Global Expansion of McDonalds

Strategies to enter and sustain business in different international

markets

Submitted By :
Arun Kondepogu, PGP06065
Jagrit Pathania, PGP06079
Palak Agarwal, PGP06092
Soumya Soni, PGP06105
Vikas Singh, PGP06111
Vishwa Deepak, PGP06112

Indian Institute of Management, Rohtak

August, 2016
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Abstract
The McDonalds Corporation is one of the most successful global restaurant chains
around the world. They have used effective management and global expansion
strategies to enter new markets and gain a share of the foreign fast food market.
This report presents how McDonalds has achieved this enormous success, its best
practices in the global food industry, international growth trends and challenges,
and effect on its operating income and number of increasing restaurants across the
globe from their expansion in foreign countries.
The McDonalds Corporation serves fast foods, a type of mass produced food that is
prepared and served very quickly. It was first popularized in the 1950s in the United
States, and may be relatively less nutritionally valuable compared to other foods
and dishes.
While the concept of eating outside of the home has been around for centuries, the
fast food industry as we know it started after the World War 2 American economic
boom. Americans started spending more and buying more as the economy boomed
and a culture of consumerism bloomed. As a result of this change and a desire to
have it all, coupled with the strides made by women while the men were away, both
members of the household have started to work outside the home. Eating out
became a common occurrence in their daily lives and then a necessity. Workers, and
working families, needed quick service and inexpensive food for both lunch and
dinner. Many fast food joint popped up to serve this demand of the people. This
drove the phenomenal success of the early fast food giants, which catered to the
family on the go.
Hamburger joints popped up all over the United States, one of them a family owned
restaurant in San Bernardino, California, Opened in 1948 by brothers Richard and
Maurice McDonald, the name and its method of operations were bought out by Ray
Kroc who opened his first McDonalds in Des Plaines Illinois in 1955. By 1958
McDonalds had sold 100 million burgers across the country and changed how
Americans ate.
Since then McDonalds have braved many ups and downs in the market. Modified
and molded itself to consumers needs thereby it stayed ahead of its many
competitors.
At the beginning of the 21st century the market experienced another seismic shift
as coffee chains and fast causal restaurants emerged as serious competitors to
larger fast food chains. Brands like Starbucks, Panera and Chipotle emphasize the
quality of their products and strive for an environment that promotes lingering, as
opposed to the quick turnaround of fast food restaurants. Both are self-service but
fast casual typically lack the drive-thru that make fast food restaurants so
accessible. This shift is inspired by the new driving force in the economy,
Millennials.
Overall, the case provides a discussion of how McDonalds enters into a foreign
market and what strategies it uses in order to be a dominant leader in the fast food
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industry at low cost, This report focuses on McDonalds international success, and
strategies and benefits that it got from the franchise business.

Table of Contents
Abstract
2

Table of Contents
3

1. Global fast food industry

.
...4
1.1) Fast foods in India
..5
1.2) Present Scenario
....6
2. Porters five forces analysis of fast food industry - Developing markets
....8
3. Porters five forces analysis of fast food industry - Developed markets
10
3.1) United States
10
3.2) United Kingdom
12
3.3) Germany
13
3.4) China
14
4. CAGE framework to understand the global expansion of McDonalds
16
5. Global integration/National Responsiveness Matrix
21
5.1) McDonalds Global Strategy
21
5.2) McDonalds Regional Strategy
22
6. Challenges faced by McDonalds and its counter strategies
24
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7. References
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Global Fast Food Industry

In 2013, North America stood first as the largest market for fast food followed by
Asia Pacific. In North America, the busy lifestyle of individuals with both members
of household working has made it difficult to do fresh cooking on a regular basis and
dependence on convenient restaurant food increased which drives the market.
Drive-thru food joints and food-on-the-go are a commonality in North America where
people eat out frequently. In 2013, Asia Pacific and North America collectively held a
share of more than 64% in the global fast food market.
Top players in the global fast food market are Burger King Worldwide Inc,
McDonalds Corporation, Jack in the Box Inc, Wendys International Inc, Yum! Brands
Inc, Dominos Pizza Inc, and Doctors Associates Inc.

Figure 1: Market Participants

The market is categorized into the following segments:

Global Fast Food Market by Type

Burger/Sandwich

Pizza/Pasta

Chicken

Asian/Latin American Food

Sea-Food

Others (Snacks, Mexican etc.)

Global Fast Food Market by Type

Quick Service Restaurant (QSR)

Street Vendors

Others

Global Fast Food Market by Geography

North America

Europe

Asia-Pacific

Rest of the World

Fast Foods in India

The traditional fast foods in India varies across different regions of the country with
pani poori or kachori as famous chats in North, In the south Bajji, Punugu serves as
fast food. The outlets for these fast food are predominantly small and run by an
individual or a family. One can observe, on the street of many towns there will be a
chain of small individual carts which serve the above mentioned fast food. Although
the market of indigenous fast food is huge it is highly fragmented and diverse. So
this market comes under the unorganized fast food sector in India. The consumption
pattern of these fast foods is different from those of in US. The tradition Indian fast
foods are consumed as a supplement to regular dietary foods consumed by Indians.
McDonald's entered India in 1996, against the backdrop of a market that was
hesitant to try fast food like burger or pizza and was still dependent on the "tiffin"
lunch boxes many lug to work.
Two decades later, things have changed. India's organized fast-food industry is
expected to double in size between 2013 and 2016, to $1.12 billion, according to
the Economist Intelligence Unit. And demographic trends mean it could become the
next mega-market for international fast food players.
The main reason behind the success of the multinational fast food chains is their
expertise in product development, sourcing practices, quality standards, service
levels and standardized operating procedures in their restaurants, a strength that
they have developed over years of experience around the world. The unorganized
fast food sector of India is struggling to scale up because of lack of above qualities
present in the multinational fast food chains. Lack of government support also adds
to the plight of unorganized fast food sector of India.

