Market Internationalization for McDonalds India - Essay Example

Market Internationalization for McDonald’s India Introduction There is no doubt that by a business internationalizing its activities, it often comes with a host of advantages when the business is enjoying some form of success. On the other hand, it increases marketing planning and control complexity. With the increasing variety of products and services often comes along with intensified competition in the markets, but not necessarily in the consumer’s favour. As a result of the global trade patterns that exist, a market crisis is not restricted anymore to one country or local sales region (Rosenbloom 2011). Hence, this often calls for a market response speed coupled with flexible marketing planning and control mechanisms as these are key elements that enable a business to gain competitive advantage. A lot of companies have their roots as domestic firms concentrating on their own domestic markets before expanding their portfolio to the international level. As a company embarks on the process of internationalizing its market base, it is supposed to move from being sporadic exporters to frequent exporters before setting up its own manufacturing plant abroad. This process is often referred to as internationalization. Of concern is how a business can determine whether it has attained a global market and/or global audience. For a company such as McDonald’s India to achieve this milestone there are various strategic issues and decisions that have an impact on the efforts towards market internationalization. Market internationalization and the strategic issues involved The strategic issues affecting the efforts towards market internationalization include: where to compete, resourcing and delivering the product or service at a competitive price in different locations across the globe, and how McDonald’s India should organize itself so as to have a grip of its international activities (Rao et al 2006). As for the company determining where best it should compete, it is dependent strategic objectives for any global strategy and sources of potential competitive advantage derivable from a global strategy. Efficiency, innovation, and risk management are the basic strategic objectives that affect the selection and configuration task. Efficiency, as part of market internationalization involves the process of carrying out all value chain activities to a required quality at the lowest cost. Innovation, learning, and adaptation is often an opportunity to learn from the different societies, cultures and markets in places where the company intends to internationalize its markets. This process often has a positive impact on the process of market internationalization since having a presence in many markets around the globe is a very helpful market-sensing strategy. Risk management is a strategy which involves balancing and managing the risks inherent in operating in a number of diverse countries and/or markets. If there is no such benefits exists in relation to the three potential strategic objectives that are useful in determining on where best to compete, then the company should not be of the idea of internationalizing its markets (Dawson et al 2006). Resourcing global production is another strategic issue that affects the market internationalization process. Configuration decisions are concerned with what parts of the value chain for a product or service should be produced within the company and where, and what might be outsourced. In order to satisfy the needs of customers in diverse cultures and living standards, there is a need to provide these global markets with different products and services. However, this calls for little adaptation so as to increase proportions of products and services and to suit them for world markets (Paul 2008). Social/ cultural environment affects the efforts towards market internationalization process. The influences arising from social and cultural issues towards market internationalization are immense. The perceptions and patterns of consumers from different geographical areas are often affected by differences in religion, social/cultural beliefs and material culture. This area plays an important role in determining the similarity and difference of consumers across the globe. This aspect will not only have an impact on the process of market internationalization, but on other marketing aspects such as standardisation and global branding. Failure of a company to have a grip of the social/cultural factors on one or many of its global markets can at times be difficult to manage. For example, McDonald’s India has had to deal with its failure to understand the Indian market whereby a better part of the Indian population is vegetarian; thus, they have a dislike for either pork or beef products and they are unreceptive towards frozen fish and meat (Wise 2010). The speed, scope and scale of the process of market internationalization are strategy aspects that might McDonald’s global activities. The scale of market internationalization is the degree to which a company relies on the level of sales from its external markets. If the dependency is on a higher side, this is often an indicator of how the company is less dependent on its domestic market in favour of its holdings abroad. The scope of market internationalization refers to the number of global markets