THE INTERNATIONAL EXPANSION OF MCDONALDS
International Expansion
While manufacturing companies can minimize the danger they expose themselves to in overseas markets by merely exporting as well as increasing their participation only in the markets where they find sensation, a company such as McDonalds should go abroad where its consumers are if it has to sell its products internationally. Regardless of its successful and rapid growth of its hamburger chain in the United States, it has embraced the idea of international expansion in order to safeguard its competitive advantage. McDonalds opened the very first overseas restaurant in Canada on June 1, 1967 in Richmond B.C (Kramer, 1996). Today, Canada has over 1300 McDonalds restaurants. In 1971, it opened another restaurant in Japan, where Den Fujita who owned an import firm dealing in shoes, handbags, and apparel became McDonalds joint venture partner. In July 20, 1971 Fujita opened his first restaurant and on its first day of operation over 3000 were realized. Besides, in 1993, McDonalds Corporation was recognized as Japans most triumphant restaurant chain with more than 1400 restaurants. This made the firm to nearly double the yearly sales of its immediate competitor (Kramer, 1996).
Furthermore, in the same year of 1971 the company continued with its international expansion by opening restaurants in Australia and Germany. Today, Australia has more than 700 McDonalds locations and Germany encompasses more than 1200 restaurants. After accessing England and France markets in the early years of 1970s, McDonalds currently runs more than 1200 restaurants in United Kingdom and some 980 restaurants in France. Japan, Canada, England, France, Australia, and Germany are referred to as McDonalds big six, because when combined, they offer approximately 80 of the international operating income. McDonalds international operations are playing an escalating significant role in the profitability, as well as competitiveness of the firm in the current business globalization. For instance, in 1995, its 7,030 restaurants in more than 89 nations produced whopping sales of 14 billion (Mujtaba, 2007).
Additionally, a number of McDonalds international operations have been very spectacular to an extent of becoming headline news in several media houses worldwide. For instance, in January 31, 1990, more than 30, 000 individuals lined up on a cold winter day in Russia just to visit a novel McDonalds restaurant. The opening of this restaurant in Russia culminated years of negotiations that had started during Montreal Olympics in 1976 and represented the gigantic joint venture agreement a food company and the Soviet Union. In its first full year, Russian McDonalds crew served over 40, 000 customers daily, totaling to fifteen million people that year. To meet this inexorable demand, the company constructed a 45 million food processing facility near Moscow.
On April 23, 1992, McDonalds opening in Beijing China crushed the Moscow opening day record by attracting more than 40,000 Chinese customers to the twenty eight square foot restaurant. Situated in the busiest shopping district, this restaurant has more than 800,000 pedestrians passing each and everyday. The joint venture between McDonalds and the General Company of Beijing Commerce, Industry, and Agriculture had been working for several years to establish the network of local manufacturers, farmers along with other supplies to support the restaurant.
Not to be done, in 1992, McDonalds opened more two restaurants in Poland and astonishing each surpassed the Beijing and Moscow records for transactions on the opening day, with Warsaw recording the highest transactions in June 1992. Other nations of the world where McDonalds has proven immensely successful, popular, and well-liked comprise East Germany, Hungary, Slovenia, and Czech Republic. It as well broke the ground in other novel parts of the globe when it gained access to the Middle East markets with a new restaurant that opened in Tel Aviv, Israel in 1993. Extra restaurants were further added in Oman, Kuwait, Saudi Arabia, Egypt, Bahrain, Qatar, and United Arab Emirates.
This indicated the long term and extensive commitment the firm had to the region. Due to value of cultures and traditions, McDonalds restaurants operating in Middle East region have maintained Halal menus that suggest conformity to Islamic laws for food preparation, especially beef. Moreover, restaurants situated in Saudi Arabia never display posters or statues of Ronald McDonald, as Islamic father forbids flaunt of idols. Also, the first Kosher McDonalds opened in the suburb of Jerusalem city in early 1995 does not serve dairy products and is always closed on Saturdays (Jewish Sabbath).
In past few years the international expansion of McDonalds has significantly slowed and this has mainly been due to declining operating margins as the company was focusing more on advancing the existing restaurants together with menu offerings. Another factor which could have spearheaded the slow down is the death of its Chief Executive Officer (Jim Cantalupo ), since he was the one who led most of McDonalds abroad expansions. His passing on due to heart attack in 2004 has remained a major setback to globalization and internalization of this company. All in all, the expansion of McDonalds both locally and internationally has proven the strength of Ray Krocs first thought when he initially saw McDonalds in operation by saying it will go any place.
Success Strategies
Since the start of the firm in 1955, McDonalds Corporation began spreading locally throughout the United States and thus establishing its brand identification (Mujtaba, 2007). Its preliminary strategy began by advertising directly to the upper and middle class citizens, as can be seen in countries like China and India. However, with its several bargain deals on a number of its food items, the company started to cater for many individuals belonging to lower class (Mujtaba, 2007). China remains one the country in the world where McDonalds carried out an extensive research prior to opening up restaurants. Indeed, during this internalization and globalization, this noble firm is capable of developing market strategies, at same time customizing them for dissimilar regions in accordance to national and cultural variations in an attempt to serve specified target markets. McDonalds believes in conducting heavy research in any region it desires to open restaurants based on a few element of cultural, social, economic, political, and technological situations. The key to success of McDonalds corporation is its business mantra of thinking global and acting locally. This has in itself permitted the firm to realize financial success in any region it opens fast food restaurants (Mujtaba, 2007).
