Essay on MacDonalds Globalization

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Essay on MacDonalds Globalization

1.0 Introduction

Globalization is about the interconnectedness of individuals and businesses throughout the world that ultimately leads to global ethnicity and political, legal, and economic integration. It is the aptitude to move and communicate easily with others all over the world in order to conduct business internationally. Although globalization has occurred throughout history, the end of the 20th century and the beginning of the 21st have seen a rapid increase in the economic, cultural, and technological interactions between nations. In enterprise business, globalization is defined by a largely international free trade economy, meaning the prices of goods are generally uttered by supply and demand.

Today even very young companies and start-ups are expanding internationally. The rationale for a move into a new market may be one of opportunity overseas markets may offer exciting new prospects, high growth potential, or the chance to better serve existing clients. Alternatively, it may be one of risk, for example, entrepreneurs could be responding to a domestic market that is saturated, slow-growth, or too competitive. Either way, internationalization is a challenging process. The potential benefits accruing from internationalization are so many that many companies in the contemporary business world seek to globalize and operate in foreign countries and regions in order to exploit the opportunities they offer for increased profitability, growth, and sustainability. As a result, companies increasingly perform their business functions (including manufacturing and sales) not only at home but also abroad thereby leaving business executives with no option but to follow events as they happen in other parts of the globe in order to optimize their chances for growth and sustainability.

Companies all over the globe are looking for expansion and ways of entering new markets that are profitable through different entry modes. Managers look at different strategies that can be used to expand internationally . There are many reasons for companies to go global or expand overseas. There are reactive and proactive reasons for the same. Increased global competition, customer needs, potential opportunities, declining foreign trade barriers, and increasing expenses in domestic markets are some of the reactive reasons for companies going global. To achieve economies of scale, expanding the base for growth and profits, cost savings, and access to different resources are some of the proactive reasons for companies going global.

This report looks at globalization as a whole and how McDonald a global food chain can take advantage of doing business in West Africa. Detailing and evaluating West Africa’s political, economic, cultural, legal, and financial climate. And lastly, key strategies to get it implemented in West Africa.

1.1 About the Company

McDonald’, the most renowned fast food chain in the world, was started in 1955 by a visionary named Raymond Kroc. Kroc played a significant role in revolutionizing the fast food industry in America, and currently Mc McDonald’s is serving over 60 million customers in over 117 countries on a daily basis . The company has a global brand value and worldwide recognition. It is one of the most widely recognized icons of the world in the fast-food restaurant industry.

Mcdonald’s Corporation is an international chain of hamburger fast food restaurants, which operates and franchises McDonald’s restaurants worldwide. The Company’s restaurants offer various food products, soft drinks, coffee, and other beverages, as well as a breakfast menu. Its menu also includes salads, fish, wraps, smoothies, and seasoned fries.

Despite being an American base, McDonald’s respects the markets, cultures, beliefs, and likings of other nations. Customers identify with the brand name and “the Golden Arches” are recognized not only in America but in foreign countries as well

Chapter 2

2.0 Literature Review – A Critical Review

Economic theory suggests that firms should pursue positive net present value projects whenever and wherever they arise. For many firms, this will entail developing and adopting new technologies or diversifying one’s product portfolio. But geography also offers one of the most basic sources of diversification and growth.

This report focuses on the international expansion of McDonald’s into the West African market. Economic theory here tells us that assuming risk neutrality, a firm with opportunities abroad should pursue all of them. In fact absent any form of constraint on capital or managerial time, and ignoring issues of learning, the theory would imply that firms with opportunities abroad would pursue all of them aggressively and rapidly. If firms face constraints in terms of capital availability or managerial capabilities or if there is option value in accumulating information about a market opportunity gradually, economic theory suggests that firms will maximize profits by following first the highest expected profit opportunities around the globe and allocating resources across markets in a way that exploits all the best opportunities first.

The markets they first enter under this scenario may be markets that are similar, culturally or in close proximity, to the ones they are already operating in because the firm might expect customers in such markets to behave similarly to those they know like their product. Internationalization theory, however, with its focus on risk aversion, also suggests that firms expand abroad only once they have exhausted opportunities within their home market and that they then expand first in markets that are familiar to them, namely markets similar culturally or in close geographic proximity to those they are already in, and that they exhaust opportunities in each market before moving into new ones. Economic theory suggests instead that the firm will continuously pursue the best opportunities across all markets.

