An Evaluation: McDonald’s Corporation’s Global Business Strategy

Introduction

McDonald’s Corporation, as one of the most recognised leaders in International business and in the nature of fast-food industry gets the attention of the business leaders in gaining the success. The recognition only verified the action of the organisation in the continuous expansion and building international market. The competency of the organisation from the mother country affects the other participating countries, and their strategies such as procedures have been passed right to other sister companies and franchises (McDonalds.com 2009). The flow of knowledge and direct power of the mother company on its branches can be effectively promotes the relationship and presence of organisational culture. Aside from that, there are other applications of knowledge that continuously redesigning the face and appeal of the companies. Through the application of global business strategy, the study recognised the success of McDonalds Corporation. In addition, there is a clear description that the business’s practices and management are established through the specified theories and traditional strategies in aiming for a quality product and services. However, it was identified that McDonalds should not over emphasise their philosophical view regarding the role of global business strategy in their business operation (McDonalds.com 2009). It is true that the best strategy that a business can set in the arena of competition is to place a competitive advantage among the other competitors. But too much use of that particular advantage may lead to failure if not properly monitored; instead they must focus on serving the market well.

1.1 Background

1.1.1 Topic Overview: McDonalds’ Global Business Strategy

Fast-food industry changed the traditional restaurants, but still they gained the market by providing with the quality of food and service. In some countries, the subways and street sides are considered as the areas that moves the fast-food industry (Stewart, 2004). Among the fast movers and growing businesses in the industry is McDonalds. McDonald Corporation appeared in the plate of food industry as a business with no appeal to the customers. It even announced its losses due to the ineffective representation of the organisation in the food industry as well as on its competitors. After recognising the areas of the company’s weaknesses, McDonalds eventually emerged as a superior firm among the group of fast-food and restaurant competitors. The sudden growth of the business reflects in their competency in operation even if there is a threat coming from the global financial crisis and recession. Many award-giving bodies recognised the company as the best running international company in the world (Patnaik & Mortensen, 2009). However, many researchers are still wondering on what would be the factor/s that contributes in the success of the organisation. It is still a mystery for the people outside the organisation to determine the truth behind McDonald’s success. Is it through global business strategy innovation, or through mastering the theories that might affect the consumers’ behaviour?

1.1.2 The Company

As Dick and Mac, the McDonald brothers opened their first restaurant in 1940 in San Bernardino, California, the phenomenal growth that their business is not expected. From very beginning, the brother hit on a winning formula selling a high quality product reasonably and swiftly (McDonalds.com 2009). Yet, it was not until Ray Kroc, a Chicago based salesman with finesse for marketing, became part of the business. As Ray Kroc joined the venture of McDonalds, he recognised that the same flourishing McDonald's formula may perhaps be exploited all through the United States and beyond (McDonalds.com 2009). Because of the successful expansion and growth of McDonalds into different parts of the globe, it become a living symbol of globalisation and spread the American culture in the world.

Figure 1. McDonalds Branches in the World

Source: McDonalds.com 2009

McDonald's Corporation was now considered as the world's largest hamburger fast-food restaurant chains. McDonalds were currently serving more than 58 million customers daily. Basically, a McDonald's food chain was normally operated in various modes; it could be in franchisee, affiliate, or corporation itself. With these practices, the corporation's revenues are coming from rentals, royalties and fees paid by the franchisees and also from sales of company-operated food-chains. As for the record, the company revenues grew from 27% for 3 consecutive years ending in 2007 for about $22.8 billion, and 9% growth in terms of operating income reaching to $3.9 billion (McDonald's Corporation, 2007).

Basically, McDonald's Corporation sells hamburgers, cheeseburgers, chicken products, French fries, breakfast meals, soda drinks, shakes and desserts. As the company responded to the changing consumer tastes, McDonalds expanded their menu to include salads, wraps and fruit (McDougal, 2006). As the company goes global and in accordance to consumers’ diversity, various business strategies were employed in order to meet the changing demands of their patrons.

As McDougal, (2006) argued, the reason behind the success of McDonald’s is because of its excellent capacity management and innovation practices which is also similar of what Wal-Mart does to maintain their success. McDonald’s is always making sure that they always have something new to offer to their customers. They are using recipe and technological innovation to enhance their service to meet their customer’s satisfaction in global setting.

