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McDonald’s International Business Strategy Name Institution Course Instructor’s Name Date 2 Question 1: Elements of McDonald’s strategy McDonald's Corporation strengthens its bargaining position by ensuring that its generic as well as intensive growth strategies are in line with the business needs

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McDonald’s International Business Strategy Name Institution Course Instructor’s Name Date 2 Question 1: Elements of McDonald’s strategy McDonald's Corporation strengthens its bargaining position by ensuring that its generic as well as intensive growth strategies are in line with the business needs. As a consequence, the effects of rivalry and the threats of substitutes are essentially reduced. In order to keep on expanding its share of the market, the company has instituted promotion approaches which encourage the consumption of fast-food. In addition, it keeps on enhancing the quality of its products in a bid to outmatch the competitors (Harrington, Ottenbacher, & Fauser, 2017). The food packages are lowly priced, and most of its adversaries have failed to erode the gains of such a bold cost leadership. McDonald's management’s priority is to enhance customer satisfaction. In order to realize this goal, a couple of factors which enhance competitive advantages have been identified. They include affordability, hygiene, quality, value added services, and nutrition (page 31). These key strengths are leveraged in an innovative fashion and in a manner that facilitates the overcoming of any of the firm’s weaknesses. Among the main reasons why McDonald’s has succeeded as a global brand is its policy to include local images while doing business in a particular market. The residents are prompted to have a sense of ownership, and therefore, brand loyalty is nurtured. McDonald's does also have strategic alliances with multinationals such as Coca-Cola, Wal-Mart, and Disney. The collaboration is organized in a manner that enables each firm to seek its goals autonomously while also gaining unprecedented access to huge customer bases their partners have (Puspaningrum, 2020). In regards to human resource management, McDonald’s has sought to nurture a culture that makes it the most appealing employer in any market where it has operations. Depending on how best this objective can be achieved, restaurants are either run 3 as corporate entities or by franchises (page 35). The positive working environment is also coupled with the management’s commitment to corporate social responsibility. Question 1, b: Value Chain Activities and how They Match the Company’s Strategy McDonald’s has a unique collaboration with its distributors, suppliers, and other external stakeholders. First, it maintains diverse networks in order to enhance reliability and to counter their bargaining power. As a consequence, their influence on the company’s policy is limited. The competitors are left at the mercy of their external stakeholders, and this undermines their independence. They are unable to, for instance, invest as much as they would wish on research and development; and this is because the costs of running their businesses is high. McDonald’s marketing approaches are culturally relevant, and they are coupled with effective communication. The latter is deemed to be important as it is how the organization shares its brand’s story, while cultural relevance precipitates responsiveness (page 31). The company is also keen on sharing the kind of information that investors may find worthwhile (page 37). The clients regard the products as their own as they portray features which seem familiar. By either owning the parcels of land from where it operates or through long-term leases, McDonald’s convinces the external stakeholders to perceive any potential partnership as sustainable (page 36). The leaders can extend credit facilities at reduced rates as suppliers choose continuance over quick gains as they negotiate with McDonald’s. Such advantages enable it to offer goods at prices much lower that most rivals can afford. McDonald’s strong negotiating position gives it access to competitively important, yet affordable, capabilities and resources. It has the financial resources to make suppliers believe that it can contribute to their growth. This is a remarkable strength, and it does help McDonald’s 4 to attract strategic suppliers. The organization forms a dyadic relationship with the parties providing invaluable raw materials and, therefore, ends up getting supplies of high quality in time. McDonald’s main objective is to satisfy the needs of the consumers. Consequently, the management is keen on the changing expectations, the competitive landscape, as well as the macro trends. The company does also assess the launches or developments which have succeeded elsewhere, and seek to determine if the same favorable results can be achieved. In essence, therefore, McDonald’s feasibility studies are exhaustive; and it is what enables it to continue dominating the fast food industry. Among the most recognized strategic alliances is one between McDonald’s and The Coca-Cola Company. Coca-Cola embraced the idea after it emerged that the two organizations shared the mission to expand (Puspaningrum, 2020). They have grown together over the years; and based on this success, McDonalds has forged several other alliances with reputable brands. A new entrant that is relatively unrecognized and has limited financial capability