International Business
TABLE OF CONTENTS
Question 1………………………………………………………………….......2
Question 2………………………………………………………………….......3
Question 3.1………………………………………………………………........12
Question 3.2……………………………………………………………………16
Question 4………………………………………………………………….......17
Question 5...…………………………………………………………………....19
Question 6...…………………………………………………………………....20
Bibliography…………………………………………………………………...26
Figures
Figure 1.1………………………………………………………………………...6
Figure 1.2………………………………………………………………………...6
Figure 1.3…………………………………………………………………….......8
Figure 1.4…………………………………………………………………………9
Figure 1.5………………………………………………………………………..11
Figure 1.6……………………………………………………………………......11
Figure 1.7……………………………………………………………………......15
Figure 1.8……………………………………………………………………......20
Figure 1.9……………………………………………………………………......20
Tables
Table 1.1………………………………………………………………………....20
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Question 1:
Outline the reasons for the fast growth of McDonald’s.
From humble beginnings of only three restaurants in 1955, McDonald’s has grown to be
a powerful multinational corporation with more than 31,000 restaurants in 119 countries.
McDonald’s employs more than 1.5 million people and serves more than 46 million customers
per day (www.mcdonalds.ca/en/aboutus/history). McDonald’s Corporation has long held the
number one ranking in the fast food industry. Across industries, McDonald’s restaurants rank in
the top three American brands. McDonald's revenues grew 27% over the three years ending in
2007 to a stunning $22.8 billion. The success of McDonald’s in the US and Europe rests on core
values such as providing convenience food, of consistent quality, at affordable prices and at
unlimited locations.
McDonald’s has been focusing on its expansion towards the emerging new economies
like China, India, Latin America and Eastern Europe. It is good to mention over here that India
and China represents one-third of the world’s population; so indeed this represents a massive
opportunity. The GDP per capita is growing in these markets and therefore the population will
find fast food more affordable. However, in 2002, McDonald’s posted the first quarter loss ever
in the company’s history (Hannigan, J. (2003). McDonaldization: the Reader (Book Review).
Journal of the American Planning Association, 69(4), 453-456. ). Thus, a two-pronged strategy
was adopted in 2003 to redress the situation. Consequently, McDonald's focused on increasing
sales at existing locations by renovating stores, expanding menu options and extending store
hours and internationally, McDonald's expanded aggressively, opting to franchise rather than
operate its new locations.
McDonald’s targets the growing global middle class in all these developing countries it
enters. To keep up with rapidly changing consumer preferences, demographics, and spending
patterns, McDonald’s has introduced new items such as Premium Chicken sandwiches and
campaigns to create more healthy foods such Premium salads. It has also launched the breakfast
menu in China in order to attract the emerging middle-class segment thus laying emphasis on
MCD’s core value offerings and variety in its breakfast menus. Store hours have been extended
to 24 hours in major cities and implemented drive-thru’s in efforts to benefit from this huge
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market. One of the major factor that contributes to the remarkable growth of McDonald’s is its
adaptation its operations and marketing to match with local culture, customs and more
specifically the purchasing power of the people. McDonald’s can also utilize a menu that relies
less on costly constant product changes in markets where consumers are less health-conscious.
McDonald’s has strict standardization procedures and this contributes to its fast
expansion worldwide. New outlets are, thus, easily and quickly set up by simply adhering to a set
of McDonald’s existing standards and specifications.
Ray Kroc’s dreams for McDonald’s growth throughout the United States had been more
than satisfied; but that’s only the beginning of the story. McDonald’s has now taken the world by
storm as well.
Question 2
McDonald’s needs to adapt to different cultures and conditions when it sets up business in different parts of the world.
What problems might McDonald’s encounter when it opens outlets in:
2.1 Countries in Eastern Europe
2.2 Countries in West Asia
2.3 Countries in Africa
Most of the multi-national companies are faced with challenges when they enter new
markets. However, these challenges may manifest themselves as difficulties either in the transfer
of management methods and values to local staff, or in relationships with labor, suppliers,
customers, and government officials. These difficulties, and their associated cost and risks, may
lead to the creation of a joint venture with a local partner or the entry through a franchisee local
firm. McDonald’s has grown through several challenges that have come its way, including
adapting to its local environments; this is an on going test that it will face as it continues to open
up more restaurants worldwide. We shall use Hofstede cultural dimensions in order to highlight
the problems that McDonald’s may encounter in countries in Eastern Europe; West Asia and
Africa.
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Power Distance Index (PDI) focuses on the degree of equality, or inequality, between people in
the country's society. A High Power Distance ranking indicates that inequalities of power and
wealth have been allowed to grow within the society. These societies are more likely to follow a
caste system that does not allow significant upward mobility of its citizens. A Low Power
Distance ranking indicates the society de-emphasizes the differences between citizen's power
and wealth. In these societies equality and opportunity for everyone is stressed.
