Mcdonalds Fast Food Chain Malaysia

Unit 1 McDonalds is the worlds largest fast food chain that is originated in California, USA. Ray Kroc became a franchisee of the McDonald brothers (Dick and Mac) and began opening new restaurants, buying all the rights to the McDonald's concept in 1961 for $2.7 million. McDonalds Corporation give the franchise to Golden Arches Restaurant Sdn Bhd to operate McDonalds restaurants in Malaysia and the first outlet was opened in April 1982 at Jalan Bukit Bintang, Kuala Lumpur. McDonalds mission is To be our customers' favourite place and way to eat and their 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. The operations in McDonalds Malaysia are affected with the government regulation on the regulation of fast food operation. As a certified fast food operator, there are many regulations and procedures that McDonalds should follow. For example is the Halal certification that becomes a concern to Muslim consumers. McDonalds protect its integrity and consumer confidence by ensuring all materials and process are as claimed or must followed. 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. McDonalds faced government regulations on tax of profit where it gains from the operation and other tax such as entertainment and restaurant service tax. McDonalds has a strong global presence and is considered as a market leader in both the domestic as well as the international markets therefore the threats of new entrant are very low. However the threat of substitute product is high for McDonalds in Malaysia because people are more conscious with their health and lifestyle where they will opt for more healthy nutrition food rather than fast food, that is why McDonalds need to create more variety of healthy food such as salad etc. The supplier bargaining power is high because there are only one supplier supplying for McDonalds Malaysia which is Mac Food Services Sdn Bhd. McDonalds competitors include other fast food chain such as KFC, Burger King and Wendys. McDonalds have to be aware of what the competitors are offering to customers, for eg. Burger King are famous with their grilled beef and chicken burgers which is an advantage because of the demand of wanting more healthy option of fast food. Unit 2 McDonalds is a multi-national enterprise (MNE) and the headquarters still remained in Illinois, USA. Golden Arches Restaurant Sdn Bhd paid certain amount of percentage to McDonalds Corporation for the license to operate McDonalds Restaurants in Malaysia. This reduced cost for McDonalds because they appointed local supplier, Mac Food Services Sdn Bhd that provide beef patties, chicken, fish nuggets etc. McDonalds is an FDI from the US into Malaysia, which helps Malaysia economic to grow. It also helps Malaysia gain technological and managerial expertise from the fast food restaurant system that is considered new in this country. It will benefit Malaysias balance of payment because the inflow in investment funds in FDI.

McDonalds logo is a registered trademark of McDonalds Corporation and has become a global brand. Most of the products have the McDonalds logo but it is localized to fit the local demand. This also includes in the food variety where McDonalds in Malaysia offer Prosperity burger during the Chinese New Year season and it has the taste that suits the local tongue, which is spicy and aromatic. McDonalds in Malaysia also offer Bubur Ayam McD, which is the chicken porridge offered all year long. This is the firm strategy in one of the determinants of national competitive advantage. Malaysian always favor Americans brand that is why McDonalds in Malaysia are well accepted by the locals. Up to this date multiple McDonalds in Malaysia is running 24 hours daily, which shows the demand of McDonalds products, are high. McDonalds brands indicated high level of quality for Malaysians. The brand sounded like American or European brand gave advantage of superiority. The perception was that local brands in Malaysia were inferior. Balance of Payment can be used as an indicator of economic and political stability. Malaysia's balance of payments is poised to remain favorable in 2009 with the current account posting a surplus for the 12th consecutive year. Unit 3 Malaysias political system is democratic, federal constitutional elective monarchy and with a federal government closely modeled based on the British Westminister model. Legislative power is divided between federal and state legislatures. Local government still holds major power such as to collect taxes, to create laws and to grant licenses and permits for any trade in its area of jurisdiction. Parliamentary elections are held at least once every five years, with the last general election being in March 2008. Executive power is vested in the cabinet led by the prime minister, which is currently the 5th prime minister of Malaysia, Najib Tun Razak. Malaysia has been governed by a multi-party coalition know as the Barisan Nasional. Malaysian economic system can be classified as mixed economy. Malaysian government provides essential levels of healthcare, build roads and give financial loan to support key industries. Nationalisation done in Malaysia by the government mostly is to prevent the closure for failing companies and also to promote economic development. Examples of nationalization includes the national sewerage company (Indah Water Konsortium), the national car project (Proton), Malaysia airlines and the light rail transit (LRT) system. Nationalisation also helps to encourage development of the services that will benefit Malaysia in general. Privatisation in Malaysia is done with the aim to increase efficiency for example the national telecommunication departments (Telekom) and the postal services (POS Malaysia). Malaysia is a member of the United Nations (UN) since 17th September 1957. Malaysia also is a member of the Organisation of Islamic Conference (OIC) where the OIC member states pool their resources together, combine their efforts and speak with one voice to safeguard the interest and ensure the progress and well-being of their peoples and those of other Muslims in the world over. Malaysia is also part of the Association of Southeast Asian Nations (ASEAN) with aims include the acceleration of economic growth, social progress, cultural development among its members, the protection of the peace and stability of the region, and to provide opportunities for member countries to discuss differences peacefully. The ASEAN Free Trade Area (AFTA) is an agreement by the member nations of ASEAN concerning local manufacturing in all ASEAN countries, it benefited Malaysia and other member nations where the elimination of tariffs results in product price reduction and encouraging higher market competition. ASEAN will be integrated into a single market, which is an important point because the market will be stronger and larger with a high population and the export and investment sectors will

