Why is Mcdonalds such a successful company? Emphasis on India China

1. Introduction

In the present day – we all lead a very hectic lifestyle cramping our lives with endless things to do and accomplish. Gone are the days when meals were cooked and served in households three times a day, instead, the youth live on pre-cooked micro waved meals and fast food. We want food and we want it fast. This was essence for the rise of Mcdonalds

From humble beginnings in 1954, when Raymond Kroc who was a salesman had a vision of getting the best food in the shorted possible time to people across America was the birth of the fast-food chain that we know as McDonalds. What he did as a pioneer in the fast food industry is akin to the accomplishment of Henry Ford in the automobile industry. The same concepts of Henry Ford were applied – of ensuring timeliness, proper disclipine and production efficiency were utilized. In this instance, to French fries, milkshakes and Hamburgers.

Today, McDonalds is a brand that is recognized in every corner of the world. A testament to the accomplishment of this fast-food chain is the endorsement by the economist in the world who compare the official exchange rate with that of the Purchasing Power Parity (PPP) as the Big Mac Index to gauge if the currency is undervalued or overvalued.

In this globalised world, how is that McDonalds managed to reach the heights that it has today – with 30,000 outlets in 120 different countries spread across the globe in so many different societies with different cultures, different tastes and different economies. What are the factors that have allowed the managers in McDonalds to succeed in these countries? This paper is an attempt to address these issues.

2. International Business (Multi National Corporations)

Today the world is a globalised world and increasingly becoming like a single market place. The barriers of international trade are considerably reduced. Businesses are forced to develop effective management teams and policies that can operate in different national environments. “Globalization is necessary for success and survival in the worldwide market; however, global competition is not easy” (Bateman & Scott, 2004). At the onset of the twenty first century, the list of fortune 500 companies century are increasingly companies that are global (Global Capitalism, 2005) and McDonalds is part of this group. This trend gives rise to an important question in a service organisation about service quality – how can multinational firms in the service industry obtain a competitive advantage over local industries and succeed?

With over 30,000 restaurants operating in 120 countries and with over 1m employees McDonalds is a truly global success. But, what has made the company successful during one of the toughest economic environments for decades? The past 18 months have been a very testing time for companies across the globe. Many have succumbed to the economic turmoil caused in the US housing markets, many have changed their strategy going forward and many have changed their senior management – however, McDonalds has seen an astonishing growth in its sales over the past few months.

From the study of McDonalds, we identify three key factors:

• Embracing globalisation
• Adapting to local culture

3. Strong company core values (culture)

The first factor – globalization, has allowed between different parts of the world to come closer together, provides opportunities of exchange and expands the consumer base. Among the factors that have allowed these organisations to succeed in the global market place has been their ability to harness the cross-cultural issues and the benefit that a diversity brings to the organisation. The final factor is strong company core values that it disseminates across all aspects of its business across the globe. McDonald Corporations uses these factors to conduct business around the world.

3. Research and Findings (Primary & Secondary)

To any society, food is an important cultural ingredient. “Food is the oldest global carrier of culture.” (Britannica 2007). People believe that we become what we eat and impact our behaviour. Changes in its preparation has the potential to alter the traditional beliefs of people, so how could McDonalds succeed even in such an environment?

In today’s intensely competitive marketplace for fast food services, maintaining a competitive advantage puts a heavy premium on having a highly committed or competent workforce. “Increasingly it is being recognized that competitive advantage can be obtained with a high quality workforce that enables organisations to compete on the basis of market responsiveness, product and service quality, differentiated products and technological innovation”. (Chew, I. & Horwitz, F. Case study findings).

The Fast food industry like other service industries has many characteristics. When taken in context of India and China, the following are the main ones;

• Liberalisation of the economies of China and India
• Vast population
• Changing consumer behaviour
• Highly competitive environment
• Strong traditional food culture.

