Franchising in Company McDonalds - Essay Example

Case Study in Franchising Store Table of Contents Introduction 3 Brief History of the Organisation 4 Identification of the Issue 5 Methods of obtaining data 6 Critical Analysis and Evaluation of the Identified Issue 6 Global Expansion of McDonald’s through Franchising 6 Cultural Challenges for McDonald’s Franchise 7 Suggestions for Future Direction and Conclusion 9 Reference 10 Introduction Franchising is one of the most successful forward integration strategies that help an organisation to create wealth and brand image. It works as a strong economic engine and helps in expanding the business in several foreign markets. From the perspective of business owners, Keup defines the franchising as “a method of market expansion utilized by a successful business entity wanting to expand its distribution of services or product through retail entities owned by independent operators using the trademarks or service marks, marketing techniques, and controls of the expanding business entity in return for the payment of fees and royalties from the retail outlet” (Keup, 2007, p.4). Franchising is supposed to be the best option for expansion and revenue generation as it offers sustainable growth oriented business models without any cost incurred by the organisation. However, for the franchisee, it is very important to ensure that the brand image of the franchisor is retained and further developed. Such concern often raises conflicts between the two parties. This paper will attempt to analyse issues related to franchising based on the case study of a franchising company. For this purpose, an organisation with franchising business model will be selected and its franchising related issues will be figured out. At first, a brief history of the organisation will be discussed to understand its business franchising model. Next, the issues underlying the franchising operations will be pointed out. For analysis and evaluation purpose, relevant data obtaining method will be discussed. Finally, the paper will conclude with some recommendations based on the analysis of the indentified issues. Brief History of the Organisation For this project, the McDonald’s franchising business has been selected for case study. McDonald is a leading fast food retailer in the global fast food retail sector. It is operating in around 117 countries with nearly 32,000 local restaurants (McDonalds-a, 2010). In 1940, Dick and Mac McDonald opened a restaurant called ‘McDonald’s Bar-B-Que’ in California and later in 1948 it was named as McDonald’s. For the last 70 years, the giant food retailer has been operating its fast food business quite successfully (McDonalds-b, 2010). Satisfactory food quality and efficient services of McDonald has made it a brand image in the fast food service sector. For expansion purpose, the company had adapted franchising strategy in 1955 and at present, around 75% of its total restaurants are operated by independent franchisees. Currently, the food retailer serves around 60 million customers globally per day with the help of its franchisee groups. Regarding sustainability issues, the company is committed to certain values and corporate social responsibility. The supply chain technique is imperative to the company and it strives to ensure high quality, safety and availability of the finished foods. The marketing, operating and supply chain techniques are the major factors behind its rapid success. The company offers training to its franchisees for executing the improved operation techniques in the retail stores. Figure 1 portrays the sustainable supply chain vision of the company. Figure 1: McDonald’s Sustainable Supply Chain Vision (Source: McDonalds-c, 2010) In order to produce high quality food, the company follows the strategy of three Es, which include ethics, environment and economics. The franchisees of McDonald’s also follow this supply chain method to deliver high quality products and services. Identification of the Issue McDonald’s has been a typical franchising company and its franchisees play a very crucial role in developing the marketing strategy for the company. The company relies heavily on its franchisees for revenue generation and for capturing the market share in the global fast food sector. For selecting its franchisee operators or owners, the company has formed certain benchmarks to ensure high quality foods and services are delivered. In recent years, the number of its franchisees has increased significantly. Franchising strategy has helped the company to expand its business in the global market. However, this endeavour requires a proper understanding of the local culture. In order to capture the local market, the company must incorporate the beliefs and values of the local people in its product development and service strategy. MacDonald’s and its franchisees often face problems related to cultural issues. In this respect, McDonald’s must take necessary steps to strengthen its position in the host country