International Management of McDonald’s
This essay is based on the analysis of the international business strategy of McDonald’s. Firstly, this essay would discuss the international operations of McDonald’s. Secondly, it would give an in-depth on McDonalds cultural difference management. Lastly, suggestions would be provided to McDonald’s CEO on how to improve its international strategy.
McDonald’s is one of the best-known global brands in the world. The brand is operating in 118countries across the world. The average number of customers served by McDonald’s in a day is 70 million. The franchise model used by McDonald’s has allowed it to achieve rapid expansion and success in the world (Kelly, 2012).
To reflect on the internationalization of McDonald’s, it is important to first understand the process of internationalization. The internationalization is referred to as the process of planning and developing products and services that can be adapted easily according to the needs and preferences of local cultures (Neale, Spark and Carter, 2018, p.171). One of the key reasons that depict that McDonald’s is an international business involves the international operations of the business. McDonalds’s has about 34,000 outlets worldwide and operates in about 118 countries across the continent (Rosenberg, 2018). The United states have the most outlests with approximately 14,150 while Japan follow next with 2,975 locations (Ross, 2018).
The image below shows how international McDonald’s has grown over the years:
Fig1: McDonald’s across the world(En.wikipedia.org, 2018)
The success of the international operations of McDonald’s reflects the successful internationalization strategy of McDonald’s (Continent and Ojala, 2012, p.496). The local responsiveness of McDonald’s is another factor that reflects the international strategy. The internationalization of McDonald’s involves a high level of local responsiveness, which has allowed the business to spread across different regions effectively. The value chain of McDonald’s has been built by considering local culture, political environment, and legal factors (Crick and Crick, James 2014, p.421).
The international strategy of businesses requires adaptation to the local business environment. In the modern business environment, it is a challenge for businesses that adopt an international strategy that can be applied in different parts of the world. The successful international strategy is one that provides flexibility to adapt the strategy according to the local business environment (Pradhan, 2018, p.n.d). The internationalization process, in the global business environment, has changed the landscape for several businesses across the world. This has resulted in creating a dynamic market situation. The rapid internationalization of businesses has resulted in a high level of competition for businesses. The reasons for internationalization differ among businesses. However, in most of the cases, firms pursue internationalization strategy because the domestic market is no longer adequate in terms of opportunities for growth (Abby and Nicholas, 2014, p.87).
Theories of Internationalization
There are various internationalization theories that have helped in understanding the theoretical background of the process.
One of the internationalization theory is the Eclectic Paradigm. This theory was proposed by Dunning. The focus of this theory was on understanding the form and pattern of international production (Kumar and Kapoor, 2015, p.1998). The theory has highlighted that businesses cross borders because of the attractions of the foreign market. As per this theory, the international operations allow businesses to exploit opportunities present in the foreign land. It has also been discussed in this theory that the advantages in the domestic market allow businesses to achieve success in the foreign market. The theory of Eclectic Paradigm focuses on advantages related to the geographical location of a country that is targeted (Zhao et al., 2018, p.217).
Another theory related to internationalization is Institution-based view. The institutions are referred to as economic, political, and social constraints on the operations of a business. The institutions are structured that affect the economic outcome, operations, products, and other aspects of a business. This theory has discussed three types of institutions including cognitive, normative, and regulative (Bharucha, 2018, p.639). The regulative institution is one that is related to regulations and laws. The regulative institutions guide all actions of an organization. Another set is normative, which is referred to the social aspect of the institution. It involves operating procedures and standards. The third one is cognitive that is concerned with cultural aspects including symbols, signs, and gestures (Wang and Simonyi, 2018, p.2868).
The cultural-distance theory has studied the impact of culture on the international operations of a business. According to this theory, businesses are required to deal with differences in culture. The cultural differences have an impact on the internationalization process (Craig, 2014, p.n.d). Therefore, it is important for businesses to consider the local culture before expanding into a location (Zhao et al., 2016, p.230). The cultural distance between countries is likely to impact several aspects of international business including choice of entry, diversification, and performance. Moreover, the cultural distance between countries results in an increase in the need for forming joint-ventures in a foreign market. It is because cultural distance makes it difficult to operate successfully in a foreign market (Chen and Huang, 2018, p.146).
McDonald’s Cultural Difference Management
The process of globalization has urged several international businesses to modify their strategy to adapt according to cultural differences. In the international business environment, businesses need knowledge of cross-cultural marketing. The cross-cultural knowledge allows businesses to operate successfully in the international environment (Pradhan, 2018, p.n.d). There are several important requirements for adaptation. It is important for businesses to adapt according to customers’ taste, preferences, and the law. In the international business environment, McDonald’s was required to adapt to several situations including differences in religion, law, and customers (Jakhar and Srivastava, 2018, p.2166).
