International Operations
McDonald’s global management strategies cover the many different organizational functions of operations, marketing, human resource management, finance, research, compliance and other aspects of management. Because of the size and complexity of operating in the international marketplace, these functions confound McDonalds with many different, complex and often inter-related issues. On top of these functionary requirements, the food chain gian also has to deal with external factors that complicate the situation such as a country’s culture and the legal and administrative framework that an international corporation must work with to be eligible to compete in that said market place. Thus a corporation such as McDonalds require a “Global Strategy” . Professor Lynch (2012) defines this as a term that covers three areas (global, multinational and international) which is designed for an international organization to achieve its corporate goals as it operates in locations outside its location of origin. The online website Quick MBA (2012) states that the importance of Global Strategy for a company such as McDonalds is due to an opening of a new market for the company that would drive both sales and profits. For many corporations that have “exhausted” the market or is competing in mature markets such as the USA this is a welcome addition. Foreign markets also offer valuable resources that may make the corporation more competitive to the point that they gain another layer of competitive advantage over its competitors.
McDonalds Corporation, USA
McDonalds Corporation is a multinational company founded in 1940 in Oak Brook, Illinois that operates McDonald’s restaurants. The company operates in 117 countries, in the United States, Europe, the Asia Pacific, the Middle East, and Africa with over 27,000 franchised restaurants and over 6,000 company-owned restaurants. Its products are known worldwide, from hamburgers and cheeseburgers, Big Mac, Quarter Pounder with cheese, Filet-O-Fish, chicken sandwiches, chicken McNuggets, french fries, salads, shakes, desserts, sundaes, even pies, cookies, coffee and other beverages. McDonald’s offers meals for breakfast, lunch, dinner and snacks. McDonald’s mission statement as found in their company website states that the company shall “compete on the basis of price, convenience, service, menu variety and product quality in a highly fragmented global restaurant industry.”
McDonald’s operates in a fast moving, high risk, consumer environment. Because of its many operations abroad, it faces business risks such as varying FOREX rates, fluctuating interest rates, inflation rates, government regulations, employment risks, volatile financial markets, even security risks. However despite these risks, McDonald’s Corporation remains to be one of the most competitive fast-food organizations in the market today. Proof of the company’s success is the reported net income from $2.4 billion in 2007 to 5.5 billion in 2012.
Because of the company’s profitability, the company has invested in long-term assets thus the increase in asset-base of the company from 2009 to 2012. With the increase in asset base came the increase in PPE as well as working capital requirements to utilize these assets. The company, because of expanding operations had to purchase materials for use in producing goods but suffered from the enlargement of unrealized assets by way of doubtful accounts as well. The financial position of the company cannot be taken simply as an upward movement such as those shown in McDonald’s financial reports. These changes must be measured with respect to other participants in the fast food industry, as reported in the succeeding sections of this report. The company’s business activities have been profitable in general. The operating profit margin of McDonald’s, measured by dividing operating income by total revenue has increased from 2009 to 2012. Similarly, net profit margin which divides the net profit margin of the company by total revenue increased from 2009 to 2010 but decreased slightly from 2010 to 2011. In 2012, the company’s net profit margin is 19.76% (Yahoo! Finance, 2013). Shareholders examine their Return on Equity, which divides the net income of the company by the total shareholder’s equity. ROE improved from 2009 to 2011 for McDonald’s. Return on Assets, which measures the income generated by the company’s asset base, shows an improvement of ROA from 2009 to 2011.
The table below shows the key statistics of McDonald’s versus two of its closest competitors, Burger King and Yum Inc. It also shows how the three restaurant chains perform with respect to the entire restaurant industry. The average industry market capitalization is half a billion US4 (585M) and the report shows that McDonald’s is by far the largest company among the three being compared with a US$ 94 billion market capitalization. It also has the most employees, with 420 thousand while Burger King only has 34 thousand and Yum has 60 thousand. McDonald’s revenues are the largest at US$ 27 billion (2011), as well as its Earnings Before Interest and Depreciation Expenses at US$9.86 billion. The other companies have an EBITDA of 0.59 billion for Burger King and 2.76 billion for Yum Inc. The market has responded well to McDonald’s, with an market price valuation of 17.6 per share versus 0.01 value per share for Burger King but falls below Yum, Inc.’s 21.46 market value per share. McDonald’s is performing well against the industry, as shown in the comparative ratios shown in the illustration below.
