International marketing assignment on : Global Market entry strategies of McDonald’s
The report is about Global Market Entry of McDonald’s. McDonald’s is a global fast food restaurant chain. The various kinds of market entry strategies include export, licensing, strategic alliances and direct investments. These strategies have been explained in detail in this report.
McDonald’s uses a combination of direct investments and franchising strategy when it enters new markets. Its market entry strategy has been explained in detail in the report. McDonald’s expansion strategy seeks both country and market diversification.
The report also rates the different market entry strategies on the continuum of risk, investments and commitment. The report also explains McDonald’s franchising model and also its sourcing of raw materials to outside suppliers.
2. Introduction:
McDonald’s Corporation is the largest chain of fast food restaurants in the world. It is present in around 120 countries of the world. Its fast food restaurants mainly sell burgers, French fries, coke, shakes, ice-cream and other dessert items.
McDonald’s success over the years has been underpinned on the success of its global marketing strategy. It chose the right entry mode and right international marketing strategy for itself.
3. Main Body:
3.1 Global Market Entry Strategies:
Market entry strategy is very important for the future success of a company in a new market. The right market entry strategy can make things easier for the company (Thomas Derdak and Jay P. Pederson, ed., 2004). The commonly used market entry strategies are:
i) Licensing.
Direct Investment.
ii) Strategic Alliances.
iii) Export.
Licensing & Franchising:
The licensing strategy is usually used by manufacturing organizations. License for manufacturing of the product of the company is given to a local player in the country. This local player may sell the products under the brand name of the company.
The licensor company is paid an annual royalty by the licensee company for using its manufacturing technology and brand name. Many companies like Reebok have relied on the licensing strategy for entering new markets.
The advantage of licensing mode for entering a new market is that it minimizes the direct investments made by the company in a new market. Most of the investments are made by the licensee (Kutschker, M. & Schmid, S,2005).
This minimizes the financial risk of the company when it enters a new market. At the same time the profit potential of the company in the new market is significantly reduced. The company usually gets a royalty (which is usually calculated as a percentage of sales) from the licensee.
Another risk of the licensing strategy is that the licensor company may end up losing control over the quality of its product and service. If the product and service quality of the licensee fares below expectations of the customers then the brand image of the licensor company takes a beating(Thomas Derdak and Jay P. Pederson, ed., 2004).
Franchising is a form of licensing. The parent company or franchiser gives the franchisee the right to use its brand name and manage the operations under this brand name. McDonald’s entry strategy in new markets has been a combination of direct investment and investment route. This strategy of McDonald’s is explained in detail later in the report.
Direct Investments:
In this route of market entry the company invests in setting up its manufacturing and operational facilities in a new national market. This route of market entry requires huge investments and commitments on the part of the company.
The direct investment route can at times be a very risky course. At the same time if the company’s marketing strategy succeeds then this strategy can reap huge dividends. The company enjoys total control over its products and brands in this strategy.
Strategic alliances and joint ventures:
In strategic alliances like joint ventures a company enters the target market by collaborating with a partner who is usually a company or firm in the local market. The partners make investments in proportion to their stakes in the joint venture.
Recently global coffee chain Starbucks entered the Indian market through a joint venture with Tata Global Beverages ltd. Tata owns 49 % stake in this joint venture while Starbucks owns the remaining 51 %.
The advantage of this market entry strategy is that a company entering a foreign market can partake of the expertise and knowledge of the joint venture partner which is a well established company or firm in the market.
Starbucks entered India through the strategic alliance with Tata Global beverages because the latter has a long experience in the Indian market. It understands its unique characteristics and challenges.
In this strategy the investments needed are shared by the joint venture partners. McDonald’s has used the strategic alliance route for entering a few markets. It has formed subsidiaries in such markets. These subsidiaries are joint ventures in which a domestic firm or company usually have a minority stake.
Export Route:
The export route is taken when a company instead of directly entering the market serves it by exporting its goods into the market. Electronic giants like Samsung have used the export route extensively for entering new markets.
The investments are probably minimal in this strategy. However the prices of the products of a company opting for the export route may rise because of import duties levied by various countries on imports of various kinds of goods.
A restaurant chain like McDonald’s cannot use the export route. It needs to have its restaurants located in these markets.
Continuum representing the different market entry strategies on the parameters of risk, investments and commitment
Low Risk Exports Licensing Investments High Risk
The above continuum shows that when it comes to risk exports is the least risky strategy while direct investment is the most risky strategy. Licensing falls in between because of the risks that arise with the company losing control over its product quality in licensing.
Low Investments Licensing Strategic Alliances Direct High investments
The above continuum shows that when it comes to investments, licensing requires the lowest investments. Strategic alliances like joint ventures require higher investments than licensing. Direct investments usually require the highest amount of investments.
Low Commitment Licensing Export Direct Investments High commitment
The above continuum shows that when it comes to commitment licensing requires lowest commitment while direct investments require the highest level of commitment on the part of the company.
4 .Global market entry strategy of McDonald’s:
McDonald’s makes direct investments when it enters a new national market. It opens company owned and operated restaurants. Besides this it also seeks expansion through the franchising route (Love, John F.,1987).
McDonald’s trains its franchisees at its training facility in Hamburger University in Oak Brook, Illinois Chicago. The franchise holders are trained in management of McDonald’s restaurants.
The revenues of McDonald’s come from the sales in company owned and operated outlets; from the royalty paid by franchisees; and from the rents paid by franchisees of those restaurants where the property is owned by McDonald’s.
McDonald’s strategic focus has always been delivery of highly uniform and standardized products and services in its restaurants around the world. Its global market entry strategy serves this purpose. It makes direct investment in new markets so that it can establish company operated leadership stores in these countries (Lymbersky, C,2008).
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