Marketing assignment on : McDonald’s Expansion strategy

McDonald’s expansion strategy lies in country diversification, market diversification quadrant of market expansion strategy matrix. McDonald’s seeks diversification at the country level. On entering a country McDonald’s seeks to diversify soon into the local markets of that country. The franchise route ensures fast market diversification (Love, John F.,1987).

The global market entry strategy of McDonald’s has two aspects. The direct investment aspect ensures fast country level diversification or expansion. More importantly it ensures that McDonald’s has a tighter control on its operations in each country.

McDonald’s operates restaurants in 120 countries of the world.  No matter in whichever country or city you visit a McDonald’s restaurant, you will recognize a very strong element of standardized product quality and service.

This quality and service standardization has been achieved due to direct investments that the company makes in each national market that it enters. It usually sets up a fully owned subsidiary in each market.

The second aspect of McDonald’s entry strategy is to use franchise model for fast expansion within the national market. Training of the franchisees in management and close collaboration with them ensures that the same level of quality and service is maintained in restaurants operated by franchisees.

Franchising at McDonald’s:

As has been explained above a large number of McDonald’s restaurants around the world are owned and operated by franchisees. McDonald’s trains these franchisees in operations management at its Hamburger University in Oak Brook Illinois.

McDonald’s charges an annual royalty fee from its franchisees. This royalty fee is calculated as a percentage of sales of the franchisee owned restaurants. The marketing is taken care of by McDonald’s which provides all the marketing material to its franchisees.

The franchisees source their supplies of raw materials from the suppliers designated by McDonald’s. Uniformity of raw materials is important for maintaining same product quality through all restaurants which bear the McDonald’s brand name.

The franchise model has worked well for the restaurant chain. It enabled McDonald’s expansion into the remote corners of the globe. It reduced the company’s capital expenditure requirements considerably thereby cutting down the financial risk (Lymbersky C,2008).

Collaboration with local partners enables McDonald’s to understand better the unique characteristics and preferences of the local markets. McDonald’s has a strong element of customization in its marketing and operational strategy.

It customizes its product offering according to the unique characteristics of the local markets. So McDonald’s restaurants in Tel Aviv sell only kosher food. In India McDonald’s restaurants do not have the popular beef burger on their menu because eating beef is considered to be a taboo by the majority Hindu population of the country.

Similarly the marketing campaigns vary from market to market. The common element of its marketing campaign around the word is that they retain the core brand image of McDonald’s.  The image of McDonald’s golden arches are present in all the advertising campaigns of the company.

However other elements of the marketing campaign are customized according to the inputs given by the franchisees and the trends in the local market. So the emphasis of the marketing campaign in a low income country is on pricing while the marketing campaign in a high income country emphasizes on product quality and range.

Contract Manufacturing (Sourcing) of raw materials by McDonald’s

Another aspect of the global market entry of McDonald’s is that it sources only very few of its raw materials to local suppliers. For key raw materials ingredients like frozen French fries and breads for burgers McDonald’s relies on a set of key suppliers which supply to all its restaurants around the globe.

However many other ingredients like ketchups served in its restaurants, McDonald’s has outsourced the manufacturing to local suppliers. The ketchups served in a McDonald’s restaurant in Brazil are likely to have been manufactured by a manufacturer in Brazil while that in an Indian restaurant are very likely to have been manufactured by a manufacturer in India (Kutschker, M. & Schmid, S,2005).

McDonald’s does not manufacture or grow any of the raw materials that it uses in its restaurants. The sourcing of some of the raw materials from local manufacturers results in cost savings for the fast food chain.

McDonald’s also licenses the manufacturing of marketing materials and toys that it distributes with its various happy meals in restaurants around the world. This market entry strategy ensures that McDonald’s can focus totally on its core competencies of supply chain management and operations management at its restaurants.

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