Summary
As businesses look to remain competitive and sustainable, it is important that they deploy unique strategies in their operations. Given the need to be unique, it is necessary that these strategies are not only efficient but also practical. Businesses may opt to benchmark from others or brainstorm new options in the development of their strategies. Both corporate and business-level strategies are necessary for companies the generation of competitive advantage. At McDonald’s, cost leadership and product differentiation are the main business and corporate-level strategies, respectively.
Business-Level Strategies
Since it is a multinational institution, the myriad of business strategies enables it to function seamlessly and successfully across different markets. In basic terms, a business-level strategy refers to a set of coordinated and integrated actions and commitments that a firm uses to generate and maintain a competitive advantage in specific product markets (Hitt, 116). All businesses that compete on a global level must have some form of business-level strategy. While that is the case, it is not always easy for companies to develop a unique set of business-level strategies as there is a thin line between success and failure when these strategies are not effectively chosen and executed.
At McDonald’s, the main business-level strategy is cost leadership. The cost leadership strategy is defined as an integrated set of actions that a company adopts in the production of goods and issuance of services with features that are acceptable to their customers at the lowest possible cost in relation to that of their competitors (Hitt, 116). In order to succeed in a highly crowded fast food marketplace, McDonald’s adopts a cost leadership strategy. With a cost leadership approach, McDonald’s can set itself apart, with its low prices being the main selling point rather than its wide array of menus.
The cost leadership approach requires that companies find ways of reducing the costs of their products or services. In the case of McDonald’s, buying raw foods and ingredients from suppliers in significantly large quantities ensures that they are accorded steep discounts. Besides purchasing in bulk, the company also invests in high-quality equipment and personnel to make it more reliable and efficient. For example, the company has a standard low-down oil quantity fryer across all its locations which is used alongside low-consumption fluorescent lighting equipment to save at least 11,000 kWh worth of electricity (Rajawat, 16). By devising ways to reduce operational costs, the company can save money and transfer the same to its customers by offering low-cost products that are still high in quality.
While the cost leadership approach offers a company the strength to withstand price wars, it is prone to other weaknesses. Primarily, the cost leadership approach requires that a company stays in a constant cycle of innovating cost reduction mechanisms. The weakness of such an approach is that all low-cost strategies have to be unique enough so that competitors cannot copy or match (Islami, 3). Since the constant evolution of these prices is not easy, it is possible that companies might run out of ideas or implement some that are deemed controversial. At McDonald’s, for example, the company has been criticized for underpaying its workers and this resulted in lawsuits and defamation (Naqvi, 536). While sourcing for cheap labor is a means of cost reduction, it is a detestable idea for a multinational company like McDonald’s.
Corporate-Level Strategies
Corporate-level strategies are utilized to help a company increase its value as well as it profits in comparison to its competitors. According to Hitt, corporate-level strategies are defined as specific actions that aid an organization in gaining a competitive advantage by selecting as well as managing companies competing in disparate product markets (116). As such, organizations can utilize offensive or defensive strategies with the intent of growing their profits and revenues. Corporate-level strategies can range from product diversification, international market expansion, competitor acquisition and consumer or supplier acquisition. Prior to committing its resources to a specific or combination of corporate-level strategies, an effective firm should conduct an evaluation of its growth opportunities (Hitt, 116). By doing so, a company can mitigate its usage of capital or human resources while implementing a given corporate-level strategy.
McDonald’s has effectively undertaken international market expansion through a multi-domestic strategy. McDonald’s is considered the world’s largest fast-food restaurant, given its high international global expansion. According to Siehoyono, McDonald’s is established in 121 with at least 31,000 restaurants, whose huge numbers account for its high global sales that translate to over $38 billion (76). Through international corporate-level strategies, companies have such benefits as increased market size expansion, competitive location advantages, have access to raw materials, opportunities to utilize developing technologies and access to customers in emerging markets.
McDonald’s multi-domestic international strategy is based on geographic structure. Thus, the company divides its operations based on the five major geographic divisions- Europe, Latin America, Canada, United States and Asia/Africa/ Middle East. According to Han, 75 percent of the company’s revenues were acquired from Europe and the US (73). The company’s main strategic approach is maintaining a leading position in these two key markets while expanding in emerging markets. While economic, political and cultural risks are apparent with international expansion, using the multi-domestic strategy allows an organization to tailor itself according to market needs to be segmented by the country’s boundaries (Hitt, 246). As such, McDonald’s has managed to overcome expansion hurdles in such countries as China, India, and Russia.