2.0 Research Objectives and Questions

2.1 Research Objectives

The study aims to seek the contribution global business strategy to the success of McDonald’s Corporation. Generally, the complexity of today’s global market is different from the past years but still, McDonald’s remains effective among its consumers. To determine the various challenges that the company managed to solve is however, might contribute in the company’s action in their formulation of strategies. Through learning the strategies being implemented within the organisation, there is a positive approach on what are the factors that might contribute to the long-term success of the company. With this, the following are the objectives of the study.

Ø Examine the factors associated with the growth of Local and global business of McDonalds.

Ø Analyse how the global business strategy has contributed to business growth development

Ø Understand how McDonald’s has developed and grown into very success business.

2.2 Research Questions

In accordance to the detailed objectives of the study, this study aims to answer the following queries:

Ø What are the factors associated with the growth of local and global business of McDonalds?

Ø How the global business strategies of McDonald’s Corporation contributed to their business growth and development?

Ø How McDonald’s has developed and grown into very success business?

3.0 Literature Review

3.1 Fast-food industry

Actually people eat out for irrational reasons. The exception may be fast food, which really is convenient and is focused at only one motivational component: physical survival. However, McDonald's has revolutionised the fast food business at the motivational level by shifting the reason for dining out from physical survival to spiritual survival: kids, family fun, family values, love, compassion, concern. It is what good parents do with their children; it is the right thing to do (Fulton & Maddock 1996). As a result, in fast food marketing, McDonald's does better than anyone else, largely because it has directed its marketing efforts at the highest motivational level: spiritual survival (Humphrey & Mandel 2002). Fast food with the exception of McDonald's may fade, unless menus are changed substantially. One big problem with fast food is that it is positioned at the level of physical survival. Consumers' eating habits are undergoing a revolution. Within the last years the Physical Survival Motive has been strongly emphasised and brought into focus. The fast food industry has shown considerable resistance and reluctance to change or adapt to what is known about physical survival. Too many business travellers have had the unpleasant experience of eating at these places while on the road and then slowly realising that they have gained unwanted pounds (McCraw 2000). McDonald's will remain because it has been marketed at the level of spiritual survival. It is more than food, it is an experience. It is marketed directly to children, who in turn market to their parents. When parents are marketed to by their own children, this phenomenon arouses and creates mild to moderate parental guilt and the parents almost always acquiesce. The family then has an experience, not just a meal. But even at McDonald's, where many changes already have been made in the interest of physical survival, there will be even more extensive changes within the next few years. The most powerful form of marketing is marketing to the children, who in turn market to the adults. This is a solid example of targeting at the level of spiritual survival and love. It does not always work, but it is powerful and strong. This is direct marketing to the level of spiritual survival. The other side of the restaurant experience is fine dining, which will survive because of the motives that it serves. Fine dining is more of an experience than a meal. After all, people can eat at home since most homes are well equipped for serving food. They do not really have to eat out. Home-served entrees will have an effect upon fine dining, but not nearly the effect that they will have upon the mid-levels of dining. This is because home served entrees will create an experience also. Showing a couple enjoying a fine dining experience dressed in casual clothing, perhaps in candlelight and in a romantic atmosphere, could easily move the dining experience from the restaurant back to the home again (Talwar 2002). The fast-food industry survives because of the need for people to have a faster way to eat their meal. Not all companies in the fast food industry have achieved a global notoriety since not all have created a well

3.2 McDonalds and Its Global Impact

McDonalds has reached a worldwide market. It has become a household name that has a branch in most countries. McDonalds has changed the way the fast-food industry plays the game. McDonald introduced the standards for other fast food businesses but it has longevity because it combined business and social concepts. The McDonald's Corporation is the largest food service operation in the world in terms of system-wide sales. At the beginning of 2000 it was operating more than 25,000 restaurants in 116 countries. A modest estimate of its current world-wide workforce would be around 1.5 million people, and 10 million people are estimated to have worked for the corporation since it was formed (Royle 2000). McDonald's, unlike Burger King, Wendy's, Arby's, etc., does not sell fast food. It sells family values, standards, and togetherness. Taking the family to McDonald's is the right thing to do. By marketing directly to children and letting the children market to the parents, the product is automatically positioned at the spiritual level. The success and growth rate of the corporation is to some extent reflected by the growth of the fast-food industry in general. In the USA alone, this market was estimated to be worth $200 billion a year in the mid-1990s. It was originally thought that the expansion of fast-food restaurants had already reached saturation level in the 1970s; however, restaurant numbers have increased continually since then (Alfino & Caputo 1998).

