Aspects of multinational corporation operations in foreign markets

Multinational corporation can basically be defined as a corporation that has its operations in more than one country or is registered in more than a single country. However, the accurate definition of a multinational corporation is usually difficult to determine. In most cases, such corporations are large in size and involved in the production and sale of products and/or services in several countries. As a result of their operations or registered in more than a single country, multinational corporations can also be described as an international corporation. These corporations usually play a significant role in globalization because of the nature or extent of their operations. An example of a multinational corporation is McDonalds Corporation, which is the leading food service retailer across the globe with over 34,000 restaurants. The company serves more than 68 million customers on a daily basis in more than 115 countries worldwide. McDonalds is regarded as a multinational corporation because it serves a huge customer base in more than 100 countries in the fast food service industry.

Background Information about McDonalds Corporation:

McDonalds Corporation is a company whose history can be traced back to 1954 when it was founded by Raymond Kroc who envisioned a huge new industry. Kroc proved to be an industrial pioneer with similar abilities to Henry Ford because of the way he transformed the restaurant industry in the United States. The transformation of the country's restaurant industry through the development of McDonalds occurred when Kroc imposed discipline in the production of French fries, hamburgers, and milk shakes ("Ray Kroc, McDonalds, and The Fast-Food Industry," 1996). The discipline in production was enforced through the development of a multi-faceted operating and delivery system through which French fries bought by customers in Topeka were similar to those bought in New York City. This revolution enabled McDonalds to have consistency, which made the firm to become the brand name that defined American fast food industry.

Since its introduction, McDonalds Corporation has achieved tremendous success across all its operations. The success of this company is partly attributed to its international expansion and effective global strategy that has contributed to its continued growth. Actually, approximately one-third of McDonalds' operations are outside of the United States. However, the company has also faced several challenges in its international expansion and global strategy because of the difficulties experienced in foreign markets such as antagonistic governmental bureaucracies and unpredictable local suppliers. The other major challenge that the firm has experienced is the need to balance between delivery of unique American products and catering for local tastes. Despite of these challenges, McDonalds Corporation has remained successful throughout its entire operations.

Description of the Company, Industry and Operation:

McDonalds Corporation is described as the leading company in the global fast food industry with over 34,000 local restaurants that serve approximately 69 million people in more than 115 countries across the globe on a daily basis. While it is headquartered in the United States, the corporation basically offers chicken, breakfast items, hamburgers, soft drinks, cheeseburgers, milkshakes, and desserts. Notably, McDonalds expanded its menu recently in response to the changing consumer tastes to include smoothies, salads, fruit, fish, and wraps. Apart from being the leading fast food chain worldwide, McDonalds is also renowned as a symbol of globalization.

McDonalds Corporation operates in the global fast food industry, which is a highly competitive industry ("McDonald's Industry," n.d.). Consumers in this industry make their purchase decisions depending on price and convenience, which implies that customer or brand loyalty is not widespread. The highly competitive environment has several firms including KFC, Wendy's, Taco Bell, and Burger King. Since customers make their purchases depending on price and convenience, the industry is characterized by high buyer purchasing power and low barriers for entry because a new rival is always on the horizon. The profit margins in the fast food industry have reduced significantly in recent years because of increase in energy and oil prices that have also increased prices of commodities like corn and wheat. The intense price-driven competition has made it difficult for industry players to push the margin loses back onto the customers. Nonetheless, while the fast food industry is a difficult industry to be successful and productive in, McDonalds Corporation is still a major industry player and reigns supreme.

Even though McDonalds is a renowned global force, its target entry or operation was based on an initial strategy to take their standardized American practices to foreign countries. Actually, one of the major challenges McDonalds has faced across its global operations is providing a unique American taste while catering for local tastes at the same time. In its initial expansion strategy, McDonalds Corporation focused on providing a unique American taste. However, following resistance from customers in host countries, the company was forced to adopt an internationalization strategy where products and customer service are adapted or based on the host or domestic country ("McDonalds Corporation -- Corporate Report," n.d.). For instance, the corporation was forced to hire hosts in Russia to assist customers to adapt to the fast food industry and market that did not exist in the country. The internationalization strategy has enabled McDonalds to adapt to local food preferences by changing its menu or food items to conform to local food preferences. As a result, the target entry or operation of McDonalds in a host country is to introduce American taste while conforming to local food preferences.

