Analysis of mcdonalds international business strategy from 2016 to 2020

In todays globalised economy, multinational corporations face unique challenges and opportunities in expanding their businesses across borders. McDonalds, the iconic American fast food chain, has successfully established its presence in numerous countries worldwide, serving as a compelling case study for examining international business strategy. This research aims to provide a comprehensive analysis of McDonalds international business strategy and explore the factors that have contributed to its global success. McDonalds, founded in 1955, has grown into one of the worlds largest and most recognizable brands, operating in over 100 countries with thousands of restaurants. Its ability to adapt to diverse cultural and market conditions has been critical to its international triumph. By examining McDonalds international business strategy, we can gain valuable insights into the complexities and dynamics of global expansion, shedding light on the factors that contribute to sustained growth and competitive advantage in the international marketplace. This research will delve into various aspects of McDonalds international business strategy by analysing the value chain of the worlds top fast food company in three markets of the United States, China and France. The market fitness of the strategy, then, will be testified according to internal and external characteristics.

FOREIGN TRADE UNIVERSITY SCHOOL OF ECONOMICS AND INTERNATIONAL BUSINESS

o0o

-MIDTERM ASSIGNMENTTopic: Analysis of McDonald's International Business Strategy from 2016 to 2020

TABLE OF FIGURES

TABLES

Table 1 McDonald's VRIO Analysis 10

FIGURES Figure 1 BrandFinance’s Global Rankings for Top 10 Brand Value period 2015-2023 10

Figure 2 McDonald's Global Value from 2006 to 2022 16

Figure 3 Revenue of the McDonald's worldwide from 2005 to 2022 16

Figure 4 Revenue of McDonald's Worldwide from 2019 to 2022, by region 17

Figure 5 Revenue of McDonald's Worldwide from 2005 to 2022, by mode of operation 17

Figure 6 Ranking of the best performing fast-food companies in France in 2020, by revenue 17

Figure 7 Net sales of McDonald's Japan from fiscal year 2015 to 2022 18

Figure 8 Leading food services companies in Japan, in 2021, by market share 18

Figure 9 Market share of limited-service restaurant brand in China from 2016 to 2020 18

CHAPTER 2 MCDONALD’S INTERNATIONAL BUSINESS STRATEGY ANALYSIS 4

2.1 McDonald’s Multi-domestic strategy through value chain analysis 4

INTRODUCTION

In today's globalised economy, multinational corporations face unique challenges andopportunities in expanding their businesses across borders McDonald's, the iconic Americanfast- food chain, has successfully established its presence in numerous countries worldwide,serving as a compelling case study for examining international business strategy This researchaims to provide a comprehensive analysis of McDonald's international business strategy andexplore the factors that have contributed to its global success

McDonald's, founded in 1955, has grown into one of the world's largest and most recognizablebrands, operating in over 100 countries with thousands of restaurants Its ability to adapt todiverse cultural and market conditions has been critical to its international triumph Byexamining McDonald's international business strategy, we can gain valuable insights into thecomplexities and dynamics of global expansion, shedding light on the factors that contribute tosustained growth and competitive advantage in the international marketplace This research willdelve into various aspects of McDonald's international business strategy by analysing the valuechain of the world's top fast food company in three markets of the United States, China andFrance The market fitness of the strategy, then, will be testified according to internal andexternal characteristics

By examining the international business strategy of McDonald's, this research aims to providevaluable insights and lessons for businesses seeking to expand their operations internationally Itwill contribute to the existing body of knowledge in the field of international business, offeringpractical implications for multinational corporations in navigating the complexities of globalmarkets and achieving sustained growth and success

In conclusion, McDonald's international business strategy has played a pivotal role in its globalexpansion and success By understanding the factors that underpin its market entry decisions,localization efforts, and global expansion approaches, businesses can gain valuable insights intoachieving competitive advantage in the international marketplace This research aims to provide

a comprehensive analysis of McDonald's international business strategy, and offering practicalimplications for businesses operating in a globalised world

CHAPTER 1 OVERVIEW OF MCDONALD’S

1.1 General introduction

McDonald's Corporation is an American multinational fast food chain, founded in 1940 as arestaurant operated by Richard and Maurice McDonald, in San Bernardino, California, UnitedStates They rechristened their business as a hamburger stand, and later turned the company into

a franchise, with the Golden Arches logo being introduced in 1953 at a location in Phoenix,Arizona In 1955, Ray Kroc, a businessman, joined the company as a franchise agent andproceeded to purchase the chain from the McDonald brothers

