Analysis of McDonalds’ Expansion Strategy

Introduction:

McDonalds is one of the most giant burger brands in the global fast food chain which is presented in nearly 120 countries (Keegan and Green, 2013). However, McDonald still has to challenge with a number of problems arisen in not only home market but also global market (CBS Chicago, 2014). Based on its report of final quarter last year, there was a huge number of its customers purchasing McDonalds’ products has been decreased. Especially in the U.S market in 2013, the company has lost more than 1.6 percent of its customers compared to the same moment with previous years (CBS Chicago, 2014).

Question 1:

McDonalds has lost its customer attraction in home market, however, its reputation is still popular in emerging markets due to the lack of trust on their local brands (Doctoroff, 2014). Understanding this opportunity, McDonald has made a decision of expanding its business to the global market (Rudarakanchana, 2013). Though McDonalds segmented its business in a number of parts, the quality of its products and services has been claimed that:

“McDonald’s was built on a strong foundation of a core menu that we took around the world but we need to make sure we are more locally relevant,” (Grant, 2006).

In particular, the quality of its products will be locally delivered that is different with other regions by applying ‘polycentric orientation’ which related to ‘localized approach’ (Keegan and Green, 2013). This answer will use four main aspects of marketing mix to analyse how McDonalds run its business locally in its segmentations.

• Product:

When McDonalds entered the India market, it coped with the problems of beefs products in there because the most Indian people follow the Hinduism avoid using meat from beef or cow (Rowley, 2012). Hence, McAloo Tikki which is a beef-free burger has been provided in the India market and quickly became the most favourite products in India McDonalds (Hickman, 2013). In addition, in the France, McDonalds has also produced the McCamembert for the local market which using the Camembert cheese the popular cheese brand in France (Tepper, 2013). Moreover, McArabia burger product, which uses chicken sandwiched between a long bread, has been presented in the Middle East market (Hickman, 2013).

• Place:

McDonalds’ expansion strategy has been executed with a huge number of nearly 40 thousands stores in over 110 countries (McDonalds, 2014). Taking advantages from this succeed and its experience in home market, the corporation planned to keep increasing the number of over 400 drive-thru stores to compete with other rivals in global market (Vignali, 2001). For example, McDonalds in the UK has opened its stores in diversified places but still focused on high traffic locations such as in shopping malls, near entertainment areas or at airports and train stations (McDonalds, 2014). It happened as the same as in India McDonalds where has more than 200 restaurants in the final quarter of 2010. McDonalds established also nearly 2000 outlets in China and approximately 1000 restaurants in France (Keegan and Green, 2013).

• Price:

The price for a McDonalds’ burger, in particular the Big Mac, was created based on the average wages of customers in the market. The higher minimum wages is, the higher price of a Big Mac will be charged (The Economist, 2014). The Figure 1 will present the differences of prices of Big Mac that McDonalds charges in some popular markets.

The income rank of India has been considered as a lower in the middle class with the minimum wage from USD 5 to USD 6 per day (Office of Labour Department, 2014). Hence, the price of USD 1.54 for a Big Mac of McDonalds is much cheaper compared to the price in the UK market with the price for a Big Mac burger is charged USD 4.63, approximately equal price in the US home market.

• Promotion:

Firstly, understanding the habits of watching commercial on television in China, McDonalds in China plans to attract its customers through print media (Vignali, 2008). In addition, ‘Green’ promotion has been executed in India with the claim of no beef products delivered (Keegan and Green, 2013). Secondly, sponsorship activities have been implemented in a number of sports. For example, in the USA, McDonalds maintains close relationship with the most favourite basketball league NBA to attract the awareness of its audience on McDonalds’ brand (Vignali, 2008). Brand name of the McDonalds was also changed in order to be suitable to the market. For example, in Australia, Macca’s was known as McDonalds in there (The Telegraph, 2013). Thirdly, sales promotion has been also delivered to McDonalds’ customers. For example, “Another burger each weekend” promotion was conducted in Czech market which provided different tastes of burgers (Keegan and Green, 2013, pp. 55)

Question 2:

For a giant service-orientated corporation as McDonalds, there will exist a number of arisen problems related to environmental aspects that influence the internationalisation of its brand. This paper will analyse these impacts by using the PEST framework which will be briefly presented in Figure 2.

• Political factor:

In order to conduct a huge investment on promotion strategy in China, McDonalds has spent more than USD 1 billion on building a big shopping mall in the middle of Beijing where is considered as a crowded area. However, though having agreements from Beijing government, this project of McDonalds was still postponed by the nation government of China (Keegan and Green, 2013).

In France, concerning the negative impacts of McDonalds into traditional lifestyle of French people, there was a lot of legislators and critics has been in disagreements with continuing to allow McDonalds’ outlets to be established more (Keegan and Green, 2013).

