Introduction to International Business

Discuss about the  International business and the major strategies for a company to become international.

International business can also be referred as the study of internationalization procedure of multinational enterprises. It encompasses all the commercial activities, which take place in order to promote and transfer goods, resources, people, services and ideas. In simpler terms, international business commonly refers to the trading of goods, services, capital, knowledge, technology at the global level (Meyer & Peng, 2016). Moreover, international businesses involve the cross border transactions of services and goods between two or more nations. The transactions of the economic resources in turn, include skills, capital as well as people for the purpose of international production. The international production comprises physical services like finance, insurance, construction, banking and other goods. International business can also be regarded as globalization (Shenkar, Luo & Chi, 2014).

The purpose of the report is to throw light on international business and the major strategies for a company to become international. The case study of McDonald’s Company is being taken in order to analyze and evaluate their marketing strategies for becoming international. It is examined that in order to conduct a business overseas, several companies must separate the national markets into a single global marketplace. Specifically, there are two main factors, which underline the trends of greater globalization. The primary factor comprise the eliminating barriers of making cross border trade easier, that is, free flow of the goods, capital and services. On the other hand the secondary factor is related to the changes in the technological areas, particularly the developments in information processing, transportation technologies and communication (Cano-Kollmann et al., 2016).

Thee report will highlight certain factors of international business by introducing it in the report. In addition to this, the report will focus on the McDonald’s Company and its plan for expansion on the international platform. Moreover, it will highlight the case studies of McDonald’s as a leader of fast food industry. The aim as well as purpose of the report is to analyze as well as evaluate the key drivers, which impact the company’s strategies and success. On the basis of that, a SWOT and other strategic analysis are being done for gaining a detailed understanding of McDonald’s Company’s future expansion areas. 

Globalization has made the world considerably smaller in size. The state lines have practically turned into a divider, which separates the regions of the massive unitary community. The businesses are the ones which get highly affected by this type of occurrences. In the world of globalization, the business of fast food is a vast as well as growth oriented industry (Cavusgil et al., 2014). Moreover, without any doubts, McDonald’s is one of the leading fast food retail chains, amongst others. The strategy of the industry is continued growth, remaining an efficient as well as quality producer, offering highest values of effective marketing and lastly; exceptional services of customer care.

McDonald’s Company Introduction

McDonald’s can be considered as a global scale brand. Since its inception in the year 1973, the company began expanding domestically all throughout United States and thus, formed its brand recognition. The initial strategy of the company began through advertisements directly to the upper and middle class citizens, as it was seen in developing countries like China. However, it is seen that most of the bargaining deals on several food items, the company began to cater to a large number of audiences, especially those who belonged to lower class. The key strategies and elements, which make the company successful is by adding 700 to 900 restaurants annually (Mcdonalds.com, 2018).

Moreover, the company has also added some specials in their menu and items, introduced extra value meals in order to promote the frequent visits of the customers. In addition to this, the company is also focusing on their target customers by focusing on the consistent quality and product lines, careful attention to the efficiency of storage, usage of the prefix Mc, extensive advertising and others (Hamilton & Webster, 2015). Furthermore, the employees are courteous and the company believes in paying an equitable wage to them, in addition to good training and development programs. The management of the company has believed constantly in being the leader in issues, which affect their consumers, at large. This is evident in the company’s involvement in several community projects like education, medical research, rehabilitation facilities and health care (Picciotto & Mayne, 2016).

SWOT Analysis

Strengths

McDonald’s Company has a strong presence on the international platform, along with its domestic competitors being only half of its size. The company is considered to be a market leader in both international as well as domestic markets. Moreover, McDonald’s get highly benefitted from the cost reduction through scale economies due to its enormous size as well as huge presence in the global markets. In addition to this, it allows the company to diversify their items and enhance their economic performances in some specific countries. The company is well placed to grow and expand, as well as take advantages of the long term economic enhancement (Maseland, 2017).

Weaknesses

The industry of food is really saturated and therefore, the company has to deal with several prospects of looming in the market saturation that could make it challenging to add other outlets. However, the forecasts reveal that the market will grow by two percent each year.

Analysis

Opportunities

The company has sold a chunk of its section to its founder in the year 2003 and decided to discontinue its operations. However, the company can instead focus on other renowned fast food industries for its operations. Grill is one of the most successful brands and also it will help McDonald’s to increase their profitability and productivity. In addition to this, the restaurants of McDonald’s need to change and refurbish their image, which will help in adding new and innovative features like Internet accessibility and others (Parboteeah & Cullen, 2017).

Threats

McDonald’s is however exposed to various changes, especially in the global economy. The aggressive international expansion of the company has left them extremely vulnerable to the economic slowdown of other countries. The fluctuation of foreign currency can also be regarded as a greater threat to the global companies, such as McDonald’s. Moreover, the industry of fast food is becoming a highly competitive sector (Fairfield-Sonn, 2017). Therefore, it is immensely important for the company to keep up with their competitors by conducting expensive promotional campaigns. This will lead to the limited margins and help the company in gaining market share. In addition to this, the company should attempt to differentiate itself from its competitors by using new menu items and formats. However, other fast food companies are also doing the same thing and therefore, the ideas should be as creative as possible (Turton, 2017).

