Global business environment feasibility report for expansion - academic assignment -

Global Business environment Feasibility report for the expansion of MacDonald

(Pakistan or Saudi Arabia)

MacDonald a (MNC) is seeking the opportunity of doing or

expanding its cross-border business in two countries Pakistan and

Saudi Arabia. This report evaluates which country is more suitable

for the business expansion of the MacDonald. This report also

focuses on the broad objective and strategy of the business

expansion of MacDonald and this report also includes an analysis

of business environment factors of both levels at country and

industry levels.

2009

Ibrahim University 8/4/2009

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Table of Contents

Global Business Environment ................................................................................................................. 3

Introduction (Macdonald): ...................................................................................................................... 3

Objective ............................................................................................................................................. 3

Strategy ............................................................................................................................................... 4

Countries for expansion ...................................................................................................................... 4

Analysis of Saudi Arabia .......................................................................................................................... 5

Politics of the Saudi Arabia: ................................................................................................................ 5

Economy of the Saudi Arabia: ............................................................................................................. 6

Social and cultural Factors of Saudi Arabia: ........................................................................................ 6

Technological factors of Saudi Arabia: ................................................................................................ 7

Analysis of Pakistan ................................................................................................................................. 7

Politics of the Pakistan: ....................................................................................................................... 8

Economy of the Pakistan: ................................................................................................................... 8

Social and cultural Factors of Pakistan: .............................................................................................. 9

Technological factors of Pakistan: .................................................................................................... 10

Brief Comparison between both economies ........................................................................................ 10

Conclusion ............................................................................................................................................. 11

References ............................................................................................................................................ 13



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Global Business Environment

Introduction (Macdonald):

McDonald is the world's largest chain of fast food restaurants. It serves as a

multinational company that is serving nearly 47 million customers daily.

McDonald's basic products are hamburgers, cheeseburgers, chicken

products, French fries, breakfast items, soft drinks, milkshakes, and

desserts. Now it has added salads, snake wraps and fruit in its product line

in order to capitalize on growing consumer interest in health and wellness.

The most attractive feature of attraction for McDonald's restaurants is that

it includes playground for children and advertising geared toward children,

and in most of the restaurant’s the interior design is manufactured in such

a way that it compels customer comfort and relaxation within the place. For

example it introduces lounge areas and fireplaces, and most comfortable

chairs, sofas and tables. The MacDonald’s business operation model is

based upon franchises. Each McDonald's restaurant is operated by a

franchisee that may be affiliated to the company or the corporation has it.

The company’s revenues are generated from the rent, royalties and fees paid

by the franchisees, as well as sales in company-operated restaurants where

company sells the end products to the customers. McDonald's revenues

grew 27% over the three years ending in 2007 to $22.8 billion, and 9%

growth in operating income to $3.9 billion due to its expansion of its

worldwide and huge success in the diverse cultures.

Objective

MacDonald’s basic objective is the Market Expansion worldwide. Macdonald

has a great success story in the market expansion and going globally. The

globalization of the MacDonald’s is getting up and up. Its market expansion

has an aim to:



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It has aim to provide good food in a friendly environment accompanied

with fun.

MacDonald wants to be a socially responsible company

It plans good dividends for the shareholders.

It has aims to provide swift food in reasonable price and quality.

Strategy

MacDonald’s is a company that operates in the world in the form of

franchises. It has franchises all over the world that are some self operated

and rests are operated by franchisee. McDonalds has a strategy to provide a

franchise with its share in it. So that it can also share profits with the

franchisee. Similarly in the real profitable areas the full control is

administrative by the MacDonald’s itself. MacDonald’s exports the basic

ingredients of its products from its head offices to protect its recipes, while it

outsources the cold drinks and stuff from the local market. This is the basic

strategy on which MacDonald functions. The basic strategy for Macdonald

for these countries would also be Export.

Countries for expansion

Here in this business model we are evaluating two countries for the

business expansion of the MacDonald. We have selected Pakistan and the

Saudi Arabia for the target markets. Pakistan is an asian country that is

situated in south west of the asia. It has its physical and geographical

importance. This is a big country with the population of about 160 million

people. In camparison to it saudi arabia is also an asian country that is

situated in the middle east of asia. This country is also with huge population

of 27.6 million people. The common thing in these two countries is this that

both of them are muslim countries. Saudi Arabia is contating the holy

places for the muslims like Khana Kaba and Holy Mosques of Makka and





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country. The law and order in Saudi Arabia s very strong. There have never

been rituals or any terrorist activities in the Saudi Arabia. The Saudi Arabia

constitution is Quran (the Holy book of the Muslims) that is governed by the

Sharia (Islamic Law). That is why the kingdom of Saudi Arabia is very

peaceful and crime and terrorist ratio is nearly zero as Islam has very strict

punishments for the law breakers.

