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QUEST INTERNATIONAL UNIVERSITY PERAK (QIUP)

FACULTY OF BUSINESS AND MANAGEMENT ASSIGNMENT


APRIL SEMESTER 2018

ASSIGNMENT COVER SHEET


Course Details
Subject Code : BBA 3109

Subject Title : STRATEGIC FINANCIAL MANAGEMENT

Course of Study : BACHELOR OF ACCOUNTANCY (HONS)

Year & Semester : APRIL 2018

Lecturer’s Name : MR. ZURAIDEEY

Assignment Details

Group : McDonald Multinational Company

Due Date : 30TH MAY 2018

Students’ Details

1. Name and Matric Number :


2. Name and Matric Number :
3. Name and Matric Number :
4. Name and Matric Number :
5. Name and Matric Number :
6. Name and Matric Number : WONG JIA WEN QIUP-201509-001197

Assignment Overall Marks : _______________ Marks.

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Table of Contents

1.0 Abstract ............................................................................................................................................. 4


2.0 Multinational Company – McDonald’s .......................................................................................... 5
2.1 Background of The Company...................................................................................................... 5
3.0 Objectives of The Company ............................................................................................................. 7

4.0 Advantages of Company Going Global .................................................................................... 8


4.1 Diversifying Company Markets .................................................................................................. 8
4.2 Access to talent .............................................................................................................................. 8
4.3 Learning a New Culture............................................................................................................... 9
4.4 Competitive advantage ................................................................................................................. 9
4.5 Foreign investment opportunities ............................................................................................. 10
5.0 External Environment Influence On the McDonalds Operation ............................................... 12
5.1 Political factors ........................................................................................................................... 12
5.2 Economic factors. ....................................................................................................................... 13
5.3 Technological factors .................................................................................................................. 14
5.4 Socio-cultural factors ................................................................................................................. 14
5.5 Environment factors ................................................................................................................... 15
5.6 Legal factors ................................................................................................................................ 16
6.0 Solution To Overcome .................................................................................................................... 17
6.1 Political Solution ......................................................................................................................... 17
6.2 Economic Solution ...................................................................................................................... 17
6.3 Technological Solution ............................................................................................................... 17
6.4 Socio-cultural Solution ............................................................................................................... 18
6.5 Environmental Solution ............................................................................................................. 18
6.6 Legal Solution ............................................................................................................................. 19
7.0 The impact of exchange rate on company’s value ....................................................................... 20
7.1 Differentials in inflation ............................................................................................................. 20
7.2 Differentials in interest rates ..................................................................................................... 20
7.3 Terms of trade............................................................................................................................. 20
7.4 Political Stability and economic performance .......................................................................... 21
8.0 SWOT Analysis ............................................................................................................................... 22
8.1 STRENGTH ................................................................................................................................ 22
8.1.1 Strong Global Brand ........................................................................................................... 22
8.1.2 Diversified Income ............................................................................................................... 22
8.2 WEAKNESSES........................................................................................................................... 23
8.2.1 High Employee Turnover ................................................................................................... 23

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8.2.2 Negative Publicity ................................................................................................................ 23
8.3 OPPORTUNITIES ..................................................................................................................... 23
8.3.1 Upgraded Menu ................................................................................................................... 23
8.3.2 Expansion Plans ................................................................................................................... 24
8.4 THREATS ................................................................................................................................... 24
8.4.1 Competition .......................................................................................................................... 24
8.4.2 More Health Conscious Consumers ................................................................................... 24
9.0 Conclusion ....................................................................................................................................... 25
10.0 References ..................................................................................................................................... 27

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1.0 Abstract
The overall assignment is all about the purpose for business spreading globally and the
organization’s action and strategies to overcome the external environment that
influenced the business operation by the selected organization in the international
business environment. From this assignment, the readers can understand well the major
objectives that may induce the organization to engage in international business. Besides,
the benefits of organization going global will be identified and has been successfully
applied for certain issues as well. The assignment will also take a closer look at the
external environments influence on the business operation in different perspectives Not
only that, the readers also will understand the ways that the organization took to
overcome the issues as well. In addition, the impact of exchange rates on company’s
value and SWOT analysis are stated in this assignment. Lastly, conclusion is made for
this assignment.

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2.0 Multinational Company – McDonald’s
2.1 Background of The Company
McDonald's is conceived as one of the world's leading fast food chain that has
accommodated the lives of people daily. This burger brand was started by two brothers
known as Dick and Mac Donald in 1940 when their first McDonald's restaurant was
opened in San Bernardino, California, United States. They began by selling hotdogs,
where they used to own a hot dog stand, selling barbequed hot dogs initially before
establishing the restaurant in San Bernardino.

