Multinational Company in the Fast Food Industry: McDonald’s

Subject: Case Studies
Pages: 12
Words: 3307
Reading time:
14 min
Study level: PhD

Introduction

In strategic management, various analysis and management models are normally applied to determine the position of a business, the prospects and the possible measures a business can take to remain competitive in delivering its mandate (Rollwagen, Hofmann & Schneider 2008). In the business analysis process, Kathuria and Porth (2007) noted that the main aim is to determine the process that can be employed to increase the market share and build a strong brand. In the previous chapters, an extensive analysis and recommendation for RCL safety, health and environmental sustainability measures were taken.

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The objective of this chapter is to apply knowledge gained in the past chapters in analysis and drawing recommendation for McDonald’s, a multinational company in the fast food industry. For a long time, McDonald’s has operated by relying on a unique business model that is credited for its entry and growth in the international market (Leung 2004). The company’s presence in the international market has remained strong. Despite the success, the McDonald’s still faces challenges that need to be solved for the company to maintain its market niche. Therefore, the chapter analyses the business issues facing McDonald’s using various business models. SWOT analysis, SPACE MATRIX and PESTLE models are used in this chapter.

Company Background

McDonald’s operates over 30,000 restaurants in more than 120 countries. This makes it to be the world’s leading service provider in the fast food industry (Chiem 2009). The company was incorporated in 1955 and since then it has recorded exponential growth and has been a vehicle for transmitting the America’s eating culture across the globe. The business was formed by three brothers Ray KROC, Richard and Maurice. The business model of operation was unique and simple menu was used which included hamburger, soft drinks, apple pie, French fries and cheeseburgers. The set up of the business attracted families and it had very efficient workers (Derdak & Jay 2004). The efficiency led to reduction in preparation time and hence increased the production. The business was thus in position to lower the price of the hamburger by half, i.e. from 30 cents to 15 cents (Gibson 2007). The success of the business led to adoption of a franchising business which led to phenomenal growth between 1960s and 1970s. Just as any other business, McDonald’s Corporation has a number of challenges that tend to pull the company’s operations backwards.

Business Problems of McDonalds

The following paper analyses the critical business issues that McDonald’s has been facing, and provides solutions to deal with the challenges. Just like the case of RCL, the problems affecting McDonald’s though in different context include international business challenges, Strategy management, and Human resource management.

International Business Problem

Competition from other fast foods companies

There are many dynamics in the fast food industry. For instance, due to the nature of the industry there is high threat of entry by both small companies and multinationals hence the challenge of increased competition (Katou & Budhwar 2006). For example, McDonald’s faces competition from other established brands such as Yum, Burger King, KFC and Wendy’s.

Pressure to align with the different world eating cultures

This is one of the greatest challenges that McDonald’s have been experiencing. The acceptance of the fast foods has not been readily accepted in some countries.

Problem with environmental sustainability practices

The increase in environmental awareness across the globe has affected the operations of McDonald’s. There have been concerns of its packaging and waste management that have been blamed for not being environmentally sustainable (Bradfield 2008). As a result, McDonald’s is faced with the challenges of ensuring that its human resource workforce applies sustainable human resource management measures.

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Strategy Management problem

  1. The junk foods are facing oppositions from health lobbyists who argue that they contribute to increased lifestyle diseases such as excess weight and obesity.

The failure of McDonald’s to come up with other menus has been the greatest set back in the endeavour to penetrate new markets. Many people are turning away from fast foods due to the continued advocacy for non junk foods.

  1. Exhaustion of the low price strategy

McDonald’s has leveraged on price competition since its inception (McDonald & Wilson 2011). However, the competitors have adopted the same strategy and which has resulted in a competition to bottom on price and hence the returns are very low. This discourages people intending to franchise McDonald’s.

Human Resource Management

High rates of turnover

Employees have a crucial in determining the performance of any business (Wang 2015). In relation to McDonald’s, there are challenges of high costs related to recruiting and training new employees; this has been the case due to high turnover rate. For example, McDonald’s United Kingdom recorded an astounding turnover rate of 150% (Budhwar & Aryee 2008). Other countries have similar challenges.

Problem Analysis by Application of Relevant Models

The above challenges negatively affect the operations of McDonalds’. As a result, there is the need for in-depth analysis to have a clear understanding of the challenges and hence provide viable solutions that can help the franchisor to adopt a strategy that will help it compete favourably.