generate higher potential in the long term. With the stable political system is Malaysia; McDonalds saw the attractiveness in investing and expanding their fast food chains across this country because there foresee the longterm benefit where there is a purchasing power of consumers in Malaysia. The risk for McDonalds if the new government elected is the changes of the legislation that can affect their business operation together with economic and legal risks as well. Unit 4 As fast food becomes a trend in Malaysia, the number of expenditure used by the consumers has increased by nine percent and ranked third in terms of expenditure. The fast food market size is increasing from year to year and it reaches 2,058.8 in 2007. The fast food sector is expected to experience the fastest growth between 20 to 30 percent per annum. This trends and growth is good indicators for McDonalds to increase their market share in Malaysia. Traditionally, in Malaysia many small and medium-sized businesses were built around the retail sector and were often associated with small shops and cafs run by Chinese merchants. The retail sector grew, in terms of its size and quality of service, due to a general rise in income among the population and an increase in tourism arrivals. That is why McDonalds are doing well in the market as one of the profitable fast food restaurants operating in Malaysia. The economic condition in Malaysia currently slowing as household incomes and business activity decelerates due to the effects of current world economic down-turn. However, Malaysia is still not in a recession period as compared to Singapore or United States. Even with the depreciation of Ringgit, real GDP growth is forecast an increase from 5.0% 2008 to 5.2% 2009. Even with current economic condition, McDonalds remain optimistic. According to Business Times (2009) McDonalds Malaysia expects its delivery service business to jump 40 per cent this year as its new call centre can handle more orders. They invested over two million ringgit for setting up the new call center. FDI plays several important roles in the Malaysian economy. Its most important role was to generate economic growth by increasing domestic capital formation. It also provided an additional source of capital and expanded host country production activities. The inflows of capital in the form of FDI allow host economies to invest in production activities beyond what could be achieved by investing domestic savings alone. FDI also benefits Malaysia where higher economic growth creates favorable investment environment, which attracts investment from market-seeking firms into Malaysia. FDI also facilitate the transfer of new technology to the host economy. FDI provides the fastest and most effective way to deploy new technologies in developing host countries. The most important role of FDI today is to be an agent of technology transfer because Malaysia now needs quality high technology, capital intensive and productivity based industries to become the seed for the new virtuous cycle of foreign investments. To attract innovation-seeking FDI, Malaysia would need to develop R&D capabilities on a strategic scale. To this effect, Malaysia has set off in the right direction with the setting up of the Multimedia Super Corridor (MSC) with the accompanying policies and incentives to attract such investments. FDI should increase productivity through the transfer of technology, develop innovation through the encouragement of research and enhance service standards through the adoption of world-class management practices. This should put the economy on an even keel towards achieving economic growth and prosperity. Unit 5

