Setting Up McDonald's Enterprise in the Philippines - Case Study Example

Setting Up McDonalds Enterprise in the Philippines A brief of socio-economic and cultural structure The Philippines, a third world country is an archipelago in South East Asia with about 7,107 islands that spreads from the Pacific Ocean to the South China Sea and where its northern part is near the southern part of Taiwan and its southern islands almost touches the north of Borneo. It is the nation of diverse racial and cultural heritage because of its rich history of colonial rule and foreign influences, from the Malay, Chinese, Spanish and Americans (Gorill, 2007, p 1). Because of its geographic location, the western ideas and innovations meet with eastern beliefs and practices and resulted to a culturally conservative but socially dynamic people who has always preserved the rich native culture but opened its arms to the influences of the west. The National Statistics Office (NSO) of the Philippines reported that its population is at 88.57 million as of August 2007. The National Capital Region (or more popularly called Metro Manila), where the capital city of Manila is situated has 11.55 million, the second largest populated region while the two regions adjacent to the National Capital Region are the 1st and the 3rd largest. The combined number of residents of these three regions already comprised more than one third of the entire population at 37.3% (Ericta, 2008). The Philippine economy had been sluggish compared with its other south east Asian neighbors, however the year 2007 showed indications of a stronger economy when it posted an average real growth rate in gross domestic product (GDP) of 7.3%, by far the highest in 31 years (WHO regional office, 2009). However, poverty statistics showed a 2.5 percentage points increase in poverty rate from “4.7 million poor families in 2006 compared with 4.0 million estimated in 2003” (WHO, 2009) thus the World Health Organization regional office in the western pacific surmised that the economic challenge is to trickle down the signs of economic progress to the poor sector of the population in order to alleviate poverty (WHO, 2009). Henderson reported that “poverty in the Philippines is most acute and widespread in rural areas (2002)” but Metro Manila, has the lowest occurrence of this nationwide phenomenon, where there are only 5% of the nations poor. He also conveyed how worse the situation is especially when translating the conditions in monetary value. The Filipino below the poverty line earns “less than $276 a year (...) considered the minimum required to meet basic living requirements” (Henderson, 2002). Culturally, the Filipinos adhere to age old traditions especially with regard to celebrations and fiestas, thus their great love for food. It is embedded in the religiosity even before the introduction of Catholicism by the Spaniards where the rituals and celebrations were made to appease the gods or pray for a good harvest. After the conversion to Catholicism, most fiesta celebrations are in honor of saints and images of the Catholic faith, celebrated same with the same objective of requesting favor or for thanksgiving celebrations. At present, fiestas and other celebrations reflect also the strong family ties and great value on friendships that the Filipino deeply treasures. They take advantage of occasions and celebrations not just fiestas but also birthdays, christening, reunions and the like to enjoy and celebrate the company of family and friends with great food, merry making and good camaraderie. Even during times of financial crisis and challenges, the Filipinos still believe that there is no better time to offer food because the quality and quantity of the food they serve will eventually reflect the future economic condition of their household. Major factors in setting up a McDonalds business enterprise in the Philippines Business Set up and Location The primary condition in setting up an enterprise is the location and the set up of the business. Thus, most global business enterprises opted to penetrate the market in the National Capital Region, where poverty incidence is lowest and where the major and most progressive cities in the Philippines are located. It has also the most concentration of urban dwellers, along with regions adjacent to it, as discussed earlier. Climate in the Philippines and the extreme weather conditions especially during rainy and typhoon seasons must be considered as factors that are bound to affect the business. There are basically two distinct seasons - the dry season from March to May where almost the entire archipelago is hot, humid and dusty with temperature shooting up to as high as 37 degrees Celsius or the wet season of monsoon rains often times causing floods and keeping people and customer indoors. The island nation is also on the typhoon belt of the Pacific Ocean and is frequented by devastating typhoons from July to October. Such naturally occurring phenomenon is usually dangerous and could destroy buildings and infrastructures. However, Metro Manila is not as affected by these destructive typhoons as the areas along the eastern part of the country (Worden, 1991). Acquiring quality real estate is one of the key areas for this factor. The ability to pinpoint areas of high pedestrian concentration or high traffic areas is needed for the success of the enterprise. The ability of foresight would also go a long way in securing quality locations that would ensure the sales volume and the profitability of the business. Economic capacity Another point to consider is the economic situation of the country. As earlier pointed out, the percentage of people below the poverty line or the “number of poor Filipinos reached 27.6 million in 