The Global Business Strategy of

McDonald and how it reached

All the Corners of The World at
Lesser Cost


This report presents how McDonalds has achieved enormous
success, its best practices in the global food industry,
international growth trends and effect on its operating income
and number of increasing restaurants across the globe from
their expansion in foreign countries.







GHAN SHYAM RATHI
10/23/2013

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The Global Business Strategy of McDonald and how it reached All the
Corners of The World at Lesser Cost



Submitted to: Submitted by:
GHAN SHYAM RATHI
Ashu Jain MBA-IB
A1802012051




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ACKNOWLEDGEMENT



I express my sincere gratitude to my faculty guide Mr. ASHU JAIN of
AMITY INTERNATIONAL BUSINESS SCHOOL, for his able
guidance, continuous support and cooperation throughout my project,
without which the present work would not have been possible.


Also, I am thankful to my institute, for giving me an opportunity to broaden
my knowledge on the global companies and their success strategies by
providing me a research topic The Global Business Strategy of
McDonald and how it reached All the Corners of The World at Lesser
Cost.
.







GHAN SHYAM RATHI







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TABLE OF CONTENTS

S.NO CHAPTERS PAGE
NO.

1.

Abstract


4

2.

Research Objectives


5

3.

Research Methodology


5

4.

Introduction


6

5.

Review of Literature


7

6.

Data Analysis and Interpretation


8

7.

Conclusion


24

8.

Bibliography


25

9.


Plagiarism Report







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ABSTRACT
The McDonalds Corporation is one of the most successful global restaurant chains around the
world. They have used effective management and global expansion strategies to enter new markets
and gain a share of the foreign fast food market. This report presents how McDonalds has achieved
this enormous success, its best practices in the global food industry, international growth trends and
challenges, and effect on its operating income and number of increasing restaurants across the globe
from their expansion in foreign countries. Overall, the case provides a discussion of how
McDonalds enters into a foreign market and what strategies it uses in order to be a dominant leader
in the fast food industry at low cost. This case focuses on McDonalds international success, and
strategies and benefits that it got from the franchise business.

















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Objectives of the Study
The primary objective of the research will be to understand various global business strategies
adopted by McDonald.
The other objectives are:
1. To find how these strategies are influenced by the external environment.
2. To find out the growth pace of McDonald around the world.
3. To study the advantages of Franchise business and its impact on McDonald.



Research Methodology

The report is based on exploratory research based on secondary data such as reviewing
available literature and/or data.

Data Sources
Secondary Sources:
Research Papers and Case Studies: HBR and Other University Management
Institute Research & Case Journals.
Articles from Business Magazines: Bloomberg, The Economist, Fortune &
Forbes
Publications by Global Consulting Firms: Mc Kinsey Quarterly & Other MCK,
and O&M Publications
International Business References: The McGraw Hills International Business















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INTRODUCTION

Although there has been considerable examination of the perceived global success of McDonald, I
have included in my report, apart from the global strategies McDonald has used in entering new
markets and shutting down the rivals business, how it gained advantage by selling franchise.
Knowing the external environment is crucial for the success/downfall of any business corps, how
McDonald is impacted due to the several environmental factors across globe.

The report throws light on the growth pace of the company right from its birth. It will benefit any
reader in understanding McDonalds success. Through this report, the operating profit of McDonald
is highlighted in terms of its franchise business and own restaurants. It also shows the number of
increasing restaurants across the continents.

The next section incorporates a review of the literature and presents the research problem. Then, the
methodology used to conduct the study and the findings are explained. Lastly, the theoretical and
practical ramifications of this study are discussed followed by conclusion.



