Individualism (IDV) focuses on the degree the society reinforces individual or collective,
achievement and interpersonal relationships. A High Individualism ranking indicates that
individuality and individual rights are vital within the society. Individuals in these societies may
tend to form a larger number of looser relationships. A Low Individualism ranking typifies
societies of a more collectivist nature with close ties between individuals. These cultures
reinforce extended families and collectives where everyone takes responsibility for fellow
members of their group.
Masculinity (MAS) focuses on the degree the society reinforces, or does not reinforce, the
traditional masculine work role model of male achievement, control, and power. A High
Masculinity ranking indicates the country experiences a high degree of gender differentiation. In
these cultures, males dominate a significant portion of the society and power structure, with
females being controlled by male domination. A Low Masculinity ranking indicates the country
has a low level of differentiation and discrimination between genders. In these cultures, females
are treated equally to males in all aspects of the society.
Uncertainty Avoidance Index (UAI) focuses on the level of tolerance for uncertainty and
ambiguity within the society - i.e. unstructured situations. A High Uncertainty Avoidance
ranking indicates the country has a low tolerance for uncertainty and ambiguity. This creates a
rule-oriented society that institutes laws, rules, regulations, and controls in order to reduce the
amount of uncertainty. A Low Uncertainty Avoidance ranking indicates the country has less
concern about ambiguity and uncertainty and has more tolerance for a variety of opinions. This is
reflected in a society that is less rule-oriented, more readily accepts change, and takes more and
greater risks.
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Long-Term Orientation (LTO) focuses on the degree the society embraces, or does not
embrace long-term devotion to traditional, forward thinking values. High Long-Term Orientation
ranking indicates the country prescribes to the values of long-term commitments and respect for
tradition. This is thought to support a strong work ethic where long-term rewards are expected as
a result of today's hard work. However, business may take longer to develop in this society,
particularly for an "outsider". A Low Long-Term Orientation ranking indicates the country does
not reinforce the concept of long-term, traditional orientation. In this culture, change can occur
more rapidly as long-term traditions and commitments do not become impediments to change.
2.1 Countries in Eastern Europe
We shall compare the US culture with the culture of two countries in Eastern Europe
namely Estonia and Poland in order to highlight the problems that McDonald’s might encounter
in these countries.
Estonia is a democratic parliamentary republic and is divided into 15 counties. The
capital and largest city is Tallinn. With a population of 400 000, Estonia is one of the least-
populous members of the European Union, Eurozone and NATO. Today, Estonia has the highest
GDP per person of any country that used to be part of the Soviet Union. Estonia is listed as a
High-Income Economy by the World Bank and a High-income OECD member. The United
Nations lists Estonia as a developed country with a Human Development Index of "Very High".
The country is also ranked highly for press freedom, economic freedom, democracy and political
freedom and education (http://en.wikipedia.org/wiki/Estonia).
Poland is a post communist country which had its slumps in social and economic standards. It is
nowadays a democracy with a president and a head of state. Poland has a high income economy.
It has in recent years; Poland has extended its responsibilities and position in European and
international affairs, supporting and establishing friendly relations with many 'Western' nations
and a large number of 'developing' countries (http://en.wikipedia.org/wiki/Poland).
The estimated scores for Estonia are PDI 40, IDV 60, MAS 30 and UAI 60 (figure 1.1)
The estimated scores for the United States are PDI 40, IDV 91, MAS 62, UAI 46 and LTO 29
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The estimated scores for Poland are PDI 68, IDV 60, MAS 64, UAI 93 and LTO 32 (figure 1.2)
Figure 1.1: Source: http://www.geert- hofstede.com/
Figure 1.2: Source: http://www.geert- hofstede.com/
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PDI is slightly higher in Poland but in Estonia, it is the same as in U.S. Since there is only
a small difference between Poland & U.S and no difference between Estonia & U.S, McDonald’s
would not have to review its usual work structure as far as employees are concerned and may opt
to create the same kind of hierarchy as in the US. There is a great chance that it will be highly
accepted by the Polish community. However, the high Individualism (IDV) ranking for the
United States indicates a society with a more individualistic attitude and relatively loose bonds
with others. The public is more self-reliant and looks out for themselves and their close family
members. The low IDV score for both Poland and Estonia indicates that the society is more
collectivist. Therefore McDonald’s has to adapt to this culture and provide more family-like
seating arrangements and menus. Estonia (30) has a lower MAS score than the US (62).
Therefore McDonald’s should give equal opportunities to both genders while employing the
locals in its stores. Masculinity in Poland and US is almost the same. Estonia has a very high
UAI (60) as compared to the US (46). Poland has a high score of 93. McDonald’s employees in
Estonia and Poland will prefer explicit rules to follow when performing in their day to day job.
