MacDonalds Venturing into the Iranian Market - Case Study Example

Running Head: REPORT MODULE 2 Student Name: Student Number: Course Code: Instructor: 5th October, 2016 Executive Summary MacDonald’s venturing into the Iranian market may be smooth if necessary strategies are used. Among these includes the acquisition of already-established outlets, or getting into joint ventures. However, there is need to establish as a single entity without merger or even joint ventures as strategies for entry. International managers working at MacDonald’s should be culturally competent, and also hire staff that reflects the same. Training and development may be necessary for employees who are not savvy in the mentioned areas. The food industry in Iran is teeming with MNCs like Manhattan Grill and Versailles Restaurant, which implies that MacDonald’s as well stands a chance of doing equally well in Iran. However, there is great need to follow the laid-down procedures since Iran is a country that is highly conservative as the leadership is highly influenced by religious leaders. This paper exploits the macroeconomic factors that influence the business environment in Iran, particularly narrowing down to the issues that may affect MacDonald’s entry into the market. Introduction The environment in which a business operates contributes greatly to its success. More often than not, harsh political conditions in a country are likely to see a business experience dwindling fortunes over a period of time. Conversely, a great environment will ensure that a business thrives. Macro issues arising from various influencing factors always keep a business wanting to use strategies to deal away any risks that may affect the business. Besides dealing with such arising issues, companies are wont to use corporate social responsibility as a channel through which it can appease the communities within which it operates. For instance, it may start a program to restitute the environment around the company, as a move to create better living conditions for residents of the said area. Issues that arise from its operations around this area may also need some form of response to create harmony, just in case these issues are likely to cause jitters. For instance, MacDonald’s may need to carry out activities that auger well with the cultures of the people of Iran if it wants to operate with a lot of ease in Iran. Joint ventures with other established and originally Iranian companies that deal in same line with MacDonald’s is a great way of entering into the market. However, MacDonald’s may as well choose another route as a mode of entry. For instance, it can acquire an already operational and originally Iranian outlet and continue operating as the company did, with its name, then change to MacDonald’s when conditions favor them. The environment in Iran is a challenging one, and it would be at the interest of MacDonald’s to hire a highly competent team, both from the home country and from Iran, to run a smoothly and well-managed operation that will see it benefit greatly. For a start, MacDonald’s has faced a lot of challenges when getting into various markets. For instance, the reluctance by India to allow MacDonald’s to import foodstuff from America into India when it could well source it competitively in the Indian market was a big challenge to the company. Together with other MNCs, MacDonald’s had to look for very large entities that could supply it with proper foodstuff, just enough to cover for its demand. In addition, cultures equally provide a great challenge. Iran is known to be very conservative, and anything that threatens this moral fabric that holds the society together may appear to cause huge rifts between the parties involved and the authorities even if the aggressor is operating within a legal framework (Emde, 1999). The political temperatures in Iran as concerns sanctions that have been put on its operations around the world and particularly in the global market show that while it may have far-reaching effects, the market can still absorb a lot of shocks and still operate despite challenges. Most of these sanctions have since been lifted, meaning even more MNCs are free to enjoy the market share that is yet to be opened to possible exploitation by companies. However, the MNCs have to operate from a very conservative framework since Iran still holds a big say on how they can be run. Besides having to stick to stipulated rules, companies have to make sure that they do not go beyond their allowed area of operation. The recent lifting of the ban on nuclear enrichment in Iran by the E3+3 countries like China, US, UK, France and Germany means that Iran has now had time to reconsider most of its stringent rules against MNCs (Salim et. al., 2015). Ethical Issues that a Company Manager Faces in Iran Multinational companies operate with a certain degree of freedoms for their employees. For instance, MacDonald’s may allow its employees to observe certain freedoms as accorded to them in America’s constitution. However, while operating in a foreign country like Iran, it is upon the company to reign in on employees and inform them about the do’s and don’ts, especially as concerns interacting with customers of different cultures or just going about the country. In this regard, and as a country with very conservative citizens, it would be important that MacDonald’s employees be very considerate of the feelings of native towards specific subjects or topics. This means that their cultures may have to be a little reserved than is the norm back in their countries of origin (Moskalionov, 2015). While it is prudent to note that cultures are different, it is equally important to learn that Iranians mainly use Persian as