Custom «McDonald’s Plan for Expansion in the Far East» Essay Paper Sample
The McDonald concept was created in the 1940s when Dick and Mac McDonald were looking for ways that they would improve the little business that they had of a driven in restaurant concept. At the time their little business was doing well as its annual revenue was about $200,000. This search led them to coming up with a concept that involved speedy service along with large volumes and prices that were favourable. This led to the ditching of the car service to a self-service method that would require one to go to the counter. In addition, the items on the menu were trimmed from 25 to a number of about 9 that included potato chips, coffee, and milk, soft drinks with three flavours, cheeseburger and hamburger. After changing the concept they opened up shop with lowered prices of about 15 cents for a hamburger.
According to Mieth, this led to the reopening of the new McDonald in December of 1948 but the business in the beginning was a bit slow. However, soon things picked up as the post-war America had liked the concept and soon their revenues rose to about $350,000 per year in the mid 1950s. Soon after the operations were posted in the Restaurant Magazine in 1952 as the Gold Arches concept was adopted and a wave of McDonald restaurants soon crept and hit the whole country. This led to a series of milestones as a number of restaurants and numbers of hamburgers continued to be sold. By the year 1963 the franchise was selling about a million hamburgers per day as the fast food industry era came to light. By 1966, McDonald was listed on the New York Stock Exchange and by 1970 the revenues rose to about $587 million in all the existing 1600 stores.
Today McDonalds is among the largest food service retailing chains in the world with existence in about 119 countries worldwide. Among these countries the numbers of restaurants have risen to about 31,000 and it has come to be known as the place burgers and fries along with its appearance that brings a feeling of comfort and familiarity.
In order to McDonald to venture into the Far East there are a few issues to be considered. To begin with this is a civilization that has an approach that is different from the Western where it’s more individualistic. The markets in the Far East like China have always had a communal approach towards many aspects due to the following of teachings from philosophers like Confucius. Hence in order to succeed in such a market the approach will be very critical, in this advertising along with products to be offered has to consider the culture in order to provide services that will suit the tastes and norms in such markets. Hence the traditional values of the people have to be considered and in this the Golden Arches have to associate with values admired in the markets like family, goodwill and children in order to capture the audience. In doing this the company is able to attract the young population due to the allure of Western culture while capturing the older generation that value their culture and traditions.
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The team that will be given the lead role in venturing into the new markets will be the marketing team. This will begin with creation of proper marketing strategies that will reflect on the culture of the markets like trying to associate with the Golden Arch with love and family values in order to portray a good image. Beside this, the team will also establish local companies that they may partner with if the regulations do require. In addition, the team must establish contact with stakeholders and other prominent personalities who may create more appeal to the brand if it is associated with them during the launch. All this will be done along with the logistics team, and consideration will be the languages and dialects that may be included in the advertising approach that will be used in order to create a local approach. This will be very important if success is going to be achieved in the new venture.
In the organizing section due to the Marketing Team being the first to venture into this area will have to take into considerations of the different aspects on the local markets. In this will be the pricing that is normal for fast foods, besides the type of foods that are offered and may be included in the new menu that will be offered. This being in the Far East, the local delicacies may be included to give it a local touch. In addition, other factors that may be included are the demography as the Far East has a greater population of young and middle ages. Hence the approach taken must target them if success is going to be achieved. However most of the tasks at this stage will be done by the Logistics and Operations team.
Various departments like Operations and Finance will work together in order to establish the resources that will be needed in this exercise including the details. This will involve the inventory of all the requirement s that will be needed so to enable the launching in the new markets. Al l these wil have to put into consideration the normal cost of opening up the stores along with the property market in the regions.
Gibison (2008) states that during this phase some of the factors that should be considered will include the location; in this, the first stores that are to be opened must be in areas that will easily be accessible to the target population along with along with the residential areas that will be available to families. Among the cities that will be put into consideration will include Shanghai and Beijing and other emerging cities in the region.
The company will have to put into consideration for the competition that will arise due to the arrival of KFC that offers the same products albeit at cheaper rates. This means in order to compete the pricing offered will be very important. Besides this, the other approach that can be used will include the product strategy in the market; this will include price points especially in eating occasions. In addition some other strategy will include some form of pricing that targets the students besides introduction of spicy options especially in places like India where it plays an important role in the foods that are consumed. However, due these areas being emerging markets a lot of care has to be taken due to the fact that there disparities in income among the consumers. Hence introduction of pricing that varies to favour all types of customers in relation to their income. Besides the international competition there are the local versions that will offer the greatest threat as they understand the markets better are home-grown. This will warrant an image that recognises the culture and beliefs to remove the ‘outsider’ tag that may come along if the same is not done
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Among the most crucial issues in the Far East may be the labour laws that will differ from the ones that are present in the West. Due to this a different approach will have to be taken in the Human Resource Department to ensure that the regulations and policies are followed. Besides this, the laws for foreign investment may require a partnership with local stakeholders. Due to this, steps should be taken by the Operations department in selecting a suitable local enterprise to partner with. In this case, this will also lower the liability in the situation. Hence in such situations the best option would involve the franchising option that will involve other parties in distribution and delivery of service especially in the case of China. Alongside this, the Finance Department along with the Operations Department will have to contact the relevant authorities be it Ministries or Administration to find out the tax requirements in such areas and if they are friendly enough to enable setting up the stores. Most economies in the Far East like China are becoming friendly by allowing Western products into their markets as they also strive to access the Western markets. Hence this will give McDonalds the ideal chance to access most of the markets due to easier legal and policy requirements that have been implemented in recent times.
