Impact of Globalization on McDonalds

Impact of Globalization on McDonalds Globalization is a difficult term to be defined. This is because it means different things to different people. However in general, globalization refers to the trend toward countries joining together. According to Frost (2010), globalization refers to the worldwide phenomenon of technological, economic, political and cultural exchanges, which are brought by modern communication, political choice, transportation and legal infrastructure. These are used to open cross-border links among countries all around the world in international trade as well as finance. Globalization is also a term used to describe how people interact with one another economically, politically, and culturally (Frost, 2010). What is McDonalds? McDonalds is the world largest chain of fast food restaurant that were founded in May 15th, 1940 by Richard and Maurice McDonald in San Bernardino, California. However, McDonalds Corporation was founded in April 15th, 1955 by Ray Kroc in Des Plaines, Illinois. There are more than 31 000 McDonalds restaurant all around the world. Among them, 26 216 restaurants are franchises, 19 020 are operated by conventional franchisees, 3 160 by development licensees, and 4 036 are operated by the company itself (McDonalds, 2009). McDonalds headquarter is located in Oak Brook, Illinois, United States. McDonalds is a fast food restaurant that offers a wide range of products to its customers. Among them are hamburgers, French fries, chicken, milkshakes, coffee, soft drinks and many more. However, in some countries, McDonalds has come up with several products in order to tackle its customers in the country. For example, McDonalds is offering Maharaja Mac in India, Terayaki burger in Japan, and Croque McDo in France. As a successful company, besides its US$ 22.6 billion revenue and US$29.2 billion assets, manpower asset also play an important part in obtaining McDonalds success. Other than Jim Skinner as the chairman and CEO of McDonalds Corporation, there are 1.7 million of employees that have been hired by McDonalds to operate its business all around the world. Due to globalization, McDonalds can start its business is other countries without any hassle. Since its corporation in 1955, McDonalds has successfully operate more that 31 000 restaurants in 117 countries worldwide (McDonalds, 2009). Besides the United States, other countries that McDonalds is operating in are India, Malaysia, Indonesia, China, France, United Kingdom, and many more. Due to this, McDonalds had become well-known in most of the countries in the world as one of the biggest fast food chain in the world. McDonalds SWOT Analysis SWOT stands for Strengths, Weaknesses, Opportunities, and Threats. SWOT Analysis refers to a tool used by a company for auditing it organization and environment (MarketingTeacher.com, 2010). It is the first stage in planning and it also helps the marketers to focus on the key issues (MarketingTeacher.com, 2010). It is used to analyze a companys strengths, weaknesses, threats, and opportunities in the market that they operate in. By analyzing McDonalds SWOT, McDonalds strengths can be identified and changes can be made to overcome it weaknesses. On the other hand, by analyzing McDonalds opportunities and threats action can be taken to improve McDonalds services in the future. Below is the SWOT analysis of McDonalds Corporation. Actual impacts of globalization on McDonalds As a successful and a fast-growing company in a globalized world today, there are number of globalization impacts that McDonalds has to face in order to succeed. Those impacts can be divided into two categories; positive impacts and negatives impacts. Positive impacts are those forces that can help McDonalds to move forward in the industry and on the other hand, negative impacts are those forces that can slowdown its operations. Thus, without a proper and effective decision-making plan made by the managers, these impacts will lead to McDonalds failure in the future. In determining the impacts of globalization on McDonalds, PESTLE Analysis has been used to identify the factors that have caused the impacts. PESTLE stands for political, economic, sociological, technological, legal and environmental. The information obtained from this analysis are used to guide McDonalds management in their decision-making process as well as their future planning process. Positive impacts One of the positive impacts of globalization to McDonalds is due to the economical factor. According to CIPD (2010), economic factor refers to what is happening within the economy such as economic growth, cost of living, rate exchange and interest rate. As the economy is rapidly booming in Asian countries, this has affected McDonalds business in various ways. The table below shows the number of McDonalds restaurants that operate in Asian countries. From 2000 to 2010, with an average quarterly GDP growth of 1.29 percent, Indonesias gross domestic product (GDP) has expanded at an annual rate of 3.45 percent in the last reported quarter (TradingEconomics.com, 2010a). This happened because as the largest national economy in Southeast Asia, government of Indonesia plays a significant role by owning more than 164 state-owned enterprises and at the same time, they also control the prices of several basic goods such as fuel, rice, and electricity (TradingEconomics.com, 2010). As the economy in the country is growing, McDonalds has taken this opportunity to expand its business in the country. From the table above, there are only 75 McDonalds restaurants available in Indonesia compared to 1 restaurant in Brunei. This happened because of the economic growth and the government proposal to increase the employment rate in Indonesia. With this decision made by McDonalds, it has not only increases their reputation in the country but also has decreased the unemployment rate in the country from 9.75 percent in January 2007 to 7.41 percent in January 2010 (TradingEconomics.com, 2010b). Another positive impact of globalization to