Economy of the Saudi Arabia:

The economy of the Saudi Arabia is entirely depends upon the oil resources.

The Saudi Arabia has big reserves for oil. Till the time of 1950, 1960, the

Saudi Arabia reduced its poverty to the huge level. Now there poverty is

almost vanished. Similarly the kingdom is promoting foreign investments in

the country in the fields of like power generation, telecom services and

insurance. Similarly it also promotes the entertainment, restaurants and

building hotels for the people. They have to do joint venture with the

government. In the Saudi Arabia there are certain fields that are exclusive to

the government while some of them restrict foreign investments in the

country. The basic benefit of the Saudi government is that if you are

functioning there you have not to pay huge taxes. All you just have to pay is

the 2.5% of the annual income’s Zakat. Similarly there is huge number of

foreign labour in the Kingdom of Saudi Arabia. About 5 Million people from

different countries are working in Saudi Arabia. Similarly Saudi Arabia is

one of the top 20 countries where doing business is very easy and operates.

Social and cultural Factors of Saudi Arabia:

The social and culture factors are totally interrelated with the traditions and

the practices of Islam. The people of here were very poor in the past 3

decades. But due to the grooming industry and development works in the

country people are getting attractive life style here. Now people are engaging

with the acts of the world and contributing in the world renowned activates

and the event aggressively and with effort. Saudi Arabia has its own football





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the light of the different factors that may cause our launch of MacDonald in

the country.

Politics of the Pakistan:

Pakistan has a democratic structure for its government. It is named as

Islamic republic of Pakistan. It has a federal republic system of government.

It has two legislations, Upper and lower house. President and the prime

ministers are the executives of the country. There is huge number of

political parties in the country. Pakistan is a country that is facing political

instability till the time it has been founded. Three martial laws have been

implemented in the country. From 1947 till now Pakistan has the 35 years

of military rulers. Similarly it is very rare in Pakistan that a part get it major

majority in the legislation houses. Governments are very uncertain in the

Pakistan. In the history of 61 years of Pakistan, only one government

complete it tenure of five years. It is seen rather the assemblies are dissolved

or the martial law was implemented before the time of tenure. Similarly

Pakistan has ethnic conflicts within its provinces. In last 8 years Pakistan

has been in great trouble due to terrorist activities of Taliban and Al-Qaida.

Many of suicide attacks, bomb blast and terrorist activities occurred due to

Pakistan’s policies against al-Qaida and its support to USA. Due to these

reasons Pakistan is very unstable in last 8 years. Pakistan also has

uncertainty on its borders too. Pakistan and India has done three wars with

each other due to unresolved Kashmir and water issue. So their remain a

tension on each other borders but now the politicians are trying to resolve

these issues like Kashmir and water by dialogue.

Economy of the Pakistan:

Pakistan is a very poor country in 1947, despite this fact, Pakistan’s

economic growth rate was better than the global average in its first four

decades, but weak policies led to a slowdown in the late 1990s. The

economy of Pakistan has many fruitful natural resources. Pakistan is also

very famous for its agro products like best cotton and rice in the world. But



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if we see the development of Pakistan, It is very slow. In last three years

Pakistan is in a great recession due to the terrorist activities and the weak

trust of the foreign investments in Pakistan. Due to the global crisis of 2008,

a large inflation rate of 24.4% is seen in Pakistan and a low savings rate,

and due to other economic factors, it has become difficult to sustain its

growth. Similarly a huge unemployment is seeing in last few years. The

doing business status of Pakistan is at 77th number among 181 countries.

That is very low to take a risk to start a business. Similarly there is a huge

corruption in the country. At the same level, the new investors have to face

many problems in Pakistan to launch a business now a day due to political

instability and war against terrorism.

Social and cultural Factors of Pakistan:

Pakistani has a social hierarchical system, with high influence of the

traditional Islamic values; despite this fact Pakistan has strong traditional

joint family structure. A lot of social and family constraints are embedded

with its basic culture. If we see rationally, Pakistan is a country that has

strong cultural values that was developed by the Muslim Mughal emperors.

Pakistan has four big provinces and a number of languages are spoken in

Pakistan. Except the values of Islam, regionally Pakistan has many diverse

values in different areas. For example we see, above 30 languages are

spoken in Pakistan. The people of the Pakistan have a guest respecting

nature. People always love to have entertainment and love for each other.

Education level of Pakistan is very low. Literacy rate is about 37% according

to the survey by the ministry of education of Pakistan in 2008. While in the

big cities like Lahore, Islamabad and Karachi literacy rate is up to 82%

according to this survey. A lot of companies like pizza hut, KFC and subway

are doing their businesses in major cities. People of big cities love to visit

parks, joy lands and such fast foods restaurants of the cities.



