NAME: HUSNAIN JAVAID

KHAN
ID:
CLASS: BBA 5
SUJECT: MANAGEMENT
INFORMATION SYSTEM
COURSE INSTRUCTOR:
SIR SHAHID KHAN
INTRODUCTION TO MCDONALDS: McDonald's
 is an American hamburger and fast food restaurant 

chain. It was founded in 1940 as a barbecue restaurant

operated by Richard and Maurice Mcdonald,

in San Bernardino, California. In 1948, they

reorganized their business as a hamburger stand,

using production line principles. The first McDonald's franchise using the arches logo opened
in Phoenix, Arizona in 1953. Businessman Ray Kroc joined the company as a franchise agent in
1955 and subsequently purchased the chain from the McDonald brothers. Based in Oak Brook,
Illinois, McDonald's confirmed plans to move its global headquarters to Chicago by early 2018

McDonald's aims is to serve good food in a friendly and fun environment, to be a socially
responsible company, to provide good returns to its shareholders, to provide its customers with
food of a high standard, to provide a quick service and value for money

McDonald’s was founded by Richard and Maurice McDonald in 1940 in San Bernardino,
California. In 1955 Ray Kroc bought the chain and oversaw its worldwide shown below you can
see how much McDonalds has changed throughout the years.

Executive Summary
Mc Donald's is one of the world's largest chains of fast food restaurants. They operate thirty
two thousand restaurants serving more than sixty million customers daily. The key to rapid and
successful international expansion of Mc Donald's is the franchise model pioneered by them.
Mc Donald's recognized early in their life that overseas market required an extremely high
degree of local responsiveness and that they needed to manage business spread across
different regions effectively and efficiently which would be achieved only through
"Transnational Strategy". The value chain was constructed taking into consideration of local
culture, legal-political and economic environments in mind.

Company Overview
McDonald's is one of the best brands known worldwide and world's largest chain of hamburger
fast food restaurants, serving more than 50 million customers daily. Company started in year
1940 by Dick and Mac McDonald in San Bernardino, California, USA. From extremely modest
beginning, they could able to scale their business by selling a high quality product cheaply and
quickly. Companies expansion in terms of business happened after Ray Kroc from Chicago
joined two brothers in their business. He quickly realized and had a vision to expand the
business throughout USA and beyond.
They have spread across 117 countries and operate around 32000 restaurants worldwide
employing 1.5 million people. They serve around 60 million customers per day. The key to such
a rapid and successful international expansion is the business model pioneered by McDonald's.
Ray Kroc realized company can achieve rapid expansion by franchise model. Today over 70% of
McDonald's restaurants are running on the basis of franchise model.
Today McDonald's global sales were around $22 billion, making it largest fast food Service
Company and ranked 107 in Fortune 500 companies in year 2009. The company operates other
restaurant brands such as Boston Market, Pret A Manger, Donatos Pizza, Chipotle Mexican Grill,
and Aroma Cafe.

