Globalization is a difficult term to be defined. This is because it means different things to different people. However in general, globalization refers to the trend toward countries joining together. According to Frost (2010), globalization refers to the worldwide phenomenon of technological, economic, political and cultural exchanges, which are brought by modern communication, political choice, transportation and legal infrastructure. These are used to open cross-border links among countries all around the world in international trade as well as finance. Globalization is also a term used to describe how people interact with one another economically, politically, and culturally (Frost, 2010).
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What is McDonalds?
McDonald’s is the world largest chain of fast food restaurant that were founded in May 15th, 1940 by Richard and Maurice McDonald in San Bernardino, California. However, McDonald’s Corporation was founded in April 15th, 1955 by Ray Kroc in Des Plaines, Illinois. There are more than 31 000 McDonald’s restaurant all around the world. Among them, 26 216 restaurants are franchises, 19 020 are operated by conventional franchisees, 3 160 by development licensees, and 4 036 are operated by the company itself (McDonald’s, 2009). McDonald’s headquarter is located in Oak Brook, Illinois, United States.
McDonald’s is a fast food restaurant that offers a wide range of products to its customers. Among them are hamburgers, French fries, chicken, milkshakes, coffee, soft drinks and many more. However, in some countries, McDonald’s has come up with several products in order to tackle its customers in the country. For example, McDonald’s is offering Maharaja Mac in India, Terayaki burger in Japan, and Croque McDo in France.
As a successful company, besides its US$ 22.6 billion revenue and US$29.2 billion assets, manpower asset also play an important part in obtaining McDonald’s success. Other than Jim Skinner as the chairman and CEO of McDonald’s Corporation, there are 1.7 million of employees that have been hired by McDonald’s to operate its business all around the world.
Due to globalization, McDonald’s can start its business is other countries without any hassle. Since its corporation in 1955, McDonald’s has successfully operate more that 31 000 restaurants in 117 countries worldwide (McDonalds, 2009). Besides the United States, other countries that McDonald’s is operating in are India, Malaysia, Indonesia, China, France, United Kingdom, and many more. Due to this, McDonald’s had become well-known in most of the countries in the world as one of the biggest fast food chain in the world.
McDonald’s SWOT Analysis
SWOT stands for Strengths, Weaknesses, Opportunities, and Threats. SWOT Analysis refers to a tool used by a company for auditing it organization and environment (MarketingTeacher.com, 2010). It is the first stage in planning and it also helps the marketers to focus on the key issues (MarketingTeacher.com, 2010). It is used to analyze a company’s strengths, weaknesses, threats, and opportunities in the market that they operate in. By analyzing McDonalds’ SWOT, McDonalds’ strengths can be identified and changes can be made to overcome it weaknesses. On the other hand, by analyzing McDonalds’ opportunities and threats action can be taken to improve McDonald’s services in the future. Below is the SWOT analysis of McDonald’s Corporation.
Actual impacts of globalization on McDonalds
As a successful and a fast-growing company in a globalized world today, there are number of globalization impacts that McDonald’s has to face in order to succeed. Those impacts can be divided into two categories; positive impacts and negatives impacts. Positive impacts are those forces that can help McDonald’s to move forward in the industry and on the other hand, negative impacts are those forces that can slowdown its operations. Thus, without a proper and effective decision-making plan made by the managers, these impacts will lead to McDonald’s failure in the future.
In determining the impacts of globalization on McDonald’s, PESTLE Analysis has been used to identify the factors that have caused the impacts. PESTLE stands for political, economic, sociological, technological, legal and environmental. The information obtained from this analysis are used to guide McDonald’s management in their decision-making process as well as their future planning process.
Positive impacts
One of the positive impacts of globalization to McDonald’s is due to the economical factor. According to CIPD (2010), economic factor refers to what is happening within the economy such as economic growth, cost of living, rate exchange and interest rate.
As the economy is rapidly booming in Asian countries, this has affected McDonald’s business in various ways. The table below shows the number of McDonald’s restaurants that operate in Asian countries.
From 2000 to 2010, with an average quarterly GDP growth of 1.29 percent, Indonesia’s gross domestic product (GDP) has expanded at an annual rate of 3.45 percent in the last reported quarter (TradingEconomics.com, 2010a). This happened because as the largest national economy in Southeast Asia, government of Indonesia plays a significant role by owning more than 164 state-owned enterprises and at the same time, they also control the prices of several basic goods such as fuel, rice, and electricity (TradingEconomics.com, 2010). As the economy in the country is growing, McDonald’s has taken this opportunity to expand its business in the country.
From the table above, there are only 75 McDonald’s restaurants available in Indonesia compared to 1 restaurant in Brunei. This happened because of the economic growth and the government proposal to increase the employment rate in Indonesia. With this decision made by McDonald’s, it has not only increases their reputation in the country but also has decreased the unemployment rate in the country from 9.75 percent in January 2007 to 7.41 percent in January 2010 (TradingEconomics.com, 2010b).