the main language. In this regard, communication may well be a big challenge for MacDonald’s employees who have to interact directly with Iranian nationals alongside other customers at the workplace. Further, it is important to note the limited use of English as native speakers of English are relatively few. To this end, managers must ensure that the locally employed workers create a seamless medium of interaction between the customers and the foreign workers who do not understand Persian as well as may be necessary. Though Persian is the main language of communication, other like Kurdish, Arabic, Georgian and Azerbaijani may also be used by a considerable number of customers. For this reason, the mangers must have linguistically competent employees who may have the competence to interact with such customers (Borjian, 2013). There are initiatives like CSR activities that companies engage in, and which help towards creating a great relationship between communities that live and work n MNCs, and the companies together with its staff. MacDonald’s is an organization that has a long tradition of carrying out CSR activities all around the world where its outlets are located. For instance, it encourages the production of foodstuff is a manner that ensures the environment is least harmed, if at all. However, there are ethical issues that may surround use of certain products. For instance, sustainable practices are part and parcel of MacDonald’s operations worldwide. In Iran, products must pass the halal requirements, and most animal products have to go through vigorous checks to ensure that they are indeed, halal. For the religious, pork and alcohol may not be a very great idea, so MacDonald’s has to ensure that some of these products do not go against the ethically accepted standards in Iran. For managers, there has to be a process through which suppliers are vetted to ensure that not only do they meet the high standards associated with MacDonald’s, but also pass the requirements of halal standards in Iran (Ali et. al., 2015). Strategy Recommendation Corporate strategies will need a lot of money to implement since there is already a flourishing fast food industry in Iran. While MacDonald’s operation in Iran needs a lot more than just ordinary efforts due to various challenges, it is necessary that these funds be channeled in such a manner that the efficacy of the campaign to popularize the outlet is felt almost immediately on entry. This means that various efforts to announce the entry will be done for some time before the business launches its outlets, through joint ventures or even acquisition of already-existent businesses. Outlets like Versailles Restaurant and Manhattan Grill are just but a few of the industry players that are already in Tehran and are actually flourishing. This means that as an outlet, MacDonald’s stands a fairly good chance of succeeding in Iran (Bahadoran et. al., 2013). Statistics show that more Iranians are taking to fast foods as part of their culture. In fact, more affluent Iranians spend more of their leisure time eating out, hence there is a huge possibility that MacDonald’s is angling to get into an industry that has all the positive signs. To start out, a third of Iranians prefer eating out at restaurants. For the aforementioned affluent population that makes just about a tenth of the whole population, statistics show that they prefer restaurants 41 times over their less financially endowed counterparts in the other group. Be that as it may, the combined numbers of those who prefer restaurants forks out a princely sum of over $6 billion. This shows that with a great strategy, MacDonald’s stands a great chance of eating into the market share. As a matter of fact, this means that a great advertising, augmented with a consistent offer on various products could sway the customers so that MacDonald’s scores more customers within a very short time (Financial Tribune Daily, 2016). That MacDonald’s may need to form a great strategy for entry is not new. However, out of all the options for entry, joint ventures and mergers may not augur well with the company structure right from its parent company in the US. As such, strategies like entry through acquisition may work perfectly well. This is due to the fact that MacDonald’s can hold its own against established businesses in the Iranian food industry. For this to succeed, the market research that focuses on the companies that already have outlets, focusing particularly on those that may be targets for acquisition. Even more impressive would be entering the market without using the aforementioned strategies. This may include setting up shop by starting from scratch. Though a little more involving and expensive, as a matter of fact, setting up shop from scratch may actually be the best means through which a company may establish a chokehold of the market through use of new ideas which do not have to be constrained by agreements common in mergers or acquisitions (Nezakati et. al., 2012). Evaluation of Motivation and Leadership Issues Facing International Managers Politically speaking, Iran has a structure of leadership that is highly influenced by Islamic values. Suffice it to say that religious leaders have a big say concerning the politics of the day. Be that as it may, this does not necessarily affect the operations of a MNC, since most of these have a framework upon which they operate. Nonetheless, they are part and parcel of people who influence policy making. As such, the policies crafted for international companies have to somehow echo the advice of religious leaders. This means that international managers have to conform to standards set by religious leaders in the highly religious-influenced