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Technological factors of Pakistan:

Being a developing country Pakistan has developed its technological needs

for the local industry too much extent. But still that is not enough to fulfill

the necessities of the industry. Pakistan does a lot of export for the

machinery from other countries to develop its industry that is still in

developing face.

Brief Comparison between both economies

The table below shows the brief comparison between these two countries on

the basis of findings of my research. This really depicts the differences in

both countries that will help us to draw a conclusion for the MacDonald to

implement its real objectives in a specific country.

Pakistan Country Saudi Arabia

federal republic Government monarchy

159.196.336 (July 2004

est.) Population

25.795.938 note: includes 5.576.076 non-nationals

(July 2004 est.)

Purchasing power parity -

$2.100 (2008 est.)

GDP Per Capita

Purchasing power parity - $11.800 (2008 est.)

Southern Asia. Bordering the Arabian sea. between

India on the east and Iran and Afghanistan on the

west and china in the

north

Location

Middle east. Bordering the

Persian gulf and the red sea. north of Yemen

total: 803.940 sq km land:

778.720 sq km water: 25.220 sq km

Area total: 1.960.582 sq km water: 0 sq km land:

1.960.582 sq km

Mostly hot. dry desert;

temperate in northwest; arctic in north

Climate Harsh. dry desert with great

temperature extremes



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Conclusion

In the previous section we have discussed both countries on the basis of the

political, economical, social and technological factors. According to the

political constraints of both countries we have fond that Saudi Arabia is a

country that has stable political structure that is able to rely on while in the

Pakistan it is very different. Pakistan political structure is very unreliable.

There is huge risk of terrorism, political and peace situations. Similarly

Saudi Arabia has a strong economy as compare to the Pakistan. Saudi

Arabia is a wealthy country where the GDP per capita is about $467,700 as

compare to the GPD per capita of Pakistan of $160,800 according to CIA fact

book 2008 that shows a huge difference between these two countries. As the

purchasing power parity of Saudi people is stronger than Pakistani people.

At the same level Pakistan rupee currency is much devalued so it will be

tough for Pakistani person to purchase a burger of $2 that becomes equal to

Pakistani 200 rupees that is a considerable amount for a Pakistani. On the

other side of coin, it is not very much expensive to buy a $2 burger in Saudi

Arabia. If we analysis on the basis of doing business we would find that it’s

very easy to launch and continue a business in Saudi Arabia as compare to

Pakistan as rankings from the Doing Business 2009 report, covering the

period April 2007 to June 2008. According to this report it is also mention

that tax rates in Pakistan and Saudi Arabia has a huge difference that is

also a point for the MacDonald to consider. Pakistan is at 124th number and

Punjabi 48%. Sandi 12%. siraiki (a punjabi variant) 10%. pashtu

8%. urdu (official) 8%. balochi

3%. hindko 2%. brahui 1%.

English (official and lingua franca of Pakistani elite and

most government ministries).

burushaski. and other 8%

Languages Arabic



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Saudi Arabia is at 7th number. 1 is for most low rates and 180 are for most

high rates rank for paying tax. If we see in the reference of the social and

cultural level, it is very tough for the MacDonald to launch a single strategy

for the Pakistani environment as there are a lot of languages are spoken and

very diverse culture that varies according to the distances within the

country. As Saudi Arabia has one language spoken in the whole country and

almost have the same culture in the whole territory. So it becomes very easy

for the Saudi Arabia context to launch a single strategy for the whole

country. Technological factors are also very open for the MacDonald that

Pakistan is a developing in technology and industry, on the other side Saudi

Arabia has much more expertise in this level as compare to Pakistan. As a

whole I suggest MacDonald to launch its operation in Saudi Arabia at first

due to the suitable, flexible and profitable factors in the economy based

upon my research findings.



13

References

McClatchy-Tribune (2009) Saudi business outlook brightens [Arab

News, Jeddah, Saudi Arabia]

Economist Intelligence Unit ViewsWire (Jul 10th 2009) Pakistan's

economy remains in bad shape, despite emergency help from the IMF

(www.economist.com)

The Saudi network (Saudi government)

http://www.the-saudi.net/saudi-arabia/government.htm

Official web gateway to the government of Pakistan:

http://www.pakistan.gov.pk

CIA World Fact book (September 2008)

U.S. Dept. of State Country Background Notes (February 2008)

The rankings are from the Doing Business 2009 report, covering the

period April 2007 to June 2008.

http://www.doingbusiness.org/EconomyRankings/

MacDonald official website

http://www.mcdonalds.com/



http://www.economist.com/

http://www.the-saudi.net/saudi-arabia/government.htm

http://www.pakistan.gov.pk/

http://www.doingbusiness.org/EconomyRankings/

http://www.mcdonalds.com/

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