Another positive impact of globalization to McDonald’s is due to the technological factor. Technological factor refers to what is happening technology-wise which can impact what a company do (CIPD, 2010). As new technologies are continually being developed, changes are made by McDonald’s to improve its performance in the industry.
According to EngineeringTalk.com (2010), McDonald’s has decided to use Echelon’s LonWorks technology produced in San Jose, United States to meet its goal which is to lower energy consumption and at the same time increase its operational efficiency. McDonald’s is encouraging its kitchen equipment manufacturers to include this technology in new equipment for its restaurants (Environmentalleader.com, 2010). McDonald’s Vice President of Corporate Responsibility, Bob Langert, says that the technology will enable their franchisees to create a working environment which is easier to operate, facilitate preventive maintenance and provide new services and at the same time save the energy (EngineeringTalk.com, 2010).
It also said that with the presence of Echelon’s power line networking technology, McDonald’s can provide communication and data exchange between various pieces of kitchen equipment in its restaurants and this is to allow the development of business process improvement applications, manage energy use, and reduce maintenance costs (EngineeringTalk, 2010).
In a globalized era today, import and export between countries are becoming easier (reference). This is because … Therefore, Echelon’s power line networking technology which was produced in San Jose, United States can be accessed by countries such as India, Philippines, Hong Kong, Taiwan and Singapore easily. As a result, besides benefiting McDonald’s financial, this will also increases the country’s FDI rate.
Besides economical and technological factor, sociological factor also plays a role in pushing McDonald’s in the industry. Sociological factor refers to what is occurring socially in a market in which a company operates in (CIPD, 2010). Sociological factor includes population growth rate, health consciousness, cultural norms, and career attitudes (CIPD, 2010).
Negative impacts
In contrast to positive impacts, negatives impacts are those activities that can decrease the level of competitiveness of a company in a particular market. However, by making the right decision and action, negative impacts can bring advantages to the company. Similar to positive impacts, negative impacts are also happen because of PESTLE (politics, economics, social, technology, legal and environment) factors.
One of the biggest negative impacts of globalization to a fast food restaurant like McDonald’s is due to the sociological factor. As mentioned earlier, sociological factor is one of the six external influences that a company has to cope with in order to compete in the market effectively (Wall, et.al., 2010).
As a fast-growing company that has franchisees all around the world, McDonald’s has also decided to expand its business to India. However, for a country which 20% of its population are vegetarian and around 82% does not eat beef, McDonald’s might face problems in attracting its customers. This is because they are either vegetarian, cow- worshipping or non-beef-eating people (Kannan, 2006). Hence, as the world’s largest beef-based food chain, McDonald’s may face difficulties in setting up a business where most of its residents do not consume beef.
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After realizing the problem that they might face, McDonald’s has decided to modify its menu to suit the local’s needs. Besides “Indianizing” its menu, McDonald’s also offers several products that are only available in India. They are the Maharaja Mac, McAloo Tikki, and McVeggie. “Maharaja Mac” is the substitute of hamburger which is made from a 100% ground lamb burger that is served with lettuce, tomatoes, special sauce, cheese, onion and pickles on a sesame bun. On the other hand, McAloo Tikki and McVeggie are the products offers by McDonald’s with a ‘100% pure veg’ stamp on them to the Indians (Kannan, 2006). In addition, to avoid from offending India’s vegan sensibilities, McDonald’s strictly segregated it foods into vegetarian and non-vegetarian lines and even the mayonnaise has no egg in it (Harding, 2000).
Today, there are more than 58 McDonald’s restaurants that are successfully operate in India and according to a study that has been made, McDonald’s revenue has increased 50% annually since 1997 (Kannan, 2006). According to the statement above, it shows that McDonald’s has successfully overcome the problem that they are facing in India by adapting its local culture. At the same time, McDonald’s has also increases its sales revenues and the Indian’s awareness on the presence of the McDonald’s in the world.
Besides the social factor, another negative impact of globalization has brought to McDonald’s is due to the economical factor. In a globalize era today, besides the existing competitors such as KFC, Wendy’s and A&W, there are numbers of potential entrants has joined the industry. This has led to a rapid growth of fast food restaurant all around the world. Hence, as one of the biggest fast food restaurants, the problem that McDonald’s has to face is on how to attract more customers to consume its products. The reason is that, with more fast food restaurants available, consumers can make decision on which fast food restaurant’s products to be consumed according to their choices.
In order to overcome the problem stated above, McDonald’s has decided to do a limited time promotions that can attract its existing as well and the new customers. In Malaysia, one of the promotions that McDonald’s has came up with to overcome the problem is by offering the McValue Lunch package. According to McDonald’s (2010a), the McValue Lunch offers 10 most favourite menus among customers with a cheaper price from 12pm to 3pm every day. The price range for a set of McValue Lunch which includes a French fries as well as carbonated soft is between RM5.95 to RM8.95 per set (McDonald’s, 2010a).