Socio-cultural environment looks into how McDonalds satisfy needs and wishes of Malaysia customers with different value, religion and customs. Malaysia is an Islamic country where the multi-racial citizens in Malaysia heavily influence cultures in this country. The values differ in the way Malaysians are brought up with the value thought through individual religion. Values are what group believes to be good, right and desirable. The norms here in Malaysia that nowadays more numbers of restaurants are offering free wi-fi connection because the usage of Internet by Malaysians are growing vastly. Malaysian population as of 2008 has reached to 27 million people and has a literacy rate of 88.7%. The birth rate is at 22.24 per year per 1000 population and death rate is at 5.02 per year per 1000 population. For fast food chains in Malaysia including McDonalds, all meat must be Halal and must have the Halal certificate for them to legitimately sell their food products. McDonald offer different set of foods where each family unit can choose according to their needs. The value meals are offered in different portion of foods. For the dual income families who do not have enough time to prepare breakfast for their family members, they can order breakfast meal in McDonalds menu Unit 6 Product innovation in McDonalds fast food restaurants in where they create food meals that are instantly available to consumers at any time of the day from breakfast up to dinner meals. Process innovation in McDonalds includes how the market the products to become a complete value meal including drinks, which is very convenient to the customers. Besides that the process innovation that make McDonalds appeal more is the drive through order concept where customers do not have to step in to the McDonalds outlet to purchase their meals. This will create advantage to McDonalds because they know Malaysian people are always on the go and their busy lifestyles thus by the drive through concept that gained a positive response. Technological development also helps McDonalds in maximizing their product quality where in their restaurants most of the preparation of food is done through cooking the frozen food provided by their suppliers (MacFood) through the various cooking machine. They divided the food preparations into separate tasks prepared by different workers. To fill a typical order, one person grilled the hamburger; another dressed and wrapped it similar to the factory assembly line. Technological developments in McDonalds also can maximize the production efficiency where McDonalds cater food that customers wants to buy and it is produced at commercially viable costs. Technology such as IT development and the Internet has influenced the operations of McDonalds where it can monitor performance. For example, the manager of each restaurant can communicate through emails with their superiors on the restaurants sales target achievement. This also enhance their effectiveness in responding to critical problems that arise because through the internet, communicating with the superiors is much more easy and convenient compared to back then where they will need to drive down all the way to the headquarters to rectify the problem arise. For McDonalds, IT advancements benefits the company through business-to-consumer (B2C) market and business-to-employee (B2E). Business-to-consumer is where McDonalds set up their website where customers will be able to find out about the products/food they offer at the restaurant outlets and able to order to the delivery number provided on the website. Soon enough McDonalds in Malaysia will adopt the advancement in being able to order online through the website and have the option to pay through credit

card or cash. For business-to-employee is where each McDonalds outlet are connected with their headquarters and being able to receive updates from headquarters and send information regarding their respective outlets. This will improve the two-way flow of information in the organization. In McDonalds, the idea of systematization underlies in the capability of the standard operating procedures of one company to disseminate in all over the outlets or branches the McDonalds may have. The operating procedures and training manuals that governs the operation and maintenance of each restaurant guide the business system that the company has. Unit 7 The legal system in Malaysia is mainly based on the common law legal system where the Constitutions of Malaysia sets out the legal framework and rights of Malaysian citizens. The constitution of Malaysia also provides for a unique dual justice systemthe secular laws (criminal and civil) and sharia laws. Sharia laws are only applies for Muslims where in the matters such as marriage, inheritance and apostasy. McDonalds is one of the many fast food chain restaurant in Malaysia gained Muslim consumers confident where McDonalds in Malaysia underwent rigorous inspections by Muslim clerics to ensure ritual cleanliness; the chain was rewarded with a halal (clean and acceptable) certificate, indicating the total absence of pork products. Events and sponsorship by McDonalds is mainly to coordinate with their social responsibility. They usually organize events for their Ronald McDonald Charity House. McDonalds logo is a registered trademark of McDonalds Corporation, which distinguishes their products from others in the marketplace. For McDonalds to operate in Malaysia there is two aspects of safety need to be considered that is the safety of workers and safety of the products offered by McDonalds. For safety of workers, McDonalds have to ensure that there adhere to the Occupational Safety and Health Act 1994. For Malaysia, the Department of Occupational Safety and Health (DOSH) under the Ministry of Human Resource is responsible to ensure that the safety, health and welfare of workers in both the public and private sector are upheld. Other regulations include the Food Act 1983 and the Food Regulations 1985 for the food safety programme. Legislation on personal right can include the labour relations where in Malaysia each employer is protected under the employment law. The Employment law covers the obligations and rights of an employment contract. McDonalds operating in Malaysia must adhere to the Employment Act 1955 when hiring workers. Unit 8 For eco-environmental issues in Malaysia, the government is placing focus on operationalising the National Policy on the Environment (2002), the National Green Technology Policy (2009) and the National Climate Change Policy (2009). As a first step in creating a comprehensive ecosystem for environmental sustainability, the government has introduced the Affirm framework. Affirm, which is the acronym for awareness, faculty, finance, infrastructure, research and marketing, is an outline of the governments approach toward the effort. Besides that Malaysia government will also look into ways to reduce the greenhouse gas emission such as improving on solid waste management, conserving forest, promoting energy efficiency to encourage productive use of energy and etc. In Malaysia there are several governmental actions on eco-environmental issues such as the Town and Country Planning Act 1976.

