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PESTLE analysis of McDonalds

PESTLE analysis

to explain company's international strategy for

McDonald
TABLE OF CONTENT

Page

I.

INTRODUCTION

II

BACKGROUND

III PESTLE ANALYSIS

A. POLITICAL

FACTORS 4

B. ECONOMIC

FACTORS 4
C. SOCIAL-CULTURAL

FACTORS 5

D. TECHNOLOGY

FACTORS 5

E. LEGAL

FACTORS 6

F. ENVIRONMENTAL

FACTORS 6

IV

CONCLUSION

RECOMMENDATION

VI

REFERENCE

9
I. INTRODUCTION

Globalization has made the globe considerably smaller. States lines have turned into

practically a divider separating certain regions of a massive unitary community.

Businesses are the one that are highly affected by this occurrence. The virtual

closeness of states has made trade and commerce an international event. Together

with these advances, the key standards of business are similarly taken into account.

The discussions in this paper shall involve an analysis of the international expansion

strategy utilized by a multinational company. In this case, the situation surrounding

McDonald’s will be taken into consideration. The following annotations and propositions

employed in the following discussions are to be supported by claims on journals and

academic pieces that address international expansion strategies and international

marketing theories.

II. BACKGROUND
The modest beginnings of McDonald’s in Illinois turned out to be among the main brand

names in the international scene. It has been synonymous to what is widely-accepted

the fast-food concept. The company operates over thirty one thousand stores all over

the world to date. It was one of the first to perfect the concept of fast service in the food

industry in its early days of operations in 1955. Given that the products of the company

are mainly western in character, its operations has also expanded to the Asian region.

The first McDonald’s store operated in Hong Kong in 1975. The first shop operated at

Paterson Street in Causeway Bay. Up to this data, the functions of McDonald’s in Hong

Kong covers over two hundred restaurant chains spread in the whole of Hong Kong

alone. In the rest of the globe, it operates thousands of store franchises that functions

autonomously.
III. PESTLE ANALYSIS

Pestle is an analysis of the external macro environment in which a business operates.

According to (2008), pestle stands for political, economic, social, technology, and

environmental factors.

A. Political Factors

The international operations of McDonald’s are highly influenced by the individual state

policies enforced by each government. (2001, 705) For instance, there are certain

groups in Europe and the United States that clamor for state actions pertaining to the

health implications of eating fast food. (2005) They have indicated that harmful

elements like cholesterol and adverse effects like obesity are attributable to consuming

fast food products.

On the other hand, the company is controlled by the individual policies and regulations

of operations. Specific markets focus on different areas of concern such as that of

health, worker protection, and environment. All these elements are seen in the

government control of the licensing of the restaurants in the respective states. For

instance, there is an impending legal dispute in the McDonald’s franchise in India where

certain infringement of rights and violation of religious laws pertaining to the contents of
the food. The existence of meat in their menus in India is apparently offensive to the

Hindu religion in the said market. There are also other studies that points to the

infringement of McDonald’s Stores with reference to the existing employment laws in

the target market. Like any business venture, these McDonald’s stores have to contend

with the issues of employment procedures as well as their tax obligations so as to

succeed in the foreign market.

B. Economic Factors

Organisations in the fast food industry are not excused from any disputes and troubles.

Specifically, they do have their individual concerns involving economic factors.

Branches and franchises of fast food chains like McDonald’s has the tendency to

experience hardship in instances where the economy of the respective states is hit by

inflation and changes in the exchange rates. The customers consequently are faced

with a stalemate of going over their individual budgets whether or not they should use

up more on these foreign fast food chains. (2004) Hence, these chains may have to put

up with the issues of the effects of the economic environment. Particularly, their

problem depends on the response of the consumers on these fundamentals and how it

could influence their general sales. In regarding the operations of the company, food

chains like McDonald’s tend to import much of their raw materials into a specific territory

if there is a dearth of supply. Exchange rate fluctuations will also play a significant role

in the operations of the company.


As stated in the paragraph above, McDonald stores have to take a great deal of

consideration with reference to their microenvironment. The company’s international

supply as well as the existing exchange rates is merely a part of the overall components

needed to guarantee success for the foreign operations of McDonald’s. Moreover, it is

imperative that the company be cognizant of the existing tax requirements needed by

the individual governments on which they operate. This basically ensures the smooth

operations of the McDonald’s franchises. In the same regard, the company will also

have to consider the economic standing of the state on which they operate on. The rate

at which the economy of that particular state grows determines the purchasing power of

the consumers in that country. Hence, if a franchise operates in a particularly

economically weak state, hence their products shall cost higher than the other existing

products in the market, then these franchises must take on certain adjustments to

maintain the economies of scale.

