McDonald’s as a Multinational Enterprise Essay

Introduction

International environment demands unique and carefully selected strategies for MNEs in order to compete with national corporations and meet unique cultural values of a target population. McDonald’s Inc is a leading fast food chain operating in 119 countries. The restaurant business provides an example of product-market structure. The need, or interest, is eating out, where various aspects of the meal are provided for the customer, including menu selection, food preparation, and cleanup. The generic class of products available to satisfy this need is restaurants. In turn, the restaurant class is comprised of different subclasses of restaurants such as fast food, family, and atmosphere restaurants. Each restaurant subclass may, in turn, be further broken down into specific types of restaurants such as fast food hamburger, pizza, and chicken restaurants. Notice that each restaurant type is, in reality, a rather unique way to meet the underlying consumer need. That is, each restaurant type provides a unique and different combination of benefits and costs. Thus, customers must choose which benefit/cost combination is best for them.

The first restaurant was opened in 1956. This year marked the emergence of fast food industry and new food services provided for millions of customers daily. In the early fifties, McDonald and his brother, Maurice (Mac), introduced the Golden Arches concept and began selling McDonald franchises. Soon after, Burger King and Kentucky Fried Chicken also opened as fast-food restaurants. Societal changes are influencing how, where, and when people eat. Perhaps the most profound change is the increased number of households that consist of two working parents, a single parent, or all working adults. As a result of these changes in family structure and lifestyle, there are increasing trends toward more meals eaten in restaurants, more foods eaten at home which have been prepared elsewhere, and a greater use of convenience items in foods prepared at home. The popularity of fast food stems from many factors: reduced time for food preparation, with more women in the work force; a greater number of people who live alone and lack the incentive to cook for themselves; less formal lifestyles; convenience of fast-food restaurants; increased amount of disposable income; and increased opportunities for recreation and travel. Additionally, there is increased awareness of fast foods due to extensive advertising, and Americans simply like fast foods, and the prices are relatively reasonable. “In 1965 McDonald’s went public with the company’s first offering on the stock exchange. A hundred shares of stock costing $2,250 dollars that day would have multiplied into 74,360 shares today, worth approximately $3.3 million on December 31, 2006. In 1985 McDonald’s was added to the 30-company Dow Jones Industrial Average” (McDonald’s Home Page 2008). Since that tome, McDonald’s opened thousands of restaurants in 119 countries.

SWOT

Strengths

On the international scale, the barriers to foreign control of cultural activities, along with those protecting other service industries, are being reduced. While the international approach places great importance on the effect of tariffs in attracting industries, investigators believe that the converse is not true for Canada and that lowering tariffs will not lead to a mass exodus. In many third world countries, production improves in beverages, paper, primary metals, transport equipment, and petroleum, all of which belong to the former group. Moreover, imports tend to be negatively correlated with production, as theory predicts. The experiences of leather and textiles, having negative coefficients on both variables, are not consistent with the simple model of liberalization, nor is that of wood products, a major export the recent report says: “Asia/Pacific, Middle East and Africa’s third quarter performance reflected broad-based strength across the segment, led by Australia and China. Operating income rose 28% (21% in constant currencies) for the quarter, fueled by a 7.8% comparable sales increase. Across Asia/Pacific” (McDonald’s Home Page 2008).

Weaknesses

Unstable political and economic situation in developing countries weakens the position of McDonald’s restaurants. Prime candidates would be the behavior of exchange rates and interest rates; treatment of these factors would necessitate a more ambitious macroeconomic model. Unfortunately, pursuit of this topic would take us too far afield.

Opportunities

Basic economics predicts that the reduction of tariffs and other controls on imported goods will probably lower domestic production and employment in these sectors. There should also be a corresponding increase in activities oriented towards exports. In principle, one can investigate the net effect of liberalization on output and employment.