The analysis of the international strategy of McDonald’s has revealed that it has followed a standardized approach for expansion. However, in many cultures, the products have been adapted to meet the cultural requirements. For instance, in India, McDonald’s changed the recipe of hamburgers (Kelly, 2012, p.n.d). The beef was replaced with chicken, vegetables, and fish. Moreover, the names of the items were also adapted according to the local culture (Kumar and Kapoor, 2015, p.1998). The example includes McAlooo Tikki. The aim of this adaptation was to ensure that the preferences and needs of customers are met and satisfied. Big-Mac is one of the most famous burgers of McDonald’s that is made of beef. However, in India, McDonald’s has introduced Maharaja-Mac. This burger is made of chicken and curry sauce (Sharma et al., 2018, p.1398).
In addition to the menu, the other adaptations that have been made by McDonald’s in different culture include changes in the web layout. In England, the layout of the webpage has a British theme. Although McDonald’s has adopted localization strategy for several aspects of the business, the brand name and packaging is consistent in different markets. The physical features of products offered in different markets are the same (Chen et al., 2013, p.97).
The analysis of the international strategy of McDonald’s has revealed that although the standardization approach has proved to be successful, the evitable differences between cultures have created the need for adopting the localization strategy to some extent. The localization strategy of McDonald’s is based on culture (Bharucha, 2018, p.639). McDonald’s has differentiated its products on the basis of differences in cultures. This reflects that culture is one of the most important elements of the internationalization strategy of McDonald’s. The differences in cultures have a significant impact on the menu offered by McDonald’s. For instance, in Australia, a majority of products include chicken as the main ingredient. On the other side, in the United States, beef is the main ingredient. Therefore, McDonald’s has also adapted its menu according to the specific needs of a culture (Kim, Christodoulidou, and Choo, 2013, p.40).
In the South African market, McDonald’s was required to offer additional products on its menu. In addition to the traditional cheeseburger and Big Mac, McDonald’s also offered the Double Hamburger. This product contained an extra layer of beef to cater to the needs of customers in the South African market (Kontinen and Ojala, 2012, p.469). The burgers offered by McDonald’s also differ in Japan where customers can order a Koroke Burger. This burger consists of mashed potato, katsu sauce, and cabbage. Similarly, in Malaysia, the brand offers a Double Beef Prosperity Burger. In Italy, the burgers are offered with a ciabatta roll.
There are several elements of the internationalization strategy of McDonald’s that have resulted in the success of the brand. The first element involves the difference between the brand and the products. McDonald’s didn’t confuse its brand with products. The brand name of McDonald’s is strongly associated with hamburgers (Ziko et al., 2017, p.674). However, it has planned to open vegetarian restaurants in India because of the preference of Indian customers for vegetable burgers. In India, vegetables are preferred over meat because of the religious beliefs of the local population. Another important part of the internationalization strategy of McDonald’s involves identifying products that have international appeal (Neale, Spark, and Carter, 2018, p.171). Some of the products of McDonald’s including fries and shakes have international appeal. Therefore, McDonald’s has included these products in the menu of every country (Kumar and Kapoor, 2015, p.1998).
McDonald’s believe that the entry to a new market offers an opportunity to add new brand attributes. In the United States, McDonald’s is a well-known brand because of its affordability. However, in other countries where the middle class is growing, it is considered to be a status symbol. It is important for brands to understand that if they have a certain position in a market, the perception of customers will be the same in other markets (Abby and Nicholas, 2014, 87). In international business, there are many businesses that make the mistake of underestimating the potential of small and emerging markets. There are many companies that tend to focus only on major economies of the world. However, McDonald’s is the brand that has focused on both large and emerging markets (Zhao et al., 2016, p.230). The internationalization strategy of McDonald’s has allowed it to achieve success in China, India, the United Kingdom, the United States, as well as other markets. McDonald’s has addressed to the needs of the local population in big as well as emerging markets (Pradhan, 2018, p.n.d).
In international markets, McDonald’s did not make the decision of product offerings in isolation from customers. In fact, the behaviour of customers in the local market was observed. This allowed McDonald’s to better understand the needs and preferences of customers. The understanding of the preferences of customers in the international market also allowed McDonald’s to successfully offer products that meet the needs of the local market (Kim, Christodoulidou, and Choo, 2013, p.40).
The major problem faced by McDonald’s in the international market was the use of the standardized operating model. McDonald’s used to source a majority of its ingredients from the United States. However, with the passage of time, McDonald’s has developed capabilities in building and managing its supply chain. When McDonald’s enter a new country, it first imports its suppliers. With an increase in market knowledge and experience, McDonald’s tries to source locally.
The leaders of McDonald’s believe that people are one of the most important resources. Therefore, significant investment has been made in the growth and development of employees. McDonald’s believes that its success depends on the commitment to deliver higher value to the customers. One of the key factors that have allowed McDonald’s to achieve success in the international market includes the hiring of locals. This has resulted in an increase in the acceptance of the brand in the foreign market. The ‘Think Global, Act Local’ perspective of the company is the key success factor. The formation of joint ventures with local partners has also allowed McDonald’s to deal with challenges present in the local environment. This strategy has allowed McDonald’s to deal with bureaucracy present in a new market.