Unorganized

North: Pani Puri,

Kachori, bread
pakoda
South: Bajji,
punugu

Organized

Pizza, Burgers,
sandwitch

Indian Fast Food

Industry

Figure 2: Indian Fast Food Industry

Present Scenario
The fast food market leaders and its top trends in various countries is discussed
below. In the European countries McDonalds is the leading fast food restaurant. The
success of a fast food restaurant is not the same throughout the world and it differs
according to geographies and food preferences. New Entrant advantage has worked
wonders for many restaurants throughout the world

Figure 3: Fast food outlets by country and by person

Australia:
In NBO terms, McDonalds continue to lead in fast food in 2015, followed by Subway.
Combined, these two companies account for over 32% of total fast food sales and
46% of value sales of chained fast food.
China:
Yum! Restaurants China Co Ltd maintained its leading position in fast food in China
in 2015, but its value share continued to decline due to fierce competition, changing
consumers dietary habits and the negative impact of the Shanghai Husi Food Co
food safety scandal.
Germany:
Following an exceptionally weak year in 2014 with only marginally positive current
value growth registered, fast food in Germany was able to record 2% current value
growth in 2015 as sales in the channel rose to 11.5 billion. McDonalds remained
the uncontested leading player in fast food in Germany in 2015, accounting for 31%
of the channels total value sales at GBO level
Brazil:
Fast food companies have been affected by the economic difficulties Brazil is
current going through. Many companies saw a decrease in sales as a result of
shrinking disposable incomes and the fact that even people who can afford to eat
out are reluctant to do so
McDonalds continued to lead chained fast food in 2015, recording a brand value
share of 28% - a slight decline from the previous year which can mainly be
attributed to increasing competition from other fast food chains, especially Burger
King and Subway.
US:
McDonalds maintained its leading position in fast food in the US in 2015,
generating value sales worth US$35.8 billion. The company remained the leader in
the fast food industry throughout the review period, thanks largely to its nearubiquitous presence across the US, having more than 14,000 outlets at the end of
2015.
India:

The country's fast-food market today is only one tenth the size of China's, said Ajay
Kaul, CEO of Jubilant FoodWorks, a company that grants franchises in India for
Domino's Pizza and Dunkin Donuts. But unlike China, which saw a decline in fastfood sales last year, India's market is expected to grow, thanks to changing
consumer preferences and the largest youth population on earth.

Porters five force analysis of the Fast Food

Industry in India
The market is still very nascent, and there is ample space for more and more brands
to come in and coexist," said Amit Jatia, vice chairman of Westlife Development, a
firm that operates McDonald's restaurants in western and southern India.

Despite many hurdles, Global Fast Food Market to display 4.40% CAGR from 2013 to
2019 and will be valued at US $ 617.6 Billion by 2019 an increase from US $ 477.1
Billion in 2013.
Threat of New
Entrants
(MODERATE)
1. Economies of scale for
bigger players
2. Cost of entry is less
3. Easy availability of
skilled human resource
4. Cost to exit is less
5. Less brand loyalty
6. Low product
differentiation
7. Access to distribution
channels
Bargaining power of
Competitive rivalry
Bargaining power of
Suppliers
(HIGH)
Buyers
(LOW)
1. Large number of big
(HIGH)
1. Easy availability of raw players present in India
1. high number of buyers
materials
2. A plethora of medium
2. Low involvement
2. Number of suppliers
sized players and
product
3. No threat of forward
innumerable small /
3. Cost of switching is low
integration by suppliers
street food players
4. Buyers threat of
4. No impact of industrys present
backward integration
profit on the supplier
3. High industry growth
5. Very price sensitive
5. Negligible contribution 4. Promising economic
customers in developing
of the supplier to the
growth of customers
economies
quality of product
5. Globalization
6. Number of orders per
6. Cost of switching is low 6. Cultural changes and
customer
7. Access to distribution
westernization
7. High disposable
channels
income of buyers
Threat of Substitutes
(MODERATE)
1. Increasing demand of
healthy food
2. Re-heatable preprepared foods
3. Low cost substitutes
available
4. Low switching cost
5. Home delivered
products
6. Convenience of
custommers
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India is the second most populated country in the world with around 1.3 billion
people. It has 28 states and almost 4 times the population of USA. Around 35% of
the Indian population lives in Urban areas and another big proportion living in the
towns and semi-urban areas. Though the per capita income is very low in India but
given the high Purchasing Power Parity (PPP) here, people still like to spend on
eating out. An analysis of the demographic data represents that outof millions of
households in India 49% live on low income,30% lower Middle income,12% Middle
income group, 5% Upper Middle income group and 4% high income group.
Comparing this with USA and other developed economies, there are huge disparities
vis a vis earnings and demographic segmentation where middle income group is
very high. Consumers in India are highly family oriented. McDonalds targets all
income groups and uses GLOCALISATION to make diverse products customised to
local tastes. The degree of awareness amongst consumers is increasing owing to
internet, TV, Newspapers, Radio, and Magazines etc. Middle income group is getting
bigger in size by the day as a result of the economic growth in India. McDonalds
and other fast food chains are leveraging on the increasing disposable incomes of
people to proliferate their business. The Indian customers are becoming more aware
about health, hygiene and other environment related issues and thus shifting from
street food to large food chains that claim to be hygienic and are pretty vocal about
it. Also, cultural transformations like spending time and money together while at
routine excursions to fast food joints for recreational purposes is becoming more of
a habit than a trend.