Due to the high level of investment like it is in this case, the authorization will be required from offices in the governments. In the case of China where there are various levels of political offices that will have to approve, the Operations Department will take the task of ensuring the same happens. However, it is important that most of the governments are changing their economies to be based on the markets implying that getting the required authorizations have been made easier. Hence the investors want to set up various investments in the area can do so easily. In doing this, it has resulted in the removal of the previously markets that state-owned companies enjoyed monopoly and turned it into situations where the competition plays an important hand. Due to this McDonalds will benefit in such situation as they come into the market with new concepts albeit that has a Western touch hence resulting in it standing out. However, the political situation has to be monitored in places like North Korea that has always been harsh to the West especially the USA and in such situations it’s best to opt for South Korea that has good relations with USA that is the parent country for McDonalds.
Some fop the countries like Malaysia have a cultural diversity that enables McDonald’s along with its competitors like KFC to thrive. This can be attributed to the combination of local culture that is promoted by the older population and the younger population that prefers to emulate the Western culture. Besides this, in some of the places like India where they prefer adherence to their culture hence this will also be considered. Hence McDonald will have to borrow so for the locally used catch phrases in advertising in the quest to blend in with the local culture and make it more suitable for business. The business culturre in the markets have to be well understood if the venture is going to succeed because if not then a wrong approach can be taken resulting in misunderstanding. McDonald have to take a family and social care approach as most of the cultures have a communist background despite the new approaches taken.
Entry Mode Selection
Due to the fact that some of the soft drinks sold in the stores may not be sold locally, there may be need to import them in order to fill the demand that will arise. However, most of the other products that are used in the making of hamburgers and cheeseburgers are available in the local market and can be used.
This can also be another viable option of doing business in the international markets for McDonalds as it will result in profit for the shareholders. However, it will require monitoring of the partners especially on the finances and this can be done by the Operations and Finance department.
This will depend on the mode of operations; if the premise will be franchised then the logistics involved in such situations will be done by the franchiser. In doing so, it will cut down on the logistic and costs that McDonalds would have had to incur. However the need for overseas trips by the Department of Operations for monitoring on the progress and auditing will be the undoing part.
The McDonald brand is already well known worldwide hence by franchising it will enable then selection of candidates who qualify to be given the franchise. In this case, care has to be taken as they have to prove that possess enough capital to fund the development of such stores in the market. This will be in comparison to the least amount required per store.
In most of the stores that will be opened, majority of the staff that will be employed must be from the local population. This shall create a home like environment for the target population in comparison to foreigners. However, the top management must include employees who have worked with the McDonald to ensure the continuity of company policies and this means they will come from the parent company in the USA.
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Finance and Accounting
The Far East is full of emerging markets and China is the Second largest economy in the world. This implies that the economy might be stable and growing hence sufficient accounting and finance professionals. However, the fluctuations in currency in exchange will demand American experts to assist in the implementation phase (McDonalds, 2008).
Research and Development
McDonald boosts a worldwide reputation of being affiliated with the American culture and this boosts its appeal in the Far East. Besides this, other companies of similar business like the KFC have had success in the same area.
The output in terms of products like Cheeseburgers and Hamburgers has to be sufficient among other products. This will demand on extra effort from the local factories that will be set up for the task. Despite the need for quantity, there is notice on maintenance of the required quality to maintain the brand image.
This being a new market a different approach will have to be taken along with consideration for the culture in the market. The best option in the Far East will include a family friendly approach that expresses a community approach. This can be achieved by corporate social responsibility that will involve raising funds for the needy to create an impressionable image.
Cost Benefit Analysis
In venturing into the new markets, there are various benefits that stand to be achieved despite the amount of resources that will be injected into the expansion process in the Far East. In expanding the markets, McDonalds will try to compete with KFC that is the largest chain in the Far East. On the positive the target market has a population of over 1.2 billion people and this translates to a larger market that would increase the revenues that would be generated. This will target the bigger cities and improve the market share. In doing this, McDonald can tremendously increase the number of customers and sales in their stores.
McDonald has always been a brand that is identified with the Western culture and way of life. Besides this, the company has managed to generate a lot income from its over 30 thousand stores. The plan for expansion in the Far East is a tricky one as it’s a new territory where it does not have the same brand status. However, its brand can be engineered to fit the new market in order to attract new clients and expand its market. In addition, the market conditions will have to be considered like political, economical and cultural aspects if this is going to be achieved. This will be achieved if proper franchising along with turnkey projects and joint ventures to minimize liability and understand the market better.
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