Globalization has led to movement towards the integration of several different markets. Over the past years we can observe how markets from all over the world have transitioned to function together, being more interrelated and interdependent to each other. The shift towards one world economy was made possible because globalization has brought forward several benefits which enabled the ease of movement of business operations from one country to another. Technology has rapidly advanced over the years which made it much simpler to operate internationally and the increase in the power and importance of global organizations (like World Trade Organization) to discourage trade barriers among countries and promote international business and trade. Globalization has encouraged firms to go global and operate outside their local market. International expansion are done through various ways, firms can export their products and sell in international markets, franchising and licensing involve permitting a business’ operation in other markets or allowing production of goods and services in other markets, e-business also helps reach out to customers all around the world. Businesses find it healthy and beneficial to operate in international markets because it can be seen as a method of spreading risk, challenging their way across new competitors and attracting new customers towards the company’s goods and services.
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McDonalds, a well known and valued fast food company would be used as a case of how international business has helped the company achieve their goals and succeed overall. McDonalds was first established in 1940, two brothers Richard McDonald and Maurice McDonald partnered up and opened up a restaurant in California, moved towards ‘self-service drive-in restaurant’ with a limited menu which consisted of cheeseburgers, milkshakes, pie and ‘the world famous French fries’ of McDonalds. They differentiated their service by focusing on saving time [their ‘Speedee Service System’] to satisfy customers. Later, McDonalds had successfully created a unique brand image which was trademarked. The success of McDonald’s outlets in the US has encouraged them to go global. They were able to open restaurants in Canada, Japan, Germany, Australia and France. McDonald’s main form of expansion was through franchising themselves to different markets. The company was able to successfully open over 30000 outlets around the world in more than 120 countries. McDonald’s international success has earned them to be ‘ranked 8th in the Top 100 of the World’s most valuable brands in 2008.’
Every international business success depends on its approach towards a new market. When it comes to entering new different markets it is very important for any company to analyze the market it wishes to operate in. Here, they will need to study all the aspects that makes the market different from its local market, the competition that exists in that market, as well as the market’s macroeconomic environment. A country’s macroeconomic environment can have a great impact on a company’s performance. The macroeconomic environment basically consists of four major factors which influences the market function. The first factor is the economic factor of the market. This focuses on the economy’s well-being, i.e. income level, employment, inflation and how these can influence decision making of international businesses. The second factor focuses on the country’s legislation overview, the rules and regulations that companies may follow if they wish to operate in that market. The third, political factor mainly sums up to the exercising power of the country’s government. Political status and stability of a country can greatly influence the attractiveness of foreign direct investment into the country. The last factor which has an impact on international business operations is the culture of the market. Culture refers to ‘a system of values and norms that are shared among a group of people,’ -Hofstede. Culture differs from country to country. It is usually determined by the country’s ethnicity, religious views, education, language spoken etc. This factor of macroeconomic environment makes it difficult for international businesses to determine their success in operating in new markets.
In the case of McDonalds, the four factors of macroeconomic environment did have an affect McDonald’s products and their standard method of operating their fast food restaurants. From the economic factor, McDonalds have positioned their brand as one of the best fast food outlets with the greatest value meals offered. Differences in income levels did not influence McDonalds because they offer their meals at low reasonable prices. For example in Dubai, McDonalds offers the lowest economic prices for their value meals when compared to the other fast food outlets such as Hardees or Burger King. McDonalds is now known to ‘rank the 6th most valuable global brands in 2010.’ The legal factor of macroeconomic environment did affect the products of McDonalds. Rules and regulations that were followed by every company in a particular market had to be followed by McDonalds too.
For example, McDonald’s toys which were given in Kid’s Happy Meals should be approved by safety measures. The labeling of their products such as the green dot which symbolizes ‘suitable for vegetarians’ is also another example which McDonalds adapts with relation to labeling laws to inform consumers. In Muslim countries, any meat products had to be Halal, McDonalds sandwiches had to adjust to meet religious standards. When it came to promotion, McDonald’s advertising also had to be controlled and approved by certain markets like Saudi Arabia. Certain TV Commercials that use attractive female models may be seen as an inappropriate way for McDonalds to advertise in Saudi Arabia. The political factor of macroeconomic environment does not directly affect McDonald’s operations but governments in different countries do have control on what products a business is allowed to sell in their markets. Political reasons can affect McDonald’s performance internally through taxation etc affecting their profitability.
The cultural factor of every market can be used as an advantage for every international business to differentiate their products and adapt to these cultural differences thus valuing their brand image among local consumers. McDonalds operates in over a hundred countries and they have deeply focused on using cultural views to differentiate their products in different markets. McDonald’s products respond to local taste and preferences.
There are many examples which show us how McDonalds have adjusted to offer differentiated products, having special offers on special occasions and events that are held in different countries. McDonalds had recently introduced a dessert offer during Ramadan in Dubai. This was the McBrownie Sundae which was advertised around bringing in the Ramadan atmosphere into the picture using the moon, emphasis of historical background, colors etc.
McDonalds respond to catering to local customers tastes too. In India, McDonalds offers a sandwich exclusively to that country, the McAloo Tikki Burger. McDonalds also has their famous McArabia value meals in the Middle East.
