McDonald’s 1

Running Head: McDonald’s

Advantages and Disadvantages of McDonald’s Global Strategy

Jessica Haynes

Kunyuan Yang

Md. Rashedul Rabin

Andrew Story

Southern Arkansas University

 McDonald’s 2

Company Overview

According to Datamonitor, a leading business information company specializing in

industry analysis, the global fast food market as of 2008 was valued at $154.7 billion with a

growth rate of 6.6%. (Datamonitor, 2009).

Global Fast Food Market Value: $ billion, 2005-2009 Source: Datamonitor

Year $ billion % Growth
2005 166.6 5.2
2006 175.3 6.0
2007 185.9 4.9
2008 194.9 3.1
2009 201.1 4.8

250
6
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McDonald’s is one of the largest fast food service retailing chain in the world. Their global

business is segmented into four geographical categories: Europe, the U.S., APMEA (Asia,

Pacific, Middle East, and Africa) and other countries. The “other countries” category comprises

Canada and Latin America. As of 2010, McDonald’s operated over 32,000 restaurants in over

100 countries, 17,000 of which were located outside the United States (Nation’s Restaurant

News [NRS], 2005). McDonald’s revenue includes sales from company operated restaurants and

franchise fees (Datamonitor, 2009). Of the company’s restaurants, 6,500 are operated by the

company and over 25,400 are operated by franchisees. McDonald’s revenue for the 2009

financial year was $22,745 million. McDonald’s net income totaled $4,551 million

(Datamonitor, 2010).

McDonald’s Corporation: Key Financials ($) Source: Datamonitor

$ Million 2005 2006 2007 2008 2009
Revenues 19,117.3 20,895.2 22,786.6 23,522.0 22,744.7
Net Income 2,602.2 3,544.2 2,395.1 4,313.0 4,551.0
Total Assets 29,988.8 28,974.5 29,391.7 28,462.0 30,224.9
Total 14,842.7 13,516.2 14,111.9 15,079.0 16,191.0

Liabilities
Employees 447,000 465,000 390,000 400,000 400,000

McDonald’s largest geographical market is Europe. This segment accounted for 41% of the total

revenues for the year 2009, or $9,273.8 million. The United States accounted for 35% of the total

revenues for the year 2009, or $7,944 million. APMEA accounted for 19% of the total revenues

for the year 2009, $4,337 million. Canada and Latin America (“other countries” accounted for

5% of the revenues for 2009, or $1,190 million.

International Analysis
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There are many advantages and disadvantages to conducting business in international

markets. Since 1955, the fast food pioneer, McDonald’s, has experienced both the positive and

negative attributes from adopting a global strategy.

Advantages of Global Strategy

The main advantage of a global strategy is a company’s ability to expand beyond its

borders into growing countries. This approach is the primary source for McDonald’s growth and

profitability, as indicated by the majority of their restaurants being located internationally.

According to Fortune Magazine, “McDonald’s worldwide operations are now far bigger than its

U.S. domestic business, and they are growing substantially faster” (Gumbel, 2008). McDonald’s

Corporation depends on their international markets to be their “principal revenue engine”

(Gumbel, 2008). In fact, “Europe overtook the U.S. as McDonald’s biggest source of revenue in

2004” and accounted for 40% of the company’s total revenue of $22 billion (Gumbel, 2008).

While revenues in the U.S. grew only a slim 6%, revenue figures in Europe and Asia Pacific

grew more than double. Of the European segment, Russia holds much opportunity for expansion.

In fact, the company has opened over 100 stores in the past few years (NRS, 2005). According to

Glen Steeves, a European Executive for McDonald’s Corporation, “Russia is a market that has

been doing extremely well. It has a strong currency, and it’s among the fastest growing nations in

the region” (NRS, 2005, pg. 55). McDonald’s APMEA segment plans to target China and

Malaysia for expansion. As of 2005, McDonald’s operated in more than 100 cities in China and

had plans to open 500 more stores by 2010. Growth in the Middle East has also continued

despite conflicts, due to local ownership of restaurants and employment of local workers.

