McDonald's India and EuroDisney: Global Expansion Lessons

Introduction: Globalization and Market Expansion

After centuries of effort to reduce government involvement in the economy, modern society is closer than ever to a free and liberalized market. This has been made possible through the opening of borders and the creation of a stronger, more competitive global market. Countries continue to subsidize their domestic production and discourage imports, and they continue to intervene in the market through a range of fiscal policies. Nevertheless, such decisions are regulated by international bodies such as the World Trade Organization, and the power of national governments to shape the global market has significantly decreased.

In the context of market liberalization and intensifying globalization, economic agents have been presented with numerous opportunities to expand their operations. Two directions are particularly noteworthy:

First, economic agents moving into foreign markets to benefit from the comparative advantages of those countries, such as a more cost-effective labor force or an abundance of specific natural resources. Second, economic agents moving into foreign markets to increase their access to consumers.

Disney and McDonald's belong to the second category: both decided to open new operations in foreign regions in order to increase their market share and revenues. This paper tracks the decisions and implementation of entry strategies by McDonald's in India and by Disney in Europe, and draws specific lessons from their experiences.

McDonald's Entry into India

McDonald's is the leading fast food chain in the world. Its success is due mainly to the taste of its food and its reasonable prices. Additionally, an aggressive growth strategy — pursued through both franchises and wholly owned and operated stores — has contributed to building a strong competitive position.

McDonald's first entered the Indian market in October 1996 with the opening of two restaurants. However, prior to this, the organization had spent six years investigating the market and forming business relationships with local suppliers. Even before the actual market entry, McDonald's executives were committed to sourcing commodities from Indian suppliers rather than importing them. As a result, the period between 1990 and 1996 was spent constructing a cold supply chain. "McDonald's has pioneered the cold chain management system wherein the freshness, crispness and nutritional value of vegetables and processed products are retained" (Sidhpuria).

The decision to use national suppliers was sound from a logistics standpoint given the large distance between the United States and India, but it also rested on other considerations such as cost savings and operational efficiency. In the United Kingdom, by contrast, the American fast food giant chose to import commodities because local prices were higher. In India, the cold chain management system was complex and covered not only commodities but also services. The cold chain activities and the operations of the distribution centers were managed by Radhakrishna Foodland (Sidhpuria). Building partnerships with local suppliers also helped the company improve its image and reputation by supporting local communities.

Another important aspect of McDonald's operations in India is the personalization of its menu to reflect the cultural characteristics of the market. In India, cows are considered sacred, and the restaurants do not sell beef. Pork is also uncommon in Indian cuisine. McDonald's adapted its menu accordingly, offering vegetarian hamburgers and a wide variety of chicken products. The company also integrated rice into its menus and introduced lamb as an alternative to chicken (Adams, 2007).

As the global economic crisis continued to affect populations and businesses, McDonald's India maintained consistent growth rates. Its products became extremely popular, and the introduction of new menu items further increased demand. The increase in sales is attributed to a combination of several factors:

The company creates customer value through affordable prices during times of economic hardship. There has also been a gradual but sustained rise in living standards among Indians, reflected in the growing size of the Indian middle class. Finally, the strong marketing campaigns developed and implemented by McDonald's have reinforced the brand's appeal.

Together, these factors contributed to the transformation of McDonald's products from an occasional treat into a reliable everyday food option. The growth rate was expected to be maintained, and in order to support it, the management team decided to open 40 new stores, bringing the total to nearly 200 locations across India (Bellman, 2010).

Disney's Entry into Europe

Disney's entry into the French market was not as immediately successful as McDonald's penetration of India. The six years McDonald's spent researching the market and establishing business relationships proved to be a valuable component of their eventual success — a preparation phase that Disney did not replicate with equal effectiveness. The Walt Disney Corporation did research the European market before entry and chose a strategy based on direct investment. Disney was already extremely popular in Japan, where the firm had entered through licensing. In Europe, it would own 49 percent of the theme park, while the remaining 51 percent would be publicly owned (Quick MBA).

The second component of the penetration strategy was the selection of locations for the Disney theme parks. Unfortunately, the company was unable to identify the most appropriate sites, which deepened organizational problems with attracting visitors. Furthermore, in a context where European countries were far less accustomed to theme parks than Americans or Asians, the corporation failed to develop and execute the marketing campaigns necessary to familiarize local populations with the product and draw them in.

The company began registering financial losses, and a generalized state of uncertainty arose over whether EuroDisney would continue to operate. Not only were customers poorly targeted and attracted, but those who were interested were often forced to travel long distances, buy tickets in advance, and risk finding the park closed upon arrival.

In an attempt to reduce financial losses, the company set its entry ticket prices higher than those charged in the United States. This decision pushed consumers even further away. Eventually, as competition intensified, the Disney parks reduced their prices as well.

As the amusement park industry in Europe gained momentum, it became increasingly difficult for the company to establish itself. A series of internal changes was eventually implemented. At the most visible level, the French park was renamed from EuroDisney to Disneyland Paris. This decision was supported by the belief that the EuroDisney name carried a negative connotation and was associated with a difficult period during which Europe was seeking unification. A second important change was the replacement of the management team. The original team consisted of American leaders who had proven unable to understand and adapt to the European market. The new management team was drawn from French business expertise, headed by Philippe Bourguignon.

"These changes had a marked effect on the operation of the park. Visitor numbers recovered substantially in 1995 as it became clear that the park would stay open, and the product was made more attractive through the opening of new attractions and lowering of prices. Attendances increased from less than 9 million in 1994/95 to 10.7 million in 1995/96, just short of the park's original target of 11 million visitors. The improved performance of the park was rapidly reflected in better financial figures. Following substantial operating losses in the first two years of operation, the park began to make an operating profit in the 1994/95 financial year, and profits had risen to Frf 200 million ($40 million) by the end of 1995/96" (Laws, Faulkner, & Moscardo, 1998).