Unit 9 |Porter 5 Forces |High |Moderate |Low | |Threat of New Entrant | | | | |Bargaining power of Suppliers | | | | |Bargaining power of Buyers | | | | |Threat of Substitute products | | | | |Rivalry among existing industry firms | | | | Rivalry among existing industry firms The fast food industry is facing high intense of competition. Rivalry is strong because competition is focusing on providing the best service and product variety. Other competitors such as KFC and A&W create an intense rivalry among the fast food providers. Rivalry such as KFC is constantly providing more choices ranging from fried chickens to burgers and to side snack such as potato wedges and salad. Moreover, competitors equal in size and power and growth in the industry. Threats from substitute products Factors that caused the firm to lose its sales profit is the limited choice of product they offer. Therefore, many people will go to substitute products. The substitute products for McDonalds will be the other fast food chain, for example: Burger King and roadside burger stalls. Although McDonalds has applied 24 hours all around, however, roadside burger stall that operates until late at night and other fast food restaurant is also operating 24 hours service. The threat of new entrants New entrants pose threats and increase competition in the industry. The lesser the threat of new entrants, the greater will be an industrys attractiveness as it is in the retailing industries. Due to low switching cost and lack of product differentiation, new competitors can easily enter the market. For example, McDonalds face competition from Carls Junior and Wendys which are quite new in the Malaysian market still. Bargaining power of suppliers The bargaining power of suppliers is viewed as a threat because the quality of the supplied products is highly dependent on them. They can either raise the prices or lowered the quality if the suppliers are powerful. In the fast food industry case, the power of suppliers is relatively low because the inputs are standardized, low switching costs and there are a lot of substitutions of supplier. Bargaining power of buyers As the competition among rival become intense in attracting potential customer and maintaining loyal customer. Buyers play an important role in deciding the shape of the market as they can drive prices down and make unreasonable demands regarding quality, delivery and terms of payment. In McDonalds case, buyers assert higher bargaining power because of low switching cost to other brand (Burger King). For instances, McDonalds cannot set high prices on their products as consumer can easily opt for other burger. SWOT Analysis Strength The strong global present becomes one of the biggest strength McDonalds has. It makes

McDonalds able to capture large market in other countries such as Malaysia. McDonalds expand their market has proven successful which is supported by the brand recognition. It generated more sales and gain market share. McDonalds product innovation is the other strength it has. The innovation of fast food which is different in every country it enters is a good strategy for localizing the taste and preference of customers. McDonalds offers Ayam Goreng which is only available in Malaysia. McDonalds also offered 24 hours delivery services which enable consumers to enjoy foods during midnight if they feel hungry. This is the core competencies for McDonalds over its competitors where they do not have 24 hours delivery service. Weakness McDonalds has low width of product caused by the saturated market in food industry has make McDonalds difficult to add new outlets in their menu lists. The last breakthrough for McDonalds is their chicken nugget in 1983. the increase of competition such as KFC, A&W, Burger King, and Subway, has created a tight price competition. McDonalds unable to earn much revenue from this price competition. Health concern becomes one of the major weaknesses of McDonalds where many people complaint with the oily foods that are offered. Opportunity The fast food trend in Malaysia has benefited McDonalds as they are able to capture more market share and customers. Malaysian would like to eat outside with the increasing of number of women workers. They would like to look at convenience place to eat as McDonalds provide it for them. The technology advance has improved McDonalds services efficiency as their customer able to order through phone and online. The growing internet users in Malaysia supported for this kind of service. 24 hours service will open a revenue window for McDonalds as customers look for quick meal at late night. Threat The increase of competitions from KFC, Subway, Burger King, and others has made the competition for market share in Malaysia tighter. Customers have more range of fast food being offered and they would have no brand loyalty with one brand. McDonalds need to fight back with their promotion and advertisement to gain the customers feeling. They need to spend a large amount of money on it. The health concern has become a main treat for McDonalds as most customers concern on healthy foods. Fast food is considered unhealthy because of too oily. This will reduce the number of customers to purchase McDonalds foods. Unit 10 Stakeholder interests such as profitability and return-on-investment require this behavior. In most circumstances, given a competitive environment, a company that has poor knowledge management processes will be inefficient and ultimately its products will become obsolete and competitors will absorb its market share. McDonalds, for example, has successful franchises in 119 different countries. The restaurants do not all have identical menus, but they do have the same mission and accomplish this mission by employing proven processes and methods. These processes and methods have been developed, evaluated, documented, and shared with all employees and franchise owners. Even though the menus may differ, the business practices are the same. McDonalds operations involved a variety of computer-based information systems, such as the inventory, staff management and etc. where it creates speed, accuracy and reliability in managing the business well. Office automation systems in McDonalds include the networked computer in each restaurant to enable the managers to report and send out