McDonald’s has also expanded in Latin America through the installation of over 100 McCafe

stores, a coffee and dessert café that was originated in Australia.

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Another advantage of conducting business in international markets is the benefits derived

from having a diversified portfolio. This allows McDonald’s to avoid dependency on the U.S.

economy and weather economy fluctuations in any country. A diversified portfolio also allows

the company to spread risk across many countries. By investing in only one country or region,

the slightest currency fluctuation or conflicts of war and politics could cause the company to go

out of business.

Brand recognition is also a positive aspect gained from conducting business in the

international marketplace. According to CoreBrand, a consulting firm that measures brand

equity, “Starbuck’s, McDonald’s and Wendy’s are food service leaders not only by virtue of

their size and their sales, but because consumers recognize their corporate identities as readily as

their products” (Cebrzynski, 2006). According to a survey conducted by CoreBrand,

McDonald’s brand equity as percentage of overall market capitalization was 18.7 percent out of

a possible 20 percent. In the restaurant category, “brand equity as a percentage of market

capitalization was an average 12.82 percent” (Cebrzynski, 2006). This shows the McDonald’s

overall market capitalization is much higher than the industry average. The survey then

determined McDonald’s brand strength by measuring familiarly and favorability. McDonald’s

ranked 95 on a scale of 100 for familiarity and 72 for favorability. These numbers are then

converted to a dollar value to determine the monetary worth attached to the company’s brand.

CoreBrand estimated McDonald’s brand value at 7.44 billion. McDonald’s successful brand

recognition and value is attributed to their international strategy. The McDonald’s golden arches

are one of the most recognizable icons in the United States and even the world. According to

studies, Ronald McDonald is the second most recognizable figure in the world, second to Santa

Claus. McDonald’s global strategy has enhanced their brand recognition at an international level.
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As more restaurants are opened and more markets are penetrated, the McDonald’s brand will be

exposed to thousands of more consumers on a daily basis. This will continue to increase the

brand’s familiarity and allow the McDonald’s brand to remain the company’s most valuable

asset.

Another advantage of employing a global strategy is economies of scale. R.J. Hottovy, an

analyst at Morningstar, believes that an economy of scale has allowed McDonald’s to be the low

cost leader, ultimately outperforming the competition (Spain, 2009). Because McDonald’s output

is so large, economies of scale grants large companies like McDonald’s the ability to purchase

inputs at a discounted price. Because McDonald’s has a relatively uniform menu, they can use

bargaining power to reduce the price they purchase food from at suppliers. McDonald’s strategy

to maintain a relatively homogenous product, yet tailored to specific regions, allows them to

standardize their food production and in the end sell their products for a lower price.

Another advantage to McDonald’s international strategy is the ability of restaurants in

different countries and regions to share product ideas. An example of this is the Big Tasty

(Gumbel, 2008). The Big Tasty sandwich was not invented at corporate headquarters; however,

once outlets saw the success of the item, they too included it in their menu offerings. Now the

Big Tasty is offered in Saudi Arabia, Croatia, Germany, Norway, Poland, and Brazil. Peter Bush,

president of McDonald’s Australia, “says the process at McDonald’s is the opposite of the ‘not

invented here’ syndrome, which rejects ideas from outside” (Gumbel, 2008). He said, “There’s a

willingness of managers to steal the best ideas unashamedly” (Gumbel, 2008). This undoubtedly

provides McDonald’s with a competitive advantage over regional and domestic fast food chains.

McDonald’s is known for their management development programs. They believe that

having the best people allows them to have the best possible business results. For the past eight
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years the company increased their focus and investment into talent management. Hamburger

University and the McDonald’s Leadership Institute are their main avenues for management

development. These programs are instituted not only in the United States but globally. Classes

taken at Hamburger University earn college credit that may be applied towards a degree. They

are the only restaurant with a program of this magnitude (McDonalds, 2010). The company also

uses the transfer of current staff to further career development. Dennis Hennequin is the

president of McDonald’s Europe. He moved to the president position after being in charge of

operation in France for eight years. Many of their CEO’s have been promoted from within the

company and not imported from outside. Jim Skinner, current CEO, had international experience

in Europe before placement as CEO (Gumbel, 2008). Taking from the talent within the company

allows for positions to be filled in a timely manner. It is easier for them to transfer a competent

employee from one area to another. This takes away time that would be required to train a new

employee. International assignments give employees experience and allow current management

the ability to develop (Mujtaba and Patel, 2007).

