GLOBAL BUSINESS MANAGEMENT

Project : McDonalds

Submitted To: By:

Supervisor: Sir Imran Khan Fatima Ishaque(Fa10-bba-168)Abdul Basit Zafran(FA10-BBA-162)Saad Hassan(FA10-BBA-144)Faizan Kiani(FA10-BBA-036)

Abstract

McDonalds most particularly, known as a symbol of the United States. However, examining McDonalds internationalization and development abroad suggests that McDonalds and the others of its kind are sources of development for mid-range countries. McDonalds brings training in management, encourages entrepreneurship directly through franchises and indirectly through demonstration effects, creates backward linkages that develop local suppliers, forward exports by their suppliers, and has positive external effects on productivity and standards of service, cleanliness, and quality in the host Economies .Our research is also based on the analysis that covers the SWOT and PESTLE aspects. The other factors will also be discussed i.e demographic, geographic and religious aspects and cultural and communicational issues will be discussed that may affect this business directly or indirectly

Key words : productivity spillovers, foreign direct investment, SWOT, PESTLE

Background

McDonalds was one of the international food chains to operate in Pakistan. The world-renowned fast food Burger Giant came to Pakistan in 1998 and now has around 27 dine-in, takeaway and delivery outlets in all major cities i.e.: Karachi, Lahore, Islamabad, Multan, Peshawar etc.

McDonalds is owned by the Lakson Group of Companies. McDonalds F-9 Park is one of the 27 outlets. Although numerous local vendors have tried to copy the original McDonalds concept. McDonalds Pakistan gives tough competition to all and is still one of the best Fast Food Restaurants in Pakistan. McDonalds has been quite innovative in Pakistan; to its credit it has introduced the most mouthwatering burgers and the most deliciously yummy nuggets and ice creams such as McChicken Burger, Chicken McNuggets, McFries, McChicken Wings, Spicy McCrispy Chicken Deluxe, etc. McDonalds outlets retain the family-style enjoyment concept and offer a casual dining environment. Complimented with other mouth-watering menu items like Sandwiches, Desserts and Beverages.

Off late the 24 hour delivery of McDonalds Menu Products has taken over the traditional dine-in format. All in all the McDonalds Slogan Im Loving It truly is correct and as affordable prices and local popularity make it a hot spot for company lunches and birthday dinners..

McDonalds is the largest and best known global food services retailer with more than 30,000 restaurants in 121 countries. Its outstanding brand recognition, experienced management, high quality food, site development expertise, advanced operational systems and unique global infrastructure ensure a position that enable us to capitalize on global opportunities

Objectives

Our aim is to simply claim that the presence in a country of fast-food chains in general, and McDonalds in particular, is also a source of benefits. The effect of McDonalds entry has been to introduce some positive changes in its host countries and one may therefore consider McDonalds a cause of economic development.

More specifically, McDonalds provides management training, encourages entrepreneurship, creates backward linkages that develop the capabilities of suppliers, promotes exports, and generates positive externalities in the form of productivity levels and service standards in the countries in which it operates.

McDonalds F/9 (visited branch)

We visited franchise of McDonalds located in Islamabad (Pakistan) and conduct a research in the form of interview. We will ask them for their policies. How do they provide training.How McDonalds has played a part in promoting the development of entrepreneurship in host economies both directly through its joint venture and franchise operations. Why they contact with the local suppliers .our research is based on how McDonalds establish the scale of the benefits that associates in management training, encouraging entrepreneurship, developing local suppliers ,promoting exports, improving productivity , standard of service and animal welfare.

Section- A

Providing training Promoting entrepreneurship Promoting exports Generating positive externalities

Providing Training

McDonalds base their values on QSCV standards (Quality, Service, Cleanliness, and Value), the glue that binds the essentially polycentric companys international operations together, depend on training, Trainees learn all 25 positions in a store, from front counter to the grill, on-the-job under the supervision of crew trainers.What matters here for development is not the skills themselves, but the introduction of the staff, many of whom work on a part-time basis and who go on to careers outside McDonalds, to the basic requirements of the workaday world and to a modern organization. As an aside, it is worth noting that employment standards at franchise stores may be better than those at equivalent independent operators on other grounds. Literature review says that U.S. sample that once they controlled for industry size and some other issues, franchise operations appeared on important dimensions to offer better jobs with more sophisticated systems of employee management than similar non-franchise operations. The manager stated that In addition to on site training of staff, McDonalds maintains a system of formal schools. All managers and franchisees receive business management and store operations training in McDonalds exercises both selection and development with respect to its franchisees. From among the applicants, McDonalds picks as prospective franchisees individuals who have had significant successful experience with owning or managing multiple business units or multiple departments. It then Promoting Entrepreneurship