SWOT analysis

SWOT analysis is a strategic business model that is used to determine the strategic position of a company (Ayub et al. 2013).

SWOT Matrix

SWOT matrix of McDonald’s.

Strengths
  1. Diversified income streams
  2. Brand recognition
  3. Big share in the global fast food market
  4. Shared advertising
  5. Independent franchisees in the company’s ownership
Weakness
  1. Over reliance on fast foods.
  2. Negative publicity due to environmental issues
  3. Low differentiation
Opportunities
  1. Start home delivery of meals
  2. Provision of healthier food
  3. Establish new customer groups
  4. Stick to its new strategies
Threats
  1. Market saturation
  2. Local fast foods outlets
  3. Fluctuations of currency

Strengths

  • One of the greatest strengths of McDonald’s is its reliance on diversified income streams from the food chains in the different countries. This makes it to have a stable income and it is cushioned from economic downturns that may happen in some countries.
  • McDonald’s is a recognized brand across the globe and hence it is easily accepted by the loyal customers due to the culture it has built of efficiency and reliable services.
  • The company’s big share in the fast food industry makes it a market leader and influences the dynamics in the industry.
  • Due to the franchising business model, adverting is very effective and it influences sales in the various restaurants.
  • Independent franchisees in the ownership of the company have injected substantial capital that has helped in maintenance of the international presence of the business.

Weaknesses

  • The over reliance on the fast foods has seen McDonald’s lose some customers who are concerned about the health issues raised by pro-healthy foods groups.
  • The company also faces negative publicity due to practices that are considered not to be environmentally sustainable such as the packaging and disposal of its wastes.
  • Due to the franchising business model, McDonald’s lacks a clear policy on the employees and hence high turnover which negatively affects its image.
  • Low differentiation which limits its capability to attract customers who do not like fast foods.

Opportunities

  • Despite the challenges, the market for fast foods is still huge due to the young population that has developed the culture of fast foods.
  • There are expansion opportunities that are not exploited such as office and home delivery of the foods.
  • Strategies to make its menu healthier in order to dispel the fears associated with the fast foods.
  • The company can segment its market in order to provide foods that fit the various age groups.
  • The franchising strategy remains to be a big opportunity for the company to maintain its international market share.

Threats

  • The fast food industry has been saturated by many businesses that are offering similar services. As a result, the businesses entering the market have to compete for the market share which has not been expanding.
  • Competition from outlets offering local foods which are mainly considered to be healthier and culturally accepted compared to the McDonald’s menus.
  • The other threat has been fluctuations in the international values of currencies that affect the income stability of McDonald’s.

Space matrix analysis

This is a management tool that is used to analyze and determine the strategic position of a company (Maxi-Pedia 2015). SPACE is acronym for Strategic, Position, and ACtion, Evaluation. It analyses the internal strategic dimensions of a company in relation to financial strength and competitive advantage. Secondly, it analyses the external strategic dimension of the company in relation environmental stability and the industry strength (Worden 2005).

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The table below outlines the SPACE matrix of McDonald’s. The matrix involves both the internal and external outlook of the company.

INTERNAL ANALYSIS Rate EXTERNAL ANALYSIS Rate
Strategic Position
Financial Strength
  1. Cash flow
  2. Net Income
  3. Return on equity
  4. Return on Investment Average
4
6
5
5
5
Strategic Position
Industrial Strength
  1. Growth potential
  2. Resource utilization
  3. Profit potential
  4. Financial stability

Average

5
4
5
5
4.75
Competitive Advantage
  1. Market share
  2. Control over other aspects
  3. Customer Loyalty
  4. Product Quality

Average

-1

-2
-1
-1
-1.25

Environmental Stability
  1. Inflation
  2. Competitive pressure
  3. Risks involved
  4. Barriers to new entry
  5. Demand viability

Average

-3
-3
-2
-3
-3
-2.8

Financial strength

McDonald’s has a positive market position in relation to the current cash flow, income, return on equity and the return on investment. The average value of 5 shows that internally, McDonald’s has strong financial base that can be used to enhance its internal outlook.

Competitive advantage

In relation to competitive advantage, there is clear depiction that the main challenge affecting the company has been the inability to devise measures to deal with competition. The average score of -1.25 in the various spheres of competition shows that the company needs to devise internal strategies to address the challenges.

