japan. Biomedical Soft Computing and Human Sciences, Vol.13, pp.7-12. Bibliography Coyle, G., 2004. Practical Strategy: Structured Tools and Techniques. Financial Times Prentice Hall. Wind, Y. & Et. Al., 1973. Guidelines for Developing International Marketing Strategies. Journal of Marketing, Vol, 37, pp. 14-23. Read More