International Business - Strategies to Overcome Challenges Faced by McDonalds - Essay Example

International Business Using one specific company with which you are familiar, examine the actual and potential impacts of globalization on that company. Explain the reasoning behind the points you make. Evaluate possible strategies going forward which the company might use to respond to the impacts of globalization you have identified. Introduction This paper discusses how globalization has affected McDonalds’ operations and working. It also identifies how many of the issues are specifically centered to McDonalds, and which are towards the industry in general. The last section will hope to identify the strategies that can be taken to overcome these challenges. What is Globalization? Although many scholars have worked to identify what the phenomenon of globalization is, they all have very conflicting views on what it actually is. The simplest way to describe the word has been done by Laurence e. Rothenberg who describes it as the acceleration and intensification of interaction and integration among the people, companies, and governments of different nations. This process has effects on human well-being (including health and personal safety), on the environment, on culture (including ideas, religion, and political systems), and on economic development and prosperity of societies across the world. Next it is important to identify how this came into being. The sudden rise in globalization can be attributed to the advances in communication technology. People all over the world want to remain connected with everyone, regardless of location and time. This means that now there scope of knowledge and information has broadened beyond their own city/country. People are now aware of the latest trends and happenings and this creates a simple need of wanting those same things in their own country. This has been identified by various corporate entities that look to expand their operations into other countries and tap into this prepared customer base. There are many advantages to globalization, some of them are: Globalization has rapidly improved the social and economic status of women in the developing world Advances in medicine, improved public health policies, and greater food supplies have lowered infant mortality and lengthened life expectancy Child labor declines as a country’s income increases The integration of rich and poor nations is not a zero-sum game where the gains of one come at the expense of the other. Driven by the rapid democratization of information, technology, and finance, globalization is turning out to be a remarkably progressive, liberating force Globalization helps break the regressive taboos responsible for discriminating against people on the basis of gender, race, or religious beliefs. It is an antidote to the intolerant fundamentalism that oppresses millions of the world’s poorest On the other hand Globalization does have its pitfalls, some of them are: Globalization causes the poor citizens having more requirements. Secondly cultural intermingling is enlarging with globalization which lets the people from all over the world able to communicate easier. On the other hand sharing traditional behaviors cause them fading as boundaries are disappearing Another major damage of globalization is that some cultures are getting lost. The cultures of the countries that have more economic power are more dominant than others The final significant effect of globalization is the difficulty of competition. With globalization, trade between the countries has been started to remove limits. This situation of enterprises has prepared the ground to be in constant competition with not only national competitors but also international competitors Impact on Fast Food Industry Dieticians and Nutritionists all over the world have identified the fact that with this rise in globalization, the eating habits of the people have changed. For example, when McDonalds opened its first outlet in Hong Kong in 1975, no one thought it would last more than a few months. The staple food was rice and fast food was merely a snack rather than a meal but the rest is history. To get an accurate picture of the kind of expansion the fast-food industry we saw that by the end of 1996, over 800 local fast food companies were doing business in China, operating over 4,000 restaurants. The annual revenue was over RMB40 billion, accounting for one-fifth of the catering industry’s total revenue (Ferkiss 2001). By 1999, annual revenue surged to RMB75 billion, 20 percent higher than the previous year, and accounted for one-third of the industry’s total. The growth rate for fast food was 7 percent higher than the average growth rate of the catering industry as a whole. Globalization has had a 2-stage impact on the fast food industry. The first stage is the initial introduction of the foreign brand into the local market and in the second stage how the market reacts to this. As in most cases, the domestic business is not as highly trained/evolved to keep up to par with these large corporations hence the McDonalds, KFCs and Pizza Huts took over the customers. They delivered a new kind of food, had better service, cleaner environment, not very expensive all of which attracted the masses. In China this expansion was clearly visible as the people switched from having rice and noodles to Big Macs and Crispy Fried Chicken. The restaurants posed an image of being universal i.e. they provide the same products, service of the same quality everywhere. This too was a very important factor in attracting the people, the people viewed these new fast food restaurants as a symbol of America, a place they aspired to go and see. The fashionable uniforms, the cleaner sitting places all made the experience so “American” which they had always seen on TV. Over time, the fast food industry has become more aggressive and all the companies are making more aggressive efforts not expanding their businesses. When Beijing’s first McDonalds opened in 1992, the restaurant – equipped with 700 seats and 29 cash registers – served 40,000 customers on its first day. The company proudly declared on its website that in 2003, “McDonalds Hong Kong cracked 32.5 million U.S.A. Grade ‘A’ eggs, prepared over 25 million pounds of French fries, and grilled over 4.4 million pounds of beef patties to serve its customers.” KFC has been even more ambitious. From 2001 to 2003, the number of KFC franchises in the mainland doubled from 400 to over 800 (Bhagwat 2004). The second stage was the reaction of the domestic restaurants. At this point they virtually had 2 options, raising their own personal standards and coming up with something unique to compete with these big companies or they could simply close themselves down. Plenty of both things happened. Many restaurants in China showed a lot of fight and chose to improve their own offerings and were successful in fighting with the International giants over the customer’s money. They re-vamped their restaurants, improved their menu and service, started advertising and promoting their products and if all else failed; they started hiring attractive waitresses as a last attempt to bring customers in. This then prompted the fast food chains to adapt and change their offerings accordingly. Now, they had to take out products that the customers wanted. They had to change the initial image of being an international brand to one that is as local as any other. The thing that had made them so successful had to be changed. For example in Japan, as the number of foreign restaurants grew exponentially, a simultaneous process of “fast-foodization” of traditional Japanese food was also occurring. The recent flourish of local fast food restaurants in mainland China is reminiscent of Hong Kong’s experience, as challenges posed by American fast food since the late-1980s have compelled many Chinese restaurateurs to react and innovate. Numerous copycat restaurants, with names such as “McDuck’s,” “Mcdonalds” and “Modormal’s”, appeared in the major cities, all using similar traits as the real McDonalds itself. McDonalds – Taking Over the World, one Big Mac at a time Today McDonalds is a multinational corporation that operates 30,000 restaurants in 119 countries that serve 47 million customers each day. Its flagship product, the Big Mac, is so nearly universal that the Economist magazine uses it to calculate the relative purchasing power of foreign currencies. McDonalds was the first company to try to export America’s love of fast food and changes in eating habits of other nations. It was the first to identify that people all over the world wanted to eat the same way the Americans did. The appeal of the American way seems to transcend all boundaries. When McDonalds opened its first restaurant in Kuwait in 1994, 15,000 customers formed a seven mile line at the drive through. Culture is ever changing and thus McDonalds marks another step in the evolution of culture with the changes in has brought about. However, the made it necessary to keep the image of McDonalds almost the same everywhere as in the United States. Every country has its own set of unique problems and hence mass-application of strategies is not really possible. A country like Pakistan may have extremely different cultural values, norms and hence restrictions as compared to a country like Canada. However, McDonalds must strive to keep an atmosphere where the customer feels the same sort of service and quality throughout the world. The uniforms of the waiters are exactly the same, and they play American music etc. (Watson 2006). One of the biggest problems is finding the right mix between extremely stable and consistent quality through-out the world. McDonalds has to live up to its global standards, not only to remain strong in that area, but to ensure that the word does not get out on a drop in quality as this decreases the overall brand value. With the increase in information technology customers are not only aware of what McDonalds is serving in their countries but the variety of products it offers in other countries. And that is where McDonalds has to make sure that these customers don not feel left out. In most communities, McDonalds has conformed to the local culture not the other way around. The McDonalds Corporation notes that most of its overseas franchises are locally owned, and thus make efforts to buy from local communities. McDonalds also alters its regional menus to conform to local taste. McDonalds tries to have each location carry some of the ‘‘classic’’ American items . McDonalds must compete with local retailers wherever it operates (and with local Italian, Indian, and Chinese restaurants), so its restaurants necessarily adapt to local tastes in terms of food recipes and preparations – only the efficiency remains the same. McDonalds now has a 100 percent vegetarian menu in Hindu regions, featuring items such as Pizza Mc- Puff, the McAloo Tikki spiced potato sandwich, Paneer (spiced spinach) Salsa McWrap, and McCurry. Wherever McDonalds has opened in the world they have brought in many advantages for the local community. For example, before the first McDonalds opened up in the mid-1970s, restaurant restrooms in Hong Kong were notoriously dirty. Over time, the cleanliness standards of McDonalds were replicated by other restaurants eager to out-compete the increasingly popular restaurant. In the same manner McDonalds had to adopt themselves and take part in various activities to try and teach the consumers about many aspects of their business. For example, when the first McDonalds was opened in Moscow, it was necessary for an employee to stand outside the McDonalds with a blow horn in order to explain to those in the queue that the smiling employees were not laughing at them but, rather, were pleased to serve them. Similarly, McDonalds had to actually practically exhibit the usefulness of serving through a drive through restaurant in Pakistan, because it was an unknown concept in the start. One of the major problems that McDonalds faces is the getting the maximum out of their Supply-Chain. In many areas it is very difficult to get access to the right raw materials to product the quality of good that they desire. The raw-material may be imported however many governments restrict the imports and make the production process very difficult. The “red-tapism” in government policies makes it difficult to operate a global brand. Similarly, there have been several attacks made on the