Mcdonald’s in China

McDonalds Is chinaw ar Lovin it? administrator Summary This case studies McDonalds business model as it develops to achieve victory in the Chinese market. Issues addressed included how to retain McDonalds image of cultural Ameri shaga, yet adapt to satisfy pallets and assembling to patrons in Chinese culture. 1. What is the purpose of conducting an international environmental analytic thinking? What are the general environmental forces that could make for or permit influenced McDonalds development in mainland China?The purpose of conducting an external environmental analysis is to obtain information on the forces outside of a high society that will help to determine how the company will operate. A successful company cannot operate only in its internal environment and mustiness be aware of the external factors that will further shape the business. Company strategies must take these factors into peak in order to match their internal strengths and weaknesses with their extern al threats and opportunities. With McDonalds expansion in China, external environmental factors did play a key role.One major environmental force came from American company KFC. KFC entered China in 1987 and it was important for McDonalds to analyze the factors that had been successful and unsuccessful at KFC. Another environmental force that contend a large role in McDonalds growth in China was topical anaesthetic Chinese quick service restaurants where customers could buy local cuisines such(prenominal) as noodles and dumplings. Other pertinent environmental factors that McDonalds was forced to address in China were the effects of the growing middle class and a much affluent population.This lead to other types of local and foreign restaurants attempts to capitalize on this growing wealth, generating further competition. The external environment has in any case shown force by consumers demanding higher standards in the McDonalds restaurants as well as resistance to the restaura nts high prices. Buyers desires also affected the external environment, which caused McDonalds to increase operating hours to 24 hours, enforce home delivery service and drive thrus in numerous location.Suppliers were integral elements of the external environment as well and McDonalds grew to source 95% of their nourishment from local growers and suppliers. 2. Based on the external environmental analysis, what are the opportunities and threats presented to McDonalds operations in China? The external environmental analysis reveals several opportunities in China on which McDonalds can capitalize. Annual per-capita disposable income has increased an average of 22. 18% for urban households and 64. 62% for rural households per year over the last 20 years.The general trend during this time has been reason from rural to urban population centers where disposable incomes are higheri. The increase in disposable incomes has helped contribute to the ready food diligence boom. These trends promise to continue as the Chines economic system evolves. Tier pricing can be leveraged to help McDonalds reach customers of contrary income levels in locations at different levels of development. Additionally, as the Chinese economy continues to develop, improvements to local infrastructure may create opportunities for an improved supply chain.As of 2006, 95% of materials used by McDonalds in China were locally sourced. McDonalds will likely benefit as local suppliers lock more than advanced technology and management processes. There are also untapped opportunities for franchising. China created the healthy structure for foreign franchisors in 2004 and, as of February 2007, only one of the 879 McDonalds restaurants in China was franchised piece of music KFC, their largest competitor, franchised 37 of their 1700 restaurants. Increasing the number of franchisees will allow McDonalds to expand to new locations while minimizing risk.In growth to expanding their franchising ope rations, McDonalds has opportunities to take advantage of changing Chinese preferences by expanding store innovations and local partnerships. Drive-thrus, 24-hour restaurants, delivery, and even more upscale casual dining restaurants may help the chain improve their appeal with young commonwealth as would further partnerships like that created with Taobao. com in 2007. Several threats were also revealed by the external analysis including deep competition in the Chinese fast food market from two foreign and local chains.McDonalds was a relatively late entrant to the market allowing competitor KFC to enjoy first mover advantages. Because barriers to entry are relatively low several other foreign chains have expanded to China including Burger King, Subway, Pizza Hut, and Japans Mos Burgers and Ajisen Ramen. Local chains including Malan Noodles, Hong Kongs Cafe de Coral, and mainland Chinas Dicos contribute to an intensely competitive market. The threat of new entrants remains and, as Chinese industries function more advanced and familiar with Western management and operations practices, is significant.McDonalds operations in China may also be threatened by new trends in the casual dining intentness and rising expectations of customers who may be less willing to pay luxury prices for what they are learning many Americans consider a downscale product. Finally, increasing social criticism over health, environmental, and wage concerns will also pose a threat to McDonalds in the future. 