McDonald's Global Strategy: Entry, Operations, and Risks

Introduction to Multinational Corporations and McDonald's

A multinational corporation can broadly be defined as a corporation that has operations in more than one country or is registered in more than a single country. However, arriving at a precise definition is often difficult. In most cases, such corporations are large in size and involved in the production and sale of products and/or services in several countries. Because of their operations across multiple nations, multinational corporations are also commonly described as international corporations. These corporations typically play a significant role in globalization due to the nature and extent of their operations.

A prime example of a multinational corporation is McDonald's Corporation, the leading food service retailer across the globe with over 34,000 restaurants. The company serves more than 68 million customers daily in more than 115 countries worldwide. McDonald's is regarded as a multinational corporation because it serves a vast customer base across more than 100 countries in the fast food service industry.

Company Background and Industry Overview

McDonald's Corporation has a history that can be traced back to 1954, when it was founded by Ray Kroc, who envisioned a major new industry. Kroc proved to be an industrial pioneer with abilities comparable to Henry Ford's, given the way he transformed the restaurant industry in the United States. This transformation occurred when Kroc imposed discipline in the production of French fries, hamburgers, and milkshakes ("Ray Kroc, McDonald's, and The Fast-Food Industry," 1996). That discipline was enforced through a multi-faceted operating and delivery system under which French fries purchased by customers in Topeka were identical to those bought in New York City. This consistency made McDonald's the brand name that defined the American fast food industry.

Since its founding, McDonald's Corporation has achieved tremendous success across all its operations. That success is partly attributed to its international expansion and effective global strategy, which have fueled continued growth. Approximately one-third of McDonald's operations are now located outside the United States. However, the company has also faced challenges in its international expansion because of difficulties encountered in foreign markets — including antagonistic governmental bureaucracies and unpredictable local suppliers. Another major challenge has been the need to balance the delivery of distinctly American products with catering to local tastes. Despite these difficulties, McDonald's Corporation has remained successful throughout its operations.

McDonald's 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 every day. Headquartered in the United States, the corporation primarily offers hamburgers, cheeseburgers, chicken, breakfast items, soft drinks, milkshakes, and desserts. Notably, McDonald's recently expanded its menu in response to changing consumer tastes to include smoothies, salads, fruit, fish, and wraps. Beyond being the leading fast food chain worldwide, McDonald's is also widely recognized as a symbol of globalization.

McDonald's operates in the global fast food industry, which is highly competitive ("McDonald's Industry," n.d.). Consumers in this industry make purchasing decisions based largely on price and convenience, meaning that brand loyalty is not widespread. The competitive environment includes major players such as KFC, Wendy's, Taco Bell, and Burger King. Because customers choose primarily on the basis of price and convenience, the industry is characterized by high buyer purchasing power and low barriers to entry. Profit margins in the fast food industry have declined significantly in recent years due to rising energy and oil prices, which have also driven up the cost of commodities like corn and wheat. This intense price-driven competition has made it difficult for industry players to pass margin losses on to customers. Nevertheless, McDonald's Corporation remains a dominant player in this challenging industry.

Although McDonald's is a renowned global force, its original target entry strategy was based on taking standardized American practices to foreign countries. One of the major challenges the company has faced across its global operations is providing a distinctly American taste while simultaneously catering to local preferences. In its initial expansion strategy, McDonald's focused on delivering that American taste. However, following resistance from customers in several host countries, the company was compelled to adopt an internationalization strategy under which products and customer service are adapted to the host country ("McDonald's Corporation — Corporate Report," n.d.). For instance, the corporation hired hosts in Russia to help customers adapt to a fast food market that had not previously existed there. This internationalization strategy has enabled McDonald's to accommodate local food preferences by adjusting its menu to conform to local tastes. As a result, the company's operational target in a host country is to introduce American-inspired food while conforming to local food preferences.

Risks, Opportunities, and Threats in Global Markets

While McDonald's internationalization strategy has contributed positively to its growth — particularly in international expansion — the firm has encountered risks, opportunities, and threats in its global operations. These arise from the political, legal, and economic environments of host countries. With regard to risks and threats, McDonald's financial results are affected by both local and international market conditions, which can differ significantly across markets. From a political and legal perspective, the regulatory environment in the global fast food industry exposes the firm to litigation, compliance requirements, and other risks that affect its operations and results.

The modern global environment has been characterized by weak economies that contribute to persistently high unemployment, volatility in financial markets, and inflationary pressures. In recent years, concerns over the ongoing Eurozone debt issues have continued to have considerable financial effects on European and global markets. These conditions affect consumer confidence, purchasing power, and spending, while also dampening business confidence and investment ("Risk Factors and Cautionary Statement," 2012). The resulting uncertainties around long-term investment opportunities can slow capital investment and economic activity more broadly. These economic conditions pose several risks and threats to McDonald's, including increased operational and advertising costs and potential ineffectiveness of its strategy.

From a legal perspective, McDonald's is exposed to complex compliance, litigation, and other risks because of the regulatory environment in which it operates. In most of its major markets — particularly in America and Europe — McDonald's is subject to ever-increasing regulation. This increasing regulation raises the costs of doing business and conducting operations. In emerging and developing markets, the corporation faces risks linked to new and unproven legislation and judicial systems. Significant regulatory and litigation risks that McDonald's must manage include those associated with conflicting and increasingly prescriptive regulations, new rules that affect business plans, rising compliance costs, and changes in financial reporting requirements.

McDonald's opportunities arise mainly from the firm's capacity to navigate political, legal, and economic threats. Emerging markets, in particular, present considerable business opportunities because they represent largely untapped customer bases with significant growth potential. However, these same markets also present elevated political risks due to relative political instability. High political tensions and uncertainties make it difficult for a company to operate effectively in such environments.

Political risks also exist in more established markets such as China, which has traditionally been a favored destination for multinational corporations. Operating in the Chinese market carries political risk, particularly when diplomatic tensions arise between China and the corporation's home country. The political risk in the world's largest national market is compounded by the government's efforts to develop the domestic economy through a shift away from an export-based model (Lindorff, 2012).

Conclusion

McDonald's Corporation exemplifies a multinational corporation that has achieved significant profitability and sustained success across its operations. Since its inception, the firm has employed effective entry strategies and operating procedures that have enabled it to expand into international markets and maintain that success. A central driver of its performance has been its ability to balance the promotion of American culture with the provision of locally appealing food items — a balance that remains both the company's greatest strength and its most persistent strategic challenge.

References

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