Threats

Cultural differences and diverse food preferences threaten fast food industry. Fast foods include hamburgers, cheeseburgers, fishburgers, French fries, pizzas. Fast food industry is often citizens in mass media so it can create a negative image of McDonald’s and its services.

Marketing MIX analysis

Product Development

For McDonald’s implementing the product-and-service-mix concept, means shifting away from being producing units, with set production capacities that merely broaden their line by adding similar items. McDonald’s is becoming units that assess market opportunities against such criteria as rate of return on investment, and that change their facilities when the opportunities warrant it. This orientation demands a change from product rigidity to product flexibility. No marketing decision is properly made without an appraisal of product policy. Since products are basically means of solving problems for buyers and sellers, physical environment, biological, technological, and cultural forces change them. The very perceptions and interpretations of environmental developments by consumers create product opportunities. Consider the life-style factors influencing product development. Urbanization, leisure, competition, discretionary income, travel, styles, tastes, automobiles, informality, and convenience have led to the emphasis on product form, readiness, packaging, combination, and selection convenience (Chase and acobs, 2003).

Each restaurant product-type category can be further broken down into competing brands. To build an edge over competitors, each company offers a somewhat unique brand. Of course, a brand has the characteristics of one of the product types in the generic class. McDonald’s, Burger King, and Wendy’s represent similar brands that compete in the hamburger fast food restaurant product type. On the international scale, McDonald’s is really competing with other fast food hamburger restaurants, other fast food restaurants (e.g., chicken and pizza), as well as all other types of restaurants (e.g., family-style table service, family-style selfservice, ethnic, atmosphere, etc.) (Gray and Larson, 2005).

McDonald’s offers health conscious menus in order to attract more customers worldwide. Because so many people are consuming fast food, both health professionals and consumers are concerned about its nutritional quality. Meals from fast-food establishments tend to provide adequate amounts of carbohydrate and B-complex vitamins. However, they have been criticized for their generally high calorie, sodium, fat, and cholesterol content. These meals also tend to be low in calcium, dietary fiber, and vitamin C.. During recent years, McDonald’s has responded to these criticisms. They have expanded their offerings to include such foods as grilled chicken sandwiches, breakfast items, baked potatoes, chili, and fresh and packaged salads. Additionally, in 1986, at least five of the major chains decreased their use of saturated fat, switching from an animal-vegetable shortening to an all-vegetable product for all-purpose frying (with the exception of French fries). This change heralded a continuing trend toward reduced use of saturated fat in the preparation of fast food. Health professionals are hopeful that the fast-food industry will be able to reduce total fat content as well, as fat substitutes become more available (McDonald’s Home Page 2008).

On the international scale, product development in McDonald’s is concerned with offering the right goods at the right time, at the right price, in the right quantities, in the right place. Referring to the process of evolving new products, it is closely associated with market development. It focuses on the future product line, on products that should be added or deleted, on the impact of products on price, promotion, warranty, and service, and on the development of criteria to evaluate product performance. By assessing new or modified products that can be added by acquisition and internal development, product development becomes the life blood of a business. The important feature of McDonald’s is that it sells similar products in all countries around the globe attracting customers by such American-type foods as hamburgers and potato, coca-cola and cheeseburgers (Hollensen, 2007).

Pricing

In the international scale, McDonald’s uses differentiated prices in many countries in order to make its products available for poor target population. Thus, pricing is significant where the international market impact, profit results, or both, of price variations is great, and where firms have considerable discretion over the prices charged. In many instances pricing decisions are severely constrained and are sometimes relatively unimportant. Large purchasers of industrial goods, for instance, may specify prices at which they will buy, determine product specifications, and send specifications to suppliers for competitive bids. For other products price may not be a relevant factor. In some technical areas where products require much research and development and involve much uncertainty, a cost-plus scheme may be used. In other situations, sellers may be almost completely free to set prices, while in still others, they may only be able to decide whether or not to sell at a price. Where industries are dominated by relatively few large firms, price is not usually the critical competitive variable (Peter et al 2003). Each firm recognizes that price reductions will be met by the other large firms and the profits of all will suffer. Greater attention may then be given to nonprice factors. In an economy of scarcity, price is accorded more attention than any other marketing factor. In an economy of abundance, nonprice factors assume increasing marketing importance and products are differentiated on other bases than price. Style, color, symbols, and brands become more significant, and higher rather than lower prices may actually increase sales. For abundance brings widespread discretionary income, and price becomes a less significant component of the marketing mix than the economic literature might lead one to believe. Nonprice competition and price confusion, rather than price clarity, now seem to be the rule (McDonald and, Christopher 2003).