image of McDonalds by several nutritionists and anthropologists and most recently by religious Scholars. The Nutritionists say that with the introduction of the fast-food culture, more people around the world are following the same path of obesity that America did. The fact is that today, America is the most obese nation in the world, the prime reason for this is the large proportions of unhealthy food being served up by large fast food restaurants. People in developing nations are mostly unaware of the problems that come with consuming such high calories and hence the health situation is deteriorating. The World Health Organization (2002), believe that “within the next few years, non-communicable disease will become the principal cause of morbidity and mortality…….The shift towards highly refined foods and towards meat and dairy products containing high levels of saturated fats,….contribute to rises in incidences of obesity and non-communicable disease”. Anthropologists have gone on to say that McDonalds is helping wiping out existing culture. They are adamant on the fact that the Big Mac is replacing the “Enchiladas” and the “Paellas” and this is eroding the fragments of society in these areas. The introduction of unhealthy eating habits as a result of the preamble of foreign foods into outside nations significantly affects the traditional culture. Some anthropologists are of the view that food holds the key to keeping certain aspects of culture alive and it is when the family and societal values are shared to the coming generations. The last major problem that McDonalds is facing is the anti-American sentiment that is being used against them. The Golden Arches, which for a very long period have been their most important advertising tool, have end up being the most problematic for them. Many Islamic states are now expressing their dislike for McDonalds as it an “American i.e., anti-Islamic” brand. People are raising concerns about the method of food production i.e. Muslims in various Asian countries are calling their production process “haram” which in Islam means that it is unacceptable for consumption. McDonalds constantly negates this fact all over the world, however, this problem keeps coming up in various parts of the world. “McStrategies” to Overcome these Problems McDonalds has always had a corporate strategy of not giving in to the competitors or market pressure, rather they identify their own Unique Selling Proposition and work on that to get a large number of customers. For them, it is important to maintain their dominance in the market by the product itself and not the factors around it. The belief at McDonalds is that the best way to react to a new local/foreign customer will be to improve their own offerings rather than attack the competitors. They believe that their old and newer products are extremely competitive and the consumer will regard them highly due to superior quality and taste. The constant effort that is put into maintaining a certain level of quality and service pays off in this regard that customer retention is very high. But at the same time innovation at McDonalds is also very high. They are always on the lookout for ways to diversify their offerings and business. McCafes are picking up all over the United States and they have been successful in breaking some of the traditional cafe house customers. A good quality product, aggressive advertising campaigns and all the privileges of being a McDonalds brand have made McDonalds coffee one of their best products. McDonalds has also started its own line of salads to show that they do provide a healthy option as well. The Introduction of Diet Coke rather than the regular Coke is also a way into satisfying the health customer. But the dilemma here is that sales of these products are not as aggressive as expected. But McDonalds does not believe in giving these up so as to appeal to the health conscious. More initiatives must be taken on the same line if they want to maintain their market share. One of their biggest rivals in this regard, Subway promotes its healthy sandwiches and hence McDonalds must also try something on the same lines (Reddy 2004). Additionally, they can improve the toys they give with the Happy Meal to induce a culture of learning, this aspect attracts many parents as they are constantly looking for ways to make learning fun. With strategic partnering with local manufacturers and producers, McDonalds can improve its image and move from an international to a local brand. This will increase their reach as ethnocentric customers will feel attracted to their offerings. Also since all the raw materials will be local, the misconceptions of it being “haram” can be removed and hence more customers. It is important however, that there is not drop in quality. They must maintain the same level of innovativeness and come up with products that satisfy the customers. Lastly, it is important for McDonalds to work on how it initially enters into a new country. Many critics have argued that McDonalds may not necessarily bring the product to the culture, but manage to bring the culture to their product. This creates a negative image in some consumer minds, which is difficult to overcome. Their menus still have traces of “one-size-fits-all” and that should be abolished. Conclusion McDonalds must remain proactive in its approach to getting the customers money. It is important for them not to give in to the pressures of the market and compromise on their core values. The must continue to innovate and come up with products that are attractive to all consumers while still maintaining a high level of quality. They must continue expansion into countries and cities all over the world, never compromise on quality or taste. Staying true to its core values is very important because that is what differentiates them from the rest or simply “That is the McDonalds way!” References Bhagwat, J (2004). In Defense of Globalization. Oxford University Press Ferkiss, V (2001). Is Globalization a Myth? The Futurist, Vol. 35, November Reddy, A (2004). The Globalization Paradox: A Marketing Perspective. International Journal of Management, Vol. 21 Watson, J (2006). Golden Arches East: McDonalds in East Asia. Stanford University Press Read More