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Literature Review
Internationalization theory, which is the prominent theory in international business regarding how
firms expand overseas, is a behavioral theory that suggests that firms minimize the uncertainty
associated with going abroad by doing so only gradually, starting with modes of entry that involve
little commitment, such as exporting, and only increasing their involvement in those markets where
they have found success (Johansen & Vahlne, 1977 and 1990). This view of international
expansion is not inconsistent with the options value approach, where firms also commit resources
only gradually and thus have occasion to update their evaluation of different opportunities.
Internationalization theory, however, with its focus on risk aversion, also suggests that firms expand
abroad only once they have exhausted opportunities within their home market, and that they then
expand first in markets that are familiar to them, namely markets similar culturally or in close
geographic proximity to those they are already in, and that they exhaust opportunities in each market
before moving into new ones. Economic theory suggests instead that the firm will continuously
pursue best opportunities across all markets.
In 1983, Theodore Levitt published a provocative Harvard Business Review article entitled The
Globalization of Markets, in which he stated that a new global market, based on uniform products
and services, had emerged. He asserted that large scale companies have stopped emphasizing on the
customization of their offers to providing globally standardized products that are advanced,
functional, reliable and low priced. He argued that informed customers were heading toward a
convergence of tastes; thus corporations should exploit the economics of simplicity and he
maintained that the future belonged to global corporations that did not cater to local differences in
taste but, instead, adopted strategies that operated as if the entire world (or major regions of it) were
a single entity; such an organization sells the same things in the same way everywhere. If a
company forces costs and prices down and pushes quality and reliability up while maintaining
reasonable concern for suitability customers will prefer its world-standardized products (Levitt,
1983). Everywhere everything gets more and more like everything else as the worlds
preference structure is relentlessly homogenized. In his article, Levitt used a lot of examples that
represent the definition of globalization like Coca Cola, Pepsi, McDonalds; and that made the
article even more credible.
The business strategy approach to internationalization stressed pragmatism and stated that the
foreign expansion decision is contingent on trade-offs between variables like the nature of the
market opportunity, rms resources and managerial philosophy (Reid, 1983; Welford and
Prescott, 1994). Subsequent studies (Dunning and Bansal, 1997; Dunning, 1988) argued that
explanations of a companys internationalization process should be rooted in economic theory and
that the decisions to internationalize and choice of entry mode were motivated by culturally-based
ownership, location and internalization advantages. Economic theory was also used to model
national attribute congurations that account for efciency, competitive advantage in certain
industries and clusters, enabling rms to export efciency and enhancing their potential for
successful internationalization (Porter, 1990, 1998).
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Thomadsen demonstrated that prices at fast food outlets located near other outlets belonging to the
same chain often charge high prices to avoid cannibalizing sales between the two outlets. These
price differences can be large, with prices at many restaurants 20 percent or higher than they would
be if the restaurant owners did not worry about cannibalization. Now he finds that a firm may also
charge higher prices when faced with a new competitor or product. He said that product-line
expansion would affect profits .He said that when a firm adds products to its line, the profits of the
incumbent firms in the market must go down. He used a standard economic model in this study.
Consumers have different utility preferences. He explains that some people like one type of food
while other people like a different type. There are also variations in location. So model consumers
based on preferences, location and other factors likely to affect their behavior. He explains that his
findings can be generalized to a variety of markets. According to him it is does not necessarily mean
that competitors will lose profits and market share. There are conditions in which a new Tide might
increase everyones profits. Kelloggs can profit when a new type of Wheaties hits the shelves. And
the opening of an Albertsons in the right location could mean higher profits for a nearby Ralphs. In
fact, retail competition is one of the places where one firms expansion is most-likely to increase a
competitors profits.














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McDonald's Corporation
The McDonald's Corporation is the world's largest chain of hamburger fast food restaurants, serving
around 68 million customers daily in 118 countries. Headquartered in the United States, the
company began in 1940 as a barbecue restaurant operated by Richard and Maurice McDonald; in
1948 they reorganized their business as a hamburger stand using production line principles.
Businessman Ray Kroc joined the company as a franchise agent in 1955. He subsequently purchased
the chain from the McDonald brothers and oversaw its worldwide growth.
A McDonald's restaurant is operated by a franchisee, an affiliate, or the corporation itself.
McDonald's Corporation revenues come from the rent, royalties, and fees paid by the franchisees, as
well as sales in company-operated restaurants. In 2012, McDonald's Corporation had annual
revenues of $27.5 billion, and profits of $5.5 billion.
McDonald's primarily sells hamburgers, cheeseburgers, chicken, french fries, breakfast items, soft
drinks, milkshakes, and desserts. In response to changing consumer tastes, the company has
expanded its menu to include salads, fish, wraps, smoothies, and fruit.
McDonald's restaurants are found in 118 countries and territories around the world and serve 68
million customers each day. McDonald's operates over 32,000 restaurants worldwide, employing
more than 1.7 million people. The company also operates other restaurant brands, such as Piles Caf.
Focusing on its core brand, McDonald's began divesting itself of other chains it had acquired during
the 1990s. The company owned a majority stake in Chipotle Mexican Grill until October 2006, when
McDonald's fully divested from Chipotle through a stock exchange. Until December 2003, it also
owned Donatos Pizza. On August 27, 2007, McDonald's sold Boston Market to Sun Capital
Partners.
Notably, McDonald's has increased shareholder dividends for 25 consecutive years, making it one of
the S&P 500 Dividend Aristocrats. In October 2012, its monthly sales fell for the first time in nine
years.
BUSINESS STRATEGIES ADOPTED BY MC DONALD
MCD has diversified its locations by operating over 32,500 restaurants in 118 countries, which decr
eases the companys exposure to the intensely competitive fast food industry in the United States.
Also, MCD serves an average of 68 million consumers each day. This per day figure has
increased by $14 million (30%) since 2001 and $2 million over the past year.
MCD currently divides its revenues into four segments: the United States, Europe, the APMEA
(Asia, Pacific, Middle East, and Africa segment), and other countries (i.e. Canada and Latin America
and corporate sales). Almost 65% of MCD sales are derived internationally. MCD focuses both on
penetrating emerging markets and expanding in developed markets.
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SOURCE: McDonalds ANNUAL REPORT 2012