would not be in a position to make similar trading arrangements, and hence McDonald’s has a competitive edge. McDonald’s offer stock purchase plans to its workers and according to Puspaningrum (2020), this strengthens the employer-employee relationship as the latter appreciates the fact that their long-term interests are being recognized. Through this strategy, McDonald’s has managed to retain honest and talented members of staff. Among other benefits include flexible working arrangements, and training on nationally recognized skills. Only a handful of rivals can afford similar perks, and hence McDonald’s is bound to retain top talents. As part of its corporate social responsibility (CSR), McDonald’s is committed to reducing, reusing, as well as recycling as much waste as possible. All franchisees and external 5 partners are required to pledge to work towards reducing their carbon footprint. As a consequence, they become McDonald’s green ambassadors, and hence the benefits of the company’s environmental friendliness are enjoyed across the world (page 5). Most rivals are still struggling to stabilize their bottom line, and a significant number of them have neglected CSR. This makes it difficult for them to endear themselves to the communities where they operate. Localizing operations and having outlets being managed by natives makes it easy for McDonald’s to recognize and capture emergent opportunities. Other firms miss such chances due to their complicated bureaucracy. Before an idea is shared, discussed, and approved, such a firm tends to have lost the first-mover advantage. With McDonald’s, however, local managers have adequate discretion to capitalize on the unfolding trends. Question 2: VRIN test and the current McDonald’s strategy McDonald's has a maintainable competitive advantage, and this is based on the manner in which it exploits its capabilities and resources it has in its disposal. The company was founded in 1955, and hence it has six and a half decades of experience in the fast-food industry (Dolnicar, Grün, & Leisch, 2018). With time, the management started to collaborate with partners who have the capacity to prop-up McDonald’s business endeavors. Among them are financial institutions, and arrangements of this nature means that it usually have a steady source of cash to invest. During financial meltdowns, however, such resources tend to be scarce. The technology policy of McDonald’s is relatively similar to those of rivals, and this is why it is deemed to have achieved competitive parity. Therefore, its competitiveness is as a result of such other resources as physical premises (page 36). As most rivals rent buildings, for instance, McDonald’s prefers to own them instead. This helps it save huge amounts of money which would be paid in rents on a monthly basis. 6 McDonald’s real strength is in organizational resources, and these include its workers, brand reputation, as well as innovation and creativity. The company hires the best talents, and still invests a significant amount of money developing them in readiness to their long careers. Some of the strategies employed by McDonald’s are not imitable, and they actually cost a lot more than rivals could afford. So is the case with creativity and innovation, which is in part facilitated by allowing the members of staff adequate discretion to tryout their ideas. This capacity is further strengthened by the fact that management is remarkably decentralized. Even though franchisees must remain within the limits of the corporate policy, there is still enough room to come up with approaches to exploit specific markets. McDonald’s passes the VRIN test because several of its resources are unique traits hard to be copied by rivals. In essence, it is a sustainable business organization that has the capacity to overcome short-term challenges. Question 3: Generic business, corporate, and global strategies According to Michael Porter, a company can gain competitive advantage through differentiation, cost leadership, and focus. McDonald’s has cost leadership as the money spent on producing a unit of sale is a lot lower than those of rivals. Consequently, the organization still makes high profits in spite of the fact that the hamburgers and sandwiches are offered at a much lower price than those of the competitors (Amir & Ghitti, 2020). Moreover, the amount of money made helps the firm to remain afloat when there is a slow business industry-wide. Although few rivals have embraced McDonald’s strategy of localization of operations, the organization has embraced this route as it gives the stakeholders in local markets a say over what is sold in their own localities. This approach works best as McDonald’s hires natives to manage branches in markets across the world (page 13). Yet another way that McDonald’s has 7 managed to wade off rivals is through segmentation and remaining focused on identifying the opportunities the sectors present. Clients in each portion of the market are supplied with goods matching their aspirations. McDonald’s corporate strategy McDonald’s is focused on the long-term, and this is particularly on increasing the shareholder value. It is also keen on improving sales as this is the only way that it will have the financial resources needed to accomplish other objectives. This is the essence of seeking consumer satisfaction as contented clients tend to return and eventually become loyal. Every employee is made to understand that their views and actions matter as far as the implementation