In todays globalised economy, multinational corporations face unique challenges and opportunities in expanding their businesses across borders. McDonalds, the iconic American fast food chain, has successfully established its presence in numerous countries worldwide, serving as a compelling case study for examining international business strategy. This research aims to provide a comprehensive analysis of McDonalds international business strategy and explore the factors that have contributed to its global success. McDonalds, founded in 1955, has grown into one of the worlds largest and most recognizable brands, operating in over 100 countries with thousands of restaurants. Its ability to adapt to diverse cultural and market conditions has been critical to its international triumph. By examining McDonalds international business strategy, we can gain valuable insights into the complexities and dynamics of global expansion, shedding light on the factors that contribute to sustained growth and competitive advantage in the international marketplace. This research will delve into various aspects of McDonalds international business strategy by analysing the value chain of the worlds top fast food company in three markets of the United States, China and France. The market fitness of the strategy, then, will be testified according to internal and external characteristics.
FOREIGN TRADE UNIVERSITY SCHOOL OF ECONOMICS AND INTERNATIONAL BUSINESS o0o MIDTERM ASSIGNMENT Topic: Analysis of McDonald's International Business Strategy from 2016 to 2020 Group: Subject: International Business Class code: KDOE307 Lecturer: Ph.D Nguyen Hong Hanh Hanoi, June 2023 TABLE OF FIGURES TABLES Table McDonald's VRIO Analysis 10 FIGURES Figure BrandFinance’s Global Rankings for Top 10 Brand Value period 2015-2023 10 Figure McDonald's Global Value from 2006 to 2022 .16 Figure Revenue of the McDonald's worldwide from 2005 to 2022 16 Figure Revenue of McDonald's Worldwide from 2019 to 2022, by region 17 Figure Revenue of McDonald's Worldwide from 2005 to 2022, by mode of operation 17 Figure Ranking of the best performing fast-food companies in France in 2020, by revenue .17 Figure Net sales of McDonald's Japan from fiscal year 2015 to 2022 18 Figure Leading food services companies in Japan, in 2021, by market share 18 Figure Market share of limited-service restaurant brand in China from 2016 to 2020 18 TABLE OF CONTENTS TABLE OF CONTENTS INTRODUCTION CHAPTER OVERVIEW OF MCDONALD’S 1.1 General introduction 1.2 Brand Mission and Vision 1.3 Product CHAPTER MCDONALD’S INTERNATIONAL BUSINESS STRATEGY ANALYSIS 2.1 McDonald’s Multi-domestic strategy through value chain analysis 2.1.1 Primary activities 2.1.2 Secondary Activities 2.2 Factors driving Multi-domestic business strategy of McDonald’s 10 2.2.1 Company characteristics 10 2.2.2 Market characteristics 11 2.2.3 Assessment of McDonald’s successfulness in implementing Multi-domestic strategy 16 CHAPTER 3: CHALLENGES OF MCDONALD’S INTERNATIONAL BUSINESS STRATEGY 19 3.1 Health and Nutritions concerns 19 3.2 Local Competition 20 3.3 Cultural Adaptation 20 CONCLUSION 22 REFERENCE INTRODUCTION In today's globalised economy, multinational corporations face unique challenges and opportunities in expanding their businesses across borders McDonald's, the iconic American fast- food chain, has successfully established its presence in numerous countries worldwide, serving as a compelling case study for examining international business strategy This research aims to provide a comprehensive analysis of McDonald's international business strategy and explore the factors that have contributed to its global success McDonald's, founded in 1955, has grown into one of the world's largest and most recognizable brands, operating in over 100 countries with thousands of restaurants Its ability to adapt to diverse cultural and market conditions has been critical to its international triumph By examining McDonald's international business strategy, we can gain valuable insights into the complexities and dynamics of global expansion, shedding light on the factors that contribute to sustained growth and competitive advantage in the international marketplace This research will delve into various aspects of McDonald's international business strategy by analysing the value chain of the world's top fast food company in three markets of the United States, China and France The market fitness of the strategy, then, will be testified according to internal and external characteristics By examining the international business strategy of McDonald's, this research aims to provide valuable insights and lessons for businesses seeking to expand their operations internationally It will contribute to the existing body of knowledge in the field of international business, offering practical implications for multinational corporations in navigating the complexities