But just being McDonald's isn't enough it's doing a lot, domestically and globally, to stay
ahead. Here are ten strategies that are keeping McDonald's barreling forward:
Focusing heavily on emerging markets
McDonald's may seem like it's already everywhere, but it hasn't quite saturated the world yet.
Over the past few years, McDonald's has made a heavy push toward emerging markets. And
not just trendy markets like China and India, but places previously devoid of the Golden
Arches, like some African nations. Sales are up 8.1% from last year in Asia/Pacific, Africa
and the Middle East. Still, China is McDonald's most important international front, where it's
battling Yum brands whole heartedly. It plans to have a whopping 2,000 stores there by
2013.

McCaf has been a big win
The McCaf has been demolishing expectations ever since the company started revving up
its marketing machine for it in 2002. Now, there are 1,300 McCaf's worldwide in dozens of
countries, and it just keeps growing. Its latest moves have been to Ukraine, along with a
national rollout in Canada. The McCaf menu has been growing as well, adding non-coffee
items like smoothies over the past couple years.

Offering a wider variety of food to attract more segments
It's not just snack foods and desserts that it's expanding into there's a whole lot more.
McDonald's is trying to get more consumer segments to chomp up its offerings by expanding
non-traditional menu items, while keeping its core base of burgers-and-fries eaters. Many of
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the new items help combat McDonald's ever-present negative image of unhealthiness, though
it will likely never shake it fully. For instance, oatmeal has been a big hit for McDonald's,
serving as a replacement for high-calorie breakfast sandwiches. Additional types of salads
have worked too, for people looking for a somewhat healthier option.

Delivering food to customers in places that demand it
Though not traditional in the US, McDonald's delivers in many markets around the world,
and the company cites it as one of the reasons it has been so successful in those markets.
Delivery is a common practice, even for fancy restaurants, in many Asian and Middle
Eastern cities, so McDonald's is just meeting the cultural norms of its surroundings.

Making its stores more attractive to get customers in
McDonald's is improving its physical locations to make them more appealing to customers,
and it seems to be working. In China, it's trying out a "Less is More" concept design, which
goes with softer colors and cushioned seats. Also, over 95% of McDonald's locations have
extended their hours now, and it has several thousand stores that are open 24/7. Free Wi-Fi is
now available in McDonald's restaurants across the world, and lately it has made a big push
to get flat screen TVs in the stores. It's even starting up its own TV channel with original
programming, called McTV.

Increasing its offering of snack items
Americans love to snack on stuff, and McDonald's has recognized that demand and answered
with a plethora of new products. Smaller items like wraps, along with an expansion into
desserts (which it plans to ramp up soon), have made their way onto the menu and have done
well.

Shortening its menu cycle
The most prominent example of this is the McRib, making an unprecedented second national
appearance in two years. It took front and center this fall and was incredibly successful,
driving a 4.9% gain in same store sales. Special edition McFlurries have been in and out of
menus too, along with limited time smoothies. This sort of menu cycle is a move toward a
more European model, which swaps out new menu items every six-to-eight weeks, reports
Nation's Restaurant News.