and ensure profitability for its franchisees. As per franchise agreement of the company, McDonald franchisees are not allowed to develop their indigenous products to cater to the local market. The menu for the food items must suit the lifestyle of the consumers. MacDonald’s franchisees are present in various countries like, China, India, Brazil, Central Europe etc. Apart from cultural issues, there are other vital factors like environment, political state, economic condition etc that need to be considered while setting up the franchise in different countries. Methods of obtaining data In order to critically analyse the cultural issues of McDonald’s franchise, the relevant and authentic data will be required. For this purpose, a brief exploratory research has been conducted based on secondary data. In order to describe the identified issues pertaining to McDonald’s franchise, qualitative research techniques have been used. The secondary data has been obtained from authentic online sources, and previous research papers have been used to gather the literature related to cultural issues for McDonald franchise. In order to understand the demography of consumers like socio-cultural aspect, taste and preferences; various literature reviews like journals, research papers etc have been analysed. In this process, various websites of government has also been used. Critical Analysis and Evaluation of the Identified Issue Global Expansion of McDonald’s through Franchising McDonald has rapidly expanded its business in the global market. The company has successfully realised the market opportunities in different countries, and with the help of its franchisees it has many units operating in different countries. The company opens around 1000 to 1500 restaurants through franchising strategy every year. During 1955, McDonald’s opened its first franchise chain restaurant in Illinois. By 1957, McDonald’s established its food chain in 37 locations which increased to 100 locations in 1959. During the first half of 1970s, the company experienced stupendous growth. By 1971, McDonald franchises were present in 2500 location (Franchise Foundations, 2010). Historical analysis of McDonald’s global expansion policies proves its efficiency in selecting proper franchisees for business purposes. Apart from the home country (United States of America), the company generates significant amount of the revenue from Europe, Asia and Asia Pacific, Middle East, Africa, Canada and Latin America. Nearly 60% of the total revenue of the company comes from European, African and Asian countries. In 2009, the company generated $7,286 million of revenues from its global franchising business (McDonalds-d, 2009). The company has successfully established its business in the foreign markets as the company has realized its nature and characteristics. The rapid growth of the company has made it the largest fast food service retailer in the world. Franchisees are instrumental in the success of MacDonald’s. They have earned the respect for the brand name of the company by providing quality product to local consumers. Since 1955, the company is operating its food related business with the help of large number of franchisees. Cultural Challenges for McDonald’s Franchise The company has expanded in various countries like India, China, Brazil, Saudi Arabia etc. despite its experience; the company had faced strong protests from the local society. The company was required to restructure and modify its strategic and business model. In Brazil, the company faced enormous protest as rumours spread that the beef from the ex-rainforest was used. The ex-rainforest is a part of the tropical forest in Brazil. Branford claimed that killings of livestock from this region caused environmental damage by destructing the forest. However, McDonald’s denied such claim and argued that it did not buy beefs from the ex-rainforest land of Brazil (Branford, 1997). The company also got engaged in trouble in Moscow pertaining to labour grievances. In France, the company was criticised for promoting franchise of the American fast food that affected the local culture and society of the French people. In Japan too, it was criticised for replacing the traditional Japanese teahouses by franchises of American fast food (Schnaubelt, n.d.). During 1996, McDonald’s opened its first franchisee in India. The company realized that the Indian market held huge potential for its fast food business. However, the company faced tremendous cultural protests related to religious issues. According to 2001 census report, in India, 80.5% and 13.4% of the total population are Hindus and Muslims respectively (CIA, 2010). Most of the Hindus are vegetarians and it is sinful to consume beef. Besides, the Muslims community too do not eat pork. Generally, McDonald’s menu includes food items made from beef and pork. Its franchisees were not accepted in the Indian society until they made changes in its menu by removing food stuffs made from beef and pork (Cranford, 