However McDonald’s American employees prefer more flexibility in their work and informal
activities rather than strict adherence to guidelines. Employees in these two Eastern Europe
countries will stay longer with their employer than Americans. Thus McDonald’s can develop
future career plans and invest more upon training and education of Estonian and Polish
employees. US have a low LTO score of 29. The score for Estonia is unknown but as an
indicator it is known that the score for Eastern Europe is moderate. The employees at Estonian
McDonald’s would like to have a long term career plan.LTO on Poland (32) is almost the same
as that in US.
The Eastern Europe countries are new capitalist economies still carrying stigmas of
communism. Economic diversification is relatively low and tedious. The culture gap is wide, but
closing up rapidly with the new generations. McDonald’s, if caters for the above-mentioned
points, can adapt into these countries.
2.2 Countries in West Asia
We shall compare the US culture with the culture of two countries in West Asia namely
Israel and Turkey in order to highlight the problems that McDonald’s might encounter in these
countries.
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Israel is a developed country and a representative democracy with a parliamentary system
and universal suffrage. The economy, based on the nominal gross domestic product, was the
41st-largest in the world in 2008.Israel ranks highest among Middle Eastern countries on the UN
Human Development Index, and it has one of the highest life expectancies in the world.
Jerusalem is the country's capital, although it is not recognized internationally as such
(http://en.wikipedia.org/wiki/Israel).
Turkey’s GDP growth rate from 2002 to 2007 averaged 7.4%. Its tourism sector has
experienced rapid growth and constitutes an important part of the economy. In 2008 there were
31 million visitors to the country (http://en.wikipedia.org/wiki/Turkey).
The estimated scores for Israel are PDI 13, IDV 54, MAS 47 and UAI 81 (figure 1.3).
The estimated scores for the United States are PDI 40, IDV 91, MAS 62, UAI 46 and LTO 29
The estimated scores for Turkey are PDI 66, IDV 37, MAS 45, and UAI 85 (figure 1.4).
Figure 1.3: Source: http://www.geert- hofstede.com/
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Figure 1.4: Source: http://www.geert- hofstede.com/
Israel has low PDI as compared to both U.S (40) and Turkey (66). This means that both
male and female have equal opportunity in this country. McDonald’s should ensure both male
and female are given equal opportunity during the recruitment process in Israel. However,
Turkey has a higher PDI than the US. It is indicative of a high level of inequality of power and
wealth within the society. This condition is accepted by the society as their cultural heritage.
Clear cut hierarchy among the employees will not be a problem in these countries.
The low ranking on IDV in both Turkey and Israel indicates the society is Collectivist as
compared to Individualist. There is a close long-term commitment to the family. Loyalty in a
collectivist is very important. The society favors strong relationships where everyone takes
responsibility for fellow members of their group. McDonald’s Family meals will be very popular
in both countries
Both Israel and Turkey are relatively richer countries where McDonald’s could
eventually do good business. It is already serving Turkey and has well adapted to Turkey’s
culture, food taste and religious convictions. Also, McDonald’s restaurants in Muslim countries
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have to maintain “Halaal” menus and the avoidance of pork; which signify compliance with
Islamic laws for food preparation.
2.3 Countries in Africa
We shall compare the US culture with the culture of two countries in Africa namely
Egypt and South Africa in order to highlight the problems that McDonald’s might encounter in
these countries.
Egypt is one of the most populous countries in Africa and the Middle East. The great
majority of its estimated 79 million people live near the banks of the Nile River. About half of
Egypt's residents live in urban areas. The economy of Egypt is one of the most developed and
diversified in the Middle East, with sectors such as tourism, agriculture, industry and service at
almost equal production levels (http://en.wikipedia.org/wiki/Egypt).
South Africa is a democracy that has diverse cultures and languages. South Africa has a
mixed economy because of the great disparity between the rich and the poor and it has a low
GDP per capita (http://en.wikipedia.org/wiki/South Africa).
The estimated scores for South Africa are PDI 43, IDV 60, MAS 58 and UAI 43 (figure 1.5).
The estimated scores for the United States are PDI 40, IDV 91, MAS 62, UAI 46 and LTO 29
The estimated scores for East Africa are PDI 64, IDV 27, MAS 41, UAI 52 and LTO 25 (figure
1.6).
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Figure 1.5: Source: http://www.geert- hofstede.com/
Figure 1.6: Source: http://www.geert- hofstede.com/
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McDonald’s already exists in Egypt and has announced that as a part of long term
expansion plans it is opening a series of new restaurants in collaboration with Shell Marketing
Egypt. The first of these restaurants is a full service restaurant which also serves as a drive-thru,
and was launched at the Shell Service Station in Sheikh Zayed city. A high score of PDI (64)
and low score of MAS (41) as compared to U.S (40 & 62) means that males and females are
treated equally in Egypt. McDonald’s should have this in mind while employing locals in Egypt.