Among the present and future external factors that influence international pricing policy of McDonald’s are number and concentration of competitors, the degree of competition, profitability, ease of entry, product heterogeneity, size, legal aspects, channels of distribution, elasticity of demand, total industry demand, kind and size of buyers, and spatial forces. But basically these are handled through consideration of anticipated cost-revenue relationships The latter are most significant in the immediate term, whereas total costs reflect a long-run situation. Prices may also be the result of competitive conditions such as total collusion or “cutthroat” competition. Either is unlikely for any protracted period of time, however — the former for legal reasons and the latter for economic considerations (Lewis and Varey 2000).

Place (Distribution)

The uniqueness of McDonald’s is its brand image and colors used as a symbol of the trade mark. McDonald’s builds similar types of restaurants on all countries and organizes the space in the same manner as in American fast foods. Yellow and red are the main colors of the brand. Thus, McDonald’s desire an adequate number of distributors to blanket markets and would prefer even greater numbers. This desire must be balanced with distributors’ preference for limited numbers of distributing units with protected territories. In the end, the number of channels must reflect a compromise; there must be enough of them to ensure fairly adequate coverage, but not too many to prohibit segments profitable enough to protect the interests of each. Licensing and franchising agreements are the vehicles for matching companies with global customers. They establish the arrangements and paths for the flow of product and title to ultimate users. They move products and information to markets and provide the funnel for the feedback of information to the producer. As networks of marketing agencies, they constitute a system-a loose but formal coalition of independent entities linked together to distribute products and services. Channels extend a company (Kotabe and Helsen 2006).

It should be evident that differences exist between the organization and management of a channel as compared with that of an independent unit. Authority does not flow directly through each of the units from the top down. Resources are owned and allocated by a number of units (Kotler, 1991). Businessmen do not tend to think of the total network — the total system. Rather, they think of and deal with the adjacent stage in the channel. Equilibrium in a channel depends on the development of mutually satisfying marketing relationships and roles among manufacturers, wholesalers, and retailers. The tie that binds and coordinates channel activity is the community of interest and independence that these groups share. Often the relationship is one in which the manufacturer is the primary organization and other channel members are secondary.

On the international scale, the chief power position in a channel, referred to as the channel captain, may be held by manufacturer, wholesaler, or retailer. The influence of large supermarket chains or grocery wholesalers exemplifies the latter. Usually the largest unit in the channel often attempts to coordinate channel activities to reduce risk. As was noted, large manufacturers may coordinate small wholesalers or retailers; large chain retailers may coordinate the channel activities of small manufacturers. However, the impact of large organizations on small ones may be subject to governmental scrutiny (Kerin et al 2005). Although control may be increased by shortening the length of the channel, marketing costs are not necessarily reduced, since longer channels invoke specialists who improve efficiency. Yet channel coordination can result in substantial cost savings. Through limiting the autonomy of each individual unit and concentrating on the total task, more efficient distribution systems emerge. A competitive battle for channel control may ensue from large manufacturers’ dealings with large retailers or wholesalers. Conflicts arise to frustrate conformity and coordination. A precarious balance may temporarily prevail with one side or the other in a leading position, but reactions set in to offset temporary advantage (Kotabe and Helsen, 2006).