The SWOT analysis has revealed that even though there are several threats against the company, McDonald’s occupies a stronger position in the international marketplace. Taking into consideration Porter’s Five Forces model, it is worth mentioning that the strongest competitive force is mainly between the rival sellers in any business or industry. The SWOT analysis have shown much strength of the company, which employs to keep itself on the top of fast food industry. However, it is true that there are several weaknesses and threats, which the company can turn into opportunities by hiring more and more creative employees for international expansion (Ghemawat, 2015). 

The fast food industry has vast opportunities to grow and expand on the global platform. However, it needs to combat with the customers’ health expectations. McDonald’s Company has strong base of consumers and it has huge opportunities to grow in the coming years. The analysis has also shown that the company has some flaws related to their finance policies; however, these are hugely due to the policies of expansion, within the organization. The major threats of the competition can mainly originate from the competitive sellers present within the industry as well as other firms in the related industry, which typically forms the substitute products (Crane & Matten, 2016).

SWOT Analysis

The strategy for growth and development of McDonald’s is presently based on three specific factors, which are;

• Constant increase in the number of the restaurant chains,
• Enhancing the profits and sales at the existing restaurants,
• Improving the profitability, internationally

Maximizing profits and sales at the existing restaurants will however, be accomplished by re-investment, better operations, refinement and product development, lower development, operating costs and effective strategies of marketing. McDonald’s Company is aware of the fact that their growth and sustainability totally depends upon their stakeholders, suppliers, customers and franchisees. The company believes that as long as the suppliers and franchisees are profitable, McDonald’s would also get benefitted. The improved profitability on the global platform is realized to be the economies of the scale. These are achieved in the individual markets as well as through company benefits from global infrastructure and development (Adekola & Sergi, 2016).

It can be said that the company’s revenue sources depends on two specific mediums- from their home country and the foreign markets. Due to increased globalization, their share of earnings is increasing rapidly from the foreign markets. However, McDonald’s may also face certain expansion costs if they want to open their stores at some other countries, which are totally new to them. Initially, their costs will be higher but after assessing the long-term prospects of various markets, it can be said that the company will get hugely benefitted. McDonald’s opened its outlets, initially at higher income and developed countries like United Kingdom, Canada, Japan and then it moved to the developing countries like China (Bergman, 2015).

McDonald’s is one of the leading fast food industries all across the world. It has gained immense popularity, since its inception and managed to win the hearts of its target customers. However, it is true that McDonald’s Company deals with food and beverage products and therefore, it cannot export its products or services to some other country. Thus, it can choose some other operation modes in the foreign markets. This will help in involving a high level of loyalty of the resources than other factors. In particular, the company can open a new ancillary, which franchises directly. In addition to this, McDonald’s can also enter or opt for a joint venture with some local partners of the market (Neelankavil & Rai, 2014).

Moreover, the company can also establish an arrangement of master franchising, where the master franchisees own as well as operates all other outlets within their territory or find others to perform the same job. Furthermore, the investment level, which McDonald’s commits to the markets, varies as per their entry modes. However, in all the cases, the company tries to take control over the total number of their outlets as well as growth in each of the markets. Therefore, McDonald’s should internalize the expansion cost or expense to a huge extent, depending on the governance kind within every market. This will help the company in setting the path of expansion within the country as well as other markets (Elo, Harima & Freiling, 2015).

McDonald’s Company of fast foods primarily operates through all the franchises all across the world. The franchises give some companies like McDonald’s a cheap way of expansion into other counties. In addition to this, it also gives the company a control over the utilization of their brands and their operations. This part of the report emphasizes upon the advantages of franchising, which are discussed as follows;

• The franchises run faster as compared to some other ownership forms.
• They help the parent company to generate more profits quickly.
• Moreover, the supplies are also cheap for the franchises, which in turn help in leveraging the supply chain management of the parent company.
• The initial investment for the company is lower.
• In addition to this, the overall control on the usage of the brand as well as its operations is much high as compared to that of leasing.
• The franchises gets overall managerial assistance regarding the knowledge of the company.
• McDonald’s will be able to generate revenues from its franchises in two different types; one is the service fees and the other is the rent. However, McDonald’s Company has majority of their properties on which the franchises operate. Therefore, it will be able to collect a minimum percentage as rent, from the monthly sales. With the help of this method, McDonald’s has become one of the largest owners of the corner properties all across the world.

The accomplishment factor of the franchise expansion mode mainly depends on three different factors, which are being discussed as follows; 

The company makes sure that it standardizes the functions all across its franchise in order to ensure that their standard is maintained properly. In addition to this, the aim of the company is to provide its target customers with great experiences, all across the world. Moreover, the company achieves this through decreasing the skills’ amount, necessary for the preparation of the product lines. This can be done by segregating the procedure into the series of continuous and repeatable actions in order to achieve a similar result. In particular, by instructing the workers, the company can get hugely benefitted. McDonald’s can also ensure that every worker abide by the company’s policies and procedures, which has similar output over them, across the globe (Edwards & Tennent, 2017).