Importing more of its successful niche products internationally
McDonald's has an incredible variety of culture-specific food items across the planet, and
most wouldn't stand a chance internationally. But some are winners, and the company has
started to test them out in other markets. One example is Australia's Chicken McBites (think
popcorn chicken), which are now being tested in Detroit, Michigan. Then there are full-size
wraps, common in Europe, which are being tested in new markets like the U.K. They have so
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many of these products that some are bound to be hits, it just has to find the correct area to
expand them to.

Expanding its dollar menu to breakfast
McDonald's fired up a breakfast dollar menu in 2010 as the economy continued to slump,
which supplemented its existing dollar menu for its usual fare. It has been working well thus
far, capitalizing on Americans' attraction to the super-cheap in times like these. But even
before that, its breakfast business was growing, just at a lower rate than normal. Competitors
like Burger King and Dunkin' Donuts have made their own types of dollar menu, but nobody
has had the widespread success that McDonald's has enjoyed.

And it hasn't been scared to take anybody on
Many of these expansions drew looks from brand new competitors, because McDonald's was
encroaching on their territory. In most cases, McDonald's leveraged its size and brand to
attack head on. McCaf is the most obvious example, and it has performed admirably against
Starbucks and Dunkin' Donuts. Its upcoming expansion into desserts is likely to concern
Dunkin' even more, along with niche dessert chains like Dairy Queen. But there's plenty of
risk in doing this. As it opens itself to more fronts than ever, it has more big, powerful brands
breathing down its neck, and even more complexity to worry about in its internal operations.
The new strategy
In 2003 McDonalds switched to generating more sales from its existing restaurants. In 2013 around
90% of the companys growth is expected to come from incremental sales at its existing restaurants.
Capital expenditures for new restaurants decreased $544 million in 2013 because the company
opened fewer restaurants and focused on growing sales at existing restaurants including reinvestment
initiatives such as restaurant reimaging in several markets around the world.
Source: Companys Financial Report 2012

How it reached to the every corners of the world
In 1940, McDonalds operated only one QSR but today has restaurants at 33,000 locations in 118
countries. McDonalds utilizes a variety of international market entry modes for rapid expansion:
sole ventures, franchising, master franchising and joint ventures. 15% of McDonalds branded
restaurants are operated as sole ventures. This involves a significant capital commitment but allows
the highest degree of control. Most restaurants are operated as franchises, allowing rapid expansion
without high capital requirements. Franchising has also allowed McDonalds to benefit from local
knowledge, demonstrated by the menu differences by country. The combination of the master
franchisees local knowledge and McDonalds brand and model has been a successful formula,
allowing expansion whilst maintaining significant control. McDonalds has also expanded
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internationally through joint ventures. Again, this allows for rapid expansion and utilizes the
knowledge of firms in closely-linked markets. Since 14 both firms invest equity in the project, there
is a lower financial risk for both parties.
Using the 7Ps of marketing mix, McDonald earned business success at every part of the globe.
1. Product
McDonalds strives to offer a standardized service worldwide. However, the company is
embedded with an entrepreneurial spirit giving franchisees some local control and
creativity, providing the service offering is of a high standard. Some of the most famous
products including the Fillet o Fish, the Egg McMuffin and the Big Mac were created
through franchisee innovation. Franchisees are given autonomy to adapt the products
whilst the corporation maintains a high degree of standardization through quality control.
The majority of well-known products are usually offered in all markets unless they do not
suit local customs and religion. For instance, Big Macs are not sold in Indian outlets as the
population is primarily Hindu. However, even iconic products are adjusted to local taste
such as providing spicier food in most Asian countries, allowing the company to
overcome a variety of cross-cultural barriers.

2. Price
McDonalds has positioned itself as a fast-food outlet offering low-cost food and drink.
The affordable menu has been adapted worldwide whilst maintaining their core goal of
quality assurance. Ongoing innovation has allowed new pricing strategies such as the
Dollar Menu or its equivalent Saver menu in the UK. In response to increasing food
costs, McDonalds opted to increase prices by less than 1%, adopting the change gradually
to the menu in order to retain price-sensitive customers (Lockyer, 2011).