C. Socio-Cultural Factors

Articles on the international strategies of McDonald’s seem to function on several fields

to guarantee lucrative returns for the organisation. To illustrate, the organisation

improves on establishing a positive mind-set from their core consumers. McDonald’s

indulge a particular variety of consumers with definite types of personalities. ( 1994) It

has also been noted that the company have given the markets such as the United

Kingdom, an option with regards to their dining needs. (2005) pointed out that

McDonald’s has launched a sensibly valued set of food that tenders a reliable level of
quality for the respective market where it operates. Additionally, those who are aged

just below the bracket of thirty-five are said to be the most frequent consumers of

McDonald’s franchises. ( 2005)

The multifaceted character of business nowadays is reflected in the harsh significance

of the information on the subject of the existing market. This procedure is essentially

identified in the field as market research. (1997) Information with regards to the appeal

and potential fields of the market would double as obstructions to the success of the

company if this area of the operations is neglected. In the case of McDonald’s they

establish a good system in determining the needs of the market. The company uses

concepts of consumer behaviour product personality and purchasing decisions to its

advantage. ( 1998) It is said to have a major influence on the understanding of the

prospective performance of the organisation in a particular market. (2000)

D. Technological Factors

McDonald’s generates a demand for their own products. (2006) The company’s key tool

for marketing is by means of television advertisements. There are similarly some claims

that McDonald’s are inclined to interest the younger populations more. The existence of

play spots as well as toys in meals offered by the company shows this actuality. ( 1995)

Other demonstration of such a marketing strategy is apparent in the commercials of

they use. They employ animated depictions of their characters like Grimace and

Hamburglar. Other advertising operations employ popular celebrities to promote their


products. The like has become endorsers for McDonald’s worldwide “loving’ it”

campaign. Moreover, the operations of McDonald’s have significantly been infused with

new technology. Elements like the inventory system and the management of the value

chain of the company allows for easy payments for their suppliers and other vendors

which the individual stores in respective markets deal with. The integration of

technology in the operations of McDonalds tend to add value to their products.

Basically, this is manifested in the improvements on its value chain. The improvement of

the inventory system as well as its supply chain allows the company to operate in an

international context.

E. Legal Factors

There has been the recurrent bellowing in opposition to the fast food industry. This has

similarly made McDonald’s apply a more careful consideration on their corporate social

responsibilities. On the whole, this addressed the need of the company to form its

corporate reputation to a more positive one and a more socially responsible company.

( 2005) The reputation of McDonald’s is apparently a huge matter. Seen on the website

of the company, it seems that they have acquired strides to take in hand the key social

censures that they have been berating them in the past decades. The company has

provided their customers the relevant data that they need with reference to the

nutritional substances of their products. This is to attend to the arguments of obesity

charged against the products of the company. In the same way, the consumers

provided freedom in choosing whether or not they want to purchase their meals.
This is tied up with the socio-cultural attributes of the market on which they operate. For

instance, operations in predominantly Muslim countries require their meat to conform to

the Halal requirements of the law. In the same regard, those that operate in countries in

the European Union should conform to the existing laws banning the use of genetically

modified meat products in their food. Other legal concepts like tax obligations,

employment standards, and quality requirements are only a few of important elements

on which the company has to take into consideration. Otherwise, smooth operations

shall be hard to achieve.

F. Environment

The social responsibilities of McDonald’s on the state are influential to the operations of

the company. These entail accusations of environmental damage. Among the reasons

why they are charged with such claims is the employ of non-biodegradable substances

for their drinks glasses and Styrofoam coffers for the meals. (1997) Several civic groups

in Hong Kong have made actions to make the McDonald’s franchises in Hong Kong

aware of the rather copious use of Styrofoam containers and the resultant abuse of the

environment. (1997) further indicated that in 1995, McDonald’s Hong Kong went over

the Styrofoam used by both Australia and the United States combined.
IV. CONCLUSION

Debatably, the most significant contribution of this generation is the combination of

globalization and internationalization in the businesses sector. Developments in the

international setting have an effect on the more particular factors in the operations in

individual organisations. Alterations could take placer and require intense modifications

to the operations such that it could have an adverse effect on the entire structure of the

company. However, as indicated in the arguments and comments in this paper, this

could be acquired by setting a certain level of flexibility in the organisation. This level of

flexibility is basically acquired through the acquaintance of both the internal and external

environment of the company.