However, during the year of 1948, the restaurant was closed and then reopened to sell
hamburgers, French fries and milkshakes. The restaurant progressively becomes
famous and the brothers begin to franchise their restaurant in the year of 1954. Neil Fox
was appointed as the first franchisee and the next restaurant was set in Fresno,
California. In 1955, Roy Kroc as an entrepreneur and a milkshake-mixer salesman
attained the franchise of McDonald's outside the city of California, which followed in
the opening of his first McDonald's restaurant in Des Plaines, Illinois where eventually
gave birth to the formation of the McDonald's Corporation. The restaurant progressed
well and successfully sold 1000 million hamburgers in 1958.

McDonald’s restaurants have stressed a lot on standardization of operations, products


and services, while also providing customized food products based on the regions that
the branches are in. The company has its global operations running across four regions,
which are the US, Europe, APMEA (Asia Pacific, Middle East and Africa) and Canada
as well as Latin America put together.

McDonald’s Mission and Vision: To be our customer’s favourite place and way to eat-
with inspired people who delight each customer with unmatched quality, service,
cleanliness and value every time. Brand promise is to provide simple easy enjoyment
to every customer at every visit.

In addition, McDonald’s company also involved in the service activities such as The
Ronald McDonald House® of Rochester, MN provides a home-away-from-home and
offers support to families seeking medical care for their children since 1980. Located
near Mayo Clinic and steps away from Saint Marys Hospital, the House keeps families
close to the support and medical care they need. In 2017, the Ronald McDonald House
of Rochester, MN served 761 families.

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McDonald’s company also involved in the service of accounting which engage with
Sopra Steria has been working with and supporting McDonald’s Payroll system since
1997. Providing development and support services Sopra Steria has been able to
successfully reduce administration time for the payroll department while allowing
McDonald’s MIS team to focus on other key areas within their remit. McDonald’s
engaged Sopra Steria to extend and customize the existing Payroll solution to enable
bureau services to be offered to Franchisees. Sopra Steria was able to use its existing
detailed knowledge of the business, working practices and people to define and
implement this value-add service within a fixed budget. Working to set time-scales it
was important that both Sopra Steria and the McDonald’s team worked as one, therefore
the project was conducted involving close collaboration with the business and IT teams.

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3.0 Objectives of The Company
The first and foremost reason is that western multinationals would like to expand their
sales and acquire newer markets so that they can record impress growth rates.
Considering the fact that the developing countries are peopled with consumer who have
aspiration to western lifestyles, it is, but natural that the western companies would like
to target this need and hence, expand into these markets. Moreover, with declining sales
in one region, the western companies hop to recoup the losses by expanding into other
markets. Further, the attractive rates of return in the emerging markets are another
reason as well.

Diversify sources of sales and supplies. To minimize swings in sales and profits,
companies may seek out foreign markets to take advantage of business cycle-recessions
and expansions-differences among countries. Sales decrease in a country that is in a
country that is in a recession and increase in one that is expanding economically. By
obtaining supplies of the same product or component from different countries,
companies may be able to avoid the full impact of price swings or shortages in any one
country.

Profit advantage. The international business provides more profit advantage.


International business is more profitable than the domestic. When we examine the
average unit cost of production, we may find that the average cost of production per
unit will be lowest if the plant is operated at optimum capacity. The relative rate of
profit per unit will increase when the total profit from domestic business increase.

Growth opportunities. In most of the foreign markets there is a vast growth prospects
to attract foreign companies. In many countries, both the population and income are
growing fast. Though the market for several goods in many domestic markets is not
very substantial at present. So, many companies/countries are eager to establish a
foothold in foreign market considering their future potential in mind.

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4.0 Advantages of Company Going Global
In today’s multinational business environment, organizations are typically in a state of
expansion, which we call “Going Global,” leading to a state of ongoing integration and
optimized performance, or “Being Global.” Successful talent management and talent
mobility are at the heart of these concepts, and they rely heavily on the human resource
function to rise to the global challenge. The McDonald's Corporation is one of the most
successful global restaurant chains around the world. They have used effective
management and global expansion strategies to enter new markets and gain a share of
the foreign fast food market.

4.1 Diversifying Company Markets


Many businesses expand internationally to diversify their assets, an action that can
protect a company’s bottom line against unforeseen events. For instance, companies
with international operations can offset negative growth in one market by operating
successfully in another. Companies also can utilize international markets to introduce
unique products and services, which can help maintain a positive revenue stream.

McDonald's starting of McCafe is an excellent example of diversification. By


starting McCafe, McDonald's is offering new products that were not available in
traditional McDonald's stores. McCafe specializes in serving cafes, which attracts
customers that usually don't come to McDonald's to eat fastfood. McCafe is also not
only a product development. McCafe has its own section of the store and clearly
distinguishes itself from the traditional McDonald store. The store has modern, yet
relaxing mood. This is important to attract new market segments, probably customers
that go to cafe not to satisfy hunger, but possibly to take a sip of coffee and chat in a
relaxing environment. Thus, McDonald's McCafe serves as an example performing
diversification by developing both new products and new markets.