of global markets and achieving sustained growth and success In conclusion, McDonald's international business strategy has played a pivotal role in its global expansion and success By understanding the factors that underpin its market entry decisions, localization efforts, and global expansion approaches, businesses can gain valuable insights into achieving competitive advantage in the international marketplace This research aims to provide a comprehensive analysis of McDonald's international business strategy, and offering practical implications for businesses operating in a globalised world CHAPTER OVERVIEW OF MCDONALD’S 1.1 General introduction McDonald's Corporation is an American multinational fast food chain, founded in 1940 as a restaurant operated by Richard and Maurice McDonald, in San Bernardino, California, United States They rechristened their business as a hamburger stand, and later turned the company into a franchise, with the Golden Arches logo being introduced in 1953 at a location in Phoenix, Arizona In 1955, Ray Kroc, a businessman, joined the company as a franchise agent and proceeded to purchase the chain from the McDonald brothers McDonald's makes use of a restricted menu, division of labour, a homogenous product, assembly- line strategy, task groping to enable specialised skills, all applied to the practical principle that is shielded from the customer Product quality and customer satisfaction are the basis that enables McDonald's to create exceptional fast food service Since McDonald's was established, the service concept has been based on the first-class quality, value, and cleanness, which has become an essential service direction of the company's marketing operations (Thornton et al., 2016) Under the guidance of Ray Kroc, McDonald's franchises grew swiftly: by the end of the 1960s, there were more than 1,000 across the U.S The first international franchise opened in 1967 in British Columbia, and was followed by another in Costa Rica later that year From there, the chain spread steadily: over a six-month period in 1971, Golden Arches popped up on three new continents, as stores launched in Japan, Holland and a suburb of Sydney A Brazilian McDonald's opened in 1979, bringing Ronald McDonald to South America for the first time McDonald's reached its sixth (and, barring a sub-Arctic drive-thru, final) continent in 1992, with the opening of a restaurant in Casablanca, Morocco Four years later, the company heralded the expansion into its 100th nation, Belarus, and claimed to be opening a new restaurant somewhere in the world every three hours The quick service behemoth operated and franchised by far the largest proportion of restaurants in its home country In 2022, the number of McDonald’s restaurants in the U.S was around 13.4 thousand When looking at the countries with the most McDonald’s in Europe, France (including Monaco) took the top spot, accounting for 1.5 thousand units Meanwhile, China had the most McDonald's restaurants in the Asia Pacific and Middle East regions The United States was also one of McDonald’s biggest markets in terms of revenue In McDonald’s regional revenue breakdown, the U.S accounted for roughly 9.42 billion U.S dollars in revenue in 2022 Meanwhile, internationally operated markets such as Australia, France, Canada, and the UK made the largest overall contribution to McDonald's total revenue, with a sum of 11.16 billion U.S dollars In total, McDonald's revenue amounted to 23.18 billion U.S dollars in 2022 In 2023, McDonald’s will be the leading global foodservice retailer, present in more than 118 countries with more than 35,000 local restaurants serving nearly 70 million people each day More than 80% of McDonald’s restaurants worldwide are owned and operated by independent local business men and women Given its global reach, large number of units, and high revenue it is perhaps no surprise that in 2022 McDonald’s placed in the Forbes top 100 largest global companies in terms of market capitalization Furthermore, when looking at a ranking of the biggest global QSRs by brand value, McDonald's came out on top as the biggest QSR brand in the world With a brand value of almost 197 billion U.S dollars in 2022, McDonald’s surpassed other QSR chains by a large margin 1.2 Brand Mission and Vision McDonald’s mission is “to be our customers’ favourite place and way to eat and drink, we will bring customers unique customer experience that can only be found in our restaurants” The brand ambition is serving Good Food with Good People and being a Good Neighbourhood • Good food: McDonald’s is proud to serve its customers the best quality food Our suppliers are strictly selected and meet stringent standards to ensure all the ingredients have the highest quality • Good People: McDonald’s offers excellent training and occupational opportunities to help employees grow Aside from practical training