Macro environment factors affecting firm profitability and industry dynamics

¶ … sixteen illustrate the major theme of this text which is how changes in the macro environment affect individual firms and industries through the microeconomic factors of demand, production, cost and profitability. Firstly, McDonald's strategies in China will be compared and contrasted with those of Wal-Mart in Mexico. Secondly, the role that various policies of various governments played in influencing the international expansion strategies of both McDonald's and Wal-Mart will be explored. Finally, variables other than price that have the biggest impact on the demand for McDonald's products will be examined and that their influence has over these variables.

In "Drive-Through Tips for China" by Gordon Fairclough and Geoffrey A. Fowler, McDonald's very successful performance in China is analyzed. In essence, McDonald's has analyzed very well how to adapt its operations to a Chinese environment. Amazingly, it has also found a way to balance the diplomatic sops to Chinese public tastes with its advancement of the McDonald's traditional fare: the beef hamburger. Correctly, McDonald's executives realized that the Chinese business environment had become more favorable and that they would not lose control of their trade secrets and other confidential information. This brought about the very successful strategy of franchising in China. This has led to an amazing 60% franchise rate in China (Fairclough and Fowler). Also, it compares very favorably with McDonalds worldwide statistic of 70% for franchising McDonald's restaurants worldwide which are owned and operated by independent, local businessmen and women ("Mcdonald's franchise, " 2008).

According to our text, "The fact that sales increased more rapidly in other countries than in the United States shows the importance of entering and understanding foreign markets to U.S. multinational corporations." In other words, microeconomic conditions such as those in the country of China impact heavily upon the macroeconomic strategies of McDonalds (Farnham, 2005). In a recent Wall Street Journal article by Laurie Burkitt, "The fast-food giant said it plans to raise its capital spending in China by 40% next year from this year's level. It will build as many as 200 new stores across the country next year, article, this was further echoed, buoying our textbook analysis (Burkitt, 2010)." The philosophy for McDonalds is to expand. Keeping up means staying ahead in a tight Chinese market where competition is fierce.

Compared to the Chinese experience of McDonalds, Wal-Mart had a much rougher time in Mexico (Farnham, 2008, p. 451). Currently, things are not much better according to the Wall Street Journal in Mexico in particular and in Central America in general Sales were only up by a mere 0.5%, marking the slowest growth rate since April. Even though the company has localized itself (the chain is locally owned by Wal-mex, the scheme that worked so well for McDonalds in China has not worked south of the Rio Grande. What little growth there was due to the "company's acquisition earlier this year of more than 500 Wal-Mart stores in Central America." In addition, Walmex saw a flurry of openings last month, adding 58 stores in Mexico and 10 in Central America. So far in December, the company has opened 15 stores in Mexico and two in Central America ("Wal-mart de mexico," 2010).

In terms of analysis, it is clear that localization is absolutely essential for company survival in any case. However, it is not a panacea. In fact, McDonalds "Chinese" localization is based on a European cafe experience. McDonald's redesigned its restaurants in China to a more relaxed European-style bistro design, a design pioneered by French designer Philippe Avanzi. While it is being accommodated to China's aesthetics, the aesthetic tastes like the taste buds are being globalized ("Mcdonald's to double," 2010).

This author points to the better (albeit marginal success) of Wal-mex, as opposed to Wal-mart and one can see that perhaps what little success Wal-mart has in Mexico and Central America is due to localization. If it is applied more cleverly, it would probably work as well as the China experience of McDonalds. In addition, Chinese restaurants were poor in quality. McDonalds came in to China at a time of cultural change that had prepared Chinese customers politically and culturally for this change which overturned egalitarian values that had been widespread (especially in the Cultural Revolution). Mao is out and Ronald McDonald is in.

In Mexico, the peasantry is much more radicalized and nationalistic. This is a segway for this author to analyze government policies and our two corporations. For instance, October 8 an almost unanimous decision by the town council of Cuernavaca approved the purchase of two pieces of property where Wal-mart sought to build stores. The mobilization of neighbors by peasant organizations is widely seen as having defeated this expansion. This has happened in Tlaltenango. Local governments seem to be working against Wal-mart and the national government seems to be mired in traditional Mexican government (Leon, 2010). According to Wal-mart's website, two brothers of the Mexico City mayor have key leadership positions in the company. Alberto Ebrard Casaubon is listed as the vice president of Bodega Aurrera, a store in league with Wal-mart de Mexico. Additionally Eugenio Ebrard Casaubon serves as the vice president of marketing for Wal-mart de Mexico (Leon, 2010 and "Walmart mexico,"). Given the poor economic performance of the company, such relationships should not surprise anyone, considering that the two cronies have 16 and 12 years of experience with Wal-mart respectively, spanning the time of Wal-mart in Mexico ("Walmart mexico,"). While no one is suggesting China has no corruption, logic dictates that profits bear out which government has a more laissex faire policy. On the other hand, cronism is not the kind of help Wal-mart appears to need any more of.