Marketing management assignment help online: Global entry of McDonald’s
1.Executive Summary:
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).
Market expansion strategy matrix of McDonald’s
| Market concentration | Market Diversification | |
| Country concentration | ||
| Country Diversification | 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.
If you want Marketing management essayAssignment Help study samples to help you write professional custom essay’s and essay writing help.
Receive assured help from our talented and expert writers! Did you buy assignment and assignment writing services from our experts in a very affordable price.
To get more information, please contact us or visit www.myassignmenthelp.Com