The competition in the global market is limited. Other companies that compete directly

against McDonald’s in the United States do not have that strong of a presence in foreign markets.

During the recent recession, McDonald’s was able to outperform their competition. Restaurants

like Arby’s, Burger King, and Wendy’s saw losses in their stock price. McDonald’s draws power

from having over 57% of their operations outside the United States. Arby’s and Wendy’s are

almost exclusive to the United States while Burger King maintains 40% of its operations outside

the United States (Steverman, 2010).

International companies are able to benefit from cultural diversity. The current

management of McDonald’s is heavier on the American side. However, the company has more
 McDonald’s 8

diversity in management than ever. The company believes that with this diversity they have

become more successful. This allows them to be open to ideas from other countries that could

benefit operations in another (Gumbel, 2008).

McDonald’s is one of the most successful companies, not only in the United States, but

also in the global market. Their success can be based in their extensive research. The company

researches market strategies before entering a new country. This research is based on their

mantra of “think global, act local” or “glocal”. The company researches the society, culture,

technology available, political climate, and economy. This advanced research allows them to

achieve success in opening new restaurants. Through extensive research McDonald’s was able to

open in India. This country is very hard for international companies to enter as their government

seeks to protect the domestic businesses. The establishment of local management is another

success strategy. When the immediate management is made of locals, governments and residents

are more accepting of the new establishment. The company remains sensitive to the political

climate where a restaurant will be placed. Not only should the management have a local sense

but the employees must be local. Many international companies may be reluctant to immediately

hire locals, but McDonald’s has found that it works for the best. Also, for example in India, they

outsource to other companies. With this outsourcing of production they help maintain a larger

workforce. To achieve and maintain a positive reputation, McDonald’s attempts to establish

services that are environmentally friendly. An example is how they give back to the local

community. The company will sponsor events and give donations. The donations to local

organizations within the community also build corporate citizenship. This also brings a positive

return as it encourages people to eat at their local McDonald’s. Also, they try to keep their

pricing in accordance with the local market. The price of a Big Mac varies by country. For
 McDonald’s 9

example the price of a Big Mac is the highest in Switzerland at $4.93 and the lowest in China at

$1.30. A restaurant is located where they think the most people that can afford McDonald’s will

come. Their strategy is to attract the middle and upper class citizens. However, in the United

States their popularity is among the lower, middle and upper middle class (Mujtaba and Patel,

2007).

McDonald’s is able to tailor marketing strategies to benefit different regions based on the

culture and national variations. The company began global expansion in 1967 with the opening

of the first Canadian McDonald’s. Within a few years they reached into the United Kingdom and

Japan. The United States features the “Dollar Menu”, but many other countries have a specially

priced menu. New ideas are always in development. For example, a Mediterranean inspired

Pitamac. The Pitamac, a piece of pita bread filled with spiced beef, grilled vegetables, or

chicken, is something that would go onto European menus. Their design studios create models

for stores in other countries as well as ways to remodel existing restaurants. By breaking the

globe into regions, regional presidents are able to ensure that their region is properly served.

APMEA is their acronym for the regions of Asia, Pacific, Middle East, and Africa. A popular

choice in the Middle East is the McArabia, a folded tortilla sandwich filled with spicy beef. Due

to the popularity of fried chicken wings in Asia, many McDonald’s sell them. Fried Yucca sticks

in place of French fries are available in Venezuela. In Mexico, a popular breakfast platter

includes an egg, rice, beans, and chorizo. In Canada deli sandwiches are available. Also, the

McLobster is offered during the summer months. In the province of Quebec, Potine is sold on the

menu. This is an item that is only offered in Quebec due to their French heritage. Potine is an

order of French fries covered in gravy and cheese curds (Nation’s Restaurant News, 2005).
 McDonald’s 10

The picture on the left contains several regional specialties. The picture on the right is of the

McLobster available in Canada.