country that is Iran (Moradi et. al., 2016). The appropriate manager for an MNC like MacDonald’s in Iran will have to be highly culturally competent. This means that basic cultural competencies expected from them will encompass operating in a situation where conflict is resolved while factoring in the consequences of operating in a foreign jurisdiction, hence the possibility that they can dissipate tensions arising from dealing with issues arising from cross-cultural conflicts (Prasad, 2015). Cross-cultural communication may present challenges, especially if a MNC needs to employ people from myriad cultures in order to meet certain criteria for hiring. While MNCs have the freedom to incorporate employees from mixed cultures in the multinational setting where they work, there needs to be a code of conduct that regulates the interaction between and amongst employees, and also how the employees interact with the customers from diverse cultures. While this is so, channels of communication also have to be diverse, enabling customers and employees alike to feel comfortable while around the workplace. For the modern day manager operating from an internationally positioned organization like MacDonald’s, there is a great chance that multilingual capabilities create an easier way of communicating with both staff and customers (Kinloch & Metge, 2014). Evaluation of how effective leadership is in such areas is easier if assessment is done on how conflict is resolved. For instance, when cross-cultural issues arise between staff, or between employees and staff, the period it takes to settle issues amicably may point towards effective managerial or leadership capacities. Iran has a culturally competent population that gels well with everyone who is law abiding. This means that cross-cultural issues arising at the workplace may be settled very easily without having to resort to higher powers like the judiciary to settle conflict (Brubaker et. al., 2014). Like most organizations, MacDonald’s will have to embrace the bottoms-up management to survive since the lower cadre employees serve as critical points from which the organization can gather information that is useful for the whole management team at the top. In this way, the leadership at the top may have a better way of running affairs without having to seek information from the customers through expensive channels as is characteristic in the top-down management style since information is sourced for through limited channels (Daft & Marcic, 2016). Recommendations First off, MacDonald’s needs to begin by recruiting employees through quota system whereby natives of Iran and nationals from across the globe will be considered for employment in all its channel. This not only reduces conflict since it increases culturally diverse interaction among employees and customers alike, but also opens up the company to a wider and rich culture of globally accepted work forces that may work almost anywhere in the world if need be. This also reduces chances of having to move around employees (Springer et. al., 2013). Secondly, there is need to cultivate a culture of continuous evaluation of performance, based on cultural practices accepted in Iran. This means that when necessary, employees will need to demonstrate a high sense of cultural tolerance, and if need be, further training be carried on staff to improve their cross-culture awareness. This improves the image of the new MacDonald’s in Iran since it shows a dedication towards operating within stipulated laws (McKenzie and Woodruff, 2013). Lastly, opportunities for expansion soon as the company breaks even in the Iranian market can be carried out in the initial feasibility study to increase chances of a faster expansion. This means that the company may need to operate more pragmatically even with shorter schedules and ensure that all employees have this in mind (Hoenen & Kostova, 2015). Bibliography Ali, M. H., Tan, K. H., Makhbul, Z. K. M., & Pawar, K. (2015). The impact of supply chain integration on food integrity. In International Foundation for Production Research (IFPR). Bahadoran, Z., Mirmiran, P., Hosseini-Esfahani, F., & Azizi, F. (2013). Fast food consumption and the risk of metabolic syndrome after 3-years of follow-up: Tehran Lipid and Glucose Study. European journal of clinical nutrition, 67(12), 1303-1309. Borjian, M. (2013). English in post-revolutionary Iran: From indigenization to internationalization (Vol. 29). Multilingual Matters. Daft, R., & Marcic, D. (2016). Understanding management. 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Supreme Leader of the Islamic Revolution in Articulating and Representing Strategic Management and Effectiveness of the Islamic Republic of Iran. J. Pol. & L., 9, 236. Moskalionov, S., Ludlum, M., Ramachandran, V., & Stephenson, M. (2015). Intercultural Business For Expatriate Managers: An Investigative Study Of The Future Russian Business Workforce. Business Journal for Entrepreneurs, 2015(1). Nezakati, H., Ali, N. A., & Asgari, O. (2012). Market value coverage (4A) in terms of fast food adoption. African Journal of Business Management, 6(7), 2549. Prasad, R. (2015). Cross-cultural communication. Educating Young Children: Learning and Teaching in the Early Childhood Years, 21(3), 21. Salim, A., Razavi, M. R., & Afshari-Mofrad, M. (2015). Foreign direct investment and technology spillover in Iran: The role of technological Capabilities of subsidiaries. Technological Forecasting and Social Change. Podsiadlowski, A., Gröschke, D., Kogler, M., Springer, C., & Van Der Zee, K. (2013). Managing a culturally diverse workforce: Diversity perspectives in organizations. International Journal of Intercultural Relations, 37(2), 159-175. Read More