Assignment 1- McDonald’s Corporation and the International Market- No Cover

StudentName:FaridAbdullahAl-Amudi
StudentNumber:30119538
1
International BusinessManagement,BSMAN 3007, ASSIGNMENT1-Report
ASSIGNMENT 1
BUSINESS REPORT
McDonald’s Corporation and
the International Market
BY: Farid Al-Amudi

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Executive Summary
This is a report on McDonald’s corporation and how it enters the international market. This
report highlights the fact that McDonald’s uses the international franchising method in
entering the international market due to reasons such as franchising being particularly
profitable without incurring huge risks and cost from the corporation itself and that it allows
high control over the franchises and being able to gain franchisees’ knowledge about their
local culture. The second approach McDonald’s uses to enter the international market is
Foreign Direct Investment (FDI), and although this is not as profitable for McDonald’s it
does allow the company to control their standards. The report touches on the success of these
methods and the competitive market that surrounds McDonald’s and how the company
responds to the direct and indirect competitors. The single business strategy being
McDonald’s corporate strategy, is also discussed as well as a few other strategies
McDonald’s uses in its branches around the world. Various environmental factors impact
upon the company in the international market, such as political and legal, economical, and
social and cultural, which are also highlighted along with various examples from different
countries.

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Introduction
McDonald’s is the world’s largest fast-food retailer in the market (Vanderborg, 2013). The
American based foodservice chain has over 34,000 restaurants around the globe in over 118
countries (McDonald's, 2013). In 2013 the number of McDonald’s restaurants around the
world reported to be 34,565 (Entrepreneur Media, 2013). In this report I will discuss the entry
method that McDonald’s (which will also be addressed as ‘the corporation’ or ‘the
company’) uses to penetrate the global market and the reason behind this choice of entry. I
will also discuss the competitive environment the restaurant is faced with and how
McDonald’s is influenced by its surroundings. I will then touch upon the global strategy
McDonald’s is adopting and other environmental factors impacting the corporation in the
international market.
Entry Mode Chosenby McDonalds
McDonald’s main mode of entry into the international market is the use of international
franchises where over 80% of stores worldwide are owned and run by franchisees
(McDonald's, 2013). In 2013 the number of McDonald’s franchises around the world
reported to be 12,605 in the US and 15,365 internationally (Entrepreneur Media, 2013). The
company also uses the mode of Foreign Direct Investment (FDI) to get its restaurants around
the globe, as 6,500 restaurants worldwide are owned by the company
(Entrepreneur Media, 2013).
In some countries, McDonald’s only uses the international franchising method, as is the case
of Saudi Arabia and India for example, where 100% of McDonald’s restaurants are owned by
local Franchisees (McDonald's Jeddah, 2013); (McDonald's India, 2013). In other countries

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the corporation decides to use both the franchising method and FDI, as in Australia and
Germany where over 80% of McDonald’s restaurants are owned by local franchisees leaving
under 20% of them being corporately owned (McDonald's Australia, 2013);
(McDonald's Germany, 2013).
Over recent years, McDonald’s has noticed that their franchises are much more profitable to
them than their corporately owned restaurants. The marked differences in profit resulted in
the company taking steps to turn some of their own restaurants into franchises, which is why
there was a 24% decline in stores owned by McDonald’s between the years 2006 and 2009
for example (Treffis Team, 2010).
In Saudi Arabia and India where no corporate ownership exists, the restaurants are not owned
by local entrepreneurs as is the case in Australia and Germany, rather they are owned by one
or more local corporations. In Saudi Arabia for example Reza Food Services Co. owns and
operates the restaurants in the Western and Southern regions of the country
(Saudi Gazette, 2013), whereas Riyadh International Catering Company serves the remaining
Central, Eastern and Northern regions of the Kingdom (McDonald's Riyadh, 2013). Similarly
in India, all restaurants are managed by two business entities, namely Connaught Plaza
Restaurants Private Limited for the northern and eastern parts of India and Hardcastle
Restaurants Private Limited for the western and southern parts (McDonald's India, 2013).
Why the Entry Mode Was Chosen and Its Success
There are various reasons behind McDonald’s choice of using international franchising as
their main market entry method in the global market, one of them is that international