Even though McDonald’s may have been deemed as demigod in the fast food business

in the international scene, what it preserves as revealed in its processes is the need for

flexibility. The slight changes that take place in the market have an effect on the

operations of the business in any case. This denotes that having the information on the

effects of these alterations swiftly provides these fast food industry giants to take fine-

tuning actions on their acts and still preserve their market position. As implied in the

introduction of this paper, the markets of nowadays manifest a cutthroat rivalry with the

individual competitors, recognized brands or otherwise. Hence, any business in spite of

the muscle of the brand name or the size of its reserves could not afford any failures in

their individual markets.


V. RECOMMENDATION

The following recommendations shall be based on the conclusions and arguments

above.

l Political Factors

Since it is apparent that the company is expanding continuously, it is wise to deal

directly with the proper authorities in the respective markets that they intend to operate

in. This way, a good way of establishes good relationship with the government. It is

advisable that the company rests on the good graces of the government on which they

will be penetrating. To do this, all they have to do is accomplish all the prescribed acts

and satisfy all the prerequisites for doing business. The company must also be

acquainted with the law in order to know what their responsibilities and their possible

liabilities.

l Economic Factors

Before penetrating the market, the company must carry out a well conducted market

research, especially in the movements in the economic environment. The frequency of


the shifts in the inflation rate as well as the fluctuations in the exchange rate affects the

operations of the company.

l Socio-cultural Factors

Obtain the relevant information from the target market in addition to the individual

customers of the organisation. It is imperative that before a franchise is granted to a

particular market, a well drafted and comprehensive market research should be

conducted initially so as to establish the acts that would conform to good customs,

public policies, and morals of the said state. Similarly, the company should find out the

shifts in areas like the consumer behaviour and purchasing patterns of the market.

Fundamentally, this is the key condition for executing a suitable customer relationship

management system.

l Technological Factors

Use the internet to their advantage. The cost-effectiveness, interactivity and real-time

effects of the communications are a good way to find suppliers. It is also a good way to

correspond with the respective McDonald’s headquarters in every state. The company

must also look into the use of IT to enhance their inventory operations. As the

operations in its inbound and outbound logistics improve, the company will expect

significant savings and reduction of costs in the operations.


l Environmental Factors

Find out the environmental regime that governs the operations in every market. Monitor

the waste disposal of the company. Minimize the use of Styrofoam materials and plastic

cups. Constant updating of the social corporate responsibility is imperative. This should

also entail that the headquarters should take in hand a manner of internal control of

those that would infringe upon this company objective. Sanctions such as revoking of

the franchise license or a particularly high fine should be installed to serve as a

deterrent to infringement.

l Legal Factors

Hire local counsels to deal with the legal conflicts in individual markets on which the

company may encounter. This is shall ensure the company that the lawyers that will

handle their legal affairs are more versed with the legal regime that would iron out

certain creases on their operations.