of the laid-down procedures is concerned (page 4). The corporate office’s main role is to set policies, and the subsidiaries are encouraged to gather, analyze, and make use of information which is particular to their markets. Global strategies There are a couple of markets where McDonald’s failed, and these include Macedonia, Barbados, and Iceland (Ceil, 2017). The management is eager to learn from these blunders so as to increase the probability of success in the future. Even though franchisees are allowed broad discretion to run their own units as the situations demand, McDonald’s perceive the entire world as one huge market. Indeed, there are limits beyond which local variations cannot exceed. This is meant to ensure that the uniqueness of the brand is sustained such that an individual would recognize McDonald’s products in every market they travel. Question 4: Issues related to the case 1. Unexpected changes 8 There have been instances when McDonald’s has made drastic changes due to such unforeseen challenges as the COVID-19 pandemic. Stock prices fall when these stakeholders think that the future of the organization is imperiled. This kind of development may undermine the company’s financial position and weaken its bargaining power. Suppliers, for instance, may fear dealing with a firm that could fail to meet its financial obligations. 2. Obstruction of franchisees Some of the franchisees operate in intensely competitive markets, and they are always faced with threats of substitution. In a number of instances, the corporate policy has been deemed to be too restraining to allow these partners to respond appropriately and in time (page 35). If their observations continue to be ignored, McDonald’s could lose business in some of the regions of the world; and hence this is a matter of urgency. 3. Clients having significant bargaining power It is noteworthy that even though McDonald’s has a large base of loyal customers, any upwards review of prices causes them to abandon the brand. They, therefore, have enough power to influence long-term policies. If this issue is left unchecked, McDonald’s could lose business opportunities in the future, and hence have its lead diminished in a remarkable manner. Question 5, a: New strategic elements recommendations McDonald’s must avoid drastic changes as there are investors who get concerned by them. In case there are unforeseen environmental changes, the company should lead the way in evolving in a manner that accommodates the unfolding events. Innovation ought to be accelerated throughout the regions of the world where the company operates. It should, for instance, exploit digital platforms which have the capacity to enhance customers’ experience as well as save them time (page 30). 9 While franchisees have been allowed some room to exercise their judgement in regards to the day to day running of their outlets, a number of them have found some of the policies to be derailing. Indeed, they have complained that the changes required by the corporate office have tended to undermine profitability. Consequently, the business strategy needs to be revised based on the suggestions made by the stakeholders on the ground. In essence, McDonald’s must allow for flexibility as opposed to always seeking consistency (page 31). McDonald’s consumers have high price sensitivity, and this means that any raise has tended to dissuade them from making purchases. Even though the company has signed contracts with reliable suppliers, there are several instances when the cost of raw materials rises remarkably. McDonald’s must invest in research in order to determine the factors which cause clients to react negatively to any adjustment in prices (page 30). Question 5, b: Mitigating threats and capitalizing on opportunities McDonald’s ought to ensure that its main stakeholders have confidence in the way the organization is being run. That way, they will continue availing the resources needed to expand and innovate. As the stakeholders on the ground and hence ones who understand the precise needs of the clients, the views of the franchisees must be solicited and incorporated in any future reforms. The company should take advantage of the broad network of players to acquire knowledge in a fashion that smaller rivals cannot. This approach is bound to solidify its competitive advantage as the corporate office will be making fact-based choices. Question 5, c: The change of business, corporate, and global strategies The strategic elements do not necessarily change the overall business, corporate, or global strategies. McDonald’s still has a superior plan of action. If it does not keep on improving, however, rivals are likely to catch up and hence threaten the organization to a significant extent. 10 Being open to improvement will compel the management to pay close attention to the emergent trends, and to determine how best the firm should react to them. Question 5, d. Achieving competitive advantage The new elements are primarily geared towards improving organizational resources. The role played by the human resources on the ground is enhanced significantly, and this results in them being rare. This is not the case as per the present VRIN test. The aspect of innovation will also change when these individuals are allowed adequate room to exercise their informed judgment. In addition to these two improvements, the confidence that the new elements will imbue will help McDonald’s have more access to financial resources. This is because the investors will have more confidence with the management, and hence avail funds readily. McDonald’s competitiveness will rise, and hence eliminate the possibility of losing markets to rivals. 