Case study on Global

Environmental Analysis
Mcdonalds case
 McDonald’ s operations in international markets McDonald’s is the leading
global foodservice retailer with more than 30,000 local restaurants serving 52
million people in more than 100 countries each day. It is one of the world’s
most well-known and valuable brands and holds a leading share in the globally
branded quick service restaurant segment of the informal eating-out market
in virtually every country in which it operates.
McDonald’s and its external environment
Political Factor
 A legal issue occurred in Russia for McDonald’s when, in 1993, a law was
passed in Moscow requiring all stores to have Russian names, or at least
names translated into the Cyrillic alphabet. This meant the company had to
translate its brand name to . This enabled McDonald’s to at least retain the
sound of its name. This also occurred in Japan where the pronunciation of its
name was changed to MaKudonaldo (Daniels et al., 1998). Moreover, the law
in Russia states that at least a three-quarters majority vote is needed to
approve important decisions. Therefore, the representatives of McDonald’s
and the City Council must agree on all major decisions, which could hamper
opportunities identified by the company (Daniels et al., 1998)
Economic Factor

 The differences that exist between countries in different stages of economic

and industrial development have a profound influence on price setting.
Differences in income levels may suggest the desirability of systematic price
variations. It is, therefore, important for McDonald’s to understand that, in
countries with a lower stage of economic development, it is necessary to set
a lower price. The limited purchasing power in developing countries, often
combined with low levels of literacy, poses special problems for marketers on
promotion. Although theoretically a company has a wide choice of
promotional tools, in practice the choice of effective tools is somewhat
limited. For example, in foreign markets with low economic development,
McDonald’s should try to use cost effective methods of promotion, otherwise
the final price would be beyond the reach of most customers.
Technology Factor

 McDonald’s successful internationalisation can be partly attributed to the way

the company has overcome technological problems. The systematic
substitution of equipment for people and the carefully planned use and
positioning of technology have helped each franchise to be of the same high
standard. When McDonald’s entered the Russian market, the company took
into account that technology transfer could provide important long-term
benefits to the Soviet citizenry. Also, since the Soviet machinery lagged 15–20
years behind Western technology, new machinery from Holland was used to
harvest potatoes used to make French fries.
Socio Cultural Factors

 In the case of McDonald’s, several social forces greatly affected its success in
US. One factor was the prevailing family structure in the US and the trend
towards a youth-orientated culture. In the 1960s and the 1970s the decision-
making role had changed to such an extent that children often made the
selection of a place to eat. McDonald’s special emphasis on children and
teenagers as advertising targets was successful largely because the strategy
capitalised on these existing social trends. Another important factor was that
the value that US society placed on time favoured the consumption of meals
with minimum time effort. Saving time, in fact, created the desire for meals
purchased outside the home on an unplanned or impulse basis. The result was
a burgeoning demand for low-priced food that was available any time and
that could be purchased with minimum shopping effort.
 When McDonald’s entered India, the chain decided not to launch its Big Mac burger as
a result of deferring to the Hindu prohibition against beef consumption. The company
instead served chicken, fish and vegetable burgers. This was the first McDonald’s
without beef. A so-called ‘Maharaja Mac’ was also created, using a patty made from
lamb. In some countries, McDonald’s has been forced to change its food preparation
methods as well; in Singapore and Malaysia, for example, the beef that goes into
burgers must be slaughtered according to Muslim law.

 In terms of language, when McDonald’s expanded in Puerto Rico in the early 1980s
the company employed US TV commercials dubbed in Spanish. When prospective
customers objected, the company eventually relented and developed a Spanish
language campaign just for Puerto Rico. Sales showed a considerable increase.
Moreover, in Southern China, McDonald’s is careful not to advertise prices with
multiple occurrences of the number four. The reason is simple: in Cantonese, the
pronunciation of the word four is similar to that of the word death (Whalen, 1995). In
Japan, where family ties are strong, McDonald’s has enjoyed a surge of popularity as,
in its approach, it invites consumers to associate the restaurant with family members
interacting in various situations. Starting in 1996, McDonald’s campaign in Japan
depicted various aspects of fatherhood. One spot showed a father and son bicycling
home with burgers and fries; another showed a father driving a van full of boisterous
kids to McDonald’s for milkshakes.
Environmental Factors

 The climate and physical terrain of a country are important environmental

conditions which have a significant effect on the demand and the type of
product made available. Prior to entry into a new market, it is very important
for McDonald’s to consider the physical terrain and climate in the appraisal.
Altitude, relative temperatures and humidity are some of the climatic
conditions that can affect products in foreign markets. Being environmentally
friendly is another important issue to consider. Environmental groups forced
McDonald’s to reduce its use of plastic and styrofoam packing. While
McDonald’s internal market research shows that environmental issues will
have neither a positive nor negative impact on sales, they have agreed to
work with the Environmental Defence Fund, an environmental pressure group,
to reduce unnecessary and harmful waste.
So whenever u are analysing factors affecting
global Biz Env. Only PESTEL is not sufficient

 Stakeholders
 Customer taste
 Product
 Market competition
 Threat of rivalry
 Threat of substitutes
 Threats of new entrants and many others
Stakeholders

