The Entry of MacDonalds into Indian Market - Case Study Example

A CASE STUDY OF MACDONALD’S Name: Course Instructor’s name Institution Date A Case Study of Macdonald’s When Richard and Maurice Macdonald opened a barbeque restaurant in 1940 in Illinois, there was little optimism that the entity would evolve to become a global in the fast-food and hamburger market. Many decades later, Macdonald’s continues to evolve and grow with much of their undertakings based on a robust strategic framework. SWOT ANALYSIS Strengths The entry of Macdonald’s into Indian market in 2001 was buoyed by brand reputation. Macdonald’s was not a new entrant into the Asian territory as they had already entered the Japanese market in 1971 (Pangarkar &Subrahmanyan, pp.3).The company had built a reputation and although they did not perform as expected, they had already made their name known across Asia. Later, they ventured into the Singapore and Hong Kong markets to further strengthen their grip on the Asian market. Therefore, by the time they entered India in 2001, they had already build a network across Asia and made their products known. As a point of strength, brand reputation eases resistance at the point of entry while ensuring that the business has at least a potential market. Secondly, Macdonald’s entry was aided by a strong supply chain that facilitated the acquisition of raw materials within the desired timeframe. Before entry, the companies had already identified and built a strong supply network chain (Pangarkar &Subrahmanyan, pp.7). The company had worked with various suppliers across India from as early as the 90s and acquired a more than assured source of raw materials. In an industry such as this, the supply chain becomes important because of the perishability of the goods. Strength was also evident in the case of Macdonald’s Indian venture in 2001 was product adaptation/differentiation. The company’s entry into India was another opportunity to reach out as many clients as possible drawn from various economic, social and religious backgrounds (Malik, 2012,pp. 50). These diversities were critical in a country with a huge population and it was a niche that would be exploited to the fullest if Macdonald’s stood a good chance of success. The product adaptation strategy had succeeded in Japan with the Teriyaki Burger, the rice dishes in Indonesia and Norwegian Sandwiches (Pangarkar &Subrahmanyan, pp.5). The company had mastered this strategy of tailoring products to suit the tastes of each customer. Product differentiation was at the center of separating vegetable and non-vegetable products to accommodate Hindus and Non-Hindus. Macdonald’s also drew strength from its innovative approach. Upon realizing that the business was not taking off as per the expectation, Macdonald’s embarked on developing new products. The formulation of a menu development team can be cited as an indication of the company’s intent to invent new products and processes which could aid their development. The team was behind the separation of kitchens and menus as well as different uniforms for different cooks to reflect their respective sections (Pangarkar &Subrahmanyan, pp.6). Wrapping was also done differently to differentiate between the different brands. This strategy worked well for the company in its Indian venture by tapping in more customers with an added feeling of value and satisfaction. Weaknesses One of the major weaknesses of Macdonald’s Indian venture was the forced low-cost strategy. The company undertook to exercise massive price cuts in a bid to beat competition from other established brands like KFC and Wimpy. Although this strategy was aimed at accommodating customers from diverse economic backgrounds, it became a major undoing because it was instigated by other factors beyond Macdonald’s precision. Besides, these prices did not necessarily guarantee immediate success. The number of customers increased but this did not significantly affect the financial results positively. Secondly, Macdonald’s approach was thwarted by the company’s inability to leverage its operations in tandem with the initial plan (Pangarkar &Subrahmanyan, pp.4). The challenges that emerged after the company’s entry into India forced the company to dig deeper and alter most of their strategies so that they could fit. The company initially operated in a leaner structure with a centralized approach to service. However, as the market proved larger and complicate beyond the initial expectation and forced the company to embark on newer and costly strategies (Aloia, et al. 2013, pp. 4). The differentiation of the menu, operations and services was a culmination of circumstances that the company had not foreseen in the build up to entry Opportunities The large population presented Macdonald’s with a huge opportunity to grow. A large population was a niche that the company would exploit by segmenting the market and increasing their production capacity to serve as many customers as possible (Pangarkar &Subrahmanyan, pp.7). Although, a huge population does not automatically translate into a market, this dynamic is essential for companies when planning and formulating policies for future undertakings. Especially for entities that deal with foodstuff, a large population such as India’s is a major opportunity since consumption increases with the growing number of people occupying a certain location. Macdonald’s also stood the opportunity to succeed because the economy of India was steadily growing and creating a good climate for doing business. By 1999, the economy ranked 5th in the globe in terms of growth as well as harboring the 3rd largest GDP value in the Asian continent. A growing economy attracts local and foreign investment and as more businesses open up, the market potential grows (Chari & David, 2012, pp.225). Economic growth also empowers more people to have the money to spend. Macdonald’s initially targeted just 3 million potential customers in the working class in India but with the economy booming, there was huge potential for this number increasing Threats The political system in India, though democratic was founded on the ideals of socialism. This became a threat as the government heavily regulated the entry of Multinational Corporations. In fact, the government had the ultimate refusal in granting or denying entry and even those companies that eventually made it faced multiple restrictions. Although some of these regulations were achievable, some were