Contrary to a manufacturing firm whose options include exporting, a retail firm such as McDonald’s has no choice but to go abroad, where the customers are, if it is to sell its product outside its home market. While McDonald’s cannot export its product, it can choose among different modes of operation in each market, some of which involve a higher degree of commitment of resources than others. In particular, it can open a subsidiary that franchises directly, enter into a joint venture with a local partner, or establish a master franchising arrangement whereby the master franchisee owns and operates all the outlets in his or her territory or finds franchisees to do the same. While the level of investment that McDonald’s commits to these markets differs across these different governance modes, in all cases McDonald’s will exert significant control over the number of outlets and the growth in the number of outlets in each market. Consequently, in what follows, we assume that it internalizes the cost of expansion to a large extent – though potentially to varying degrees depending on governance within each market – and that it gets to set the expansion path within as well as across all markets.

2.1 McDonald’s Needs to Expand into West Africa

Going international is a strategy that is influenced by a variety of factors and is typically implemented over time. Companies go international for a variety of reasons. In general, companies go international because they want to grow or expand operations. More specific motives include generating more revenue, competing for new sales, investment opportunities, diversifying, reducing costs, and recruiting new talent thus;

2.1.1 Improving Profit Margins

Expanding into foreign markets will enhance revenue growth while improving the company’s return on capital and reinvestment rate. Revenue growth from non-domestic markets typically comes faster, while adding new revenue streams will help McDonalds maintain security and stability.

2.1.2 Broader Market Base

In an era where global branding is more critical than ever before, the acquisition of a wider customer base and a broader brand footprint pays significant dividends. Additionally, McDonald’s with an international presence can leverage their specific understanding of global markets. This kind of “on-the-ground” expertise is often vitally important in terms of competitive advantage and client service.

McDonald’s can tap into higher profits and faster growth by entering overseas markets with more favorable prevailing conditions.

2.1.3 Diversifying the Business

The international expansion allows a company to diversify its business in a couple of key ways. First, you spread the risk of slowing demand across multiple countries. If one market never gains or loses interest in your offerings, you can pick up the slack with success in other countries. In addition, you can connect with suppliers in international markets and take advantage of raw materials and resources unavailable in domestic markets.

2.1.4 Gain a Competitive Advantage

Thinking globally is becoming less of an option and more of a requirement when it comes to keeping up with the competition. In fact, 56% of middle-market companies include global expansion in their growth strategies. Taking your business international presents growth opportunities by expanding options for talent, and customers, and creating cost-savings for imports and manufacturing.

Chapter 3

3.0 West Africa Market and Macro-Environment Factors

West Africa’s current population is estimated at about 362 million. Over the last two decades, the economy has enjoyed increasingly stable and deepening democratic governance strengthening the effectiveness of key national institutions, enhancing investor confidence, and anchoring the economy in an environment for positive growth.

Today, Ghana is not only the best place for doing business in West Africa, but the fastest. The West African market has developed into an established business destination for investors seeking a conducive business environment, committed and progressive government-private sector participation, political stability, transparent regulations, and a dynamic private sector ready for partnerships. The governments backed by ECOWAS are committed to implementing policies that reduce the general cost of doing business to promote investor confidence in the country. Below are the macro-environmental factors that make the West African sub-region a conducive market for doing business Political, Economic, Legal, Financial, and Legal factors.

3.1 Political

The West African political environment is ranked to be one of the stable political environments within the African sub-region. It has established democratic institutions and systems to ensure good governance and rule of law in the country. Investing in West Africa will provide companies with low political risk in their portfolios and enable McDonald’s to develop long-term strategic plans.

3.2 Economic

There are 15 countries in the Economic Community of West African States (ECOWAS): ECOWAS works to promote cooperation in the region on a range of economic activities. The strong economic growth among member states coupled with a fast-rising middle-class society makes the region an ideal place for business growth.

3.3 Legal

Legal environment forces include labor law, antitrust laws, regulations, occupational health & safety policies, and other laws of a country or pertaining to the particular business environment that industry within the business environment must with those rules. The legal environment has strong laws and institutions to ensure businesses thrive

3.4 Financial

Governance and growth rates have improved to the point where West Africa has been the fastest-growing region of the African continent for some years. Inflation has dropped, fiscal policy has improved and investment returns have increased. Good tax policies and access to financial instruments have improved significantly over the past decade.