Company History and Milestones

The McDonald's concept was introduced in San Bernardino, California by Dick and Mac
McDonald of Manchester, New Hampshire. Later on, Ray Kroc, one of the business partners,
of Oak Park, Illinois, modified and expanded the business, who subsequently bought the
business to incorporate McDonald's Corporation.
While the company was experiencing rapid growth rate on the US soil, it also went in for
international expansion. It all started with the opening of their first restaurant outside the U.S.
in Canada on June 1, 1967 in Richmond B.C. Canada today has more than 1,300 restaurants.
After a few setbacks in the Caribbean and the Netherlands, they tried with customization of
their international standardised delivery model in the form of a change menu for local tastes -
they realized the fact that what had worked for them in the U.S. may not be replicated
elsewhere. Till now they relied on a strong local partner, fully trained and totally involved in the
business with detailed operating procedures for QSC&V (Quality, Service, Cleanliness and
Value) for success.
Japan came as one of the most promising and initial success story in their path of international
success, where Den Fujita, owner of an import company, became McDonald's joint venture
partner in 1971. Fujita opened his first restaurant on July 20, 1971 in a tiny 500-square-foot
restaurant in a prime location in Tokyo's Ginza shopping district. On its first day, the restaurant
had sales of $3,000. At the end of 1993, McDonald's was Japan's most successful restaurant
chain, with some 1,400 restaurants enjoying nearly double the annual sales of its nearest
competitor.
Similar kind of success stories were also replicated in Germany and Australia in 1971. Germany
has more than 1,200 restaurants and Australia has some 700 McDonald's locations. The
company's footprint in France and England are also along similar line with 980 restaurants in
France and more than 1,200 restaurants in the United Kingdom.
These six countries - Canada, Japan, Germany, Australia, France and England - are known as
McDonald's "Big Six" providing about 80 percent of international operating income. McDonald's
international operations are playing an increasingly important role in our company's result, as
in 1995 its 7,030 restaurants across 89 countries produced sales of $14 billion.
Of late, McDonald's international openings have made headline news in the media around the
world. On January 31, 1990, about 30,000 people gathered in Moscow to visit the new, 23,680-
square foot McDonald's. This is by far being the maximum number of people ever served by a
single restaurant. The negotiation for this restaurant had begun since the Montreal Olympics,
1976 and is the largest joint venture agreement between the Soviet Union and a food company.
The Russian McDonald's was soon serving about 40,000 to 50,000 customers each day i.e. 15
million people in its first year of inception, which is supported by a $45 million food processing
facility near Moscow, one of the most modern food processing facilities in Europe.
But it was only the beginning. McDonald's opening in Beijing, China, on April 23, 1992 attracted
more than 40,000 Chinese customers to its 28,000-square-foot restaurant, equipped 29 cash
register stations to handle the flow. Located in the city's busiest shopping district, the
restaurant has some 800,000 pedestrians passing by daily.
The joint venture partnership between McDonald's and the General Corporation of Beijing
Agriculture, Industry, and Commerce had been working for five years to establish the network
of local farmers, manufacturers, and other suppliers to support the restaurant.
The record breaking path continued with two new restaurants in Poland in 1992, one in
Warsaw (13,304 transactions) and the other in Katowice each surpassing the Moscow and
Beijing records for opening day transactions.
Other successful countries where McDonald's has proved to be popular include the Czech
Republic, East Germany, Hungary, and Slovenia.
October 1993, saw a new ground breaking path when McDonald's entered the Middle East with
a new restaurant in Tel Aviv, Israel. This was followed by entry in Saudi Arabia, Oman, Kuwait,
Egypt, Bahrain, United Arab Emirates, and Qatar.

Company's Global Strategy

Think Global Act Local
McDonald employs a transnational strategy in terms of local responsiveness and global
integration.
They recognized that overseas market required an extremely high degree of local
responsiveness and since their business has grown too big they also need to manage business
spread across different regions effectively and efficiently which would not be achieved through
any of the other strategies. The value chain needs to be constructed taking into consideration
of local culture, legal-political and economic environments in mind.
Local Management
McDonald's emphasize on local management for better responsiveness to the external
environment. Moreover hiring locals would bring more acceptance of the company in local
market by customers and company can gain easy access to bureaucracy associated with local
government. This brings up the culture of innovation, accountability, and better customer
responsiveness. Having local management also enables franchisee to address employees' issues
more effectively taking into consideration of local culture. Through franchise model McDonald's
are able to reduce the cost of setting up new businesses in different region.

Political Sensitivity
Political risk is that political decisions, events or conditions which may affect country's business
environment in ways that may affect the investments badly or may have to accept lower
returns. The political risk factor is quite important for McDonald's since there can be several
countries which might not allow FDI in fast food industry or disallow franchise kind of business
model.
Countries like India where 80% population do not eat beef and some religion does not allow
eating pork, therefore McDonald's had to customize their product offerings to the local needs
and in a way avoided any political conflicts.

Environmental Friendliness
The strategy of being environmental friendliness is a new emerging concept. Many developed
countries enforce certain environmental laws to make companies comply with the norms. E.g.
there are specific kinds of directions for the disposal of wastes generated by the business
operations. Environmental friendliness in effect brings goodwill to the company and also
provides opportunity to build a brand. McDonald's also engage themselves in CSR activity like
sustainable supply chain management, healthy and nutritious food products etc. Recently
McDonald's have come up with products which have low calorie content, nutritious to the
health of customers.

System and Process Standardization

As a transnational company it is essential to have a standardized system and process in place
for effective and efficient management of the businesses running in different territories. E.g.
McDonald's force standard operating procedures like make to order make to stock and just-in-
time processes. Implementation and integration of ERP system across businesses of various
countries and with business associates would standardization in their business processes. This
would help McDonald's reduce their cost, reduce manual work, more transparency and
efficiency in information sharing, better responsiveness to stakeholders etc.