However a low score of IDV (27) means that the population is more collectivist and thus Family
meals will be highly accepted in the Egyptian market. Also, Egypt is open to changes.
McDonald’s already exists in South Africa and operates 132 restaurants in nine of South
Africa's provinces. South Africa has a low IDV as compared to United States. Otherwise the
other cultural dimensions have almost the same values. Low IDV implies that collectivism has a
strong presence in the society. People prefer to be in group or in family. This is the reason why
the kid’s corner has a high importance in South Africa. To involve the locals and gain their
confidence, more than 97% of all food served in McDonald's restaurants is produced by local
South African suppliers. All of McDonald's SA restaurants are Halaal certified by the Islamic
Council of South Africa (ICSA).
Thus, McDonald’s has a good presence in South Africa but is almost inexistent on the
rest of the continent. The major reasons would mainly be due to the poverty present in these
countries, people will not be able to afford the fast food. Another reason will be because of the
political instability and lack of security in many African countries, doing business becomes a
challenge.
Question 3
3.1 Critically discuss McDonald’s globalization strategy.
McDonald’s Corporation began spreading domestically throughout the United States thus
establishing its brand recognition. Its initial strategy began by advertising directly to the middle
and upper class citizens. However, with its many bargain deals on several of its food items,
McDonald’s began to cater to several people belonging to the lower class.
China was McDonald’s first global country in which it researched heavily before opening
up restaurants. In fact, through globalization and internationalization, McDonald’s was able to
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develop marketing strategies, while at the same time customizing them for different regions in
accordance to the cultural and national variations in order to serve specific target markets. The
company conducts heavy research in regions where it desires to open locations based upon a few
elements, including social, cultural, technological, political, and economic situations.
McDonald’s key to success is its business mantra of “think global, act local”. This has allowed
the company to achieve financial success in every region it opens its fast food restaurants.
Internationally, McDonald’s earns high revenues is India. India is one of the toughest
markets to enter for foreign businesses. One of the most successive strategies that McDonald’s
uses before opening up its stores is research and development of its foods. Tastes and preferences
vary across the globe; therefore, the company thoroughly analyzes the preferred tastes, especially
to not offend local cultures. For example, India is a nation where beef is highly unpopular due to
religious purposes; therefore, the company had to come up with burgers that were not made with
beef, with rather chicken or lamb. Furthermore, the company had to create flavors that were
spicy in order to meet the general taste preferences. In order to further emphasize the
globalization element incorporated by the company, the success strategies include:
Emphasis on Local Management
Throughout the world, McDonald’s prides itself in hiring locals, specifically management
in order to gain acceptance into the country by its citizens. The emphasis is based on the “think
global, act local” theme of the company.
Politically Sensitive Strategy
One of the company’s major concerns was to develop ways to avoid political
confrontation with the Indian government. The other major concern was to be careful of the
religious sensitives in India. Almost 80% of Indians do not eat beef, and over 150 million Indian
Muslims do not eat pork, therefore, instead of supplying the normal Big Mac, which consists of
beef, the company developed the Maharaja Mac that is made of two lamb patties. Other foods
were also added to the non-standardized menu including McAloo Tiki Burger, and other
common Indian dishes.
Employment Opportunity
Foreign enterprises are often reluctant to hire locals in their companies, specifically at the
managerial positions, however, McDonald’s research concluded that in order to survive in the
Indian market, it would have to hire locals as cashiers, cooks, managers as well as provide jobs
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for the country’s agricultural workforce. In fact, McDonald’s outsources its products to several
Indian companies throughout India.
Environmental Friendliness
In order to achieve a positive reputation, as well as follow local and national policies of a
country, McDonald’s tries to establish services that are environmentally friendly. India is an
example where the company provides financial contributions and sponsors several community
related activities in order to promote environmental protection. This is primarily seen within
schools; thus indicating that the company also supports local schools.
Corporate Citizenship
In order to better its reputation, this multinational firm gives back to the local citizens in
all countries it operates. For example, the company provides several financial donations to local
organizations. This is one way to encourage consumers to eat at its restaurants, as it is an
incentive that is used to spread the name.
Pricing
As the value of currencies varies worldwide, McDonald’s is often forced to change its
pricing strategy in accordance to its target market. For instance, the value of a Big Mac varies
worldwide. In Switzerland, the Big Mac is valued $.60 over the U.S. (price base of the product).
