Introduction: The term Strategy is always been defined as the ‘plan’ made by the top Management of the company to execute in the future. The process of forming an international strategy is a complex process and needs to be viewed from a bigger perspective, as the country’s economic, cultural, geographical, political, environmental and social conditions are the factors which plays a significant role (Mintzberg & Waters, 1985). McDonalds established in 1940 in California, USA is one of the most famous and successful global fast food chain in the world. McDonalds operate 32,000 restaurants in 119 nations serving more than 60 million customers on the daily basis and generating nearly $15 billion revenue annually (Mujtaba & Patel, 2007). Since the company’s inception, McDonalds have been using effective management and expansion strategies to enter global markets and to gain a reputation in the global fast-food market. McDonalds is well known for creating brand and customer loyalty for the services they are efficient in. McDonald’s is also enhancing its brand image by strengthening its CSR initiatives (Rathi, 2013). McDonald has faced lots of challenges for prospering in different regions as each region introduces new risks and challenges. So, the critical purpose of this research is to analyse and evaluate the various strategies McDonalds applied to enter and establish itself into Indian market. Company witnessed many severe challenges like government hardships as Indian government wanted to protect local industries but in the end the company was successful in expansion throughout India. McDonald’s applied various deliberate and emergent strategies to resolve the international issues it faced in a new global arena (Mourdoukoutas, 2012). 2.0 McDonalds Internationalization: McDonald’s business structure which is based on geographic structure of a region has a major impact on its strategies. McDonalds has divided its functioning into 5 geographical divisions. United States and Europe are the highest revenue generators for MCD, at 65%, 75%. Most important strategic approach McDonalds implement is to keep maintaining the major markets and simultaneously expanding the business into other emerging markets. Different customers in different regions have different tastes and demands, so to fulfil the requirements McDonalds have set up local geographic units in different regions to adjust the product and services as per the taste of the customer, the units are sole responsible for producing, branding and marketing in that region. By this geographical units McDonalds is able to have a maximum hold of a specific region as well as is able to satisfy the needs of the
Transcript
Introduction:
The term Strategy is always been defined as the ‘plan’ made by the top Management of the
company to execute in the future. The process of forming an international strategy is a
complex process and needs to be viewed from a bigger perspective, as the country’s
economic, cultural, geographical, political, environmental and social conditions are the
factors which plays a significant role (Mintzberg & Waters, 1985).
McDonalds established in 1940 in California, USA is one of the most famous and successful
global fast food chain in the world. McDonalds operate 32,000 restaurants in 119 nations
serving more than 60 million customers on the daily basis and generating nearly $15 billion
revenue annually (Mujtaba & Patel, 2007). Since the company’s inception, McDonalds have
been using effective management and expansion strategies to enter global markets and to gain
a reputation in the global fast-food market. McDonalds is well known for creating brand and
customer loyalty for the services they are efficient in. McDonald’s is also enhancing its
brand image by strengthening its CSR initiatives (Rathi, 2013).
McDonald has faced lots of challenges for prospering in different regions as each region
introduces new risks and challenges. So, the critical purpose of this research is to analyse and
evaluate the various strategies McDonalds applied to enter and establish itself into Indian
market. Company witnessed many severe challenges like government hardships as Indian
government wanted to protect local industries but in the end the company was successful in
expansion throughout India. McDonald’s applied various deliberate and emergent strategies
to resolve the international issues it faced in a new global arena (Mourdoukoutas, 2012).
2.0 McDonalds Internationalization:
McDonald’s business structure which is based on geographic structure of a region has a
major impact on its strategies. McDonalds has divided its functioning into 5 geographical
divisions. United States and Europe are the highest revenue generators for MCD, at 65%,
75%. Most important strategic approach McDonalds implement is to keep maintaining the
major markets and simultaneously expanding the business into other emerging markets.
Different customers in different regions have different tastes and demands, so to fulfil the
requirements McDonalds have set up local geographic units in different regions to adjust the
product and services as per the taste of the customer, the units are sole responsible for
producing, branding and marketing in that region. By this geographical units McDonalds is
able to have a maximum hold of a specific region as well as is able to satisfy the needs of the
local customers and promotes ‘maximum local development’. Customers in different nations
have different preferences for the food items hence McDonald’s keep on launching different
items in their menu for their regional local customers. China and India are very good
examples of this (Han, 2008).