1) Threat of New Entrants (MODERATE):

Entry to a fast food business is fairly easy on a local level but gaining a nationwide
presence is very difficult in context to the Indian market. Even though It is hard to
make a prominent brand name and successful nationwide presence because of the
high capital requirements, lack of widely spread distribution networks and other
such factors, setting up of small scale fast food joints locally is fairly easy to give
the mighty food chains a run for their money in that specific locality. Economies of
scale for the bigger players are present in addition to their higher bargaining power.
Cost of entry into the fast food business is small and skilled human resource
especially in the developing nations is available rather cheaply. As the product
differentiation is low in these low involvement products, it is very hard to develop
brand loyalty. New entrants face a very high competition in the start of the
business.
2) Threat of Substitutes (LOW TO MODERATE):
There is an ever increasing demand of healthy foods in the current environment of
fitness obsessed people which poses the greatest threat of substitutes. However,
the large multinational GLOCAL food chains that are known to adapt to the changing
requirements and customize their products can always come up with new product
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offerings to overcome these challenges. Another segment of substitutes is that of

preheated and precooked foods available that are even more convenient from the
customers point of view. As convenience of the customers is one of the most
important parameters of choosing between substitutes and the cost of switching to
these substitutes is also negligible, ready to eat and highly processed foods, home
delivered products also pose a threat.

3) Bargaining power of customers (HIGH):

There is a very high number of buyers and especially with context to the Indian
market they are all extremely price sensitive. Also, food items are low involvement
products with low costs of switching and it is tough to induce a sense of brand
loyalty for these products. There is no threat of backward integration from the
buyers which is probably the only factor not adding to their bargaining power.

4) Bargaining power of suppliers (LOW) :

Raw materials required for this industry which include flour, vegetables etc. are not
very hard to find and given the high number of suppliers especially in an agrarian
society like India, they are not left with much say. There is not much contribution by
the supplier to the quality of the final product and cost of switching between
suppliers is low. As the fragmented small scale suppliers with respect to the mighty
food chains dont even contribute to the distribution channels, they are not left with
much bargaining power to start with. The only favourable factor for them with
respect to bargaining power is that backward integration by industry players is not
possible.

5) Competitive Rivalry (HIGH ):

Fast food restaurant industry is very competitive where all the organisations want to
get a hold of customer base. As distribution channels for some big food industry
players have already been established in developing countries like India, other
strong players in the world are also entering these markets to leverage on these
channels but paying a bit more, given the favourable economic-political conditions.
There are many big players in the industry as of now and innumerable small players
and street food vendors. With the high growth industry, increasing disposable
incomes of the customers and high degree of globalization in todays world, the
already cut throat copetition has become even more intense.

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PORTERS FIVE FORCE ANALYSIS OF FAST FOOD INDUSTRY

IN DEVELOPED MARKETS
1. UNITED STATES
Competitive Rivalry (High)
The fast food industry is already saturated. So fast food companies face tough
competition. In McDonalds case, the strong force of competitive rivalry is based on
the following external factors:

High number of firms (strong force)

High aggressiveness of firms (strong force)
Low switching costs (strong force)

Usually global chains like McDonalds have multiple firms in various sizes and assign
high budgets for advertisement and other marketing mediums to promote their
product and brand. Additionally, customers experience low switching costs so they
easily shift to other brands. Hence, competition is one of the most significant
external forces on the business.

Bargaining Power of Customers/Buyers (High)

Large number of providers, high availability of substitutes and low transfer costs are
the some of the reasons why bargaining power of customers/buyers is high.

Bargaining Power of Suppliers (Low)

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This element of the Five Forces analysis shows the impact of suppliers on firms. In
case of fast food industry in United States, the weak bargaining power of suppliers
is based on the following external factors: large number of suppliers, low forward
vertical integration and high overall supply. Fast food industry has a large number of
suppliers thus it weakens the bargaining power of suppliers. One reason for this
could be the fact that these companies do not have global alliances with suppliers.
Also, the relative abundance of raw materials reduces suppliers influence the
industry. Thus, bargaining power of suppliers is low.

Threat of Substitutes (High)

Substitutes form a great deal for the business of any company. In the US fast food
industry, there are many substitutes to McDonalds as well as its products.
Consumers always have an option to switch from one brand to another or from one
product to another. As a result of which, threat of substitutes is extremely high.

Threat of New Entrants (Medium)

Some of the factors required to assess before concluding on the force of threats of
new entrants in the US fast food industry are capital required for setting up the
business, cost of brand development. Although competition is high in the market,
the cost of capital is relatively moderate. Hence, entry is not very difficult. However,
sustaining and developing the business as a brand is the biggest challenge. Prices
and demands are so competitive that it becomes a considerable issue before
investing in this market.

2. UNITED KINGDOM
Competitive Rivalry (High)
The UK fast food market is fragmented with high number of global chains and
independent businesses operating fast food stores. An industry with low exit costs
and low margin, competition is what keeps the industry alive. As a result,
competitive rivalry is extremely high.

Bargaining Power of Buyers (Moderate)

The markets competitiveness increases buyer power and customers are price
sensitive with low switching cost between providers. However, key players attempt
to reduce buyer power, offering a product range which caters for the entire
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demographic, rather than one specific segment. For example, McDonalds target
children with Happy Meals and professionals with breakfast options and take-away
coffee. Firms are increasingly promoting differentiated products: McDonalds Big
Mac, Burger Kings Whopper and offers such as Dominos Two for Tuesday
campaign in United Kingdom. High brand value and customer loyalty has reduced
buyers bargaining power.