data immediately to the headquarters. Transaction processing involved the time record of every transaction involving the business where in McDonalds the point of sale (POS) system that automatically record data on the purchases that can be analyse the McDonalds for future marketing strategy and improvement. McDonalds put a lot of effort in being the learning organization. It is crucial for the organization because continuous learning promotes in better problem solving and also open up boundaries and stimulate the exchange of ideas in McDonalds. For example in the UK, McDonalds developed a lifelong learning where all employees can gain GCSE equivalent qualifications in English and Maths; work towards McDonald's internal first line management qualification; study for a hospitality apprenticeship and diploma in shift management. The objective for this lifelong learning is to foster a learning culture in the organization and to build a reputation as a supportive employer and reduce staff turnover. Unit 11 Since these adjustments and until the 1997 crisis, Malaysia exhibited strong economic performance, real GDP growth averaged 8.5% a year, unemployment was below 3%, prices and the exchange rate remained stable and international reserves remained high. In September 1998, after the exchange rate started appreciating, Malaysia implemented capital controls and a pegged exchange rate to the dollar. These temporary polices helped to eliminate transactions not related to trade and foreign direct investment, thus closing the offshore market, suspending ringgit credit to foreigners and reducing outflows. Before restricting capital outflow, monetary contraction policies increased interest rate. By the end of 1999, capital controls had dismantled the offshore market, reducing interest rates to 3.15% and inflation to 2.5%. Meanwhile, international reserves rose. Current account continued to strengthen. Malaysia is continuing with its pegged exchange rate, holding at 3.80 ringgit/US dollar, helping maintain stable interest rates and keeping inflation low. Current account still maintains a large surplus. Short-term foreign debt remains low. Reserves remain adequate. Low inflation persists. Malaysias economy has remained healthy and vibrant since moving to a pegged exchange rate system. Unit 12 McDonalds Corporation entered Malaysian market through franchising to Golden Arches Restaurant Sdn Bhd. McDonalds valuable asset can be said in their brand name, that is why franchising the fast food concept to Golden Arches Restaurant Sdn Bhd gives benefit to McDonalds Corporation where it involves smaller capital outlay. McDonalds adopted the international strategy where the core products such as burgers, fries, milkshake are still based on the McDonalds is the US but it allows the McDonalds in Malaysia to make minor changes to the products and restaurant concepts to suit local conditions.

McDonalds has expanded to international markets in the face of increasing regulations in the United States and domestic market saturation. They initially entered international markets by leveraging standardized product offerings, clean and bright environments, and American brand equity. However, recent years have seen McDonalds adapt to local regions by remodeling its retail space while changing the product line to appeal to local tastes. While the strategy has paid off well in the short term and McDonalds has realized that they must adapt to each country they enter, their tactics of both catering to local tastes and changing the restaurants design and appeal is diluting brand equity. For example in Malaysia, McDonalds have bring in several products that is localize, for example the Bubur Ayam McD (chicken porridge), Ayam Goreng McD (fried chicken), Spicy Chicken McDeluxe Burger and etc.