11 Appendices Appendix A: Page numbers from the 10K Page Quote number 4 “Marketing, promotional and public relations activities are designed with customers in mind and are focused on promoting the McDonald’s brand and differentiating the company from its competitors.” 5 “The company prioritizes progress across a range of environmental matters, and endeavors to improve our long-term sustainability and resiliency, which benefits McDonald’s and the communities it serves.” 13 “The company’s heavily franchised business model is designed to generate stable and predictable revenue, which is largely a function of franchisee sales and resulting cash flow streams.” 30 “Our ability to build upon our strengths and advantages also depends on the impact of pricing, promotional and marketing plans across the system, and the ability to adjust these plans to respond quickly and effectively to evolving customer preferences, as well as shifting economic and competitive conditions.” 30 “If we are unsuccessful in addressing adverse commentary of perceptions, whether or not accurate, our brand and our financial results may suffer.” 31 “We encounter differing cultural, regulatory, geopolitical and economic environments within and among the more than 100 countries where McDonald’s restaurants operate, and our ability to achieve our business objectives depends on the system’s success in these environments.” 31 “The benefits of our more heavily franchised structure depend on various factors including whether we have effectively selected franchisees, licensees and/or affiliates that meet our rigorous standards,” 35 “A substantial number of McDonald’s restaurants are franchised to independent owners/operators and developmental licensees under contractual arrangements with the company.” 35 “In the course of the franchise relationship, occasional disputes arise between the company and its current or former franchisees relating to a broad range of subjects including, but not limited to, quality, service and cleanliness issues, menu pricing, contentions regarding grants or terminations of franchises, alleged discrimination, delinquent payment of rents and fees, and franchisees claims for additional franchises or renew of franchises.” 36 “The company owns and leases real estate primarily in connection with its restaurant business.” 37 “Financial and other information can also be accessed on the investor section of the company’s website at www.investor.mcdonalds.com.” Appendix B: Additional references used Amir, E., & Ghitti, M. (2020). Financial analysis of mergers and acquisitions: Understanding financial statements and accounting rules with case studies. Springer Nature. 12 Ceil, C. (2017, June 9). Service quality and branding strategies at McDonald’s. SSRN. http://dx.doi.org/10.2139/ssrn.2984100 Dolnicar, S., Grün, B., & Leisch, F. (2018). Market segmentation analysis: Understanding it, doing it, and making it useful. Springer. Harrington, R. J., Ottenbacher, M. C., & Fauser, S. (2017, January 9). QSR brand value: Marketing mix dimensions among McDonald’s, KFC, Burger King, Subway and Starbucks. International Journal of Contemporary Hospitality Management, 29(1), 551570. https://doi.org/10.1108/IJCHM-06-2015-0300 Puspaningrum, A. (2020, December 30). Social media marketing and brand loyalty: The role of brand trust. The Journal of Asian Finance, Economics and Business, 7(12), 951-958. https://doi.org/10.13106/JAFEB.2020.VOL7.NO12.951 Appendix C: Value chain chart How does your company create value for the customer? What challenges does it have in its value chain? Strength or Weakness Inbound logistics (distribution facilities, material control systems, warehouse layouts) By maintaining a network of reliable partners, and having superior systems in place. Strength Operations (efficient work flow design, quality control systems) By localizing its operations as much as possible. Strength Outbound logistics (consolidation of goods, efficient scheduling, finished goods processing) Products are manufactured as close as possible to their end consumers. This eases the complexity of outbound logistics. Strength Marketing and Sales (motivated sales people, innovative advertising & promotion, effective pricing, proper ID of customer segments & distribution channels) McDonald’s has succeeded through the effective application of market segmentation. Segmentation criteria is based on income, gender, and age; and it enables the company to exploit every section optimally. Strength Value chain activity Primary Activity: 13 Service (ability to solicit customer feedback & respond). McDonald’s solicits clients’ feedback, and makes improvements based on those suggestions. Indeed, McDonald’s goal is to make the clients happy (page 4). Strength Secondary (or support): Procurement (win-win relationships with suppliers, reduced dependence on single supplier) McDonald’s has avoided being overly reliant on a single supplier, and this gives the firm a significant amount of bargaining power. Strength Technology development (state of the art hardware & software, innovative culture & qualified personnel). McDonald’s is leading the way in the adoption of novel pieces of technology, and this is particularly important as it helps in information sharing (page 37). Strength Human resource management (effective recruitment, incentive & retention mechanisms) Once McDonald’s has hired talented individuals, it helps them advance their careers through regular training and by instituting various empowerment programs. Strength General Administration (effective planning systems to establish goals & strategies, access to capital, effective top management communication, relationships with diverse stakeholders) Management is localized, and hence the approaches adopted are suited to the particular market in question. The corporate office is left with policy guidelines. Strength Appendix D: Resources and capabilities chart TANGIBLE RESOURCES Financial Physical Technological In spite of the effects of COVID-19, McDonald’s still managed to accumulate revenue amounting to over $19 billion in 2020 (page 13). The company acquires or leases premises based on the specific needs (page 36), and these decisions are made on the basis of careful feasibility studies. McDonald’s is keen on utilizing the pieces of technology which enhance the experience of their consumers. 14 Organizational Capabilities INTANGIBLE RESOURCES Human The firm is highly adaptive. McDonald’s endeavors to hire an adequate number of qualified personnel, and they are offered competitive benefits in order to persuade them to stick with the firm. The company’s innovativeness has been a significant enabler of its resilience. Even though the franchisees are autonomous, they are still expected to meet rigorous standards, including those pertaining to corporate social responsibility (page 5). Innovation and Creativity Reputation Appendix E: VRIN chart Implication choices includes: Competitive disadvantage Competitive parity Temporary competitive advantage Sustainable competitive advantage RESOURCE VALUABLE (Y/N) RARE (Y/N INIMITABLE ( Y/N) NONSUBSTITUTABLE (Y/N) IMPLICATIONS FOR COMPETITIVENESS Tangible Resources: Financial Y N Y N Physical Y Y N Y Technological Y N Y N Temporary competitive advantage Sustainable competitive advantage Competitive parity Organization al: Intangible Resources Human Y N N Y Y N N Y Y Y N Y Innovation & Creativity Reputation Sustainable competitive advantage Sustainable competitive advantage Sustainable competitive advantage Conclusion: Instead of focusing on stopping the rivals from copying its strategies, McDonald’s has opted to concentrate its resources on innovation. It has a complicated marketing mix, and few rivals have what it takes to imitate a significant part of it. While its locations are not unique, the company understands their utility. The advantages they have are exploited optimally, and in a fashion that is unmatched by the rivals. The most 15 noteworthy aspect is that McDonald’s own most of these parcels of land, or have long-term leases. The brand name may be hard to imitate, but competitors have sought to copy the hamburgers and sandwiches. Although some allege to have far superior products, McDonald’s still maintain its dominance as it has acquired and retained a high number of loyal customers over the years. It has nurtured a unique relationship with the clients, and this is a unique strength which is difficult to erode. Appendix F: Porter’s 5 force model 1. Threat of competition 2. Moderate-High 3. This is a threat because several other firms can make sandwiches and hamburgers. While it could hasten market saturation, most of the McDonald’s loyal customers are likely to stick with it. 1. Threat of new entrants 2. Moderate 3. Competing with a brand like McDonald’s will require a huge investment, and it would also take a significant amount of time to build the reputation. 1. Threat of substitutes 2. Low 3. There are many players who make sandwiches and hamburgers, but few can match the McDonald’s marketing mix. 1. Bargaining power of the consumers 2. Moderate 3. McDonald’s is already offering products at some of the cheapest prices in the market. 1. Bargaining power of the suppliers 2. Moderate 16 3. McDonald’s has diversified its sources of raw materials. No single supplier has the power to cause a drastic increase in the price of these supplies. Appendix G: Barriers to entry chart Economies of Scale Yes or No Yes Product Differentiation Yes Capital Requirements Yes Switching Costs Yes Distribution Channels Yes Cost Advantages Independent of Scale Yes Government Policies No High Fixed Costs Yes High Exit Barriers No Explanation Through mass production, the unit cost of a unit is significantly lowered. Economies of scale are also achieved by localizing the production endeavors, something that many competitors are unable to do. In order to appeal to the local communities, McDonald’s offers regionalized menus. This is a remarkable strategy through which it differentiates itself from the rivals. Opening an outlet costs hundreds of thousands of dollars, and a new entrant may not have such an amount of money. Due to an effective economies of scale, most rivals are unable to lower the cost of their products to the same extent as McDonald’s. Firms which succeed in the restaurant industry tend to have diverse and complex distribution channels. For this to happen, their partners must be convinced of their credibility, and this takes a lot of time. In addition to know-how, a new entrant would require possession of proprietary technology and promising access to materials. Government policies and legal requirements apply equally to all players. A new entrant may not secure as much financial resources as McDonald’s can. Firms in the restaurant industry tend to exit the market with high frequency.