Looking at these individually, the liberalisation of trade and investment in China and India has allowed for the proliferation of many international fast-food outlets in these countries. As these countries enjoy economic prosperity, a large working population means that the per capita and household disposable incomes have grown. More and more woman now work in these countries hence the fast-food/take-away and home delivery markets have grown phenomenally in India and China. Gone are the days when McDonald’s enjoyed competitive advantage simply because of their unique product line. Besides the national restaurants, there are other western fast-food organisations like Burger King and KFC that pose tough competition to McDonald’s by offering similar product lines.

3.1 Critical Success Factors

Interview sessions were held on a number of consumers across various regions of Hong Kong. Some critical factors of success of McDonald were identified.

• Product line
• Lower Prices
• Sales Promotion
• Service Quality
• Adapting to Local taste
• Convenient Location
• Seating space
• Cleanliness

The survey results gave the following results that are depicted on the chart below:

If one were to look at a threshold of 80%, we find that convenient location, lower prices, service quality, cleanliness and adapting to local taste are the critical factors that consumers rate when walking into a fast food outlet and McDonalds rates high on them.

3.2 SWOT Analysis

Porter (1985) suggested that the manner in which a firm puts its strategies into practice will define the sphere that it operates in – be it cost leadership, differentiation or focus strategy. According to him, competitive advantage stems from not just one activity that the time does but from many discrete activities. These could be the marketing, designing, delivering or even supporting its product or services. A SWOT analysis is a good starting place in order to identify potential competitive advantages.

If a quick SWOT analysis is done on McDonalds – the results can be summarised as follows;

3.3 McDonald as an Employer

Employees’ perceptions about McDonald’s could be demonstrated by Hewitt’s “2009 Best Employers China Study”, according to which, McDonald’s(China)company Ltd. has been regarded as the 3rd best employers in China.

Hewitt is one of most widespread professional studies which have most impact force and influence. McDonald’s figure shows a Employee’s engagement of 75%, which is about 26% above the average.

In general, employees in “The Best” such as McDonald’s speak more positively about the company (Say), more willing to serve the company (Stay) and contribute more to the company (Strive).

Engagement Behaviours

The Best Employers including McDonald’s also shows lower turnover rate than the rest across all levels.

Employees Turnover Rate

Leaders of McDonald’s drive a strong message that employees are highly valued assets of the organization. Employees hold strong positive perceptions of their leaders with respect to range of organizational relationships

Employee View of Senior Management       The BestTheRest

I see strong evidence of effective leadership from senior management   68% 46%
Our senior leaders remove barriers to create effective cross-department teams  68% 49%
Our senior leaders develop relationships at all levels within the organization  70% 51%
Our senior leaders requires continuous improvement from all parts of the organization 77% 57%
Our senior leaders create excitement about changes       76% 56%
Our senior leaders fill me with excitement for the future of this organization   66% 44%
Our senior leaders treat employees as this organization’s most valued assets   69% 47%
Our senior leaders consistently demonstrate the organization’s values in all behaviors and actions73% 51%

3.4 Position of McDonalds

When we analyse the competing fast-food chains in China, we find that till the end of 2008, KFC opened over 2300 restaurants in China, while McDonalds only has 1100 restaurants. In a questionnaire which investigates“ The Most Impressive Restaurant in Guangzhou” shows that Mcdonalds with a proportion of 23.5% is leading other fast-food restaurants including KFC and some other local restaurants.

Proportion of Impression of Fast-food restaurants in Guangzhou

Research also reflects that McDonald’s major consumers are young people aged between 15 and 25. By calculating we can infer that this group of people goes to McDonalds every 2.82 weeks with 60% of them going there because of the fashion image given by McDonalds while 33.3% of them go there because of its conveniences. However, convenience is cited by 53.5% for people aged between 25 and 40 as the reason for going to McDonalds.

Proportion of different aged people take a meal at McDonalds at different frequencies

consumer aged between 15-25

Consumer aged between 25-40

Motive of consumption

During the survey, questions were asked about which promotion method most influences the interviewee – the main source that people use to acquire information being 1) TV advertising and 2) friends’. These are 74% and 65% respectively.

