The worlds economy is becoming more globalized, and multinational corporations are pushing businesses to alter the way they operate. To access new markets and surpass competitors, businesses are expanding their reach beyond borders and cultures. But with foreign business expansion comes plenty of obstacles, one of which is adapting to cultural disparities. Smoothly transitioning into a foreign market can have a substantial effect on the success or downfall of a businesss venture. International business is heavily impacted by cultural differences, affecting every aspect of the company, such as employee relations, marketing, advertising, and management. Therefore, our group chose the topic Crosscultural challenges in international business: A case study of McDonald’s in China to investigate the crosscultural obstacles for multinational corporations when operating in foreign markets. As the biggest fastfood franchise globally, McDonalds operates in more than 100 countries. However, the corporation encountered substantial barriers during its entrance into the Chinese market, such as disparities in consumer conduct, regulatory rules, and commercial approaches.
FOREIGN TRADE UNIVERSITY FACULTY OF ECONOMICS AND INTERNATIONAL BUSINESS MIDTERM REPORT CROSS-CULTURAL CHALLENGES IN INTERNATIONAL BUSINESS: A CASE STUDY OF MCDONALD'S IN CHINA Group number: Instructor: PhD Nguyen Hong Hanh Class: KDOE307 Name of the students: Hanoi, May 2023 TABLE OF CONTENTS INTRODUCTION .1 SECTION 1: OVERVIEW OF MCDONALD’S .2 Background of McDonald’s McDonald’s Internationalization McDonald’s Preparation for Entry to China SECTION 2: NAVIGATING CULTURAL NUANCES: MCDONALD'S ADAPTATION IN CHINA .6 2.1 Relationship between Culture and Multinational Enterprises .6 2.2 McDonald’s Adaptation to Cultural Differences 2.2.1 Collectivism vs Individualism 2.2.2 Taste Preferences 2.2.3 Diet Habits 10 2.2.4 Eating Habits 11 2.2.5 Customs 11 2.2.6 Language 12 2.2.7 Aesthetics 14 2.2.8 Communication style 16 2.2.9 Respect for Elders 18 2.3 McDonald’s Achievements 20 SECTION 3: FURTHER DISCUSSION OF MCDONALD’S FUTURE OUTLOOK IN CHINA 22 3.1 The impact of global events (Covid-19) 22 3.2 Challenges McDonald's may face in the Future in China 23 3.2.1 Competitors 23 3.2.2 Chinese fast-food market penetration of McDonald’s 24 CONCLUSION 25 REFERENCES 26 INTRODUCTION The world's economy is becoming more globalized, and multinational corporations are pushing businesses to alter the way they operate To access new markets and surpass competitors, businesses are expanding their reach beyond borders and cultures But with foreign business expansion comes plenty of obstacles, one of which is adapting to cultural disparities Smoothly transitioning into a foreign market can have a substantial effect on the success or downfall of a business's venture International business is heavily impacted by cultural differences, affecting every aspect of the company, such as employee relations, marketing, advertising, and management Therefore, our group chose the topic " Cross-cultural challenges in international business: A case study of McDonald’s in China"to investigate the crosscultural obstacles for multinational corporations when operating in foreign markets As the biggest fast-food franchise globally, McDonald's operates in more than 100 countries However, the corporation encountered substantial barriers during its entrance into the Chinese market, such as disparities in consumer conduct, regulatory rules, and commercial approaches Examining McDonald's experience in China offers a fascinating glimpse into the complexity of multinational business Despite considerable challenges, the fast-food giant persevered and managed to overcome cultural barriers to carve out a profitable niche in China's fast-food market As a result, delving into the strategies and tactics McDonald's employed in its foray into China yields valuable lessons on navigating cross-cultural business operations This report will begin by building an overview of McDonald’s It will then provide an analysis of the relationship between Culture and Multinational Enterprises, the process McDonald’s entered the Chinese market, and its adaptation Finally, the essay will also discuss McDonald's future outlook and the challenges it may face SECTION 1: OVERVIEW OF MCDONALD’S Background of McDonald’s ● Origin of McDonald’s: McDonald's is a global fast-food restaurant chain founded in 1940, by Richard and Maurice McDonald, in San Bernardino, California (the US) Originally a small drive-in restaurant with an innovative system of speedy food preparation and efficient assembly-line production that quickly caught on In 1954, businessman Ray Kroc recognized the potential of the McDonald's brand and partnered with the brothers to franchise the concept, eventually purchasing the company in 1961 Since then, McDonald's has become one of the largest and most successful fast-food chains in the world, with over 38,000 locations in more than 100 countries ● Overview: McDonald's is now seen as a symbol of globalization, sometimes known as the "McDonaldization" of society As per the analysis, the fast food market between 2022 and 2028 would probably reach a CAGR of more than 4.6% significant competitive advantages of McDonald’s are the quick-serving restaurant system and its burger menu, both driving factors are holding the largest share in their segments thanks to the increasing demand of the customers As a consequence, McDonald’s is currently dominating the Fast Food Restaurants Industry with more than 21% market share in comparison to around 2% market share of other leading brands Become one of the most valuable restaurant chains based on the coverage through globalization (Source: T4 Strategy & Advisory) ● Mission and Vision: McDonald's mission statement is "to be our customers' favorite place and a way to eat and drink." The company's commitment to giving consumers a satisfying dining experience and upholding its status as a top fast-food chain is emphasized by this remark They aim to serve delicious food and make people feel good about eating, with convenient locations and hours and affordable prices, and by working hard to offer the speed, choice, and personalization the customers expect McDonald's vision statement is "to move with velocity to drive profitable growth and become an even better McDonald's serving more customers