Disadvantages

There are many disadvantages that McDonald’s Corporation faces by employing a global

strategy. It is not at all an easy task to do business outside the national boundary. McDonald’s

faces many obstacles while expands its business beyond the U.S. borders. It had to implement

several changes in its business strategies. These changes range from adjustment in food menu to

change in hiring practice.

McDonald’s opened its first restaurant in Norway in the capital city Oslo on November

18, 1983. In Norway, McDonald had to struggle while building a Ronald McDonald House. The

resistance was mostly by the political parties, doctors, and academics. The reason behind this

might be the priority of the health sector. In Norway, the health sector gets the utmost priority.

Again local activist group also contested against McDonald because they thought it served

unhealthy food. To some extent, local people used to think the food served by McDonald’s was

contributing to an overweight youth population. The image of McDonald’s was associated with

overweight children, and poor exercise habits. There is also another issue regarding advertising

which McDonald has to bear. Protecting young children from the pressures of commercial
 McDonald’s 11

messages is a role of the Norwegian government and a special part of Norwegian identity.

McDonald was advertising its happy meal product with an appeal to children and the Ronald

McDonald’s character is directly linked to children. The firm is not permitted to advertise

directly to children in the media, including their webpage. (Bronn, 2006)

In some of the countries like India, McDonald’s had to adjust their food menu. On one

side there exists a huge Hindu population who does not eat beef and on the other hand Muslim

people do not eat pork. This was a huge dilemma for McDonald’s because many of their meals

are made of beef and pork. Therefore, instead of supplying the normal Big Mac, which consists

of beef, the company developed the Maharaja Mac that is made of two lamb patties. Other foods

were also added to the non-standardized menu including McAloo Tiki Burger, and other

common Indian dishes. (Mujtaba, 2007)

McDonald’s also faced issues regarding environmental aspects. In 2006, an

environmental group named Greenpeace protested against the company. It claimed that the

company is using soybeans from illegally deforested areas of the Amazon rain forest.

One of the critical problems of conducting business outside the country is human

resource problems. Labor laws vary from country to country. Therefore, it is difficult to have

standard global rules and procedures. The most significant difference between domestic and

international human resource management (HRM) seems to be that there far more variables to

consider when conducting human resource audits and training on an international scale, making

it more complex than domestic execution. With domestic HRM there is a common standard

practice that most companies are familiar with, whereas with international HRM, there are a

variety of different laws and business practices that international companies have to consider.

Factors such as language translation services, international taxation, international relocation and
 McDonald’s 12

orientation as well as host-government relations to name a few, are an integral part of successful

international HRM. Steps must be taken to ensure international employees satisfy their tax

requirements for their host country in addition to their home country, which differs according to

each country’s specific tax laws. Employers also need to address host-government relations and

relocation/orientation issues to ensure that international employees comply with immigration

requirements, obtaining work permits as well as housing, expatriate training and medical

provisions. (Mujtaba, 2007)

In India, McDonalds had to face challenges regarding hiring. India is one of the toughest

markets to enter for foreign businesses, due to the governmental hardships imposed upon by the

Indian government. Indian Governments want to protect domestic businesses and that is why it

put excess regulations. One of the regulations was that only locals could be hired for employees

and management. McDonald’s was forced to comply with this law, and was not allowed to

transfer a manager from another countries flagship. This caused much difficulty trying to train

and develop talent that had never experienced the “McDonald’s Way” before.