McDonalds' Risks, Opportunities and Threats:

While McDonalds' internationalization strategy has contributed to positive impacts on the company, especially its international expansion, the firm has experienced risks, opportunities, and threats in its global operations. These risks, opportunities, and threats are in terms of the political, legal, and economic environment in the host country. With regards to risks and threats, the results and financial situation of McDonalds Corporation is usually affected by local and international market conditions though the conditions can differ significantly by market. From a political and legal perspective, the legal and regulatory environment in the fast food industry across the globe exposes the firm to litigation, compliance, and certain risks that affect its operations and results.

The modern global environment has been characterized by weak economies that contribute to unrelenting high rates of unemployment, volatility in financial markets, and inflationary pressures. In the recent past, there have been numerous concerns regarding the ongoing Eurozone debt issues that continue to have considerable financial effects on Europe and global markets. These conditions will in turn continue to have significant impacts on consumer confidence and purchasing power and spending while affecting business confidence and spending ("Risk Factors and Cautionary Statement," 2012). As a result, the global business environment is characterized with uncertainties regarding long-term investment opportunities that could additionally slow down capital investment and economic activity. These economic conditions pose several risks and threats to McDonalds including increased operational and advertising costs, probable ineffectiveness, and potential ineffectiveness of its strategy.

From a legal perspective, McDonalds is exposed to complex compliance, litigation and other risks because of the nature of the legal and regulatory environment. In most of the corporation's markets, particularly America and Europe, McDonalds is subject to ever-increasing regulation. The increasing regulation poses some risks and threats to the firm's operations through increasing the costs of doing business or operating in the market. In emerging and developing markets, McDonalds face the risk linked to new and unproven legislation and judicial systems. Some of the significant regulatory and litigation risks that McDonalds must manage include those associated with conflicting and increasingly prescriptive regulations, new regulations that affect business plans, increasing costs of compliance, and changes in the requirements of financial reporting.

McDonalds' opportunities mainly exist or arise from the firm's ability to handle threats and risks from the political, legal, and economic environment. Generally, emerging markets present numerous business opportunities for the company because they are largely untapped markets with the potential of developing a huge customer base for the firm. However, these markets also present high political risks for the corporation because they are relatively faced with political instability. The high political tensions and uncertainties make it difficult for a company to operate effectively in such markets.

Some political risks for this corporation also occur in established markets such as China, which has traditionally been a favored destination for multinational corporations. However, operating in the Chinese market carries political risks for the company, particularly when there is a diplomatic row between China and the firm's parent nation. The political risk in the world's largest national market is brought by the government's attempts to develop Chinese domestic economy through shifting from export-based model (Lindorff, 2012).

Cultural Differences that Create Obstacles for Entry:

Cultural differences play a crucial role in the operations of multinational corporations and international marketing. These differences are important parts of these firms' operations because the multinational corporations operate in cross-cultural environments that affect business strategies and marketing initiatives. When developing a strategy for entering into a new market, it is important for a multinational corporation to consider cultural differences that create obstacles for entry and operation. These cultural differences include variations in language, customs, religion, and/or leadership styles that affect business negotiations and interactions.

In its expansion strategy and entry into new markets, McDonalds Corporation has been forced to deal with cultural differences that could hinder its entry and effectiveness of operations. One of the cultural differences that could create obstacles for entry and operations of McDonalds Corporation is religion and customs in the local country. For instance, when launching its operations in India, McDonalds had to address the custom of vegetarianism because the major issue was beef. This was a major challenge because cows are considered sacred and worshipped in India, which meant that beef could not be served (Kulkarni et. al., 2009, p.4). When launching its operations in Russia, McDonalds Corporation had to deal with the fact that fast food environment was inexistent in this country.

