pestle analysis
TRANSCRIPT
PESTLE analysisto explain company's international strategy for McDonald
TABLE OF CONTENT
Page
I.
INTRODUCTION
3
II
BACKGROUND
3
III PESTLE ANALYSIS
A. POLITICAL
FACTORS 4
B. ECONOMIC
FACTORS 4
C. SOCIAL-CULTURAL
FACTORS 5
D. TECHNOLOGY
FACTORS 5
E. LEGAL
FACTORS
6
F. ENVIRONMENTAL
FACTORS 6
IV
CONCLUSION
7
V
RECOMMENDATION
8
VI
REFERENCE
9
I. INTRODUCTION
Globalization has made the globe considerably smaller. States lines have turned
into practically a divider separating certain regions of a massive unitary community.
Businesses are the one that are highly affected by this occurrence. The virtual
closeness of states has made trade and commerce an international event. Together
with these advances, the key standards of business are similarly taken into account.
The discussions in this paper shall involve an analysis of the international expansion
strategy utilized by a multinational company. In this case, the situation surrounding
McDonald’s will be taken into consideration. The following annotations and
propositions employed in the following discussions are to be supported by claims on
journals and academic pieces that address international expansion strategies
andinternational marketing theories.
II. B ACKGROUND
The modest beginnings of McDonald’s in Illinois turned out to be among the main
brand names in the international scene. It has been synonymous to what is widely-
accepted the fast-food concept. The company operates over thirty one thousand
stores all over the world to date. It was one of the first to perfect the concept of fast
service in the food industry in its early days of operations in 1955. Given that the
products of the company are mainly western in character, its operations has also
expanded to the Asian region. The first McDonald’s store operated in Hong Kong in
1975. The first shop operated at Paterson Street in Causeway Bay. Up to this data,
the functions of McDonald’s in Hong Kong covers over two hundred restaurant
chains spread in the whole of Hong Kong alone. In the rest of the globe, it operates
thousands of store franchises that functions autonomously.
III. PESTLE ANALYSIS
Pestle is an analysis of the external macro environment in which a business
operates. According to (2008), pestle stands for political, economic, social,
technology, and environmental factors.
A. Political Factors
The international operations of McDonald’s are highly influenced by the individual
state policies enforced by each government. (2001, 705) For instance, there are
certain groups in Europe and the United States that clamor for state actions
pertaining to the health implications of eating fast food. (2005) 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.
For instance, there is an impending legal dispute in the McDonald’s franchise in India
where certain infringement of rights and violation of religious laws pertaining to the
contents of the food. The existence of meat in their menus in India is apparently
offensive to the Hindu religion in the said market. There are also other studies that
points to the infringement of McDonald’s Stores with reference to the
existing employment laws in the target market. Like any business venture, these
McDonald’s stores have to contend with the issues of employment procedures as
well as their tax obligations so as to succeed in the foreign market.
B. Economic Factors
Organisations in the fast food industry are not excused from any disputes and
troubles. Specifically, they do have their individual concerns involving economic
factors. Branches and franchises of fast food chains like McDonald’s has the
tendency to experience hardship in instances where the economy of the respective
states is hit by inflation and changes in the exchange rates. The customers
consequently are faced with a stalemate of going over their individual budgets
whether or not they should use up more on these foreign fast food chains. (2004)
Hence, these chains may have to put up with the issues of the effects of the
economic environment. Particularly, their problem depends on the response of the
consumers on these fundamentals and how it could influence their general sales. In
regarding the operations of the company, food chains like McDonald’s tend to import
much of their raw materials into a specific territory if there is a dearth of supply.
Exchange rate fluctuations will also play a significant role in the operations of the
company.
As stated in the paragraph above, McDonald stores have to take a great deal of
consideration with reference to their microenvironment. The company’s international
supply as well as the existing exchange rates is merely a part of the overall
components needed to guarantee success for the foreign operations of McDonald’s.
Moreover, it is imperative that the company be cognizant of the existing tax
requirements needed by the individual governments on which they operate. This
basically ensures the smooth operations of the McDonald’s franchises. In the same
regard, the company will also have to consider the economic standing of the state on
which they operate on. The rate at which the economy of that particular state grows
determines the purchasing power of the consumers in that country. Hence, if a
franchise operates in a particularly economically weak state, hence their products
shall cost higher than the other existing products in the market, then these franchises
must take on certain adjustments to maintain the economies of scale.