McDonalds is due to the technological factor. Technological factor refers to what is happening technology-wise which can impact what a company do (CIPD, 2010). As new technologies are continually being developed, changes are made by McDonalds to improve its performance in the industry. According to EngineeringTalk.com (2010), McDonalds has decided to use Echelons LonWorks technology produced in San Jose, United States to meet its goal which is to lower energy consumption and at the same time increase its operational efficiency. McDonalds is encouraging its kitchen equipment manufacturers to include this technology in new equipment for its restaurants (Environmentalleader.com, 2010). McDonalds Vice President of Corporate Responsibility, Bob Langert, says that the technology will enable their franchisees to create a working environment which is easier to operate, facilitate preventive maintenance and provide new services and at the same time save the energy (EngineeringTalk.com, 2010). It also said that with the presence of Echelons power line networking technology, McDonalds can provide communication and data exchange between various pieces of kitchen equipment in its restaurants and this is to allow the development of business process improvement applications, manage energy use, and reduce maintenance costs (EngineeringTalk, 2010). In a globalized era today, import and export between countries are becoming easier (reference). This is because Therefore, Echelons power line networking technology which was produced in San Jose, United States can be accessed by countries such as India, Philippines, Hong Kong, Taiwan and Singapore easily. As a result, besides benefiting McDonalds financial, this will also increases the countrys FDI rate. Besides economical and technological factor, sociological factor also plays a role in pushing McDonalds in the industry. Sociological factor refers to what is occurring socially in a market in which a company operates in (CIPD, 2010). Sociological factor includes population growth rate, health consciousness, cultural norms, and career attitudes (CIPD, 2010). Negative impacts In contrast to positive impacts, negatives impacts are those activities that can decrease the level of competitiveness of a company in a particular market. However, by making the right decision and action, negative impacts can bring advantages to the company. Similar to positive impacts, negative impacts are also happen because of PESTLE (politics, economics, social, technology, legal and environment) factors. One of the biggest negative impacts of globalization to a fast food restaurant like McDonalds is due to the sociological factor. As mentioned earlier, sociological factor is one of the six external influences that a company has to cope with in order to compete in the market effectively (Wall, et.al., 2010). As a fast-growing company that has franchisees all around the world, McDonalds has also decided to expand its business to India. However, for a country which 20% of its population are vegetarian and around 82% does not eat beef, McDonalds might face problems in attracting its customers. This is because they are either vegetarian, cow- worshipping or non-beef-eating people (Kannan, 2006). Hence, as the worlds largest beef-based food chain, McDonalds may face difficulties in setting up a business where most of its residents do not consume beef. After realizing the problem that they might face, McDonalds has decided to modify its menu to suit the locals needs. Besides Indianizing its menu, McDonalds also offers several products that are only available in India. They are the Maharaja Mac, McAloo Tikki, and McVeggie. Maharaja Mac is the substitute of hamburger which is made from a 100% ground lamb burger that is served with lettuce, tomatoes, special sauce, cheese, onion and pickles on a sesame bun. On the other hand, McAloo Tikki and McVeggie are the products offers by McDonalds with a 100% pure veg stamp on them to the Indians (Kannan, 2006). In addition, to avoid from offending Indias vegan sensibilities, McDonalds strictly segregated it foods into vegetarian and non-vegetarian lines and even the mayonnaise has no egg in it (Harding, 2000). Today, there are more than 58 McDonalds restaurants that are successfully operate in India and according to a study that has been made, McDonalds revenue has increased 50% annually since 1997 (Kannan, 2006). According to the statement above, it shows that McDonalds has successfully overcome the problem that they are facing in India by adapting its local culture. At the same time, McDonalds has also increases its sales revenues and the Indians awareness on the presence of the McDonalds in the world. Besides the social factor, another negative impact of globalization has brought to McDonalds is due to the economical factor. In a globalize era today, besides the existing competitors such as KFC, Wendys and AW, there are numbers of potential entrants has joined the industry. This has led to a rapid growth of fast food restaurant all around the world. Hence, as one of the biggest fast food restaurants, the problem that McDonalds has to face is on how to attract more customers to consume its products. The reason is that, with more fast food restaurants available, consumers can make decision on which fast food restaurants products to be consumed according to their choices. In order to overcome the problem stated above, McDonalds has decided to do a limited time promotions that can attract its existing as well and the new customers. In Malaysia, one of the promotions that McDonalds has came up with to overcome the problem is by offering the McValue Lunch package. According to McDonalds (2010a), the McValue Lunch offers 10 most favourite menus among customers with a cheaper price from 12pm to 3pm every day. The price range for a set of McValue Lunch which includes a French fries as well as carbonated soft is between RM5.95 to RM8.95 per set (McDonalds, 2010a). As a result to the promotion done by McDonalds to attract more customers, today there are more people consumed