• Economic factor:

Due to the hundred time of development in terms of meal industry in India, McDonalds has considered this statistic as one of potential changes to expand its business in this market. Hence, the company opened a number of outlets mainly in areas where have high customer traffic (McDonalds, 2014).

Since McDonalds has realized the potential of fast food industry in China, it has planned to enter this market and achieved considerable outcomes in terms of profits and customer attentions. Hence, China was considered by McDonalds as the rapidest-developing market that stimulates the company to keep expanding in there (Keegan and Green, 2013).

However, currency instability was also recognized as one of serious threats for McDonalds in terms of economical factor. Due to its main proportion of profits generated from external American market, there may cause a significant threats to McDonalds’ profit if exchange rates are not constant. For example, in 2012, nearly 0.5 percent of company’s revenue has been decreased because of this issue of exchange rates (Gasparro, 2012).

• Social factor:

The customer expectation for the fast food industry was increased strongly in India when McDonalds entered this market in 1996. After a number of being presented here, the amount of money for purchasing fast food products has been increased strongly and will be expected to be increased up to 1.5 time in 2016 compared to the statistic in 2013 (Nayak, 2013).

However, there still has a number of considerations towards this factors. For example, most Indian people follow the Hinduism which indicated that beefs and products from beefs will not able to be used in there. Therefore, McDonalds has had to design a different menu for its customers in this market (Hickman, 2013). In addition, the presence of its brand in World Cup 1998 in France was received a lot of criticisms in terms of health issues from French people.

• Technological factor:

Understanding the fast innovation of technology that affects considerably towards business strategy, McDonalds has spent much efforts on planning to apply high-technological devices in delivering its services (Patton, 2013). In order to make its customer comfortable and be relax when using McDonalds’ services, iPod and television were provided to customers to use. In addition, in India, glass window and air cooling systems have been used to help McDonalds’ outlets in this market satisfy Indian customers (Keegan and Green, 2013).

Question 3:

Assuming that McDonalds has decided to expand its business into Vietnam fast food market, the following step is very essential for the corporation to start planning a strategy to deliver its products in this market. This part will use the international market entry strategy which will be outlined in Figure 3 to provide recommendations for McDonalds.

• Indirect exporting:

This decision of market entry was considered as the safest way for the McDonalds. When this type of strategy is chosen, the company will not participate to export its product oversea and it also not participate in marketing strategy in the target market (Lambin, Chumpitaz and Schuiling, 2007). For example, McDonalds may trade its products with a local company and allow to sell these products into Vietnam market. Hence, this local company will take responsibility for the sales of these products. However, with the weak connections between McDonalds and its products, the company may be unsuccessful to attract the huge awareness from target customers (Lambin, Chumpitaz and Schuiling, 2007).

• Direct exporting:

In contrast with the indirect exporting decision, with the direct exporting strategy, McDonalds will straight participate to export its products to a Vietnamese company to sell it in this market. The advantage of this action is that the company can ensure its marketing strategy in the targeted market (Lymbersky, 2008). Hence, though McDonalds has to spend a lot of efforts on justifying the market before making decision, it will have more power on managing its sales and marketing activities in the foreign market (Lymbersky, 2008).

• Direct investment:

The popular activity related to this direct investment strategy is to collaborate with a local company in the target market, particularly Vietnam market, in order to create a joint venture form. The advantage of this activity is that McDonalds is not the only one who has to suffer risks from entering new markets, especially in terms of profits. It also has a chance to acquire more information of the market from its partner. However, managerial issues can be arisen when working with the local company due to the dissimilarity between two cultures (Keegan and Green, 2013).

• Indirect investment:

Related to this type of strategy, licensing and franchising are considered as two popular methods which are used to plan to enter a new market (Keegan and Green, 2013).

Licensing. Similar to direct investment decision, licensing will be used for the long-term purpose which provides less risks to the company, in this case is McDonalds. The local company in the targeted market will be empowered to use the reputation of McDonalds to distribute products in its market (Lymbersky, 2008). Because of using image of popular products, it will create an opportunity for the local distributor to attract a huge number of customers for these products that related to increase sales revenue (Lambin, Chumpitaz and Schuiling, 2007). Hence, McDonalds in this case may take profit benefits from this method. However, it is also considered as a risk for McDonalds due to the lack of power on controlling the delivered marketing strategy of the distributors into the market (Lambin, Chumpitaz and Schuiling, 2007).