C. Socio-Cultural Factors
Articles on the international strategies of McDonald’s seem to function on several
fields to guarantee lucrative returns for the organisation. To illustrate,
the organisation improves on establishing a positive mind-set from their core
consumers. McDonald’s indulge a particular variety of consumers with definite types
of personalities. ( 1994) It has also been noted that the company have given the
markets such as the United Kingdom, an option with regards to their dining needs.
(2005) pointed out that McDonald’s has launched a sensibly valued set of food that
tenders a reliable level of quality for the respective market where it operates.
Additionally, those who are aged just below the bracket of thirty-five are said to be
the most frequent consumers of McDonald’s franchises. ( 2005)
The multifaceted character of business nowadays is reflected in the harsh
significance of the information on the subject of the existing market. This procedure
is essentially identified in the field as market research. (1997) Information with
regards to the appeal and potential fields of the market would double as obstructions
to the success of the company if this area of the operations is neglected. In the case
of McDonald’s they establish a good system in determining the needs of the market.
The company uses concepts of consumer behaviour product personality and
purchasing decisions to its advantage. ( 1998) It is said to have a major influence on
the understanding of the prospective performance of the organisation in a particular
market. (2000)
D. Technological Factors
McDonald’s generates a demand for their own products. (2006) The company’s key
tool for marketing is by means of television advertisements. There are similarly
some claims that 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. ( 1995) Other demonstration of such a marketing strategy is apparent
in the commercials of they use. They employ animated depictions of their characters
like Grimace and Hamburglar. 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.
E. Legal Factors
There has been the recurrent bellowing in opposition to the fast food industry. This
has similarly made McDonald’s apply a more careful consideration on their corporate
social responsibilities. On the whole, this addressed the need of the company to
form its corporate reputation to a more positive one and a more socially responsible
company. ( 2005) The reputation of McDonald’s is apparently a huge matter. Seen
on the website of the company, it seems that they have acquired strides to take in
hand the key social censures that they have been berating them in the past decades.
The company has provided their customers the relevant data that they need with
reference to the nutritional substances of their products. This is to attend to the
arguments of obesity charged against the products of the company. In the same
way, the consumers provided freedom in choosing whether or not they want to
purchase their meals.
This is tied up with the socio-cultural attributes of the market on which they operate.
For instance, operations in predominantly Muslim countries require their meat to
conform to the Halal requirements of the law. In the same regard, those that operate
in countries in the European Union should conform to the existing laws banning the
use of genetically modified meat products in their food. Other legal concepts like tax
obligations, employment standards, and quality requirements are only a few of
important elements on which the company has to take into consideration. Otherwise,
smooth operations shall be hard to achieve.
F. Environment
The social responsibilities of McDonald’s on the state are influential to the operations
of the company. These entail accusations of environmental damage. Among the
reasons why they are charged with such claims is the employ of non-biodegradable
substances for their drinks glasses and Styrofoam coffers for the meals. (1997)
Several civic groups in Hong Kong have made actions to make the McDonald’s
franchises in Hong Kong aware of the rather copious use of Styrofoam containers
and the resultant abuse of the environment. (1997) further indicated that in 1995,
McDonald’s Hong Kong went over the Styrofoam used by both Australia and the
United States combined.
IV. CONCLUSION
Debatably, the most significant contribution of this generation is the combination of
globalization and internationalization in the businesses sector. Developments in the
international setting have an effect on the more particular factors in the operations in
individual organisations. Alterations could take placer and require intense
modifications to the operations such that it could have an adverse effect on the entire
structure of the company. However, as indicated in the arguments and comments in
this paper, this could be acquired by setting a certain level of flexibility in the
organisation. This level of flexibility is basically acquired through the acquaintance of
both the internal and external environment of the company.
Even though McDonald’s may have been deemed as demigod in the fast food
business in the international scene, what it preserves as revealed in its processes is
the need for flexibility. The slight changes that take place in the market have an
effect on the operations of the business in any case. This denotes that having the
information on the effects of these alterations swiftly provides these fast food
industry giants to take fine-tuning actions on their acts and still preserve their market
position. As implied in the introduction of this paper, the markets of nowadays
manifest a cutthroat rivalry with the individual competitors, recognized brands or
otherwise. Hence, any business in spite of the muscle of the brand name or the size
of its reserves could not afford any failures in their individual markets.
