Legal issues
McDonald’s is an international firm and is affected by laws operating in each country. Political forces are highly important because they affect many aspects of policies of a company. Health and safety issues have a distinct impact on the functioning of food chains in different countries. For example, McDonald’s must ensure that all restaurants in the Muslim region are halal-approved, meaning food is prepared and handled according to the tenets of Islamic law. There is increasing pressure from both domestic and international groups for increased regulations to make companies responsible. This has made the company to place emphasis on their corporate social responsibility. The reputation of McDonald’s is a major issue of concern. From the company’s website, it is evident that they have made steps to address the main social concerns that have faced them in the past. The company has provided their customers with the required information that they need with reference to nutritional content of their products. The company did this to address the arguments of obesity charged against the products of the firm.
The company has tied this up with the socio-cultural attributes of the market in which it serves. For example, food chain operations in countries, which are predominantly Muslim, require their meat to conform to the Halal law requirements. In the same way, food chains operating in countries that are members of the European Union must conform to the laws restricting the use of genetically modified meat products in their foods. This had a great impact on McDonald’s because it had to eliminate pork, beef, and mutton out of its products sold in India. Other legal issues like employment standards, tax obligation, and quality requirements are just a few of important elements that McDonald’s must take into consideration.
Social environment
An analysis of international strategies of McDonalds shows that the firm operates on various aspects to ensure lucrative returns for shareholders. To achieve this, McDonalds strives to establish a positive attitude and mind-set from its consumers. Several social forces greatly affect the success of McDonalds in the markets it serves. One factor is the prevailing family structure in the United States and the trend towards a youth-oriented culture. The decision-making role has changed to an extent that children often select on a place to eat. The special emphasis by McDonalds on children and teenagers as advertising targets produced positive results because the strategy capitalized on these existing social trends. Another important social issue is the shift among people to consume meals with minimum time effort. The busy schedule together with need to save time have created the desire for people to consume meals purchased outside their homes.
McDonalds operate worldwide and different region have different religion and culture. As such, McDonalds need to consider religious and cultural rules and tradition. For example, the firm’s menu items for Indian market have the option chicken and fish only. They have intentionally excluded beef on the menu in India because Indians consider cows sacred. When McDonalds entered Indian market, it did not introduce its Big Mac burger because Hindu religion prohibits beef consumption. McDonalds created ‘Maharaja Mac’ using a patty made from lamb. The firm has also been forced to change its methods of preparing food in some countries. From these examples, it is evident that McDonalds has established a good system in determining the requirements for each market.
Economic environment
As an international company, McDonalds face many economic variables beyond the company’s control. McDonalds must be aware of the global supply and currencies exchange when dealing with international sourcing of raw materials and labor. It is important to note that McDonalds import most of its raw materials such as potatoes and beef because the local market cannot supply adequately to meet the demand for its products. Any upscale fluctuation of currencies especially the U.S. dollar can have significant impact on the cost of acquiring raw materials. At the local level, McDonalds must meet government regulations on tax of profits from core business operations and other tax such as restaurant and entertainment tax. Each country has different types or scale of tax on profits and McDonalds must ensure that it follows the rules in order to continue operation. All franchises of McDonald must pay some percentage of the revenue to the parent company in the United States.
Another important indicator to the demand for products offered by McDonald is economic condition and growth of the country. If the economic condition of a country is not good and the income per capita is affected, the demand of McDonald’s products will probably go down. Conversely, good economic conditions may mean more disposable income and people can spend more on expensive food at restaurants. Franchises that operate in economically weak countries mean that their products should not cost higher than the other existing products in the market. This requires these franchises to introduce strategies to maintain the economy of scale. Economy of a country directly affects McDonalds because companies always need to think about profitability, exchange rates, production, distribution, and business cycles.
Management structure
McDonalds has a multi-level organization structure, which is headed by the CEO and the board of directors. The board comprises of thirteen members, eleven of whom are directors. The CEO heads a group of line managers who are in charge of different aspects of the company including operations and human resource. McDonalds is organized in the following departmental areas: at the top are the chief executive officer and chairperson, and the chief operating officer. Bellow that, the departments are broken down into marketing, corporate affairs, human resources, national operations, regional managers, strategic planning, finance, and information. Other departments found within this level include customer services, legal, security, franchising, hygiene, restaurant services, and safety. The company also has a different organizational structure at the restaurant level. This comprises of the general manager at the top followed by two assistant managers. The assistant managers lead the shift running manager, floor manager, staff training crew, and crewmembers.
Operational issues
McDonalds has been able to record 30 straight quarters of same-store sales increase since 2003. However, the firm’s peak lunch-hour business has been flat for several years. The chain has been able to achieve this by offering increasingly diverse menu, with prices ranging as low as one dollar and others as high as five dollars. This has lured customers who are price sensitive while enabling the chain to preserve profit margins. This represents a shift from the traditional focus on heavy users, customers who consume fast food several times in a day. On the other side, increase in sales comes with associated costs. Moreover, since 90 percent of the stores are franchised, small businesses incur costs while trying to justify the investment requirement to add products. According to McDonald’s website, their business is driven by keeping things simple and the ability to deliver in a fast and efficient manner.
The main idea that the operational strategy of McDonalds has to support is experimentation and introduction of new products and services. McDonald should consider a breakthrough that will provide new avenues for growth. The chain has history with such experimentation, which culminated in some new profit centers like the breakfast menu and Chicken McNuggets. However, some of the experiments such as McLean Delux did not produce positive results. McDonald conducts experiments in limited outlets to enable it retain its key strengths including consistency and quality while continuing to evolve for new products and services. According to the chain’s CEO, the firm tries not to stray too far when introducing new items. For example in 2005, McDonalds halted testing of Oven Selects submarine sandwiches, partly because they took too long to make and also because market data indicated that the product did not represent what the customers recognize McDonalds for (McDonalds, 2013). According to restaurant analyst, John Glass, customers are starting to spend more and McDonalds should extend it offerings to meet the increasing demand and not lose customers to competitors.
Financial issues
As stated in the mission of the company, “McDonalds competes on the basis of convenience, price, service, menu variety, and product quality in a highly fragmented market” (McDonalds, 2013). McDonalds has gained competitive advantage in both national and international markets. The sales for McDonalds rose by 3.7%, with Europe emerging as the best region on a percentage basis, showing growth of 3.8%. The same-store sales for the U.S. were up by 3.6% for the quarter, and in Africa, Middle East, and Asia-Pacific, same-store sales rose by 0.9% (Nichols, 2012). Even though the difference is not significant, the international figures dropped considerably compared to the previous four quarters.
References:
Nichols, C. (2012). For McDonald’s, worldwide reach means worldwide problems. Yahoo Finance. Retrieved from http://finance.yahoo.com/blogs/the-exchange/mcdonald-worldwide-reach-means-worldwide-problems-201246329.html
McDonalds. (2013). McDonalds. Retrieved from http://www.mcdonalds.com/us/en/home.html