The theory of internationalization that is applicable to the case of McDonald’s is cultural distance. The cultural-distance theory has highlighted the need for considering local culture when expanding into a new market. According to this theory, it is important for businesses to identify differences in their host culture as well as a new culture. The identification of cultural differences helps in the development of culturally appropriate strategies. The cultural-distance theory has also highlighted the need for forming joint ventures in the global market (Crick and Crick, 2014, p.429).
The international strategy of McDonald’s is often referred to as the glocalization strategy. The glocalization strategy involves the integration of the global and local. This model has allowed the brand to practice standard operations while adapting to the local and global culture. The glocalization strategy has not only resulted in changes in the menu of McDonald’s but also in its marketing strategies (Ziko et al., 2017, p.674). One of the core elements of the marketing strategy of McDonald’s involves sponsoring local and international sports events. This strategy has allowed the brand to achieve success in the international market. The marketing strategies of McDonald’s differ on the basis of culture and country. In France, the advertising of McDonald’s focuses on French cultural values. In East Asia, McDonald’s has targeted the younger generation that is the core market of the brand. To target this market, McDonald’s has invested in the television advertisement that targets children. However, in China, McDonald’s did not choose television advertisement because of the little impact of this medium. In this market, McDonald’s has invested in newspaper and magazines advertisements (Kim, Christodoulidou, and Choo, 2013, p.40).
Conclusion and Suggestions for CEO to Improve Strategies
The report has discussed the internationalization strategy of McDonald’s and its success in different markets. The internationalization strategy of McDonald’s is based on the understanding of cultural differences. McDonald’s follow the standard menu in different cultures but adapt it according to the local tastes.
The ‘Think Global, Act Local’ strategy of McDonald’s has proved to be successful in several parts of the world. The aim of this strategy was to focus on the local market with the global strategy. This strategy has allowed the business to operate according to the requirements of the local market (Crick and Crick, 2014, p.429). However, there are cases in which this strategy failed to provide productive results; such as in Germany and the Netherlands. McDonald’s entry into these markets with the local menu, which was not accepted by the customers. It was because of the reasons that the customers in these regions demanded American menu (Jin and Li, 2017, p.817); The global convergence of customer tastes and preferences is the major reason that resulted in this change. This trend has highlighted the need for integrating global strategy with the local strategy (Bharucha, 2018, p.639). Therefore, it is recommended that McDonald’s incorporate local tastes to the level required by the customers.
The global economy is rapidly transforming into a single market. It is a collection of the local, semi-global, and global market. McDonald’s has successfully operated in the international market with the localization strategy. This strategy involved the adaptation into the menu of McDonald’s. The local market involves challenges because it is costly to adapt the menu according to the needs of every market (Wang and Somogyi, 2018, p.2868). To achieve success in the international market, it is important for McDonald’s to expand into the other two segments including semi-global and local. The semi-global segment is one where customers display a mix of local and global preferences. The local segment is one where customers retain the local preferences (Craig, 2014, p.n.d).
The attainment of these objectives is challenging for McDonald’s. It is because these market segments are small. The revenue potential in these segments requires significant investment. Moreover, the entry to these markets will expose McDonald’s to local competition. The standardization strategy of McDonald’s that involves a bit of localization has proved to be successful in several markets. However, the global market has become highly saturated and crowded. In this environment, it is important for McDonald’s to enter into other market segments. This requires a more localized menu, which could erode the scale advantage of the business.
To implement the localization strategy on a large scale, it is recommended that McDonald’s improve the flexibility of its menu. It is recommended that McDonald’s develops a simplified menu. The ‘Create Your Taste’ Initiative has been taken by McDonald’s recently. It allows customers to customize their menu according to their preferences. This initiative is an important part of the localization strategy of the business (Ziko et al., 2017, p.674).
McDonald’s is also recommended to consider differences in customer perceptions in terms of product pricing. In developed economies like the United States and the United Kingdom, McDonald’s is perceived to be a cost-effective brand. The customers prefer this brand because of the low-cost menu. However, in emerging economies, customers believe that consuming McDonald’s is a status symbol. Therefore, the pricing strategies of McDonald’s in different regions must consider the difference in customer taste and preferences (Kim, Christodoulidou, and Choo, 2013, p.40).
McDonald’s is facing a high level of competition from gourmet burger brands. The high level of competition has created the need for localizing other aspects of the business in addition to the menu. For instance, in the United Kingdom, McDonald’s is planning to introduce table service at the restaurants to compete with gourmet burger brands (Crick and Crick, 2014, p.429). It is recommended that McDonald’s follow a similar strategy in other cultures.
In the United States, there has been an increase in the demand for healthy alternatives. It is because of the rapid increase in the rate of obesity among customers. In the United States, one in three kids is obese. This trend has a significant impact on the strategy of McDonald’s. To address this challenge, it is important for McDonald’s to offer a healthier menu in the United States.
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