However, in China, it is undervalued by $0.60 in comparison to the price of the Big Mac in the
U.S. It seems that the company tries to maintain a price range on all its products based on the
location, income distribution and it is for this purpose that the company opens up most of its
restaurants in major cities. Its primary goal is to initially attract middle and upper class citizens,
as they can afford McDonald’s prices. After this, they slowly target the lower middle class
citizens. In the United States, for example, the restaurant chain has appealed equally well to all
classes ranging from the poor to the upper class; however, its popularity continues to be among
the lower, middle and upper middle class.
Challenges McDonald’s had overcome
The company has grown through several challenges that have come its way, including
adapting to its local environments. However, the biggest challenge the firm faced was in 2001,
when the company had hit a low point, specifically with the new trend of eating healthy. This
was primarily seen in its home country, the United States. This craze continues today, and as a
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result, McDonald’s became one of the least visited fast food restaurants. After 2001, the
company changed its strategy: instead of opening more stores, the firm decided to change its
menu by introducing healthier meals (see below table). However, since its introduction of the
new menu, consisting of fruit snacks for children, and healthier meals for adults, such as the
grilled chicken flatbread, the company has begun to increase its revenues from the previous slow
years. This can be seen in figure 1.7 below, as revenues have begun to increase since 2003.
Furthermore, in order to fulfill federal health regulations, as well as meet its healthy
requirements to societies in which it operates, the company in 2004, begun to experiment with
products. It introduced new oven baked sandwiches, which were healthier and tastier for its
consumers. In 2004, as a result of overcoming its challenges, the company increased its shares by
11% to 12%. McDonald’s in Australia, for example, introduced the McCafe, its gourmet coffee
for its customers. This proved to be a big hit (http://www.economist.com, 2004).
Figure 1.7: Source: Sales Growth (Economist.com, 2004)
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3.2 Explain how and why the entry strategy of McDonald’s was different in China in comparison with the rest of the whole.
McDonald's, the leading US fast food retailer, entered China in 1990 by opening its first
restaurant in Shenzhen. As of March 2008, there were more than 800 McDonald's restaurants
across China. Yum Brands, the main competitor for McDonald’s had already established its
presence in China before McDonald’s and was the leader in the Chinese fast food market.
McDonald’s had launched several initiatives in China to adapt to local needs and tastes in order
to overtake Yum Brands. It is also focusing on opening more drive-thru restaurants in China. It
had been one of the top official sponsors for the 2008 Beijing XXVIX Olympics. In the US, the
drive-thru is a given for any fast-food service. If a person is on the go the drive-thru is a
convenient option. In China, this concept was completely new and novel until recently in 2005.
Before, the streets were filled with bikes. But with China’s economic growth for the past few
years, bikes evolved into motorcycles which evolved into cars. 14% of Chinese households
purchased cars between 1989 and 1997 making the drive‐thru feasible.
The menu that McDonald’s presented in china is different but the same – there is the
same familiar Big Macs, Chicken McNuggets, and fries; but there are new entries targeting a
more localized taste including a pork sandwich. Pork and chicken have traditionally been more
popular than beef among the Chinese.
Just like in other parts of the world, fast food winning characteristics of Taste,
convenience and price are important in China as well. But due to past experiences, food safety is
an issue in China. McDonalds Corporation’s emphasis on cleanliness is appreciated by
customers and the Chinese customers perceive McDonalds as being scientifically prepared in a
clean environment. The sidewalks in front of McDonalds are kept clean by employees. Food
safety concerns are one reason all Chinese McDonald’s stores have hand washing stations and
hand sanitizers right out in the main restaurant. McDonald’s standardized operations ensure the
quality and consistency of cuisine at all its restaurants across China.
McDonald’s could not enter china through franchising because the Chinese franchise law
did not exist when McDonald’s wanted to penetrate the market of mainland China in 1990.The
entry mode in China, owing to the Chinese government’s regulations and policies, were either
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wholly owned by the company or jointly-owned, contrary to the setting up of franchising stores
elsewhere. Also, the competition was intensifying between McDonald’s and its biggest rival
being Yum Brands. Thus, McDonald's had to find a way in order to penetrate the Chinese
market. Thus, the company established a joint venture with Beijing Agricultural, Industrial and
Commercial Federal Corporation to expand its presence in the domestic market. The main
reason why McDonald’s chose this partner is that the department of agriculture is controlled by
the government of China and in order to receive agricultural supplies, McDonald’s needs the
department’s approval. This venture brought down barriers concerning agricultural products and
suppliers’ relationships. The president of McDonald's China Development Company said that
given China's large territory, it is hard to promote McDonald's to various regions without help
from a franchising system, especially in the small and medium cities and the far hinterland
regions (http://www.china.org.cn/english/15261.htm).
Question 4:
Explain some of McDonald’s efforts to localize its offerings in China and describe how
successful these efforts were.
