McDonald’s Company International Expansion

Abstract

This paper delves into the expansion of McDonald’s into various international markets and the various problems it needs to address to penetrate them. This paper thus delves into an analysis of macro-environmental factors, the viability of franchising, and whether the company should standardize or adapt the brand for international consumers.

Analysis of Macro-environmental factors

Porters 5 Forces Analysis

The threat of New Entrants It should also be noted that the Class A consumer segment of McDonald’s (i.e., Class A are high-income customers) who do patronize the company’s products within the aforementioned markets may be drawn towards other brands that have started to focus on quality rather than affordability. For example, new burger chains such as “In and Out Burger” have all developed new product line ups that entice customers with higher quality fast food products. While these items may be more expensive, they do bring in more Class A customers, which erode the market share of McDonald’s. Since McDonald’s focuses on developing affordable food options, it would need to develop a new strategy to address the problems brought about by these new competitors and their higher quality products.
The threat of substitute products or services One possible avenue of approach in addressing the current issues of McDonald’s would be to shift resources towards foreign markets that have not been as adversely affected by the current economic downturn and focus efforts there instead of in cathartic local markets. Implications of such a focus on the international marketing activities of the firm would come in the form of developing marketing campaigns in new locations such as Saudi Arabia, New Zealand, Indonesia, and various Central African states where the McDonald’s brand is not as well known as compared to other markets. However, such markets already have local fast food brands that customers may prefer over the “foreign” type of food that McDonald’s offers. It may take some time before the company is able to adapt its products to local tastes, and, as such, this presents itself as a definite issue involving substitute products affecting the company’s ability to penetrate new markets.
Bargaining power of customers (buyers) To satisfy its customers that are looking for healthy and affordable products, its international marketing activities would diversify into health food campaigns within its U.S., U.K., and Western Europe based markets while showcasing affordability when it comes to marketing products within developing countries. Such a strategy is likely to happen or is already happening at present as McDonald’s attempts to comply with the needs of local populations in different regions around the world.
Bargaining power of suppliers The only possible outcomes where expansion would be plausible would be if a significant shift in consumer interest towards fast food consumption occurs (which is highly unlikely) or if another economic crises would happen which would necessitate people having to choose more affordable methods of consumption (i.e., food from McDonald’s) (Rarick, Falk & Barczyk 2012). However, on the opposite end of the spectrum, consumer spending has significantly increased within Malaysia, Indonesia, the Philippines, China, and other Asian countries. This is primarily due to the current popularity of the Asian region as an outsourcing destination (ex: China, Vietnam, Cambodia, and the Philippines), which has resulted in positive economic benefits for the local economies in the region (Research and Markets 2013). It is based on this that expanding into such markets would be advisable, however, since McDonald’s utilizes a strategy of sourcing its needs through local companies, it would need to take into consideration the bargaining power of local suppliers to fulfill its needs. Since the company is a well recognized global brand and buys in bulk, it is unlikely that it would encounter any significant resistance from local suppliers.
The intensity of competitive rivalry At present, McDonald’s finds itself in a market environment wherein corporate expansion of operations, sales, and marketing efforts has placed a particular emphasis on expansion into the developing world. One reason behind this trend is due to over-saturation within cathartic local markets in the western world as well as the need to develop new markets for a company’s products in order to meet the expectations of shareholders in the long term (McDonald’s Corporation SWOT Analysis 2013). Research data from 2006 to 2013 reveals a new trend in the global marketplace over the past few years wherein consumer spending has decreased within the markets of the U.S., U.K., and Western Europe (Research and Markets 2013). Since consumer demand within present-day western markets (i.e., the U.S., the U.K. and other European nations) has been waning, it thus requires a shift towards expansion into new international markets such as those in Asia (particularly China, India and the Philippines) in order to take advantage of this new market opportunity. Ever since the 2008 financial crisis, the current U.S. and U.K. consumer market for McDonald’s has significantly stagnated, even until the present, with low levels of consumer purchases as compared to previous years (Rarick, Falk & Barczyk 2012). While there were signs of recovery in some sectors for McDonald’s through its “I love It” marketing campaign and the company’s focus on developing healthier menu options, the fact remains that local consumer markets within the west are still far too unstable.