from daily tasks, employees can participate in indepth training courses in other countries in the network, through which they improve themselves to best serve customers • Good Neighbour: McDonald’s takes special care of the community, particularly children and families We are dedicated to good deeds that bring happiness and joy to all community members 1.3 Product McDonald’s offers a uniform menu that includes fries, the Big Mac, chicken sandwiches, chicken nuggets, hamburgers, the quarter pounder with cheese, salads, wraps, desserts, soft drinks, and other beverages However, to ensure that it connects with the international markets, McDonald’s offers locally relevant food menus as well For example, it serves gazpacho in Spain, the black and white burger in China, and the Veg Pizza McPuff in India In the U.S., McDonald’s main competitors are Burger King (BKW) and Wendy’s (WEN) CHAPTER MCDONALD’S INTERNATIONAL BUSINESS STRATEGY ANALYSIS 2.1 McDonald’s Multi-domestic strategy through value chain analysis 2.1.1 Primary activities McDonald's implements Multi-domestic strategies throughout its value chain By adapting its products, services, and marketing to local markets, McDonald’s has been able to meet the needs of its customers and compete more effectively in each country The following section will further elaborate on McDonald’s Multi-domestic strategies using the value chain analysis a Inbound logistics + United States: In the United States, McDonald's works with national and regional suppliers to ensure a consistent supply of ingredients and products across their vast network of restaurants An example of this would be the collaboration of McDonald’s with Tyson Foods - a domestic supplier (Springdale, 2021) By supporting and working with local suppliers, McDonald's strengthens relationships, reduces supply chain complexity, and contributes to the local economy This strategic approach to procurement positively impacts the value chain by ensuring a reliable supply of ingredients and supporting sustainability efforts + United Kingdom: As for the United Kingdom, McDonald's collaborates with British farmers to source ingredients such as beef, potatoes, and milk (McDonald’s UK, n.d.) This strategy supports local agricultural communities, reduces the carbon footprint associated with transportation, and aligns with the UK market's increasing demand for sustainable and locally sourced products + India: Regarding India, McDonald's works closely with local farmers to source high-quality produce and ingredients such as vegetables and spices (Sharma, 2013) In other words, they have adopted a farm-to-table approach for their inbound logistics, supplying locally sourced fresh produce directly to consumers This localised approach enhances supply chain efficiency, reduces transportation costs, promotes sustainability, and fosters relationships with local suppliers b Operation + United States: In the United States, McDonald's has integrated advanced technology, such as digital ordering kiosks and mobile ordering apps, to streamline the ordering process and reduce wait times (WBR Insights, n.d.) Additionally, the introduction of drive-thru lanes and curbside pickup options has further enhanced operational efficiency and customer convenience as well + China: However, in China, they focus more on quality control throughout their supply chain to ensure the freshness and safety of ingredients In order to this, McDonald’s has set strict operational standards and created training programs to maintain consistent service and product quality across their restaurants (Kaur et al, 2016) + India: And with regard to India, McDonald's has adapted its operations to cater to cultural and dietary preferences Instead of using beef, they offer a range of vegetarian and chicken options to adapt to the country's diverse consumer base This operational adaptation enables McDonald's to appeal to Indian consumers who have dietary restrictions or preferences, showcasing their responsiveness to local market needs (The strategy story, 2023) c Outbound logistics + United States: When it comes to outbound logistics, McDonald's in the United States operates regional distribution centres which are strategically located across the nation These distribution centres receive products from suppliers and distribute them to individual restaurants, ensuring timely deliveries and minimising transportation costs (WBR Insights, n.d.) + China: And in China, McDonald's works with third-party logistics providers to manage transportation and distribution efficiently McDonald's leverages advanced logistics technologies to ensure the smooth flow of goods from distribution centres to restaurants (Jing Han, 2008) This logistics infrastructure enables McDonald's to operate seamlessly and maintain consistent supply chain operations in the rapidly growing Chinese market + India: As for India, due to