McDonalds has promoted the development of entrepreneurship in host economies both directly through its joint-venture and franchise operations, and indirectly in inspiring competition. All this is in addition to any effect it has had on its suppliers In Asia, McDonalds has used joint-ventures with local partners with good contacts and local knowledge; local law permitting, McDonalds will take a majority share In riskier foreign markets, McDonalds simply licenses its name, while retaining an option to acquire. In choosing its licensees McDonalds looks for individuals with good local standing.In Saudi Arabia, the licensee for the Eastern Region is a member of the Saudi royal family; in the Western and Central Region ,the licensee is member of one of the richest merchant families in the Kingdom. Because McDonalds favors engaged entrepreneurs as owners, it generally avoids investor groups or passive investors. Licensees, like franchisees, must follow to the QSCV standards. The company expects its franchises not only to meet the QSCV standards . To qualify for a franchise a prospective owner must make a substantial down payment that must come from non-borrowed personal resources, exclusive of the owners home. This requirement is both a screening device and a bond. Furthermore, because franchisees would lose their down payment if they lose their license due to a failure to maintain the QSVC standards, they have an incentive to maintain those standards. Lastly, McDonalds has a tradition of bottom-up innovation. As owners, the franchisees have an incentive to innovate to improve their profitability; menu innovations franchisees have introduced include the Big Mac, Fillet-o-Fish, and Egg McMuffin. Similarly, franchisees and affiliates have introduced operating innovations such as improved meat freezers (Sweden), pre-fabricated modular stores (The Netherlands), and mini, satellite stores (Singapore). This phenomenon demonstrates Knotts (2000) argument for the dynamic value of hierarchy. McDonalds management selects among the innovations and promotes the diffusion throughout the system of those that it thinks will benefit the company. McDonalds ability to appropriate the ideas may expect some innovation. McDonalds has also encouraged entrepreneurship indirectly by inspiring competitors. It has come to face local competitors in the hamburger market, and competition from entrepreneurs who have applied the fast food approach to Original or other cuisinesPromoting Exports

After McDonalds certifies products for use in its local stores, it works with the manufacturers to enable them to supply McDonalds stores in neighboring countries as well. Being an ally of McDonalds in several markets strengthens the alliance for both the local firm and McDonalds. Furthermore, by facilitating exports, McDonalds largest international supplier of French fries is McCain Foods, a privately-owned firm based in New Brunswick, Canada. McCain is the world's largest maker of French fries and includes McDonalds competitors such as KFC among its customers. McCain has more than 55 plants (producing a variety of foods, not just potato-based ones) in 18 countries and sells to over 100 countries McDonalds forces its suppliers to meet world standards; selling to McDonalds is the equivalent of exporting. As the examples show, having met world standards. Manager stated that We know, because McDonalds is proud of the statistic, that over 70% of its executives started in its stores. What we would like to know, but do not, is how many managers of other companies, especially in developing and emerging economies, received their first management training in McDonalds, or other foreign fast-food chains. Generating positive externalities

Our research found a recent report included the food retailing sector in Mexico and Brazil, suggests that FDI generates positive externalities .In the sectors studied, FDI raised productivity and output levels, while it lowered prices and improved the quality and selection of products and services for consumers. Furthermore, the authors found that in every instance the foreign companies paid employees wages that were equal to or greater than those that domestic competitors paid. McDonalds emphasis on cleanliness, including or especially in restrooms, has led its competitors to upgrade their facilities. Over time, competitors felt compelled to meet McDonalds cleanliness standards.

Section- B

SWOT Analysis PESTLE Value Chain Analysis Key Success Factors

SWOT Analysis

This SWOT analysis shows us that although there are numerous threats against the fast-food industry, McDonalds occupies a relatively strong position in the global marketplace. According to the five forces model, the strongest competitive force is between rival sellers in the industry. This SWOT analysis shows the many strengths that Mc Donalds employs to keep itself at the top of the fast-food industry. McDonalds has a strong enough consumer base to grow in the upcoming years. The financial analysis shows certain flaws in McDonalds finances, but these are largely due to the expansionary policy in place in the company.