McDonald’s multi-domestic strategy focuses on maximizing the company’s competitive response by meeting the diverse market requirements needed in each country. The firm customizes its food requirements based on regional consumer requirements. For example, given that the Chinese prefer chicken dishes to beef, McDonald’s introduced this in their Chinese restaurants. In France, the company ensured that the restaurant’s interior design appealed to the French by incorporating wood-beam ceilings and hardwood ceilings while in Canada, they introduced Canadian feature breakfast (Han, 73). All these efforts are geared towards ensuring effective international market penetration.
Even though it was pioneered in the United States, McDonald’s has successfully ventured into different international markets as well as introduced new products that align with the consumers’ needs. As such, the company’s corporate-level strategy is effective as it has infiltrated diverse markets despite cultural, political and economic differences from its primary branch in the US. Therefore, McDonald’s has ensured customer satisfaction as well as mitigated competition from other local and international fast-food chains within these areas.
Competitive Environment
Despite its dominance in the fast food market, McDonald’s has stern competition with its main rival being KFC. While McDonald’s primarily relies on the cost leadership approach, KFC favors differentiation as its main business-level strategy. According to Hitt, the differentiation strategy involves the production of goods and services with actions that customers perceive as different but important to them (120). Unlike cost leadership, differentiation encourages a company to produce distinctive products for customers who value differentiated features more than low cost. While KFC’s main product is fried chicken, it has a diverse product line as these may come in grilled and roasted formats and with side dishes and desserts. Outside the North American market, KFC has beef and pork-based products. With such a wide array of products, KFC furthers its adherence to a differentiation strategy.
In comparison to McDonald’s, it is possible that KFC has a better business-level strategy. Unlike the cost leadership approach, a differentiation strategy is not susceptible to price wars (Hitt, 122). Differentiation allows the company to compete with other factors besides price and can therefore use premium or slightly higher prices to compete with others. Similarly, customers may have a wide array of choices besides simply comparing prices. As a result, KFC may have more customers in the long term compared to McDonald’s, which can only rely on customer loyalty whenever they are able to maintain lower price points for their products.
Product diversification is a corporate-level strategy used by companies to increase returns and value. By undertaking successful product diversification, a company can be flexible in shifting its investments in different markets (Hitt, 316). KFC, as one of McDonald’s major competitors, is known for its product diversification in the different markets it has established its restaurants. Notably, both McDonald’s and KFC are known to utilize this corporate-level strategy as a means to have better market penetration in emerging markets. However, in one of the major global markets – China- KFC’s corporate-level strategy has been deemed more effective. In the Chinese market, McDonald’s markets itself based on the domestic brand it has in the US as well as compared to KFC, which tailors its marketing and operations to fit the Chinese culture.
As noted above, McDonald’s multi-domestic corporate-level strategy focuses on expansion based on altering its menu to fit the required market. It incorporated chicken as a major component in its fast-food menu to satisfy customers’ preferences in China such as the chicken burgers to gain a competitive foothold in the country. However, KFC product diversification strategy involves integrating both its Western fast-food products as well as providing the local menus that the Chinese have, such as congee and chicken soups (Wu, 2374). In so doing, KFC has a stronger brand positioning and loyalty in such markets due to its non-affiliation with Western culture or products.
Market Cycles
Different strategies will yield different outcomes when subjected to either fast-cycle or slow-cycle markets. Slow-cycle market refers to markets where a firm can maintain its competitive advantage for long as imitation is costly, whereas, in fast-cycle markets, there are no shields to imitation; hence competitive advantage dissipates rapidly (Hitt, 284). Comparatively, McDonald’s strategies are less likely to survive in a fast-cycle market than KFC’s. For instance, it is possible for other fast food chains to imitate low prices as they could research into how prices of their goods can be lowered. However, in a slow-cycle market, McDonald’s is shielded from imitation as competitors need a long time to research their strategies, whereas KFC’s diversified menus could easily be replicated. Therefore, both companies have points of weakness and strength in their different strategies.
Sources
Han Jing. 2008. The business strategy of McDonald’s. p. 72-80. Web.
Michael A. Hitt. 2020. Strategic Management: Concepts and Cases: Competitiveness and Globalization 13th ed. Cengage Learning
Xhavit Islami. 2020. P. 1-15. Linking porter’s generic strategies to firm performance. Web.
Ariz Naqvi. 2017. McDonald’s UK: Staffing & retention issues. p. 529-538. Web.
Abhishek Rajawat. 2020. Factors responsible for McDonald’s performance. p. 11-17. Web.
Lintje Siehoyono. 2005. The McDonald’s case: strategies for growth. 74-80. Web.
Yiling Wu. 2022. The differences between globalization and customized marketing strategies-take KFC and McDonald’s in China as an example. p. 2371-2376. Web.