Business Strategic Management on McDonald’s in India Essay

1.1 McDonald Corporation worldwideMcDonalds Corporation, headquartered in Oak, Brook, US, is a unwavering diet compass naturalised by Maurice and Richard McDonalds. Since its establishment in 1940 when the company operates as a barbecue with customers queuing up for a limited service, the company has grown to become the worlds largest hamburger viands chain military service 68 million customers daily in over 119 countries. The company attains its international recognition following the purchase of a franchise right by Ray Kroc in 1955 who establish the presence of the company in other regions (Gilbert, 2009 Business Education, 2011).1.2 McDonalds IndiaMcDonalds entered India in 1996 by dint of a interchangeable venture with local firms such as Hardcastle Restaurants Private Limited and Connaught Plaza Restaurants Private Limited. However, contrary to the companys expectation, McDonalds faced some hooligan time been accepted by the consumers collectable to perhaps cultural m ismatch between the locals culture and what McDonalds represent the American culture (Habib, et al., 2011). Through its localization outline (Times Magazines, 2011 The Start Newspaper 2011), McDonalds changed its reaping menu from beef burger to lamb and vegetable burger given the large vegetable consuming population, altered its store design, reduce the fruit price by 10-15% so as to suit the customers taste and preference. This localization strategy has paid off because McDonalds has over 300 eating places in various parts of India serving over 500,000 customers on daily basis.2. Macro environment analysis in IndiaAfter long time of economic dwindling, the Indian parsimony is libertine ontogeny in recent years, thus impacting positively on the dissipated forage for thought sedulousness. For example, Subramanian, (2013) notes that Indian economy grows at 6.4% annual rate from 2002 to 2011 with an honest rate of 7.7%. This has enhanced the rise of the middle class group after years of wide gap between the rich and poor. This rising middle companionable class opens more investment potential for companies especially fast fare companies because the more income peopleearn, the more likely they would spend such on food. Also, other prevalent concept in India is the tendency to eat outside which has increased from 2-4 times a week to 4-8 times. Goyal and Singh, (2007) assert that food diversity in India is characterized by Indias diversified culture comprising diverse states. Although Indians like to have homecooked meals a concept supported religiously as well as individually, recent years has witnessed a slight shift in food use of goods and services patterns among urban Indian families toward eating outside owing to increasing awareness and influence of Hesperian culture. The rising middle class group and consumers tendency to eat outside has affected the fast food industry positively in that Nayak, (2013) notes that the India fast-food industr y grows at 40% rate and the mart range is judge to reach 70 billion rupees ($1.1 billion) by 2016.3. Micro business environment in India exploitation PESTLEThe political, economic, sociocultural, technological, legal and the environment factors influencing the India fast food commercialize is discussed here.3.1 Political factorMcDonalds and other fast food chain are expected to obey labeling and packaging regulations and wellness and safety guidelines as stipulated by the Indian government and its food regulatory bodies. This is because of the growing concerns of the health effect of consuming fast food (Ali, et al. 2011). For example, the fast food consumption has been shown to increase calorie in strike, weight gain which exposes consumers to the risk of facing diabetes. Given this, fast food is been criticized by health practitioners and consumers activists for high calorie content and Trans fat.3.2 Economic factorIndias increasing income level per month which was Rs5130 in 2 011 and Rs5,729 in 2012-2013 (The Economic Times, 2013) gives McDonalds and other fast food chains a good economic prospect for lucrativeness and weaken market performance. However, the low setup cost of fast food outlets and franchising create fast expansion in that operators keep prices low so as to attract customers (Gilbert, 2009). For example, McDonalds crackingsfinancing and training assistance for new franchisees so as to help oneself better manage their cash flow and keep business profitable.3.3 Social factorConsumers changing lifestyle offers both opportunities and challenges to the fast food operators. firearm outlets who provide healthier and more natural food menu would benefit from consumers changing eating habit to organic food, operators who do not provide healthier food options would sledding customers. For example, when McDonalds entered India, it did not realize the desired results because while over 70% Indians are vegetarians, the companys burgers were m ade with beef as other markets. Thus, the company place its produces and outlets so as to suit the consumers tastes and preferences by offering vegetarian burger and revamping the outlets design (Srikant, 2013).3.4. Technological factorTechnological advancement helps fast food companies to streamline value creation process so as to enhance efficiency (Srikant, 2013). For example, through advanced food processing technology, Help Desk Service, network and application consolidation, the operations of McDonalds in India is greatly ameliorated. Also, just-in-time order and delivery is done over the internet and TV, social media and radio are used to advertise the products and maintain customer relationship management.3.5 environmental factorThere is a growing concern about environmental issues associated with fast food consumption in India (Times Magazines, 2011). For example, fast food is said to be one of the largest consumers of paper products leading to millions of pounds of foo d packaging waste littering roadways, clogging landfills and spoiling quality of human life.3.6 Legal factorGiven the increasing environmental concerns of fast food consumption, theoperators are required by law to use environmentally friendly materials such as recyclable materials in packaging products so as to avoid wastes littering roadways and landfills (Times Magazines, 2011). Also, McDonalds in India and other firms are required to maintain graceful advertisement programs so as not to make fictitious advertising promises.4. Industry