McDonald's entry into foreign markets was not just about finding suitable locations but also about overcoming a number of significant obstacles in establishing operations in another country. Although, for example, there was very little competition from other American hamburger chains overseas, many countries had no locally based fast-food restaurants and no experience of fast-food. Among other things, the corporation would be attempting to change people's eating habits, imposing the McDonald's system and an American culture on host countries (McDonalds.com 2009). McDonald’s is an example of a franchisor that has been successful with its collective learning in its international operations, but has only recently begun to apply it to its domestic operations. Part of its international success has come from recognising the value of its foreign franchise network and allowing learning, knowledge transfer, and appropriate modification to flow. In addition to menu modification, it has also allowed host country franchisees systems to create local supply infrastructures as well. It is now attempting to integrate this more decentralised approach into its domestic operations and relationships as it attempts to re-establish its position in the US market. Franchises provide McDonald's with capital; they share risks and provide local knowledge of markets and social institutional arrangements. In fact, the study suggests that franchise operators are also particularly good at keeping labor costs down and removing wastage (Watson 2006). Franchises and the small unit nature of the restaurants allow for close monitoring of all aspects of the business. McDonald's receives a percentage of the franchisee's profits and also leases the restaurant to the franchisee. Providing that the franchisee does not damage the brand through bad publicity, McDonald's can directly benefit from franchisees that go beyond the corporation's own limits in terms of labour cost savings. McDonald's is therefore able to maintain very tight controls over the uniformity of the standards and procedures of its operations across different societal cultures because of, as much as in spite of, its high percentage of franchise operations (Aharoni & Nachum 2000).

3.3 McDonald’s Global Business Strategies

McDonald’s global business strategies are quite effective considering that numerous McDonald’s fast food stores are now operating in almost all parts of the globe. This strategy became successful because of McDonald’s consideration about McDonaldisation: McDonald’s Business Model, The Empire (Business Environment), Changing Markets (Society), and Innovation (Technology).

McDonaldisation: McDonald’s Business Model - According to the book of the sociologist, George Ritzer, McDonalds is the most notably fast-food business because it effectively revolutionised not only the restaurant business but also the American society, and even the world (Ritzer, 1995). McDonalds is successfully conquering the globalisation and the application of the term “McDonaldisation” is the representation of McDonald’s business model. McDonald’s Corporation is said to be moving in three spheres of philosophy of system in management, knowledge, and environment; technology, and society. The method of establishing an organisational system as a model is suggested to be common among the organisation but can be effective in the internationalisation (Boje, et al., 2005).

The Empire (Business Environment) - In 1955, the entrepreneur Ray Kroc entered and bought the rights to franchise the McDonald’s System and following the change of the name into the McDonald’s Corporation. Focusing on the marketing efforts targeting the children and family, the firm might be well known on their trademark using a clown with a happy face named Ronald McDonald (Stewart, 2004; and Botterill & Kline, 2007). The introduction of such strategies was supported by the continuous promotion on television and on advertising that increasingly attracts most of the children. As expected, organisations are always looking forward for a continuous growth and McDonald’s is not different from those organisations that have an intention in providing strategies that are suitable in answering the demand for growth. Through the combination of three targets enumerated as the: maximisation of sales and profits in the existing restaurants or branches; adding new establishments of McDonald restaurants and; improving the international profitability. Ray Kroc created an empire of fundamental principles that are based on those targets which delivers the Quality, Service, Cleanliness, and Value (Q.S.C. & V.). Other than that, there is also a development coming from the goals and operating practices that are appropriate in carrying out the company’s vision.