McDonald’s key to success is the “think global and act local” business strategy which helped
it achieves competitive advantage in the fast growing fast-food industry. McDonalds has
customized its strategies considering economical, geographical, environmental and socio-
cultural factors (Mujtaba & Patel, 2007). McDonald’s been successful in adapting their
products and services on the demand and need of the local customers. This is the only reason
there is a lot of difference visible in the prices, menu, products, atmosphere and
advertisement in different global region (Cooper, 2009).
Source: (Ansari, 2013)
There are different modes of entry chosen by companies depending upon the degree of
resource commitment and the risks involved in the mode in a particular region. Franchise is
a less risker and cheaper mode of entry which is a best option for McDonald’s as they had
to adapt as per the local community preferences so they wanted local business people to
handle the business. 80% of the McDonald’s restaurants are franchised and has led to many
years of growth, profit and risk reduction (Nielson, 2013). McDonald’s franchising opened
up a job market for the local people and provided several growth opportunities to them.
Regional franchise holders were capable of building up a brand image for the company and
made it successful in the long run. The ‘trans- national’ strategy of McDonald’s overseas
provides high degree of local responsiveness (Griffioen, 2011).
McDonald's serves a menu with assured level of quality in the markets where it operates.
The McDonald was successful in differentiating itself from competitors through customer
loyalty, providing quality. Quality is the primary criteria which attract customers;
McDonalds provided high quality products in all the global locations and obtained
customer’s satisfaction. For e.g. McDonalds deal with local suppliers and bakers to
standardize the food items in all the nations in terms of colour, flavour etc. This also
benefits in reducing the mistakes and hence reduces operation costs too. McDonalds also
provided nutritional information on the meals which helps customer chose the meal as per
the health requirements. Speed continues to the one of the key objectives of McDonald’s
operation. Flexibility which is the top notch factor in bringing McDonald’s success as the
company showed flexibility in all the markets it entered by adapting to the customers taste
and flavour’s (Mujtaba & Patel, 2007).
2.1 McDonalds Internationalization Strategy in India:
McDonald’s managed to enter into struggling economy and the toughest market for the
international firms because of governmental hardships imposed on the firms. The prime
reason behind the fast and successful international expansion of Mc Donald's is the franchise
mode of entry in international markets which allows shareholders to share the rewards and
risks of pursuing and exploring of new opportunities globally. New Delhi the capital was the
first location for McDonald’s to open up its store in India in 1996. McDonald’s in no time
adapted itself to the Indian Culture. Since then, almost 300 outlets are functioning
(McDonald’s – Business Strategy in India, 2010). Initially the company faced a lot of
opposition from people and protested against the company. The reason was, Indian society is
a vegetarian society in majority (bbc, 2012).
Source: (dkirupalli, 2012)
3.0 CAGE framework
CAGE framework is developed by an international strategy professional Pankaj
“Ghemawat’s” which provides companies with one more parameter to evaluate countries in
terms of the “distance” between them. Distance here not only means the physical distance
between countries but also the cultural, administrative and economic distance and variations.
The attractiveness and fruitful outcomes from an overseas market can be analysed by looking
at the above four essential parameters between home and overseas units (Carpenter, 2012).
Source: (Bright, 2014)
3.1 Cultural Distance:
Culture has a significant importance and it is growing. According to Mr. Ghemawat’s culture
aims “to help businesses cross borders profitably by seeing the world as it really is, rather
than in idealized terms” (KOTKIN, 2007) . There is a big effect observed in the mode of
entry and the performance of the international unit because of the cross- cultural differences
between the nations. Culture affects the choices and behaviour of people. Various languages,
ethnic societies, religion, social values can become hindrance to successful business
transition (Griffioen, 2011).
“One size doesn’t fit all “when transferring an idea from one place to another. In India
majority of people follow Hinduism and cows are considered. Hence, beef was not tolerable
(Alderman, 2012). The second largest population is of Muslims for whom pork is a taboo and
they only prefer to eat halal meat. The population of vegetarians in the country is largest in
the world and twice the whole population of US. This became a big socio- cultural challenge
for McDonald’s and it faced a big tough time trying to survive in different cultures and
religions. McDonald’s now have the biggest presence in India and plan to open more
vegetarian outlets nationwide (Nagy, 2011). McDonald’s came up with the strategy of
changing their menu as per the need and taste of local people. Company responded with
burgers made up of peas, potatoes, carrots, rice, beans and Indian spices. For e.g. Instead of
Beef burgers they come up with different varieties of chicken burgers like Big Mac,
PizzaMCpuff, McAloo Tikki, Panner Cheese, Veggie patties (Alderman, 2012). Their menu
was then full of spicy food as Indians use lot of spices in the food. Research shows that
around 80% of the menu is indianised. The menu is different from the US counterpart but the
customer service; junk food appeal remained almost the same (McDonald’s – Business
Strategy in India, 2010).