3. Place (International Distribution and Supply Chain)
Although McDonalds product offerings differ between countries, they operate a
standardized global supply chain. This lean operation is 100% outsourced with no back-up
system. The chain comprises of two tiers. Tier 2 suppliers are primarily food producers,
whilst Tier 1 suppliers are processors. For example, a Tier 2 potato farm supplies a Tier 1
processing firm who turn the potatoes into French-fries and potato wedges. Produce is
transported to distribution centers before allocation and delivery to individual restaurants.
The success of the supply chain is attributed primarily to their commitment to outsourcing
non-core activities to expert firms. McDonalds supplier terms are rigorous; suppliers are
expected to be accountable until the food is consumed and the end customer is satisfied.
Legally-signed contracts with suppliers are not used; all deals are made on a handshake
because they operate a one supplier - one product policy and maintain long-term
relationships regardless of the external environmental conditions.
McDonalds has 30 35 stock-keeping units at the supply side, creating a streamlined
operation. Sole distribution partners are responsible for the entire logistics process in
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designated geographical areas, whether it be the daily hamburger order, or a replacement
appliance. McDonalds continuously scrutinizes these partners to ensure they are meeting
goals and benchmarks to improve efficiency. The pull strategy allows individual
restaurants to place orders with distribution centers, which then re-issue orders to suppliers
who only produce the quantities ordered. This means suppliers hold little surplus stock,
optimizing efficiency.

4. Promotion
McDonalds achieved 6th position on Best Global Brands 2011 as a result of
continuous promotional activities. The iconic Golden Arches are used in promotions
globally. The im lovin it campaign, launched in 2003 used celebrity endorsement to
increase their appeal to younger consumers. Justin Timberlake was used for vocals and the
campaign was launched in 86 English-speaking countries and was adapted for non-English
speaking countries. Recently, the what were made of campaign increased transparency
and was used to fight against negative publicity regarding ingredients.

5. People
At McDonalds, service employees represent the brand at the frontline where customers
have their first interaction with the organization. It is important that staff give a good
impression and therefore, training is of paramount importance. Employees undergo
rigorous on-the-job training in customer service, food handling and preparation. In
addition, McDonalds provides opportunities for managers and would-be franchisees to
develop and hone their management skills through a dedicated facility - the Hamburger
University (HU). HU has campuses worldwide and provides training for employees to
improve their proficiency in managing the restaurant.
McDonalds aim is to create a vibrant working environment for staff and managers. This
creates a chain effect whereby customers are positively influenced and are more likely to
return. To re-create this chain effect in different markets, the recruitment and training
processes are standardized globally. McDonalds is always on the look-out for lively team
players who are trained according to guidelines.

6. Process
McDonalds prepares and serves food rapidly. Strict guidelines and regulations are
followed in food preparation to ensure high standards of hygiene and food safety.
Customers can usually see the kitchen while being served, allowing transparency, so
customers can eat in confidence. Food is mass-cooked and hot-held until service.
However, due to the continual stream of customers, it does not deteriorate before
consumption. To maintain its foothold as market leader, McDonalds maintains a high
degree of process standardization across all outlets to increase efficiency. This ensures that
they have high standards of hygiene and food safety in all outlets.

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7. Physical Evidence
McDonald's has a homogenous look across their outlets from dcor to staff uniform.
Their global re-branding strategy furthers standardization, allowing consumers to areas,
there are indoor playgrounds to satisfy customers. The company ensures that all
franchisees comply with regulation regarding hygiene to maintain their reputation for
cleanliness. Staff training is standardized globally to ensure customers are treated
consistently.

Advantages of a franchise business and its impact on McDonald
Franchising requires less capital than other growth methods
Franchising permits your company to grow with capital invested by individual franchise
owners. For the majority of Fran Source clients, the investment required to franchise their
business is recouped through the sale of the first two to three franchises.

Rapid Expansion
In todays marketplace, the window of opportunity for a new or unique business concept
closes very quickly. Franchising permits multiple units to be opened simultaneously, gaining
a foothold over would-be competitors.

Market Dominance
Multiple locations increase the companys competitive advantage over similar type
businesses.

Franchising puts a "business owner" in charge
Franchising ensures that qualified "managers" are operating additional locations rather than
employees. A new business demands a great deal of time, effort and sacrifice. Franchisees
are motivated by their ownership of the business and the capital they have invested.

Franchise locations may operate better and more profitably than "company owned"
units
Once again, this is due to the fact that a highly motivated owner is running the business
rather than an employee. With their capital at risk, franchisees are much more motivated
then employees to perform at their highest levels.



