International Business Assignment

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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http://en.wikipedia.org/wiki/Eurozone


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/


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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 Turkey are PDI 66, IDV 37, MAS 45, and UAI 85 (figure 1.4).


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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 East Africa are PDI 64, IDV 27, MAS 41, UAI 52 and LTO 25 (figure

1.6).

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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

MBA Year2 Page 20


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

MBA Year2 Page 22


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.

MBA Year2 Page 24

http://www.environmentalgraffiti.com/businesspolitics/mcdonalds-mc-eco-friendly).The


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.

MBA Year2 Page 25


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