Since its entry in China in 1990, McDonald's has been expanding steadily by providing
outstanding quality, service, and value to its customers. McDonald’s emergence in China soon
attracted an avalanche of Chinese customers eager to try out its burgers and fries, which were
vastly different from the staples offered by local Chinese quick-service restaurants.
The food culture in China is vastly different from that in the West, but the food culture,
lifestyles and legal structure were altering as a result of surging economic growth and massive
urbanization. However, McDonald’s had the ability to adapt to local conditions based on its vast
experience and its business mantra “think global, act local” and its joint venture partnership with
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 Chinese customers perceive McDonalds as being scientifically prepared in a clean
environment. McDonalds Corporation’s emphasis on cleanliness is appreciated by customers.
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Owners of the Chinese McDonalds even offer tours of their kitchens to reassure customers of
their cleanliness. The sidewalks in front of McDonalds are kept clean by employees. The “one
child policy” has had an influence on the popularity of Western fast food. Parents who have only
one child want that child to succeed at all costs; being “western” is a prerequisite for success.
McDonalds has become the number one location for Chinese children’s birthday parties (Wang,
2009).This fact is particularly surprising in that traditionally people in China did not celebrate
birthdays. It appears that McDonalds has been successful in capturing the children’s market in
China. McDonald’s also created the McKids in China (unique concept to develop products in the
country). This retail store offers clothing, toys, books, videos.
Malnutrition remains a problem for the rural poor, especially in Western China according
to UNICEF (MacLeod, 2007). So when people from the poorer western provinces of China have
an opportunity to travel to the urban centers, a trip to McDonalds is a “tourist stop” – a way to
see the wider world. A more recent addition to McDonalds is the drive‐thru’s. 14% of Chinese
households purchased cars between 1989 and 1997 making the drive‐thru feasible. McDonalds is
seen as a symbol of equality as both customer and server are standing during their transaction. It
is seen as a safe place to bring a date for young people as there is no competition for ordering
bigger meals than the couple at the next table. Some McDonalds have even installed a “lover’s
corner” with tables for two for people on dates (Watson, 1997). Single women in China see
McDonalds as a safe place to eat because alcohol is not served. The bathrooms are clean and the
restaurants are heated and cooled, amenities not all Chinese have in their homes. Chinese cities
are crowded and hot for much of the year; McDonalds is an oasis of calm in comparison to the
streets in urban areas.
Not only is McDonalds a favorite place to celebrate their children’s birthdays, it has
become a place for families to celebrate the holidays. McDonalds has marketed itself as a family
restaurant through many marketing schemes including having family slogans on their walls, and
hiring people from many generations. For people from remote rural areas who cannot get home
for holidays, McDonalds has become a “home away from home”. The restaurants’ busiest times
are during holidays. It is a way for extended families to publicly show their unity to publicly
show their unity on special occasions such as anniversaries. One attraction is that it is much more
affordable to feed a large group than the traditional Chinese banquet on special occasions
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(Watson, 1997). “During the 2004 Spring Festival, McDonalds on Beijing’s Wangfujing Street
attracted many people with a traditional Chinese look, decorating their interiors with paper‐cuts
of the Chinese character Fu (happiness), magpies and twin fishes, all auspicious symbols.”
(China Today, 2004). McDonalds has even added a Chinese New Year Happy Meal for adults
complete with red packaging and Chinese horoscope letters. The company customized its menu
to offer for example the ‘Value menu’ that offered sandwiches at a lower price. A smaller
version of the ‘Value menu’ (small fries, small drink) was also introduced.
Initially, McDonald’s tried to present itself as a Chinese corporation through having 50%
local ownership and buying products locally. They also invested in local schools and gave
scholarships and prizes for contests. Another adaptation that McDonalds has made is to have
restaurants open 24 hours every day. These restaurants had attached dessert kiosks for
pedestrians to meet the demands of locals. McDonalds has absorbed the traditional Chinese
cultural elements of showing respect, recognition, understanding, assimilation and
amalgamation, while maintaining the substance of the Western culture of efficiency, freedom,
democracy, equality and humanity, according to China Daily (2005).
Question 5:
Discuss the challenges that McDonald’s faced when entering the Chinese market and to expand its operations. (You need to use the Geert Hofstede’s model to compare China and the U.S and then highlight cultural challenges that U.S must be aware of in managing McDonald’s operations in China).
The biggest challenge that McDonald’s faced when entering the Chinese market was the
cultural differences that include language, religion, social practices, and human traits as
compared to the United States. The MCD’s culture follows the American operating system
which was a challenge.