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franchising minimises the risks and related operating costs on the franchisor as a large
proportion of these burdens are put on the franchisee. For example, to become a franchisee of
McDonald’s in Australia the franchisee has to firstly commit to a nine month unpaid training
program, invest over $800,000 of unencumbered funds and make a minimum of a 20 year
commitment (McDonald's Australia, 2013). Franchising also allows the franchisor more
control over the franchisee than other methods of market entry such as licensing for example,
hence using the franchising method McDonald’s is able to lay down the ground rules it wants
its brand to be seen by (Griffin & Pustay, 2013).
It has to be noted that franchising is a very profitable business that generates high returns in
form of fees, especially for a successful global company such as McDonald’s where the
profits received from franchises are four times higher than that of the company’s owned
restaurants (Treffis Team, 2010). Yet another vital benefit that international franchising aids
with, is that the franchisee is able to gather vital information about the local culture and
market customs of the country, which would be very difficult for McDonald’s to obtain if it
were to solely use FDI to enter a country (Griffin & Pustay, 2013).
Given all the above mentioned benefits of international franchising and despite the fact that a
few countries do not have any corporate owned stores, McDonald’s still uses the form of
FDI. The corporation chooses to do this for reasons such as having company owned stores
assists McDonald’s in setting its own operating standards, maintaining control over the
product line and so that it can position itself strongly against its competitors
(Treffis Team, 2010).
It is important for a franchisor to be successful in their own country before franchising
globally (Griffin & Pustay, 2013); something that McDonald’s has always been able to do,
due to their low prices, consistent menu and speed of service (John Wiley & Sons, 1996).

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‘American’ food was popular in other countries besides the US, and this was a factor that also
helped McDonald’s succeed at the rate that it did (Griffin & Pustay, 2013). With reputable
and well-known companies such as McDonald’s, it is generally not difficult to find motivated
entrepreneurs willing to be part of the company, by purchasing and running one of the
corporations franchises, as they trust the company, particularly as McDonald’s also provides
all the necessary tools and ongoing training and support to all its franchisees
(McDonald's Australia, 2013).
The competitive environment
McDonald’s is faced with high competition worldwide, not only from direct competitors such
as Burger King and Hardees in Saudi Arabia and the US, or Hungry Jacks and Oporto in
Australia, but also from indirect competitors such as 7-Eleven selling their munch range that
offers meat pies, sandwiches and muffins for example (7-Eleven Stores Pty. Ltd., 2013) ,
Starbucks who is offering salads, sandwiches, hot breakfast and bakery (Starbucks, 2013), as
well as local pubs and small privately owned food stores such as the fish and chips store
down the road.
In this highly competitive market, McDonald’s came under pressure as some competitors
copied the company’s ideas, or they came up with their own innovative ones. This forced
McDonald’s to constantly have to respond through various means depending on the country
and its environment. For example, McDonald’s Australia introducing the ‘lose change menu’
was a huge hit, and the ‘value meal’ initiative helped McDonald’s achieve over 50% of the
market share from its takeaway rivals (Greenblat, 2012). Identifying coffee shops as
competitors lead to the introduction of McCafé , which initiated in Australia in 1993 but
became a worldwide success with now over 1,300 McCafé’s worldwide (Moe, 2012). In a