Bargaining Power of Suppliers (Moderate)

17,500 British and Irish farms that provide us with top-quality ingredients.
(McDonalds UK, 2012)
With a competitive global supply chain, supplier power is limited. Due to the number
of suppliers in the industry, it is difficult for them to leverage significant power over
fast-food firms. The supply of soft-drink is dominated by Coca-Cola (McDonalds and
Burger King) and Pepsi (KFC) due to their global distribution channels. Additionally,
Coca-Cola and Pepsi provide fast-food chains with equipment such as visicoolers and
drink dispensers. This markets their brand and aligns it with fast-food brands,
reducing costs for customers, which would otherwise be passed onto them.

Threat of Substitutes (Moderate)

Food can be purchased almost anywhere, through foodservice or retail. Substitutes
are available almost everywhere. However, convenience is the value-adding
component of the service which reduces the threat of substitutes. Consumers can
cook at home cheaply, but this lacks the convenience element which people require
nowadays. Ready-meals are therefore a more substantial threat, competing with
fast-food on price as well as convenience. Hence, threat of substitutes is medium in
the fast food industry. It can be regulated by adding facilities of home delivery etc
making the job of customers easy.

Threat of New Entrants (Moderate)

Industry dominated by global chains with very high brand values. The industry is
dominated by a number of international Quick Service Restaurant (QSR) chains,
including McDonalds, Burger King, Pizza Hut, KFC and Dominos. These global
brands are extremely valuable, boasting strong customer loyalty and recognition;
indicating consistent quality and service. New players struggle to compete with
incumbent firms, as their brands are unknown and advertising campaigns are
expensive. Established chains have the resources to retaliate aggressively through
pricing promotions, deterring new players from entering the marketplace. New
entrants lack economies of scale, which existing chains have developed over time,
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and utilise to remain competitive in this low-margin, high-turnover industry. However

initial capital outlay and fixed costs are low, encouraging new entrants.

3. GERMANY
Competitive Rivalry (High)
Competition is rigorous and several large companies hold majority of the market.
Main competitors in the German market are McDonalds, Burger King, Subway and
Nordsee. Economies of scale can cause smaller competitors to get crowded out or
bought out by a larger company. Despite that competitive rivalry is abundant in this
sector.

Bargaining Power of Buyers (High)

Bargaining power of costumers is strong, due to the various competitors they can
choose from. Price is a key factor for German customers in choosing restaurants.
They compare the values of food and what they pay for the food. Hence it is very
difficult to retain a German customer.

Bargaining Power of Suppliers (High)

Bargaining power of suppliers is strong in this industry, because fast-food chains
rely on their suppliers only. Since Taco Bell is part of Yum!, it has a stronger position
compared to other competitors, because of existing fast-food chains KFC and Pizza
Hut

Threat of Substitutes (High)

Plenty of substitutes are available in the market. Many small businesses are able to
capture small segments of the market by catering to certain tastes. Additionally,
there are Mexican restaurants exist. We have also observed that switching costs in
this industry is quite low. All these combine to be a threat for fast food joints.

Threat of New Entrants (Medium)

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The fast-food restaurant industry in Germany has limited potential entrants. Since
the major players have already shared the market, it is difficult for a new business
to get established. Major players have also accumulated their advantages against
new entrants by building new restaurants, franchising, and expanding globally.

4. China
Competitive Rivalry (Medium)
Some of the key factors that influence the rivalry among established firms are:
seller concentration, diversity of competitors, product differentiation, excess
capacity and exit barriers, cost conditions and market growth rates. The level of the
intensity of rivalry among the established players in the Chinese fast food industry
is medium because: in term of seller concentration fast food restaurants tend to
concentrate in the locations with large flow of people such as airport and train
stations; in term of market growth rates, according to the CRI report released in
2011, during the past ten years, Chinas fast food industry has maintained a high
annual growth rate of 10%-20% (cri-report.com 2011) and in term of product
differentiation the fast products are to some extent diversified since there are
different offerings to the Chinese consumers such as pizza, burger and various
international and local fast food products.

Threat of Substitutes (Low)

The threat of substitutes in the fast food market in China is low for two key reasons:
firstly, the growing group of fatigued, white-collar workers in Chinas major cities
increase the demand for convenience provided by the fast food; secondly, young
people see western fast food as an interesting and quality cheap alternative to
traditional meals.

Bargaining Power of Buyers (Medium)

Buyer power is also important in defining the industrial environment and it could be
affected by various factors such as the buyer concentration (volume) and switching
cost. The middle level of the bargaining power of buyers could be rationalized in
these three dimensions: in term of nature of buyers, they are large in numbers but
17

are individual consumers which reduces the group bargaining power; in term of
buyer concentration, the majority of the consumers of the fast food products would
be in the cities and in places near the workplace and residential areas which in
accordance with the above mentioned concentration of sellers; in term of switching
cost, as switching to a competitor (dinning in another fast food restaurant) would
not incur high cost.

Threat of New Entrants (High)

Risk of entry by potential competitors which is a function of the height of barriers to
entry will involves factors that make it costly for other firms to enter the industry.
The risk of entry by potential competitors is strong because on one hand as
mentioned above the fast food industry is growing fast which will attract new
competitors and on the other hand the legal and industrial barriers such as the fixed
cost in setting up a fast food chain are low. Hence the risk of entry by potential
competitors is strong.

Bargaining Power of Suppliers (Low)

Bargaining power of suppliers is low in the fast food industry in China for two major
reasons: on one hand, the materials provided by the suppliers to the fast food firms
such as flour are mostly standard products with a large number of suppliers
concentrating on the production of these products; on the other hand fast food
chains such as McDonald are large in purchasing volume which help increase their
bargaining power.