Steeple Analysis

Social The brand is well known and, as such, as a certain level of societal popularity which promotes sales.
Technology One of the growing methods of customer interaction and sales has been through the internet wherein customers are increasingly choosing to buy their needs online (whether in the form of food, clothing, etc) (Freedman 2013). As such, while McDonald’s has focused its efforts on developing several localized E-commerce platforms to sell their products online on a per country basis, the fact remains that in terms of advertising online through banners, commercials or viral marketing campaigns, the company has largely avoided such methods (Freedman 2013). This may change in the future as McDonald’s continues to expand into different markets such as South Korea where internet usage is an ubiquitous part of everyday life. In order to get more consumers both in local and international markets, the marketing efforts of McDonald’s may encompass new methods of internet marketing and sales which could result in an increase in the amount of profits for the company.
Economic With low consumer spending and an atmosphere of economic uncertainty which pervades the domestic market within the home territories of McDonald’s, any attempt to expand into such areas would result in wasteful operational costs and no guarantee that a company that attempts continued expansion would be able to obtain a significant portion of the local consumer market share (Datamonitor: McDonald’s Corporation 2011). The fact is that the U.S., U.K. and European consumer markets at the present are not conducive towards expansive sales attempts; rather, they are more conducive towards maintaining or even reducing the current marketing initiatives of companies in such countries.
Environment Another factor that should be taken into consideration is that while it may be true that there has been a greater level of consumer interest towards healthy food products, the fact remains that economic realities (i.e. low levels of income) continue to be a contributing factor behind consumer decisions to make food purchases (Company Spotlight: McDonald’s Corporation 2005).
Political There are no political concerns in relation to McDonald’s and its international expansion strategy.
Legal There are no legal concerns as well.
Ethical One of the current issues related to McDonald’s is its connection to causing obesity. While McDonald’s may focus on a marketing campaign that emphasizes the brand as a healthy choice due to the various changes in ingredients that the company has implemented within the past few years, such campaigns would be done in populations where healthy food choice is a bigger concern.

Viability of Franchising

If the company were to penetrate new markets with an outdated branding strategy (i.e. the same strategy used in the U.S.) could result in a relatively low product uptake which would bring about significant financial losses for the company. One way of overcoming this was actually shown by Wal-Mart when it entered into the Chinese market wherein it undertook partnerships with local corporations and franchised the operation resulting in a considerable level of success. While it may be true that McDonald’s does orient itself to be a family friendly establishment, its primary market segment is not families with children at all. If you were to examine the types of customers that go to McDonald’s on a daily basis you would see that families are actually part of a far larger market segment which can only be described as type C customers.

This particular demographic is composed of individuals who are looking for the maximum value for their money with their limited amount of funds and, as a result, McDonald’s orients its menu in order to be an affordable and economical choice for such individuals. As such, based on the work of Chang (1995) the entry of an international company into a foreign market requires the development of new brand promotion initiatives that appeal more to the target market in the country that the company is attempting to penetrate into the desired consumer segment. The reason behind such attempts at developing an appeal that is more in line with the tastes of the local populace instead of relying on the traditional branding of the company is due the presence of already well established brands within the targeted markets with similar products lines (Chae and Hill 2000).

It is based on this that the best way of penetrating into a foreign market is through local franchising partnerships since a local corporate partner is better suited to understand the intricacies of a local culture as compared to a large multinational company that has little experience in the market it is attempting to penetrate. It is based on this that franchising would definitely be a viable means of entering into a foreign market given the experience and knowledge local “experts” can bring to the table.

Standardizing or Adapting the Brand

This section delves into whether McDonald’s should utilize standardization across its various international locations or change their operations based on the markets they are operating in. It was mentioned in the case study that McDonald’s has attempted to adapt to its local customer base through the use of special product offerings that coincide with local tastes. This comes in the form of chicken meals that have rice, special sandwiches that are kosher, and vegetarian options for customers in India. So far, such a strategy has proven to be effective in attracting customers and increasing product patronage, however, it must still be investigated whether it would be viable in the long term.

What must be understood is that the way a product is promoted in one country (i.e. the name of the product, its general appearance, and how a company chooses to appeal to consumers) is often engineered to appeal to the cultural and social predilections of that particular consumer population. However, not all consumers in the global market place have the same tastes when it comes to particular methods of marketing a product.