As a result to the promotion done by McDonald’s to attract more customers, today there are more people consumed its products since the promotion was introduced in February 2009.
Another negative impact of globalization that McDonald’s has successfully overcome is due to the legal factor. According to CIPD (2010) legal factor refers to what is happening with changes of legislation. Legal factor may affect the employment, imports/exports, quotas as well as resources of the country that a company have to deal with.
One of the legal problems that McDonald’s have to face is the religious law. For McDonald’s to operate in an Islamic country, one of the laws that McDonald’s has to face is the religious law. This law does not only apply in Malaysia but all Islamic countries all around the world. According to the religious law in the Malaysia, all restaurants that operate in the country have to have “HALAL” certificates that are produced by Jabatan Agama Islam Malaysia (Jakim). With this standard for foods, it shows that all the products produced by the company are not only 100% free from pork but it also covers the production, preparation, handling and storage of the food. Besides that, with this certificate it shows that the foods produced are safe to be consumed, hygienic and healthy for consumers (Hayati, et.al., 2008).
Besides that, an Islamic country like Malaysia, McDonald’s have decided to call its hamburgers as Beefburger to avoid the word “ham”. This is because “ham” is the thigh of the hind leg of certain animals, especially a pig (FreeDictionery.com, 2010). As a Muslim’s country with 60.4% of its people are Muslims (NationMaster.com, 2010), hamburgers are called Beefburger to show that the burgers are not made with pork and to avoid misunderstanding between the population in the country.
Potential Impacts of globalization and strategies to overcome them
Besides all the impacts that have been discussed above, there are still other impacts that McDonald’s might have to face in the future. As similar to the impacts mentioned earlier, McDonald’s potential impacts of globalization are also due to the external influences towards the company and decision has to be made to overcome them.
One of the potential impacts of globalization to McDonald’s is due to the economical factor. As the economy in China is growing rapidly, China is also experiencing a food inflation crisis. According to Fullick (2010) a report cited that the rapid food price increase is the main economic problem faced by the country at present. Fullick (2010) also says that food, which makes up about a third of China’s consumer price index has increased by 10.1 percent compared to non-food items which increased just by 1.6 percent.
As KFC and Pizza Hut kept their price unchanged, McDonald’s has taken their first step in overcoming the food inflation crisis that are facing China by raising its menu prices by 0.5 yuan to 1 yuan per item (Kwok, 2010). McDonald’s (China) Co Ltd spokeswoman said that the adjustment was made because some of the materials prices have increased due to the food inflation.
As a number of analysts believe that China’s GDP is not just slowing but could also dries up its exports, McDonald’s which had 1 135 stores in China has ignore all that and planning to open about 500 restaurants in China in three years time (McIntyre, 2009). The reason is that, McDonald’s is optimistic about the business prospects in China and for a company that has the balance sheets and cash flows to take the risk, McDonald’s sees this downturn as an opportunity to push itself into a new market. Based on McDonald’s point of view, as China’s economy recovers, they have already taken market share in a country that is bound to see relatively rapid population growth and relatively strong GDP over the next several decades (McIntyre, 2009).
Another potential impact of globalization to McDonald’s is due to sociological factor which is health consciousness. As mentioned by Ronald McDonald (2004), Sugeon General David Satcher has said that “fast food is a major contributor to obesity epidemic”. With this statement, it has been agreed that fast food may cause obesity and overweight among people.
According to figure 1.1 below, number of American adults that are facing obesity as well as overweight has increased since 1973. The statistic shows that since 1973 to 2009, number of obese in America has increased by 20 percent which make the number of obese adults in America today to be more than …. people (reference). On the other hand, figure 1.2 shows the number of French adults that are facing obesity has also increased since …. As a conclusion, with the evidences given above, due to the increase of fast food restaurants, number of obesity cases has also increased all around the world.
As people all around the world are becoming more aware about their health, McDonald’s might lose its customers and this will lead to a decrease of its sales revenues. Hence, strategies need to be done by McDonald’s to avoid this issue from spreading and resulting to its failure in the future. One of the strategies that can be done by McDonald’s is by offering more healthy food to the customers such as salad. Even though the menu offered by McDonald’s today have a high nutrition value for a balance life, by offering variety of healthy food will attract the health conscious customers to consume its products. By doing so, it will not only increase McDonald’s reputation but it will also decrease the obesity rate all around the world.
Conclusion
As a conclusion, globalization does influence a company performance in the industry that they are venturing in. These influences can either bring a good impacts or bad impacts to a company. Thus, for the company to succeed in a globalized world today, proper planning and decision-making has to be made by the company to overcome all of the negative impacts caused by globalization.
As one of the major company in the fast food industry, McDonald’s has been affected by globalization in many ways. However, due to the critical thinking and decision-making made by its manager, McDonald’s has successfully overcome all the obstacles and this has increase their reputation in the eye of the world.
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