McDonald’s Company is the one of the major advertisers among its competitors. On having incorporated brand promotional activities, all across the globe, the company ensures a uniform and high identification brand image all across the markets and geographies, where it operates (Tarique, Briscoe & Schuler, 2015).

Through stricter control over each franchise costs as well as the contrast across them, McDonald’s Company is able to make sure that every franchisee operated at their right structure of costs. Moreover, it can utilize the knowledge from several outlets, which are owned by the company itself, in order to promote, find and experiment appropriate measures of cost optimization (Miller, 2016). However, one of the major problems with the penetration of the company is that in some of their franchisees might end up cannibalizing each one’s share in the markets. This will lead to unhealthy competition and resentment. Furthermore, the franchises may also begin to feel stagnated by the amount of overall controls, which the parent company will exert over them. In most of the cases, the company will seem to cover the correct balance between adjustment and standardization to the local needs (Christodoulides, Cadogan & Veloutsou, 2015).

It can be said that the company must look for certain things in their franchise stores, which are;

Business Experience: The employees, who have a well demonstrated successful management or ownership of the multiple units of business and have supervised various departments,

Rapid Growth: Those who own the aptitude and capability of growth swiftly with the company,

Business Plan as well as Customer Experience: The ability of developing and executing the business plan,

Financial Management: The skills and abilities of managing the financial part, which includes a thorough understanding of the financial statements of the business,

Management Skills: The assurance to manage the regular operations as well as actions of the business,

Training: The eagerness to complete a world class training session and become highly proficient in different aspects of operations in the restaurant business of McDonald’s.

The companies that enter into the global platform for businesses need to evaluate the pricing strategy of the products on the basis of their earnings allocation of the local rise, citizens and other related factors such as currency exchange rate and others. Due to the different exchange rates in different countries, it is highly possible that the customers may end up paying various prices for the same product in several countries. Therefore, McDonald’s Company should open their stores in some major cities targeting the upper and middle class customers as the prices are affordable to them. After setting a proper target for the upper and middle class families, the company can start targeting the lower middle class customers, with a new range of food menus and items (Pels & Sheth, 2017).

The political risks are that of the political decisions, conditions or events which has the power to affect any nation’s business environment through several ways. Moreover, it may also affect the investments badly and accept returns that are lower than expected. In addition to this, the political risk factors is considered to be of higher importance for the company, as there are various countries which does not allow Foreign Direct Investment in the industries of fast food or disallow the franchise business model (Sumati, 2015). The developing countries where the eighty percent of the population are vegetarian and some religion do not allow them to eat meat; McDonald’s may face certain problems. Therefore, at those countries, McDonald’s Company needs to customize their products and offer as per the local needs. This should also not lead to any political conflicts or communal riots (Vachani, 2016).

The company’s strategy of becoming environmental friendly can be regarded as a newly emerging concept. Most of the developing countries enforce several laws related to the environment in order to make the organizations comply with the policies and norms. For example; there are some particular directions for garbage disposal generated through the operations of the businesses. The factor of environmental friendliness will bring in goodwill for the McDonald’s Company. In addition to this, it will also provide the company with huge opportunities for building their brand image and recognition (Svensson & Wagner, 2015). Furthermore, McDonald’s Company can engage itself with a number of CSR activities like healthy as well as nutritious food products, sustainable supply chain management and others. Currently, the company is focusing and coming up with several products that have lower content of calories, high nutrient contents and others, which are good for the health conscious customers (Zahid & Shah, 2014). Therefore, these factors will highly contribute to the overall customer satisfaction of the company, which in turn will prove to be beneficial for their expansion strategies. 

Conclusion

To conclude, overall the strategies of McDonald’s Company for future expansion is hugely efficient and effective. The key to success is constant innovation of the new products, adaption to the local culture of the regions and good management. However, it can be said that the company should also focus upon constant improvement in order to adapt towards the changing environment. This will enhance their sustainability power and also add up to McDonald’s Company’s competitive advantage. Furthermore, the company should also focus upon their competitors like Kentucky Fried Chicken, Burger King and others, which provides the customers with similar range of products. McDonald’s can monitor their expansion and pricing strategies and set their own strategies in accordance with that. This will help in attracting the most number of consumers and benefit the company on the long run.

The report discusses about the different modes of expansion, which the company can undertake in order to expand on the global platform. Strategies like franchise, joint venture and others can help McDonald’s to manage their sourcing as well as logistic problems to a huge extent. In addition to this, the company will also be able to address the quality of vegetables, chicken or other raw materials. Moreover, they can also enter the foreign markets by establishing and forming a company owned subsidiary. Furthermore, the key to success is total quality management, sustainable growth as well as good management of the employees. The managers as well as the employees need to put in more and more efforts regarding the sustainable growth. It can be said that the constant changes of the organizational dynamics is the only way the companies might survive on the international platforms. 

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