the country’s hot and humid climate, McDonald's has established a "cold chain" system that includes temperature-controlled storage and transportation facilities (McDonald’s, 2015) This system helps maintain the quality and freshness of ingredients and products throughout the supply chain, even in India's tropical climate By tailoring their outbound logistics to local conditions, McDonald's ensures consistent product quality and customer satisfaction in the Indian market d Marketing and sales + United States: In the United States, as McDonald’s wants to maintain its market dominance, they invest heavily in advertising campaigns through multiple channels, including television, digital media, and outdoor signs McDonald's also utilises collaborations with popular brands or movies to drive sales (Aiden Mason, 2020) + China: As regards China, McDonald's utilises localised marketing strategies to resonate with the local consumer base They actively engage with Chinese social media platforms and influencers to reach their target audience effectively (The strategy story, 2023) McDonald's also tailors its menu offerings to cater to Chinese tastes and preferences, such as introducing spicy chicken wings or porridge in their menu (Ryan F., 2023) These localised marketing and sales strategies allow McDonald's to connect with Chinese consumers and create a strong brand presence in the market + India: In India, given the country's significant vegetarian population, McDonald's promotes vegetarian menu options extensively (The strategy story, 2023) They engage in localised marketing campaigns that highlight their vegetarian offerings and position them as a choice for vegetarian consumers + Brazil: The marketing and advertising strategies of McDonald's in Brazil often feature local celebrities, such as football players, to resonate with the Brazilian audience These campaigns create emotional connections with consumers and leverage the popularity of local icons to enhance brand recall and affinity A typical example of this would be an advertisement of McDonald’sfeaturing Neymar - a famous Brazilian football player (McDonald’s Youtube, 2016) e Service In each culture, the service of McDonald’s is adjusted so that they can satisfy the needs of consumers from different parts of the world + United States: In the United States, McDonald's emphasises speed and convenience They have implemented self-service kiosks and mobile ordering options, allowing customers to place their orders and customise their meals with ease (WBR Insights, n.d.) Additionally, McDonald's also prioritises efficient order fulfilment, using dedicated preparation areas for different order types, such as drive- thru and in-store dining, to speed up service and minimise wait times + United Kingdom: Similarly, in the United Kingdom, McDonald’s also focuses on convenience, and they have introduced mobile ordering and payment options, allowing customers to order and pay for their meals in advance through the McDonald's app (McDonald’s UK, n.d.) This technology-driven service strategy helps reduce wait times, and provide a seamless experience for customers + Japan: McDonald's fast food experience in Japan is a little different in the sense that the customer service is of higher quality (Murasaki, 2021) This is due to the fact that respect and humility are so deeply ingrained in Japanese culture, therefore, the staff there is trained to be always friendly and attentive to the customer’s needs They also work very efficiently, always make sure that the customers will receive their food as soon as possible, and essentially go out of their way to make the consumers happy By implementing such strategies across the value chain, McDonald's demonstrates its Multidomestic approach The company employs this international business strategy to effectively cater to different markets' specific needs and preferences, contributing to its success as a global fastfood chain 2.1.2 Secondary Activities a Firm infrastructure The management system in different countries is shaped according to the global standard However, there may be differences determined by the local legal process or culture + United State: US Mcdonald’s operates as a franchise-based model, where individual store owners are responsible for operating their restaurants They have a centralised and standardised organisational structure (McDonald’s, n.d.), which focuses on efficiency and cost savings + China: McDonald's in China has a more decentralised structure than in the US, still remains the franchise- based model, however giving a greater degree of local autonomy given to franchises (Purdy, 2017) + France: McDonald's in France has a hybrid structure that blends elements of the US and Chinese While the company operates a centralised head office in Paris, franchisees are given a greater degree of control over certain areas of the business, such