Internationalization strategy of MacDonalds

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Figure 4: International Expansion of McDonalds

The above figure broadly explains the international expansion of Macdonalds right
from its inception. An overview of the above figure gives an idea about which factor
Macdonalds gave more weightage out of the Cultural, Administrative, Geographic
and Economic distance of the CAGE framework.
In general it can be inferred that the company gave most consideration to
Geographic proximity to its headquarters in US while expanding to nearby Canada,
Puerto Rico and Costa Rica during its early days. Closer look into the timeline of its
expansion reveals in detail the importance of each factor Macdonalds gave as it
expanded its reach to more than 100 countries today.
The Early Days

Table 1: The early days

During its early days, main focus of the company was to expand rapidly in the
United States itself as there was a huge market to be captured and there was a
growing trend towards eating out due to the new found prosperity after the World
War 2.
The 60s

Table 2: The 60s

When Macdonalds decided to go international, Canada was a natural choice
because of its low cultural, Administrative, Geographic and Economic distance with
the US. It also expanded to Puerto Rico in the same year due to the same reasons.
Per capita income of Canada in 1967 was approximately 35000 USD which is same
as of United States during that time (Source : World Bank Data)
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The 70s

Table 3: The 70s

After achieving success in its initial international foray, naturally MacDonalds

decided to expand rapidly. During the 1970s, it expanded in around 20 countries.
Out of the four distances in the CAGE framework, the most important factor for it
was to have low Economic Distance with the countries. This can clearly be inferred
from the above table, where half of the countries it expanded to, were in Europe,
which was at that time most prosperous and closest to US in terms of Economic and
Administrative distance.
During this decade it also expanded to the then richest countries of Asia which are
Japan (1971), Hong Kong (1975) and Singapore (1979). Apart from having lower
economic distance with the US, these countries had lower administrative distance
because of their Colonial history and western style of functioning of their
corporates. Hong Kong was still under British Rule during this period.
It also expanded to South America and Caribbean which are geographically closer to
the US. Even though these countries were culturally very different from US, there
was a growing influence of American culture and eating habits because of
Hollywood and Pop Music.
Per capita income of these countries in South America was low and consequently
the Economic Distance with the US was large, this region was expected to grow at a
rapid pace due to its demographic advantage and large population.

20

Though not all its subsidiaries in these countries were successful. For instance, due
to the continued Civil war in Al Salvador, MacDonalds abandoned the country and it
later entered back in 1990 after the war was over.

The 80s

Table 4: The 80s

MacDonalds continued its pace of expansion into the 80s by entering around 20
countries. Major factors considered in its Internationalization strategy were low
Administrative and Economic Distance. This can be inferred by its entry into next
set of European countries like Spain, Denmark, Finland et al. US has traditionally
been at low Administrative distance with Europe because of it Colonial history.
Further almost all of the western European countries had Democracy which made it
easier of MNCs to conduct business. By the end of this decade it had presence in
almost all the western European countries.
After success in its subsidiaries in Asia, it continued it expansion in the region by
entering into 7 countries during this decade. This was the period when countries like
South Korea, Taiwan, Malaysia and Thailand were growing rapidly and per capita
income in these countries was rising. Macau was still under Portuguese rule at that
time.
Towards the end of the decade, with the increased western influence in the Eastern
Europe and the decline of the USSR, these countries opened up their economies to
MNCs. This led to entering of MacDonalds in Yugoslavia (1988), its first outlet in a
Communist Country.

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The 90s

Table 5: The 90s

This decade was dramatic for MacDonalds right from the start. After the fall of The
USSR and adoption of democratic form of government by Russia, it started its first
store in Moscow 1990. Russia presented a huge market for fast food and had less
economic distance with US.
Eventually Macdonalds expanded into Ex-USSR countries of Eastern Europe like
Poland, Czech Republic, Slovenia and Ukraine with newly formed democracy and
open markets. With the establishment of democracy and American style of
corporate governance, administrative distance lowered between the US and these
countries and many MNCs entered this region during this decade.
22

In the same year, it entered China owing to its large population and growing
economic status of its people. Though China opened its markets for foreign
investment in 1980s, MNCs were sceptical to enter the country due to its
Communist government and its protectionist approach biased in favour of Chinese
Companies. However by this time, China had become too big a market to ignore.
MacDonalds continued its expansion in next set of countries in South America and
Asia based on their opening up of their economies and improving economic status
of people. It entered India in 1996.
With entry into Israel in 1993, it marked its presence in Middle-east. Middle East
region was going through wars since the end of Second World War. Most of the
states were rural by dictators and autocratic leaders. MacDonalds entered into
prosperous countries of the region in 1994 with opening its subsidiaries in Kuwait,
Oman, Egypt, Bahrain, and UAE.
Also with opening of its subsidiary in Morocco, MacDonalds marked its presence in
all continents except Antarctica. After the end of Apartheid and sanctions by the US,
it entered South Africa in 1995.
The 2000s

Table 6: The 2000s

After the rapid expansion in last three decades of the 21 st century, it had
established its presence in almost all the major economies of the world. Its focus
shifted to increasing per store sales in these countries and improving its loss making
subsidiaries. It continued its expansion majorly into countries in Asia, South America
and Africa with improving economic status of countries in these regions. It entered
in Kazakhstan, its first outlet in Central Asia.