delicious food each day around the world." This statement highlights the company's focus on growth and innovation, with an emphasis on improving its menu offerings and expanding its global reach ● Core value: McDonald's core values define the brand and how it runs its business and restaurants o Serve: McDonald's commitment to serving its customers with fast, friendly, and accurate service is reflected in its business model o Inclusion: McDonald's promotes an inclusive workplace culture, reflecting the value placed on diversity and inclusivity o Integrity: Reducing greenhouse gas emissions, conserving water, and minimizing waste are some of the targets McDonald's has set as part of its responsible sourcing of ingredients and sustainable practices o Community: McDonald's sponsors nearby events, assists local farmers and suppliers, and donates to community organizations concerned with tackling issues such as hunger and education o Family: Bringing families together and fostering a welcoming environment for all patrons is important to McDonald's ● Oriented development of McDonald's: The development of McDonald's has been oriented towards growth and expansion, with the company striving to increase its global presence and maintain its position as a leader in the fast-food industry McDonald’s has achieved this through strategic partnerships, innovative marketing campaigns, and a focus on consistent quality and customer service McDonald's has shifted its business model beyond the classic menu to better align with consumer preferences By adding options such as salads and wraps, they've broadened their menu offerings to meet their customer's demands for healthier options Additionally, improved technology like mobile ordering and self-service kiosks have been incorporated into their offerings to enhance the overall customer experience Reducing waste and conserving energy are just a couple of the ways that McDonald's has been placing a more significant emphasis on practicing ethical and sustainable behaviors that promote responsible sourcing of ingredients In fact, the company has set some pretty lofty targets for itself striving to lessen its environmental impact McDonald’s Internationalization McDonald's has grown to become one of the world's largest fast-food chains, with more than 39,000 restaurants in over 100 countries since its first internationalization in 1967 in Canada McDonald's actively pursues its goal of becoming a 95% franchise business by 2018 in order to achieve operational growth At the end of 2017, there were about 235.000 people working across the 36,000 stores in 120 nations McDonald’s localization strategy accelerated through its presence in key Asian markets, China can be taken as an example since it is one of McDonald’s largest markets McDonald's chose China to internationalize due to its large population and fast-growing economy, making it a promising market for the company's expansion plans Additionally, China's government policies and regulations have become more favorable to foreign investment in recent years, making it easier for McDonald's to establish a presence there The company also saw potential in the Chinese consumer's increasing demand for convenience and Western-style fast food McDonald's has expanded its presence in China and gained considerable advantages, particularly by entering more than 45% of the Chinese areas More specifically, McDonald's now provides the Chinese consumer with tailored and customized food offerings As a result, the business has been able to expand its market reach and gain an edge over rivals like KFC and Yam China Despite the numerous advantages of the entry strategies, the company still faces some difficulties as a result of its decisions McDonald’s Preparation for Entry to China McDonald's debut in the Chinese market marked a significant milestone in the company's history However, the company was required to take several steps to prepare for the unique challenges of the Chinese market Firstly, McDonald's undertook comprehensive market research through surveys, questionnaires and focus groups interviews to understand the culture and business environment of China They assisted the company to gain insights into Chinese consumers' perceptions to adapt the menu to suit local tastes McDonald's also visited possible restaurant locations to understand the local market and competitors The company could identify areas where it could achieve competitive advantages For example, McDonald's found out that many competitors in China were more concerned with convenience than with quality, prompting the business to focus on food quality and customer service Additionally, McDonald's interviewed industry experts and local business owners for a deeper knowledge of the Chinese business environment, which allowed the corporation to make better decisions and avoid potential pitfalls Besides, McDonald's made substantial investments in training and development Employees from the company traveled to China to learn more about the local culture and environment McDonald's also hired and trained local employees, resulting in a strong team capable of serving Chinese customers Another method McDonald’s used was building local partnerships To help handle the complexities of local regulations and cultural norms, McDonald's formed joint ventures with local Chinese companies Therefore, McDonald's was able to establish relationships with key stakeholders in the Chinese business community After all those steps, McDonald’s was confident that the Chinese market had the potential to generate great profit McDonald’s decision to debut in Shenzhen was proved to be highly strategic Because the city was a special economic zone in 1979, the company would benefit from many advantages such as higher subsidies, lower tax rates, etc Furthermore, because the location was the first to be open to foreigners, government interference would be minimal SECTION 2: NAVIGATING CULTURAL NUANCES: MCDONALD'S ADAPTATION IN CHINA 2.1 Relationship between Culture and Multinational Enterprises A society's culture determines how its members communicate, interact, and relate to one another Cultural aspects, according to Czinkota (2007), have a significant impact on the flow of business, and each society has its unique cultural elements Thus, different combinations of these elements shape a society's culture over