From the traditional values, McDonald’s integrated the learning into three strategic priorities; first is to enhance the appeal of McDonald’s in giving the value in to their customers by emphasising the profitable value-meal combinations. Second is to provide the kind of service and care through exceeding the customer’s expectations in terms of accessible locations, quick service, quality of products, and cleanliness. And lastly, is for the company to remain an efficient producer while maintain the achievement of quality. This can be only possible by having a positive approach on the innovations in food processing, construction, and the design of their operations (Svoboda, 1995). All of the three strategic priorities are assumed to help increase the company’s global profits.

Changing Markets (Society) - The management of McDonald’s promoted several strategies that spin the mass-marketing efficacy. Many organisations attempted to follow the celebrated success of the company. However, same as the other organisations, McDonald’s and their various practices have been under the keen eyes of the critiques. The organisation was observed to be involved in the issues of the student or young labours, environmental, and social concerns (Botterill & Kline, 2007). Moreover, the organisation are said to be a great influence in changing the community or family values, globalisation of culture, and health and lifestyle of the children. The issues that revolve in the market definitely created a bad environment for the company and reached in filing lawsuits of libel case (Patnaik & Mortensen, 2009).

Innovation (Technology) - But what would be the true secret behind the success of a company? Aside from this question, there is a train of assumptions of business strategies that gains respect from the past years. But one thing is for sure, there’s no story of magic involved. If the business analysts or strategists will be asked, they will surely answer what is mundane and obvious in the era of globalisation. Innovation can be the simple answer of the businesses to provide the better execution in both manufacturing and service industry (Patnaik & Mortensen, 2009). Along with the trend of the innovation is the technological approach of the company in making the processes and services more efficient. The use of the telephone or online-ordering services makes it possible for the company to reach the people (Youn, 2005). The vast influence of the technology in the lives of the people became one of the advantages of the company. Through the evolution of the technology, the business can now advertise via Internet and create a Website to help them learn the other concerns, suggestions, or demands of the customers. This strategy is part of the company to look into world by identifying the opportunities and placing the people to work according to the newly discovered opportunity.

4.0 Research Methodology

In this report, the researcher considers both quantitative and qualitative research for secondary data which are from books, magazines, journals, newspapers and online resources that are in general discussing the business strategy of McDonald’s as well as other relevant literature materials that answers the research questions of this study.

For this research design, the researcher gathered data, collated published studies from different local and foreign universities and articles from journals; and make an analysis of the collected documentary and verbal material. Afterwards, the researcher summarised all the information, make a conclusion based on the results of evaluation and provide insightful recommendations on the dealing with the business practices of McDonald’s Corporation.

These gathered data and collated studies form and comprise the discussions of that this study is base on. This complements with the other data that the researcher gathered through the company news and reports. The information that is summarised and the conclusion that gained from these sources help the researcher to have an idea of the magnitude of the sufficiency and criticality of business practice of McDonald’s Corporation.

As stated, this study utilised the secondary data. Secondary data include raw data and published summaries, as well as both quantitative and qualitative data. Saunders & Thornhill (2003) deduced that secondary data fall into three main subgroups—documentary data, survey-based data, and those compiled from different sources. On the other hand, the study used news and company reports to gather vital information. Basically, these are called documentary secondary data.

Documentary secondary data, accordingly, are the ones often used in research projects that also use primary data collection methods, although such data can also be used on their own or be combined with other secondary data. The type includes written documents (notices, correspondence, minutes of meetings, and reports to shareholders, diaries, transcripts of speeches, administrative and public records, as well as articles from books, journals, magazines and newspapers and online materials). Because it can be important raw data sources on their own right, a storage medium for compiled and provide qualitative data, and can be used. To generate statistical measures (e.g., data on absenteeism derived from company records); and, non-written documents, like tape and video recordings, pictures, drawings, films and television programmes, digital versatile disks and CD-ROMs that can be analysed both quantitatively and qualitatively, as well be used to help triangulate. The part of findings, based on other data such as written documents and primary data collected through observations, interviews and questionnaires (Saunders & Thornhill, 2003, pp. 190-191). From the gathered past studies related to the status of McDonald’s Corporation business practice, this study employed an analysis since this study involves gathering information by examining records and documents. Basically, the use of SWOT and Porter’s Five Forces Model were considered in assessing and evaluating the global strategy of McDonald’s Corporation.