that a company chooses to enter. In other words, it refers to the extent at which the company will extend its business activities at a geographical level. When the company gets to offer its products or services in a wide array of markets across the globe, it gives the company an opportunity to learn from different environments and circumstances. This way, the company can use this experience to unleash itself in new markets. Licensing, though it being necessary in international marketing, is a strategy used by companies in the process of market internationalization. Licensing is often considered as a marker expansion alternative used by all companies that have an eye on market internationalization. It offers flexibility and reflects the needs of the firm and the market. Licensing may have positive effect on the process of market internationalization because a small company may use the licensing strategy to access intellectual property owned by a foreign business or to expand without the need of having to invest much capital. Large companies such as McDonald’s are not left out either, since they may use the licensing strategy as a gate pass for entering foreign markets in order to take advantage of new conditions and foreclose opportunities for its competition. As a strategy for market internationalization, licensing requires neither capital investment nor knowledge or marketing strength in foreign markets. Foreign direct investment is a strategy that a company can use in its efforts towards market internationalization. It often occurs when a company invests in a joint venture or subsidiary with another company in a foreign market. Unlike other forms of investment such as stocks, bonds, or money deposited in a bank, which are not in constant use by the investor, foreign direct investment gives the investing company some degree of control. With foreign direct investment, the investing company is expected to have superior access for international marketing channels or additional expertise in global markets. In addition, it allows the foreign company to have a fair share in the domestic partner’s market advantages (Schutter et al 2012). However, one of the deterrents that come with this strategy towards market internationalization is the non-existence of clear regulations, unstable or complex regulations, and the very slow handling of officious work related to those regulations. 2. McDonald’s is a global phenomenon where people get to enjoy eating hamburgers and fries. Founded by two brothers, Maurice and Richard McDonald it started as a simple idea but over the years it has grown into a huge, successful business admired by all and sundry. Today, the restaurant chain is a fast-food giant and it has spread its wings in nearly all parts of the globe. The first branch McDonald’s brand has its roots in San Bernardino, California. The company specialized in hamburgers, French fries and milk shakes. It featured twenty female carhops picking up and delivering food. However, the brothers did away with the attractive female carhops in order to discourage loitering teenagers who often used to litter and steal or break cups, plates, glasses, trays, and silverware (Lamb et al 2011) . In addition, they did away with glasses, plates, and tableware, replacing them with plastic utensils and plastic paper. By this time, the brothers were convinced that their target audience was families. With time, the restaurant opened more branches across the country although the bulk of the restaurant chains are franchise businesses, many of them outside the United States, but are owned and managed directly by McDonald’s. McDonald’s international activity As McDonald’s international activities continued to expand, its organization became more intricate and ramified. In fact, the prime motivations behind the reason why McDonald’s worked tirelessly to develop activities beyond their own borders is because they felt there was need to ward off competition and go global. Furthermore, the demand for their services and food products abroad allows the restaurant to earn a higher profit margin. Ironically, McDonald’s which is considered as the world’s largest restaurant chain, has seen business in America begun to wilt, while its global operations have continued to thrive. For example, its market in France is a clear illustration of the favourable international environment where the French people have a big appetite for the Big Mac in spite of it costing nearly four times more of the USA price. Over time, McDonald’s has seen its global outlets increase to 30,000 restaurants in 120 countries, where 27 % of these outlets are owned and operated by McDonald’s. However, these restaurants that are wholly owned have been a cause of concern since their financial performance has been on a downward trend (Horn & Faulkner 2010). Marketing environment McDonald’s marketing environment involves all actors and drivers which influence its activities directly or indirectly. As a result, McDonald’s is often involved in marketing environmental scanning which is the process of acquiring information to do with the external environment. This is because the marketing is characterised by uncertainty. Having expanded its products and services throughout the world, the current marketing environment has put the fast-food giant on its toes. Of late, the socio-cultural marketing environment has had