time and influence business activities between parties in different parts of the world Many components can be considered cultural elements Among these various elements of culture, language is probably the most significant key The diversity of languages among many foreign countries presents numerous obstacles for multinational corporations It can lead to misunderstandings, misinterpretations, and communication breakdowns Although there is a tendency of accepting English as a universal business language, companies are aware that it results in disagreement from locals in many of the countries where they operate Moreover, nonverbal communication causes difficulties for multinational corporations because its elements have different meanings in different countries, such as eye contact, facial expressions, gestures, and so on (nonvocal elements of speaking) as well as pitch, volume, speaking rate, and so on (vocal elements of speaking) (Hargie, 2011) The performance of overseas subsidiaries and their management suffers as a result of a lack of local language knowledge Language challenges can be mitigated by appointing expatriates to the top managerial positions in the local subsidiary or nationals who are fluent in the parent company's language and corporate culture Religion is another element that influences business transactions through a set of shared core values Religion imposes constraints on the choice of individuals in a society, therefore, has a significant impact on business decisions and corporate culture It affects the type of products that consumers buy and the seasonality of some purchases Religion even influences how individuals perceive employment Many businesses tailor their operations to the predominant religion of a given country in terms of holidays, working hours, food habits, dress code, etc In certain nations, products or ingredients used in manufacturing by multinational corporations are prohibited Multinational corporations, for example, cannot create or sell pork goods in the Islamic ruling countries because pork and everything linked with it is strictly forbidden by Islam (Ajami and Goddard, 2014) Customer preferences are also a notable characteristic that multinational enterprises have to consider when doing business Consumer demands and tastes in various nations are becoming more similar This social trend is referred to as "global convergence" by some experts It is a result of the spread of global communication and easier travel opportunities Therefore, many multinational corporations with a global strategy offer the same or very similar products in a variety of nations On the other hand, many experts argue that multinational corporations should be careful about "global convergence" because there are still significant cultural and socioeconomic differences across countries Even if people in different countries prefer or use the same or similar things, they may so for different reasons, on different occasions, and under different circumstances The attitude of society towards foreign business may have a significant impact on the performance of multinational companies The specific country's social and government perception toward foreign companies and their products might range from complete acceptance and trust to complete distrust and antagonism If a country's society is friendly to international business, large multinational enterprises will undoubtedly gain from a supportive local environment On the contrary, if a specific country's social sentiments are adversarial, multinational corporations may face challenges, such as boycotts of their products This adverse social perception is frequently the outcome of their government's position toward particular political problems (Shenkar, Luo et al, 2015) Last but not least, multinational enterprises should also take into account elements such as attitude and beliefs providing organization and directions to a society and its individuals; attitude toward time; attitude toward work and leisure; attitude toward achievements; attitude toward change;… Culture has a real and widespread impact on how global companies operate As a result, multinational businesses must adapt their manufacturing, marketing, and sales strategies to the culture of a given country And it is rational to conclude that successful multinational enterprises should develop acceptance and awareness of cultural variety among countries, as well as learn how to take advantage of opportunities and deal with drawbacks that result from diverse national cultures 2.2 McDonald’s Adaptation to Cultural Differences 2.2.1 Collectivism vs Individualism Differences: According to Hofstede Insights, the USA has a high score of 91 on the individualism scale, while China has a low score of 20, there is a difference of 71 This indicates that the US is a highly individualistic culture, where people prioritize personal goals and achievements over group goals The society is loosely knit in which the expectation is that people look after themselves and their immediate families only and should not rely (too much) on authorities for support In contrast, at a score of 20, China is a highly collectivist culture where people act in the interests of the group and not necessarily of themselves When you have a meal or hang out with Chinese people, or meet some Chinese friends during your trip to China, you will notice that your Chinese friends care less about their own feelings than how everyone feels For example, they will order your favorite food even though they don’t really like that dish (Source: hofstede-insights.com) Therefore, relationships (“Guanxi” in Chinese) are really important in China Chinese people put efforts into building social networks, no matter for business or friendship Social structure in China is formal, you may be shocked by the connections from person to person, as there is no exact line between personal life and professional life However, the social structure in the United States is much more informal than in China, few lines are involved Americans prefer to separate personal life from professional life, social interactions are more casual The majority of Chinese people are sensitive, so they tend to consider their words carefully before speaking to prevent misunderstandings Chinese individuals occasionally withhold their genuine opinions from you even when they disagree with