Greater Buying Power
Franchisors that purchase products and services for their franchise network can often
negotiate volume discounts from vendors and suppliers. Sharing a portion of the saving with
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franchisees provides higher operating margins and a competitive advantage over other
similar businesses.

Increased Name Recognition
As additional locations are opened, name recognition increases. In the United States,
customer loyalty towards recognized brands is at an all-time high. Consumers typically feel
more secure frequenting a business they recognize by name. Franchising permits an
individual to benefit from the collective power and growth of the franchise network, which in
turn leads to greater name recognition and competitive advantages for each individual
franchisee.

Increased Advertising and Marketing Budget
Franchisees may be required to contribute a percentage of their gross sales (or a set fee) to an
advertising fund administered by the franchisor. This enables the franchisor to advertise in
regional and/or national media for the benefit of the franchise network.

New revenue streams are created
Franchisors earn revenue from many sources, including:
Franchise Fees
Franchise Royalty Fees
Advertising and Marketing Administrative Fees
Services provided to Franchises
Sales of Products & Supplies
Training Fees
Sales of Promotional Items
Rebates from Suppliers


Impact on McDonald
REVENUES
The Companys revenues consist of sales by Company-operated restaurants and fees from
restaurants operated by franchisees. Revenues from conventional franchised restaurants
include rent and royalties based on a percent of sales along with minimum rent payments,
and initial fees. Revenues from franchised restaurants that are licensed to foreign affiliates
and developmental licensees include a royalty based on a percent of sales, and generally
include initial fees.
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Source: McDonald Annual Report 2012

RESTAURANT MARGINS
Franchised margins
Franchised margin dollars represent revenues from franchised restaurants less the Companys
occupancy costs (rent and depreciation) associated with those sites. Franchised margin dollars
represented about two-thirds of the combined restaurant margins in 2012, 2011 and 2010. Franchised
margin dollars increased $205 million or 3% (6% in constant currencies) in 2012 and $768 million
or 12% (9% in constant currencies) in 2011. Positive comparable sales were the primary driver of
the constant currency growth in franchised margin dollars in both years.

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Source: McDonald Annual Report 2012

Company-operated margins

Source: McDonald Annual Report 2012

RESTAURANT DEVELOPMENT AND CAPITAL EXPENDITURES
In 2012, the Company opened 1,404 traditional restaurants and 35 satellite restaurants (small,
limited-menu restaurants for which the land and building are generally leased), and closed
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269 traditional restaurants and 200 satellite restaurants. In 2011, the Company opened 1,118
traditional restaurants and 32 satellite restaurants, and closed 246 traditional restaurants and
131 satellite restaurants. The majority of restaurant openings and closings occurred in the
major markets in both years. The Company closes restaurants for a variety of reasons, such
as existing sales and profit performance or loss of real estate tenure.

Source: McDonald Annual Report 2012

Capital expenditures increased $319 million or 12% in 2012, and increased $595 million or 28% in
2011, primarily due to higher reinvestment in existing restaurants and higher investment in new
restaurants. The higher reinvestment reflects the Companys commitment to grow sales through
initiatives such as reimaging in many markets around the world. The increase related to new
restaurants reflects our commitment to broaden accessibility to our brand. Capital expenditures
invested in major markets, excluding Japan, represented about 70% of the total in 2012, 2011 and
2010. Japan is accounted for under the equity method, and accordingly its capital expenditures are
not included in consolidated amounts. The Company owned approximately 45% of the land and
about 70% of the buildings for restaurants in its consolidated markets at year-end 2012 and 2011.

Source: McDonald Annual Report 2012


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CONTRACTUAL OBLIGATIONS AND COMMITMENTS
The Company has long-term contractual obligations primarily in the form of lease
obligations (related to both Company-operated and franchised restaurants) and debt
obligations. In addition, the Company has long-term revenue and cash flow streams that
relate to its franchise arrangements. Cash provided by operations (including cash provided by
these franchise arrangements) along with the Companys borrowing capacity and other
sources of cash will be used to satisfy the obligations


Source: McDonald Annual Report 2012

LIQUIDITY
The Company has significant operations outside the United States where it earns over 60% of
our operating income. A significant portion of these historical earnings are considered to be
indefinitely reinvested in foreign jurisdictions where the Company has made, and will
continue to make, substantial investments to support the ongoing development and growth of
their international operations. Accordingly, no U.S. federal or state income taxes have been
provided on the undistributed foreign earnings. The Companys cash and equivalents held by
its foreign subsidiaries totaled approximately $2.1 billion as of December 31, 2012.