V. RECOMMENDATION
The following recommendations shall be based on the conclusions and arguments
above.
l Political Factors
Since it is apparent that the company is expanding continuously, it is wise to deal
directly with the proper authorities in the respective markets that they intend to
operate in. This way, a good way of establishes good relationship with the
government. It is advisable that the company rests on the good graces of the
government on which they will be penetrating. To do this, all they have to do is
accomplish all the prescribed acts and satisfy all the prerequisites for doing
business. The company must also be acquainted with the law in order to know what
their responsibilities and their possible liabilities.
l Economic Factors
Before penetrating the market, the company must carry out a well conducted market
research, especially in the movements in the economic environment. The frequency
of the shifts in the inflation rate as well as the fluctuations in the exchange rate
affects the operations of the company.
l Socio-cultural Factors
Obtain the relevant information from the target market in addition to the individual
customers of the organisation. It is imperative that before a franchise is granted to a
particular market, a well drafted and comprehensive market research should be
conducted initially so as to establish the acts that would conform to good customs,
public policies, and morals of the said state. Similarly, the company should find out
the shifts in areas like the consumer behaviour and purchasing patterns of the
market. Fundamentally, this is the key condition for executing a suitable customer
relationship management system.
l Technological Factors
Use the internet to their advantage. The cost-effectiveness, interactivity and real-time
effects of the communications are a good way to find suppliers. It is also a good way
to correspond with the respective McDonald’s headquarters in every state. The
company must also look into the use of IT to enhance their inventory operations. As
the operations in its inbound and outbound logistics improve, the company will
expect significant savings and reduction of costs in the operations.
l Environmental Factors
Find out the environmental regime that governs the operations in every market.
Monitor the waste disposal of the company. Minimize the use of Styrofoam materials
and plastic cups. Constant updating of the social corporate responsibility is
imperative. This should also entail that the headquarters should take in hand a
manner of internal control of those that would infringe upon this company objective.
Sanctions such as revoking of the franchise license or a particularly high fine should
be installed to serve as a deterrent to infringement.
l Legal Factors
Hire local counsels to deal with the legal conflicts in individual markets on which the
company may encounter. This is shall ensure the company that the lawyers that will
handle their legal affairs are more versed with the legal regime that would iron out
certain creases on their operations.
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Swot analysisStrengths• It has a strong global presence and is considered as a market leader in both the domestic as well as the international markets.• It is a global brand that owns 31,000 restaurants serving in 120 countries. Of these 31,000 restaurants at least14,000 restaurants are situated in the US.• It uses economies of scale for reducing the cost, as its huge expansion diversifies the overall risk involved with the economic performance.• They own an active children’s charity by the name‘The Ronald McDonald House’.• It takes steps in adjusting the Ingredients and product offerings in order to comply with the upgraded health standards deemed necessary by the USDA.• It earns revenue by fast food sales as well as a property investor and a franchiser of restaurants.• It has a firm real estate portfolio.• It has branded menu items i-e Big Mac, Chicken McNuggets, which further promote McDonalds.• It is recognized as one of the world’s most recognized logos.• It is recognized as a socially responsible and community oriented firm.• It adapts to the cultural differences regarding the region where the restaurant is set up.• It has located itself in major airports, cities, highways, tourist locations, theme parks.• It has an efficient food preparation style that follows the process in a systematic way.• It takes food safety extremely cautiously.• It was the first to provide the customers about nutrition facts.Weaknesses• It uses advertising that mostly targets children.• High employee turn-over.• It has yet to accomplish going on the trend of organic food.• Price competition with the competitors resulting in low revenue.