4.2 Access to talent


Another top benefit of going global is the opportunity to access to new talent pools.
In many cases, international labor can offer companies unique advantages in terms of
increased productivity, advanced language skills, diverse educational backgrounds and
more. In addition, international talent may also improve innovation output within a
company. For instance, that’s one reason why foreign markets that welcome global

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entrepreneurs and skilled workers often have denser and more successful start-up
climates.

For example, the talent development conversations of McDonald’s are about how
to help people around the globe build those life skills. Their education and
accreditations programs around the world are the most tangible examples. In the United
States, for example, organizations have thousands participating in Archways to
Opportunity program, where they can learn a language, get a high school diploma, or
attend college. The organization want to equip them with skills they can carry
throughout their lives and careers.

Besides that, McDonald’s Corporation has introduced a new social method. The
“Snaplication”, which uses Snap Inc app to increase the attraction of applicants through
the use of a distinctive lens overlay of a McDonald’s crew badge and hat. The global
fast-food titan claims that it is optimistic of being able to tap into the approximately 3.2
million strong group of old Snapchat users who are between the ages of 17-34 years.

4.3 Learning a New Culture


By going global, company may be getting information about a new place can help
make your organization more well-rounded. Having an understanding of people who
are not from your country will give you a new perspective on relations with customers,
and may even help you work better with domestic customers and business partners.
Besides that, hiring a cultural consultant will help guide you in creating marketing
content that takes into account culture and any linguistic nuances.

For example, McDonald's company has fulfilled the customers need among nations
in terms of cultures, religious believes, political and legal systems, customer values and
lifestyles, and stages of economic and market development. The company has
customization of activities and menu to suit local needs is the single most factor
contributing to its success. This takes care of blending with the local culture and values
of the foreign country. McDonalds is an example of a company which is centralized in
its core but still customizes the menu and the operational activities for local needs.

4.4 Competitive advantage


Companies also choose international expansion to gain a competitive edge over
their opponents. For example, businesses that expand in markets where their
competitors do not operate often have a first-mover advantage, which allows for them

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to build strong brand awareness with consumers before their competitors. International
expansion can also help companies acquire access to new technologies and industry
ecosystems, which may significantly improve their operations. International business
can also increase a company’s perceived image, as global operations can help build
name brand recognition to support future business scenarios, such as contract
negotiations, new marketing campaigns or even additional expansion.

For example, McDonald's company strive to be cost leaders and offer our food at
prices that cannot be matched by competitors. In order to do this, McDonald's
company store must be efficient and keep everyday operations costs as low as possible.
Doing so, will allow for their stores to be superior to other fast food restaurants because
company can serve our food at lower prices than any other fast food company.

Another important competitive advantage we have here at McDonald’s is the


speedy delivery of our food. In order to maintain this advantage over other fast food
chains, you must make the processes of cooking food simple for all your employees.
It must be easy to learn and easy to execute with a low failure rate to ensure the quick
production and delivery of your food. These two competitive advantages comply
directly with the vision of the company which is as follows: “McDonald's vision is to
be the world's best quick service restaurant experience. Being the best means providing
outstanding quality, service, cleanliness, and value, so that we make every customer in
every restaurant smile.”

4.5 Foreign investment opportunities


Finally, companies considering international expansion shouldn’t forget about the
additional investment opportunities that foreign markets can offer. For instance, many
firms are able to develop new resources and forge important connections by operating
in global markets.

Companies with multinational operations can also benefit from lucrative


investment opportunities that may not exist in their home country. For example, many
governments around the world offer incentives for companies looking to invest in their
region. Thus, U.S. firms should always do their research before making an international
expansion decision.

For example, there are two ways that how McDonald's company create the
opportunities. First, with a franchise business model that allows its franchisee-members,

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management and shareholders to share the risks and rewards from the discovery and
exploitation of new business opportunities—McDonald’s model has become the norm
for other franchise organizations. Second, by adaptation and innovation, coming up
with fresh products and services to address the needs of a diverse consumer market—
as shaped by demographic, economic and local factors around the world.

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5.0 External Environment Influence On the McDonalds Operation
PESTEL analysis is a framework or tool used by marketers to analyses and monitor
the macro-environmental (external marketing environment) factors that have an impact
on an organization. McDonalds is one of the company that going to make an analysis
and will be provide some solution how to overcome against with PESTEL analysis
methods.

As we mentioned in the previous part which is PESTEL ANALYSIS. PESTEL


analysis has classified as political, economic, social/ social culture, technological, legal
factors. These all is under PESTEL analysis or known as macro environment. The
further discussion will be explained in the following paragraphs.

5.1 Political factors


The international operations of McDonald’s are highly influenced by the individual
country’s policies enforced by each government. For instance, there are certain groups
in India, Europe and the United States that clamour for state actions pertaining to the
health implications of eating fast food. They have indicated that harmful elements like
cholesterol and adverse effects like obesity are attributable to consuming fast food
products.

