Internalization Of Mc Donald

Marketing Strategy of an

International Corporation

Economic Environment

During the last half of the twentieth century, several barriers to international trade fell. In the present economy, a successful corporation is one that thinks globally, making decisions with an understanding of the nature of global industries and dynamics of global competition. Gaining the competitive advantage hinges on a well designed global strategy. The McDonald's brand, for example, has achieved solid growth in its international division for the past fifteen consecutive years. Its international division now accounts for almost sixty percent of corporate profits. The McDonald's global success story is set in an aggressive growth, competitive standard-cycle market and hinges on a strategy that includes a market-leading multi-domestic strategy that includes careful external environmental scanning, innovation, and tactical competitive action that builds on its core competencies.

The Golden Arches and Ronald McDonald are the non-inimitable trademarks and a source of worldwide recognition. Next to Santa Claus, the most instantly recognized figure in the world by children is Ronald McDonald (see picture to the left), the clown who serves as the company's "chief happiness officer". In the United States, McDonald's has always been associated with cleanliness, family, service, value, and community.

McDonald's community activities and corporate sponsorship have created a brand that transcends food and adds value to other areas of our lives. McDonald's sponsors activities in communities around the world. Through Ronald McDonald House Charities and The McDonald's Education Achievement Award, McDonald's prominently supports the health, education, safety of children. For decades, the Golden Arches have been branded on televisions during world broadcasts of the Olympics Games. McDonald's wants its customers to think that it supports their lifestyle, values.

None would question McDonald's continued dominance of the fast-food market. Nevertheless, in recent years, the company has launched an unprecedented expansion to increase market share, as Burger King Corp. and other rivals gained ground with tastier products and sharper marketing. But the additional stores have cannibalized business at existing locations, squeezing franchisees' profits per outlet. The US fast food market, with more than 12,000 restaurants, is considered by many analysts to be saturated. McDonald's and its competitors were merely vying for larger shares of the limited market. With the rest of the world hungry for hamburgers, French fries and everything else Western, it was time for McDonald's to focus on global growth.

The 1st global locations were in British Columbia, Canada and Puerto Rico in 1967, with the International Division creation in 1969. In 1971, restaurants were opened in Japan, Poland, Germany, Australia, Guam, Holland, and Panama. By 1998, there were almost twenty-five thousand restaurants in the US, but just over nine thousand McDonald's locations worldwide. Less than one percent of the world's population was served daily by McDonald's. The potential seemed endless. Where would it sink it's teeth? Countries with the largest population and least presence from non-local restaurants would have the high profit potential. With a combined population of billions, the industry environments in China and India were craving McDonald's.

Significant growth in these markets was not painless. The general environment was quite different from that in the States. In India, the nation with the largest population of vegetarians, how could a brand that conjures images of meaty Big Macs and Quarter Pounders be successful? How would this skeptical country be assured that a traditional burger chain would respect the culinary and religious customs of its clientele?

McDonald's uses innovated tactics to accommodate the different cultures, consumer's habits, ethnics and religious backgrounds, and the political infrastructures that may pose threats to the company's strategic intents. McDonald's India went to great lengths to change the way Indians perceived it and embrace its vegetarian menu. Printed brochures, extensive advertising, and even kitchen tours were delivered to set the new tone. In most countries, McDonald's has maintained its core menus, sometimes adding local spices and limited new products. However, the McDonald's India menu features only a few signature products (e.g. French fries, McChicken, Filet-O-Fish), while new Indianized products like the Chicken Maharaja MacÐ'™, Chicken McCurry PanÐ'™, McAloo TikkiÐ'™ (see Figs. A and B below) take center stage.

Figure A (McDonald's India Non-Veg Menu)

Figure B (McDonald's India Veg Menu)

Note on the menu, the commitment to beef-free and pork-free menus. McDonald's goes the extra mile to segregate staff preparing veggie products from staff preparing non-veggie products. Transnational McDonald's realized that a local presence decreases political and exchange rate risks and the likelihood

of being perceived an invader. By becoming part of the Indian culture, McDonald's avoided protectionism, import restrictions, and, ultimately, shut out. With over 90% of its materials sourced from within India (see Fig. C), McDonald's India is a true insider.

Even operations have been optimized to accommodate the unique menu offerings; procurement, warehousing, transportation and retailing of food products are done under controlled temperatures to protect the fresher food. Additionally, all food chopping and processing is performed in the plants. Only cooking is saved for the restaurants, where knives are not needed.

Figure C (McDonald's India McVeggieÐ'™ print advertisement)

However, the recent "Beef fries" controversy had damaged McDonald's reputation and its global image. In May 2001, a class action lawsuit was filed against McDonald's by three Indian businessmen living in Seattle, Washington. The suit alleges that McDonald's duped vegetarian customers into eating French fries that contained beef extracts. The lawsuit followed media reports detailing how the French fries serve at McDonald's were falsely promoted as being 100% vegetarian.

In India, the nation with the largest concentration of vegetarians, McDonald's