2006” (WHO, 2009). However, before the economic meltdown that is being experienced internationally that started last year, the economic situation is not so bad if the focus is not just on the poor sector and the poverty level. The National Statistics Office reported that GDP is at P2126.8 B (or about $44,308 million) by the fourth quarter of 2008 while unemployment was relatively low by January 2009 at 7.7 percent and inflation rate in March 2009 was only 6.4 percent. Despite the high incidence of Filipino families subsisting on less than $276 in 2002, the average family income in 2006 is P147,000 (or roughly $3,062.5) (Statistics, 2008). Despite these statistics that may prove either positive or negative, the remaining question in this factor is the ability of McDonalds to adjust to the standard of living of the locality and factoring in the disposable income and the purchasing capacity of its customers just like the way they did in India. The ability to lower down fixed costs will greatly affect this factor. Social Norms and Cultural Practices Another very significant factor is the cultural practices of Filipinos. As mentioned earlier, Filipinos, along with their love for celebrations is their natural penchant for good food. Thus, all types of food business abound as answer to this opportunity presented. However, Filipinos are also characterized by the duplicity approach or “me too” attitude. “There is an almost lemminglike behaviour in the way Filipino entrepreneurs get on a business model bandwagon” (Benigno, 2009). One of the threats of a business enterprise is to be duplicated by a competitor just months away from setting up the enterprise. One factor in Filipinos love for food is love for quality food that naturally suits the local palate. Because they love to eat, they have acquired a certain personal taste and preference. A factor for success for those going into the food business is their ability to tailor fit their products as well as their menu line according to this certain partiality. Is McDonalds willing to indigenize and adopt its recipes and their menu to cater to the preference of the Filipino market? There are two more areas of concern regarding the cultural practices of Filipino. One is their strong family ties that makes them do things as a family (Nadeau), like eating out in restaurants and their natural thoughtfulness characterized often by having something brought home (as a gift) to loved ones or to family and friends they visit which is vernacularly termed as “pasalubong” (happysteps). An enterprise that has penetrated the market will naturally be chosen as venue for family bonding or even for celebrations while their product will be taken to loved ones as gifts. One probable success factor of a McDonalds enterprise is the colonial mentality of the Filipinos being under the American regime during the early 20th century which made them love everything American or what is know locally as “stateside”. As Benigno puts it, “Just about everything in the Philippines is propped up by things foreign”(2009). Although according to San Juan, it might not just be a post colonial mentality or the continuing relations of the two countries or the immigration of many Filipinos to the United States; it could also be because “the profound penetration of U.S. media and mass consumer culture in the Philippine terrain” (San Juan, 1998). He even further his argument by stating that It may be the mass habitus of consumerism, mass hypnosis by the commodity fetish, the sacramentalization of the mall/megamall spectacles, in short, the acquisitive/possessive drive which, for others, can be realized by installment and credit cards; for others, by persevering work plus fantasies, hallucinations, dreams. Or by going abroad, perferably to the States (San Juan, 1998) Effects of mass media The effect of mass media is also one major component in deciding to set up a business enterprise. “The dominance of American programming led to the American hegemony paradigm as an explanation for why the American television programs were widely imported into developing countries, (Wichert). Wichert reported that there were studies conducted in the Philippines regarding the effects of TV viewership of American produced shows concluding that it influenced the values of the viewers. He cited the study by Tan, Tan and Tan that revealed “the heavy viewers of American television evidenced non-traditional values, more like those shown by the television programs than the traditional values of their Philippine homeland” (Wichert). Exposure to these programs that change the value system of the viewers will prove to be advantageous to McDonalds. Political Structure and Government Policies Doing business in the Philippines is also a no mean feat because of poor government policies and problems with graft and corruption. As Benigno reports, it is “a 15-step “procedure” and a timeline encompassing 46 days of bureaucratic bliss, describes the “ease” by which one can jump into the wonderful world of Philippine business enterprise” (2009). For those who do not have the resources and the patience, they would easily kiss the idea of doing business in the Philippines goodbye. The Philippines is quite known for its problems with terrorism and graft and corruption that lead to instability, not just politically but also economically. One of the main terrorist group that always pose a dangerous threat in the Philippines is the Abu Sayyaf group, “self-professed goal of establishing an independent Islamic state in western Mindanao and the Sulu islands in the southern Philippines” (Burgess, 2002), which however has resorted to kidnapping and taking in hostages for monetary gain in recent years. The Philippine government has relentlessly pursued