an impact on McDonald’s operations. This is because it is faced with the pressure of allaying fears that its food products are a major cause of obesity. Furthermore, research studies especially in parts of Europe and its home country America have increased environmental consciousness among the population. In spite of these setbacks, the company has continued to portray its food products as family friendly as well as catering for the needs of its customers who happen to be vegetarian. On the basis of business and personal ethics marketing environment, the company prides itself in working with various charities across the globe as part of its corporate social responsibility program. In India, the company initiated a water reduction campaign which has helped to save approximate 1.7 million cubic metres of water on an annual basis by fitting its restaurants with low-flow urinals. The political environment has negatively impacted the company’s macro environment as more politicians and governments are joining hands in the fight against childhood obesity. International expansion strategies In spite of McDonald’s sales revenue hitting a tumble and the economic destruction that has rocked the company, there are still plans to expand its territorial portfolio. As at the beginning of the year, McDonald’s had accumulated up to 33,000 outlets across the globe and the company does not plan to shelve its expansion strategy just yet. The company has put in extra efforts by expanding its global market base. To begin with, the company has expanded is portfolio in China where it has opened doors to 300 new outlets and there are plans to open an additional 2,000 units come 2017. This reason behind this expansion strategy is the fact that China presents an opportunity for growth and improves the company’s sales revenue more than any other market. In addition, if a research study carried out by McKinsey & Co. is anything to go by, China’s middle class is expected to expand further such that the number people earning not less than $17,000 would increase to 50 per cent by 2020 (Brumley 2014). While trying to endear itself to the Chinese populace, the company plans to introduce food products that the locals are familiar with. Part of the reason why McDonald’s intends to diversify its markets outside United States is due to the increased competition from fast-food outlets such as Wendy’s and Burger King. Its global expansion strategy has allowed it to assume a strong control over the expansion and ensures that the expansion will occur in the desired manner. As part of its expansion strategy, the firm is allowing some degree of variation in each given market. Cultural issues and trading conditions McDonald’s has had its fair share of cultural conflicts in its global markets. This cultural conflict is often as a result of the cultural distance which is the degree that two national cultures vary on fundamental values, attitudes and beliefs. It is this cultural conflict that has forced McDonald’s to employ the use of joint ventures which are often attractive entry strategies as the local company has a better understanding of the local cultural issues. For example, McDonald’s uses joint ventures in the Middle East because there is a cultural variation from that of the US. Nevertheless, the willingness of McDonald’s to adapt its concept for basic products to suit local tastes has gone a long way in helping the company some of the costly cross-cultural marketing errors (Ahlstrom & Bruton 2009). International marketing mix McDonald’s has designed a successful marketing mix that is designed to satisfy target markets. Unlike its competitors such as Wendy’s, McDonald’s is considered to have been successful at targeting its markets such as parents with young children for lunchtime meals. By doing this, the company has put up playgrounds and children happy meals which are just part of strategies of winning the hearts of their target market. Its success in the fast-food industry boils down to its marketing mix which has helped the company to be ahead of the pack. The marketing mix begins with the product. This is the heart of the marketing mix as it is hard to design a promotion campaign, a place strategy, or set a price without knowing the product to be marketed. The product strategy includes physical unit, brand name, company name, after- sale service et cetera. In the case of place strategy, McDonald’s India ensures that its food products are available when and where customers want them. In this end, the company introduced delivery services whereby food is delivered at the customer’s doorstep. Promotion strategy includes aspects such as advertising, sales promotion, and public relations. By using promotion strategy in the marketing mix, it helps McDonald’s India to bring about mutually satisfying exchanges with target markets by informing and reminding them of its products. Lastly, there is the pricing strategy which is the most flexible element of the marketing mix. It also happens to be the one element that can be changed at will. As for McDonald’s, price is an important competitive weapon because it determines the total revenue of the company (Boon & Krutz 2011). Market definition and segmentation Market segmentation which is part of a marketing strategy is the process whereby a company divides its target market into groups of consumers with similar combination