FACULTY OF BUSINESS, COMMUNICATIONS AND

LAW
(FOBCAL)

COURSEWORK COVER PAGE

TO BE COMPLETED BY STUDENTS

FULL NAME MATRICULATION NO.

FONG YEE HENG I18015032

COURSE CODE AND

MGT 4201 STRATEGIC MANAGEMENT
COURSE NAME

PROGRAM NAME
BACHELOR OF FINANCIAL PLANNING (BFNPI)
AND CODE

CASE STUDY TITLE McDonald’s : EXTERNAL ANALYSIS

LECTURER’S NAME MR. FRANCIS WONG FOCK KEONG

SECTION 1P1 SESSION JAN 2021

COURSEWORK
Individual Assignment DUE DATE 12/3/2021
DETAILS

(Content Page: 11 pages / Word: 3596)

MGT4201, 4206 & 4216 STRATEGIC MANAGEMENT

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Evaluation of Individual Assignment [20%]

Students’ Group Name & ID Nos:

No. Evaluation Criteria for Report Mark [%]

1 Suitability of research question and scope of content (including definition of terms,
and depth & breadth of research)

/
40
2 Quality of analysis, including business applications, limitations and reflections on
lessons learned

/
40
3 Citations and referencing

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 /
10
4 Presentation, quality of writing, and structure of the report

/
10
TOTAL
/100
GRADE

Examiner’s Signature & Date:

Table of Contents
Executive Summary.................................................................................................................4

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CHAPTER ONE.......................................................................................................................5
1.1 What is External Analysis?.......................................................................................................5
1.2 Elements of an external analysis..............................................................................................5
CHAPTER TWO.....................................................................................................................6
2.1 Brief introduction.......................................................................................................................6
2.2 History of McDonald’s..............................................................................................................6
2.3 Business Expansion and Current Status of McDonald’s.......................................................7
2.4 Reason that I choose McDonald’s Corporation......................................................................7
CHAPTER THREE.................................................................................................................8
3.1 General External Environment / PESTEL analysis :.............................................................8
3.2 Specific External Environment / Porter’s Five Forces:.......................................................10
CHAPTER FOUR..................................................................................................................12
4.1 Three justifications for McDonald’s:.....................................................................................12
4.2 Three recommendation for McDonald’s:..............................................................................13
CHAPTER FIVE....................................................................................................................14
5.1 Conclusion................................................................................................................................14
REFERENCE LIST...............................................................................................................15

Executive Summary
The selected topic in this assignment is External Analysis and the company is McDonald’s
Corporation (Fast Food Company). The rivalry between fast food restaurants has escalated
over the last decade, competing for greater market share. McDonald's, the largest hamburger
chain in the country, faces an onslaught of rivalry from better-burger chains because of the
incident. To that end, McDonald's is simplifying its menu, customizing food to local
preferences, offering personalized burger and sandwich options, deploying mobile services
such as payments and ordering, and building a social media channel with consumers to
address their growing anxiety about declining revenue amid fierce competition in the market.

In addition, the PEST analysis and the Porter Five Force Analysis would also be
included in the assignment. Finally, I will explain whether the chosen topic has made the
company successful, demonstrate whether McDonald's is taking advantage of opportunities
or countering threats, and offer my own suggestions for improving the company's
effectiveness

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CHAPTER ONE
1.1 What is External Analysis?
External analysis is also referred to as the external market climate. External research focuses
on the world outside the company rather than the environment inside the company. However,
for an organization, it is an analytical process to analyse the market and worldwide trends,
whether or not these trends have an impact on its actual business activities. The goal of
organizations is to ensure that they are able to respond to development and thrive on a
sustainable basis. In addition, external analysis is used to guide earnings, growth and
uncertainty by identifying opportunities and threats in the market or any sector. [CITATION
Joh19 \l 17417 ]

1.2 Elements of an external analysis

 Environmental Scan

It can influence a company's current and future success by continuously tracking trends and
events in the organization's internal and external environments. Basically, it is useful in
setting goals and strategies. An effective environmental scanning usually consist with
internal, external, qualitative and quantitative. In my topic, I will only analyse the external
analysis which can present opportunities or threats to companies.