Figure 1 McDonald's Corporations Financial Ratios as Compared with the Restaurant Industry
Because of how well the company is being run, McDonald’s Corporation is 2011’s number one restaurant company, followed by Yum, Darden and Starbucks. It has the highest market price for its stock and has the largest market capitalization. McDonald’s three-year average returns are on the average range, with respect to the returns of Chipotle Mexican Grill and Yum! Brands but is above the S&P 500 index. Similarly, the returns on the company’s activities for a month are around 7%, higher than Yum! Brands but lower than Chipotle. Overall, the company is in the pink of health. Profit margins for the last five years are about 20% while asset utilization is about 80% (80 cents of revenue for every dollar invested). Revenues are almost around US$ 30 billion for this year and net income is around US$5.5 billion. Price per share and earnings per share are both moving steadily upwards, meaning the market is pricing the company’s ability to generate profits efficiently. Earnings yield is around 5% while dividend yield is around 3% which means that the company is giving its shareholders about 60% of the net cash available while keeping the rest for company growth.
Secret of Success
According to the website Franchise Direct (2013), McDonald’s is “equivalent to the American Dream”. McDonald’s success can be traced to its core values of consistency, innovation and resiliency. McDonald’s designs its operations such that customers receive the same experience from a McDonald’s store anywhere in the world. This standardization or the creation of a consistent operating culture where process repetition and efficiency is connected to customer expectations is what everyone will find in any McDonald’s store. Added to that, McDonald’s builds on its product lines to achieve growth thus making “innovations” in also a consistent feature of the company’s operations. McDonald’s for example, invented the “drive thru” to cater to soldiers who could were not allowed to enter store premises in their fatigues in 1975. Another innovation of McDonalds includes their evolving menu, which are made and severed efficiently at “McDonalds” pace. McDonalds is also one of the most resilient companies. McDonalds is the target for a lot of criticism (i.e. getting fat as a result of eating McDonalds food) and the company addresses these issues by acknowledging the concern and then showing the public that it is indeed working on getting the issue resolved.
There are not a lot of companies that have achieved the level of success of McDonalds. Because of the core principles of consistency, innovation and resilience, the company has been able to access markets abroad and institute a system that promotes efficiency and long-term viability. In summary, McDonald’s strategies are:
- A global company should develop strong and efficient processes that will be consistent wherever they are located such that customers develop brand confidence.
- A global company should have the ability to be innovative and flexible to adapt to changing consumer requirements.
- A global company should be resilient and capable of determining how to adequately use its resources to address difficulties.
References
Bloomberg Business Week. (2012). McDonald’s Corporation. Retrieved from http://investing.businessweek.com/research/stocks/financials/ratios.asp?ticker=MCD
Franchise Direct (2013). The Secret of McDonald’s Success. Retrieved from http://www.franchisedirect.com/information/trendsfacts/thesuccessofmcdonalds/8/1111/
Hofstede, G. (2013) Integrating Corporate Practices and National Cultural Values. Retrieved from http://geerthofstede.nl/dimensions-of-national-cultures
Lynch, R. (2012). Global Strategy. Global Strategy. Retrieved from http://www.global-strategy.net/categories/Whatisglobalstrategy
McDonald’s Corporation Company Website. (2012). Getting to Know Us. Retrieved from http://www.aboutmcdonalds.com/mcd/our_company.html
Quick MBA (2012). Global Strategic Management. Retrieved from http://www.quickmba.com/strategy/global/
Yahoo Finance. (2012). McDonald’s Cororation. Retrieved from http://finance.yahoo.com/q?s=MCD
Y!Charts. (2012). McDonald’s Corporations Performance. Retrieved from http://ycharts.com/companies/MCD/performance
Wikipedia. (2012). Financial Ratios. Retrieved from http://en.wikipedia.org/wiki/Financial_ratio