3.2 Administrative Distance:
In CAGE framework, Administrative/ political distance represents the historical and political
connections between the nations. Trading is much feasible and easier with the nations which
have colonial ties since long. In McDonald’s case to enter Indian market was feasible because
of past strong trading relation between US and India (kalagir, 2014). Political distance also
impacts the selection of mode of entry and the future performance. Political issues eventually
have an impact on revenue growth of the business. For instance, in 2001, BJP one of the
dominant political parties in India came forward and protested against McDonald’s by
attacking various outlets around the city (Tapper, 2014) .
In lieu of overcome hindrances, risks and uncertainty of doing business overseas, the best
strategy for the firm is to tie up with a local partner (Griffioen, 2011). The same strategy was
applied by McDonald’s when it decided to partner with two local entrepreneurs in New Delhi
to manage the food chain, as one of the concerns for the company was to avoid political
confrontation with the government. This strategy helped the company to get rid of the risks
associated with the bureaucracy associated with the Indian government (Mujtaba & Patel,
2007) .
3.3 Geographic Distance:
According to the CAGE framework, Physical Distance between the nations remains a very
important factor in shaping up of the diverse business strategies. Priority of a business is to
enter countries that are less distant because of the lower risk and cost associated with it
(Ghemawat, 2001) .The greater the physical distance the higher will be the cost associated
with transportation and communication. The recent advancement in technology, internet and
communication methods have reduced the distance between the nations (Alderman, 2012).
McDonald while establishing itself in Indian market developed standard technology and
communication for promotion across the nation and as the ways of reducing distance with the
customers and suppliers (Mcdonalds, 2015).
India is an attractive country for US businesses from decades. Country is so vast and diverse
with the population of 1.2 billion people. McDonald’s before making an entry in Indian fast
food market saw a wider geographical market with big population which have capacity to
bring tremendous benefits to the company’s growth (Tapper, 2014). McDonalds used
“demographic segmentation strategy” which means dividing the market into various groups
depending on various parameters like gender, age, sex, race, religion and nationality. The
primary segment it targeted was youth and the children (Blogger, 2010).
3.4 Economic Distance:
CAGE framework puts emphasis on the economic variations between the countries in terms
of varying income levels, purchasing power and the inflation rate (Ghemawat, 2001). When
McDonald’s made an entry in India the economy was inflation stuck. McDonald often has to
vary its pricing strategy as the currency varies across the world and same approach it applied
in India. In India the Big Mac is undervalued $.60 over the U.S. Company tries to maintain a
valid price range depending upon the location it is serving. Income distribution is to be
considered before opening restaurants in major cities such as New Delhi (Griffioen, 2011).
When McDonald’s entered Indian market its primary target was Urban and Middle class.
Moreover, Lower middle class comprise the majority of population in India and majority of
people still are below poverty level. To increase the customer flow to the outlet, McDonald’s
introduced the cheapest burger in the world which was priced at 20Rupees by applying cost
reduction strategy. To increase the revenue growth, the company slowly targeted the lower
middle class citizens. Whereas in US, the company has equally approached all the classes
(Mujtaba & Patel, 2007). The company introduced a dollar menu which soon became very
demanding as it allowed all classes to afford the meals not just in US but in India as well.
Large meals including salads, fries, cold drinks and desserts were sold at the price of a dollar
(Eisenberg, 2002).
4.0 Deliberate and emergent strategies of McDonalds:
(Mintzberg & Waters, 1985) Model of intended/deliberate and emergent/realised strategy is
one of the most renowned strategy models. Model give us the clear idea of the different
strategies and how do they work and it always come out to be so valid and this is the reason
the model has already been quoted by many researchers in different scenarios. World is full
of different cultures and companies behave differently in different cultures. Here we will
apply (Mintzberg & Waters, 1985) 8 strategies on McDonald’s when it internationalized in
India (Ehn & Zheng, 2006).
Emergent strategies are dynamic and interactive and are the result of the companies learning
from the environment whereas the deliberate strategy is pre planned, there are some exiting
intentions in the organization common to all the actor, and tend to operate in the same
manner no matter what the circumstances may arise in future, deliberate strategies are not
responsive to the external events. (Mintzberg & Waters, 1985).