In order to remain competitive in this era of globalization and internalization, the company came up with success strategies that include Emphasis on local management, in the world over, McDonalds delights itself by hiring locals, specifically on management post in order to gain acceptance into the nation by its people. This emphasis is based on their business mantra of thinking globally while acting locally. For example, the firm decided to came up with two joint ventures with two New Delhi local entrepreneurs, who were later selected to carry out management tasks for the fast food restaurant (Mujtaba, 2007). This strategic move permitted McDonalds to gain easy admittance to the bureaucracy linked to countrys government.
Besides local management, politically sensitive strategy is as well employed by this global company. The strategy is utilized to avoid any kind of political confrontation with countries governments. The other company concern is about being religious sensitive in dissimilar countries where it operates. For instance, almost eighty percent of Indians never eat beef, and more than 150 million Indians are Muslims and thus, do not consume pork, therefore, instead of supplying the usual Big Mac that consists of beef, the company came up with the Maharaja Mac, which is made of 2 lamb patties. Other foods, such as McAloo, Tiki Burger, and other common Indian dishes were included to non standardized menu in order to curb any conflict of interest (Mujtaba, 2007).
As a way of achieving an optimistic reputation as well as follow national and local policies of a particular country, McDonalds tries to come up with services which are environment friendly. Again, India is an example where the firm offered financial contributions and sponsored a number of community related activities as a way of promoting environmental protection. In other countries, this strategy has primarily been established in schools, thereby indicating that McDonalds as well supports local schools (Workman, 2006). The strategy of corporate citizenship is also applied by this company on the journey towards international expansion. In order to enhance its reputation, this international, global, and multinational firm gives back to local people in all nations it operates. For instance, the company offers a number of financial donations to local organizations. This strategy is aimed at encouraging local people to eat at the companys fast food restaurants, since it is a motivation which is utilized to spread the name and the companys reputation further.
The final success strategy for McDonalds Corporation is pricing. As the currency values vary all over the world, the company is frequently forced to alter its pricing strategy in accordance to the target market (Barkema et al., 1996). For example, the price of a Big Mac differs in different countries. It therefore, appears that the company attempts to retain a price range on its products based on the income distribution, location, and it is for this reason that the company opens most of its restaurants in big cities, such as Shanghai, Beijing , New Delhi, and many more. The prime goal of McDonalds Company is to primarily attract upper and middle class citizens, since they are able to afford their prices. After this, they gradually target the lower income earners. In the U.S, for instance, the restaurant has appealed individuals from all walks of life from poor to the uppermost class. Though, its recognition, popularity, and fame seem to be among the lower, middle, and upper middle class (Brenham and Reiss, 1987).
Apart from success strategies, McDonalds has got 3 major business strategies that include forecasting and responding to any changes in consumer preferences and tastes, as well as spending and demographic patterns (Barkema et al., 1996). They adjust the menu according to the desires of the target customers. Secondly, the company maximizes sales at its existing restaurants. This is mainly done through increasing kitchen efficiency, restaurants remodeling, and streamlining drive thru ordering. Finally, the company has invested much of its resources in escalating its geographical concentration by opening novel restaurants. In 2008 alone it opened about 1,000 units and this made the total number of restaurants to grow at between 1 and 2 percent annually.
Successes
Globalization, diversity, and ethics are the major factors which have made McDonalds Corporation more successful. In the current business environment, enterprises and corporations are expanding businesses in the international market. Therefore, globalization remains indispensable for success realization. McDonalds company embraced the idea of globalization and has really benefited from it (Gielens and Dekimpe, 2001). Internalization expansion and globalization have enabled the company to increase on its geographical concentration and thus augmenting revenues collection for subsequent profitability. The character of diversity on the international market has enhanced the profitability of this firm. It is believed that diversity always encompasses a direct reflection of interpersonal relationships of the company. If these relationships are optimistic, lead to a rewarding venture. On the other hand, if these relationships are negative, the companys reputation declines. However, McDonalds management encourages diversity via their programs and policies. Therefore, the firms proven accomplishment with leveraging the advantages of diversity can be accredited to their foundation values of ethics (Gerski, 1995).
Challenges
The company has experienced a number of challenges in its process of international expansion comprising Frequent blames on obesity, where many countries have associated the fast food provided by the company as a primary cause of obesity, especially among children (Gielens and Dekimpe, 2001). The foods are said to contain high calories as well as elevated fat contents that increase the risk of obesity condition to an individual consuming them. It has as well been blamed for excessive packaging waste by environmental diehards. Though, the company tries to put in place programs to foster environmental friendliness, most environmental organizations have blamed it for these packaging wastes which are not biodegradable, thereby becoming menace to the environment. Anti globalization proponents have seen McDonalds international expansion strategy as a United States symbol of economical dominance (Camerer and Lovallo, 1999).
Conclusion
In the 21st century, every business ought to embrace the spirit of international expansion to achieve a competitive edge. In business, competitive advantage refers to possessing advantage over competitors (Porter, 1986). This advantage is that which comes as a result of smart and conscious strategic plans as compared to other factors. Success and failure of a company is highly dependent on competition and this implies that the way competition is handled is very crucial to the business process. In this century, the opportunity for all McDonalds is to increase on its international expansion in order to sustain this advantage.
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