 Opportunities

An opportunity to make something positive happen, but you have to go for it. You might also
require attention to what might happen in the future because it often come from situations
outside your organization. Besides that, your organization's competitiveness and ability to
stay ahead in the marketplace will make a big difference if you take advantage of
opportunities. Real life example, the emergence of social media and e-commerce has
provided Yves Saint Laurent (YSL) with opportunities in the market. They must study online
shopping behavior and carry out the development of information and communication
technology. Using social media has become popular in the new business environment.
[CITATION AYŞ15 \l 17417 ]

 Threats

It can seriously affect the success of a company. It includes a negative reputation of the
company, the changes of trend, power of buyer or supplier, the withdrawal of the new
regulation, and so on. Real life example, the airline industry has only two major aircraft

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suppliers, Boeing and Airbus. They have a lot of bargaining power on price because there are
only two companies that supply aircraft to the airlines. As a result, the purchasing power of
suppliers is considered to be very high in the aviation industry. [CITATION Agu16 \l 17417 ]

CHAPTER TWO
2.1 Brief introduction
McDonald's, whose full name is
McDonald's Corporation, it is one of the
largest American fast food chains in the
world, It is famous for its burgers.
McDonald's was founded on May 15,
1940. The first restaurant was owned by
Richard and Maurice McDonald, and its
headquarters were located in San Bernardino, California. Then, their previous headquarters
were in Oak Brook, Illinois, but in June 2018, they moved their global headquarters to
Chicago. Moreover, McDonald's Corporation was founded by Ray Kroc, and they have
38,695 locations in more than 100 countries and have become the largest restaurant chain in
the world. They serve 69 million users a day and their employs reach about 210,000 people.
[CITATION Amy20 \l 17417 ]

2.2 History of McDonald’s

The legendary history of McDonald’s was begin from the McDonald brothers, Richard and
Maurice McDonald in 1940. In that year, they opened the first McDonald’s Grill restaurant at
San Bernardino, California. Their business model is to offer a typical drive-thru with an
extensive menu and car service. In 1954, Ray Kroc, the future founder of the McDonald's
Corporation, was a mixer distributor who went to the McDonald's in San Bernardino to sell
more mixers to his brothers. The old Kroc who 52 year old was intrigued by their approach to
running the restaurant and knew they were looking for someone is national franchise agent.
At that moment, he had a brainwave and decided that his career would be Hamburg. On
April 15, 1955, Ray Kroc bought shares of McDonald's from the McDonald brothers and
opened his first McDonald's in Des Plaines, Illinois. They earned $366.12 on their first day of
service. In addition, architect Stanley Meston designed a striking red-and-white house with
golden arches in 1953. Besides that, Ray Kroc died on January 14, 1984. [CITATION Amy20 \l
17417 ]

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2.3 Business Expansion and Current Status of McDonald’s
During the Covid-19 pandemic, McDonald's seized a competitive advantage as the pandemic
changed consumer behavior. This is because McDonald's delivery business is booming as
more customers use the McDonald’s app to order and pay for food on mobile devices. There
are approximately 25,000 McDonald’s drive-thru outlets have become an oasis for customers
around the world. As a result, McDonald’s wants to meet the daily needs of its millions of
customers, so the company will speed up technological innovation and unlock further
development.

In addition, McDonald’s has launched a new digital experience growth engine called
“MyMcDonald’s”. It is an application that makes it easy for customers to place orders, drive-
thru, deliver and pay. According to McDonald’s Company expect that the digital sales will
exceed $10 billion by 2020 across its six largest market and it accounts for almost 20% of the
total system sales. Moreover, McDonald's has increased the number of restaurants it offers
room delivery to about 28,000, a nine fold increase. The company said it was thanks to the
pandemic that it had changed customer behavior, as most people were willing to order
takeout rather than eat dinner at restaurants. McDonald's has also significantly increased its
drive-thru service as the channel has become more important because of the pandemic.
Therefore, it has drive-thru service in about 65% of its restaurants worldwide, compared with
nearly 95% of its roughly 14,000 restaurants in the United States. [CITATION MEY19 \l 17417 ]

2.4 Reason that I choose McDonald’s Corporation

I confirm that everyone has eaten their products, whether you are young or old. Therefore, it
is with incredible globalization and customer loyalty as it is one of the most powerful food
brands at all time. However, it needs to constantly check every aspects that may cause trouble
while the legacy of the company keep continues.

The reason why I chose this company is because I chose external analysis as my topic,
then I want to know how a company with a long history applies external environment
analysis to their business. In this external environment analysis of the company, it will
highlight the opportunities and threats of McDonald’s by PESTEL analysis and Porter five
forces. Eventually, we can see whether the analysis conditions used by McDonald's are good
or bad.

