McDonalds Entering Estonia Case Analysis

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Background of the company

Ray Kroc founded McDonald’s Corporation in 1955. The company went public, in the stock exchange, in 1967. His mission “was to build a restaurant that would be famous for food of consistently high quality and uniform methods of preparation. He wanted to serve burgers, buns, fries, and beverages” (McDonald, 2012). He based his philosophy on a simple principle of a three legged stool. The three legs were McDonald’s, franchisees and McDonald’s suppliers. McDonald’s has a global presence. It is a US based company (McDonald, 2012). The corporation has a number of franchisees in the global arena. Some of them include Big Mac, Filet-O-Fish and Egg McMuffin, among other. The company has established over 31,000 local restaurants located in about 120 countries. In US, there are about 14,000 outlets. Further, the corporation has employed over 58 million people worldwide. McDonald’s vision is to be “Estonia’s best quick service restaurant, experience supported by a set of core values and guiding principles” (McDonald, 2012).

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Entry modes which can be used by McDonald’s to enter Estonia are direct selling and franchisees.

SWOT analysis

A key strength for the corporation is strong global presence. It is ranked the market leader both in the US and international market. It also leads in the food industry. In addition, the company uses economies of scale for reducing costs associated with expansion and economic risks. The company owns an active children’s charity known as “The Ronald McDonald House” (Morrison, 2009). Also, the firm has a strong real estate portfolio. It has one of the world’s most recognized logos and a strong branded menu items. Finally, other than revenue from sale of food, it receives revenue from investments in property and franchise of restaurants (Peng and Meyer, 2011). Some of the weaknesses are that it has high employee turn-over. They lack innovative products. It uses advertisements which targets mostly children. Also, The corporation is yet to move towards the trend of organic food (Sitkin and Bowen, 2010).

The corporation is surrounded by great opportunities. Introduction of a healthy hamburger is a great opportunity to the business. In fact, they can be the first fast food restaurant to get approval for sale of low fat calorie hamburger. Also, they can provide optional allergen free food items (Dunning and Lundan, 2008). The group can slow down on expansion and concentrate on profitability. Some of the threats to which the corporation is faces are competition from sit in restaurants such as Taco Bell, Wendy’s, KFC, and burger king among others. The corporation is also exposed to threat of infection. In particular of food supplied. The business is faces threats of selling unhealthy food. Customers complain about existence of addictive additives in the food (Brooks, Weatherston and Wilkinson, 2004). This unhealthy food has greatly led to increase in obesity epidemic in America. Finally, the global recession has negatively impacted on the revenue streams of the business. Also, the economic meltdown has exposed the business to currency fluctuations. Therefore, in as much as it is a renowned corporation with a heavy global presence. It is faces a number of weaknesses and threats just like any other ordinary business (Browaeys and Price, 2011).

About Estonia

Estonia is located in Eastern European. Eastern Europe is an emerging market for most businesses. The European Union prompted flow of foreign direct investment in the region. This led to increase of household income, consumption and spending because of cheap labour. The end result was increase in living standards of the people. (Sloman , 2005) The work force in Estonia comprise of people who can fluently speak English, German and Russian apart from the official language. Labour in Estonia costs about 441 euro compared with about 2,395 euro in the European Union. Estonia has a population of 1.4 million. It is rated as high income especially due to the opening of European countries. Also, the marginal propensity to consume is high in Estonia. This is attributed to high consumption rate, changing consumer behavior among other factors. Also, there is stabilization of political and economic institutions. Therefore, McDonald’s will experience conducive and stable working environment. Finally, the region is rich in cultural and cultural diversity. Estonians makes up 88% of the population. The population comprises of Russians, Germans, Swedes, Latvians, Jews, poles, Finns, and Ingrains among others. Therefore, business expansion into Estonia offers the firm potential profits. This is as result of minimization of cost on labour and raw materials (Morrison, 2006).

Entry mode

An entry mode into an international market can be defined as the approach which an organization uses to gain entry to a new international market. Various companies may consider using different channels depending on the nature of goods and services they trade in. Brand name is also a key factor when choosing the entry mode. Some of the channels that company may use are internet, international agents, international distributors, strategic alliances, exporting, licensing, overseas manufacture, joint ventures and international sales subsidies (Rugman, Collinson and Hodgetts, 2006).

From past experience, McDonald’s mode of entry is through direct selling of products through private outlets. This mode of entry is known as specialty product producer. In this mode, the company produces, sells and promotes its self. This approach has been successful in some countries due to the renowned brand name. The risk with this mode is that it requires the company to thoroughly study the market in which it is planning to venture in. Besides, this mode requires heavy resources and commitment from the parent company. Another risk is that the parent company may find it difficult to manage local restaurants. Also, the parent company may have to comply with stringent rules imposed by foreign government authorities. It is always a tough challenge to comply with all the regulations. Therefore, this mode of entry does not normally work in certain countries.

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Other than the direct sales, the company may use franchisees. This is because of the shortcomings of direct selling. This method entails granting certain rights and powers to a corporation. Franchise is for a fixed period of time. Five common objectives in a franchise are market entry, risk and reward sharing, product development in a given region, and conforming to government regulation. Some of the risks associated with this approach are difficulty in managing the franchise. Dilution of control is a key problem associated with this approach. In addition, there can be cultural clashes between the parent company and the franchise. Further, there can also be mistrust over proprietary knowledge among other risks (Sitkin and Bowen, 2010). Therefore, it is important for the parent company to choose an entry mode that would suit the region. Also, the parent company can use more than one entry mode into a particular region.

Reference list

Brooks, I, Weatherston, J & Wilkinson, G 2004, International Business Environment, United Kingdom, Pearson Education.

Browaeys, J & Price, R 2011, Understanding Cross-Cultural Management, Pearson Education, United Kingdom.

Dunning, J & Lundan, S 2008, Multinational Enterprises and the Global Economy, Edward Elgar Ltd, USA.

McDonalds 2012, Our History, Web.

Morrison, J 2009, International Business: Challenges in a Changing World, Palgrave Macmillan, New York.

Morrison, J 2006, International Business Environment: Global and Local Marketplaces in a Changing World, Palgrave Macmillan, New York.

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Peng, M & Meyer, K 2011, International Business, Cengage Learning, London.

Rugman, A, Collinson, S & Hodgetts, R 2006, International Business, Pearson Education, United Kingdom.

Sitkin, A & Bowen, N 2010, International Business – Challenges & Choices, Oxford University Press, United Kingdom.

Sloman, J 2005, Economic Environment of Business, Pearson Education, United Kingdom.

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