We shall use the Geert Hofstede’s model to compare China and the U.S cultural
dimensions and also emphasize the challenges that U.S managers should be aware of. Table 1.1
below shows the vast cultural differences that exist between China and U.S:
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Cultural dimension China in order of highest ranking
US
Power distance(PDI) 2 – High 4 – LowIndividualism (IDV) 5 – Low 1 – HighMasculinity (MAS) 3 – Medium 2 – HighUncertainty avoidance (UAI) 4 – Low 3 – MediumLong-term orientation (LTO) 1 – High 5 - Low
Table 1.1: Cultural Differences between China & U.S
Figure 1.8: China’s Cultural Dimensions: Source: http://www.geert-hofstede.com
Figure 1.9: U.S Cultural Dimensions: Source: http://www.geert-hofstede.com
The population of the United States is 300 million people of mixed races and heritage. English is
the predominant language, although languages from many foreign countries are spoken within
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cultural enclaves throughout the U.S. The majority of American's (U.S.) are Christian. The
culture and geographic location of an area will influence how business is done. The climate and
lifestyle are just more relaxed, which is reflected in the pace and informality.
However, China is believed to have the oldest continuous civilization. China has over
4,000 years of verifiable history. Beijing is the capital of China and is the focal point for the
country. The official language is standard Chinese, which is derived from the Mandarin dialect.
Most business people speak English. A Communist form of government rules China. The
Chinese government promotes atheism although the constitution guarantees freedom of religion.
China is the most densely populated county in the world with approximately 1.17 billion people
as of 1992. There are strict rules regarding childbirth and each couple is limited to only one
child.
The Geert Hofstede analysis for the United States is very similar to other World
Countries that have their heritage founded in Europe with strong ties to the British Isles.
Individualism ranks highest and is a significant factor in the life of U.S. Americans. The low
ranking of Long-term Orientation reflects a freedom in the culture from long-term traditional
commitments, which allows greater flexibility and the freedom to react quickly to new
opportunities. The high Individualism (IDV) ranking for the United States indicates a society
with a more individualistic attitude and relatively loose bonds with others. The population is
more self-reliant and looks out for themselves and their close family members. The next highest
Hofstede Dimension is Masculinity (MAS) with a ranking of 62, compared with a world average
of 50. This indicates the country experiences a higher degree of gender differentiation of roles.
The male dominates a significant portion of the society and power structure. This situation
generates a female population that becomes more assertive and competitive, with women shifting
toward the male role model and away from their female role. The LTO is the lowest Dimension
for the US at 29, compared to the world average of 45. This low LTO ranking is indicative of the
societies' belief in meeting its obligations and tends to reflect an appreciation for cultural
traditions. The next lowest ranking Dimension for the United States is Power Distance (PDI) at
40, compared to the world Average of 55. This is indicative of a greater equality between
societal levels, including government, organizations, and even within families. This orientation
reinforces a cooperative interaction across power levels and creates a more stable cultural
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environment. The last Geert Hofstede Dimension for the US is Uncertainty Avoidance (UAI),
with a ranking of 46, compared to the world average of 64. A low ranking in the Uncertainty
Avoidance Dimension is indicative of a society that has fewer rules and does not attempt to
control all outcomes and results. It also has a greater level of tolerance for a variety of ideas,
thoughts, and beliefs.
On the other hand, the Geert Hofstede analysis for China is different where Long-term
Orientation is the highest-ranking factor. However, the Chinese rank lower than any other Asian
country in the Individualism factor. This can be attributed primarily to the Communist rule and
its emphasis on a collectivist culture. Geert Hofstede analysis for China has Long-term
Orientation (LTO) the highest-ranking factor (118), which is true for all Asian cultures. This
Dimension indicates a society's time perspective and an attitude of persevering; that is,
overcoming obstacles with time, if not with will and strength. The Chinese rank lower than any
other Asian country in the Individualism (IDV) ranking, at 20 compared to an average of 24.
This may be attributed, in part, to the high level of emphasis on a Collectivist society by the
Communist rule, as compared to one of Individualism. The low Individualism ranking is
manifest in a close and committed member 'group', be that a family, extended family, or
extended relationships. Loyalty in a collectivist culture is dominant. The society fosters strong
relationships where everyone takes responsibility for fellow members of their group. Of note is
China's significantly higher Power Distance ranking of 80 compared to the other Far East Asian
countries' average of 60, and the world average of 55. This is indicative of a high level of
inequality of power and wealth within the society. This condition is not necessarily forced upon
the population, but rather accepted by the society as their cultural heritage.