Pricing Strategy
Companies entering into different countries for business have to evaluate their pricing of
products based on income distribution of citizens, local inflation and other factors like currency
exchange rate. Because of exchange rate it is possible that you end up paying different prices
for same product in different countries. McDonald's mainly open their shops in major cities
targeting middle and upper class citizens as they can afford the prices. After this they start
targeting lower middle class citizens.

Growth Strategy
McDonald's growth strategy is based on three elements
Increasing number of restaurants
Maximizing sales and profits at existing restaurants
Improving international profitability
Maximizing sales and profits at existing restaurants will be accomplished through better
operations, reinvestment, product development and refinement, effective marketing and lower
development and operating costs. McDonald's believes that its long term sustainability and
growth depends on stakeholders - franchisees, suppliers, and customers. They believe that as
long as franchisees and suppliers are profitable, so would the company.
Improved international profitability is realized as economies of scale are achieved in individual
markets and as the company benefits from the global infrastructure.
McDonald's is earning from two sources, one from home country US and another from foreign
markets. With the globalization, the share of foreign earnings is growing rapidly. The chart
below gives number of stores in host countries to home country.
While McDonald's faces costs of expansion into new and within markets, it is able to assess the
long-term prospects of different markets and it is on this basis that it would decide when to
enter a new market. McDonald's initially opened outlets in higher-income countries like UK,
Japan, Canada and then move into lower-income countries like India etc.

Entry Strategy and Business Model

While McDonald's cannot export its product but it can choose among different modes of
operation in foreign market, some of which may involve a higher degree of commitment of
resources than others. In particular, it can open a subsidiary that franchises directly, or enter
into a joint venture with a local partner, or establish a master franchising arrangement whereby
the master franchisee owns and operates all the outlets in his or her territory or finds
franchisees to do the same. The level of investment that McDonald's commits to these markets
differs across these different modes but in all cases McDonald's exerts significant control over
the number of outlets and the growth in the number of outlets in each market. Hence
McDonald's internalizes the cost of expansion to a large extent depending on kind of
governance within each market and sets the expansion path within as well as across other
markets.

McDonald's Franchise Model

McDonalds primarily operates through franchises across various countries. Franchises give
companies such as McDonalds a cheaper way of expanding to other countries while also giving
the control over the usage of their brand and operations. The advantages of franchising are as
follows

Metric

2004

2005

2006

2007

2008

2009
Total Restaurants
30,496
30,766
31,046
31,377
31,967
32,478
Franchized Restaurants
22,317
22,593
22,880
24,471
25,465
26,216
Company Owned Stores
8,179
8,173
8,166
6,906
6,502
6,262
% of Franchised Restaurants
73.2%
73.4%
73.7%
78.0%
79.7%
80.7%
Franchises get up and running faster than other forms of ownership
They are profitable more quickly
Supplies are cheaper for the franchisee by leveraging the company's supply chain
Initial investment is lower for the company
Control on usage of brand and operations is higher as compared to leasing
Franchisee gets assistance in terms of managerial know-how from the company
McDonald's earns revenues from its franchisees in two forms:
Service Fees - A monthly fee depending upon the restaurant's sales (currently a service fee of
4.0% of monthly sales)
Rent - A monthly base rent or percentage rent that is a % of monthly sales. McDonald's usually
owns the property and also acts as the landlord.
Since McDonald's owns most of the properties on which its franchisees operate, it collects a
percentage of monthly sales as rent. Through this method, McDonald's now is the largest
owner of corner properties in the world.
The success of the franchising mode of expansion depends on three factors:

Product and service standardization

McDonald's ensures that it standardizes operations across its franchises to ensure a standard
McDonald's experience anywhere in the world. McDonald's aim was that a customer in
California would have the same experience if he visited an outlet in Paris. McDonald's achieves
this by reducing the amount of skill required in the preparation of its product line. This has been
done by breaking the process into a series of repeatable actions to achieve the same result. By
giving instructions to workers off the streets, and providing each location with the same frozen
meat products, McDonald's can ensure that each worker follows the same procedure, and has
an identical output at any McDonald's across the continent.

High identification through promotion

McDonald's is one of the largest advertisers amongst its competitors. By having an integrated
brand promotion across the world, McDonald's ensures high identification and a uniform brand
image across the geographies and markets in which it operates.