its products since the promotion was introduced in February 2009. Another negative impact of globalization that McDonalds has successfully overcome is due to the legal factor. According to CIPD (2010) legal factor refers to what is happening with changes of legislation. Legal factor may affect the employment, imports/exports, quotas as well as resources of the country that a company have to deal with. One of the legal problems that McDonalds have to face is the religious law. For McDonalds to operate in an Islamic country, one of the laws that McDonalds has to face is the religious law. This law does not only apply in Malaysia but all Islamic countries all around the world. According to the religious law in the Malaysia, all restaurants that operate in the country have to have HALAL certificates that are produced by Jabatan Agama Islam Malaysia (Jakim). With this standard for foods, it shows that all the products produced by the company are not only 100% free from pork but it also covers the production, preparation, handling and storage of the food. Besides that, with this certificate it shows that the foods produced are safe to be consumed, hygienic and healthy for consumers (Hayati, et.al., 2008). Besides that, an Islamic country like Malaysia, McDonalds have decided to call its hamburgers as Beefburger to avoid the word ham. This is because ham is the thigh of the hind leg of certain animals, especially a pig (FreeDictionery.com, 2010). As a Muslims country with 60.4% of its people are Muslims (NationMaster.com, 2010), hamburgers are called Beefburger to show that the burgers are not made with pork and to avoid misunderstanding between the population in the country. Potential Impacts of globalization and strategies to overcome them Besides all the impacts that have been discussed above, there are still other impacts that McDonalds might have to face in the future. As similar to the impacts mentioned earlier, McDonalds potential impacts of globalization are also due to the external influences towards the company and decision has to be made to overcome them. One of the potential impacts of globalization to McDonalds is due to the economical factor. As the economy in China is growing rapidly, China is also experiencing a food inflation crisis. According to Fullick (2010) a report cited that the rapid food price increase is the main economic problem faced by the country at present. Fullick (2010) also says that food, which makes up about a third of Chinas consumer price index has increased by 10.1 percent compared to non-food items which increased just by 1.6 percent. As KFC and Pizza Hut kept their price unchanged, McDonalds has taken their first step in overcoming the food inflation crisis that are facing China by raising its menu prices by 0.5 yuan to 1 yuan per item (Kwok, 2010). McDonalds (China) Co Ltd spokeswoman said that the adjustment was made because some of the materials prices have increased due to the food inflation. As a number of analysts believe that Chinas GDP is not just slowing but could also dries up its exports, McDonalds which had 1 135 stores in China has ignore all that and planning to open about 500 restaurants in China in three years time (McIntyre, 2009). The reason is that, McDonalds is optimistic about the business prospects in China and for a company that has the balance sheets and cash flows to take the risk, McDonalds sees this downturn as an opportunity to push itself into a new market. Based on McDonalds point of view, as Chinas economy recovers, they have already taken market share in a country that is bound to see relatively rapid population growth and relatively strong GDP over the next several decades (McIntyre, 2009). Another potential impact of globalization to McDonalds is due to sociological factor which is health consciousness. As mentioned by Ronald McDonald (2004), Sugeon General David Satcher has said that fast food is a major contributor to obesity epidemic. With this statement, it has been agreed that fast food may cause obesity and overweight among people. According to figure 1.1 below, number of American adults that are facing obesity as well as overweight has increased since 1973. The statistic shows that since 1973 to 2009, number of obese in America has increased by 20 percent which make the number of obese adults in America today to be more than . people (reference). On the other hand, figure 1.2 shows the number of French adults that are facing obesity has also increased since . As a conclusion, with the evidences given above, due to the increase of fast food restaurants, number of obesity cases has also increased all around the world. As people all around the world are becoming more aware about their health, McDonalds might lose its customers and this will lead to a decrease of its sales revenues. Hence, strategies need to be done by McDonalds to avoid this issue from spreading and resulting to its failure in the future. One of the strategies that can be done by McDonalds is by offering more healthy food to the customers such as salad. Even though the menu offered by McDonalds today have a high nutrition value for a balance life, by offering variety of healthy food will attract the health conscious customers to consume its products. By doing so, it will not only increase McDonalds reputation but it will also decrease the obesity rate all around the world. Conclusion As a conclusion, globalization does influence a company performance in the industry that they are venturing in. These influences can either bring a good impacts or bad impacts to a company. Thus, for the company to succeed in a globalized world today, proper planning and decision-making has to be made by the company to overcome all of the negative impacts caused by globalization. As one of the major company in the fast food industry, McDonalds has been affected by globalization in many ways. However, due to the critical thinking and decision-making made by its manager, McDonalds has successfully overcome all the obstacles and this has increase their reputation in the eye of the world.