McDonald's makes use of a restricted menu, division of labour, a homogenous product,assembly- line strategy, task groping to enable specialised skills, all applied to the practicalprinciple that is shielded from the customer Product quality and customer satisfaction are thebasis that enables McDonald's to create exceptional fast food service Since McDonald's wasestablished, the service concept has been based on the first-class quality, value, and cleanness,which has become an essential service direction of the company's marketing operations(Thornton et al., 2016)

Under the guidance of Ray Kroc, McDonald's franchises grew swiftly: by the end of the 1960s,there were more than 1,000 across the U.S The first international franchise opened in 1967 inBritish Columbia, and was followed by another in Costa Rica later that year From there, thechain spread steadily: over a six-month period in 1971, Golden Arches popped up on three newcontinents, as stores launched in Japan, Holland and a suburb of Sydney A BrazilianMcDonald's opened in 1979, bringing Ronald McDonald to South America for the first time.McDonald's reached its sixth (and, barring a sub-Arctic drive-thru, final) continent in 1992, withthe opening of a restaurant in Casablanca, Morocco Four years later, the company heralded theexpansion into its 100th nation, Belarus, and claimed to be opening a new restaurant somewhere

in the world every three hours

The quick service behemoth operated and franchised by far the largest proportion of restaurants

in its home country In 2022, the number of McDonald’s restaurants in the U.S was around 13.4thousand When looking at the countries with the most McDonald’s in Europe, France (includingMonaco) took the top spot, accounting for 1.5 thousand units Meanwhile, China had the mostMcDonald's restaurants in the Asia Pacific and Middle East regions The United States was alsoone of McDonald’s biggest markets in terms of revenue In McDonald’s regional revenuebreakdown, the U.S accounted for roughly 9.42 billion U.S dollars in revenue in 2022.Meanwhile, internationally operated markets such as Australia, France, Canada, and the UKmade the largest overall contribution to McDonald's total revenue, with a sum of 11.16 billionU.S dollars In total, McDonald's revenue amounted to 23.18 billion U.S dollars in 2022

In 2023, McDonald’s will be the leading global foodservice retailer, present in more than 118countries with more than 35,000 local restaurants serving nearly 70 million people each day.More than 80% of McDonald’s restaurants worldwide are owned and operated by independentlocal business men and women Given its global reach, large number of units, and high revenue it

is perhaps no surprise that in 2022 McDonald’s placed in the Forbes top 100 largest globalcompanies in terms of market capitalization Furthermore, when looking at a ranking of thebiggest global QSRs by brand value, McDonald's came out on top as the biggest QSR brand inthe world With a brand value of almost 197 billion U.S dollars in 2022, McDonald’s surpassedother QSR chains by a large margin

1.2 Brand Mission and Vision

McDonald’s mission is “to be our customers’ favourite place and way to eat and drink, we willbring customers unique customer experience that can only be found in our restaurants”

The brand ambition is serving Good Food with Good People and being a Good Neighbourhood

• Good food: McDonald’s is proud to serve its customers the best quality food Our suppliers arestrictly selected and meet stringent standards to ensure all the ingredients have the highestquality

• Good People: McDonald’s offers excellent training and occupational opportunities to helpemployees grow Aside from practical training from daily tasks, employees can participate in in-depth training courses in other countries in the network, through which they improve themselves

to best serve customers

• Good Neighbour: McDonald’s takes special care of the community, particularly children andfamilies We are dedicated to good deeds that bring happiness and joy to all communitymembers

1.3 Product

McDonald’s offers a uniform menu that includes fries, the Big Mac, chicken sandwiches,chicken nuggets, hamburgers, the quarter pounder with cheese, salads, wraps, desserts, softdrinks, and other beverages However, to ensure that it connects with the international markets,McDonald’s offers locally relevant food menus as well For example, it serves gazpacho inSpain, the black and white burger in China, and the Veg Pizza McPuff in India In the U.S.,McDonald’s main competitors are Burger King (BKW) and Wendy’s (WEN)

CHAPTER 2 MCDONALD’S INTERNATIONAL BUSINESS STRATEGY ANALYSIS

2.1 McDonald’s Multi-domestic strategy through value chain analysis

a reliable supply of ingredients and supporting sustainability efforts

+ United Kingdom:

As for the United Kingdom, McDonald's collaborates with British farmers to source ingredientssuch as beef, potatoes, and milk (McDonald’s UK, n.d.) This strategy supports local agriculturalcommunities, reduces the carbon footprint associated with transportation, and aligns with the UKmarket's increasing demand for sustainable and locally sourced products

b Operation

+ United States:

In the United States, McDonald's has integrated advanced technology, such as digital orderingkiosks and mobile ordering apps, to streamline the ordering process and reduce wait times (WBRInsights, n.d.) Additionally, the introduction of drive-thru lanes and curbside pickup options hasfurther enhanced operational efficiency and customer convenience as well

+ China:

However, in China, they focus more on quality control throughout their supply chain to ensurethe freshness and safety of ingredients In order to do this, McDonald’s has set strictoperational

standards and created training programs to maintain consistent service and product quality acrosstheir restaurants (Kaur et al, 2016).

+ China:

And in China, McDonald's works with third-party logistics providers to manage transportationand distribution efficiently McDonald's leverages advanced logistics technologies to ensure thesmooth flow of goods from distribution centres to restaurants (Jing Han, 2008) This logisticsinfrastructure enables McDonald's to operate seamlessly and maintain consistent supply chainoperations in the rapidly growing Chinese market

+ India:

As for India, due to the country’s hot and humid climate, McDonald's has established a "coldchain" system that includes temperature-controlled storage and transportation facilities(McDonald’s, 2015) This system helps maintain the quality and freshness of ingredients andproducts throughout the supply chain, even in India's tropical climate By tailoring theiroutbound logistics to local conditions, McDonald's ensures consistent product quality andcustomer satisfaction in the Indian market

d Marketing and sales

+ United States:

In the United States, as McDonald’s wants to maintain its market dominance, they invest heavily

in advertising campaigns through multiple channels, including television, digital media, andoutdoor signs McDonald's also utilises collaborations with popular brands or movies to drivesales (Aiden Mason, 2020)

+ China:

As regards China, McDonald's utilises localised marketing strategies to resonate with the localconsumer base They actively engage with Chinese social media platforms and influencers to

reach their target audience effectively (The strategy story, 2023) McDonald's also tailors its

menu offerings to cater to Chinese tastes and preferences, such as introducing spicy chickenwings or

porridge in their menu (Ryan F., 2023) These localised marketing and sales strategies allowMcDonald's to connect with Chinese consumers and create a strong brand presence in themarket.

+ India:

In India, given the country's significant vegetarian population, McDonald's promotes vegetarian

menu options extensively (The strategy story, 2023) They engage in localised marketing

campaigns that highlight their vegetarian offerings and position them as a choice for vegetarianconsumers

+ Brazil:

The marketing and advertising strategies of McDonald's in Brazil often feature local celebrities,such as football players, to resonate with the Brazilian audience These campaigns createemotional connections with consumers and leverage the popularity of local icons to enhancebrand recall and affinity A typical example of this would be an advertisement ofMcDonald’sfeaturing Neymar - a famous Brazilian football player (McDonald’s Youtube, 2016)

+ United Kingdom:

Similarly, in the United Kingdom, McDonald’s also focuses on convenience, and they haveintroduced mobile ordering and payment options, allowing customers to order and pay for theirmeals in advance through the McDonald's app (McDonald’s UK, n.d.) This technology-drivenservice strategy helps reduce wait times, and provide a seamless experience for customers.+ Japan:

McDonald's fast food experience in Japan is a little different in the sense that the customerservice is of higher quality (Murasaki, 2021) This is due to the fact that respect and humility are

so deeply ingrained in Japanese culture, therefore, the staff there is trained to be always friendlyand attentive to the customer’s needs They also work very efficiently, always make sure that thecustomers will receive their food as soon as possible, and essentially go out of their way to makethe consumers happy

By implementing such strategies across the value chain, McDonald's demonstrates its domestic approach The company employs this international business strategy to effectively cater

Multi-to different markets' specific needs and preferences, contributing Multi-to its success as a global food chain

+ China:

McDonald's in China has a more decentralised structure than in the US, still remains thefranchise- based model, however giving a greater degree of local autonomy given to franchises(Purdy, 2017)

+ France:

McDonald's in France has a hybrid structure that blends elements of the US and Chinese Whilethe company operates a centralised head office in Paris, franchisees are given a greater degree ofcontrol over certain areas of the business, such as restaurant design, marketing campaigns, andmenu offerings (McDonald’s, n.d.)

b Human resource management

The human resource management of McDonald's in different countries follows a both centralisedand decentralised strategy Each country has its own policies based on the working culture,political system, economy, however, still follows a specific global standard

values cultural awareness and diversity in its workforce However, in China, an indigenousworkforce tends to make up most of the McDonald's workforce McDonald’s China alsoprovides various employee benefits, however, the expectations around what benefits are offeredcan differ significantly In China, additional benefits like housing, meal, and travel allowancesare more crucial than in the US due to a higher cost of living and the need to obtain talent inurban locations (Deb, S and Pendharkar, P.C 2019) They offer paid leave for employees whohave been with the company for a certain amount of time Last but not least, restaurants in Chinausually operate during regular daytime hours, so the employees are unlikely to experienceirregular shifts.

McDonald's restaurants in China tend to have a more structured workforce with a focus on careerdevelopment opportunities Employees are more likely to see a long-term career at McDonald's

as a viable career option

McDonald's France strives to create a diverse and inclusive work environment The companyvalues employees' differences and promotes equal opportunities for all

McDonald's France offers a different range of employee benefits such as private health care,retirement plans, paid vacation days, and discounts on meals They also offer work-life balanceprograms, such as flexible scheduling, to help employees balance their work and personal lives(McDonald’s, n.d.)

In France, there are specific laws that govern labour relations including working-hour limits,early retirement, and mandatory paid leave (Dieterling, 2019)

c Technology Development

As the birthplace, McDonald's US was an early adopter of many new technologies, focusing onmodernising restaurants, evolving the menu and engineering value (Dudovskiy, 2022) Theparent company tries to implement new technology and initiatives across the entire franchisenetwork However, McDonald's also works with regional and local teams to adapt technologyinitiatives to meet the specific needs and preferences of customers in different markets

+ United State:

McDonald's US has installed self-service kiosks in many of its restaurants, allowingcustomers to browse the menu and place their orders electronically (Rensi, 2018) They alsodeveloped a mobile app (Houck, 2016) that allows customers to browse the menu, customisetheir orders, and pay remotely using their smartphones McDonald's US has also implemented anautomated beverage station in some of its restaurants Many restaurants have replaced traditionalmenu boards with digital ones (QSR, 2015)

+ China:

China Mcdonald's has also implemented large digital menu boards with interactive features,allowing customers to place their orders in a more streamlined manner However, as regards self-service kiosks (MarketingInteractive, 2016) and mobile apps, it is still ongoing and may be lessused, and less popular than in the US.

China Mcdonald's also partners with local tech companies and develops unique digital solutionstailored to the local market, such as mobile payment systems and social media promotions (Lee,2019)

+ France:

Similar to China, there are projects that France applied to, however, they still collaborate withlocal technology companies to develop features that suit the market, for example, developing amobile app with added features tailored to the French market, such as nutritional information andallergy warnings

US, they try to source 100% of some products (McDonald’s, 2020)

+ China:

The procurement in China is also somewhat centralised with systems to maintain the best quality.However, McDonald's in China is focused on local sourcing (Zhuoqiongz, 2023), as thecompany works with local suppliers to source ingredients like beef, chicken, and vegetables.Moreover, sustainability still remains important in this market, but different strategies areapplied, focusing more on developing sustainable farming practices in partnership with localsuppliers

+ France:

French McDonald’s also concentrated on local sourcing, with a majority of their food sourcedfrom local producers (Fancourt, 2013) They maintain the standard procedures, however,customise them to bring the best quality to the customers Sustainability is crucial as theybecome the leader in this term (McDonald’s, 2020)

2.2 Factors driving Multi-domestic business strategy of McDonald’s

2.2.1 Company characteristics

VRIO analysis of Mcdonald's Burger is a resource oriented analysis using the details provided inthe McDonald's Corporation case study Resource-based strategic analysis is based on theassumption that strategic resources can provide Mcdonald's Burger an opportunity to build asustainable competitive advantage over its rivals in the industry This sustainable competitiveadvantage can help Mcdonald's Burger to enjoy above average profits in the industry and thwartcompetitive pressures

advantage

Brand

Difficult toimitate Yes

SustainableCompetitiveadvantage

Supply

Difficult toimitate Yes

SustainableCompetitiveAdvantage

Table 1 McDonald's VRIO Analysis

Figure 1 BrandFinance’s Global Rankings for Top 10 Brand Value period 2015-2023

Brand image: Over the years, McDonald’s Brand Image Value, despite its drastic downturn

during the 2015-2017 period, continuously maintained its position as one of the top two mostvaluable brands for restaurants (BrandFinance, 2023) It is hard for competing brands to create

an equally strong brand

Supply Chain: McDonald’s supply chain is complex but successful Because of their long-term

relationship with suppliers and third party logistics in their supply chain, Just In Time (JIT) or