analysisIndias fast food industry is a fast growing market characterized with many players and challenges. Michael Porters cardinal forces model is used to analyze the competition level and profitability (see Figure 1).4.1 Entry barrierIndias fast food industry is a fast growing market due to increasing middle class population, changing lifestyle towards eating outside and low setup costs although major exist players such as McDonalds enjoys eco nomics ofscale and unvoiced brand recognition. This increasing market potential encourages many potential firms to enter the market. Business Wire, (2011) reports that the India fast food market grows at an annual rate of 30-35% because of increasing social class grow and consumers changing lifestyle.4.2 Existing rivalrySince the entry rate of India fast food market is high, there are quite a number of current fast food firms competing for the same customers. Given this, McDonalds, Kentucky Fried Chicken (KFC) and other competitors contest over customers through price reduction, product localization to suit tastes and preferences and revamping the outlets to be more convenient and smart. While the price war attracts more customers, it tends to reduce the profitability rate of the companies since the reduced product prices would increase production costs. Rapoza, (2012) reports that McDonalds India cuts 6-15% products prices in order to increase its customer base.4.3 Substitutes pr oductsAlthough the threat of substitute products in the fast food market is moderate, food available in foodservice, retail outlets and homemade serve as substitute products (Haberberg and Rieple, 2008). However, the convenience and family dining experience associated with eating outside on fast food outlets reduce the threat of substitute. For example, while consumers can cook at home cheaply, the lack of convenience element in homemade food increases consumers chances of eating on fast food outlets.4.4 Suppliers powerThe suppliers bargaining power is moderate in the India fast food market. This is because with the growing competitive supply chain alliances, supplier bargaining power appear to be limited (Srikant, 2013). However, the firm to enjoy higher bargaining power depends on who has a more technology control and strategy.4.5 Buyers powerThe buyers bargaining power seems moderate to high in the India fast food market. For example, the industrys competitiveness enhances consum ers bargaining power and consumers are highly price-sensitive (Muhlbacker et al., 1999) with little/no switching cost among fast food chains. But, major companies like McDonald reduce buyers power through providing product range that cater for the whole demographic, rather than focusing on a single segment. For instance, McDonalds targets children with its Happy Meals products offerings while professionals with breakfast options and take away coffee.5. Success factorsMcDonalds in India targets children, youth and the young urban family who are either vegetarians or non-vegetarians. To survive and succeed in the India market, McDonalds understand consumers needs and satisfy such needs profitability. Table 1 shows consumers needs and the determinants of the industry survival and success.Table 1 indicates that consumers needs are changing from benefits such as tastes and quantity to a more healthy food menu deliver in a clean and conducive environment at an affordable precise. The sur vival spectrum of the table is the survival factors. According to the table, fast food firms can survival the intense market competition through price naked as a jaybird sinceconsumers are price sensitive and efficiency. However, the other end of the spectrum is the determinants of the industrys success story. According to the table, firms can succeed if they differentiate base on product uniqueness and costs and designing products to satisfy local tastes and preference.6. McDonalds India and value chainMcDonalds India internal environment is characterized by purchasing raw materials from suppliers, preparing food and serving customers. Table 2 shows the value creation process of McDonalds in India. It shows the various stages and activities involved in the value creation processes. For example, McDonalds purchases raw materials from its fixed, pre-defined suppliers which are subsequently vigilant and served to customers in a clean and comfortable environment.Although Indias suppl y chain network was underdeveloped during the early stage when McDonalds penetrated the country, McDonalds has taken steps to improve the situation. The company works with local suppliers and farmers to source all its requirements. This indicates that McDonalds has over the years streamlined its business through its strategic and threshold resources to become a headstone player in the India market.7. Business-level strategyIn the companys level strategy, the issues considered are resources and capabilities, positioning approach, differentiation and costs strategies.7.1 Resources and capabilitiesWhile McDonalds resources are the reusable assets which help the company create a cost or differentiation advantage which rivals cannot acquire easily, capabilities entail McDonalds ability to use its resources effectively and expeditiously (Gilbert, 2009 Business Education, 2011). Examples of McDonalds resources include corporate brand identity such as brand image, brand reputation and bra nd equity. Other resources include strong technical know-how, installed customer base and patents and trademarks. An example of McDonalds capability is its skill in bringing a product to the Indian market faster than rivals who help the firm enjoys first-mover benefit. McDonalds resources and capabilities form distinctive competencies which facilitates innovation, efficiency, quality and customer responsiveness.A resource-based view is used to explain McDonalds resources and capabilities (see Figure 2). According to the resource-based view theory, McDonalds uses its resources and capabilities to produce a competitive advantage which subsequently yields an excellent value creation.The model indicates that McDonalds must develop a competitive advantage through resources and capabilities which are superordinate to competing products.7.2 Positioning approachMcDonalds India positions the brand through utilizing its resources and capabilities which ultimately develops into costs and diff erentiation strategies. This is aimed at delivering product benefits exceeding competing brands at let down costs. This indicates