Thus, advertising was one of the biggest challenges of McDonald’s in China due to
language, cultural and social beliefs. However, it was able to overcome this test as it used brand
advertising in China. This was classified into four groups as regards to the ideology and value it
tries to convey to the consumers: social status, romance, traditional custom and values, and
children’s happiness. Social status: This type of advertising promotes McDonald’s as a middle-
class life style, in particular, the white-collar workers’ style. Romance: McDonald’s restaurant
has been regarded as an ideal place for lovers. Traditional Custom and value: This group of ads
emphasizes the traditional customs and values which Chinese treasure and follow, such as the
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Spring Festival celebration. Children’s happiness: Children are the center of this type of
advertising. It shows the connection between children’s happiness and McDonald’s. Another
challenge that U.S managers must be aware of is that the food and menus that MCD’s presented
did not meet the requirements of the Chinese people in terms of taste, size, and cost and had to
be re-evaluated. A ‘Value menu’ and smaller version of it was even launched to meet the
requirement of local people. MCD’s had to use various techniques to get into the market, expand
and get Chinese people to buy their product. It implemented drive-thru’s in China and extended
store hours to 24 hours in major cities. McDonald’s had to go for joint venture partnership with
the Chinese Government in order to penetrate the Chinese market. It even employed local people
in its stores and favored in buying local products such as potatoes. MCD’s had to adapt to the
norms and expectations of the Chinese society which was not easy.
Question 6:
What do you think the best opportunities for future growth lie for McDonald’s? Why?
McDonald’s expansion worldwide has been remarkable up till now where it is serving
more than 46 million customers per day (www.mcdonalds.ca/en/aboutus/faq.aspx). However, the
key to its future success will be maintaining its core strengths; an unwavering focus on quality
and consistency while carefully experimenting with new options. It should continue to rapidly
expand its operations worldwide and leverage the brand through the introduction of new
products. McDonald’s should also focus on customer relationship management. It should
continue to support communities as it has been always doing so over the past years. In fact
McDonald’s has built up a formidable social responsibility program. In addition to the Ronald
McDonald houses and several Ronald McDonald children's charities, McDonald’s sponsors a
variety of educational and sports programs. In 2000, McDonald’s ranked number one for social
responsibility in Fortune’s listing of America’s Most Admired Company
(http://www.mcdonalds.com/corp/invest/pub/annual_rpt_archives/2000_annual). McDonald’s
was named by Fortune as one of the top 50 places for minorities to work in 2003 and 2004.
There are now more than 259 Ronald McDonald houses in communities around the world and
the Ronald McDonald Care Mobile program offers medical, dental and education services to
poverty-stricken children in their own neighborhoods
(http://www.mcdonalds.com/corp/about/factsheets).
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McDonald’s should also invest in streamlining its value chain globally in order to sustain
its growth worldwide. It should expand cooperative agreements and monetize their customer
base by collecting and analyzing their customer data. McDonald’s should continue to focus in
retaining loyal customers. In fact it has succeeded in doing so over the past years. The McDonald
brand has differentiated itself from competitors not just through customer loyalty, but also
through quality, consistency, and standardization.
McDonald’s should come up with innovative initiatives that could include launching
higher-end restaurants under new brands that wouldn’t be saddled with McDonald’s fast-food
image in order to maintain its growth. New products, tastes, menus, partners should be launched
and more new concepts like McKids in China could be exploited. McDonald’s should expand
more aggressively abroad where the prospects for significant growth is greater.
McDonald’s could adopt the go-green concept in a way to show the population
worldwide that it does care for the environment. In fact the company is also going through a full
makeover, redesigning some of its restaurants in a way that it hopes will revitalize the sites and
attracts more customers. McDonald’s also announced that it plans to convert its UK fleet of 155
trucks to run on biofuel made from recycled vegetable fat from 900 restaurants. This will, they
claim, save 1,650 tonnes of carbon per year
(http://www.environmentalgraffiti.com/businesspolitics/mcdonalds-mc-eco-friendly).The
restaurant is also toying with ideas of installing rooftop herb gardens, grass covered parking lots,
biodegradable cutlery and electric powered car home delivery.
McDonald's has a variety of food for the health conscious individual and it should
continue to provide this type of menu as this is vital for its future growth. In 2003 three entrée-
sized salads were added to the menu. A Fruit and Walnut was added in 2005 that provides 2.5
servings of the daily recommended fruit for adults. Other healthy choices at McDonald's include
a Chicken McGrill Sandwich, Fruit 'n Yogurt Parfaits, orange juice, one percent low fat white
and chocolate milk, and at some restaurants, soup. Healthy choices were introduced for Happy
Meals in June 2004, including low fat white and chocolate milk, apple juice, and Apple Dippers
(sliced apples with an optional low-fat caramel dip.) Each package of the dessert contains one
recommended daily serving of fruit.
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Human Resource Development is also important for McDonald’s future growth. The
company should be able to bring diversity in management where decision is not taken by an
individual but by a group of people. McDonald’s should also focus in the training of its
personnel in order to gain competitive advantage over its competitors.
From the above, it can be observed the various opportunities that lie for McDonald’s for
its future growth.
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