Effective cost controls

Through strict control of each franchisees costs and comparison across franchisees, McDonald's
is able to ensure that each franchisee is operating at the right cost structure. It can use
knowledge from the outlets that are owned by McDonald's itself to experiment and find
appropriate cost optimization measures.
However, one problem with McDonald's penetration is that in some markets franchisees find
themselves competing against each other. When McDonald's opens two outlets near each
other, franchisees end up cannibalizing each other's markets which might lead to resentment
and unhealthy competition.
Further, McDonald's franchisees also have begun to feel stifled by the amount of controls that
McDonald's exerts over their operations. However, McDonald's, in most cases, seems to have
the right balance between standardization and adjustment to local needs.
What McDonald's looks for in its franchisees?
Business Experience - Individuals who have demonstrated successful ownership or
management of multiple business units or have managed multiple departments
Rapid Growth - Individuals who possess the capability to grow rapidly with McDonald's
Business Plan and Customer Experience - The ability to develop and execute a business plan
Financial Management - Skill to manage finances including a thorough understanding of
business financial statements
Management Skills - Commitment to personally manage the day-to-day operations of the
restaurant business
Training - Willingness to complete a comprehensive world class training program and become
proficient in all aspects of operating a McDonald's restaurant business

Regional Strategy
For a successful business in host countries McDonald's had to customize its business strategy to
the local needs. Regional strategy became important for McDonald's they started their
expansion in Asian countries as their culture is very different from western world. McDonald's
adopted product localization and innovations for new offerings based on local tastes and needs.
In 1963, McDonald's introduced the "Filet-of-Fish" sandwich in the Cincinnati area for Catholics
who did not eat meat on Friday. This was the first new offering added to the standard menu
and went national the following year.
The "Big Mac" introduced in 1968 was the brainchild of Jim Delligatti, one of the earliest
McDonald's Systems franchisees.
The "Egg McMuffin" was developed in 1973 by McDonald's franchisee Herb Peterson.
A Canadian franchisee invented The McFlurry in 1997.
Use of chicken instead of pork and beef in India.
Introduction of Maharaja Mac, McAloo Tikki in India suitable to local tastes and tradition.
In year 2005 McDonald's adapted Wi-Fi with the changing times and consumer demand with
Nintendo in selected locations. They also started home delivery service in Singapore, where
customer can place their orders on phone and have it delivered at their doorsteps. In busy
places like malls, airports McDonald's installed quick service kiosks rather than its standard
free-standing units.

McDonald's in China
The company managed to succeed in establishing their business where most Western based
Multi-nationals have failed previously. One of the primary reasons for the failure can be
attributed to the lack of appreciation of Chinese culture by other MNCs. They tried to replicate
their US operations China without any modification to local population and their tastes.
McDonald's have made major strides in adapting to Chinese culture in terms menu and local
taste. Locals manage all restaurants. Asian consumers were allowed to change company culture
for their own purpose. Restaurants were more akin to coffee houses where people meet rather
fast food joints. Menu was also modified to include the now highly popular "teriyaki burger".

McDonald's in Britain
McDonald's was tarnished by the McLibel, which was the longest running libel trial in English
history. Activists sued the company for exploiting children in advertisements, producing
misleading advertisements, cruelty to animals and antipathetic to unionization. McDonald's
finally settled for 10 million pounds
Later on, company developed strategy to address following issues in order to address its
situation in Britain.
Tackle impact of recession by offering good value item
Attract new and different customers
Improve tarnished image of McDonald's
The company used photographs of the British farmers who supply McDonald's, which appeared
on the sheets of paper put on customers' trays. Cooking oil was converted into biodiesel fuel to
power the restaurants.
Menus and the introduction of new items, such as the Little Tasters, as well as the introduction
of more chicken-based dishes was introduced, in response to customer demand for a greater
selection of supposedly healthier white meat options .They also tried making breakfast a more
important mealtime "event" for McDonald's to increase their offerings.
All these initiatives helped McDonald's to increase sales during recession at a time when the
fast-food market was suffering huge losses.

McDonald's Saudi Arabia

McDonald's Saudi Arabia is also highly tuned into local customs. It closes 5 times a day for
Muslim prayers. It does not offer any pork items in deference to Muslim customs. 50% of
products are manufactured locally and in gulf regions.