Branding is an important aspect of selling products since it is the manner in which consumers differentiate one product from the rest in terms of what the brand represents such as quality, product longevity and popularity (Viswanathan and Dickson 2007).

The reason behind such actions was noted in the work of Chang (1995) where it was stated that companies often implement a form of product customization in order to make a product more appealing to a local culture (Chang 1995). This was mentioned earlier through the sale of products by McDonald’s that were oriented more towards local consumer tastes that are not being sold in their traditional markets (i.e. shawarma, rice burgers, etc.).

What must be understood is that it is often necessary to rebrand a product in order for it be successful in a local market given the potential for cultural misunderstandings to arise resulting in low product sales. It is either that or the items that the company is selling may not coincide with the local cultural traditions within a particular country. This was seen in the case when McDonald’s expanded into India and it was discovered that a large percentage of the country practiced vegetarianism making its meat based products unappealing to this market segment. As a result, the company had to develop an entirely new menu that was primarily suited toward vegan plates.

However, this is not to say that adopting a standardized method of brand promotion is not effective. Companies such as Mc Donald’s, Toyota and Ford have implemented a pretty standardized brand strategy across different markets and have emerged as globally competitive companies with well recognized brands. When analyzing such aspects, it is necessary to examine standardization versus customization of a global brand in order to determine which method of branding would be advantageous for a company looking to establish itself in other global markets.

It is rather interesting to note that various theories of consumer decision making processes always seem to assume that consumers pass through distinct stages before, during and after the process of selecting a particular product to buy or service to utilize. What must be understood is that an average consumer is influenced by a myriad of different factors that affect how they choose to patronize a particular product or service (Brierley 2012).

This can range from various psychological reactions such as the way they think and feel about different products (i.e. brand perception) to the manner that the market environment they are currently present in affects the way in which they perceive a particular product or service (i.e. local culture, their family, local media influences etc.). For example, the 2008 financial crisis and the subsequent financial recession the U.S. greatly affected how consumers perceived particular products or services. People had less liquidity resulting in a shift in consumer buying behaviour towards more affordable food choices. This period of time actually created a resurgence in the number of consumers that went to McDonald’s since for them it was one of the most affordable ways they could eat. What is interesting though is how affordability and lower incomes affects consumer choice and thus brand development. In other words, consumers try to get the most out of their income through rational buying behaviour which results in a maximization of total utility from the products or services used (Rossiter & Foxall 2008).

In this section of the paper, this comes in the form of customers opting for affordable food from McDonald’s due to their limited amounts of money (Shaw, Shiu, & Clarke 2000). This rational behaviour is based on the fact that consumers will act in an economically competent manner wherein they will not spend too much money on irrational purchases or services (Calder & Burnkrant 1977). As such, the concept of rational behaviour assumes all consumers engage in rational buying behaviours which becomes the basis for any future analysis of consumer patronage towards a particular type of brand (Oshikawa 1969).

This is one of reasons why the standardization of the Mc Donald’s brand across multiple countries and consumer segments has been so successful given the brand’s association with fast and affordable food for the masses. This is one of the factors that McDonald’s should consider when developing their international branding strategies wherein they need to know what their brand represents and how it is effectively interpreted by the local populace and the consumer segment that the company is attempting to target (Viswanathan and Dickson 2007).

In the case of Mc Donald’s, it has always had a more “generalized” marketing strategy which focuses on targeting class C (i.e. low income) or class b (i.e. mid income) consumers due to the product offerings it has. By focusing on serving everybody, the company does not need to worry as much on product distinction; rather, it focuses on promotion through affordability. Similar companies that are able to utilize a standardized branding strategy by virtue of their business model come in the form of companies such as Tide (the detergent company) or Microsoft (the software developer) (O’Donnell and Jeong 2000). The companies that were mentioned are focused more on generalized methods of sale to all consumer classes and thus customization of a global brand is not necessary. However, there are cases where customization is necessary given different price points that a company wishes to enter. It is based on this that the next section will examine such aspects.

The principle of customization can be seen at work when McDonald’s developed country specific menu items to better appeal to local tastes as well as utilizing local suppliers to bring down the price of products to a level that is more affordable for local consumers. By positioning itself in different points in the market with a branding strategy that enables it to encompass different types of consumers, this enabled the company to develop better positioning in terms of being able to penetrate multiple markets under different branding methods (i.e. appealing to different nationalities through different product offerings).