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mcdonalds.html
SWOT Analysis McDonald's
Strengths
• McDonald's has been a thriving business since 1955 and 20 of the top 50 corporate staff
employees started as a restaurant level employee. In addition, 67,000 McDonalds
restaurant managers and assistant managers were promoted from restaurant staff. Fortune
Magazine 2005 listed McDonald's as the "Best Place to Work for Minorities."
McDonalds invests more than $1 billion annually in training its staff, and every year
more than 250,000 employees graduate from McDonald's training facility, Hamburger
University.
• The business is ranked number one in Fortune Magazine's 2008 list of most admired food
service companies.
• One of the world's most recognizable logos (the Golden Arches) and spokes character
(Ronald McDonald the clown). According to the Packard Children's Hospital's Center for
Healthy Weight children age 3 to 5 were given food in the McDonalds packaging and
then given the same food without the packaging, and they preferred the food in the
McDonald's packaging every single time.
• McDonalds is a community oriented, socially responsible company. They run Ronald
McDonald House facilities, which provide room and board, food and sibling support at a
cost of only $10 a day for families with children needing extensive hospital care. Ronald
McDonald Houses are located in more than 259 local communities worldwide, and
Ronald McDonald Care Mobile programs offers cost effective medical, dental and
education services to children. They also sponsor Olympic athletes.
• They are a global company operating more than 23,500 restaurants in 109 countries. By
being spread out in different regions, this gives them the ability to weather economic
fluctuations which are localized by country. They can also operate effectively in an
economic downturn due to the social need to seek out comfort foods.
• They successfully and easily adapt their global restaurants to appeal to the cultural
differences. For example, they serve lamb burgers in India and in the Middle East, they
provide separate entrances for families and single women.
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• Approximately 85% of McDonald's restaurant businesses world-wide are owned and
operated by franchisees. All franchisees are independent, full-time operators and
McDonald's was named Entrepreneur's number-one franchise in 1997. They have global
locations in all major airports, and cities, along the highways, tourist locations, theme
parks and inside Wal-Mart.
• They have an efficient, assembly line style of food preparation. In addition they have a
systemization and duplication of all their food prep processes in every restaurant.
• McDonald's uses only 100% pure USDA inspected beef, no fillers or additives.
Additionally the produce is farm fresh. McDonald's serves 100% farm raised chicken no
fillers or additives and only grade-A eggs. McDonald's foods are purchased from only
certified and inspected suppliers. McDonalds works closely with ranchers, growers and
suppliers to ensure food quality and freshness.
• McDonalds only serves name brand processed items such as Dannon Yogurt, Kraft
Cheese, Nestle Chocolate, Dasani Water, Newman's Own Salad Dressings, Heinz
Ketchup, Minute Maid Juice.
• McDonald's takes food safety very seriously. More than 2000 inspections checks are
performed at every stage of the food process. McDonalds are required to run through 72
safety protocols every day to ensure the food is maintained in a clean contaminate free
environment.
• . McDonald's was the first restaurant of its type to provide consumers with nutrition
information. Nutrition information is printed on all packaging and more recently added to
the McDonald's Internet site. McDonalds offers salads, fruit, roasted chicken, bottled
water and other low fat and calorie conscious alternatives.
Weaknesses
• Their test marketing for pizza failed to yield a substantial product. Leaving them much
less able to compete with fast food pizza chains.
• High employee turnover in their restaurants leads to more money being spent on training.
• They have yet to capitalize on the trend towards organic foods.
• McDonald's have problems with fluctuations in operating and net profits which
ultimately impact investor relations. Operating profit was $3,984 million (2005) $4,433
million (2006) and $3,879 million (2007). Net profits were $2,602 million (2005), $3,544
million (2006) and $2,395 million (2007).
Opportunities
• In today's health conscious societies the introduction of a healthy hamburger is a great
opportunity. They would be the first QSR (Quick Service Restaurant) to have FDA
approval on marketing a low fat low calorie hamburger with low calorie combo
alternatives. Currently McDonald's and its competition health choice items do not include
hamburgers.
• They have industrial, Formica restaurant settings; they could provide more upscale
restaurant settings, like the one they have in New York City on Broadway, to appeal to a
more upscale target market.
• Provide optional allergen free food items, such as gluten free and peanut free.
• In 2008 the business directed efforts at the breakfast, chicken, beverage and convenience
categories. For example, hot specialist coffees not only secure sales, but also mean that
restaurants get increasing numbers of customer visits. In 2009 McDonald's saw the full
benefits of a venture into beverages.
Threats
• They are a benchmark for creating "cradle to grave" marketing. They entice children as
young as one year old into their restaurants with special meals, toys, playgrounds and
popular movie character tie-ins. Children grow up eating and enjoying McDonalds and
then continue into adulthood. They have been criticized by many parent advocate groups
for their marketing practices towards children which are seen as marginally ethical.
• They have been sued multiple times for having "unhealthy" food, allegedly with addictive
additives, contributing to the obesity epidemic in America. In 2004, Michael Spulock
filmed the documentary Super Size Me, where he went on an all McDonalds diet for 30
days and wound up getting cirrhosis of the liver. This documentary was a direct attack on
the QSR industry as a whole and blamed them for America's obesity epidemic. Due in
part to the documentary, McDonalds no longer pushes the super size option at the dive
thru window.
• Any contamination of the food supply, especially e-coli.
• Major competitors, like Burger King, Starbucks, Taco Bell, Wendy's, KFC and any mid-
range sit-down restaurants.
McDonald's is the leading global foodservice retailer with more than 31,000 local restaurants
serving more than 58 million people in 118 countries each day. More than 75% of McDonald's
restaurants worldwide are owned and operated by independent local men and women. Read
more...
Last updated July 2009
Disclaimer:
This case study has been compiled from information freely available from public sources. It is
merely intended to be used for educational purposes only.