International Business

McDonald’s is one of the best known brands worldwide. The brand is operated by the McDonald’s corporation. McDonald’s corporation operates its own restaurants and franchises in many countries. Thus, as of 2010 the corporation operated 32,737 restaurants in 117 countries (McDonald’s Corporation annual report, form 10-K). One may observe that McDonald’s became a truly transnational corporation. The vast majority of restaurants operates under the franchise scheme. To specify, at the end of 2010 26,338 restaurants were licensed or franchised (McDonald’s Corporation annual report, form 10-K). The typical franchise scheme works as follows. Franchisees invest a part of capital into seating and décor, signs and equipment (McDonald’s Corporation annual report, form 10-K). From time to time, franchisees may reinvest in the business. The company owns buildings and lands or provides a security for long-term leases (McDonald’s Corporation annual report, form 10-K). Under the license scheme, licensees provide the entire capital for business operation and own interest in real estate, while the company gives the license for use of its brand (McDonald’s Corporation annual report, form 10-K).

McDonald’s is a large employer. At the end of 2010 the number of McDonald’s employees worldwide constituted approximately 400,000 (McDonald’s Corporation annual report, form 10-K). In 2011 McDonald’s was ranked as number eight in the Best Global Companies to Work For ranking (McDonald’s). Also, in 2011, McDonald’s took the eighth place in the Top Global Companies for Leaders ranking (McDonald’s).

The company’s main strategy cost leadership. Cost leadership refers to “an action plan the firm develops to produce goods or services at the lowest cost” (Ireland et al, 2008). In case of McDonald’s, the company offers food and eating out services for relatively low prices. To achieve cost leadership the company optimizes its operational processes. Supply chain management is especially important in McDonald’s business. The company and franchisees receive equipment, packaging and food from different independent suppliers (McDonald’s Corporation annual report, form 10-K). The company also cooperates with independent distribution canters, which distribute products to the majority of McDonald’s restaurants (McDonald’s Corporation annual report, form 10-K).

Products and Services

McDonald’s restaurants offer fast food services. The menu is more or less uniform throughout the restaurants all over the world (McDonald’s Corporation annual report, form 10-K). McDonald’s standard menu consists of Big Mac, Filet-O-Fish, Chicken McNuggets, cheeseburgers and hamburgers, chicken sandwiches, Quarter Pounder with Cheese (McDonald’s Corporation annual report, form 10-K). The deserts include McFlurry desserts, cookies, pies, sundaes and soft serve cones (McDonald’s Corporation annual report, form 10-K). The beverage menu offers coffee and tea, soft drinks, McCafé beverages and other beverages (McDonald’s Corporation annual report, form 10-K). McDonald’s restaurants also offer various breakfast menus, which may include McGriddles, Egg McMuffin, biscuit and bagel sandwiches, hotcakes, and Sausage McMuffin with Egg (McDonald’s Corporation annual report, form 10-K).

At the same time, there are geographical variations in menus designed to address the tastes of local customers (McDonald’s Corporation annual report, form 10-K). For instance, in Austria, the McDonald’s menu includes the Viennese Iced Coffee and Wiener Frühstück – the classic Viennese breakfast, which consists of pastries or bread with butter or honey, and coffee (McDonald’s Europe). Furthermore, in the Czech Republic and Slovakia McDonald’s offers the so called McCountry – a burger made of two pork patties (McDonald’s Europe). This menu item was introduced in order to address the popularity of pork in Slovakia and Czech Republic. In Danish McDonald’s restaurants one may find Chicken Salsa Cheese – a chicken sandwich, which consists of salsa and cheddar cheese (McDonald’s Europe). This menu item became a response to the growing popularity of chicken in Denmark (McDonald’s Europe). In the Finnish restaurants one may taste Rve McFeast – a version of the McFeast burger, which uses Finland’s traditional rve bread (McDonald’s Europe). In France, McDonald’s introduced traditional French snack called “Croque Monsieur”, which is made of melted emmental cheese and ham, accompanied by toasted bread (McDonald’s Europe). In Germany McDonald’s offers popular Nuremberg sausages (McDonald’s Europe). Italian McDonald’s restaurants sell McItaly, a burger, which is exclusively created by Italian producers, and Parmigiano Reaggiano Burger (McDonald’s Europe). In Russia, the restaurants offer Beef a la Russe – a beef sandwich (McDonald’s Europe).

McDonald’s restaurants also provide drive-through services. The drive-through concept means that customers are served with food, while they are staying in the car. In other words, there is no need for a customer to leave the car in order to make an order and take away the food.