that McDonalds India positions itself in the fast food industry through its low-cost and differentiation strategies.7.3 Differentiation and costs strategiesWhile differentiation strategy entails delivering superior product benefits that exceed competing products, costs strategy entails delivering product that benefits at lower costs. This is directed at achieving a competitive advantage that would help McDonalds deliver superior value for customers and superior return for the firm. 8. McDonalds India analysisThe companys strengths and weaknesses as well as opportunities and threats are discussed here. Table 3 balances the internal and outside environment of McDonalds in IndiaTable 3 McDonalds in Indias SWOT analysisSTRENGTHSWhile there seems to be a fair balance of the strengths and weaknesses, the former outweighs the latter. This indicates that the fi rm stands a chance of utilizing its market position to become a strong force to recognize if it will convert its weaknesses into strengths. For example, McDonalds could invest in public relations to change the negative perception consumers have towards fast food so as to increase consumers brand connecter and preference. On the external environment, while the growing middle class population indicates more disposable income on fast food, the intense competition may not allow McDonalds to capture on the trend but through aggressive campaign.9. Corporate-level strategyMcDonalds Indias mission is to become consumers most dearie place to eat. The mission is designed to be achieved through its global strategy of plan to win approach by offering superior consumer experience.The company is maneuver by its operational strategic goals of lower costs, quality products delivered at quick speed in a flexible environment (Business Wire, 2011 Rapoza, 2012). For example, it serves as the costs d rawing card in the fast food market through its economies of scale and cost control mechanisms. On the quality, it provides tasty and healthy options without compromising the standard.McDonalds entered India through a joint venture with Hardcastle Restaurants Pvt. Ltd and Connaught Plaza Restaurants Private Limited who spearhead the promotion of McDonalds operations in West, South and North regions (Srikant, 2013). The relationship between foreign furnish and the locals is a interchangeable one in that human capability, marketing expertise and operational know-how are shared among the associating firms so as to achieve a mutual benefit. For example, while McDonalds uses its strong global market expertise and presence in promoting the brand in India, the two partners use their knowledge on the local have sex latter efforts.McDonalds involves both in forward and background so as to have a better control over the supply chain and logistic function of the fast. For example, McDonalds India 12diversifies into related products on the area of healthier product offering, franchising, upstream and local product sourcing. This indicates that the firm expands tap into growth potentials in the market by introducing more products-line and increase market share. This fulfills consumers unmet needs because it becomes more attractive and better competitor. Diversification gives the firm more control over market by capturing profitable opportunities and gaining access to crucial resources. However, diversification has the risk of not selling the new products or generating enough revenue to cover the investment costs.10. McDonalds India building and control patternMcDonalds India adopts decentralized management structure in its task allocation, coordination and supervision towards goal achievement. This indicates that each of McDonalds outlets in India has a restaurant motorbus who allocates, coordinates and supervises the operations so as to ensure that the sales quotas a nd performance is achieved (Business Education, 2011). However, middle-line managers and training managers assist the restaurant manager to achieve the organizational goals. While the manager and assistant managers oversea the daily running of the outlet, the delivery crew members perform basic operations such as procuring materials and preparing and packaging food menu and ensuring customers satisfaction.While the decentralized structure helps each restaurant to implement policies and strategies according to their peculiar needs and tastes, it could cause inconsistent service quality and standards among the restaurants in different regions.11. testimonyMcDonalds in India should take note of the needs and expectations of the local consumers. Thus, the following points must be considered in order to attract and increase the customer base in India.McDonalds India should offer superior value through unique product benefits at affordable price and ensure consistent service quality.The company should offer food menus comprising many options so as to suit consumers varying tastes and preferenceMcDonalds India should offer healthier menu options and enhance its brand image through spend in public relationsThe company should provide convenient and quick services to meet consumers changing lifestyles12. ConclusionMcDonalds penetrated the India market in the 1996 due to growing middle class population, changing lifestyles, and the tendency for dual partners to hold full time job. However, the company did perform well at the initial years due to cultural mismatch between McDonalds who represents the American culture and the locals who epitomizes the India culture. To achieve greater results, McDonalds revamped its store outlets, reduced price by 6-15% and product location. If the company wishes to maintain its market position in the emerging market, it must streamline its product benefits to include health concerns of the consumers.ReferencesAli, I. et al. (2011). An e xploratory study on the web-based customer relationship management in the fast-food industry in Malaysia. 2011 2nd International Conference onEconomics,BusinessandManagementonlineVol.22(14).AvailableFast foodwww.ipedr.com Accessed 13 October, 2013Business Education, (2011) McDonalds Company Facts situation Page online. Available http//www.bized.co.uk. Accessed 13 October, 2013Business Wire, (2011) Research and Markets The fast food market in India Indian fast food market is growing at the rate of 30-35% Per Annum, 04 stately online. Available http//www.businesswire.com Accessed 7 October, 2013Gilbert, S. (2009) The Story of McDonald 1st ed. 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