The external environment and its effect on strategic marketing planning of
McDonald


Political/legal factors
Political environment consists of the government activities covering the economy and its
subdivisions. Ecological regulation, business margins, tariffs, income tax policy, labor rule
and political constancy are some of the main components of it. The safety, schooling, and
infrastructure of a nation are also the concern of government.
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While operating globally, different types of taxes cover up a significant company obligation.
Countries with strong consumer protection laws may associate great costs if there is a
violation in product quality or service through litigations and lawsuits.
For instance, in 2006, a lawsuit against McDonalds that it misinformed about ingredients of
french fries and hash browns. French fries and hash browns are fried in oil consisting of 99%
vegetable oil and 1% natural beef flavor. Casein (a dairy product) and wheat bran were partly
used to make the beef flavor. But before serving, McDonald's again fries the potatoes in
100% vegetable oil. Plaintiffs charge that McDonald's deceived by claiming French fries and
hash browns gluten, dairy and wheat free.
However, these lawsuits have cost a huge for paperwork, diagnosing customers, court and
legal fees and also the market image of McDonald's goodwill. So it is very clear that
McDonald's as a food provider is much more affected by these political, legal and customers
safety issues. On the other hand, health experts and consumer advocates blame McDonald's
for contributing to health issues of heart attacks, diabetes, high cholesterol and obesity.
Countries with flexible consumer safety laws are a source of extra provision for McDonalds.
Differences in individual countrys government policies extremely influence McDonalds
international operation. Favorable and stable political situation, legislation, legal procedure
and sustained use of logo are just an indispensable part of the business success. However,
McDonalds is proved adequate in favorable legislations and right use of logo.

Economic factors:
Economic expansion, the rates of interest, exchange and inflation comprises the overall
economic environment. They extremely affect a businesss function and core decisions. Cost
of capital is the main determinant of a business escalation and growth. This cost of capital
often fluctuates with the movement of interest rates whereas exchange rates affect the cost of
exporting and price of imports.
McDonalds practices hardship in countries that is hit by inflation and fluctuations of
exchange rates. As a market leader, McDonalds most often focuses very high target market
which works as an additional advantage as these markets are rarely unstable. The major
portion of their cost comes from gas prices as their main transportation system to move 100%
of the products runs by gas guzzling trucks.
The purchasing power of consumers is determined by the economic growth of the particular
state. For instance, in Pakistan, McDonalds food prices are at higher rate than the local
restaurants always. But majority of the Pakistanis live in the middle class group who
obviously consider McDonalds as unaffordable at regular basis. For this tendency of people
and economic downfall of recession, McDonalds profit might have declined if people
continue to consider it as luxury.

Product lines and pricing:
McDonald's first and foremost sells hamburgers, french fries, soft drinks, breakfast items,
various types of chicken sandwiches and desserts. In most markets, McDonald's also offers
salads and vegetarian items, squashing and other unique local products. Soup type products
are served only in some selected countries like Portugal etc. And for this special deviation
from its standard menu helps McDonalds to be popular among the countries other than its
homeland. Sometimes this difference is employed either for regional food taboos and
religious prohibition like the one in India as no beef is served there. In India, non-vegetarian
menu contain s chicken and fish items only. This strategy is also used to serve food with
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which the local people are much familiar such as McRise in Indonesia. McDonalds offers
several flavors of Mcflurry ice cream from a mix of M&Ms to Oreo cookies.
Much is talked about McDonalds pricing strategies and its menu price differes in different
countries. Also the higher price in the local restaurants very often becomes burden for the
customers. For instance, when monthly income of key city inhabitants in China just ranged
from 120 yuan ($17.54) to 130 yuan then Big Mac of a 10 yuan and a 5 yuan double-cheese
burger were not reasonable for the majority. So it is a threat for McDonalds where other
competitors are focusing much on it to grab more customers. So McDonald's can develop a
good, healthy and affordable range of snacks for people who cant afford a full meal.