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Franchising. Franchising plays as one of recommendations for investing indirectly to enter the new market. This method is the agreement between the franchiser, in this case is McDonalds, and the franchisee who will be empowered by McDonalds to sell its products in the targeted market (Jobber and Fahy, 2009). Though it seems to be similar to licensing, there is a difference that the franchise will run its business as the same as the business in the host country (Keegan and Green, 2013). For example, there will be an outlet of McDonalds in Vietnam which has the same design of outlets and deliver the same services with McDonalds in the US. This type of market entry strategy has been also used by McDonalds in overall markets that it entered (McDonalds, 2014). The main advantage of this decision is that McDonalds, who plays as the franchiser role, can apply its global marketing strategy to its outlet in Vietnam. Moreover, it is easy for McDonalds for controlling the quality of delivered products, the quality of recruited staffs in the Vietnamese outlet to ensure the similarity between its outlets in home market and in Vietnam. Hence, it could be seen that Vietnamese customers can have a chance to experience the products and services as the same as it is delivered in the U.S (Lymbersky, 2008).

Taking advantages from the success in terms of franchising strategy in the world market and the popularity of its reputation, it could be recommended that franchising should be adapted in the Vietnamese market.

Question 4:

Based on the global expansion strategy of McDonalds, ‘Plan to Win’ was designed in order to create a standard marketing plan which will be adapted in any market in general (McDonalds, 2014). However, for a particular market as Vietnam fast food market, there still has to concern in a number of factors initiatively that influence the strategy of marketing to create competitive advantage. Porter’s five forces model (Porter, 2008) will be used to explain in detail.

Threat of New Entrants. With the positive GDP growth of the economy started from 2004, Vietnam was reported as one of the fastest and the most stable economy in Asia. In addition, in 2007, Vietnam has been conceded as one of official members of WTO and the government of this country has renovated its laws and regulations which provided open opportunities for multinational companies like McDonalds to enter Vietnamese market. (KPMG, 2012).

Threat of Power of Suppliers. Though there is a lot of potential local suppliers for food ingredients and equipment for fast food services, only few current foreign brands in Vietnam accepted to participate with them due to disagreements (Vietnamnet Bridge, 2014). Hence, there has a chance for McDonalds to find its suppliers in the local market to reduce the cost from importing oversea if the company find solutions for this issue.

Threat of Power of Buyers. Due to the increase of young population and the high proportion of middle income customers in Vietnam, the demand for reputable brands, particularly in fast food restaurants, has been raise rapidly (Azzaro, 2012). Hence, it partly reduces pressures for McDonalds entering the new Vietnam fast food market.

Threat of Substitute Products. In case of charging the price of McDonalds’ products as similar as them in some Asian market, McDonalds may have to suffer the loss of customers to substitute products. For example, steam sticky rice, pho or noodles are popular traditional fast food in Vietnam which can be considered as substitute products for burgers of McDonalds (Vietnamnet Bridge, 2014).

Threat of Competitors. McDonalds could be considered as a late fast food giant in Vietnamese fast food market because there was a number of giants, for example, KFC, Lotteria, Starbucks, Subway or Burger King have earlier entered the market than McDonalds (Vu, 2014).

Understanding these five forces can help McDonalds to create its own competitive advantage over its current rivals in Vietnam fast food industry. Presented as a late competitor in this market, in order to compete with its competitors, it could be recommended that spending significant efforts on executing its marketing plan is very important though “Plan to Win” global strategies has been provided with clear marketing mix. As the same as obtaining qualitative and quantitative results by creating an effective marketing plan, there are three marketing executing tools which are popular to be applied to implement its plans (Pride and Ferrell, 2008).

Customer Relationship Management. Though researching on customer’s needs before entering the market is necessary, maintaining the relationship between McDonalds and its customers is also important. (Pride and Ferrell, 2008). Hence, McDonalds should collect information or feedbacks of customers who used its products and classify this data to enhance the better services to the customers. Since potential customers are satisfied, it is less challenge for the company to create marketing plans to maintain the relationship with its customers in long term (Pride and Ferrell, 2008).

Internal Marketing. Customers are not only known as people who use products or services but also known as the human resources who directly participate in delivering products and services of a company. This is considered as internal customers (Saxena, 2009). Therefore, the company should assign clear job tasks and suitable reward systems for employees that fulfil their expectations to help them commit to contribute to the success of the company (Pride and Ferrell, 2008).

Total Quality Management. Due to the low-priced products strategy, McDonalds has to spend a considerable effort to effectively control the quality of its products and services. It is not only related to ensure the customer relationship maintenance but also its suppliers’ relationships in order to increase its market shares and reduce the costs of production (McDonalds, 2014). Therefore, the company can satisfy its customers by delivering cheaper products but still ensuring its high quality.

Conclusion:

This paper has attempted to analyse McDonalds’ expansion strategy and provided justification and executing plain for entering Vietnam fast food market. With the positive researched information of fast food market in Vietnam, it could be believed that McDonalds will be successful to attract the customers and compete other rivals to become market leader in there. However, adjustments for this marketing plan will be required due to the change of environmental factors in the market.