Strengths1. Owns one of the worlds best known brand names2. Real estate operations bring in large revenues and allow McDonalds to open more stores3. Countless new innovations- breakfast, playpens, etc. 4. Specialized training for managers5. Reinstitute the restaurant review operation (QSC)6. Large market share7. Strongest international presence among fast-food chains8. McDonalds does not need to act as finance corporation to franchises9. McDonalds Plan to Win- focuses on people, products, place, price and promotion

Weaknesses1. Customer service ranking is the lowest among fast-food chains2. Many stores beginning to look dated3. Quality becoming inconsistent4. Order accuracy is low compared to other chains

Opportunities1. Diversification and acquisition of other quick-service restaurants2. Low-cost menu to attract different customers3. Initial public offerings in other countries could raise revenues4. Retail merchandise potentially used to raise revenues Threats1. Increased competition among rival sellers, including price wars, product innovation, and growth2. Health conscious consumers demanding better quality, healthier menu items3. All fast-food chains expected to struggle to meet new consumer health expectations4. Overall weaker economy

PESTLE

PoliticalThe territorial issues and border conflicts with India ,the socio-economic difference within the country, the struggle for a share of power between the provinces, the terrorism issue, the long decade of dictatorship of yahya, Ayub, Zia and Musharaf and violence in difference parties are the nightmares for investors in Pakistan. For long time ago the country knows some trouble which could prevent investors to invest in Pakistan.Political instability is regarded as a serious harm to a companys performance .Political instability leads to lower economic growth. Socio political instability generates an uncertain politico-economic environment.It reduces savings, as well as foreign and domestic investment also destroys investment in human capital.Economical

Pakistan is a developing country where people belong to the middle class. The high prices of McDonalds products are not cheap for them to buy. People go McDonalds off and on to have their meal.According to reuters (april 21,2011) McDonalds forecast higher prices for beef, chicken, dairy and other items and said it would cautiously raise prices to keep attracting consumer, who are already struggling with higher grocery and gas bills particularly in the developing countries

National Income ; 4.8 % (2013) , 3.4 % (2012), 1.6 % (2011)Inflation Rate : 13. 9 % (2013) , 13.6 % (2012)

Sociological

Ritez describes that a culture possesses the characteristics of a fast food. Ritzer says that fast food restaurant have become more representative in contemporary paradigm.The McDonalds company stops advertizing on t.v during day time at Ramadan as Muslims are fasting at day time. McDonalds serves halal food, also try to avoid any cultural or ethical trouble.

TechnologicalPakistan is a developing country where it is not easy for everybody to get access to technology managing .Its day to day challenges and operations is a major challenge and that the information and communication technology reqyirment and infrastructure should be well placed.In this age technology is a key element in ensuring a companys success . Mc,Donalds ingredients are made by machine but a good training is provided to all the staff thats why they are quick and able to serve people quickly.

LegalMc.Donalds have been involved in many legal cases in the 70 years history.In country like Pakistan the big issue for them is trademark . Due to lack of technology in Pakistan, It is very hard to trace out the trademark of a company there

EnvironmentalAll the restaurants in Pakistan operate very much as a part of their local community and quite naturally. People love to eat a healthy place.Environmental issues are one of the most important factors as it is related to exhaustible and renewable natural resources

Value Chain Analysis The value chain at McDonalds is very competitive in the global fast-food industry. The following table shows the costs and markups associated with McDonalds signature hamburger, the Big Mac, bought at a McDonalds. The Big Macs average price of $2.80 compares favorably to the various signature items at other fast food retailers, such as Burger King and Wendys. The royalties are paid by franchisees back to the McDonalds.

Value Chain Analysis

McDonald's Production Costs $ 0.65McDonald's Overhead Costs $ 0.70 Royalties4% Service Fee $ 0.13Total Costs $ 1.48Retail Markup $ 1.32 Average price to Consumer $ 2.80

Key Success Factors

McDonalds short term financial objectives include cutting its capital expenditures by 40 percent. McDonalds will use the extra money pay off debt and return some cash the shareholders by repurchasing shares and paying out more dividends. Its long term financial objectives include annual sales growth of 3-5 percent with one to three percent of this growth coming from existing stores and two percent coming from new stores. They also include an increase in operation income capital investments. For the past ten years one McDonalds key success factors has been its franchises, taking in approximately 60 percent of total sales. McDonalds own restaurants bring in less than 30 percent of its sales but at the same time that money comprises a fairly significant portion of total income because the company keeps and applies 100 percent of those profits rather than just a portion of the franchises profits. McDonalds receives funds from its franchises in two ways. There is monthly service fee that varies but most recently in 2002 was 4 percent of total monthly sales. Another manner in which McDonalds receives funds from its franchises is in rent money. McDonalds owns all property in which a McDonalds outlet was built regardless if the location is a franchise or company owned. It is estimated that McDonalds generates more money from its rent than from its franchise fees. McDonalds also markets excess land, property and buildings on the web. Between rent and profits from land sales, McDonalds real estate represents a significant portion of its overall company value along with ventures in earning income will allow McDonalds to continue to be successful and profitable in the future. One of McDonalds key success factors has been its implantation of its Plan to Win. The plan focuses on five key drivers of success; people, product, place, price, and promotion. The first factor is McDonalds people or employees. McDonalds is striving to do a better job of staffing during busy periods as not to overwhelm and to reward outstanding employees for exception work. It is also putting more emphasis on its hospitality training to ensure a friendlier and customer focused support staff. The second factor is the customer experience. In response to a changing taste preference and growing interest in healthy foods, McDonalds introduced the McChicken and McGriddles as well as offering white meat for the chicken McNuggets. In addition McDonalds added several premium salads.