McDonald’s Expansion

Today’s giant McDonald’s grew out of a small business, launched by two brothers, Dick and Maurice McDonald (Stonehouse et al, 2007). The brothers opened a small restaurant in San Bernardino, California in 1948. At that time, the concept of drive-in (or drive-through) was very popular. It can be explained by mass car ownership that occurred at that time (Stonehouse et al, 2007). However, the two brothers decided to open a restaurant with cheap prices and save costs on the ‘car hops’ (Stonehouse et al, 2007). The idea proved to be successful. Very soon the brothers took business off the local drive-throughs (Stonehouse et al, 2007). The entrepreneur Kroc saw the opportunity in that kind of business and opened McDonald’s in Illinois, paying the brothers royalty (Stonehouse et al, 2007). This can be considered McDonald’s first franchise deal. By 1970 McDonald’s was present in every state (Stonehouse et al, 2007). At the same time, the company has already started to expand internationally. Initially, McDonald’s international expansion was very gradual, rather than aggressive (Stonehouse et al, 2007). In the 1960s McDonald’s appeared in Canada and in the 1970s in the UK, Germany, the Netherlands and Sweden (Stonehouse et al 2007). The expansion accelerated in the 1980s and 1990s. Currently McDonald’s is one of the well-known brands in the world. McDonald’s main expansion strategy is franchising. The franchisees use McDonald’s specifications for menu and recipes, comply with specific operational standards, standards for equipment layout, display signage, use or display McDonald’s trademarks and logos (Stonehouse et al, 2007).

McDonald’s Expansion in China

In the mid-1980s McDonald’s personnel travelled to China in order to provide a foundation for future enterprises (Luo, 2000). The visit was followed by the five-year planning. Such long planning is explained by the fact that McDonald’s wish to control supply and distribution in China (Luo, 2000). In October 1990, the first Chinese McDonald’s was opened in Shenzhen (Luo, 2000). Two years later, another McDonald’s restaurant was opened in Beijing (Luo, 2000). During this opening more than 40, 000 people have been served (Luo, 2000). The Beijing restaurant’s capacity is 700 seats and 29 cash registers (Gunde, 2002).  Today McDonald’s operates more than 1,000 restaurants in China (Yan & Jones, 2010).

In China McDonald’s became something more than merely a fast food chain. It brought unfamiliar western culture to Chinese society. The study conducted in the mid-1990s revealed that McDonald’s restaurants were extremely popular among young couples, children and yuppies (Gunde, 2002). Among Chinese people McDonald’s restaurants became to be associated with modernity and western culture (Gunde, 2002). For this reason, McDonald’s is very popular in China. Ironically, but in China it was not cost leadership that became a competitive advantage of McDonald’s but its western flavour. Indeed, while McDonald’s is cheaper than expensive Chinese restaurants, it is still more expensive than middling restaurants or eating at a food stall (Gunde, 2002). Therefore, it was not the price in the first place that attracted the Chinese to McDonald’s. It was rather a culture, which was brought by McDonald’s.

However, cultural spirit is not enough to gain success in the foreign market. It is also necessary to deal with competition. It is true that initially, there were no many competitors. At the same time, when McDonald’s came to the Chinese market, Kraft Foods was already there. Therefore, at earlier stages it was mainly competition between Kraft Foods and McDonald’s. Nowadays, the situation is entirely different. Thus, McDonald’s has to compete with Subway, Dunkin Donats, Pizza Hut and other fast food chains. In order to be more competitive McDonald’s enters into alliances with its suppliers. For instance, McDonald’s established a venture with China’s largest gas retailer Sinopec, a state-owned company (Hoskisson et al, 2008). This alliance enabled McDonald’s to establish a chain of drive-throughs at Sinopec gas stations (Hoskisson et al, 2008).

Summary

McDonald’s is a well-known brand worldwide. McDonald’s is a chain of fast food restaurants. The restaurants offer standard menus with geographical variations. In addition, McDonald’s offers drive-through services. McDonald’s restaurants are present in 117 countries. Most restaurants operate under the franchise or license scheme. It was franchising and licensing that enabled the rapid expansion of McDonald’s. McDonald’s is a chain of fast food restaurants. The first overseas McDonald’s restaurant was opened in Canada in the 1960s. At the beginning of 1990s McDonald’s entered the Chinese market. It was quite successful entry. McDonald’s became very popular among young people, children and yuppies. In China, McDonald’s is strongly associated with modernity and western culture. For this reason, it was so popular at the beginning: it was a new unfamiliar lifestyle to Chinese. At the initial stages, there were no many competitors of McDonald’s in China. However, over the years, the situation changed dramatically. Today, McDonald’s has to compete with other western fast food supply chains. Therefore, McDonald’s seeks to find additional sources for competitive advantage. One of the strategies employed by McDonald’s is the formation of alliances with its suppliers. Such strategy allowed the company to expand drive-through services in China. In particular, due to its alliance with China’s largest gas retailer, Sinopec, McDonald’s is able to offer drive-through services at Sinopec’s gas stations.

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