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CHAPTER THREE
3.1 General External Environment / PESTEL analysis:
This is an essential element in assessing any external factors that may affect the business of
the company. This helps the business owner identify all of these components in an external
analysis of the business to ensure that they do not easily forget one of them.

 Political Factor

The government intervention, barriers to entry, taxes or tariff structures designed to benefit
the government or citizens usually referred as the political factors. It can affect a company's
profitability or chances of survival are varied. For instance, the government's management
policies on fast food operation is affected McDonald’s operation in Malaysia due to the
government want to control the health problem like cholesterol problem and obesity among
the children. If McDonald's wants to succeed in the Malaysian market, it must maintain a
good relationship with the local government. Thus, they have to provide reciprocal benefits
such as jobs and tax revenues.[CITATION Joh16 \l 17417 ]

 Economic Factor

Economic considerations include foreign exchange rates, inflation rates, interest rates,
changes in the current economic cycle, and so forth. These can affect a company's high profit
or high loss because it affects their total demand, total investment and business environment.
Basically, these economic factors are macroeconomic. For example, McDonald’s should pay
attention to global supply and currency exchange when handling international purchases of
materials, especially if the U.S dollar increases will affect their purchasing costs. Moreover,
the state of the country's economy and its rate of growth are also important indicators of
demand for McDonald's products. If the economy is good, demand for McDonald's products
will increase because people have more income to spend, and vice versa. [CITATION Fre18 \l
17417 ]

 Social-Cultural Factor

Social factor usually affect directly the functioning of society, and encompass the cultures,
beliefs, attitudes and values that most people as a community may hold. In addition, the
operational aspects of the organization are not only significantly affected by social factors,
but also the marketing aspects of the organization. For example, McDonald’s have to
consider the changing lifestyle of Malaysia due to the development of the economy. They

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realize that young urban consumers want technology integrated into their lives and facilities
like paying with credit card, wireless internet, and the places to be comfortable and relaxed,
so it can attract them. Moreover, cultural sensitivity should be maintained for different
countries, but McDonald's has so far made a good localized menu to adapt to local tastes and
keeps investigating local cultures. [CITATION Joh16 \l 17417 ]

 Technology Factor

It is important for any industry because it can help an industry growth rapidly or destroy an
industry's price structure and competitive landscape in a very short period of time. Therefore,
it is important to keep innovation going because it helps prevent future obsolescence, and
thus not only maximizes possible profits in a company. For example, McDonald’s look at its
competitors doing some innovation, thus it improves itself in integrating technology to
manage its operations such as changing its inventory systems, managing their supplies by the
supply chain management systems, the innovation of payment and ordering system for
convenience their customer and so on. As a result, the technology will help McDonald's
operate more efficiently and save money in the long run. They can support customers from
time to time if cost-cutting helps keep costs down.[CITATION Fre18 \l 17417 ]

 Environmental Factor

There are different standards of environmental protection in different industries but it at least
can be a standard specifies the goal of each company to prevent a lack of environmental
awareness from becoming the target of pressure groups and boycotts. For example,
McDonald's has been critical of environmentalists around the world since it is one of the
world's largest consumers of beef, potatoes and chicken. That is why the greenhouse effect is
causing people to eat a lot of beef, and cattle farms will explore and produce methane gas.
Moreover, McDonald's has been criticized by environmentalists for animal cruelty and
slaughter.[CITATION Fre18 \l 17417 ]

 Legal Factor

Legal factor usually also can determine whether there is a business behind selling a product,
or influence how a company's inventory or interactions with customers. If the company fails
to meet the legal requirements and it will be fined or banned from running their businesses,
which could be disastrous. For example, McDonald's is a licensed fast food operator and has
to comply with various standards and procedures, especially halal certification, which is

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becoming an issue for Malaysian Muslim customers. Thus, McDonald's must ensure that
their materials and workmanship comply with regulations to protect their integrity and
consumer confidence.[CITATION Joh16 \l 17417 ]

3.2 Specific External Environment / Porter’s Five Forces:

It helps to analyse the level of competition in a particular industry. Specifically, the owner is
starting a new business or entering a new market area, so this study is useful for him.
Therefore, this is desirable because the combined power of these forces determines the
capacity of industry to benefit.