Furthermore, McDonald’s has faced much opposition from country leaders as well. In

October 2002, a five day meeting was held in Netherland and Belgium. It was against the labor

practices of McDonald’s. In that meeting 11 countries participated to show protest against

McDonald’s labor practice. Throughout Europe, McDonald’s was symbolized as a Global threat

to the union rights. (Ghigliani, 2005)

McDonald’s is the world’s largest restaurant chain. However, KFC is almost the most

popular fast food chains in China, operating more than 2,100 locations in 450 cities,

(http://zhidao.baidu.com/question/57155103.html). KFC in China also produces hamburgers and

sandwiches that are a bit different from the United States. Surprisingly, McDonald’s is not nearly
 McDonald’s 13

as successful, with only about half the number of restaurants. However, in the United States this

is reversed, where McDonald’s is often considered to be number one while KFC trails behind.

There are three reasons why the Chinese prefer KFC over McDonald’s. One reason is that KFC

caters better to Chinese flavor than McDonald’s does. For example, KFC’s menu includes

Traditional Peking Chicken Rolls, Happy French Fry Shakes (with beef, orange and Uygur

barbecue spices), Preserved Sichuan Pickle and Shredded Pork Soup. For breakfast, KFC’s menu

includes different kinds of Chinese-style congee, and even rice. McDonald’s caters its menu to

international tastes, but not to the same scale in China. Second, KFC made a marketing campaign

which made some Chinese believe that KFC offers healthy food. It’s called “new fast food”.

Third, KFC has better coupons than McDonald’s. The coupons are considered so great that

Chinese holding KFC coupons are often mobbed.

1000
902
900
800
800 730
700
600 numbers of restaurants
600 543
500
total revenue(10millions
400 chinese yuan)
320
300 average revenue(millions
chinese yuan)
200
100
0
McDonald's KFC

(http://www.dmjck.cn/plyz/1053511/)

Another disadvantage of a global strategy is the differing labor laws between countries.

McDonald’s hires a great deal of part-time employees. This causes violations in China’s labor

laws. McDonald’s also violated the law of China by paying less than minimum wage, making
 McDonald’s 14

workers work more hours than allowed and not offering insurance .In Guangzhou, McDonald's

provides their part-time employees a salary of 4 yuan/hour,. This obviously violates the part-time

minimum wage standard which is 7.5 yuan/hour.

Province/City Salary (yuan/hour)

Guangzhou 4
Shenzhen 5.6
Beijing 6.5
Shanghai 6

In McDonald’s labor contract, “the labor’s first 30 days are a probation period” (McDonald’s

part-time labor contract of China). According to the Part- Time Labor Security Ministry, labor

can not be stipulated for a probation period. So, in this contract, a required probationary period is

against the law. Also, McDonald’s labor contract does not explicitly stipulate that the enterprise

will pay the injury insurance for part-time employees. According to relevant regulations,

“enterprise doesn’t need to pay the basic endowment insurance and insurance premium, but

injury insurance should unconditionally be paid by the enterprise who employed the worker”

(Chinese Labor Law). Therefore, this policy also violates China’s labor laws.

Conclusion

McDonald’s has relished in the advantages and struggled with the disadvantages

associated with doing business across domestic borders. Despite the many obstacles that

McDonald’s has faced over the years by doing business internationally, their continuous

expansion is all the proof one needs to confirm that McDonald’s global strategy is a success.

With revenues reaching over 22 million dollars per year, McDonald’s is envied by fast food

chains everywhere. As they continue to expand into more countries and penetrate deeper into
 McDonald’s 15

current regions, McDonald’s will continue to reap the benefits and experience the drawbacks of

their “glocal” strategy.

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Bronn, P.S. (2006). Building Corporate Brands through Community Involvement: Is it

Exportable? The Case of the Ronald McDonald House in Norway. Journal of Marketing

Communications, 12(4), 309-320

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Cebrzynski, G. (2006). Research firm: Brand recognition drives success for major chains.

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(2010). Foundations for Success. McDonalds.

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http://www.kfc.com/menu/ and http://www.dfjb.com.cn/

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mcdonalds-again
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http://news.163.com/09/0317/10/54JOCUNK000120GR.html

http://zhidao.baidu.com/question/57155103.html