International business questions about mcdonalds
The following questions need to be answered in a 500 word essay the company is McDonald’s and I am attaching the research that I have gathered as well as an answer to first question the information just needs to be but together into a solid essay
How has the company’s internationalization process unfolded? Give consideration to whether
and how it can be explained by the Uppsala model of internationalization.
To what extent and in which ways is the company shaped by its country of origin’s
institutional setting?
o Appendices of reasonable length showing the key information and data used
(this does not need to be exhaustive, it should simply give a good idea of the
types and quality of information used and show your research effort) o A complete reference list/bibliography
McDonald’s Internationalisation process
Mc Donalds has diversified its locations by operating over 32,500 restaurants in 118 countries. Also, McDonalds serves an average of 68 million consumers each day. This per day figure has
i
ncreased
by $14 million (30%) since 2001 and $2 million over the past year.
MCD currently divides its revenues into four segments: the United States, Europe, the APMEA
(Asia, Pacific, Middle East, and Africa segment), and other countries (i.e. Canada and Latin America
and corporate sales). Almost 65% of MCD sales are derived internationally. MCD focuses both on
penetrating emerging markets and expanding in developed markets.
McDonald‘s utilizes a variety of international market entry modes for rapid expansion: sole ventures, franchising, master franchising and joint ventures
Franchising has also allowed McDonald‘s to benefit from local
knowledge, demonstrated by the menu differences by country.
Mc Donalds has also expanded internationally through joint ventures Closely linked market firms merging allowed rapid growth and there is a lower financial risk since firms ivest equity stakes in the project
From the beginning of the companys development in the United States, to its spread in England, Australia and more recently India and China, the firm has been able to provide a variety of hamburgers and other foods to its consumers. From the Big Mac, to the Maharaja development have allowed it to fulfill the tastes of locals in every country it operates. Its leaders in all of its major departments have established prices worldwide in all types of currencies, making its foods affordable for customers of all class
UPPSALA MODEL
The Uppsala Internationalization Model (Johanson & Vahlne, 1977, 1990) was initially developed based on case studies of Swedish manufacturers (Johanson & Wiedersheim-Paul, 1975) adopting a behavioral perspective (Andersen & Buvik, 2002; Björkman & Forsgren, 2000) inspired by the work of Penrose (1959), Cyert and March (1963), and Aharoni (1966). The model asserts that a firm’s market knowledge (or lack thereof) would be the driving force of its internationalization path. Market knowledge is seen as a function of psychic distance between home and host countries and the firm’s accumulated experience in each given market. The model contends that (i) firms choose new countries for expansion according to their psychic closeness to the host country, moving to more psychically distant countries only as they gain experiential knowledge from past international operations; and (ii) resource commitments in each selected country increase in incremental steps as the firm gains experience in each market.
The foreign entry mode choice includes two basic decisions (Erramilli, 1992). The first decision is whether production should be conducted in the host country or in the home country. So this is a decision about foreign (local) production versus exporting. The second decision relates to who should control production. This comes to a decision between full control, or sole ownership, modes (either sole exporting or wholly-owned FDI) versus shared control modes (e.g., exporting by agents, licensing, franchising, joint ventures).
BAR, 2008
CRITICISM OF THE UPPSALA MODEL
Uppsala model has a great impact on understanding the Internationalisation process however it contains lack of fundamental bases to describe the Total process . The model suffers in management incentive and its effect on decision making .The model itself ignored some inevitable facts that effects marketing such as franchising which is considered to be a realtively less risky market entry and have the opportunity to build great market coverage and control (Doole, I &Lowe,R,2008) or licensing which requires low levels of investment and provide considerable control over the market (Doole , I &Lowe,R,2008 ) Or strategic alliance and other market operations
The model has been tested mainly in manufacturing industries. However, considering the growing importance of services in the world economy, it is questionable whether the model assumptions would also apply to services.
Services are defined as “…deeds, performances, and efforts that provide benefit to customers” (Cloninger, 2000, p. 9). Such a definition is broad enough to cover all types of services, including those embodied in a product offer.