The second cultural difference that creates obstacles for entry and operations is difference in eating habits within a country. Some countries or cultures do not fancy readymade food and consider eating out as a special occasion since meals are essential for social relationships and sharing. The third major cultural difference for McDonalds Corporation is language, especially in countries with a relatively small fast food market. The ability of the company to enter a market successful and sustain its operations in a foreign market is dependent on its ability to communicate with the locals efficiently. Marketing and advertising strategies should be based on local languages in order to appeal to the local customers.

McDonalds' Entry Strategy and Operating Procedures:

As previously mentioned, the success of McDonalds Corporation is attributed to its expansion into and productivity of international operations. The company started its expansion into foreign markets in its early years of operations. Since then, McDonalds has continued to take advantage of numerous market opportunities in various countries across the globe to an extent that its presence has expanded to more than 118 countries globally. The ability of the corporation to successfully launch its operations in different countries and remain successful is attributed to effective entry strategy and operating procedures.

In its initial years of operation, McDonalds focused on taking standardized American food items and practices into international markets or foreign countries. As one of the first companies in the fast food industry to globalize, McDonalds built in overseas operations on spreading the American culture through offering different fast food items. However, the company was forced to change its initial strategy because of the resistance it experienced in some countries where the adoption of the American culture was increasingly difficult. The company adopted an internationalization strategy that focused on promoting the American culture while simultaneously catering for local tastes. As a result, the corporation adapted its products and customer service to the customers' preferences in the domestic country.

In contrast to common beliefs that McDonalds expands into foreign countries because it has saturated its home market, the entry is mainly driven by the mission of the company to have a global presence. The corporation's entry into foreign markets is also influenced by various factors including timing issues, mode of entry, and the appropriate form of entry such as licensing, exporting, or joint venture (Lafontaine & Leibson, 2004). In addition, entry into a foreign market is influenced by the attractiveness of a country as a probable market for an overseas business. This attractiveness is determined through balancing the costs, associated risks, and benefits of doing business in that specific country. Notably, McDonalds' entry strategy and operation procedure is based on internationalization or globalization.

As evident in nearly all of its entries into international markets, McDonalds' entry strategy into overseas markets is through franchising. While this mode of entry is slightly similar to licensing, it usually involves long-term commitments than licensing. Franchising can be described as a specialized form of licensing which involves the sale of intangible property to the new firm and commitment to comply with strict regulations for conducting business. Through this entry strategy, the franchiser obtains a royalty payment that usually accounts to a certain portion of the revenues of the franchisee.

McDonalds has been successful in the use of this strategy because of its enactment of strict guidelines n franchisees should operate the restaurant across various segments including methods of cooking, the menu, design and location, and staffing guidelines. One of the major reasons for the use of franchising in market entry by McDonalds is that it is a cost-effective strategy. Secondly, franchising relieves McDonalds of the various risks of launching operations in an international market on its own. This is primarily because the franchisee assumes the costs and risks associated with launching the operations. Third, franchising make the process of entering an international easy since the company does not have to undergo many complex steps in launching its activities in the market.

Similar to its entry strategy, McDonalds' operation procedures are based on internationalization strategy. The corporation adopted this strategy in response to the resistance it faced with its initial strategy of promoting the American culture throughout the world. This strategy was also adopted as a means of keeping costs low to ensure that the firm remains effective and productive in the market. Through this, the corporation maintains its production initiatives when it enters new countries but often adapts product options and service to the leading practices of the host country ("McDonalds Corporation -- Corporate Report," n.d.). The adaptation is based on the firm's recognition and value of the significance of local cultural traditions and practices. As a result of the adaptation, the firm has embraced local food preferences by changing its menu items to conform to local preferences.

The second operation procedure or strategy used by McDonalds Corporation is adaptation and innovation, which involves manufacturing fresh products and services to cater for the needs of a diverse consumer market (Mourdoukoutas, 2012). These diverse consumer needs are usually influenced by economic, local, and demographic factors. To promote and ensure the production of fresh products and services, the company enforces and maintains strict guidelines for its suppliers to ensure customers have consistent and safe products at all time. Any failure by a supplier to meet these demands forces the company to adapt vertically integrated supply chain in certain markets though this is not a standard practice in its American operations.