as restaurant design, marketing campaigns, and menu offerings (McDonald’s, n.d.) b Human resource management The human resource management of McDonald's in different countries follows a both centralised and decentralised strategy Each country has its own policies based on the working culture, political system, economy, however, still follows a specific global standard + United State: In the United States, McDonald's focuses on providing job opportunities to a large number of people across the country, the working policy is more flexible and relaxed The company has a range of training programs, including on-the-job training, e-learning courses, and classroom sessions Secondly, McDonald's in the US has a strong diversity and inclusion policy and values a diverse workforce The company provides equal employment opportunities and prohibits discrimination based on race, gender, religion, ethnicity, and sexual orientation Thirdly, McDonald's in the US offers many benefits to its employees, including hourly wages, bonuses, and incentives The most common benefit package is providing their employees free meals during their shift as well as tuition assistance Fourthly, due to its policy, employees in McDonald's US can have flexible hours and are more likely to work non-standard shifts such as evenings and weekends as it operates 24/7 in many locations Additionally, part-time employees make up the most with less focus on full-time or career-track paths (McDonald’s, n.d.) + China: In China, McDonald's has a stricter policy and focuses on the long-term benefits of employees, who consider working here as a career choice (Williams, A 2019) In China, like the US, McDonald's also provides extensive training to its employees However, McDonald's China places a greater emphasis on on-the-job training Cross-training employees to develop their skills across different roles in the organisation is also seen McDonald's in China also Chinese consumers, especially young people, have a high bargaining power due to the recent growth in disposable income of the Chinese middle-class This trend also comes with the exploration of trying more luxurious food or better quality products In less developed cities, even though the buyers have lower disposable income, these consumers tend to opt for cheaper alternatives unless they have strong loyalty to the McDonald’s brand (Dao Insights, 2022) In the context of utilising international business strategies, McDonald’s should employ strategies that help build a loyal customer base thus reducing the bargaining power of buyers and help streamline sales and production processes Another possible strategy is rapidly developing new products to help maintain the customer base - Threat of Substitute - High With the emergence of the new healthy eating habit, Chinese consumers are being influenced towards becoming more conscious about their health and nutritional value of their food intake This leads to the potential of substitute products like organic or vegan restaurants Additionally, amongst young Chinese consumers, McDonald’s main target is adopting a coffee culture, suggesting the threat of big beverage chains like Starbucks to compete (Lintott, 2019) This threat of substitute products implore McDonald’s to understand the core need of the market and increase the switching costs through better cultural understanding and understanding - Intense Rivalry among Competitors - High Over the past 30 years, the most significant competitors in the Chinese fast food sector are still American brands like KFC, McDonald’s, Burger King and Wallace However, Chinese brands like Real Kung Fu, Dicos, and Hua’s Restaurant are making steady growth in incorporating local tastes and preferences around local cuisines These local restaurants offer elements of both Chinese and Western food (Ai, 2023) This recent development emphasises the need for McDonald’s to build a sustainable differentiation strategy and strengthen its building scale to compete better c) The France market: - Threat of New Entrants - Low For new entrants starting a new fast food chain requires a considerable amount of capital investment and resources Additionally, the fast food industry in France is highly regulated, with strict regulations on food quality, sourcing, labelling, and waste management The French government is keen on protecting the country's food culture and discourages excessive consumption of fast food (CNBC, 2013) Therefore it may be difficult for new entrants to obtain necessary licences and permits, making the threats of new entrants low On the other hand, McDonald's operates on a large scale, with a well-established system of franchises and a highly recognized brand name, which gives the company significant economies of scale and a competitive advantage over potential new entrants - Bargaining Power of Suppliers - Low McDonald's relies on suppliers for