Global integration/National Responsiveness Matrix

McDonald's is the world's leading fast food chain with 31,000 local restaurants in
118 different countries and collectively serving more than 58 million people. Due to
globalization and internationalization, the corporation established joint ventures,

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and later franchises, which enabled them to spread into other countries, like India.
This turned McDonald's into a multi-billion dollar enterprise
Companies that operate internationally face two forces: pressures for global
integration and pressures for local responsiveness.
Global integration pressures are the forces that make MNCs exploit worldwide
resources and integrate their activities on a global basis to realize economies of
scale and achieve cost reduction. The developments of advanced technologies allow
companies to expand manufacture globally and achieve economies of scale,
resulting in the more standardized products. In contrast, local responsiveness
requires MNCs to make strategic decisions based on local context. The main
pressures for local responsiveness are the differences in consumer tastes and
preferences; differences in infrastructure and traditional practices; in distribution
channels; and host government demands. Such pressures for local responsiveness
urge multinational firms to adjust their products and services to better meet the
demand of indigenous people.
McDonalds rode the baby-boomer trend in the 1960s, the swelling ranks of
teenagers and the rising female labor force participation, supplying a fast and
inexpensive menu. In the 1970s and the 1980s, the company rode the globalization
trend by transferring the American way of life to many countries around the world.
At the same time, it adapted to the social context of each county by franchising to
local entrepreneurs.
In the 1990s and early 2000s, McDonalds made successful efforts to restore its
corporate image by launching the Fast and Convenient campaign that involved
the radical adjustment of the companys product portfolio to emerging food industry
trendsthe re-furbish of McDonalds restaurants to achieve a banded, updated, and
more natural dining environment.

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Table 7: McDonalds Global Marketing

McDonalds Global Strategy

McDonald employs a transnational strategy in terms of local responsiveness and
global integration. An advantage of being a transnational corporation is that
McDonald's can respond quickly to local markets, should there be an issue or if the
company wants to make sudden changes. They recognized that overseas market
required an extremely high degree of local responsiveness and since their business
has grown too big they also need to manage business spread across different
regions effectively and efficiently which would not be achieved through any of the
other strategies. The value chain needs to be constructed taking into consideration
of local culture, legal-political and economic environments in mind. McDonald's
emphasize on local management for better responsiveness to the external
environment. Moreover hiring locals would bring more acceptance of the company
in local market by customers and company can gain easy access to bureaucracy
associated with local government. This brings up the culture of innovation,
accountability, and better customer responsiveness. Having local management also
enables franchisee to address employees' issues more effectively taking into
consideration of local culture. Through franchise model McDonald's are able to
reduce the cost of setting up new businesses in different region.

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Figure 5: McDonalds Strategy for expansion in western countries

McDonalds Regional Strategy

For a successful business in host countries McDonald's had to customize its business
strategy to the local needs. International strategy is adopted by corporations when
they want to influence their core competencies by expanding into foreign markets.
Regional strategy became important for McDonald's when they started their
expansion in Asian countries as their culture is very different from western world. In
Asian countries, McDonald's strategy is positioned between the international
and multidomestic quadrant.
McDonald's in China The company managed to succeed in establishing their
business where most Western based Multi-nationals have failed previously. One of
the primary reasons for the failure can be attributed to the lack of appreciation of
Chinese culture by other MNCs. They tried to replicate their US operations China
without any modification to local population and their tastes. McDonald's have
made major strides in adapting to Chinese culture in terms menu and local taste.
Locals manage all restaurants. Asian consumers were allowed to change company
culture for their own purpose. Restaurants were more akin to coffee houses where

26

people meet rather fast food joints. Menu was also modified to include the now
highly popular "teriyaki burger".
McDonald's in India - McDonald's adopted the international strategy through
franchising to push their core competencies in the Indian market and to customize
their products and services to the local customer demands. This way the
corporation relies on local subsidiaries in India to stick to the regulations of running
McDonald's and ensure the standardizing of its products and services. However, the
Indian market is culturally diverse, so complete standardization within an
international scale is impossible. McDonald's standardizes as much as possible to
reduce costs, but they are aware of cultural differences and have adopted the
concept of "think global, act local".
Multidomestic strategy, on the other hand, allows McDonald's in India to act
independently from its counterparts in America. The Indian subsidiaries are granted
the authority to design, make and market new products that directly respond to the
local customers' preferences. McDonald's does not use beef because the cow is
worshipped by the local Hindu population. In fact, possession of beef could result in
five years jail time. Thus, the corporation completely removed beef from all its
products, as well as pork for the Muslims. Instead of the ever-popular Big Macs
found in the west, McDonald's in India serves Maharaja Macs made from mutton,
spicy vegetarian rice patties, chicken burgers, vegetarian McAloo Tikki burgers,
containing potatoes, and vegetarian pizza puffs - all designed to draw in the Indian
middle-class.

Figure 6: McDonalds Strategy for expansion in asian countries

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McDonalds is one of most successful companies in the world today. With its rapid
embracement of globalization, the firm has been able to expand and retain
numerable growth; as well as continuing to explore with its growth potential in the
coming years. From the beginning of the companys development in the United
States, to its spread in England, Australia and more recently India and China, the
firm has been able to provide a variety of hamburgers and other foods to its
consumers. From the Big Mac, to the Maharaja, the companys successive
strategies, specifically with heavy research and development have allowed it to
fulfill the tastes of locals in every country it operates. Its leaders in all of its major
departments have established prices worldwide in all types of currencies, making its
foods affordable for customers of all classes. McDonald has adopted differentiation
and cost leadership strategies. In terms of differentiation, the firm attempts to be
diverse from its competitors by adding something to its product that will provide a
unique value to its customers, achieved through well-designed and managed
marketing activities resulting in a perceived superior quality product and high brand
image and recognition. Further, cost leadership is achieved, not only through
economies of scale but also through learning, knowledge and experience in
production and operational processes and through effective/efficient distribution
networks and manufacturing systems.