On the other hand, the company is controlled by the individual policies and
regulations of operations. Specific markets focus on different areas of concern such as
that of health, worker protection, and environment. All these elements are seen in the
government control of the licensing of the restaurants in the respective states of the
country. For instance, there is an impending legal dispute in the McDonald’s franchise
in India where certain infringement of rights and violation of religious laws pertaining
to the contents of the food. The existence of meat in their menus in India is apparently
offensive to the Hindu religion in the said market.

There are also other studies those points to the infringement of McDonald’s Stores
with reference to the existing employment laws in the target market. Like any business
venture, these McDonald’s stores have to contend with the issues of employment
procedures as well as their tax obligations so as to succeed in the foreign market like
India.

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In Malaysia, the operations of McDonalds are affected by the government policies
on the regulations of fast food operation. Currently government are controlling the
marketing of fast food restaurant because of health concern such as cardiovascular and
cholesterol issue and obesity among the young and children in the country.
Governments also control the license given for open the fast food restaurant and other
business regulation need to follow such as for a franchise business.

5.2 Economic factors.


Organizations in the fast food industry are not excused from any disputes and
troubles. Specifically, they do have their individual concerns involving economic
factors. Branches and franchises of McDonald’s have the tendency to experience
hardship in instances where the economy of the respective countries are hit by inflation
and changes in the exchange rates, India is not an exception to it. The customers
consequently are faced with a stalemate of going over their individual budgets whether
or not they should use up more on these foreign fast food chains like McDonalds.

Hence, these chains may have to put up with the issues of the effects of the
economic environment. Particularly, their problem depends on the response of the
consumers on these fundamentals and how it could influence their general sales. In
regarding the operations of the company, McDonald’s tend to import much of their raw
materials into a specific country’s territories if there is a dearth of supply. Exchange
rate fluctuations will also play a significant role in the operations of the company.

As stated in the paragraph above, McDonald stores have to take a great deal of
consideration with reference to their microenvironment. The company’s international
supply as well as the existing exchange rates is merely a part of the overall components
needed to guarantee success for the foreign operations of McDonald’s. Moreover, it is
imperative that the company be cognizant of the existing tax requirements needed by
the individual governments on which they operate. This basically ensures the smooth
operations of the McDonald’s franchises.

In the same regard, the company will also have to consider the economic standing
of the country on which they operate on. The rate at which the economy of that
particular country grows determines the purchasing power of the consumers in that
country. Hence, if a franchise operates in a particularly economically weak country,
their products shall cost higher than the other existing products in the market, then these

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franchises must take on certain adjustments to maintain the economies of scale.
However, in case of Malaysia the company has been able to maintain a constant level
of prices for their products.

5.3 Technological factors


McDonald’s generates a demand for its own products. The company’s key tool for
marketing is by means of Online Facebook and Google ads, Collaboration with
websites like Snap deal and Times deal to promote sales in India, television
advertisements, banners and hoardings. There are similarly some claims that
McDonald’s are inclined to interest the younger populations more. The existence of
‘play spots’ as well as ‘toys in meals’ offered by the company shows this actuality.
Other demonstration of such a marketing strategy is apparent in the commercials they
use. They employ animated depictions of their characters like Grimace, Ronald and
Ham burglar. Other advertising operations employ popular celebrities to promote their
products. The ‘like’ has become endorsers for McDonald’s worldwide “I’m loving it”
campaign.

Moreover, the operations of McDonald’s have significantly been infused with


modern technology. Elements like the inventory system and the management of the
value chain of the company allows for easy payments for their suppliers and other
vendors which the individual stores in respective markets deal with. The integration of
technology in the operations of McDonalds tends to add value to their products.
Basically, this is manifested in the improvements on its value chain. The improvement
of the inventory system as well as its supply chain allows the company to operate in an
international context. For a fast food restaurant, technology does not give a very high
impact on the company and it is not a significant macro environment variable.

5.4 Socio-cultural factors


Articles on the international strategies of McDonald’s seem to function on several
fields to guarantee lucrative returns for the organization. To illustrate, the
organization improves on establishing a positive mind-set from their core consumers.
McDonald’s indulge a particular variety of consumers with definite types of
personalities. It has also been noted that the company have given the markets such as
the United Kingdom and India, an option with regards to their dining needs.
McDonald’s has launched a sensibly valued set of food that tenders a reliable level of

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quality for the respective market where it operates. Additionally, those who are aged
just below the bracket of thirty-five are said to be the most frequent consumers of
McDonald’s franchises.

The multifaceted character of business nowadays is reflected in the harsh


significance of the information on the subject of the existing market. This procedure
is essentially identified in the field as market research. Information with regards to the
appeal and potential fields of the market would double as obstructions to the success of
the company if this area of the operations is neglected. In the case of McDonald’s,
they establish a good system in determining the needs of the market. The company
uses concepts of consumer behavior product personality and purchasing decisions to its
advantage which is clearly evident in case of India as the company was quick in
removing their Pork and Mutton products from India’s menu. It is said to have a major
influence on the understanding of the prospective performance of the organization in a
particular market.