McDonald came up with deliberate strategy of providing customers with fast, consistent and
high fat food. Over the years the sales volume of the company started falling as population
became aware of the no nutritional value of the meals because of rising obesity and other
diseases. In that case McDonald’s added more nutritional value to the meals and came up
with variety of nutritional meals like salads, this can be termed as emergent strategy of the
McDonald (McDonalds, 2014).
Figure- : Mintzberg and waters 8 strategies
4.1 The Planned strategy:
When a strategy has a clear mission plan and is backed up by the formal control of a leader.
The leader has a main authority and have very lucid and transparent plan transform to
perform a collective action with minimum or no risk. TO execute the planned strategy the
environment needs to be extremely stable, controllable or uniform without any external
disruptions (Mintzberg & Waters, 1985).
McDonald’s planned strategy is to be capable of expanding the business by selling high
quality product in a reasonable amount and with speed. Ray Kroc from Chicago became one
of the stakeholders and came up with the expansion plan in United States and overseas by
using franchisee mode of entry. McDonald was successful in opening its 1st franchise In
Illinois and expanded to 32,000 restaurants in over 120 countries. The essence of such a
speedy and successful overseas expansion is the business model pioneered by McDonald's.
McDonalds is able to maintain its main markets and at the same time is planned to expand
business in emerging markets (Clair, 2010) .
Around 70% of the outlets are running on franchise model. Similar case was applied when
the company entered Indian market; they had a plan of regional expansion by using franchise
model and to become a leading global fast food chain. Currently there are 300 McDonald's
outlets in India and brand has a plan of opening few hundred more vegetarian restaurants
nationwide. Initially the main targets were cities of high income where citizens are aware of
western food culture, Commercial towns like Delhi, Gurgaon and Pune, Malls, Multiplexes,
Highways, Airports and Stations (mcdonaldsindia, 2015) .
McDonald’s came up with self-service concept which was introduced to provide fast service.
With the help of the fast service, the company was capable of maintaining its low pricing
model (Research, 2014).
4.2 The Ideological Strategy:
McDonald’s key to success is the “think global and act local” business strategy which helped
it achieves competitive advantage in the fast growing fast-food industry. McDonald’s was
incepted with an ambition of “purpose goes beyond what we sell”. McDonald’s aspires to use
their reach as a positive force for their “customers, people, communities and the world”. The
company works on “customer focussed strategic framework “. Their brand mission is
“customers' favourite place and way to eat” (Clair, 2010).
McDonald is managed to sustain its philosophy of QSC&V-quality, speedy service,
cleanliness, good hygiene, affordable price and value is same in all the nations (McDonalds,
2014).
4.3 The Entrepreneurial strategy:
In the case of McDonald’s the strategies varies from contry to country , region to region
where a respective top level managerial person set visions for organization. India is a country
with diverse regional market segments with varying consumption habits and behaviour of
consumers. McDonald’s franchises in India came up with the strategy of regional expansion
where they planned to adapt the food to the local customs and making sure to retain global
standards. McDonald’s offered vegetarian meals and re-engineered operations by using 100%
vegetarian products like cheese and sauces. Keeping the utensils, equipment’s and raw food
products separate for both veg and non veg customers (Kodwani, 2013).
McDonald’s strive to become a “modern, progressive burger company delivering a
contemporary customer experience”. To make this commitment happen company’s main
focus is on it’s the customers and what is important to them like- “hot and fresh food, speed,
efficient and friendly service, and a contemporary restaurant experience” (Mcdonalds, 2015).
4.4 The Umbrella Strategy:
McDonalds has operated for around 50 years and after this time the company is revamping its
products and pumping innovation through different initiatives. Company had a downfall in
2002, and had massive sales loss, that was the time for McDonald’s to start rethinking about
their business. The company came up with a recovery strategy called “Plan to Win” with
new menu options, revamped restaurant and infrastructure and inclination on deeper
connection with the customers and ease of access to the brand through their 5 p’s(people,
product, place, price, and promotion) business drivers (Light & Kiddon, 2009).
Tagline of McDonald’s is ‘I’m lovin’ it’, there is no doubt that McDonald’s has faced a
negative image in the recent time like various protests in India. However, recently
McDonald’s has put several attempts by becoming transparent about the ingredients they put
in their food products. Whether it is meat, vegetables, fresh eggs or drinks, they have been
showing employees cracking eggs in the social media marketing. ‘We didn’t know you used
real eggs’ is actually what people say in the ads. Now McDonald’s is taking time to tell the
story behind the quality product they claim to sell (Wexler, 2009).