In terms of language dimensions McDonalds are referred to differently in different markets around the world. Most of the West refers to McDonalds as ‘Mickey Ds,’ in Australia their slang for McDonalds is ‘Maccas.’ When it comes to religion McDonalds does take religious standards into consideration, this way it shows how they value their customers. McDonald’s advertisements, way of packaging all come under appropriateness towards the market they are serving. All of McDonald’s meals in Muslim countries are Halal. McDonald’s outlets in different markets restrict them to sell certain type of products in those markets. The McPork burger was inappropriate to sell in Middle East or Muslim countries, even all their beef products were not offered in outlets located in India because it was seen prohibited and against Hindu religion.
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Businesses that tend to go global always plan out and adapt a global strategy which will help assist them towards achieving their objectives and long term goals. When a company decides for global expansion there are usually four common strategies that they can choose from in relation to their approach towards the market, either follow an international strategy, localization strategy, global standardization strategy or transnational strategy. These four strategies are influenced by the pressure of two dimensions. The first is the pressure faced from cost reduction measures, where this depends usually on the competition of the market. Profitability and survival mainly depends on this measure, so if a company wishes to operate in a different market they should make sure that they are in line with other competitors when it comes to cost related or price related products. The other dimension is the pressure of local responsiveness, depending on a company’s flexibility towards adjusting to local consumers taste and preferences. The nature of the product would influence this pressure, food products tend to be more local responsive because it is directly related to satisfying consumers taste and preferences.
‘McDonalds is often cited as a clear example of standardization, the president of McDonald’s International has insisted that the company is “as much a part of local culture as possible” (Ritzer, 2004, p. 179) and its standard menu has been glocalised to accommodate local foods.’
McDonalds focus on following a more hybrid type of global strategy when entering international markets. They associate with transnational strategy measures. The company has over 3000 fast food outlets around the world and so McDonalds found that it was more beneficial for their outlets to gain competitive advantage in these different markets by differentiating their menu and meal offers that would cater to and satisfy consumer’s taste and preferences in various different markets. Based on ethnicity, culture, religion, trend people taste and preferences differed from country to country. For example, India is famous for their savory spiced food. Most of Indian Cuisine tends to be hotter in flavor than compared to tastes of people in the West. Therefore the McAloo Tikki, a spicy traditional flavored burger, is a specially differentiated product of McDonalds which suits the taste of consumers in India. By differentiating their sandwiches and meals to market requirements McDonalds finds it easier to operate in these markets because this reduces the risk of uncertainty of their success or failure in operating in these new markets. Differentiated products also add value to brand name because customers find themselves attracted to their differentiated products. McDonalds always focused on cost pressures to avoid threats from competitive fast food outlets. Costs are always kept at its lowers so that McDonald’s selling prices wouldn’t be high enough for customers to doubt their purchase and change their mind over McDonalds. Catering to consumer responsiveness towards taste and flavor, and focusing on low costing/pricing enhances the brand reputation and value, thus positively affecting their sales figures. Although, food related businesses follow localization or transnational strategy, McDonalds also tries to adapt a global standardization strategy for some of its meal products. McDonald’s menu is mostly standardized because the company wishes to protect some of its original ideas which were innovated from home. Some examples of McDonalds products which they wish to keep standard in all markets are the McFries, McNuggets and Big Mac Sandwich.
These products remained unchanged or adjusted towards local responsiveness and so were offered to markets as a representation of McDonald’s culture. These products had the ‘McDonaldization’ approach where these products mainly ‘standardized and focused on efficiency and predictability.’
McDonald’s hybrid approach towards global expansion does have its limitations. Apart from having more pressure on focusing on following two different directions of strategy they would not be able to make sure how successful their standard menu would profit them. As seen earlier people have different tastes and preferences, especially when it comes to food products. So McDonald’s offering their home-based standard menu would be seen as a risk to enter new different markets. They would have to spend a lot on research and innovation to adjusting to consumer responsiveness. Not only does McDonalds make sandwiches which would satisfy local consumer. They would also need to spend a great deal on differentiated advertising, coming up with innovative offers on special occasions like Eid, Diwali, Christmas etc. McDonalds current position in the global economy is very strong so its limitations wouldn’t affect them as much. They possess great strengths compared to any other international business. McDonald’s opportunities are wide to them, further expansion and differentiation of their standard meal menu in different markets would reap in even greater sales and profit to the company. Their hybrid strategy not only gives them the competitive advantage to compete with rivals, it also protects the corporate culture and historical values by keeping some aspects of McDonalds standardized. McDonalds makes sure it doesn’t let any factor affect them provided they behave flexible to changes and adapt to what consumers want, valuing their opinions, tastes and preferences.
With the help of macroeconomic environment analysis, international businesses like McDonalds find it simple to plot down their steps towards achieving their objectives and long term goals. Economic, legal, political and cultural reasons do have an impact on every business that operates internationally which is why it is crucial for these international businesses to follow an appropriate approach and adapt an effective global strategy. Any external factors can influence business operations and so by being as flexible as possible to the changing environmental factors, international businesses like McDonalds can prosper into becoming a major successful well recognized valued corporation.
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