3.5 Cultural

Conducting business in West Africa requires social-cultural awareness and effective cross-cultural communication skills. What might be acceptable in Asia, for example, may be unacceptable in West Africa. Do not expect French or Portuguese-speaking business people to speak to you in English even if they understand it. Business objectives may be the same, but ways of implementation and communication differ greatly. West African culture is very diverse but most people within the region have a good taste for foreign products. The new crop of more assertive middle class with disposable wealth and an appetite for consumer goods provides a good market for McDonald’s.

Chapter 4

4.0 International Strategy and Entry Mode-Transnational Strategy

Overseas market requires an extremely high degree of local responsiveness hence the need to manage business spread across different regions effectively and efficiently. McDonald’s should employ the use of the Transnational Strategy in terms of local responsiveness and global integration as its market entry mode into the West African market. The value chain will be constructed taking into consideration local culture, legal-political, and economic environments in mind. It is important to note that along with maintaining product and service standardization, McDonald’s must take into account local tastes and preferences when developing its menu and engaging in marketing efforts.

As a transnational company, it is essential to have a standardized system and process in place for effective and efficient management of the businesses running in different territories. E.g. McDonald’s forces standard operating procedures like make to order make to stock and just-in-time processes. Implementation and integration of ERP systems across businesses of various countries and with business associates would ensure standardization in their business processes. This would help McDonalds reduce their cost, reduce manual work, more transparency and efficiency in information sharing, better responsiveness to stakeholders, etc.

4.1 Franchising as Entry Mode into West Africa

Franchising can be defined as a contractual agreement whereby someone with a good idea for a business (franchisor) sells the rights to use the business name and sell a product or service (franchise) to others (franchisees) in a given territory in a specified manner. Franchising has become a very popular strategy that many companies have adopted lately; they have a vast number of global outlets operated by foreign franchisees. McDonald’s should use Franchising as its mode of entry into the West African market.

As mentioned above, Franchising will McDonalds to experience significantly faster expansion and growth, helping it to achieve a truly global brand identity and a well-known trademark. The existence of franchise outlets within West Africa will help McDonalds gain popularity and customer loyalty.

McDonald’s will able to gain more income and revenues from the monthly fees (i.e. 5% service fee) and rent paid by its franchisees worldwide, this means they can generate more finance which can later be used to develop and expand the business. Therefore franchising gives the opportunity to franchisors to raise sufficient capital.

McDonald’s will be able to benefit from economies of scale because as their total production levels increase, the average costs tend to decrease. These economies of scale may include marketing economies of scale; McDonald’s for example will be able to have more money to spend on its advertising campaigns if its number of restaurants is higher, and it will also save the company the redundant costs of having separate national campaigns, therefore this helps reduce on the business’ expenses and hence register higher profits. By having many franchise outlets worldwide, McDonald’s achieves diversification and spreads its risks worldwide.

Chapter 5

5.0 Recommendations and Conclusion

5.1 Recommendations

As described in the above sections, McDonald’s has huge potential in global markets to venture out into different areas, especially within emerging markets such as Africa. As these countries are the center of growth opportunities, McDonald’s should focus its internationalization in these areas much more than they are currently doing. McDonald’s should focus on high and low areas of the population, reaching out to more and more sections of society.

McDonald’s can improve its business viability through continued global expansion, especially in high-growth markets. Also, the company can reduce risks by developing new products or entering new industries related to the fast-food restaurant industry.

The road ahead for McDonald’s should be to increase the nutritive value of the burgers and look at certain health aspects to control the increasing waistlines among children because of the high consumption of fast foods, especially burgers. They should look at improving their customer service at the counters by avoiding long queues and providing high levels of customer satisfaction.

5.2 Conclusion

McDonalds is the number one brand in the fast food industry. From the above discussion and findings, it can be concluded that Internationalisation is a process in which the firm gradually increases its international involvement. It has been also found that internationalization is very complex by nature. From the discussion of the influence of various macro environmental forces on internationalization, it can be concluded that there is an increasing influence on the firms to go for McDonald’s to enter into the West African market. They have to successfully implement international strategies where they have to localize and customize processes to adapt to the foreign countries along with maintaining their American origin by having centralized procedures as well.