The changing lifestyles of Malaysia due to development of Malaysian economy


should be also taking into consideration. While more people are able financially to eat
at more expensive outlet such as fast food restaurant, they have higher expectation.
They want to have quality in services and more conveniences that can differentiate one
restaurant from another. Young urban consumers want technology in their life and
facilities such as credit card payment, wireless internet, cozy and relaxing ambient place,
and other attraction for their hangout and eating. All these needs should also be taken
into consideration. There is not much difference between cultural and the purchase of
products in a single country but for different countries cultural sensitivity should be
upheld.

5.5 Environment factors

The social responsibilities of McDonald’s on the country are influential to the


operations of the company. These involve accusations of environmental damage.
Among the reasons why they are charged with such claims is the employ of non-
biodegradable substances for their drinks glasses and Styrofoam coffers for the meals.
Several civic groups in India have made actions to make the McDonald’s franchises in
India aware of the rather abundant use of Styrofoam containers and the resultant abuse
of the environment.

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As one of world largest consumer of beef, potatoes and chicken, McDonalds always
had been critics for world environmentalist. This is because high consumption of beef
causing the greenhouse effect by methane gasses coming from the cow’s ranch. Large
scale plantation has affect the environment and loss of green forest opening for
plantation activities. Vegetarian environmentalist criticizes the fast-food giant for
cruelty to animals and slaughtering. In Japan, once McDonalds want to introduce whale
burger causing uproar because whales are endangered species. Before using paper
packaging, once McDonalds also had been criticized for being insensitive to pollution
because using polystyrene based packaging for its foods. Imagine millions of people
purchase from fast food operator and how is the impact to world environment by
throwing away those hard to recycle packaging.

5.6 Legal factors


There has been the recurrent bellowing in opposition to the fast food industry. This
has similarly made McDonald’s apply a more careful consideration on their corporate
social responsibilities. Overall, this addressed the need of the company to form its
corporate reputation to a more positive one and a more socially responsible company.
The reputation of McDonald’s is apparently a huge matter. Seen on the website of the
company, it seems that they have acquired strides to take in hand the key social censures
that they have been berating them in the past decades. The company has provided their
customers the relevant data that they need with reference to the nutritional substances
of their products. This is to attend to the arguments of obesity charged against the
products of the company. In the same way, the consumers provided freedom in
choosing if they want to purchase their meals.

This is tied up with the socio-cultural attributes of the market on which they operate.
For instance, operations in predominantly Muslim countries require their meat to
conform to the Halal requirements of the law. In the same regard, those that operate in
countries in the European Union should conform to the existing laws banning the use
of genetically modified meat products in their food. This was prime reason which
forced McDonalds to eliminate beef, pork and Mutton out of India’s product menu.

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6.0 Solution To Overcome
6.1 Political Solution
Good relationship with government in giving mutual benefits such as employment
and tax is a must for the company to succeed in any foreign market.

McDonald is the fast food chain restaurant that very famous and everybody likes
it. Since it is apparent that the company is expanding continuously, it is wise to deal
directly with the proper authorities in the respective markets that they intend to operate
in. This way, the company can adopt a good way of establishing good relationship with
the government. It is advisable that the company rests on the good graces of the
government on which they will be penetrating. To do this, all they have to do is
accomplish all the prescribed acts and satisfy all the prerequisites for doing business.
The company must also be acquainted with the law in order to know what their
responsibilities and their possible liabilities. Also, McDonalds should protect its
workers by ensuring all the hiring, compensation, training or repatriation in accordance
to the Indian labor laws.

6.2 Economic Solution


Ideally before penetrating the market, the company must carry out a well conducted
market research, especially in the movements in the economic environment which
McDonalds had done before entering the Malaysia market dur to which the company
has been able to bear the frequency of the shifts in the inflation rate as well as the
fluctuation in the exchange rates which affects the operations of any company.

The economic condition and growth of the country also is an important indicator
to the demand of products that McDonalds offered. As the food priced slightly above
normal foods, not many people will have the income range to consume the products.
Moreover, if the company is bad and income precipitate is affected, the demand of
McDonalds product will certainly be going down. On the other hand, the good economy
also means disposable income is more and people can spend more on more expensive
food at fast food restaurant.

6.3 Technological Solution


For example in inventory system, supply chain management system to manage its
supply, easy payment and ordering systems for its customers and wireless internet
technology. Implementation of technology can make the management more effective

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and cost saving in the long term. This will also make customer happy if cost savings
results in price reduction or promotional campaign discount which will benefits them
from time to time.

McDonalds use the internet to their advantage. The cost-effectiveness, interactivity


and realtime effects of the communications are a good way to find suppliers. It is also
a good way to correspond with the respective McDonald’s headquarters in every
Country. The company must also look into the use of IT to enhance their inventory
operations. As the operations in its inbound and outbound logistics improve, the
company will expect significant savings and reduction of costs in the operations.