Industrial Strength

In relation to the external business environment, growth potential, resource utilization, profit potential and financial stability there is a positive market outlook with a positive average score of above This shows that in the fast food industry, McDonald’s is a major player despite the competition.

Environmental Stability

In relation to environmental stability, the score of the company is negative and thus the need to devise strategies to regain competitive edge.

PESTLE analysis

PESTLE analysis is a strategic planning tool that deals with macro environmental factors that affect the operation of a business (Vrontis & Pavlou 2008). The tool offers an overview of the external fields. The main fields covered are social, technological, economic, environmental, political and legal factors (Buchinger, Ranaivoson & Ballon 2015). These elements affect the operation of the business and are key determinants of the strategic position of an enterprise. It is worth noting that though the business does not have direct control over these elements, but internal strategies at the company’s level can help in overcoming the external forces (Buxel, Esenduran & Griffin 2015). After the PESTLE analysis, it is prudent for any business to take fitting measures in order to stay relevant (Ericksen& Dyer 2010). The following is a summary of the factors to consider when carrying out PESTLE analysis.

Political factors
  • Government organisation/attitude
  • Political stability/instability
Economic factors
  • Economic growth
  • Employment policy
  • Monitory policies and inflation rates
  • Confidence of consumers
Social factors
  • Distribution of income
  • Changes in demographics
  • Social/labour mobility
  • Lifestyle changes
Technological factors
  • The rate of technology transfer
  • New inventions and development
  • Speed of technological obsolescence
  • Trends in information technology
  • Changes in the mobile technology
Legal factors
  • Policies on tax
  • Safety regulations
  • Laws on employment
Environmental factors
Environmental regulation and protection

Social factors

The changing lifestyle is already affecting the sales performance of McDonald’s. For instance, across the world, there has been a shift from the consumption of fast food to other meals that are considered to be healthier (Carney 2012). Besides, cultural factors that result in different eating behaviours have also been affecting the McDonald’s.

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Technological factors

Across the globe, there have been increased uptakes of technology. Due to the nature of the fast food business, the changes in technology do not have a big effect on the operations of the McDonald’s. However, technology remains to be a key factor in the international business in relation to use of efficient payment services, advertising and communication. It is also worth noting that many customers want to spent time in places where they have access to internet; hence, the need to come up with Wi-fi services.

Economic

International economic factors affect the operation of businesses. For instance, different countries have different economic outlooks which affect the taxes, return on investments and the inflations rates. These factors directly affect the operations of McDonald’s.

Environmental

McDonalds’ has been criticised for its waste production and management (Deng 2009). For example, in some countries, some outlets still use of polystyrene for packaging foods, which has been termed as being environmentally unfriendly. Bearing in mind the number of customers who frequent the food stores, there is a lot of waste that is produced very day yet there are no proper guidelines on how to dispose the wastes.

Political

In the various jurisdictions of operations, McDonald’s faces different government policies that concern the regulation such as health and hygiene. As a result, McDonald’s has to be in good terms with over 120 governments by adhering to the regulations. In addition, in the countries, political dynamics affect how the business performs. For example, in politically unstable countries, business interruptions result in loss of work hours and revenues.

Legal factors

McDonald’s has to deal with factors such as employment policies and the tax requirements. For instance, the company has been blamed for having no clear policy of employment in many countries (Kim 2013). Also, the company has to deal with the legal challenges that sometimes are very bureaucratic.

Based on the PESTLE analysis, it can be concluded that McDonald’s has not been able to deal macro-environmental challenges that in turn have been derailing its business operations.

Transfer learning

The following section applies findings of RCL’s analysis to the strategic management of McDonald’s. It is worth noting that the transfer of knowledge is from a cruise ship industry which is service intensive to fast food industry which though not service intensive relates to the broad industry of hospitality.

Transfer of RCL international measures to deal with the external business environment

Both RCL and McDonald’s face challenges of dealing external business environment such as regulations. One key similarity between the two companies is that they have strong internal factors that they can apply to influence their external operations and deal with the external factors affecting the business. For instance, RCL has come up with management team to address the external factors. A similar strategy will help McDonald’s address the external issues.