5.0 Expected Findings

In relation to the challenges in business, McDonald’s Corporation should create effective and efficient strategies that satisfy the needs of modern society. Basically, this research study only covers the evaluation of the global business strategy of McDonald’s Corporation. The outcome of this study is limited only to the data gathered from books, journals and online materials about McDonald’s Corporation global business strategy and business reports. This study shall evaluate the global business strategy of McDonald’s Corporation. As stated before, the sources of data came from a company reports, books and journals and from online materials found by the researcher relating to the global business practices of McDonald’s Corporation. Moreover, this study provides a useful role to society since it depicts the future of a certain business with regards to business development. Additionally, all data was addressed through interpretation and in-depth evaluation using SWOT Analysis and Porter’s Five Forces Model.

6.0 Schedule

7.0 List of References

Aharoni, Y. & Nachum, L. (2000). Globalisation of services: Some implications for theory and practice, Routledge, London.

Alfino, M. & Caputo, J.S. (eds.) (1998). McDonaldisation revisited: Critical essays on consumer culture, Praeger, Westport, CT.

Boje, D., Enriquez, E., Gonzalez, M.T., & Macias, E., (2005). “Architectonics of McDonald’s Cohabitation with Wal-Mart: An Exploratory Study of Ethnocentricity”, New Mexico State University, Retrieved July 11, 2011from http://peaceaware.com/McD/papers/Architectonics_McDonald_Jun_2005.pdf

Botterill, J., & Kline, S., (2007). “From McLibel to McLettuce: Childhood, Spin and Re-Branding”, Society and Business Review, Vol. 2, No. 1

Humphrey, C. & Mandel, R. (eds.) (2002). Markets and moralities: Ethnographies of post-socialism, Berg, New York.

McCraw, T.K. (2000). American business, 1920-2000: How it worked, Wheeling, IL.

McDonald's Corporation (2007). McDonald's Corporation 2007 Annual Report. Retrieved July 11, 2011 from http://www.aboutmcdonalds.com/etc/medialib/aboutMcDonalds/investors.Par.94194.File.dat/Downloadable_AR_final_4_8_08.pdf

McDonalds.com (2009). Our Company. [Online] Retrieved July 11, 2011 from http://www.aboutmcdonalds.com/mcd/our_company/mcd_history.html

McDougal, P. (2006). "8 Expensive IT Blunders". Information Week. Retrieved July 11, 2011 from http://www.informationweek.com/news/193302693?_requestid=271307

Patnaik, D., & Mortensen, P., (2009). “The Secret of McDonald’s Recent Success: It’s All About How the CEO Connects Directly with Customers”, Innovation, Forbes Org, Retrieved July 11, 2011 from http://www.forbes.com/2009/02/04/mcdonalds-skinner-empathy-leadership-innovation_0204_patnaik.html

Ritzer, G., (1995). “The McDonaldisation of the Society: An Investigation into the Changing Character of Contemporary Social Life”, Pine Forge Press.

Royle, T. (2000). Working for Mcdonald's in Europe: The unequal struggle? Routledge, New York.

Saunders, M., Lewis, P. and Thornhill, A. (2003), Research Methods for Business Students. England: Pearson Education Limited.

Stewart, G., (2004). “Hamburger Wars: Burger King vs. McDonald’s”, Retrieved July 11, 2011 from http://www.utm.edu/staff/johnston/mktg710/HamburgerWars.ppt

Svoboda, S., (1995). “Case A: McDonald’s Environmental Strategy”, University of Michigan, Retrieved July 11, 2011 from http://www.umich.edu/~nppcpub/resources/compendia/CORPpdfs/CORPcaseA.pdf

Talwar, J. (2002). Fast food, Fast track: Immigrants, big business, and the American dream, Westview Press, Boulder, CO.

Watson, J.L. (eds.) (2006). Golden Arches East: Mcdonald's in East Asia, Stanford University Press, Stanford, CA.

Youn, S., (2005). “Teenagers’ Perceptions of Online Privacy and Coping Behaviors: A Risk-Benefit Appraisal Approach”, Journal of Broadcasting & Electronic Media, Vol. 49, No. 1.