This method of brand customization is in part due to the company’s desire to be able to appeal to multiple consumer segments through brands that are more inclined towards their end of the consumer market. However, it should be noted that Rossiter & Foxall (2008) explains that one of the best ways for a company to fail when it comes to penetrating new markets is to try to overextend the brand into multiple frontiers. This can cause not only a significant issue in consumer perceptions regarding the brand itself but could also cause logistical issues for the various McDonald’s franchise stores attempting to sell different product iterations of the same brand.

The most effective solution, as advocated by Rossiter & Foxall (2008), is to employ product customization instead of standardization wherein a company has a brand embody a particular type of product that would suit a segment of the population. By doing so, this enables a company to reach multiple classes of consumers and be better suited to adapting to a new consumer environment as compared to sticking with a standardized method of sales and production.

Based on what has been presented, it can be seen that when it comes to standardization versus customization of a global brand, it all depends on the type of product that is being sold and how a company chooses to target its desired customers. A generalized consumer strategy as seen in the case of McDonald’s in its home markets would be effective, however when attempting to penetrate markets with diverse levels of taste (i.e. different local predilections towards the type of food eaten) a more customized branding initiative is more effective especially in cases where targeting different types of consumer segments is being done.

Reference List

Brierley, H 2012, ‘Why Loyalty Programs Alienate Great Customers’, Harvard Business Review, vol. 90, no. 7/8, p. 38. Web.

Calder, B, & Burnkrant, R 1977, ‘Interpersonal Influence on Consumer Behaviour: An Attribution Theory Approach’, Journal Of Consumer Research, vol. 4, no. 1, pp. 29-38. Web.

Chae, M and Hill, J 2000,’Determinants and benefits of global strategic marketing planning formality’, International Marketing Review, vol. 17, no. 6, pp. 538-562. Web.

Chang, T 1995,’Formulating adaptive marketing strategies in a global industry’, International Marketing Review, vol. 12, no. 6, pp. 5-10. Web.

‘Company Spotlight: McDonald’s Corporation’ 2005, Marketwatch: Global Round-Up, vol. 4, no. 12, pp. 78-83. Web.

‘Datamonitor: McDonald’s Corporation’ 2011, Mcdonald’s Corporation SWOT Analysis, pp. 1-10. Web.

Freedman, DH 2013, ‘How Junk Food Can End Obesity’, Atlantic Monthly (10727825), Vol. 312, no. 1, pp. 68-89. Web.

‘McDonald’s Corporation SWOT Analysis’ 2013, Mcdonald’s Corporation SWOT Analysis, pp. 1-9. Web.

O’Donnell, S and Jeong, I 2000, Marketing standardization within global industries: An empirical study of performance implications’, International Marketing Review, vol. 17, no. 1, pp. 19-33. Web.

Oshikawa, S 1969, ‘Can Cognitive Dissonance Theory Explain Consumer Behavior?’, Journal Of Marketing, vol. 33, no. 4, pp. 44-49. Web.

Shaw, D, Shiu, E, & Clarke, I 2000, ‘The Contribution of Ethical Obligation and Self-identity to the Theory of Planned Behaviour: An Exploration of Ethical Consumers’, Journal Of Marketing Management, vol. 16, no. 8, pp. 879-894. Web.

Rarick, C, Falk, G, & Barczyk, C 2012, ‘The little bee that could: Jollibee of the Philippines V. McDonald’s’, Journal Of The International Academy For Case Studies, 18, 3, pp. 83-88. Web.

Research and Markets 2013, ‘Research and Markets: McDonald’s Corporation – SWOT Framework Analysis’, Business Wire (English), vol. 6, no. 1, pp.1-10. Web.

Rossiter, J, & Foxall, G 2008, ‘Hull-Spence Behaviour Theory as a paradigm for consumer behavior’, Marketing Theory, vol. 8, no. 2, pp. 123-141. Web.

Viswanathan, N and Dickson, P 2007,’The fundamentals of standardizing global marketing strategy’, International Marketing Review, vol. 24, no. 1, pp. 46-63. Web.