Mean while, when asked about the impact of advertising,75.5% of interviewee express that they are frequently attracted by TV advertising which are quite innovate. 24.5% of interviewees say that they are occasionally interested but no one has ever been attracted nor seen the TV advertising. (diagram)

Consumer’s sensitivity of TV advertising

4. Analysis

In spite of being an American firm that is built around the Hamburger model, McDonald’s has become a part of the lives of people in Asia. Consumers in countries like China, India, Japan, Indonesia, Malaysia, Singapore, Taiwan and Thailand, where the staple diet is mostly rice or noodles have still embraced this fast food chain. It has even managed to penetrate in India, where cows are considered sacred.

4.1 Globalisation and Glocalisation

There have been widespread campaigns about the ill-effects of globlasition – there are a few that are pro-globalisation and postulate that globalisation enhances culture rather than adulterate it. Where it not for globalisation, it would have been unlikely that McDonalds would have had developed as a brand.

“Researchers have coined a term, glocalisation, to refer to the interactions between local influences and actors and global forces” (Smith & Guarnizo, 1999). Large multinational firms, particularly in the services sector, have taken steps to adapt to local values, traditions and cultures. In some instances, there have been large scale protests when a multinational firms sets up its operation overseas. McDonalds had to bear the brunt of protests when it first started in India. Radley Balko (2003), states that “In most communities, the McDonald’s has conformed to the local culture not the other way around. The McDonald’s corporation notes that most of its overseas franchises are locally owned, and thus make efforts to buy from local communities. McDonald’s also alters its regional menus to conform to local taste.”. For example, in India, the non-vegetarian menu includes chicken and fish items only. Beef is not on the menu in India because are considered sacred.

4.2 Contribution of Culture to their Success

People bring an organisation alive. Using a more diverse description, fish feels the need for water only when it is not in it. Culture is like what water is to fish. It sustains us. We live and breathe through it.

“McDonald’s commitment to diversity is established on the foundational belief that diversity is not just a moral and ethical issue, but also a business issue” (McDonald’s, 2005). Due to the sheer number of outlets in 120 different countries, McDonalds has no choice but to embrace diversity. What is means is that almost every culture, every ethencity is represented in McDonalds.

Internal management policies dictate that local suppliers are promoted. This is an extension of their policy on diversity. the use of local suppliers and based on their policies of diversity.

When the individual outlets are examined, at the managerial level, there exists a task/occupational sub- culture.”A task culture is job or project oriented culture and emphasis is placed on completing a specific task”. Coles, M. et al.,(1999). The members have strong recognition for the skills of one another and respect each other. They need each other for the organisational success. Culture is itself not visible, but is made visible by actions or if one does something weird and people will come up and tell you that it is not the done thing.

McDonald’s realizes that having diversity as an asset greatly enhances the profitability of the company. Diversity is a direct reflection of a company’s interpersonal relationships. McDonald’s leadership encourages diversity through their policies and programs. McDonald’s proven success with leveraging the advantages of diversity can be attributed to their core value of ethics. When I characterise the people of McDonalds on the basis of Herzberg’s Motivation – hygiene theory, Mullins,L.J.(2002), it is easy to appreciate and seems readily applicable. However when looking at it deeper, certain factors emerge questionable – Money is a complicated motivator, it satisfies peoples need in a variety of ways, a set of people in McDonalds, money was important as they needed to fulfil their basic physiological need, there were others who needed money to throw parties (a social need) and the customer relations manager wanted it to buy a house (esteem need). People cut right through the way in which they prioritised money.

4.3 Management Practices

There is a saying, “You can take the horse to the water but you cannot make it drink.” It will drink only if it so desires. People will also do what they want to do unless motivated, whether on the shop floor or in the ivory tower. This can be done intrinsically or by external stimulus.