Challenges faced by McDonalds and its counter

strategies
China: food safety concerns undermine brand
McDonald's was hit hard when a covert TV examination blamed the organization last
July for utilizing a territory supplier that relabelled lapsed meat, composes Patti
Waldmeir in Shangha in China
McDonald's said not long ago that same store deals in the Asia-Pacific, Middle East
and Africa area kept on torment the impacts of the outrage, dropping 4.8 for each
penny in the final quarter, year on year.
Outside fast food brands, for example, McDonald's and Yum's KFC have since a long
time ago delighted in a notoriety for cleanliness, quality and security on the terrain,
which has confronted a string of nourishment quality embarrassments lately.
China was McDonalds first worldwide nation in which it investigated intensely
before opening up eateries. Actually, through globalization and internationalization,
McDonalds could create showcasing procedures, while in the meantime redoing
them for various locales in understanding to the social and national varieties so as
to serve particular target markets. The organization leads substantial examination
in districts where it cravings to open areas based upon a couple of components,
including social, social, innovative, political, and financial circumstances.
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McDonalds key to achievement is its business mantra of "think worldwide, act

nearby" (Vignali, 2001). This has permitted the organization to make money related
progress in each district it opens its fast food eateries.
India: legal dispute eats away early advantage
An early Western landing into India's focused sustenance market, McDonald's
worked for a considerable length of time to defeat a key issue. Its center item
offering hamburger burgers is forbidden for India's Hindu-greater part
populace. In spite of the fact that it has at last found a formula to speak to Indian
Palatesthrough adequate chicken and vegan offerings McDonald's is secured an
astringent lawful question with an antagonized previous accomplice, which has
hindered the chain's development.
McDonald's is battling business person Vikram Bakshi for control of Connaught Plaza
Restaurants, their past joint endeavor, which possesses and works 185 McDonald's
eateries in north and east India. McDonald's had looked to purchase Mr Bakshi out
of the endeavor subsequent to 2008, yet the two sides had profound contrasts on
estimating. Stewing strains at last emitted in 2013, when McDonald's removed Mr
Bakshi from his part as overseeing executive of the joint endeavor, following 18
years.
Mr Bakshi has subsequent to documented a claim under the watchful eye of India's
Company Law Board, blaming McDonald's for bungle. A month ago, the Delhi High
Court issued a stay request, keeping McDonald's from continuing with universal
mediation in London, as the organization says it is qualified for do under the terms
of its joint endeavor concurrence with Mr Bakshi.
Globally, McDonalds acquires high incomes is India. India is one of the hardest
markets to enter for remote organizations, because of the administrative hardships
forced upon by the Indian government. The purpose for such hardships is
exclusively taking into account the Indian government looking to ensure its
residential organizations, and business for its subjects. Vasant Vihar, a prosperous
neighbourhood in New Delhi, was the underlying area that McDonalds opened up
its first store in India in 1996. A standout amongst the most progressive techniques
that McDonalds utilizes before opening up its stores is innovative work of its
nourishments.
Tastes and inclinations fluctuate over the globe, along these lines; the organization
completely breaks down the favored tastes, particularly to not insult nearby
societies. For instance, India is a country where meat is exceedingly disagreeable
because of religious purposes; along these lines, the organization needed to concoct
burgers that were not made with hamburger, but instead with chicken or sheep.
Besides, the organization needed to make seasons that were hot so as to meet the
general taste inclinations.

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McDonald's has changed their menu to be principally chicken and vegetable based,
with a few things being prepared in comparative approaches to the local taste.
Japan: consumer backlash against cost cuts
The McDonald's image got to be synonymous with cost cuts and a push for
effectiveness, highlighted by the backfire when Japanese stores pulled menus from
its counters to abbreviate the time taken by clients setting orders. Furious
customers rebuffed the chain by dragging its deals down. Delays in imports of US
potatoes constrained the chain to apportion offers of its French fries in December.
McDonald's Japan arrangements to redesign its stores and offer a more extensive
line-up of menus, with better evaluating.
Russia: burger business got up to speed in geopolitics
A portion of the court objections identify with McDonald's absence of a brought
together laundromat for its workers' regalia, while others disagree with the design
of McDonald's kitchens and the partition of various nourishment items. McDonald's
counters that the design required by Rospotrebnadzor does not reflect cutting edge
sustenance industry guidelines when numerous nourishment items are handled.
Other court cases identify with McDonald's charged mislabelling of its nourishment
items.
McDonald's has guaranteed ventures to guarantee nourishment security through
expanded reviews of suppliers.
Latin America: regional woes hit revenues
Brazilian customers are not extremely inspired with the menu of McDonald's as it
didn't offer weightage to their local dietary propensity. However Brazil's McDonald's
representatives now have the alternative of eating a normal Brazilian supper of rice,
beans and hamburger in their breaks. Taking into account local tastes in the district,
in any case, is by all account not the only test for Arcos Dorados, the Buenos Airesbased organization that possesses the selective right to work McDonald's eateries in
20 Latin American and Caribbean nations.
The issues at Arcos are to a great extent identified with nearby rivalry and the
macroeconomic environment of its five principle markets, said Martha Shelton,
value examiner at Ita BBA.Brazil, Argentina, Mexico, Puerto Rico and Venezuela
make up 80 for each penny of the organization's deals, in a specific order, she said.
In Venezuela, Arcos has been hit by the nation's extending financial emergency and
setbacks of fundamental merchandise McDonald's eateries the nation over even
came up short on fries this month, as per nearby media. In Argentina, high
expansion has weighed on benefits.