6.4 Socio-cultural Solution


For example, in India people (Hindu) do not take beef, Muslim countries do not
take pork, German like beers, Finnish like fish type of food menu, Chinese like to
associate food with something good (for example prosperity), Asian like rice and
Americans eat in big-sized menu. So far McDonalds has shown good efforts in
localization of its menu to suit local taste but it should constantly survey and learn about
local culture to better understand and design the best product for them.

McDonalds should obtain the relevant information from the target market in
addition to the individual customers of the operation. It is imperative that before a
franchise is granted to a particular market, a well drafted and comprehensive market
research should be conducted initially so as to establish the acts that would conform to
good customs, public policies and morals of the said Country’s society. Similarity, the
company should find out the shifts in areas like the consumer behavior and purchasing
patterns of the market. Fundamentally, this is the key condition for executing a suitable
customer relationship management system. Also, the company should constantly
survey and learn about local culture to better understand and design the best product for
them.

6.5 Environmental Solution


Our world is getting concern on environment issue and business operating here
should not just care for profit, but careful usage of world resources for sustainable
development and care for environment safety and health for our future generation.
Critics and concern from all public or activist should be review and support if necessary
to ensure we play our social responsibility better.

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The social responsibility of McDonalds on the country are influential to the
operations of the company. These involve accusations of environmental damage.
Among the reasons why they are charged with such claims is the employ of non-
biodegradable substances for their drinks glasses and Styrofoam coffers for the meals.
Several civic groups in India have made actions to make the McDonald’s franchises in
India aware of the rather abundant use of Styrofoam containers and the resultant abuse
of the environment.

6.6 Legal Solution


As a certified fast food operator, there are many regulations and procedures that
McDonalds should follow. McDonalds should protect its integrity and consumer
confidence by ensuring all materials and process are as claimed or must followed.

Other legal requirement that the business owner should follow as stipulated in laws
are such as operating hours, business registration, tax requirement, labor and
employment laws and quality & environment certification (such as ISO) in which the
outlet has been certified. The legal requirement is important because the offenders will
be fined or have their business prohibited from operating which can be disastrous. The
company should hire local counsels to deal with the legal conflicts in individual markets
on which the company may encounter. This shall ensure the company that the lawyers
that will handle their legal affairs are more versed with the legal regime that would ease
out certain problems on their operations.

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7.0 The impact of exchange rate on company’s value
McDonalds is a worldwide chain franchise based on USA Company. As MCD is
global, it needs to do international transection so, here the exchange rate became crucial
as different country have different currency value. Before identifying the impact we
need to know about the factors that influences exchange rates.

The factors that influence exchange rates are as follows:

7.1 Differentials in inflation


As a general rule, a country with a consistently lower inflation rate exhibits a rising
currency value, as its purchasing power increases relative to other currencies. During
the last half of the 20th century, the countries with low inflation included Japan,
Germany and Switzerland, while the U.S. and Canada achieved low inflation only later.
Those countries with higher inflation typically see depreciation in their currency in
relation to the currencies of their trading partners. This is also usually accompanied by
higher interest rates.

7.2 Differentials in interest rates


Interest rates, inflation and exchange rates are all highly correlated. By
manipulating interest rates, central banks exert influence over both inflation and
exchange rates, and changing interest rates impact inflation and currency values. Higher
interest rates offer lenders in an economy a higher return relative to other countries.
Therefore, higher interest rates attract foreign capital and cause the exchange rate to
rise. The impact of higher interest rates is mitigated, however, if inflation in the country
is much higher than in others, or if additional factors serve to drive the currency down.
The opposite relationship exists for decreasing interest rates that is, lower interest rates
tend to decrease exchange rates.

7.3 Terms of trade

A ratio comparing export prices to import prices, the terms of trade is related to
current accounts and the balance of payments. If the price of a country's exports rises
by a greater rate than that of its imports, its terms of trade have favorably improved.
Increasing terms of trade shows greater demand for the country's exports. This, in turn,
results in rising revenues from exports, which provides increased demand for the
country's currency (and an increase in the currency's value). If the price of exports rises

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by a smaller rate than that of its imports, the currency's value will decrease in relation
to its trading partners.

7.4 Political Stability and economic performance

Foreign investors inevitably seek out stable countries with strong economic
performance in which to invest their capital. A country with such positive attributes
will draw investment funds away from other countries perceived to have more political
and economic risk. Political turmoil, for example, can cause a loss of confidence in a
currency and a movement of capital to the currencies of more stable countries.

How it affects MCD:

First, direct impact. This will happen in three cases:

1. If the business buys any products from another country. The cost of those
products will change if the exchange rate changes.
2. If the business sells any products to a foreign country. The sale price (and
therefore profits) will change if the exchange rate changes.
3. If the business has borrowed money from, or lent money to, someone in a
foreign country. The amount to be repaid, and the interest amount, will
change if the interest rate changes.

