PESTLE analysis to explain company's international strategy for

McDonald

TABLE OF CONTENT

Page

I. INTRODUCTION 3

II BACKGROUND 3

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 7

V RECOMMENDATION 8

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 McDonalds 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 andinternational marketing theories.

II.

BACKGROUND

The modest beginnings of McDonalds in Illinois turned out to be among the main brand names in the international scene. It has been synonymous to what is widelyaccepted 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 McDonalds store operated in Hong Kong in 1975. The first shop operated at Paterson Street in Causeway Bay. Up to this data, the functions of McDonalds 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 McDonalds 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 McDonalds 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 McDonalds Stores with reference to the existing employment laws in the target market. Like any business venture, these McDonalds 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 McDonalds 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 McDonalds 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 companys 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 McDonalds. 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 McDonalds 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 McDonalds 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. McDonalds 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 McDonalds 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 McDonalds 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 McDonalds 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

McDonalds generates a demand for their own products. (2006) The companys key tool for marketing is by means of television advertisements. There are similarly

some claims that McDonalds 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 McDonalds worldwide loving it campaign.

Moreover, the operations of

McDonalds 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 McDonalds 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 McDonalds 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 McDonalds 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 McDonalds franchises in Hong Kong aware of the rather copious use of Styrofoam containers and the resultant abuse of the environment. United States combined. (1997) further indicated that in 1995, McDonalds Hong Kong went over the Styrofoam used by both Australia and the

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 McDonalds 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.

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.

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.

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.

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 McDonalds 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.

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.

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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Swot analysis
Strengths
It has a strong global presence and is considered as a market leader in both the domestic as well as the international markets. It is a global brand that owns 31,000 restaurants serving in 120 countries. Of these 31,000 restaurants at least14,000 restaurants are situated in the US. It uses economies of scale for reducing the cost, as its huge expansion diversifies the overall risk involved with the economic performance. They own an active childrens charity by the nameThe Ronald McDonald House. It takes steps in adjusting the Ingredients and product offerings in order to comply with the upgraded health standards deemed necessary by the USDA. It earns revenue by fast food sales as well as a property investor and a franchiser of restaurants. It has a firm real estate portfolio. It has branded menu items i-e Big Mac, Chicken McNuggets, which further promote McDonalds. It is recognized as one of the worlds most recognized logos. It is recognized as a socially responsible and community oriented firm. It adapts to the cultural differences regarding the region where the restaurant is set up. It has located itself in major airports, cities, highways, tourist locations, theme parks. It has an efficient food preparation style that follows the process in a systematic way. It takes food safety extremely cautiously. It was the first to provide the customers about nutrition facts.

Weaknesses
It uses advertising that mostly targets children. High employee turn-over. It has yet to accomplish going on the trend of organic food. Price competition with the competitors resulting in low revenue.

 Lack of innovative products.

Opportunities
It can adapt to the needs of the societies and undergo an innovative product line. It can research ways to use green energy and packaging which will work as a part of their promotional effort as well as fulfill their social responsibility. It can create new product offerings, use mobile text messaging to offer services that appeal to consumers. It can upscale some of its restaurant settings at luxurious locations to attract more customers. It can provide optional items that are regarded to be the basis of allergy for some. It can slow down the level of expansion in order to increase the profitability of the organization.

Threats
The recession negatively impacts the holding position of the firm regarding its revenue streams, even though they are quite diversified. Foreign currency fluctuations are regarded to be a major problem as it uses standard pricing for its food items. More restaurants that are increasing their food offering and declining the price. Health issues regarding the fast food chain. Heavy investments on promotional campaigns which decrease the gaining of market share. Some parents criticize the firms cradle to grave marketing strategy that focuses on kids, who later on take it as a trend to their adulthood. Sued various times for unhealthy food, usually with addictive additives. Emergence of major fast food competitors: Burger King, Starbucks, Wendys, Taco Bell, KFC.

2
McDonalds Corporation
Strengths

McDonalds has built up huge brand equity. It is the No. 1 fast-food company by sales, with more than 31,000 restaurants serving burgers and fries in almost 120 countries. Sales, 2007 (11,4009 million), 5.6% sales growth[1].

Good innovation and product development. It continually innovates to retain customers in the business.

The McDonalds brand offers consumers choice, reasonable value and great service Large amounts of investment have gone into supporting its franchise network, 75% of stores are franchises[2].

Loyal staff and strong management team.

Weaknesses

Core product line out of line with the trend towards healthier lifestyles for adults and children. Product line heavily focused towards hot food and burgers[3]. Seasonal Quality issues across the franchise network.

Opportunities

Joint ventures with retailers (e.g. supermarkets). Consolidation of retailers likely, so better locations for franchisees. Respond to social changes - by innovation within healthier lifestyle foods. Its move into hot baguettes and healthier snacks (fruit) has supported its new positioning.

Use of CRM, database marketing to more accurately market to its consumer target groups. It could identify likely customers (based on modelling and profiles of shoppers) and prevent brand switching[4].

Strengthen its value proposition and offering, to encourage customers who visit coffee shops into McDonalds.

The new formats, McCafe, having Wifi internet links should help in attracting segments. Also installing childrens play-parks and its focus on educating consumers about health, fitness.

Continued focus on corporate social responsibility, reducing the impact on the environment and community linkages.

International expansion into emerging markets of China and India.

Threats

Social changes - Government, consumer groups encouraging balanced meals, 5 a day fruit and vegetables.

Focus by consumers on nutrition and healthier lifestyles.

Competitive pressures on the high street as new entrants offering value and greater product ranges and healthier lifestyles products. E.g. subway, supermarkets, M&S.

Recession or down turn in economy may affect the retailer sales, as household budgets tighten reducing spend and number of visitors.

Pressure groups - environmental.

Portors
Mcdonalds Porters Five Forces Model
Analysing McDonalds (fast food outlets) using Porters 5 Forces model sometimes called the Competitive Forces model. Introduction McDonalds Canada opened in 1967, thirteen years after McDonalds had taken the United States by storm. This was the first restaurant to be opened outside of the United States. It was in 1965 that McDonalds went public and offered shares on Wall Street. Since then it has been important for McDonalds to continually monitor its performance, to make sure it is competitive and profitable while also being aware of its immediate community responsibilities. This can be achieved by using the Porters 5 Forces model so the company is able to determine where its business needs to change or improve in order to stay competitive in the fast food industry. Using Porters competitive forces model to achieve a competitive advantage 1. Analyse McDonalds using a well known model to assess the competitive position that it occupies within its industry Porters competitive forces model includes five forces that need to be analysed. These forces include the intensity of rivalry from traditional competitors, threat of new market entrants, threat of substitute products and services, bargaining power of customers and bargaining power of suppliers (Laudon & Laudon, 2007). See diagram below;

Traditional Competitors (competitive rivalry) McDonalds traditional competitors include many of the other fast food outlets across the country, i.e. Burger King, Taco Bell, KFC, Wendys. It has been shown by Professor Michael Waterson (2004) that

the presence of a Burger King, for example, will increase the likelihood that McDonalds will open near by. Thus it can be seen that the threat of competition from traditional rivals is intense and should never be over looked. Threat of New Market Entrants There are many new market entrants emerging all the time but not on the same scale as McDonalds. Some of the newer entrants include chains of Sushi...

Threat of Substitutes, 2. Buyer Power, 3. Supplier Power, 4. Barriers to Entry/Threat of Entry and 5. Rivalry.