Changes in the macro-environment have different effects in different individual firms as well as various firms in the same industry. These changes depend on the structure of the business and its position in the market. Such changes affect the business or organization through microeconomic factors such as its profitability, the level of production, demand for the firm’s products and services as well as the cost incurred by the organization in its daily operations. All companies are affected by both the microenvironment and macro environment. The macro-environment refers to the collective external factors which affect a firm or industry’s decision-making process and general performance. They include technological, social, political, economic, demographic, legal, and social issues. (Kotler & Armstrong, 2004, p. 111)
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Comparison between Wal-Mart and McDonald’s Strategies
McDonald’s is said to be the world’s largest fast-food hamburger chain store. The global economic crisis had its effects on the food industry in China just as it did in other industries. Being in the food industry, Mcdonald’s was also affected. Its sales dropped in the country as a result of a decrease in demand, leaving the fast-food chain with no option but to come up with strategies that will ensure that more customers are coming into their restaurants in order to increase the level of sales and in effect offset the losses that were experienced during the economic crisis. The economic crisis also led to an increase in the cost of production for the restaurant’s products which in turn affected its level of production. An increase in the cost of production and a decline in the level of sales means that the profitability margins of the firm are negatively affected.
Wal-Mart operates a number of stores in different parts of the world including Mexico where it is known as Walmex. It deals in grocery products. Walmex was also affected by the global economic crisis resulting in a decline in its general performance which was occasioned by increased marketing expenses, production costs, and low demand levels as a result of the slow consumption trends witnessed in Mexico. (Reuters, 2010, para. 7)
To cope with the effects of the macro-environment on the production, low demand, and decline in profitability in the performance of the two firms, they came up with different strategies suited for their industry. This shows a strategy contingency approach where the firms came up with strategies that were suited for the environment in which they operated.
Walmex opted for a customer-oriented approach where it sought to maintain its loyalty by reducing the prices for its products. This ensured that customers continued to buy their products even during the tough times. They also sought to make better deals with their suppliers by coming up with agreements that worked in their favor in a bid to control their operational costs. This ensured that they maintained operational efficiency at favorable costs and this led to a positive impact on their profitability as reported by Reuters on April 14th, 2009, para. 3. Walmex profit margins proved higher than expected by six percent (Reuters, 2009, para. 7).
McDonald’s came up with growth strategies that included the development of new innovative products customized for the Chinese market. For example, it came up with McCafe which is a new coffee product brewed with Arabica coffee beans for selected stores in specific Chinese cities like Beijing and Wuhan. The chain store also chose to continue investing in research and development in the Chinese market in order to find ways of boosting consumption for its products. It expanded its twenty-four-hour operation system to several other cities. This was meant to attract more customers into their restaurants and boost sales which would in turn increase sales and in effect the chain stores profitability.
Government Policies and the Firms Expansion Strategies
Both Wal-Mart and Mcdonald’s engaged themselves in expansion strategies that sought to improve their performance in the food industry. This was aided by the different government policies that were put in place in the specific countries in which they operated. In the 1990s Mexico saw the implementation of the North American Free Agreement terms contained in the agreement it had entered into with the United States and Canada. This led to the exposure of Mexico’s market economy and the country’s firms became exposed to competition from foreign companies altering the nature of competition in the general economy. This created easy access for firms that sought to explore trade in the country. Wal-Mart was one of these firms and after its entry into the Mexican market economy in 1991, it grew tremendously and was able to expand the number of stores it owned and with this increased its market share thereby making revenues far greater than the combined revenues of the retail stores’ competitors. (Tilly, 2005, p. 1) Wal-Mart’s success in Mexico has not come without challenges, where other stakeholders in the industry together with the government have instigated investigations against the retail chain accusing it of acting like a monopoly. Chinese Laws allow foreign-owned firms to make trademarks on their names meaning that no other person or firm can use the name once it is trademarked. McDonald’s is mostly identifiable by its trademark name meaning that no other competitor can take possession of the name or use it to the disadvantage of the real McDonalds. (Luo, 2005, p. 285) These trademark Laws are protected by the Laws of China and enforced by the Chinese Government. McDonald’s also has a competitive advantage over its competitors as it offers food and beverages that are regarded to be of high quality. McDonald however has a disadvantage compared to its local rivals which are given preferential treatment as long as they prove to have growth potential. (Luo, 2005, p. 285)
Impact of various Variables on the Demand for McDonald’s Products
Other than fair prices, the increase in demand for McDonald’s products in China is a result of advertising, offering quality products, accessibility of their products, and an increase in consumer demand. McDonald’s engages in vigorous advertising campaigns that are target market-oriented. For example, they have advertisements that appeal to children who form a major part of their consumers. They advertise to them through avenues such as the internet and television as well as print sources. McDonald’s has also been able to maintain a significant market from loyal customers due to the provision of quality products which has, in turn, ensured constant demand for its products. New product innovation has also ensured that there are always new and interesting products for the restaurant’s customers. The continued expansion of the restaurant into different parts of China has ensured the accessibility of its products to its customers meaning that its market share continues to grow through attracting new customers to these restaurants. McDonald’s has some control over some of these factors while some are dependent on the market. For example, it can control the prices, quality of products, and making such products available to the customers, but has little control over the reaction of the target market and consumers over their strategies (Farham, 2009, P.6).
Different firms are affected differently by micro and macro factors due to their different organizational structures. It is therefore up to these firms to adjust their operations to accommodate these effects in the best way possible to ensure continued growth and improved performance.
Farham, P. G. (2009). Economics for Managers. London: Prentice Hall Publishers.
Kotler, P. and Armstrong, G. (2004). Principles of Marketing. 10th Ed. New Jersey: Prentice Hall Publishers. Web.
Luo, Y. (2000). How to Enter China: Choices and Lessons. Michigan: University of Michigan Press. Web.
Reuters. (2010). Mexico’s Walmex Net Seen Up Despite Tough Times. Web.
Reuters. (2009). Mexico’s Walmex beats forecast, net up 6 pct. Web.
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Tilly, C. (2005). Wal-Mart in Mexico: The Limits of Growth. New York: New Press. Web.