Watson (1997) mentioned that “McDonald’s focuses on standardization of its products, as consistency and predictability are important keys to the company’s worldwide appeal. It was also indicated that one key to McDonald’s success was the constant push to speed up production without sacrificing consistency. McDonald’s had created a system that depends upon standardized procedures in everything from sandwich assembly to advanced management training at Hamburger University”. In the 600-page “Operations and Training Manual” production guide, McDonald’s ensured that nothing is left to chance; photo layouts showed where the sauces should be placed on the bun, and the exact thickness of sliced pickles was specified. All equipment at McDonald’s restaurants must be purchased from approved suppliers, and the architectural design of both interior and exterior is carefully controlled. It can be said that McDonald’s preaches uniformity and consistency with the fervency of a religion.

4.4 Core Values bind across cultures

A growing belief that one of the major sources of potential competitive advantage for businesses is the effective management and development of people. For example, Sparrow et al covered in their study over 2000 organisations across the globe and their report concluded that “an organization’s people provide the only realistic basis for achieving a sustainable competitive advantage”.

A good example of the manner of dissipation of the core values is in the form of bonding at the shop floor. For example, the employees of McDonald’s are collectively called the crew of the restaurant. This is the term used at all McDonald’s restaurants. It means the same in every country and every outlet of McDonalds – all belong to the same family.

McDonald’s senior team put the company’s resilience down to an on-going investment to its customers – including improving the restaurant experience and expanding its menu. The company has also maintained a massive commitment to its people and their training, which includes making apprenticeships available to all eligible employees and a cohesive and comprehension management, leadership and coaching programme.

David Fairhurst, Senior Vice President – People at McDonald’s UK said: “In these challenging economic times, it is more important than ever for employers to invest in their staff.” Carole Williams, Corporate Training Manager for McDonald’s UK, said a key component of its success is through strong leadership and communication.

4.5 Managing the Customer Experience

In our personal lives, most of us would like to believe that the more someone knows us, the more that person will like us. As the old saying goes, to know me is to love me. Interestingly enough, this is also the essence of customer service. Without product differentiation, it’s the service that that will develop customer loyalty.

Crainer (1995) in his book “The Real Power of Brands” identified McDonald’s as a brilliant international exercise in uniformity. He wrote, “Wherever you go in Europe or the world, a McDonald’s restaurant appears very similar and its products are uncanny reproductions of each other. It is homogeneous, uniform and highly successful. That is a McDonald’s formula.” Crainer also mentioned that “McDonald’s restaurants are clean; the food is consistent; the service is good. In effect, the very uniformity of the brand is the crucial differentiating factor.”

In today competitive environment, customer service is not merely a means to drive sales. McDonalds has created a a niche for itself by raising the bar of competition by providing customers a unique experience. They have accomplished this is through their employees. As the competitive bar goes up, they ensure that the quality of their employees goes up too.

Adapted from Mulins .J “Employee Relations and business performance”

5. Lessons Learnt

In addressing the issues relating to developing effective international management teams it appears that the following areas should be considered:

• Identifying the nature and implications of national cultural differences within the team.
• Establishing a basis for building understanding and awareness of cultural differences and how they may be managed.
• Formulating a framework for developing a high performing team which takes account of cultural differences and leverages the diversity present in an international team.

It is useful to identify clear framework for analysing and understanding national cultural differences. Such frameworks have been developed by researchers and consultants such as Hofstede and Trompenaars. While the respective merits and drawbacks of different frameworks are widely discussed and are rather helpful in illustrating the major issues which need to be considered.

6. Conclusion

In conclusion, there are no simple answers on how management and management practice drive organisation success. Of all the resources available, in the International arena, the human resource is clearly the most significant, but also the most difficult to manage. The models mentioned earlier are only the basic strategies, though the final mix will vary from situation to situation. The key to competitiveness for Mcdonalds is quality and quality depends more on the commitment of individuals; more on the way these individuals behave; their team spirit than on the passive execution of orders received.

People create the future – through what they do and don’t do. More importantly through what they can and cannot do. The value of companies stems from the people who work there, the skills they possess and their potential to transform.