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McDonald’s Corporation in Thailand

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    BP6910 International Business Management

    Section 88

    McDonald’s Corporation in Thailand

    Executive Summary
    McDonald’s Corporation is a “Centralized, International company”, which competes in the fast food industry supplying hamburgers, french fries and other consumable items using standardization, heavy expansion and branding as the driving force. McDonald’s operates in over 121 countries and has over 30,000 restaurants worldwide. McDonald’s utilized an intense, rapid expansion into foreign countries through three primary methods, franchising, company owned restaurants, and joint ventures. With the majority of international restaurants stemming from franchising agreements, McDonald’s management relied on this method to aid in the acceptance of a new style of eating into unfamiliar markets.

    With minimal risk and maximum gains, franchising continues to contribute heavily to McDonald’s international success. With a centralized, international structure, McDonald’s keeps a tight grasp on operations, cost and quality. With an ethnocentric management strategy, McDonald’s relies on domestic based logic and attitudes and transfers them to their international outlets and restaurants. In order to control its overseas operation, McDonald’s uses a combination of two approaches. The majority of control would fall under the rules approach, meaning that control lies with headquarters creating procedures and policies for the subsidiaries to follow. However, there is also a little of the cultural approach that has surfaced and is being utilized judging by the adaptation that has occurred in some of the overseas restaurants. This has occurred even with the tight internalized norms that are constantly presented and enforced by headquarters. Corporate Background

    With operations in over 121 countries and over 30,000 restaurants around the globe, McDonald’s Corporation is the largest fast food service and supplier in the world. Segmentation Demographically :- 1,Cater to kids 2, youth 3,Urban upper and Middle class families. Geographically :- 1,Mostly in urban towns and cities 2,Now opening in 2 and 3 tiers cities 3,Mostly situated in malls having independent franchises Psychographic:- 1,Place to chill out with friends and families 2,Place for enjoyment of the kids.

    The company has always utilized four major principles throughout its history to expand rapidly, increase sales and remain the market leader. By leveraging their enormous cash flow, brand power, real estate and customer spending habits, McDonald’s has not only emerged as the world-wide leader, it has also changed the way the world eats. McDonald’s restaurants in Thailand from 93 outlets five years ago to about 160 stores by the end of 2012 .McThai now operates 149 McDonald’s restaurants in the Kingdom. The 150th store will open next week in Sadao district in Songkhla. Other McDonald’s restaurants will open this year in Phitsanulok and Phuket. about 56 of the restaurants were open around the clock.

    Thai allocate capital investment of about Bt600 million to open 17 new McDonald’s restaurants in 2012, 50 per cent of which will be 24hour restaurants, Thailand showed great potential for further expansion. the company had launched a new look for McDonald’s restaurants in Thailand, called “Millennium”. The “Millennium” concept will see new lighting and decor in the restaurants, inducing a “cosier” atmosphere. they are trying to push McDonald’s stores from being traditional quickservice restaurants into lifestyle outlets, For example, a 300squaremetre McDonald’s standalone restaurant will see its capacity fall from 120 seats to about 105 seats. With the lifestyle restaurant concept, Mc Thai increased the length of stay of customers at McDonald’s restaurants from 20 minutes per visit previously to more than 35 minutes. Their average spending has increased by between 3 per cent and 5 per cent per bill. McThai had been challenged by food price rises of 510 per cent. That would attract foreign investment and create jobs in the country. PEST Analysis

    Political Environment :
    The international operations of McDonald’s are highly influenced by the individual state policies enforced by each government. For instance, Thailand actions pertaining to the health implications of eating fast food. They have indicated that harmful elements like cholesterol and adverse effects like obesity are attributable to consuming fast food products. On the other hand, the company is controlled by the individual policies and regulations of operations. Specific markets focus on different areas of concern such as that of health, worker protection, and environment. All these elements are seen in the government control of the licensing of the restaurants in the respective states. Like ,in 2011 Thailand increased the minimum wage up to 300 baht per day , so the cost of labor increased influence the cost of products. Economical Environment:

    There are many factors which can affect the operation of a company. In Thailand McDonalds offer the food at higher rates in comparison to the local food restaurants. Most of the people in Thailand fall in the category of middle class and it is not affordable for them to have McDonalds at regular basis. Social Environment:

    Thai customers, who live in a high- power distance culture, view that McDonald’s restaurant is not only the place for having meals, but also a sociable place where they can spend time with their groups: families, colleagues, and friends. Even if Thai customers perceive that price of McDonald’s products is not cheap and not consistent with their expectation, Thai customers still maintain the relationship with McDonald’s and patronize McDonald’s products because they like its relaxing and comfortable atmosphere. Obviously, McDonald’s in Thailand attempts to create the atmosphere that matches Thai customers. Technological Environment :

    McDonald’s key tool for marketing is by means of television advertisements. McDonald’s are inclined to interest the younger populations more. The existence of play spots as well as toys in meals offered by the company shows this actuality. and Ham burglar. Other advertising operations employ popular celebrities to promote their products. The like has become endorsers for McDonald’s worldwide “loving’ it” campaign. Moreover, the operations of McDonald’s have significantly been infused with new technology.

    Elements like the inventory system and the management of the value chain of the company allows for easy payments for their suppliers and other vendors which the individual stores in respective markets deal with. The integration of technology in the operations of McDonalds tend to add value to their products. Basically, this is manifested in the improvements on its value chain. The improvement of the inventory system as well as its supply chain allows the company to operate in an international context. SWOT Analysis

    Strengths :1. Largest fast food market share in the world. McDonald’s is the largest fast food restaurant chain in terms of total world sales (8%). It is the second largest outlet operator with more than 34,000 outlets, serving 69 million consumers every day in 119 countries. 2.Brand recognition valued at $40 million. Company’s brand is the most recognized brand in fast food industry and is valued at $40 billion. McDonald’s is also famous by the Ronald McDonald clown. 3. Locally adapted food menus.

    The fast food chain is operating in many diverse cultures where tastes in food are extremely different than those of US or European consumers. Thus ability to adapt to local tastes is one of McDonald’s strengths. 4. Children targeting. The business successfully targets very young children through offering playgrounds, toys with its meals and advertisements. Weaknesses : 1.Negative publicity. McDonald’s is heavily criticized for offering unhealthy food to its customers, stimulating obesity and strong marketing focus on very young children. 2.Unhealthy food menu. Although McDonald’s tries to introduce healthier choices in its menu, the menu is largely formed of unhealthy meals and drinks. Such menu offering prompts protests by organizations that fight obesity and hence, decreases McDonald’s popularity. 3.Mac Job and high employee turnover. Mac Job is a low paid and a low skilled job, which is often seen negatively by its employees.

    This results in lower performance and high employee turnover, which increases training costs and add to overall costs of McDonald’s. 4.Low differentiation. McDonald’s is no longer able to substantially differentiate itself from other fast food chains (at least not enough to gain some market share) and opts to compete by price rather than by additional features. Opportunities : 1. Increasing demand for healthier food. While demand for healthier food increases, McDonald’s could introduce more healthy food choices in its menu and reverse its weakness into strength. 2.Home meal delivery. McDonald’s could exploit an opportunity of delivering food to home and increase its reach to customers. 3.Changing customer habits and new customer groups. Changing customer habits represent new needs that must be met by businesses. So far, the company has been successful in introducing its McCafé, McExpress and McStop restaurants to meet the changing customer habits and the needs of previously untapped customer groups.

    Threats : 1.Trend towards healthy eating. Due to government and various organizations attempts to fight obesity, people are becoming more conscious of eating healthy food rather than what McDonald’s has to offer in its menu. 2.Local fast food restaurant chains. Local fast food restaurants can often offer a more local approach to serving food and menu that exactly represents local tastes. Although McDonald’s does a great job in adapting its own menu to local tastes, the rising number of local fast food chains and their lower meal prices is a threat to McDonald’s. 3.Currency fluctuations. The business receives a part of its income from foreign operations. The profits that are sent back to US have to be converted into dollars and may be affected by the exchange rates, especially when the dollar is appreciating against other currencies. Five Forces

    1.Bargaining Power of Suppliers —-moderate
    The bargaining power of suppliers is moderate. Based on the good relationship that McDonald’s has with suppliers, the bargaining power is fairly stable currently. The reliance that McDonald’s has on suppliers is equal to the reliance suppliers have on McDonald’s. On one hand, McDonald’s has a good supply chain of quality materials at fair prices. On the other hand, suppliers are surely content with supplying to a large consuming company such as McDonald’s.