this group. Over the years, the leaders have been killed but the group always resurrects with another leader and continues terrorizing the region and the entire nation as well. Another issue of great concern even to business enterprises is the problem of graft and corruption in the Philippines. It has been a long standing problem involving both the government and the private enterprises especially those who are doing business in the country. Moratalla espoused that corruption is integrated in the Filipino culture because of incompatible law and cultural norms. This is the negative effect of a tightly knit family relations of the Filipinos. Because of the supposed loyalty to the family (or even to friends), it becomes difficult to say no when a favor is sought for fear of being ostracized. It becomes a conflict between responsibility to the state or to the company they serve versus loyalty to the family and close kin that they want to preserve (Moratalla). In other instances, it is ingrained in the character to be greedy and always ask for “extra money” for favors sought or for bribery purposes. Employee and Community Welfare Primarily, the major benefit of an employment is the monetary gain. Especially in a country where poverty and lack of jobs are challenges that the citizen face, a new enterprise that generates employment opportunities is always welcome. The job and the experience also provide career advancement to the employee for his/her personal and professional growth and development and for future opportunities. Working for McDonalds could also necessarily improve the skills of the employee as he/she is exposed to international standards, practices and ideas to be globally competitive. McDonalds, as one of the well-known international brands have set into place the entire system of its operation necessary for duplication in all its branches throughout the world. Because of this, the employee of the new business enterprise has the same access to the training and skills that his/her counterparts in other parts of the world also get. Having a business venture in a community promotes the economy. The sales generated, the local purchases, the taxes remitted to the local government and the employment it generates all contribute to building a robust economy. The taxes could be used for the improvement of the community in however and whatever way. Employing local residents would decrease the unemployment by a few people and would also promote a safer environment. Having youth working even for part time basis would promote good working habits at an early age and would keep him/her from dangerous vices and acts that those who loiter often finds themselves into. For a poor nation such as the Philippines, having a McDonalds is also somehow a sign of progress and brings a hope of better days ahead, specifically economically. It somehow send a strong message that if an internationally acclaimed brand with numerous branches all over the world positively ventured in the local community and believed that it can sustain, the faith of the citizens that the economy could still sail through is boosted bringing a fresh perspective of faith and hope to the nation’s economy building activities despite the odds and the challenges that the Philippine government faces. References Benigno. (2009). The in-ease and inis of doing business in the Philippines. In Filipino Voices. Retrieved April 16, 2009 from http://filipinovoices.com/the-un-ease-and-inis-of-doing-business-in-the-philippines Burgess, M. (2002). The US deployment in the Philippines: Expand the Mission. In Terrorism Project. Retrieved April 17, 2009 from http://www.cdi.org/terrorism/philippines-expansion.cfm Ericta, C. N. (2008). Official population count reveals... Retrieved April 17, 2009 from http://www.census.gov.ph/data/pressrelease/2008/pr0830tx.html Gorril, J R. (2007). Doing business in the Philippines: Philippine social and business culture (PDF file). Retrieved April 16, 2009 from http://www.communicaid.com/access/pdf/library/culture/doing-business-in/Doing Business in the Philippines.pdf Happysteps (2007, Oct 26). The pasalubong concept : Thoughtfulness in travel. Message posted to http://www.happysteps.net/2007/10/26/the-pasalubong-concept-thoughtfulness-in-travel/ Henderson, C. (2002). Notes on Poverty in the Philippines, 2002 Edition. In Clarence Henderson’s pearl of the orient seas. Retrieved April 16, 2009 from http://www.apmforum.com/columns/orientseas49.htm Hope (2007, Oct 26). The pasalubong concept : Thoughtfulness in travel. Message posted to http://www.happysteps.net/2007/10/26/the-pasalubong-concept-thoughtfulness-in- Moratalla, N N. (n.d.). Graft and corruption: The Philippine experience. (PDF file). Retrieved April 17, 2009 from http://unpan1.un.org/intradoc/groups/public/documents/APCITY/ UNPAN019122.pdf( Nadeau, K. (n.d.). The Philippines. Retrieved April 16, 2009 from http://family.jrank.org/pages/ 1277/Philippines.html National Statistics Office – Republic of the Philippines. Home page. Retrieved April 16, 2009 from http://www.census.gov.ph/. San Juan, E. (1998). Prospects for transformation in the Philippines in the next millenium. Retrieved April 17, 2009 http://www.univie.ac.at/ksa/apsis/aufi/history/sonny2.htm Wichert, R. (n.d.). International media flow: Cultivation effects in developing countries. Retrieved April 17, 2009 from http://www.wichert.org/international.htm Worden, R L. (1991). Philippines : The climate. In Country studies. Retrieved April 16, 2009 from http://lcweb2.loc.gov/cgi-bin/query/r?frd/cstdy:@field(DOCID+ph0052) World Health Organization. Philippines. (database file). Retrieved April 16, 2009 from http://www.wpro.who.int/NR/rdonlyres/AD8FF639-5B9C-4849-8427-5E4F4E5A42BC/0/30Philippines08.pdf Read More