Customers preference:
With a brand value of $49.5 billion, McDonalds has grown 49 percent in worth and now is
the most favored brand in the fast-food group. McDonalds innovative choice and giving
importance to the peoples ever-changing demand with due progress, technology and
development is the key to McDonalds present situation. Now a day fast food cafes are
becoming the dining hall of the majority for superior child-size menus, playing grounds and
impulsive branding crusades.

Competitors:
One of the environmental factors surrounding McDonalds is the fierce competition from the
competitors. There is an intensive price war, extreme battle of innovations, breakthrough and
serious promotions and advertisements. Different competitors in the global fast food industry
are now just going mad about increasing competition that led to aggressive pricing strategies
amongst the large brands. Competitions also pushed them to increased menu diversification,
product developments for increasing sales and market share and at least maintaining current
market share.


Social factors:
Population growth, career opportunity, cultural distinctiveness, health of the masses and
social security build the ground of societal factors. McDonalds food products demand and
its operational strategies differ greatly to cope with the movement of these factors.
At the time McDonalds started in Pakistan, fast food was not very popular to Pakistani
people. With the passage of time and the changes of the eating habits and lifestyle, fast food
got its acceptance. McDonalds also keeps providing Halal food to consider the religious and
cultural issues. But at times anti American feeling and prohibition of American goods affects
McDonalds. McDonalds customized its menu in accordance of the Pakistani tastes.
McDonald's does not offer bacon in Pakistan as people do not eat it. Increasing employment
through joining with many ethnic groups and the alliance certification program with a cup of
tea for everyone at 1200 McDonalds in UK are also some mentionable social duties by
McDonald's. In 1974, McDonald's established a charity house named Ronald McDonald
House that helped over 10 million people since incorporation.

Technological factors:
Technological factors main elements are R&D, computerization, technology motivation and
technological change rate. Technological movements affect expenditures, excellence, and
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innovation and machine made food is more hygienic. McDonald's employees quick service
and quality food standards are the result of its high-tech operating procedure. Customized
database management system and computers and smart cashiers are used in McDonald's to
speed up serving and operating excellence.

McMommy Blogging Society:
In December 2007, McDonald's opened up its kitchens to the group of mother bloggers to
report allegedly unedited findings on McDonald's website and on blogs in the Internet.
McDonald's goal was to make their cooking processes more transparent. It kicks out stories
of fattening, unhealthy food rumors in books like "Fast Food Nation" and movies i.e. "Super-
Size Me. "McDonald's equipped six mothers chosen from 4000 applicants with laptop
computers to record their impressions of its operations over the next few months. Nothing
like this has ever been done on the internet by a fast food company before.

Hamburger University:
Hamburger University was founded in 1961 at a McDonald's restaurant in Elk Grove Village,
Illinois. Now it stands in a suburb of Chicago at 2815 Jorie Boulevard in Oak Brook, Illinois.
It has 30 resident professors and more than 70000 managers have graduated from here.
Today Hamburger University has 19 full time intercontinental coaches to educate apprentices
of more than 119 countries. It comprises 13 teaching rooms, 12 interactive group rooms, a
300 seats lecture theater, and 3 kitchen labs. It has professional translators who can lecture in
28 different languages. Over 5000 students attend there each year and employees obtain 32
hours of training in the first month. With a McDegree, graduates get jobs in special labs to
invent new ways to enhance menus in an efficient way and keep the same superior healthy
taste of its products worldwide.






















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Conclusion

McDonalds is one of most successful companies in the world today. With its rapid embracement of
globalization, the firm has been able to expand and retain numerable growth; as well as continuing to
explore with its growth potential in the coming years. From the beginning of the companys
development in the United States, to its spread in England, Australia and more recently India and
China, the firm has been able to provide a variety of hamburgers and other foods to its consumers.
From the Big Mac, to the Maharaja, the companys successive strategies, specifically with heavy
research and development have allowed it to fulfill the tastes of locals in every country it operates.
Its leaders in all of its major departments have established prices worldwide in all types of
currencies, making its foods affordable for customers of all classes. McDonald has adopted
differentiation and cost leadership strategies. In terms of differentiation, the firm attempts to be
diverse from its competitors by adding something to its product that will provide a unique value to
its customers, achieved through well-designed and managed marketing activities resulting in a
perceived superior quality product and high brand image and recognition. Further, cost leadership is
achieved, not only through economies of scale but also through learning, knowledge and experience
in production and operational processes and through effective/efficient distribution networks and
manufacturing systems.




























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