There is also an indirect impact. No business is an island; it depends upon other


businesses which might be affected by exchange rates. For example, MCD which
neither sells nor buys nor borrows from another country. However, it uses the Franchise
from USA and it gives certain amount to MCD (USA) to use the business name. If the
foreign exchange rate changes, the cost of the contract rate changes and that affects the
costs of the business. This is an example of indirect impact. So MCD’s affected by
indirect impact.

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8.0 SWOT Analysis
SWOT analysis is frequently used in environmental management as a diagnostic
method to identify key factors influencing the success or failure of an organization’s
project (Masozera et al. 2006; Geneletti et al. 2007; Lozano and Vallés 2007). Strengths,
weaknesses, opportunities and threats (SWOT) analysis is a device that helps business
managers to evaluate the strengths, weaknesses, opportunities and threats involved in
any business enterprise. SWOT analysis determines what may assist the firm in
accomplishing its objectives, and what obstacles must be overcome or minimized to
achieve the desired results (Singh, 2010). The standard application of SWOT analysis
is based on a template, which presents the required heuristics to study the future
prospects of the chosen organization, which in this case is the famous fast food
company, McDonald’s.

McDonald’s SWOT analysis is as follows:

8.1 STRENGTH
8.1.1 Strong Global Brand

McDonald’s is one of the most recognizable brands in the world. Most individuals
in Malaysia and all over the world instantly recognize the company’s “Golden Arches”.
The company provides consistency in its food quality, so that you can get the same taste
whether you’re eating a Big Mac in New York or in Malaysia. However, McDonald’s
also provides cultural diversity in the foods they offer based on the location of the
restaurant, thereby adding to supplemental sales in each particular region. For instance,
McDonald’s in Malaysia serves Nasi Lemak Burger and Spicy Fried Chicken while in
Australia, they have different menu such as BBQ Bacon Lovers and Spicy Buffalo
Chicken. The company’s success has allowed it to become the largest fast food
restaurant chain in the world.

8.1.2 Diversified Income

Since McDonald’s is very well established, with so various locations all around the
world, its total sales and earnings in different regions tend to offset one another.
McDonald’s has locations in nearly 120 countries. Therefore, if their domestic sales are
dropping, it is possible that they could still be strong in South America or Europe. Thus,
McDonald’s does not rely solely on one key source of income, unlike many of their

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rivals. For example, Burger King relies almost exclusively, roughly 98%, on the United
States for its earnings. This diversification allows McDonald’s to have relatively stable
cash flows, and at the same time helps them to generate consistent profitability.

8.2 WEAKNESSES
8.2.1 High Employee Turnover
Most jobs at McDonald’s involve low skilled jobs with a low pay rate. As a result,
there is a significant amount of employee turnover. Some of the employees do not take
the job seriously, or only do it for short period of time. Thus, this leads to lower
performance. Most of the McDonald’s employees in every country consist of teenagers
and high school leavers looking for part time jobs before they pursue their studies. Since
there are so many turnovers, training costs are high, pressuring the company’s bottom
line.

8.2.2 Negative Publicity

McDonald’s has always maintained the perception that their food is unhealthy,
loaded with fats, carbohydrates, salt and sugar. Well, these negative perceptions are
generally on point, since most of the products on their standard menu are relatively
unhealthy.

The chain has been criticized all over the world for promoting unhealthy eating
habits, which then caused many of its customers to put on pounds. In a 2004’s
documentary, “Super Size Me”, it documented Morgan Spurlock’s rapidly deteriorating
health as he ate only McDonald’s for a period of 30 days. Thus, many health conscious
consumers do not even consider having a meal at McDonald’s, despite its efforts to
introduce healthier meal options.

8.3 OPPORTUNITIES
8.3.1 Upgraded Menu

According to McDonald’s CEO, Steve Easterbrook, McDonald’s are offering


premium products at some of its locations. For instance, the restaurant recently
introduced artisan chicken and sirloin burgers in its menu in some parts of the United
States. Whilst in Malaysia, nasi lemak burgers are one of the latest additions to the
menu. Not only that, McDonald’s is also trying to strengthen its position in the high-
margined caffeinated beverages industry by introducing the McCafe. The McCafe has

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had some success by maintaining their prices competitive and the company has been
able to harness its wide store network, marketing muscle, and highly efficient supply
chain. Now, the McCafe menu is also inclusive of fruit smoothies, which is an appeal
to more health conscious consumers.

8.3.2 Expansion Plans

McDonald’s is always on the hunt to expand its market share. While the markets
in North America and Europe are fairly saturated, there are opportunities in more
underdeveloped countries such as Madagascar, Mauritania and Ethiopia. The company
also recently announced that it was going to refranchise 3,500 restaurants by the end of
2018, which will then accelerate the pace of refranchising and increasing the global
franchised percentage from the current 81% to 90%. Thus, this will allow for a more
streamlined, lower cost and more stable organization.