Promotion

McDonald’s uses international promotions campaigns aimed to attract global consumers. Thus, in Asian and Middle East countries the company adopts its traditional messages and images to cultural preferences of consumers. The communications process is concerned with the dissemination of stimuli and their perception, impact, use, and effectiveness. Marketing communications have meaning to the extent that an individual’s predisposition or experience permits him to see, hear, or read them. Two predispositional factors govern the relationship between a message and its recipient. These are the sender set and the customer set. The former includes media, appeal, advertiser, copy, theme, and layout. The latter, containing the individual differences of people and their psychological, social, and economic situations, intervenes between the sender and the receiver of marketing information. It is not only the message, but also the way in which it is presented, that results in communications. For example, gestures, manipulation of objects and symbols, facial expressions, posture, and stance are all part of the total communication. Both the source of the communication and the message itself can influence the reactions of the recipient. Credible sources tend to get better acceptance (Kerin et al 2005). The most popular slogan of McDonald’s are: “Tastes Just Like Real Food! Same Crap, Same Prices — Just Keep Buyin’ It, Tubby. Spill a Coffee and WIN! You Don’t Want to Waste Away Like That Subway Guy, Do You?” (McDonald’s Home Page 2008). As audiences also misinterpret messages by evading or misperceiving those that counter their predispositions, communications are most effective when they reinforce existing inclinations. Messages are interpreted or decoded and hence conditioned by the predispositions of potential consumers. For instance, the actual physical shape of a product, its color, or the choice of words in the promotion, condition the effectiveness of the communications (Kotler, 1991).

McDonald’s admits hat educational levels also affect the impact of media; the lesser educated rely more on pictures and aural media and the higher more on print. Psychologists call these intervening variables. The impact of a message on consumer behavior, which is governed by intervening variables, determines its marketing effectiveness. Advertising messages are meeting increasing competition from a plethora of other ads, from other media, from competitors, and from all the activities that vie for a person’s attention (Paley, 2006). As output swells and communications facilities increase, more claims will be made on consumer time and the cost of marketing communications will skyrocket. Moreover, a saturation plateau may be reached where larger expenditures yield proportionately smaller returns (Kotler, 1991). Developing an integrated promotional campaign that achieves the best sales-and-profit result is a task of considerable magnitude. The promotional mix helps McDonald’s shape preference and demand curves, implying that a company can affect its own market destiny; demand curves are not given items. Marketing managers are concerned with the elasticity of demand. They want the demand for their product to be less elastic or responsive to price; they also wish to shift the primary demand curve for a product category so that the products’ total potential at various price points increases (Drejer, 2002). Coordination of sales and advertising effort, however, is a weak area of marketing management. Often sales and advertising managers behave like rivals rather than members of the same marketing team. Lack of coordination affects sales and profits adversely, and both sales and costs can be pushed beyond optimal levels. McDonald’s underlines that sales or advertising managers should not concern themselves with which group gets the biggest budget or is more important to the company (Kotler, 1991). McDonald’s takes an active part in sponsorship which helps the company to promote its brand image globally. The main events supported by McDonald’s were Olympic games and different educational programs worldwide (McDonald’s Home Page, 2008).

Conclusion

The case of McDonald’s shows that international marketing mix is similar to a national one but it requires cultural sensitivity in promotional campaigns. Audience characteristics are also important in determining what is communicated. People select what they watch or hear. The result is selective exposure followed by selective perception and retention. International communications that agree with predispositions are more likely to be heard than those that do not. However, its impact on consumer spending is immediate and powerful, for by helping to create consumer confidence and optimism, advertising stimulates expenditure and generates economic vitality. The question can be raised whether advertising leads to bigness or bigness to large advertising expenditures. It seems likely that big companies will have larger advertising budgets than small companies. They can thus intensify competition, for large advertising budgets may mean keener competition. International advertising helps iron out business fluctuations is debatable, but there is evidence to suggest that it may have a positive effect.

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