Corporate Level Strategies of MC DONALDS

Corporate level strategy is a strategy which is aimed at the long term position of a business. A company for instance, may consider where it will be in 10 years time and should decide in what ways it should reach the aim by pursuing certain strategies and directions. A corporate or business can use variety of methods to develop a corporate level strategy but, there are four main strategies that almost all businesses use which are: Concentrate on a single business, which means that the business stays on the same

industry or activity in order to create a strong competitive position within the industry.

Diversification; which is to move to a new business to provide a new good or service. There are two kinds of diversification, related diversification which is to compete in similar area/industry of activities to build a synergy and unrelated diversification which is to enter a new industry to compete and build a portfolio strategy.

International Expansion. This is to compete in more than one market to serve the needs of the other markets/countries.

Vertical Integration. This is a way to cut costs by providing your own ways of inputs, backward vertical integration and your own channels of distribution and selling outputs by forward integration.

Mc Donald’s is a fast food restaurant operating on a global basis. It is operating on 119 countries world wide. Mc Donald’s was opened for the first time in Cyprus, larnaka in June 1997 and by now there are 16 Mc Donald’s restaurants in Cyprus.Mc Donald’s uses corporate level strategies like all other global basis corporations in order to reach corporate goals to be cost effective.

MC Donald’s is a business which only concentrates on a single task which is the fast food business industry as stated by Dr. Weber, (2000). This will help the business to concentrate on a single task and gain power, market share and consumer loyalty in result. This is because they will run many strategies, plans and researches to find the best solutions of the consumer needs and preferences. However this can be very risky if the business fails to meet the right needs of consumers and therefore will not be profitable and as a result will close down due to bankruptcy.

As stated in Washington post (2005) MC Donald’s diversifies its operations in many ways. The firm uses related diversification which is to produce similar products which are burgers and salads mainly but in variety of choices e.g. Big Mac or Mac chicken, different kinds of salads, and also they operate in more than one geographical area but still performing the same task. Also it has opened MC cafes all around the world. Mc Donald’s gains many advantages by doing related diversification, firstly, if there are two Mc Donald’s restaurants in a city, then the two firms can build a synergy by co-operating and coordinating together to enjoy the same facilities such as the advertisements, suppliers and even events such as charity events. Secondly, as stated by Ricky, W (2003),

the firm depends less on a single product, so it’s less vulnerable to competitive or economic threats. This means that Mc Donald’s having variety of products like burgers, salads, ice creams and drinks does is not being threaten of competition because it has diversity in its products, for instance, Mc Donald’s Greek Mac makes it stronger than the rivals like Burger King because the rivals don’t have such product. Thirdly, it allows the firm to use technology or expertise developed in one market e.g. fast food to enter a second market more cheaply and easily e.g. MC Café. However, the only disadvantage that Mc Donald’s faces, is the cost of coordinating the operations of the related divisions. In 2001, McDonald's launched a new venture by opening two hotels in Switzerland (Zurich and Lully) under the name "Golden Arch Hotel. Stefan, M (2005).This is a good example of an unrelated diversification because Mc Donald’s is spreading the risks of its business from a single activity to many others like taking part in the Hotel industry. Unrelated diversification provides a portfolio for Mc Donald’s because it is operating on two different industries and the risk is reduced because if one of the two markets that the business has activity in fails to grow successfully, then the growth of the other market will cover the costs of it. Secondly, such conglomerate strategy is less vulnerable to competitive threats because any given threat from a competitor is likely to affect only a portion of its total operations. However, unrelated diversification is very difficult to manage since the company has to deal with two markets and their strategies, plans and organization and coordination of each specific market which it is dealing with.

McDonald’s has introduced the American concept of fast food and franchising to many foreignMarkets as stated by, Francine L, (2005). Moreover, the firm has by now, expanded throughout most of the world by operating on 119 countries. Mc Donald’s is known globally today because it is expanded internationally. Mc Donald’s is using multi-domestic strategy to serve each nations needs. It is customizing the fast food menus for each specific country/nation to suit the people’s wants. For instance there is Greek Mac in Cyprus and Greece. The advantage of this strategy is that the company is targeting a nation very effectively and gains market share by attracting the customers whereas, the cost of production will increase in order to add a new feature to the firm and the prices will rise to cover the costs.

As stated in “Getting the Facts Straight” leaflet of Mc Donald’s, the firm is working with top suppliers and independent experts on health and safety. The Cyprus Mc Donald’s restaurants’ inputs such as meat, is ordered regularly from Italy with the highest quality and when they enter the island, it is supplied to all the franchise branches on the island by Mc Donald’s vans and trucks. This shows that Mc Donald’s owns its inputs and has its farms to breed cattle and grow vegetable and potatoes. This allows the firm to lower the costs by doing vertical backward integration, if not the firm had to pay extra money every time for getting the supplies. Also it, maintains a guaranteed time, quality and amount of supply to the restaurants when required. The drawback of vertical integration is that, at the beginning of the integration huge amounts of capital should be invested in to the backward integration.

Mc Donald’s business has been working since 1956 till now successfully and still operates under these corporate level strategies.

References:

Mc Donald’s website available at: www.mcdonalds.com.cy Dr. Webber, w , (2000) available information online at:

http://www.csupomona.edu/~wcweber/301/301slide/ch07301/sld019.htm Washington post co. , (2005), information available at:

http://www.washingtonpost.com/wp-srv/business/post200/2005/MACD.html Ricky, W (2003) International Business 3rd edition, prentice hall international Stefan, M, (2005) information available at:

http://www.thunderbird.edu/about_thunderbird/case_series/2005/_05-0017.htm Francine ,L, (2005) information available at:

http://www.ftc.gov/be/seminardocs/04beyondentry.pdf MC Donald’s “getting the facts straight” leaflet from Mc Donald’s orphanides.