Transfer of strong marketing strategy to enhance McDonald’s operations

According to Kotler et al. (2009), effective marketing measures play an important role in enhancing performance of an organisation. The two companies enjoy a substantial share in their industries of operations. For example, RCL is the second largest cruise ship company while McDonald’s has the highest market share in the fast food industry. However, RCL has been performing well and has been recording increase in the number of guests served every year. This is unlike McDonald’s that faces competition from many local players. Therefore, the strategy is to employ its strong position in the market and customise its services to the needs of the customers. In RCL, safety and health of each customer is given a special consideration, similarly, McDonald’s should segment its market in order to provide customized services.

Transfer of teamwork strategy

Both RCL and McDonald’s experience challenge of workforce that is not motivated. However, RCL has an action plan that is meant to organise the employees to work as a unit in order to achieve the organisations goals. Even though the companies have different business models, McDonald’s can adopt the strategy and ensure that in each country, the employees work as a team. Chong (2007) noted that teamwork improves performance of a business.

Transfer of corporate culture strategy

RCL has endeavoured to create a corporate culture in which each employee contributes in the enhancement of safety, health and environmental sustainability practices of the company. In a similar measure, McDonald’s should cultivate a corporate culture of excellence among its employees in the various countries to ensure efficiency and quality service.

Transfer of the HR management strategies

The major problem affecting McDonald’s is the employee turnover to an extent of 150% in the UK. As a result, there is the need to adopt human resource management strategies such as those adopted by RCL. This includes strategies that ensure the most qualified employees are recruited, trained and placed and remunerated well in order to ensure continued quality services.

Transfer of socio-corporate program

In the contemporary business environment corporate social responsibility is used as a marketing tool to build brand image (Chang 2010; Przychodzeń & Przychodzeń 2014). Both RCL and McDonald’s have had to deal with negative publicity due to the environmental sustainability issues. To change the perception, RCL has come up with measures to manage its wastes and reduce environmental degradation. It has also come up with a corporate social responsibility program that is made to create a positive brand image in the market. Therefore, it should also come with a corporate social responsibility program to enhance its image in the different countries of operations.

Solutions

International Business Solutions

Extensive advertising and promotional services

McDonald’s should invest in advertising and promotional services in order to woo many customers. This will help to overcome the increasing threat of competition from other businesses. The advantage of the huge revenue base places the company at a better place to invest in promotional and advertising programs.

Product Differentiation

McDonald’s should come up with menus that fit the eating behaviours of the different cultures. However, the strategy needs further analysis to determine the effect it has on overall operations and profitability of the multinational.

Environmental sustainability

Hire environmental consultants to design a sustainable business process that will ensure proper disposal of wastes and use of biodegradable packaging materials.

Strategy Management Solutions

Segment the market and diversification of foods

McDonald’s should integrate its menus for fast foods with other local menus that are considered healthy based on the country of operation. However, the fast foods should still be used to target people who are still enthusiastic about fast foods such as the young people.

Competition strategy based on quality and efficiency instead of the price strategy

McDonald’s has relied on the price strategy for many years. Competitors have adopted the same strategy. In the modern world where people want quality products and efficient services, the company should re-strategise to capitalize on efficiency.

Human Resource Management Solutions

Employment policy

The company should come up with an employment policy that will ensure that all the employees are motivated and work towards the improved performance of the company. The policy should dispel the negative perception that only the young people can work in the McDonald’s restaurants.

Conclusions and recommendations

From the analysis, it suffices that McDonald’s has a responsibility of making sure that it maintains its market share within the fast food industry. This can be achieved by ensuring that it improves customer loyalty, product quality, increase the amount of cash available in circulation for the business, and resource utilisation. Evidently, McDonald’s has a number of weaknesses and threats. As such, the company should use its strengths and opportunities as outlined in the SWOT analysis to reduce the number of risks involved in the business. It should also put in place strategies to enhance its competitiveness, job satisfaction among employees and environmental management processes. Such strategies will help the company to maintain and gain a higher market share in fast food industry.

In order to ensure that McDonald’s is highly valuable in this industry, it is recommendable that it continues investing in its business model of franchising. This should be done with caution to ensure that quality and efficiency are not compromised as they remain to be the remaining competitive fronts for the multinational enterprise.

McDonald’s is required to improve the quality of meals and drinks it offers in order to reduce competition from other companies offering healthier foods.

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