Discuss how the two cases in this chapter illustrate the major theme of this text: Changes in the macro environment affect individual firms and industries through the microeconomic factors of demand, production, cost, and profitability. Drawing on current business publications, find some updated facts for each case that support this theme. Drawing on current business publications and the two cases in this chapter it is prevalent that several changes in the macro environment have had an effect on the profitability of individual firms and industries.
The text states that (Farnham, 2010 page 459), downturns in economic activity forced all the fast-food companies to develop new strategies. During this economic downturn McDonald’s was one company in particular that has developed strategies that were influenced by microeconomic changes. A great example is when McDonald’s entered the Chinese market they had to take into consideration consumer taste and acceptance in China. They had to decide whether or not to have the menu in Chinese or English and whether or not to take on the American menu or add more Chinese influenced menu items.
Cost also played a part in the China market. Beef was much more expensive and so therefore could only reach a certain percentage of the people. Half of McDonald’s sales in China had been of chicken product with beef only making up 35 percent (Farnham, 2010). 2. Compare and contrast McDonald’s strategies in China with those of Wal-Mart in Mexico. McDonald’s responded to the changing economic conditions in China that included increased incomes, urbanization, and use of automobiles. This led to the development of its strategy of emphasizing the drive-thru as a major engine of growth.
The company had to develop relationships with Chinese governmental authorities and had to consider how local customs and preferences affected its menu offerings. Wal-Mart faced similar challenges in Mexico, particularly in terms of lifestyle differences and the adaptation of its distribution strategies to the Mexican economy. Both companies faced competition from other multinational corporations and local firms. 3. What role did the policies of various governments play in influencing the international expansion strategies of both McDonald’s and Wal-Mart?
McDonald’s had to confront both technical and political issues with its production decisions in its entry into China. Entry into Beijing was accomplished through an equity joint venture with the Beijing General Corp. of Agriculture Industry and Commerce United Co. McDonald’s used the department of Agriculture’s connections to cope with barriers concerning agricultural products, but also for other supplier relationships and distributional channels. These relationships helped McDonald’s overcome entry barriers that that the Chinese government placed on foreign companies acquiring natural resources within the country.
The liberalization of Mexican political and economic life resulted in the decentralization of the Mexican government and encouraged consumption patterns resembling those in developed countries. The importance of U. S. business cycles in influencing output fluctuations in Mexico has increased with the expansion of trade between the two countries. In anticipation of the North American Free Trade Agreement, several international retailers, including Carrefour, Ahold, and Wal-Mart, formed joint ventures and strategic alliances with Mexican firms.
Many U. S. companies with access to information on NAFTA negotiations began looking to form partnerships with Mexican companies (Farnham, 2010). 4. What variables other than price appear to have the biggest impact on the demand for McDonald’s products? How much influence does the company have over these variables? McDonald’s has focused on changing tastes and preferences by developing more healthy alternatives on its menus. It developed Happy meals and in-store playgrounds to appeals to children.
The company has tried to improve the quality of its service by hiring mystery shoppers to evaluate service, cleanliness, and food quality. McDonald’s has developed different menus and restaurant designs in various countries around the world. 5. In recent business publications, find a case study in which changes in the macro environment play a major role in influencing a firm’s competitive strategy. Contrast this with a second case which micro factors play a more important role. I have chosen to look at the case of FirstGroup plc. (First), the UK’s largest surface transportation company.
With revenues of over 5 billion pounds a year and employing more than 135,000 it is an important company for the UK’s economy. The main macroeconomic factor that has come into play recently for First are political influences and governmental policy changes. These changes have required First to alter its policies and future business plans in a significant way. In 1997 the UK signed the Kyoto protocol that is designed to reduce the CO2 emissions of partnering nations. First’s main sources of revenue are rail and bus systems which are the number four and three contributors to co2 emissions in the UK, respectively.
The UK realizes that it would not be able to achieve its objective emission rate without partnering with the businesses that create a large portion of those emissions. Along with the Kyoto protocol there has also been a social change happening in which society has become more aware of the harmful effects of engine emissions which have changed First’s strategy as well. While rail and bus systems definitely emit co2 emissions, they are far lower than those emitted by automobiles and air travel.
Some of the changes that First made in response to the governmental and societal changes are that they began to focus more on being ‘Green’. They did so by committing to 1, Improve the efficiency of the vehicles they use, 2. Purchase new vehicles with greater fuel efficiency, 3. Begin to use more bio-fuels, 4. Make operational improvements through driver training and new technology to monitor driver performance. First also adopted a ‘Climate Change Strategy’ that shapes each action the company takes. As part of the strategy shift First is also seeking to change how the public feels about public transportation.
It appears that First has been successful in their efforts. Rail use increased 8% from 2006 to 2007 and bus use rose by 4%. The Kyoto protocol that was signed by the British government and was most certainly outside of First’s control had a profound impact on how they do business. This change required First to re-evaluate its business plan and has allowed it to become more successful than before. They were able to capitalize on growing public concern over co2 emissions and also tout the improvements they made in their products to increase market share and grow their business.