• Lack of innovative products.Opportunities• It can adapt to the needs of the societies and undergo an innovative product line.• It can research ways to use ‘green’ energy and packaging which will work as a part of their promotional effort as well as fulfill their social responsibility.• It can create new product offerings, use mobile text messaging to offer services that appeal to consumers.• It can upscale some of its restaurant settings at luxurious locations to attract more customers.• It can provide optional items that are regarded to be the basis of allergy for some.• It can slow down the level of expansion in order to increase the profitability of the organization.Threats• The recession negatively impacts the holding position of the firm regarding its revenue streams, even though they are quite diversified.• Foreign currency fluctuations are regarded to be a major problem as it uses standard pricing for its food items.• More restaurants that are increasing their food offering and declining the price.• Health issues regarding the fast food chain.• Heavy investments on promotional campaigns which decrease the gaining of market share.• Some parents criticize the firm’s ‘cradle to grave’ marketing strategy that focuses on kids, who later on take it as a trend to their adulthood.• Sued various times for unhealthy food, usually with addictive additives.• Emergence of major fast food competitors: Burger King, Starbucks, Wendy’s, Taco Bell, KFC.
2McDonalds Corporation
Strengths
McDonalds has built up huge brand equity. It is the No. 1 fast-food company by sales, with more than 31,000 restaurants serving burgers and fries in almost 120 countries. Sales, 2007 (11,4009 million), 5.6% sales growth[1].
Good innovation and product development. It continually innovates to retain customers in the business.
The McDonalds brand offers consumers choice, reasonable value and great service
Large amounts of investment have gone into supporting its franchise network, 75% of stores are franchises[2].
Loyal staff and strong management team.
Weaknesses
Core product line out of line with the trend towards healthier lifestyles for adults and children. Product line heavily focused towards hot food and burgers[3].
Seasonal
Quality issues across the franchise network.
Opportunities
Joint ventures with retailers (e.g. supermarkets).
Consolidation of retailers likely, so better locations for franchisees.
Respond to social changes - by innovation within healthier lifestyle foods. Its move into hot baguettes and healthier snacks (fruit) has supported its new positioning.
Use of CRM, database marketing to more accurately market to its consumer target groups. It could identify likely customers (based on modelling and profiles of shoppers) and prevent brand switching[4].
Strengthen its value proposition and offering, to encourage customers who visit coffee shops into McDonalds.
The new “formats”, McCafe, having Wifi internet links should help in attracting segments. Also installing children’s play-parks and its focus on educating consumers about health, fitness.
Continued focus on corporate social responsibility, reducing the impact on the environment and community linkages.
International expansion into emerging markets of China and India.
Threats
Social changes - Government, consumer groups encouraging balanced meals, 5 a day fruit and vegetables.
Focus by consumers on nutrition and healthier lifestyles.
Competitive pressures on the high street as new entrants offering value and greater product ranges and healthier lifestyles products. E.g. subway, supermarkets, M&S.
Recession or down turn in economy may affect the retailer sales, as household budgets tighten reducing spend and number of visitors.
Pressure groups - environmental.
Portor’sMcdonalds Porters Five Forces ModelAnalysing McDonalds (fast food outlets) using Porters 5 Forces model – sometimes called the Competitive Forces model.
Introduction
McDonalds Canada opened in 1967, thirteen years after McDonalds had taken the United States by storm. This was the first restaurant to be opened outside of the United States. It was in 1965 that McDonalds went public and offered shares on Wall Street.Since then it has been important for McDonalds to continually monitor its performance, to make sure it is competitive and profitable while also being aware of its immediate community responsibilities. This can be achieved by using the Porters 5 Forces model so the company is able to determine where its business needs to change or improve in order to stay competitive in the fast food industry.
Using Porter’s competitive forces model to achieve a competitive advantage
1. Analyse McDonalds using a well known model to assess the competitive position that it occupies within its industry
Porter’s competitive forces model includes five forces that need to be analysed. These forces include the intensity of rivalry from traditional competitors, threat of new market entrants, threat of substitute products and services, bargaining power of customers and bargaining power of suppliers (Laudon & Laudon, 2007). See diagram below;
Traditional Competitors (competitive rivalry) McDonalds traditional competitors include many of the other fast food outlets across the country, i.e. Burger King, Taco Bell, KFC, Wendy’s. It has been shown by Professor Michael Waterson (2004) that the presence of a Burger King, for example, will increase the likelihood that McDonalds will open near by. Thus it can be seen that the threat of competition from traditional rivals is intense and should never be over looked.
Threat of New Market EntrantsThere are many new market entrants emerging all the time but not on the same scale as McDonalds. Some of the newer entrants include chains of Sushi...
Threat of Substitutes,
2. Buyer Power,
3. Supplier Power,
4. Barriers to Entry/Threat of Entry and
5. Rivalry.