8.4 THREATS
8.4.1 Competition

McDonald’s deals with significant competition from national, international,


regional and local retailers of food products. They compete on the basis of price,
convenience, service, menu variety as well as product quality. While it does a great job
on most of these categories, product quality is something that the management is
working on, given consumers’ increasing preference for quality and natural products.
In the hamburger fast food category, McDonald’s biggest competitors are Burger King
and Wendy’s while in the fried chicken category, Kentucky Fried Chicken (KFC) is
their biggest rival. However, McDonald’s still has the highest market share in the
overall fast food market, with a 22% share, ahead of Subway.

8.4.2 More Health Conscious Consumers

Many consumers, both in the United States and abroad are opting for a healthier
diet. The increase in popularity of organic products, fresh fruits and vegetables, and
goods with all-natural ingredients is somewhat of a concern for McDonald’s. Even if
the company has very strict quality controls for its food, customers are not exactly going
to McDonald’s for free-range chicken and organic vegetables. Furthermore, the
company is also facing concerns that younger, more health-conscious consumers will
hurt results in the long run unless a shift in strategy is taken as soon as possible.

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9.0 Conclusion
McDonald’s continue to exist as the world’s leading global foodservice retailer, and
posts big profits each year. However, as we discussed the SWOT analysis earlier, there
are some concerns. McDonald’s continues to face fierce competition and at the same
time faces a challenging subset of population that is focusing on healthy eating. A new
CEO and strategies would help to provide more stability and a breath of fresh air to the
company but this will likely take some time to materialize. Therefore, short term
investors might think that the stock is not a good choice at the moment, but assuming
the success of its global initiatives, this might be a good sign to the long term investors.

Furthermore, based on the external environmental influence that has been mentioned in
the PESTEL earlier, McDonald’s must have a good relationship with the local
government. This is to overcome any political issues that might arise such as violation
of religious laws and to avoid state actions regarding unhealthy implications that
McDonald’s might bring to the consumers. Next, McDonald’s must also carries out a
market research especially in the movements in the economic environment before
entering any new markets so that the company will be able to bear the frequency of
shifts in the inflation rate as well as the fluctuation in the exchange rates.

Not only that, McDonald’s need to invest in more updated technologies such as
inventory system, supply chain management system, easy payment and ordering system
as well as wireless internet technology. This will definitely make the organization to
operate more effectively and leads to cost saving in the long run. In terms of socio-
cultural factor, McDonalds has shown good efforts in localization of its menu to suit
local taste but it should constantly survey and learn more about local culture to better
understand and design the best product for them. In terms of environment factor,
McDonald’s must consider to use biodegradable containers for their products to
overcome the accusations of environmental damage. In terms of legal factor,
McDonald’s should protect its integrity and consumer confidence by ensuring all
materials and process are as claimed, this includes operating hours, business
registration, tax requirement, labor and employment laws and quality & environment
certification (such as ISO) in which the outlet has been certified.

Furthermore, McDonald’s need to consider the impact of exchange rates on the


company’s value as well. McDonald’s is likely to face the indirect impact since they

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use the Franchise from USA and it gives certain amount to MCD (USA) to use the
business name. Thus, if the foreign exchange rate changes, the cost of the contract rate
changes and this affects the costs of the business.

In conclusion, since McDonald’s is a very large corporation, it needs to consider all of


these factors in order to make some improvements in the company. If all these factors
are being weighed equally and thoroughly, I am sure that McDonald’s is capable to
expand more in the future.

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Environments in Transitional ..., 11(May), 322–334.

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content/uploads/2013/06/10_Reasons_to_go_International.pdf

Brannan, S., Cain, E., Collette, C., & Fleischmann, J. (n.d.). No Title.

Dixit, D. (2017). Global marketing strategies of Mcdonald’s Corporation (with


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Ernst&Young. (2015). International Expansion. EYGM Limited.


https://doi.org/10.1111/1467-8616.00181

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Human, A. C., Management, R., In, C., Age, A. N., & Talentism, O. F. (n.d.). AN
AGE OF TALENTISM GOING GLOBAL , BEING GLOBAL :

Kajanus, M., Leskinen, P., Kurttila, M., & Kangas, J. (2012). Making use of MCDS
methods in SWOT analysis-Lessons learnt in strategic natural resources
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Lyytinen, T. (n.d.). Perspectives on the international business strategies of small


Finnish technology companies in developing countries The case of small scale
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Mujtaba, B. G., & Patel, B. (2011). McDonalds Success Strategy And Global
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Rasiah, D., Ming, T. T., & Hamid, A. H. B. A. (2014). Mergers Improve Efficiency of
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(J. H. Ahmad, 2011; R. Ahmad, 2007; Ahmeti, 2016; Biggs, 2013; Brannan, Cain,
Collette, & Fleischmann, n.d.; Dixit, 2017; Ernst&Young, 2015; German, n.d.; “Going
global to perform better locally,” n.d.; Human, Management, In, Age, & Talentism, n.d.;
Kajanus, Leskinen, Kurttila, & Kangas, 2012; Lyytinen, n.d.; Mujtaba & Patel, 2011;
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2016)

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