2010). Ritzer has commented that “McDonald’s is a symbol of problems such as environmental degradation, dietary dangers, the evils of capitalism, poor working conditions, faltering unionization, neglected children, and the threat of Americanization” (Ritzer, 2000, p.192). Many countries are scared that McDonald’s is trying to affect their indigenous culture by bringing in American life style in their society. The above discussions have pointed out several issues pertaining to environment, cultural and political factors. This has also made evident that the company has to appreciate local culture to attract the local customers. In China, prior to McDonald, many western multinational companies failed to sustain themselves in the market. These western multi-national companies did not take into account the Chinese culture while formulating the strategies. In India, McDonald has vegetarian food items in their menu to serve the local consumers. To comply with host country’s government policies related to environment and legislations, the company has developed suitable business models. Suggestions for Future Direction and Conclusion Initially, McDonald faced tremendous problems resulting from cross cultural issues. For establishing a successful food restaurant chain through franchising, a company must modify its existing strategy in accordance to the cultural aspects of the host country. Before formulating the relevant strategies for the host country, the company should understand their cultural and social aspects. On the basis of the analyses and discussion, several recommendations have given below. The company must select independent local franchisee from the host country. Before entering the new market, the company must conduct a proper survey to understand the local culture. This process would include PESTLE analysis and SWOT analysis of host country. The business model of the franchise of a particular country must be developed after considering the local culture and society. The company must adapt the culture of the host country in which it is doing its business. For product development, McDonald must recognise the taste and preference of the local consumer and prepare the menu as per local demand. The company must instruct its franchisees to comply with the policies of local government’s. The franchisees must take care of the environment and society of the host country. The company should consider the economic condition of local people before framing its pricing strategies. The company must understand the needs of the franchises present in the foreign country and do the needful. Since its inception, McDonald, the American multinational fast food company has experienced changes of various kind and order. The stupendous success rate of the company can be attributed to its expansion in various countries with the help of franchisees. Despite several oppositions, the company stood by its franchisees through thick and thin. This symbiotic relationship of the company and its franchises has drafted a success story that has gained universal acceptance. Reference Branford, S. 1997. Environmental witness Sue Branford on Brazil, Rain Forests and McDonalds. [Online]. Available at: http://www.mcspotlight.org/people/interviews/branford.html. [Accessed on September 25, 2010]. CIA. 2010. Worldfact book: India. [Online]. Available at: https://www.cia.gov/library/publications/the-world-factbook/geos/in.html. [Accessed on September 25, 2010]. Cranford. D. 2010. Franchising in India, Part 2: McDonald’s in India. [Online]. Available at: http://www.franchisedirect.co.uk/franchisefocus/category/franchising-in-india/. [Accessed on September 25, 2010]. Franchise Foundations. 2010. Franchise Foundations - How To Franchise. [Online]. Available at: http://www.franchisefoundations.org/franchisearticlesi.html. [Accessed on September 25, 2010]. Keup, E. J. 2007. Franchise Bible: How to Buy a Franchise or Franchise Your Own Business. 6th Edition. Entrepreneur Press. McDonalds-a. 2010. Our Company. [Online]. Available at: https://mail.google.com/a/sigmaresearch.in/#inbox/12b41c94fdb55b9f. [Accessed on September 24, 2010]. McDonalds-b. 2010. McDonalds History. [Online]. Available at: http://www.aboutmcdonalds.com/mcd/our_company/mcd_history.html. [Accessed on September 24, 2010]. McDonalds-c. 2010. Our Road Map for a Sustainable Supply Chain. [Online]. Available at: http://www.aboutmcdonalds.com/mcd/csr/about/sustainable_supply.html. [Accessed on September 24, 2010]. McDonalds-d. 2009. Annual Report. [Pdf]. Available at: http://www.aboutmcdonalds.com/etc/medialib/aboutMcDonalds/investor_relations0.Par.17264.File.dat/2009%20AR%20Report%20-%20Print.pdf. [Accessed on September 24, 2010]. Ritzer, G. 2000. The Mcdonaldization of society. 3rd Edition. Pine Forge Press. Schnaubelt, C. No date. Global Arches: A Cultural Look at McDonald’s Franchises in Central Europe. [Pdf]. Available at: http://murphylibrary.uwlax.edu/digital/jur/2002/schnaubelt.pdf. [Accessed on September 25, 2010]. Read More