The third factor was restaurant appears, putting much focus on cleanliness and modern environment. As a part of this McDonalds has installed wireless technology and added coffeehouses in some of restaurants. These few carried premium coffee, muffins, and pastries at low price to enhance adult appeal. In addition to this McDonalds has gone as far to renovate, rebuild and even relocate some of its buildings in order to create a fresh and friendly family atmosphere. The fourth factor was on price, putting much focus on productivity and value. McDonalds has concentrated much effort on products that appeal to price sensitive customers, thus it implantation of the dollar menu. The final factor was promotion and a continuing focus on building trust and brand loyalty. In its recent campaigns McDonalds has advertised using the slogan Im lovin it which it there attempt to make McDonalds an easy choice for families. They have also started using popular or main stream music to attract an ever growing youth population.

Section-C

Recommended Strategy Competitors Analysis Conclusion

Strategy

McDonalds already holds a strong position in the global economy. Our recommendation is that they decrease expansion in the almost saturated domestic markets, and continue their expansion in foreign countries, such as Asia, and the Pacific. Companies generally expand into foreign markets in an attempt to gain new customers and capitalize on core competencies. McDonalds core competency is that they are able to produce and sell quick and cheap food to a large number of customers. With this concept, they have been able to expand into other countries, and they currently are the largest global fast-food chain in the world. Since they already hold this profitable position, they should continue expansion in an effort to drive out competition. One strong recommendation would be for McDonalds to expand into emerging markets. Since they focus on low-priced food, it is likely that many could afford their products, and therefore, McDonalds could expand into a stronger company.

Executing the strategy and control McDonalds has needless to say already made a presence in the market and had made itself a household name. It is already the largest hamburger chain in the world. Therefore, it needs to continue onward with its successes while being a head every time with new product innovation, marketing schemes, technology development, customer service, employee training. By improving the standards and raising the bar a little higher for employee expectations will result in success stories from stores world wide. The Plan to Win strategy is important in the offensive strategy because it is about being innovative and challenging to the competitors. It proves that McDonalds is not just about profit only, they have made great leaps to show appreciation for their employees. Happy employees will result in better performance and give the reputation a whole new look on top of its current one. One of McDonalds key success factors has been its implantation of its Plan to Win. The plan focuses on five key drivers of success; people, product, place, price, and promotion. The first factor is McDonalds people or employees. McDonalds is striving to do a better job of staffing during busy periods as not to overwhelm and to reward outstanding employees for exception work. It is also putting more emphasis on its hospitality training to ensure a friendlier and customer focused support staff.

Competitors Analysis

McDonalds has a lot of competitors. In the food sector there is a huge growth potential in emerging market, leading chain like subway, Burger King, and Wendys have redoubled their focus on growth in these markets. This translates to increased competition for McDonalds, Starbucks, KFC and Dunkin Donuts have also announced plans to enter the country. Subway recently surpassed McDonalds in total number of restaurants worldwide. McDonalds is still the leader in terms of revenue. The big challenge for McDonalds in future will be to maintain their food quality and providing excellent service to attract more people

Conclusion McDonalds has seen many changes, good and bad during its creation and duration of the business. As long as the core competencies are recognized and never forgotten, then this business will continue to succeed. With every issue and challenge the corporation faces, it has the opportunity to improve itself and prove itself to the public, shareholders, and stakeholders. With every battle conquered, another one rises and with a secure mission and vision in mind, the corporation should never stray too far from the roots and success of the company. The recommended strategy will strengthen this plan because it is doing what McDonalds does best and more so. Despite the downturn the company has seen, the general impression we receive from McDonalds financial situation is that the company is slowly climbing out of a low period and making a turnaround. We must never forget the key success factors of the business which really makes the business for what it is today, including franchises that offer quick, efficient service in a clean friendly environment It would be worthwhile for researchers to establish the scale of the benefits that McDonalds and its fast food brethren bring in the areas of providing management training, encouraging entrepreneurship, developing local suppliers, promoting exports, and improving productivity, standards of service.