 Rivalry (Competitive / Competition) (High)

Rivalry is high in the market because of many competitors with roughly equal size and
strength, and the switching cost is low among competitors. In addition, a high degree of
rivalry means that competitors offer undifferentiated products and services, which makes the
market less attractive. For example, McDonald's main strategy to cope with the competition
is to come up with creative and attractive ideas. This is because KFC and Momen are
McDonald's main competitors in the fast food industry. KFC has 84 outlets, about 24 more
than McDonald's, making it the highest in the fast food industry by market share and third-
largest brand is Momen.[CITATION Joh13 \l 17417 ]

 Bargaining power of buyer (High)

It refers to the production market and also analyzes how customers exert pressure on the
company, thus affecting the sensitivity of customers to price changes. When there are few
customers and many products to choose from, it would lead to the customer has a lot of
power. However, customer is easy to move from one company to another. For example, the
consumers of McDonald’s have the power to buy the product and it also can influence
McDonald’s price due to there are many competitors and substitutes available to consumers
in the market like KFC and Momen. [CITATION JON201 \l 17417 ] . Real Life Company,
Amazon has strong bargaining power with customers, and the switching cost for customers is
very low. With the increasing popularity of online shopping, consumers have a wide variety
of goods to choose from.

 Bargaining power of supplier (Low)

Power of supplier can significantly affect the company’s cost of production. Thus, there are
some evaluations show that how does the prices are easy to push up by suppliers such as the

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supplier's relative size and strength, the uniqueness of a product or service, number of
suppliers in every basic inputs, and the effect of switching cost. For example, McDonald's is
a globally recognized organization and there are many suppliers who want to work with
them. However, opportunities for these new suppliers to work with McDonald's are limited
because of the quality standards that the company must follow in serving its food. Real Life
Company, Under Armour's products are made by hundreds of suppliers in several countries.
By reducing manufacturers' leverage, Under Armour gained an edge. [ CITATION Law18 \l
17417 ]

 New Substitution (High)

A substitute product is equivalent to an alternative product, which means that there are two
products that are similar in function and quality but different in price. Therefore, it would
lead to customers to turn to alternative products when the prices increase. All in all, the
power of suppliers and the attractiveness of the market will be diminished. For example, the
threat to McDonald's is when people start to care about their health, so they prepare food at
home to eat healthily, which will save them money. Ultimately, McDonald's will lose
revenue as people buy less at McDonald's. Real Life Company, Dropbox and Google drives
are alternatives to disk data drives. Alternative products or services can be dangerous if they
offer a value proposition that is radically different from the industry's existing offerings.
[ CITATION Law18 \l 17417 ]

 Threat from new entrants (Moderate)

A profitable market attracts new entrants and erodes the profitability of others. The higher the
barrier to entry, the less of a threat existing player face like the barriers to entry such as
economies of scale, product differentiation, brand identity/loyalty, capital requirements and
so on. For example, McDonald's is not afraid of Burger King entering the Egyptian market
for several reasons. This is because fewer customers know about Burger King, and Burger
King does not have its own niche in the market. Burger King's outlets are unlikely to catch up
with McDonald's in a few years. The only thing McDonald's cares about is Amo Hosney,
which is a small entrant, but they offer more low-priced products, and the difference is
quality rather than quantity. [ CITATION Joh13 \l 17417 ]

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CHAPTER FOUR
4.1 Three justifications for McDonald’s:
With the development of the fast food industry, several new fast food companies are entering
the market. That means there is a lot of competition in fast food. By contrast, some retailers
are trying to attract more buyers from McDonald's, even though these brands have a smaller
market share than McDonald's.

As a result, McDonald's has seen an increase in the number of Internet users around
the world, with Internet use
broadening the online
marketplace and the
opportunity to communicate
with customers via the
Internet. In addition,
McDonald's is now joining
the e-commerce business so
it can open online stores that
customers can buy to raise
more cash. That's because in
this age of technology, McDonald's is seeing new developments and revenue growth in e-
commerce. In this era, McDonald's external research found that the number of global social
media users is on the rise. It uses social media to promote its products, communicate with
consumers and gather information from customers. As a result, McDonald's made
technological advances, claiming that the technology would provide them with multiple
advantages to beat their competitors, thereby automatically lowering their operating costs.
[ CITATION Dav18 \l 17417 ]

The another way that McDonald's beat their competitors is they noted that after the
recession in 2020, the average household income will increase and consumer spending will
increase, which will lead to growth in its target market and attract new customers. For an