4.5 The Process Strategy:
McDonald’s don’t follow a repeatable process that generally a store would do whole day and
night and for years. The company keeps on adding new processes on the top of the already in
place processes this is the reason they are capable of adding new menu items. This sometimes
ends up with so many processes for the companies and results in very complicated steps and
it ended up with a process that was not repeatable by the outlets (Bob Marshall, 2012).
McDonald’s has Permanent product and Temporary product strategies as well as follow local
product development and local adaptation strategy which are the reasons for continuous
process change of the company (Clark, 2016).
4.6 The Unconnected strategy:
In the case of McDonald’s the strategies varies from contry to country , region to region
where a respective top level managerial person set visions for organization. India is a country
with diverse regional market segments with varying consumption habits. For example, In
Hyderabad, South India where majority of population is of Muslim, McDonald’s sells halal
meat products and no pork whereas in other parts in the north they serve vegetarian products
and regular meat but not the halal one. Hence, the departments remain unconnected to each
other. Suppliers of the company never compromised with the production standards though
they are separated by the distance and always ensured the quality (Kodwani, 2013).
4.7 The Consensus Strategy:
McDonald’s and its supplier in India work in cohesion to produce the product which is in
terms with McDonalds quality standards. Food from suppliers nationwide arrives in good
condition meeting quality standards, fresh and meeting same taste requirements. The supplier
and company also completely adhere to Indian Government laws and rules on food, health
and hygiene. This has helped company to compete in international waters. For McDonald’s
the regional outlet managers announce the monthly sales estimate and employees strive to
achieve the target (Mcdonalds, 2013).
Customer service department and managers try to engage with customers and get their
feedback and suggestions. After this step they take appropriate operations actions for
customer satisfaction (ivythesis, 2010).
4.8 The Impose strategy:
McDonald’s success was not always a rosy picture. There was a huge protest regarding its
unhealthy menu that resulted in obesity and many other health issues. They came up with
nutritious food and drinks. As discussed in the initial part of the report pork and beef cannot
be served in restaurant in India was one of the imposition on McDonald’s by the different
religious people in India as a result they had to come up with different vegetarian recipes
suiting taste of Indian people (indiamarks, 2015).
Majority of the population in India still lies below middle class. To target the rest of the
population Brand Affordability plan was launched. The Happy Price Menu which was priced
at Rs.20 was launched in 2004 considering majority of the population which cannot afford
the meal soon after, company came up with Economeals at very less price to add to basket of
menu (Mcdonalds, 2013).
As per the McDonald’s standard, the training to give the best customer service and for quality
improvement was given to the employee who closely interacts with customers. For this
purpose 3% of the revenue was spent on the training programs (ukessays, 2013).
5.0 Conclusion
According to (Mintzberg & Waters, 1985) strategy always walks on 2 feet’s; it should be the
right combination of the fixed component and the flexible one. The emphasis may change
from situation to situation and time to time. Strategy formation is a diverse and continuing
process that keeps on evolving. The art of strategy planning is not to deviate from the planned
long term goal but to continually come up with new realised options and then keeping on
nourishing them with the resources available. The organizations should be open for flexibility
in the way McDonald’s did when it made entry in various countries. Research shows that
90% of the companies who become successful have to abandon their intended strategy for a
certain extent to become successful.
McDonald’s strategy is identified more as an umbrella strategy. The strategy can be intended
and Realised or Intended realised where management faces the conditions under which
strategies can be emergent. (Mintzberg & Waters, 1985) Model was very helpful in
McDonald’s case. It gave us proper step by step concepts to discuss McDonald’s strategy
process and also made individual strategy process very clear. McDonald’s became one of the
superior fast food chains around the world as it customizes and adapts with the strategies
successfully depending on the cultural, political, social and other factors. The strategies
“under” the umbrella in McDonald’s are controlled. Company’s strategic process has a deep
focus on results then the focus on the steps to reach it.
In a fast changing world with a new industry style and practices in past 2 decades, Retail
industry processes have evolved so fast, we have a doubt in mind whether the model will still
be suitable for the Retail industry. On the contrast that (Mintzberg & Waters, 1985) model is
suited with McDonald’s strategy and proves itself to be a strong model after explaining their
strategy process.
Works Cited
Alderman, D. H., 2012. Cultural Change and Diffusion. 1 ed. California: SAGE Publications.
Anon., 2013. Food from McDonalds, Dominos & Pizza Hut to get cheaper as FinMin may cut service
tax on takeaway, home-delivery. The Economic Times, 20 June.
Ansari, A., 2013. Mcdonalds Marketing Strategy. [Online]
Available at: http://marketingstrategytemplat.blogspot.ie/2013/02/mcdonalds-marketing-