of lifestyles, demographics, behaviours, wants, and needs. For example, McDonald’s India initially used to target customers who came over for lunch or a late-snack. However, this strategy was changed and the company started targeting consumers who on their way to work, would want to grab breakfast (McDonald 2012). Branding More often than not, competitors look at a brand not only in relation to its competitors, but also in relation to other brands that are non-competitive. McDonald’s being one, if not the largest fast-food restaurant in the world is ranked as one of the best top ten global brands. However, its positioning of the brand and how it is perceived varies depending on its target market. McDonald’s has adopted a different branding strategy in India whereby its brand connotes value for money (Gelder 2005). Pricing The fact that McDonald’s is a global company means that it has to develop an international pricing strategy for its different global markets. International pricing strategy is a very intricate process because it entails various domestic market variables. Companies such as McDonald’s that have a global presence often use many types of pricing strategies such as market-based, cost-based, and generic pricing strategies. McDonald’s India has often used its pricing strategy to stay competitive with local fast-food outlets. Generally, McDonald’s India has often kept the prices of its products low and this has been made possible by strategies such as bulk buying, long-term vendor contracts, and manufacturing efficiencies. Marketing communication and promotion strategies Promotion is probably one of the best exciting parts in a marketing mix. This is a marketing strategy that covers areas such as advertising, sales promotion, public relations et cetera. McDonald’s India promotional strategy is coordinated with the other elements of the marketing mix to create a personal blend. A significant share of the company’s sales revenue can be attributed to a good promotional strategy across its global markets. In the case of public relations, it is used to enhance the image of the company and its products towards the target market. As for sales promotions, they stimulate sales. McDonald’s India has often used sales promotion in the form of contests and discount coupons by offering money and food prizes (John & Slater 2003). Distribution and transportation management McDonald’s India has put in place a distribution strategy and/or channel that helps to determine how a product flows to the consumer. With the distribution strategy, it allows the company to decide the number of outlets that there should be in a specific market. Failure of the company to put in place a workable distribution strategy may have an impact on its sales revenue since consumers will go for the next best option (Dent 2011). Ethical considerations and criticisms On the basis of ethical considerations and criticisms, the company has come under intense pressure from heath and consumer groups as well as political groups. For example, there has been a protracted battle between McDonald’s and workers union in Brazil on a wide range of issues such as wage theft, poor pay, and ill-treatment of expectant workers. Early this year, there were demonstrations by workers in five Brazilian states that host McDonald’s. In Japan, workers held demonstrations outside 30 McDonald’s outlets where they were asking for a wage increment of up to $15 per hour. The company has been accused raking in huge profits at the expense of its employees. Conclusion McDonald’s has made tremendous efforts towards its market internationalization efforts. This paper has reviewed its penetration in the Indian market with the help of various strategic issues such efficiency, innovation and risk management. These issues have played a big role in the selection and configuration task of the Indian market. McDonald’s has also had a fair share of activities in the Indian market including international expansion strategies, cultural issues and trading condition, international marketing mix, market definition and segmentation, branding, pricing, market communication and pricing strategies, and ethical considerations and criticisms. In a nutshell, the dedication of McDonald’s India to the local culture is not new for McDonald’s in its market internationalization efforts. The company strives to ensure that it knows what its customers want and perhaps more importantly, what is acceptable within the Indian market. References Ahlstrom, D & Bruton, G, 2009. International Management: Strategy and Culture in the Emerging World, Mason, OH: Cengage Learning. Boone, L & Krutz, D, 2011. Contemporary Marketing, Mason, OH: Cengage Learning. Brumley, J, 2014. ‘McDonald’s is About to Tap Into a Huge Growth Opportunity’, Business Insider 23 April. Available from [23 April 2014]. Dawson, J, Larke R & Mukoyama, M, 2006. Strategic Issues in International Retailing, New York: Routledge Dent, J, 2011. Distribution Channels: Understanding and Managing Channels to Market, Sterling, VA: Kogan Page Publishers. Gelder, SV, 2005. Global Brand Strategy: Unlocking Branding Potential Across Countries, Cultures & Markets, Sterling, VA: Kogan Page Publishers. Horn, S & Faulkner, D, 2010. Understanding Global Strategy: Hampshire: Cengage Learning EMEA. Jones, JP & Slater, JS, 2003. 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