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example, the spending behavior of
customer has increase means more
consumption of McDonald's
products. McDonald's also found the
changes in consumer behavior by
conducting external analysis.
McDonald’s are taking benefit by
offering products that are good for
customers' health, since it realizes
the consumers in the industry are
becoming more and more health-conscious, and this is a growing segment. As a result, the
population is important for McDonald’s because McDonald's has an impact on the number of
potential buyers in the market. That demographic has since grown and is expected to remain
optimistic for the next two years, a strong indication that McDonald's target consumer is
growing. Technology also allows them to tackle the industry's current challenges, such as
making it easier to gather information from consumers about what is good or bad and then
amplifying the marketing impact of that feedback. [ CITATION Dav18 \l 17417 ]

In addition, inflation is expected to remain low over the next two years, giving
McDonald's a chance. In addition, low interest rates in 2020 due to a slowing economy will
also be an advantage for McDonald's. Since they are both low, this will help McDonald's
lower input prices due to low inflation, and the cost of expanding new businesses will also be
low due to low bank lending. For
example, McDonald's could move
deeper into the coffee-beverage
business, becoming a direct
competitor to Starbucks Coffee in the
beverage business, or enter into joint
ventures with supermarkets to offer
franchises there. [ CITATION Dav18 \l
17417 ]

4.2 Three recommendation for McDonald’s:

The first recommendation is that McDonald's could improve the way it attracts customers by
watching how its competitors attract and retain them. For example, McDonald's should also

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improve customer retention by diversifying and modifying the practices of other large fast
food companies, and strive to provide what every customer wants, so as to ensure that every
new customer has the intention to return and leave satisfied. Rea Life Company, Starbucks
offers a great loyalty program that rewards customers for doing business with a company.
Rewards services enable consumers to return by offering discounts, exclusive access, or
exclusive deals. Their program allows consumers to win free food and drinks, book and pay
for their orders, and get customized deals. [ CITATION JEN20 \l 17417 ]

The second suggestion is that McDonald's should not only rely on younger
generation, but also focus on those who crave high-quality, tastier of fast food of the older
generation. For example, given the rapid growth of China's economy and the rise of the
human development index, more and more Chinese consumers are able to pay more for this
extra quality. If McDonald's makes such a move, they will also be able to maintain a clear
lead over their competitors. Real Life Company, Saga Holidays mainly offers travel
packages to people over the age of 50, and their marketing shows it. That is not necessarily
going to appeal to everyone over 50, but those already looking for a busy and exciting
adventure are not Saga's target market, so catering to older users is feasible. [ CITATION
Ste20 \l 17417 ]

The third recommendation is McDonald’s advertise many of its products by using

social media like the commercials, radio ads and other ads posted on Instagram, Facebook
and Twitter. As a result, it can appeal to all different target audiences, rather than focusing on
a specific group, just as it can appeal to younger viewers by placing many promotional ads
online. Moreover, McDonald's should keep up with the use of all the information systems, so
it will greatly benefit because the technology is widely used by many different people. Real
Life Company, HBO put out an Instagram post hoping to get more people to sign up for the
free trial by using a hit show because people stay indoors to avoid the spread of the virus,
they have more time to indulge in TV. The timing of the event is great when people have time
to check out the new streaming service and the added benefit of watching a popular, celebrity
show just makes it a lucrative offer. [ CITATION Nic20 \l 17417 ]

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CHAPTER FIVE
5.1 Conclusion
McDonald's is regarded as the king of fast food. In order to do this, McDonald's has spent
years trying to prove itself in the fast food industry's competitive environment. In my
opinion, the key factors of McDonald's success are innovation, customization, good
management and, most importantly, the best marketing strategy adopted by McDonald's.
McDonald's has a very bright future because of customer banking, McDonald's approach to
customizing for its customers, and most importantly a strong brand image.

The purpose of the assignment was to learn how to conduct an external evaluation of
a business to see if it could become a future growth company. However, I have come to
understand that the PESTEL analysis provides a valuable background for understanding the
overall environment, on the other hand, Porter's five factors, which help to understand the
potential of the industry's benefits.

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 Nicholas, 2020. 15 Social Media Marketing Examples to Inspire You in 2021

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Examples. [Online]
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 WEBER, J., 2017. Internal and External environment analysis for Mcdonalds.
[Online]
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 Williamson, D., 2018. McDonald s SWOT Analysis / SWOT Matrix. [Online]

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 YESBECK, J., 2020. 12 Excellent Customer Retention Examples From Top Brands.
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Safe Assign Similarity Index Report (10%)

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