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In Brazil, this records for more than half of Arcos' business, money devaluation and
a lull in utilization they have now presents menu on account of lower costs and
keeping nearby taste and dietary needs
What challenges McDonalds faced and how they reacted while opening a
store in countries in West Asia
At the point when McDonald's opened another outlet in one of the West Asian
nations, it thought about a couple of things. They encountered resistance from the
Islamic nations for offering American nourishment and society. Additionally, Muslims
don't eat pork so McDonald's would need to source Halal suppliers and conform
their menu assortment to suit them. McDonald's has changed its items to provide
food for nearby tastes, not slightest in nations that have unique dietary laws. In
Muslim nations like Malaysia, bacon is not served in McDonald's burgers or in its
breakfast menu, as pork is haraam, or not reasonable under Islamic dietary law. In
Israel, the nature of fit dietary laws, disallowing the blend of meat and dairy items,
implies that cheeseburgers are not well known among Jewish clients; besides, all
meat not set up in a specific way is considered unkosher by strict eyewitnesses of
the dietary laws.

Nations in Africa?
In Africa McDonald's may confront different issues when attempting to open up new
pursuits in nations like Ethiopia, Sudan and Zimbabwe. Ethiopia fringes Sudan and
Kenya and it is one of the biggest and poorest nations in Africa. Its populace
comprises of around 74 million individuals. Two noteworthy religious gatherings
involve Ethiopia, Muslim and Ethiopian Orthodox, with Muslim being the larger part.
Sadly Ethiopia endures some the world's most exceedingly terrible dry spells ever,
which thus crushes their economy. Agribusiness produces 60% of fares, and 80% of
aggregate business for the nation.
So as to build up a McDonald's in Ethiopia, numerous main considerations, for
example, area examination, market, rivalry, offices style, and menu must be
considered. McDonald's now has incredible showcasing projects and techniques set
up in other remote markets so the partnership can help with those variables.
Most societies in Ethiopia will permit utilization of red meat, for example, burgers
yet not of pork. The bacon utilized for breakfast and on certain sandwiches can be
accessible additionally substitutable with turkey bacon. The Ethiopian culture
additionally doesn't utilize utensils so they will likewise be accessible yet
discretionary.
Keeping in mind the end goal to promote underscore the globalization
component fused by the organization, the achievement techniques
include:

Accentuation on Local Management

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All through the world, McDonalds values contracting local people, particularly
administration so as to pick up acknowledgment into the nation by its residents. The
accentuation depends on the "think worldwide, act nearby" subject of the
organization. Case in point, the organization chose to set up two joint endeavors
with two neighborhood business people in New Delhi, who were chosen to deal with
the fast food eatery. This key move permitted the organization to increase simple
access to the administration connected with the countrys government.

Politically Sensitive Strategy

One of the companys major concerns was to develop ways to avoid political
confrontation with the Indian government. The other major concern was to be
careful of the religious sensitives in India. Almost 80% of Indians do not eat beef,
and over 150 million Indian Muslims do not eat pork, therefore, instead of supplying
the normal Big Mac, which consists of beef, the company developed the Maharaja
Mac that is made of two lamb patties. Other foods were also added to the nonstandardized menu including McAloo Tiki Burger, and other common Indian dishes.

Employment Opportunity
Foreign enterprises are often reluctant to hire locals in their companies,
specifically
at
the
managerial positions, however, McDonalds research
concluded that in order to survive the brutal Indian government, it would have to
hire locals as cashiers, cooks, managers, etc., as well as provide jobs for the
countrys agricultural workforce. In fact, McDonalds outsources its products to
several Indian companies throughout India. This provides evidence to the Indian
government that McDonalds is not only customer friendly, but also employee
friendly.

Environmental Friendliness
In order to achieve a positive reputation, as well as follow local and national
policies of a country, McDonalds tries to establish services that are
environmentally friendly. India is an example where the company provides
financial contributions and sponsors several community related activities in order to
promote environmental protection. This is primarily seen within schools; thus
indicating that the company also supports local schools.

Corporate Citizenship
In order to better its reputation, this multinational firm gives back to the local
citizens in all countries it operates. For example, the company provides several
financial donations to local organizations. This is one way to encourage consumers
to eat at its restaurants, as it is an incentive that is used to spread the name.
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Pricing
As the value of currencies varies worldwide, McDonalds is often forced to
change its pricing strategy in accordance to its target market. For instance, the
value of a Big Mac varies worldwide (see Chart 1). In Switzerland, the Big Mac is
valued $.60 over the U.S. (price base of the product). However, in China, it is
undervalued by $0.60 in comparison to the price of the Big Mac in the U.S. It seems
that the company tries to maintain a price range on all itsproducts based on the
location, income distribution and it is for this purpose that the company opens up
most of its restaurants in major cities such as New Delhi, Shanghai, Beijing, and so
on. Its primary goal is to initially attract middle and upper class citizens, as they can
afford McDonalds prices. After this, they slowly target the lower middle class
citizens. In the United States, for example, the restaurant chain has appealed
equally well to all classes ranging from the poor to the upper class; however, its
popularity continues to be among the lower, middle and upper middle class.

References
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2. McDonald's Corporation India, 2009. About McDonald's [online], available at
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Marketplace. 7th ed. New York: McGraw-Hill Companies, Inc.
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12.McDonalds Success Strategy And Global Expansion Through Custmer And
Brand Loyalty Bahaudin G. Mujtaba, (E-mail: mujtaba@sbe.nova.edu), Nova
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Southeastern University

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