beyond the control of businesses. Therefore, the success of Macdonald’s hinged on how fast the company would adapt to these conditions. The other threat was the economic disparities across different locations/markets in India. The company targeted the middle class customers who made up just about 3 million of the entire population. To complicate this further, this population was majorly concentrated in 3 major cities; Delhi, Mumbai and Bangalore (Pangarkar &Subrahmanyan, 3). This meant that Macdonald’s had to rely on these locations for profitability. Although they did open other outlets in other smaller cities, there was no substantive profitability. This restriction meant that the company stood to lose in smaller outlets and this hampered expansion in India. INDUSTRY, COMPETITOR ANALYSIS S AND PROFITABILITY POTENTIAL The fast-food industry in India by 2001 exhibited some growth potential especially in the backdrop of economic growth (Anand 2011, pp. 181). For Macdonald’s the ability to meet customers’ demands on a localized menu approach was a huge incentive that would translate into further growth. Therefore, there was a possibility of the industry continuing to grow. Competitor Analysis Supplier power-The Macdonald supply chain strategy was founded on the identification and empowerment of its suppliers for a long-term mutual relationship. Mangesh Kumar was the core supplier of lettuce and iceberg lettuce. Based on this approach, it was lowly likely that the price of raw materials would be pushed higher beyond reach (Dobbs, 2014, 35). In the same context, the company had an advantage over KFC, wimpy’s and Hut Pizzaa. Buyer Power-Initially, the number of potential customers in the Indian market was smaller but as the economy boomed, this potential increased. As the company gained a foothold in the market and localized their menu, customers still continued to enjoy low prices and value. This approach was not exhibited by KFC who only reduced the prices wholesomely with no specialization in specific market segments and tailored products. Competitive rivalry-The major competitor for Macdonald’s India was KFC. The company had entered the market earlier and although their take off was slow, their presence was a significant source of concern for Macdonald’s. KFC however thrived on significantly low prices (Wild and Han 2014, n.p). On the other hand, Macdonald’s revised their strategy and incorporated low prices with value and Indianized menu. The company also positioned itself as a family restaurant with a wholesome eating experience. This approach aided the company in attracting some loyalists. Therefore, in entirety, Macdonald’s had the edge over her rivals. Threat of Substitution-The threat of substitution in the fast-food sector was majorly driven by emerging healthy-eating habits (Aloia et al. 2013, pp.1). To tame more customers and restrain them within their reach, Macdonald’s diversified their production line to incorporate vegetables and lettuce as an alternative for those who did not prefer beef, chicken or pork. Macdonald’s had an edge over KFC based on the fact that the latter’s product line remained static for some time. Threat of New Entry-The entry of Multinationals into India was strictly guarded by the socialist ideologies embedded in the political system. The complicated procedures and compliances are likely to scare away potential entrants or even bring down the number. Therefore, Macdonald’s had to concentrate on dealing with the competitors already in the market at least for the time being. INTERNATIONAL STRATEGY The core strategy that MacDonald’s used to conquer the Indian market was the global standardization approach (Wild and Han2012, n.p). This approach aided the company to expand into the new market and come up with products that fitted the cultural and economic tastes of the market. The Indian market was diverse in term of numbers and variations. Consequently, the company was prompted to localize the products in order to win more customers (Baud-Lavigne, pp.55). The introduction of the Maharaja Mac and other vegetable burgers was a culmination of this strategy. The global standardization strategy also leads to product differentiation and diverse segmentation of the market so that the business reduces the proximity with its potential customers. CONCLUSION The international strategy of Macdonald’s was hugely successful especially in increasing the number of customers and neutralization of the entry resistance. The company operated in a local market camouflaged in the culture of the people. The company produced local dishes with a diverse range of ingredients to satisfy the needs and tastes of a wide variety of customers. This facilitated a major breakthrough in a market where many customers had reservations against foods like meat, chicken and pork. Overall, despite the strategy worked well for the company despite the heavy involvement and commitment of resources and time. References Aloia, C.R., Gasevic, D., Yusuf, S., Teo, K., Chockalingam, A., Patro, B.K., Kumar, R. and Lear, S.A., 2013. Differences in perceptions and fast food eating behaviours between Indians living in high-and low-income neighbourhoods of Chandigarh, India. Nutrition journal, 12(1), p.1. Anand, R., 2011. A study of determinants impacting consumers food choice with reference to the fast food consumption in India. Society and Business Review, 6(2), pp.176-187. Baud-Lavigne, B., Agard, B. and Penz, B., 2012. Mutual impacts of product standardization and supply chain design. International Journal of Production Economics, 135(1), pp.50-60. Chari, M.D. and David, P., 2012. Sustaining superior performance in an emerging economy: An empirical test in the Indian context. Strategic Management Journal, 33(2), pp.217-229. E. Dobbs, M., 2014. Guidelines for applying Porter's five forces framework: a set of industry analysis templates. Competitiveness Review, 24(1), pp.32-45. Malik, R., 2012. To build a model for the determination of factors that result in the success of the organized retail sector in India and analyzing its relative importance (with reference to fast food chains and grocery and vegetable outlets). Indian journal of Marketing, 42(2), pp.40-50. Pangarkar, N. and Subrahmanyan, S., Beefing up the beefless Mac. Wild, J., Wild, K.L. and Han, J.C., 2014. International business. Pearson Education Limited. www.researchgate.net/publication/235259287_McDonald's_think_global_act_local_-_the_marketing_mix Read More