Internationalisation Strategy: A Case Study of McDonald’s
Introduction
“The McDonald’s logo is the most recognised symbol in the world… even more so than the cross” (Business Insider, 2010: np). They are the world’s largest food-service retailing chain, found in nearly 37,000 stores across 120 countries (McDonald’s, 2017). However, despite this continued expansion they have reported recent losses in both revenues and profits; this has led to a closure of around 1000 of their stores (Fortune, 2015). This may be explained by cannibalism whereby the marketplace can only support a finite number of products/outlets (Igami and Yang, 2016). This suggests that McDonald’s internationalisation strategy may be increasingly inappropriate, or the trend towards ‘healthier food’ is gaining traction. Therefore, the purpose of this essay is to investigate McDonald’s internationalisation strategy, using the Uppsala model to enrich understanding, whilst also providing a critique pertaining to the model’s continued relevance.
In 1960 McDonald’s had 228 restaurants in the USA when they began their aggressive internationalisation expansion, by 1988 they had 2600 foreign restaurants; the objective was to increase outlets by 36% annually (Hayley and Boje, 2014). Given the unprecedented speed of this internationalisation, it was essential to have some limit underpinning this, to avoid early cannibalism. Therefore, then president Jim Cantalupo created his theorem based upon on the per-capita income of each country (compared against America’s), population, and number of people for every McDonald’s restaurant in America (Fortune, 2003). This is consistent with the first tenet of the Uppsala model, stating that firms first gain experience in their domestic country, and use this as a blueprint to expand (Johanson and Vahlne, 2009). Using Cantalupo’s theorem quantitatively Japan would have been the next most lucrative country, with the likes of China, India, Colombia and South Africa close behind. However, they first expanded into Canada, Britain, Australia and Europe. Whilst this is consistent with the cultural similarity tenet of the Uppsala model, the model also posits a firm will expand to countries that are geographically close (Forsgren, 2002). This coincides with a criticism of the model, stating that it has not taken into account the transition from a neoclassical market with lots of independent suppliers, to a web of relationships (Johanson and Vahlne, 2009). This can be explained by the global increase in efficiency and therefore importance of supply chains, facilitated by technology, therefore geographic distance is not so much of a limitation anymore (Vahlne and Johanson, 2013). Similarly, in McDonald’s case the export element is largely irrelevant; given that they have created a global supply chain. This coincides with Carneiro et al’s., (2008) criticism that the model is not applicable to service-based firms.
There were two key stages facilitating McDonald’s internationalisation. First, wholly-owned subsidiaries (WOS) were setup in culturally close countries, whilst in culturally distant ones they set up joint ventures and licencing agreements (Hayley and Boje, 2014). This is consistent with the Uppsala model’s proposition that a firm will not commit significant resources until increased levels of experiential knowledge is acquired (Figueira-de-Lemos et al., 2011). Joint ventures share capital risk between partners, whilst licencing is completely capital risk-free, and on the other end of the spectrum WOS’s are high-risk / high reward (Chan, 1995). This illustrates the Uppsala model’s usefulness in explaining how MNCs mitigate risk during expansion. The second stage was deploying their brand to legitimise organisational narratives to external stakeholders; they built upon their initial learning in each respective country to include variations, for example beef-less hamburgers in India and rice with happy meals in Japan (Forbes, 2012; Hayley and Boje, 2014). This is also consistent with the learning element of the Uppsala model; however the tenet underpinning the whole model is that firms ‘gradually’ expand overseas (Hashai and Almor, 2004). However, there is nothing remotely gradual about McDonald’s expansion. For example they opened their first store in (culturally distant) China in 1992, by 2000 they had 1000 stores, aiming to double this by 2013 which they successfully did (McDonald’s, 2017; Reuters, 2010). Figure 1 below illustrates their store growth over the last 11 years, which despite cannibalism, and the consequential store closures, has increased 20%.
Global Number of Outlets