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country where people got used to fast food chains like KFC offering free home deliveries
(KFC Middle East, 2010), McDonalds Saudi Arabia for example offers McDelivery to
selected areas (McDonald's Riyadh, 2013) as does McDonald’s Singapore
(McDonald's Singapore, 2012).
Corporate strategyadopted by McDonalds
The single-business strategy is the main strategy used by McDonald’s, as its sole venture is
providing people with food. In the end, McDonald’s products and services are the same all
around the world. Sure, you might have a few differences such as each country having its
own ‘special’ burger such as the Mc Oz in Australia (YouTube, 2011) and the
McArabi in Saudi Arabia (YouTube, 2009), or India not offering beef or pork items out of
respect to the Hindu and Muslim presence in the country (McDonald's India, 2013), overall
however anyone can expect the same level of cleanliness, service, atmosphere and
consistency at any McDonald’s all around the world. The logo and the colour will also never
disappoint, and of course Ronald will always be Ronald no matter which country you are in.
In short, McDonald’s lovers will always know what to expect when entering any restaurant
around the globe (with a few surprises depending on where).
As already mentioned, using the franchising method is one of the strategies McDonald’s uses
to enter the international market, which as previously noted, works out to be very successful
for the company. Another strategy that McDonald’s is doing very well is that of the way it
adapts and innovates its products and services to suit the countries it is entering
(Mourdoukoutas, 2012), as if in many ways the company is tailor-making the franchise to fit
into each country’s culture and way of life such as McDonald’s offering wine in France
(Capell, 2008) and beer in Germany (Eurokulture, 2009).

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Environmental factors that impacted McDonalds
There are various environmental factors that impact McDonald’s. Political and legal factors
that impact McDonald’s in an international market include employment laws of each
particular country, tax policies, political stability and trade restrictions to name a few. For
example, McDonald’s in Saudi Arabia assures its market on its website and in various in-
store leaflets that it is 100% Saudi owned and that all profits go towards Saudi business men
and that it has no political agenda behind it (McDonald's Arabia, 2013). The reason behind
this is that allegations were raised that McDonald’s corporation is a major supporter of the
state of Israel and its occupation of Palestine (Innovative Minds, 2012).
According to the law of Saudi Arabia, all restaurants must have a family section for women
and families and a bachelor section for the single men (Expat Arrivals, 2013), so McDonald’s
abides by these laws when building and operating the restaurants. Pork is illegal to enter
Saudi Arabia due to Sharia law governing the country and most of the country’s inhabitants
are adherents of the Muslim faith (Irish Department of Foreign Affairs and Trade, 2013),
hence McDonald’s cannot have any pork items included in any of their products. These are
just some examples on how McDonald’s in a single country has to think about the political
and legal issues that it is governed by.
The economy is constantly changing around us and McDonald’s has to respond to this ever
fluctuating market. As the aftermath of the last global financial crisis is still affecting the
world, McDonald’s implemented some tactics in order to decrease any negative impact on the
organisation. For example, the company offered a variety of lower priced products around the
world, such as McDonald’s Australia introducing a value lunch program in 2011, that offered
a variety of meals at special prices during certain times of the day (Market Line, 2012).

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Since McDonalds is operating in a huge number of countries worldwide, it is no surprise that
it is impacted by the cultural and social aspects of each country that it enters into. For
example, due to religious considerations, McDonald’s in India does not serve beef so as not
to insult the adherents of the Hindu religion (McDonald's India, 2013). Some suburbs in
Sydney also offer Halal certified meals, as was confirmed by the restaurant in Liverpool, due
to a large presence of Muslims in the community (Kanta, personal communication, August
24, 2013).
Conclusion
McDonald’s has positioned itself strongly in the global market by mainly using international
franchising as its main entry method into other countries, which provides the company with
benefits such as low risks and low entry costs. McDonald’s still uses FDI as a second entry
mode, however the number of restaurants owned by the company is declining, due to
earnings from the franchisees significantly exceeding profits from company-owned
restaurants. McDonald’s has a range of competitors, both direct and indirect; none the less
McDonald’s is always able to position itself ahead of its competitors through the use of its
powerful strategies. McDonald’s is impacted by numerous environmental factors when
entering the international market such as political and legal forces which push the corporation
to adapt itself in accordance with the laws and regulations of every country it gets into.
WORD COUNT 1,984

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