“Made for You” (named by McDonalds), McDonald is able to eliminate excess production andinventory waste as well as increasing effectiveness of production and sales (Setiawan & Ellitan,2023) Furthermore, according to Gartner (2020) and their ranking for supply chain, McDonald’smaintained their dominance with sustained supply chain excellence from 2016 to 2020 in the

“Masters” category

Global and Local Presence: McDonald’s is currently one of the world’s leading foodservice

retailers with over 38000 locations in over 100 countries This resource helps to diversify therevenue streams and isolate the company’s balance sheet from economic cycles (Arthaud-Day &Rothaermel, 2018) This resource is not inimitable but would require high financial investment forcompetitors

After the VRIO analysis, McDonald’s core competencies are their Brand Image, Solid Supply Chain system and Widespread Global and Local presence Their Supply Chain advantage

suggests the implementation of Standardisation strategies to utilise economies of scale while Brand Image and Global and Local Presence might suggest Localisation strategies to customiseproducts and services along with real demands for market

In addition to the aforementioned core competencies, McDonald’s is taking steps to improvethese with new activities such as introducing a new McCafe coffee line, improving the drive-thruservice, launching a worldwide repackage of the idea of fast food to respond to the new healthtrend These consistent effort and dedication to maintaining and developing their core values allcorrespond to their international business strategy and are significant factors contributing toMcDonald’s success

2.2.2 Market characteristics

The Porter's Five Forces analysis is a framework used to assess the competitive forces andindustry structure of a particular market Let's analyse McDonald's in the three market using theFive Forces model:

a) The US market

- Threat of New Entrants - Moderate

+ Moderate start- up cost

+ Brand loyalty

+ High variability of capital costs

+ High cost of brand development for food service company

The fast-food industry has relatively low barriers to entry, allowing new competitors to enter themarket However, establishing a strong brand, supply chain, and distribution network can bechallenging McDonald's has a significant advantage in terms of brand recognition andeconomies of scale, which can deter potential entrants Overall, the threat of new entrants ismoderate

- Bargaining Power of Suppliers - Weak

+ Large number of suppliers -> lack of strong regional and global alliances among food andbeverage suppliers

+ Low forward vertical integration of supplies -> they do not control the distribution network that transports their products to fast-food restaurant firms

+ High overall supply for food service businesses

Suppliers in the fast-food industry, such as food and beverage suppliers, have limited bargainingpower due to the presence of multiple options available to restaurants McDonald's, being aglobal giant, has strong purchasing power and long-term relationships with its suppliers Thisallows them to negotiate favourable terms, lower costs, and maintain consistent quality.Therefore, the bargaining power of suppliers is relatively low

- Bargaining Power of Buyers - Strong

+ Low switching cost

+ High availability of substitutes

In the US fast-food industry, customers have numerous options and can easily switch betweencompetitors As a result, the bargaining power of buyers is relatively high McDonald's combatsthis by offering affordable pricing, promotional deals, and a wide range of menu items to cater todifferent customer preferences Additionally, the presence of drive-thru services and deliveryoptions enhances customer convenience, reducing their bargaining power to some extent

- Threat of Substitutes - Strong

+ High substitute availability

+ Low cost - performance ratio of many substitutes -> many substitutes are competitive interms of quality and customer satisfaction with affordable prices

+ Low switching cost for consumers

The threat of substitutes in the fast-food industry is significant Consumers have variousalternatives, including other fast-food chains, casual dining restaurants, home-cooked meals, andhealthier food options However, McDonald's has managed to maintain a strong brand image andcustomer loyalty over the years, which helps mitigate the impact of substitutes By continuouslyinnovating their menu, adapting to changing consumer preferences, and emphasisingconvenience, McDonald's reduces the threat of substitutes

- Intense Rivalry among Competitors - Strong