3. Discuss the five forces of the application environment of McDonalds China and comment on the competitiveness of the company in relation to each of these forces.Michael Diamonds Five Forces Model of Competition includes the by-line forces Existing competitive rivalry between suppliers There are many fast food options in China. McDonalds is the second largest fast food provider and their master(a) rival is Kentucky Fried Chicken (KFC). Other competitors in China in the fast fo od industry include noodle and dumpling stalls. Local Chinese restaurants sell light and simple food such as noodles, dumplings, wantons, and steamed bread, which are all becoming part of the fast food culture in China. Rivalry is a strong competitive force.Threat of new market entrants After numerous attempts in the nineties by various local and regional Chinese fast food chains, almost successful and some not so successful, many companies could not compete in this environment. In the mid-2000s, new market entrants into the Chinese fast food industry were U. S. -based Burger King, and Subway and Japans Mos Burger. Themed restaurants and Starbucks also entered the blend of new entrants. Although these new entrants offer a different experience, the growing middle class of China even so wants McDonalds to be a Western brand. The threat of new entrants is a moderate competitive force.Bargaining force play of buyers Buyers do not have any switching costs. The buyers just simply go to a different fast food restaurant, a traditional Chinese meal served on communal plates, or counterfeit at home. Buyers can purchase from several sellers. Buyers are a strong competitive force because they have a lot of leverage. McDonalds has recognized this and has offered tiered pricing, altered their menu, trained their staff to ensure pure tone and consistency, and updated their decor. Power of suppliers McDonalds set up its own internal supply network to sell to both the domestic and export markets.Chinese partners created joint ventures with McDonalds and strengthened McDonalds supply chain. The supply chain created by McDonalds has created 95% of the materials needed. It would be costly for McDonalds to switch suppliers because of the joint venture that they entered into with their Chinese partners. This makes the suppliers a strong competitive force. Threat of Substitute Products Many replenishment products exist in the fast food arena. If you look at McDonalds as a ha mburger fast food restaurant, substitute products would be noodles, dumplings, sandwiches, chicken, and pizza.Traditional Chinese restaurants and home cooked meals are also substitutes to the McDonalds hamburger. There is a vast array of substitute products available for the Chinese consumer. This makes substitute products a moderate competitive force. 4. What are the strategic mathematical groups in the fast-food industry in China? In which strategic group does McDonalds China compete most in China. A strategic group as defined by Michael Porter is a group of firms in an industry following the same or similar strategy along strategic dimensions.In other words, a Strategic Group (SG) is a group of businesses that function in a similar way with look upon to specialization and vertical integration. The strategic groups in the fast-food industry in China all have the following characteristics in common fast food, efficient self-service, standardized servings and systems, less relianc e on utensils, clean/ satisfactory atmosphere, and local menu additions. McDonalds obviously excels at all of these characteristics world-wide and took it a step further by promoting the Western traditions by marketing the Window to the West.This particular type of western-influenced fast-food is the primary strategic group that McDonalds competes in even today. Western-influenced fast food was not new when McDonalds arrived on the context as KFC arrived in 1987, a full five years ahead of McDonalds. KFC did so well that their success lured McDonalds and Pizza Hut to follow suit beginning in 1990. However, fast-food in China wasnt new when KFC entered China as they had noodle and dumpling stalls. KFC, McDonalds and Pizza Hut all valued to capitalize on the rapidly-expanding middle-class economy in China with their new-found increasing disposable income.KFC was able to do this the best as their primary offering is chicken-based whereas both McDonalds and Pizza Hut had to add local dishes to go along with their mostly-beef menu. All three of the western brands (KFC, McDonalds, Pizza Hut) were considered luxury-type restaurants and as such were able to send off higher prices as well. Fast forward to present times, according to William Mellor of the Bloomberg Markets Magazineii we see that Yum Brands now has 3,200 KFCs and ergocalciferol Pizza Huts in China whereas McDonalds is striving to get to 2,200 stores by 2013.As you can see, KFC and Pizza Hut are well ahead of McDonalds in terms of penetrating the Chinese market but that isnt deterring McDonalds from moving forward. i Ko, Stephen. McDonalds Is China Lovin It? Asia Case Research Centre. The University of Hong Kong. celestial latitude 2, 2008. ii Mellor, William. McDonalds No Match for KFC in China as Colonel Rules Fast Food, Bloomberg Markets Magazine. January 26, 2011. Retrieved July 16, 2011 from http//www. bloomberg. com/news/2011-01-26/mcdonald-s-no-match-for-kfc-in-china-where-colonel-sanders-rules -fast-food. html.