 Public perception of your product allows it to be positioned or repositioned to

reach the required target market and, therefore, be successful. If you view
your product as portraying a certain image that is at odds with the public
perception of it, obviously your marketing strategy is not functioning properly.
Likewise, if your business itself is viewed in a negative light by actors both
internal and external to the company, steps need to be taken including the
design, quality, marketing and strategy of what is offered to correct this and
therefore create a feel good factor. Having a good relationship with all publics
is highly considered by McDonald’s.
Consumer Taste

 McDonald’s is not an advocate of global marketing where this involves

products and services being treated as though the world is a single, uniform
entity, thus marketing standardised offerings in the same way everywhere.
They follow an internationalisation marketing strategy which involves
customising marketing strategies (this may also include pricing strategies) for
different regions of the world according to cultural, regional and national
differences in line with local needs. Therefore, the concept of ‘think global,
act local’ has been clearly adopted by McDonald’s
Changes in Product Specifications

 in Israel, after initial protests, Big Macs are served without cheese in several
outlets, thereby permitting the separation of meat and dairy products required
of kosher restaurants. McDonald’s restaurants in India serve Vegetable McNuggets
and a mutton-based Maharaja Mac (Big Mac). Such innovations are necessary in a
country where Hindus do not eat beef, Muslims do not eat pork and Jains (among
others) do not eat meat of any type. In Malaysia and Singapore, McDonald’s
underwent rigorous inspections by Muslim clerics to ensure ritual cleanliness; the
chain was rewarded with a halal (‘clean’, ‘acceptable’) certificate, indicating
the total absence of pork products. There are also many examples of how
McDonald’s adapted the original menu to meet customer needs/wants in
different countries. In tropical markets, guava juice was added to the McDonald’s
product line and Bananafruit pies became popular in Latin America. In Thailand,
McDonald’s introduced the Samurai Pork Burger with sweet sauce. In Germany
the chain sells beer and McCroissants, while wine is served in France.
 Chilled yogurt drinks are available in Turkey, espresso and cold pasta in Italy.
Teriyaki burgers are sold in Japan and vegetarian burgers in The Netherlands.
Australian outlets used to offer mutton pot pie and, in the Philippines, where
noodle houses are popular, natives go for McSpaghetti. The varied offerings
also include banana fruit pies in Latin America, kiwi burgers (served with
beetroot sauce) in New Zealand, noodle soup served in most Asian markets
and chilli sauce to go with fries in Mexico and Singapore. McLaks (grilled
salmon sandwich) are sold in Norway and McHuevo (poached egg hamburger)
in Uruguay. In Thailand, McDonald’s introduced the Samurai Pork Burger with
sweet sauce. Moreover, in France, McDonald’s have adapted the ‘McDeluxe’ to
have a delicate old mustard and pepper sauce, a slice of cheddar cheese,
fresh onions and a whole lettuce leaf to appeal totheir tastes and in Greece
and Cyprus the introduction of the Greek Mac has been a huge success.
Structure of Market competition

 Rivalry: The concentration of firms within the fast food industry is low due to
the established presence of McDonald’s, Burger King and KFC.
 Threat of new/potential entrants The barriers to entry are quite high for
new entrants, as the size of McDonald’s means they have achieved economies
of scale and have preferential access to raw materials and distribution
channels. New entrants may find that a high cost of investment is required in
securing plant and machinery
 Threat of substitutes: A substitute product is one that can be used as an
alternative to a company’s own. It could be argued that the threat of
substitutes to McDonald’s comes from pizzas and other domestic kebab and
fast food houses. However, most of the above do not have the same level of
convenience that McDonald’s offers, in having a number of outlets in big cities
and also through the use of multiple drive-through outlets.
 Bargaining power of buyers: This area is perceived to be fairly low risk for McDonald’s as
consumers have little control over the variations in the product offerings, price and place of
distribution. Switching cost is low.
 Bargaining power of suppliers This ranges from the threat of forward integration to the
threat of cutting off supplies. As McDonald’s has a great deal of influence over their suppliers,
due to the fact that it aids them and trains them, the threats from suppliers are low. Due to
the scale of McDonald’s operations, suppliers are keen to retain their contracts with the firm.
McDonald’s internationalisation could also mean greater sales potential for suppliers.
Suggest a good strategy for McDonalds?
 Considering McDonald’s international performance we can argue that the company is
thriving as it is effective – doing things right (having the desired effect, producing the
intended result) and efficient – doing the right thing (able to work well and without wasting
time or resources).
Can a firm position itself in order to gain competitive advantage over its competitors?
 The official stance on McDonald’s pricing policy is highlighted in the company’s mission
statement, where it states the most fundamental element of determining price: “Being in
touch with the pricing of our competitors allows us to price our products correctly,
balancing quality and value.” Overall the ultimate goal of McDonald’s pricing and
differentiation mix is to increase market share. The strategies of cost leadership and
differentiation are used interchangeably within the internationalisation approach of
McDonald’s.
Is there a specific position a firm should take in order for its strategy to be successful?
 It is recommended that McDonald’s continue this approach, that is: simultaneously focus its
attention on aspects of the business that require global standardisation and aspects that
demand local responsiveness. When appropriate, processes should be standardised,
however, operation in local markets necessitates the maintenance of the appropriate local
flexibility. McDonald’s is adopting differentiation and cost leadership strategies (generic
strategies). In terms of differentiation, the firm attempts to be diverse from its competitors
by adding something to its product that will provide a unique value to its customers.