ingredients, packaging, and equipment (McDonald’s, n.d.) However, McDonald's is a large chain, which means that they can place significant orders with suppliers, thereby allowing them to negotiate prices and other favourable terms Additionally, McDonald's has a well-established supply chain system that supports its operations, which could deter suppliers from trying to significantly raise prices or exert other forms of leverage - Bargaining Power of Buyers - Strong Buyers in France have strong bargaining power as there are many options available in the market Consumers have access to a wide variety of fast food chains, local restaurants, and home cooking options (Fancourt, 2013) In addition, a study found that French consumers prioritise health and nutrition when eating out, and often look for menus that include fresh vegetables, fruits, and plant-based proteins (Al-Hasan & Koerkamp, 2022) The study also concluded that consumers place a high value on transparency, and are interested in learning more about the products and ingredients used by food chains - Threat of Substitutes - Moderate France McDonald's faces competition from other quick and convenient meal options, such as convenience stores and grocery stores offering pre-made meals Furthermore, there has been a growing trend towards health-conscious eating habits in France (Al- Hasan & Koerkamp, 2022), which is particularly reflected among younger generations Consumers are also becoming more aware of the environmental and ethical implications of their meal choices and may choose to substitute fast food with healthier options like salads, fruits, and vegetables - Intense Rivalry among Competitors - High The fast food industry in France is highly competitive, with numerous players competing for the market share As France is the country of cuisine, there are many local chains, independent restaurants, traditional brasseries, bakeries, and sandwich shops, which were established beforehand and are competing for market share Other fast food chains in France are also worth noticing and extremely competitive They are McDonald's main competitors, including KFC, Subway, Burger King, Quick, and Pizza Hut (Fancourt, 2013) 2.2.3 Assessment of McDonald’s successfulness in implementing Multi-domestic strategy Figure McDonald's Global Value from 2006 to 2022 By 2020, McDonald’s became the most valuable quick service restaurant brand worldwide with 129.32 billion USD There was a significant increase year by year in the brand value of McDonalds as it grew from 88.65 billion USD in 2016 to 130.37 billion USD in 2019 and then slightly declined to 129.32 billion USD in 2020 due to the effect of COVID 19 Pandemic Figure Revenue of the McDonald's worldwide from 2005 to 2022 Overally, the total revenue of McDonald’s all around the world diminished year by year during the period 2016-2020 from 24.62 billion USD to 19.21 billion USD In fact, the downturn in the revenue of McDonalds mainly came from the saturation of domestics as it can be clearly seen that McDonalds dropped from 7.84 billion USD to 7.66 billion USD in revenue in the US meanwhile in some large international markets like France, Japan, China, we still witnessed an increase in revenue in the similar period From the perspective of mode of operation, from 2016 to 2019, although the revenue coming from company-operated restaurants experienced a dramatic yearly reduction from 15.5 billion USD to 8.14 billion USD , the franchised restaurants simultaneously increased from 9.33 billion USD to 11.66 billion USD in revenue In 2020, due to the COVID 19 pandemic, both modes of operation slightly decreased Figure Revenue of McDonald's Worldwide from 2019 to 2022, by region Figure Revenue of McDonald's Worldwide from 2005 to 2022, by mode of operation When it comes to different markets, in France, the success of McDonalds is represented by revenue, as this company ranked 1st of the best performing fast-food companies by revenue in 2020 with 4.400 million euros, exceeding the Bertrand Group (Burger King & Quick) at second place with only 1.008 million euro Besides that, according to statistics, the amount of McDonald meals served up in France every day is up to 1.8 million The share of the restaurant market of McDonald's in France is 13% 1,539 McDonald's stores are opened in France as of April 05, 2023 In general, by using the appropriate strategy, McDonalds successfully conquered the France market Figure Ranking of the best performing fast-food companies in France in 2020, by revenue In Japan, about 2.968 restaurants have been opened by McDonalds by 2022 This is also a successful market for McDonalds as the net sales in this market increased year by year from 226.85 billion Japanese yen in 2016 to 288.33 billion in 2020 As a result, the revenue in this country witnessed an upward trend from 2.09 billion USD in 2016 to 2.71 billion USD in 2020 While only