    However, there are many substitute suppliers out there that can replace current suppliers (i.e., Pepsi could replace Coca Cola) without a significant drop in quality, should there be a rift in the buyer-supplier relationship. 2.Bargaining power of Buyers – Moderate

    Buyers have the advantage of having virtually no switching costs – when they are not satisfied with brand A, all that they need to do is to walk through the doors and enter the doors of brand B. High levels of competition in the industry and low switching costs augur well for buyers. 3.Threat of New Entrants –low

    The threat of new entrants is relatively low. Although it is not too expensive to start up a fast food restaurant, it is difficult to compete with established leaders in the industry such as McDonald’s, With their standardized products and services at low prices, combined with a very strong brand, it is extremely difficult for a new entrant to compete directly with these existing businesses.

    The risk of new entrants is always there and there are local fast food places that are created every year. However, it will take a significant amount of capital investment and many years of operations to build up a recognizable name and be able to compete with the well-known brands. 4.The threat of substitute –high

    There are so many substitutes available in this industry. Since there are wide variety of products to choose, some of them are KFC, burger king , pizza hut etc. 5.Intensity of Rivalry among Competitors in an Industry –high The rivalry among competitors in the fast food industry is at a high level. Over the years, fast food restaurants have done more to compete not only with similar quick service institutions, but with high end food and beverage companies as well. For example, McDonald’s introduced premium customizable coffee beverages recently to compete with higher-end Starbucks Coffee. it is logical that rivalry is high and intense in the industry. Business strategy

    Franchise Model—As per franchise model of McDonald only 15% of the total number of restaurants are owned by the company . The remaining 85% is operated by franchises . The company follows all the framework of training and monitoring of its franchises to ensure that they achieve good quality . service .cleanliness and value for the money offered by the company to its customers. Product consistency –by developing a sophisticated supplier networked operation and distribution system . the company has been able to achieve consistent product taste and quality across the nations of the world. Act like retailer think like a brand –McDonald’s focuses not only on delivering sales for the immediate present, but also protecting its long term brand reputation. Strategy as per Thailand market

    Re-engineering the menu-McDonald’s thinks according to the customer’s tastes, value systems. Lifestyle ,language and perception .Globally McDonald’s was famous for its hamburgers which are prepared from beef and pork burgers. But ,in Thailand they changed the beef burger to samurai pork in order to satisfy demand as per Thai people preference ,McDonald’s came up with chicken, rice burgers to suite the Thai diet. Increased competitors

    On e of the environmental factors surrounding McDonald’s is the fierce competition from the competitors. There are many players in the industry, and most of them are offering the same or similar products and services. The reason behind this growth is due to the improvement of the entire fast food industry in the world. There is an intensive price war, extreme battle of innovations and breakthrough and serious promotions and advertisements are being implemented by different players in the global fast food industry.

    Increasing competition has led to aggressive pricing policies amongst the large brands as well as pushed them to increase their menu diversification as well as product developments in order to increase sales and market share, thus maintain current position in the entire market. The start of new McCafe’s at McDonald’s is also one of the strategies to capture some of Starbuck’s market share.

    To keep hooked on with its current customers, McDonald’s need to focus more
    on the strategies that attract children to their store. This would not only help them in keeping their customers but would build on relationship with the new ones.

    Conclusion & Recommendations
    McDonald’s has been focusing on a cost-leadership strategy to win market share in a highly competitive industry, and has reached its dominating position in the market using the strengths of the franchise model of distribution. McDonald’s has exploited its strengths in standardisation of operations, sales and marketing, supply chain management and brand building initiatives. The community initiatives and display of corporate social responsibility go on to strengthen the brand image, involving local communities into the corporate brand and reaching out to a wider market.

    However, there is room for improvement when it comes to service standards, customisation to suit local cultural values, addressing health issues associated with its diet and focusing more on customer satisfaction, than having a pure and unrelenting focus on business turnover and cost leadership alone. This would help in sustaining the market leadership in a volatile market scenario with high levels of rivalry within the industry players, where customers have no switching costs in terms of choosing alternative brands or substitute products, and in an industry that has low threat of substitutes and new entrants. Although it is not too expensive to start up a fast food restaurant, it is difficult to compete with established leaders in the industry such as McDonald’s, References:

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